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11/14/2015

For the week 11/9-11/13

[Posted 11:30 PM ET, Friday]

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

*Special thanks this week to Scot B.

Edition 866

Special Note: 9:00 PM ET, Friday.

It’s important for you to understand the process for writing this column which hasn’t changed for nearly 17 years...the only running history of our times, covering both global financial markets and geopolitics.

I finish the body of the column around 4:00 pm on Fridays and then spend the next 6-8 hours proofing it and adding market commentary following Wall Street’s close.  Once the column is posted late Friday night, I then immediately begin working on the next one.

So the news of the Paris attacks hit about 4:30 pm ET today and I want you to know that I have not changed one word of the body of the column, which starts with “Washington and Wall Street,” except to add a few lines on the market and plug in some numbers.  That includes my personal note on the threat facing Moscow, which in light of today’s attacks I would upgrade to a Level One warning for all Muscovites.

For these nearly 17 years there has been one overriding theme of StocksandNews, that being to give readers a solid review of their world each week, and in terms of the financial markets to give a heads up on geopolitical events that could shape consumer and investor confidence and thus impact stock and bond prices.

Through my travels I have also sought to provide you with unique insight into some of the world’s hot spots.  Through my pubbing, I alerted you before anyone else (including Wall Street), to the fact the real estate bubble was global, not just in the U.S., when I kept hearing from Brits and Germans, for example, over many a pint that they were buying second homes in Spain.

I went to Beirut and hired out a driver to take me to Hizbullah territory, weeks after former Prime Minister Rafik Hariri was assassinated in 2005, and as I’ll describe more fully next week, told you all of how the United States was already screwing up in not giving the then-reeling Lebanese government massive support, the lack thereof leading to Hizbullah gaining a permanent foothold in same...which was outrageous.

I went back to Beirut in 2010.  I’ve been to the Balkans, Jordan, Morocco, Turkey multiple times, eastern Europe, Russia, China, the DMZ, Taiwan...even Paraguay.

I am the only American, I can guarantee, who walked alongside French National Front leader Marine Le Pen, on May Day in 2011 and 2014, not because I supported the far-right leader, but to get a better sense of what her movement was about, and to see her followers up close.  [I was impressed...they weren’t jack-booted thugs.]

I have been warning since the days of the late Joerg Haider in Austria about the rise of the far-right in Europe, though as I admitted months ago, yes, I was early.

I have been all over the migrant issue, long before it evolved into a true crisis, for years, and told you of how this would change the face of Europe for generations to come.

For years I’ve issued specific warnings about soft terror targets in Europe (such as the Christmas markets in Germany).

So next week I’m writing my manifesto...and it won’t be kind to George W. Bush and Barack Obama, who as long-time readers have known since about 2009-10, I have labeled two of the five worst presidents in American history.

I need to repeat how I called it in 2012, regarding Syria, and how I correctly said back then it was “over.”  It was “too late.”  Indeed it was.

But for now, anyone with half a brain understands we are reaping the whirlwind.  We, the Western world, are paying the price for sticking our heads in the sand, not caring about the world around us, and not holding our leaders accountable, both in the United States and abroad.

As for Paris, I have told you countless times over the years, including more than once since the Charlie Hebdo attacks, that I wish every American could take the train from Charles de Gaulle Airport into the center of Paris; to see the ugly suburbs, to see some of the ugly individuals who hop on the train, to get a sense of the teeming ghettos...the boiling cauldrons of hate.

I love Paris.  I have been there at least eight times in my life.  I adore the history, and I can’t stand the stereotypes we hear of in America about the French people.  They’ve always been super kind to me.  Of course if you treat people and their culture with respect, it’s funny how it redounds back to you.

In writing about the migrant crisis, I have expressed my support for the Hungarian government in their crackdown.  This is not post-World War II, as Europeans are rapidly learning.  I have had no problem agreeing with those both here and in Europe who say, ‘We don’t know who these people are that are crossing our borders.’  Heck, I told you how Pope Francis himself recently expressed his concerns on the topic.

For now, I leave you with two thoughts.  If given the opportunity, and if I were born and raised in France, I’d have to think seriously about voting for Marine Le Pen.

Second, America, acting alone, but perhaps with Russian cooperation, needs to carpet bomb Raqqa and Mosul, and any known ISIS headquarters in Libya.  There can be no warning.  [France can do its own thing...but for their sake, I wouldn’t want them receiving anymore blowback then they’re already susceptible to.  Al-Qaeda needs to be dealt with separately.] 

Innocents will die.  There will then be massive protests in both the U.S. and Europe, with innocents probably dying then too.

But remember.  The ending to World War II was awful...whether it was Dresden or Hiroshima.  There will be those who say what I am proposing is nuts...that it won’t in any way end the terror threat and may even make it worse.

I disagree.  I am the one, the only one, who said long before 9/11 that the United States, acting with Britain (because of their historical ties to Rhodesia) should have taken out Zimbabwe’s Robert Mugabe.  I’ll never be able to prove that may have given bin Laden second thoughts, but we elect our leaders to do one thing...lead...and sometimes that requires thinking outside the box.

Far more next week.  In the meantime, I did add one line at the end of my original column.  Vive Le France!

Washington and Wall Street

There were six Fed speakers on Thursday at various forums and there is now renewed confusion over what the Open Market Committee will do when it meets Dec. 15-16, after it seemed a lock to finally raise interest rates following the strong October jobs report of Nov. 6.

New York Fed chief William Dudley said he’s amenable to a rate hike, but it depends on economic data the next few weeks (such as one more jobs report and further data on retail sales and manufacturing).

Dudley cited “the many positives of the economic outlook,” including solid consumer spending and business investment growth and the housing recovery.”

“The economy looks to be in decent shape and is likely to continue to grow and at slightly above trend,” he said in his speech.

While Dudley notes inflation is below the Fed’s 2% annual target, waiting too long to raise rates could allow inflation to accelerate too rapidly.

St. Louis Fed chief James Bullard, considered a “hawk” on the board, suggested the Fed should raise rates as soon as possible.

Chicago Fed president Charles Evans, considered a “dove,” said he wants to wait to raise rates, citing low inflation and the risk of derailing the economy.

Richmond Fed president Jeffrey M. Lacker said he would prefer a pace of rate hikes “a little more rapid” than one percentage point a year.

“I think there’s a chance we are behind the curve, but it will be a year or two before we figure that out,” he said in an interview.  “We have room to accelerate if we find out that we wish we’d started earlier.”

Fed Vice Chairman Stanley Fischer said the Fed’s decision to delay raising interest rates has helped to offset the economic headwinds caused by a strengthening U.S. dollar, but that it “may be appropriate” to raise rates next month.

“While the dollar’s appreciation and foreign weakness have been a sizable shock, the U.S. economy appears to be weathering them reasonably well,” Fischer said at a Fed conference Thursday evening. 

As for inflation, Fischer noted: “Some of the forces holding down inflation in 2015 – particularly those due to a stronger dollar and lower energy prices – will begin to fade next years.” 

Tuesday, San Francisco Fed president John Williams said there’s a “very strong case” for the Fed to raise rates if the economy continues to improve and policymakers are confident that inflation will pick up.  [USA TODAY; New York Times; Bloomberg]

Bottom line: We’re back to ‘who the heck knows?’ come December.

But speaking of inflation, the producer price index for October came in at -0.4% when a gain of 0.2% had been forecast.  Ex-food and energy, the PPI was -0.3%.  Year over year, producer prices have fallen 1.6%, while the core is up a mere 0.1%.

Retail sales for October were also less than expected, 0.1%, 0.2% ex-autos.

Separately, the Organization for Economic Cooperation and Development (OECD) reduced its forecast for global growth this year yet again to 2.9%, amid a “further sharp slowdown” in emerging market economies and a deterioration in global trade.  A year ago the OECD forecast growth for 2015 of 3.7%.

The forecast for 2015 for the United States is 2.4%, for the euro area (EA19) 1.5%, 0.6% in Japan and 6.8% in China.

Next year the OECD sees global growth of 3.3%.  [U.S. 2.5%; EA19 1.8%; Japan 1.0%; China 6.5%.]

Europe and Asia

According to a flash estimate for the third quarter as released by Eurostat, the statistics arm of the European Union, seasonally adjusted GDP rose in the euro area by 0.3%, compared with the previous quarter (which was up 0.4%), up 1.6% year over year.  Growth in Germany was 0.3% for the quarter (1.7% yoy), France 0.3% (1.2%), Spain 0.8% (3.4%), and Italy 0.2% (0.9%).  Greece was -0.5% as Q3 took in the latest financial crisis there, though this wasn’t as bad as expected.  Portugal, in the midst of a political crisis, reported stagnant growth for Q3, up 1.4% year over year, both well below forecasts.  [Non-euro U.K. was 0.5%, 2.3% yoy.]

Certainly the lackluster growth gives credence to European Central Bank talk of further quantitative easing, as president Mario Draghi hinted the ECB was readying more measures for its December policy meeting, telling the European Parliament on Thursday that “signs of a sustained turnaround in core inflation have somewhat weakened.”  The most recent reading on core inflation for October was 1.0%, with the ECB’s target being 2%.

Draghi added: “The option of doing nothing would go against price stability.  That is what will outline the strategy for the coming months.”

Back to Greece, despite the poor GDP data for the third quarter, and ongoing concerns over the implementation of its latest bailout agreement, the yield on Greek ten-year debt has dropped below 7% for the first time since October 2014, having surged as high as 18.7% in July of this year when concerns of a “Grexit” predominated.

In Spain, the Constitutional Court blocked Catalonia’s regional parliament from moving toward independence, thus further raising tensions between separatists and the central government in Madrid.  Spain holds national elections next month and the Catalan issue has benefited Prime Minister Mariano Rajoy.

Earlier in the week, Catalonia’s parliament approved a resolution to proceed by a 72-63 vote.

And Portugal’s government collapsed after just a few days when it failed to get its legislative program through a parliament dominated by a leftist, anti-austerity alliance at odds with prevailing policies in the eurozone.

The largely figurehead president had appointed former Prime Minister Pedro Passos Coelho, who for four years led Portugal through the austerity grinder of spending cuts and tax increases that met the demands of its bailout lenders and stabilized the economy, though it fell sharply from 2011 to 2013.

Then in the Oct. 4 parliamentary election. Passos Coelho’s center-right coalition finished first but it lost its majority in parliament to a gaggle of leftist parties, which then voted down his budget 123-107, a requirement for him to continue.

So the mainstream Socialists were joined in the vote by the Left Bloc, comprised of Communists, Greens and three far-left parties opposed to Portugal’s membership in NATO and the common currency.

It appears another election is in order with some kind of caretaker format, led by the Socialists, in the interim.  Not exactly a great situation.

And in the U.K., Prime Minister David Cameron laid out his four goals for reforming Britain’s membership in the EU, including restrictions on benefits for people coming to the U.K., a controversial topic within the EU, having promised an in/out referendum before the end of 2017.

But this is mainly a topic for 2016 and ’17 and I’m not going to spend much time on it the rest of this year.

For now, Cameron did rule out a second referendum if Britain voted to leave, saying: “You the British people will decide.  At that moment you will hold this country’s destiny in your hands.  This is a huge decision for our country – perhaps the biggest we will make in our lifetimes.  And it will be a final decision.”

Cameron wants to get the European Union to agree to his reform demands in order to keep Britain in the club, but with issues like the following, the mood of the people is sour.

On the migration front, German finance minister Wolfgang Schauble took a swipe at his boss, Chancellor Angela Merkel, when he said Germany faces “an avalanche” of refugees triggered by “careless” actions.

“You can trigger avalanches when a rather careless skier goes on to the slope...and moves a bit of snow,” said Schauble on Wednesday evening.  “I don’t know whether we are already at the stage where the avalanche has reached the valley or whether we are [still] on the first third of the slope [and there is more to come].”

On Sunday, Schauble defended interior minister Thomas de Maiziere after de Maiziere was forced by Ms. Merkel to withdraw plans for denying most Syrian refugees rights to bring their families to Germany.

But with Schauble’s backing, de Maiziere was able to give a speech to the Bundestag on Wednesday, wherein he said: “We cannot double or triple our high refugee numbers through family reunion.”

Merkel’s coalition is floundering as she fights to maintain support for her welcoming stance, and she’s beginning to waver, with the government cutting cash benefits for asylum seekers, while declaring that Germany can return refugees to all western Balkan countries, rather than granting them asylum in Germany.

[Merkel and Schauble, once close allies, also clashed over the last 86bn euro bailout for Greece, with Schauble saying at the time that a Grexit might be preferable.]

Elsewhere, Slovenia announced on Friday that 12,000 people came into the country on Thursday, bringing the total number of refugees passing through to nearly 200,000.  This is a country of just two million!  Slovenia has started erecting razor-wire on its border with Croatia, which is fueling tension between these two.

Migrants switched to Slovenia as a gateway to Western Europe after Hungary shut its border with Croatia.

Sweden, which I noted the other week is also getting swamped, especially relative to its population, announced the introduction of temporary border checks to control the flow of migrants.

The UN said this week that nearly 800,000 migrants have arrived in Europe by sea so far in 2015, with 650,000 of these via Turkey and Greece.

---

Turning to Asia, there was a slew of economic data on China, much of it poor.  First, the good news was October retail sales were up a respectable 11% in October, year over year, a tick better than September’s 10.9% pace, according to the National Bureau of Statistics.  And the China Association of Automobile Manufacturers said car sales rose 13.3% in October year over year, which compared to September’s pace of up 1.6%.  The reason for October’s pickup, though, was a government incentive program where the purchase tax was cut in half.

Car sales fell, yoy, from June thru August by 3.4%, 6.6%, and 3.4%, respectively.

The other data was mediocre at best.  Industrial production for October was up 5.6%, yoy, vs. September’s up 5.7%.  This figure was solidly in double-digits during boom times.

Fixed asset investment (like for roads, railroads and airports), rose 10.2% for the first ten months of the year, the slowest since 2000.

Consumer prices rose 1.3% annualized in October vs. 1.6% in September, according to the NBS, with pork prices rising 15.8% yoy, while egg prices fell 13.8%.

Producer prices fell 5.9%, the 44th consecutive month of declines.

October exports fell 6.9% year over year, while imports cratered 18.8%, both worse than expected.

Finally, Credit Suisse estimates total bank lending in China may have shrunk by 42% in October, which is not good.

In Japan, a key figure is machine orders and they leapt 7.5% in September from August’s 5.7% drop, a far better than expected performance.  The year on year rate for September is -1.7%, better than August’s -3.5%.  So this indicator perhaps augurs well for business spending in the coming months.

Street Bytes

--After a six-week winning streak, stocks suffered their worst declines since the week ending August 21, as investors had second thoughts about a Fed rate hike.  It also didn’t help oil was tumbling anew and the retail outlook had turned gloomy.

The Dow Jones lost 3.7% to 17245 and is now back in negative territory for the year, as is the S&P 500, which lost 3.6%.  Nasdaq is still in positive territory for 2015, though it lost 4.3%.

--U.S. Treasury Yields

6-mo. 0.29%  2-yr. 0.83%  10-yr. 2.27%  30-yr. 3.05%

--According to its annual outlook, the International Energy Agency said oil demand would rise by less than 1 percent a year between now and 2020, a slower pace than necessary to mop up the oil glut with the price of West Texas Intermediate at $40.75, a multiyear low.  [It was briefly a few cents lower in August.]

The slowdown in demand follows a 15-year surge in consumption, fueled by rapid growth in China and other emerging markets.

But China is moving more towards a consumer-led economy and away from energy-intensive growth.

Fatih Birol, executive director of the IEA, told the Financial Times: “Demand is not as strong as we have seen in the past as a result of efficiency [and climate] policies [globally],” adding growth in renewables will further restrict demand.

The IEA does not expect crude oil to reach $80 a barrel until 2020, under its “central scenario.”  Further, the IEA does not forecast oil demand will hit 103.5m b/d until 2040 – it is currently 94.5m b/d.  That is staggering.

Mr. Birol said, “Big energy companies are underestimating the effects of (climate change initiatives) on the demand side.”

Now such long-range forecasts are notoriously inaccurate on the price front, but the demand forecast is usually pretty good.

Saudi officials, meanwhile, warned that a prolonged period of $50 oil and investment cuts would have a “substantial and long-lasting” impact on future oil supplies and could lead to a price spike.  Saudi Arabia also said it is determined to protect its global market share and will continue to produce oil at record levels, saying it will be vindicated when prices recover in one to two years.

Separately, on Friday the IEA announced global oil inventories have risen to a record 3bn barrels, breaching 97m barrels a day.

--Robert Samuelson / Washington Post...on the campaign being waged against Exxon Mobil, with various environmental and civil rights groups urging Attorney General Loretta Lynch to open a “federal probe” of the energy giant.  The charge is that Exxon “systematically misled the public” on climate change, even as its executives recognized the dangers.

“This is a dangerous and self-serving exercise that brings us back to free speech. Genuinely free speech transcends accepted and respected beliefs.  It includes viewpoints that are wrong, offensive and ignorant.  We take pride in the marketplace of ideas – a dividend of free speech – to sort the worthy from the unworthy.  If government assumes that function, you no longer have free speech.

“The advocates of a probe into Exxon Mobil are essentially proposing that the company be punished for expressing its opinions. These opinions may be smart or stupid, constructive or destructive, sensible or self-interested.  Whatever, they deserve protection.  An investigation would, at the least, constitute a form of harassment that would warn other companies to be circumspect in airing their views.  Matters could be worse if the government somehow imposes monetary penalties or opens the floodgates to suits by plaintiffs’ attorneys, a la the tobacco industry.  Significantly, the letter to Attorney General Lynch does not allege any violation of law.

“Exxon Mobil (2014 earnings: $32.5 billion) does not command our sympathy. But free speech does not belong only to the sympathetic. Casting Exxon Mobil as the scapegoat for global warming’s dilemmas is historically inaccurate and a political cheap shot with troubling constitutional implications.”

--Macy’s Inc., the largest U.S. department-store company, saw its shares decline 14% on Wednesday (20% for the week), the most in more than six years, after the chain missed third-quarter sales estimates and cut its annual profit forecast.  Revenue fell 5.2% in the quarter ended Oct. 31, far worse than the Street expected.

CEO Terry Lundgren said the company has worked to reduce costs and add lower-priced outlets, aiming to coax customers back into stores, but the chain was dealt a setback when unseasonably warm weather hurt sales of fall goods, which forced Macy’s to cut prices to reduce its inventory.

The retailer now sees full-year revenues falling 2.7% to 3.1%.

--Nordstrom Inc. cut its profit and sales forecasts after reporting disappointing third-quarter results, citing sales that have been slowing since August, with the slowdown across all categories, regions and channels.  The shares fell 15% on the news, 20% for the week like Macy’s.

Nordstrom executives say they don’t have a ready explanation for the poor performance and they are moving quickly to mark down goods that aren’t selling.

While sales increased 6.6% for the three months that ended Oct. 31, excluding newly opened or closed locations, sales increased just 0.9%.  The company expects full year same-store sales to increase 2.5% to 3%, vs. a previous forecast of 3.5% to 4.5%.

--Shares in JC Penney Co. fell about 10% on Friday (though they had rallied earlier in the week), after signaling that sales growth during the holiday season may slow from the third quarter’s pace. 

Same-store sales this year will rise 4% to 5%, after Q3’s comp sales increased 6.4%.

The company lost 47 cents per share, ex-items, when analysts had projected a loss of 56 cents.  Overall revenue rose 4.8%.

--Cisco Systems Inc. said profit rose 33% in its fiscal first quarter, with revenue rising 3.6%.  But the shares fell in after-hours trading, after the company issued guidance for the current quarter that falls short of Street expectations.

CEO Chuck Robbins did say orders in China jumped 40% in the first quarter, after a string of declines due to local fears about the security of foreign hardware.

Overall revenues for the fourth quarter are expected to be flat to up 2% from the year-earlier period.

But on a separate topic, the acquisition game, CEO Robbins told the Financial Times that Cisco would only look for “small strategic acquisitions” and that deals like Dell’s planned purchase of storage maker EMC – the biggest acquisition ever attempted in the tech world – would not provoke a change in strategy.

“My personal opinion is that the market is moving too fast for these big mergers to be effective,” he said.

--Two Israelis and an American with ties to Russia were charged in connection with an alleged massive hacking scheme against the likes of JPMorgan Chase, Fidelity Investments and the Wall Street Journal.  The three allegedly stole the personal information and data of more than 100m people.

But this wasn’t hacking to steal money out of client accounts or for identity theft, rather the  three employed hundreds of people and operated in more than a dozen countries for the purposes of manipulating stock prices in schemes that generated tens of millions of dollars in proceeds.

As reported by the Financial Times:

“As part of that effort, the suspects sought to market the stocks they were allegedly manipulating to customers of the companies they had hacked. They also launched cyberattacks to help them process payments for illegal drug suppliers, counterfeit software, malware distributors, illegal online casinos and an illegal bitcoin exchange known as Coin.ms.”

--Microsoft will allow foreign customers to hold data in new European facilities in Germany that will shield customers from U.S. government surveillance.  The new data centers will be under the control of Deutsche Telekom, the German telecommunications group, and are intended to put the data of European governments and business customers, along with millions of citizens, out of reach from U.S. authorities.

CEO Satya Nadella, at a press conference in Berlin, said: “These new data center regions will enable customers to use the full power of Microsoft’s cloud in Germany...and ensure that a German company retains control of the data.”

Analysts called this a “watershed moment,” as it’s the first time a U.S. tech group accepted it was unable to keep customer data private and out of the reach of the U.S. government.

So this means you can expect other customers will demand cloud computing providers such as Google and Amazon provide a similar service to protect privacy.

Deutsche Telekom’s T-Systems will act as a “trustee” of the two new data centers in Germany.

--Mutual-fund group Fidelity Investments reduced the estimated value of its stake in Snapchat by 25% in September, according to regulatory filings; a significant step as more and more, investors wonder about the valuations of private tech startups.

Recently, Square Inc., a payment processor, proposed to value itself at $3.9 billion in a planned IPO, down from $6bn last year.  Others have been scaling back their expected valuations as well.

--As reported by the Wall Street Journal, bonuses on the Street are expected to drop for the first time in four years, according to consulting firm Johnson Associates Inc.  Volatility in global markets  delayed companies’ plans to go public, affecting investment bankers in particular, while bonuses are expected to drop for fixed-income traders for a fifth straight year “as large banks continue to wrestle with new regulations that rein in risk-taking.”  [Justin Baer / WSJ]

--Farmland values fell in much of the Midwest in the third quarter.  The St. Louis Fed’s district, which includes parts of Illinois, Indiana and Missouri, dropped 2.6% from a year earlier, while the Kansas City Fed’s district, which includes Kansas and Nebraska, fell 1% (nonirrigated land rose 0.4%).

The Chicago district, which includes Illinois and Iowa, saw prices that were unchanged vs. year ago levels.

But with falling commodity prices softening demand for cropland, and farm income falling sharply, land values should continue to cool.  [Jesse Newman / Wall Street Journal]

--Deutsche Lufthansa AG canceled 930 flights scheduled for Wednesday at its three main German hubs as a string of walkouts by cabin crews wracked the airline.  Labor leaders have been locked in battle with management’s efforts to restructure to compete with low-cost rivals such as Ryanair and EasyJet, Europe’s two biggest discount carriers.  Lufthansa’s strategy hinges on development of its Eurowings division into a low-cost arm.

--The Department of Justice has blocked an attempt by United Continental to purchase 24 more gates at Newark Airport.  United intended to purchase the slots from Delta, which would have added to the 902 it already controls at Newark, which is 73 percent of the total.

In the complaint filed by Justice, it reads: “In short, permitting United to acquire more slots would further entrench United’s dominance at Newark and foreclose competition that is already in critically short supply.  As a result, passengers at Newark would face even higher fares and fewer choices.”

I just want the Justice Department to issue a similar complaint about Newark’s lack of bathrooms.  Otherwise, this is one ruling I agree with.

--U.K. engineering group Rolls-Royce saw its shares crater 20% on Thursday after the jet engine maker issued its fifth profit warning in 20 months and gave notice it was reviewing shareholder payouts.  It was the second worst day for the company since its IPO in 1987.

Rolls-Royce is the world’s second-largest maker of aerospace engines. Analysts say the company is massively bloated and it needs to become leaner to compete against the likes of General Electric and Pratt & Whitney.

Decisions by big airlines to retire older aircraft earlier than expected and in greater numbers is taking a toll on Rolls-Royce’s service earnings.  This segment, servicing and maintaining engines, accounts for about half of the group’s revenue, with bigger turbines for long-haul jets representing the majority.  [Financial Times]

--As reported by Hugo Martin of the Los Angeles Times, by the end of the year, the airline industry is expected to have collected $59.2 billion in passenger fees and other income besides airfares, an 18.8% increase over last year.

Based on an analysis of 180 airlines worldwide, Wisconsin-based IdeaWorks Co. estimates the industry will generate $36.7 billion from passenger fees, including checked bag fees and food sales, with the rest coming from items such as the sale of frequent flier miles to credit card companies.

Such fees will generate 8% of the industry’s total revenue, according to IdeaWorks.

--E-commerce giant Alibaba broke its own record for sales on China’s Singles Day, the world’s biggest online shopping event; $14bn.  In comparison, sales on Cyber Monday, the biggest online shopping day in the U.S., hit $1.35bn, according to ComScore.

--Anheuser-Busch InBev said it has finalized an agreement to acquire rival SABMiller for about $105 billion.

In hopes of gaining regulatory approval, SABMiller said it would sell its 58 percent stake in MillerCoors in the United States to its joint venture partner Molson Coors Brewing Company for about $12 billion.

--Nissan Motor Co. joined Toyota and Honda in deciding to stop using Takata air bag inflators.  More than 30 million cars have been recalled worldwide since 2008 over Takata’s defective inflators that have been linked to eight deaths and more than 100 injuries.

--In further evidence of Russia’s deep recession, the number of new passenger cars sold in the country dropped by 43 percent in the first nine months of the year, the RIA Novosti news agency reported.

--Pemex, Mexico’s cash-strapped state oil company, has pension liabilities of some $90bn, equivalent to about 9 percent of Mexico’s GDP.  So the company just reached a deal with its powerful union to modify its burdensome pension scheme, as reported by the Financial Times’ Jude Webber.

“But employees need not fear the generous cradle-to-grave embrace of the country’s biggest company is about to disappear: they can retire on 100 percent pay at the age of 60, after 30 years’ service – an increase of five years compared with the previous regime.”

Recently Pemex announced a third-quarter loss of nearly $10bn.

--Apple Inc. is hiring an additional 1,000 employees for its operations in Cork, Ireland, as the company doubles down on its European headquarters despite EU pressure on the Irish government to review its tax deal with them.  I didn’t realize Apple already has 5,000 employees in Ireland.

EU antitrust regulators are examining sweetheart tax deals that gave companies like Apple an illegal advantage over other companies.  Apple counters it is receiving the same treatment and is subject to the same tax laws as other companies doing business in the country.

Speaking of Apple, I went to The Mall at Short Hills, a one-minute drive from my place, to do a channel check on the crowd at the Apple store on a Wednesday morning and I was a little surprised how crowded it was, though it was Veterans Day so many had the day off.

But I’m amazed every time I go “The Mall,” as it’s known in these parts, because it is so over-the-top in the kind of stores it has.  I mean most of these places just need 3 or 4 sales a week to pay the rent, I’m imagining.  So my friend Jimbo alerted me the other day to a new store, “The Art of Shaving,” and let’s just say it’s interesting.  Actually I really can’t comment further, it’s about the sales personnel.

But here it was, Nov. 11, and there was Santa, taking photos with the little ones and this was the most authentic looking Santa I’ve ever seen.  In fact I think it’s the real Santa, just pressing the flesh before his major crunch starts Thanksgiving weekend.  [“Would you freakin’ elves do a better job with the Star Wars toys?!  Do I have to do everything myself around here?!”]    

--From the Wall Street Journal’s “Heard on the Street” column:

“The cord-cutting results are in.  But there will be plenty of debate about what the data means.

“U.S. Pay-TV providers lost a net 357,000 subscribers in the third quarter, according to MoffettNathanson. That was more than double what they lost in the third quarter of 2014, but well down on a loss of 605,000 in the second quarter....

“For the industry as a whole, viewers continued to cut the cord, but the pace wasn’t as alarming as it seemed in the second quarter. That prior period caused media-stock investors to hit the panic button over cord-cutting.  Even if this quarter was a stalemate, that is better than a rout.”

What a lot of people are beginning to understand is that cord-cutting is not in any way a cheaper long-term option. 

--Update: Chipotle Mexican Grill Inc. is preparing to reopen 43 restaurants in the Pacific Northwest following an E. coli outbreak that sickened over 40 customers (15 in Oregon, 27 in Washington state).

--Chinese billionaire Liu Yiqian stunned the art world in paying $170 million for Amedeo Modigliani’s Reclining Nude.  It was the second-highest price achieved at auction for a work of art.

Mr. Liu made his estimated $2.1 billion fortune through the stock market and once paid $63 million for a Tibetan tapestry.  He said he was placing the Modigliani in his own museum so that ordinary Chinese will be able to view it.

It is pretty amazing that Liu grew up in a working class family in Shanghai, saved enough to buy his own taxi, and then realized he had “an exceptional nose for the market,” as he told Bloomberg earlier this year.

In May an anonymous buyer paid $179 million for a Picasso.

[A friend, who needs to go nameless, said Alberto Vargas’ girls were better than Modigliani’s and thus worth even more.]

--Sotheby’s says a rare blue diamond has sold for a record $48.5 million at a Geneva auction. The 12.03-carat Blue Moon diamond, set in a ring, had been estimated to go for $35 million to $55 million.

Sotheby’s said the jewel was purchased by a Hong Kong private collector.  I hope whoever ends up wearing it doesn’t accidentally leave it someplace like a restroom at Newark Airport.

--I’m surprised “The Peanuts Movie” had a solid debut last weekend with $45 million in domestic ticket sales.  Didn’t see that coming.  About 70% of the viewers were families.

Disney’s “Star Wars: The Force Awakens” opens on Dec. 18.

--New York Attorney General Eric Schneiderman is playing the role of spoilsport for fantasy sports fans in the state, issuing a cease-and-desist order to DraftKings and FanDuel, which they are contesting.  Schneiderman alleges they are illegal gambling operations.

But as the Wall Street Journal editorialized:

“The kicker is that the AG isn’t seeking to close down the companies’ offices in New York, which employ hundreds and pour in tax revenue from its operations in other states.  If the businesses are illegal, why not bar them entirely?  But then Mr. Schneiderman’s prosecutions are often driven more by politics than law. This one looks like a head-to-head competition with U.S. Attorney Preet Bharara, who also opened an investigation into the sites last month.

“FanDuel and DraftKings can challenge his order in court, but in the meantime tens of thousands of fantasy players can thank Mr. Schneiderman for ruining a diversion from life’s other burdens.”

Frankly, Schneiderman is a loathsome ass.  I do like Bharara.

--Finally, the local NBC affiliate in New York has been running a series this week that is highly disgusting.  Their investigation found that when you ordered meals off two delivery sites, Seamless and grubHub, often the restaurants you thought you were ordering from didn’t exist...they were fake addresses.  Ergo, you got your food at the agreed upon price, but you have no idea where it’s made, which is pretty important for you and health officials if you got sick.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Iran: Syrian government forces achieved their highest-profile victory since Russian intervention in retaking a key airbase east of Aleppo from ISIS.  Over 100 were killed in the fighting, according to the Britain-based Syrian Observatory for Human Rights.  But at the same time, rebels fired two rockets on the loyalist stronghold of Latakia, killing at least 23 civilians, the deadliest attack on the heartland of the Alawite sect, to which Assad and many high-ranking security officials belong, and where Russia has its airbase and sea port.

For its part the United States and its allies sharply increased airstrikes against oil fields in eastern Syria controlled by Islamic State.  The oil has been generating $40 million a month for the group.  After being overly cautious in terms of potential civilian casualties in any bombing campaign, the White House has finally decided to step up attacks and inflict damage that takes longer to fix.

And then at week’s end we learned the U.S. is aiding Kurdish fighters as they launched an offensive to retake the Iraqi border town of Sinjar, which is on a key supply line between ISIS’ strongholds Raqqa in Syria and Mosul in northern Iraq.  The Kurds reportedly reached the town center on Friday, a huge morale booster, though Kurdish forces encountered little resistance, suggesting ISIS fighters pulled out prior to the advance.

Past ‘victories’ have also been fleeting, witness a past attempt to retake Sinjar that stalled in December.  The fight to take the Kurdish town of Kobani in northern Syria took about four months – despite hundreds of airstrikes by the U.S.  Sinjar was first taken by IS in August last year shortly after they seized Iraq’s second-largest city, Mosul.

The Pentagon also announced that IS militant Mohammed Emwazi, known as Jihadi John, was killed in a “flawless clean hit” in Syria.  Initially it was reported he had been “evaporated” by the U.S. drone strike.

Emwazi was the face of ISIS terror and he first came to notoriety in a video in August 2014 which showed the beheading of U.S. journalist James Foley.  He also appeared in videos showing the killings of U.K. hostages Alan Henning and David Haines, as well as American journalist Steven Sotloff and two Japanese journalists shortly before they were killed.

As for Russia, no doubt it will increase its military involvement in Syria in light of the terrorist bombing of Metrojet Flight 9268.  But any escalation has to be weighed back in Moscow against probable retaliation against Russian interests worldwide.  From personal experience, I’d be leery of going to the Bolshoi theatre.  [I’ve been appalled at the lack of security there in my trips to Moscow in the past, including right after the Chechen terror attack on a Moscow theatre in 2002.]

In Beirut, Lebanon, twin suicide bombings hit a Shiite religious gathering on Thursday in a neighborhood controlled by Hizbullah, killing at least 43 and wounding more than 180.  The near-simultaneous blasts, just 150 meters apart, were carried out by men wearing explosive belts.  But it could have been much worse.  A third bomber’s belt only partially detonated, while a fourth was arrested.  This individual then confessed he was part of a four-person ISIS cell sent in from Syria in retaliation for Hizbullah, Russian and Iranian attacks on ISIL.

Meanwhile, in Tehran, President Hasan Rohani said the nuclear deal between world powers and Iran could lead to better relations between Tehran and Washington, however, Rohani said he expected the United States to apologize to Iranians before diplomatic relations could be restored. 

In an interview with an Italian newspaper, ahead of a trip to Italy this weekend, his first to a European capital, Rohani said:

“If (the agreement) is well applied it can lay the foundation for fewer tensions with the United States, creating the conditions to open a new era.  But if the Americans don’t respect their part of the nuclear accord, then surely our relationship will remain as it has been in the past,” he said.

Rohani added that if the Americans “modify their policies, correct errors committed in these 37 years and apologize to the Iranian people, the situation will change and good things can happen.”

What a guy.

Israel: Prime Minister Benjamin Netanyahu met with President Obama in the oval office, the first such face-to-face conversation between the two since October 2014.  The administration conceded that there is no hope of a two-state agreement between Israelis and Palestinians in Obama’s remaining 14 months in office.  Netanyahu did pledge his support for a two-state solution on Monday morning, but reality is intervening.

The Palestinians, for example, have insisted they will not talk with Israel until it halts all settlement building in east Jerusalem and the West Bank and Netanyahu has refused to do so, offering the stumbling block to a two-state solution is the Palestinian refusal to recognize Israel as a Jewish state.

Separately, in a speech at the American Enterprise Institute this week where Netanyahu was honored, the prime minister said he told President Putin in Moscow in September that for Israel, its red line when it came to Russian efforts in Syria was that Iran not be allowed to establish an offensive corridor on Syria’s border with the Golan Heights.

China: The U.S. flew two B-52 bombers near the artificial islands China built in the South China Sea in yet another challenge to Beijing’s claims of sovereignty in the region.  Two weeks earlier, a U.S. Navy destroyer sailed within 12 nautical miles of some of the islands, which the U.S. contends China will use for military purposes to enforce its territorial claims as well as control one of the world’s vital shipping lanes.

In the case of the B-52 flights, Chinese air-traffic controllers warned one of the aircraft that it had “violated the security of my reef,” as U.S. Army Major Dave Eastburn, a spokesman for the U.S. Pacific Command, related.

The flights, incidentally, originated from Andersen Air Force Base on Guam, which Americans need to know is a critical, and rapidly expanding area of operation, with growing Chinese military capabilities an increasing threat to the island as well.

Speaking of which, Defense One’s Patrick Tucker reports: “A group of scientists from China may have created a stealth material that could make future fighter jets very difficult to detect by some of today’s most cutting-edge anti-stealth radar.

“The researchers developed a new material they say can defeat microwave radar at ultrahigh frequencies, or UHF.  Such material is usually too thick to be applied to aircraft like fighter jets, but this new material is thin enough for military aircraft, ships, and other equipment.”

The Chinese team published their paper in the Journal of Applied Physics.

On Taiwan, President Ma Ying-jeou is under fire from opponents who accused him of selling out by holding a historic summit last weekend with China’s President Xi Jinping.

The meeting in Singapore was the first between the leaders of the two sides since their split in 1949.  Taiwan has never formally declared its independence from Beijing, which sees it as a renegade province to be reunified with the mainland, by force if necessary.

Ma, though, has encouraged ties with the mainland, including the start of direct flights between the two that have spurred tourism, but this policy of alignment has become increasingly unpopular, with the pro-independence Democratic Progressive Party (DPP) looking for a big victory in upcoming presidential elections.  Protesters tried to storm parliament in Taipei as Ma left for Singapore on Saturday.

Also last Saturday, in a speech at the National University of Singapore, President Xi said China will always ensure freedom of navigation and flight in the South China Sea, but that disputes over the contested waters should be settled only by the countries directly involved, which was a veiled reference to the United States, stressing Beijing was committed to a peaceful resolution with “countries with a direct stake in the issue.”

And on the replacement of China’s “one-child policy” with a two-child one, from an editorial in The Economist:

“Bizarrely, the (Communist) party still believes that coercion remains necessary. Those who have had two children in violation of the previous policy will still have to pay off their fines. It is likely that those who have three children will be punished. There is no evidence that lifting these controls would result in a crippling population surge.  So the party’s insistence on maintaining them appears mostly a way of demonstrating power and saving face – as well as the jobs of the 1m-strong army of family-planning officials, who thrive on issuing fines.

“The party would struggle to admit that the world’s biggest attempt at demographic engineering has failed. But that is what it must do by lifting the remaining restrictions.  Not for the sake of boosting the birth rate – it may well be too late for that.  Rather because, after forcing so many Chinese to suffer to such little effect, a disastrous policy deserves to be abolished.”

Lastly, President Xi, contrary to reports he may be winding up his signature anti-corruption purge, has doubled down, detaining the heads of three industry giants – in banking, aviation and auto manufacturing (the second in command at Agricultural Bank of China, the president of Dongfeng Motor and chairman of China Southern Airlines, Asia’s largest carrier).

It’s all about intense factional fighting and efforts to cement positions ahead of the next political cycle.

Bo Zhiyue, director of the New Zealand Contemporary China Research Center in Wellington, told the Financial Times’ Lucy Hornby:

“Once you have a campaign like this going on you have people working within the campaign to secure their own position or defeat internal rivals for promotion.”

Hornby:

“Reports of teams from the anti-corruption watchdog ensconced in financial offices – as part of investigations also manned from province or company offices – ‘is making people nervous,’ Mr. Bo said.”

Russia: President Vladimir Putin ordered an investigation into claims the country’s athletes have been part of a systematic doping scheme, as he addressed a World Anti-Doping Agency independent commission that revealed sweeping findings on Monday.

Putin said he wanted “professional cooperation” with anti-doping bodies.  “A sporting contest is only interesting when it is honest.”

The problem is Wada uncovered evidence of Russian government involvement, with officials in the testing labs.

[Friday, the IAAF suspended Russian track and field from next year's Olympics unless it convinces the world it has cleaned up its act.]

Editorial / New York Post

“Last December, Wada set up an independent commission to check out a German documentary’s charges of massive doping by Russian track-and-field athletes.

“ ‘It’s worse than we thought,’ Richard Pound, the commission chairman, said Monday.  His report points to a ‘deeply rooted culture of cheating.’

“The abuse goes back years, to the 2012 London Games and earlier.  Russian officials gave performance-enhancing drugs to athletes, warned the jocks about ‘surprise’ drug tests and paid more than $1 million in bribes to bury ‘positive’ test results.

“The official Russian anti-doping lab was part of the scam – with the Federal Security Bureau deeply involved....

“Big picture: Global athletics – hosting top events, having Russian jocks win big – are key to legitimizing Putin’s corrupt rule. His regime will bribe, cheat and cover up as needed to inflate Russia’s image.”

Separately, the Russian Justice Ministry accused the Memorial human rights organization of seeking to overthrow the government.  Memorial received a letter from Justice on Nov. 9 accusing them of “undermining the constitutional order of the Russian Federation, calling for the overthrow of the current government and changing the country’s political regime,” the chairman of the NGO’s board Alexander Cherkasov wrote on the Memorial website on Tuesday.

Memorial board member Oleg Orlov said of the 15-page letter, which will be challenged in court:

“Not a single example was given of a call to overthrow the government, but there are examples of our criticism of the authorities and our disagreement with them, our utterances.  Apparently, now criticism of the authorities is equivalent to calling for the overthrow of the government.”  [Moscow Times]

Lastly, Julian E. Barnes and Gordon Lubold / Wall Street Journal:

“Senior U.S. military leaders have proposed sending more forces into Europe on a rotating basis to build up the American presence and are stepping up training exercises to counter potential Russian interference with troop transfers in the event of a crisis with Moscow.

“The new steps would allow for the presence of multiple U.S. brigades in Europe at any given time, increasing that number above current limits....

“Gen. Philip Breedlove, the supreme allied commander of the North Atlantic Treaty Organization, said he would like to see more brigades committed to Europe as rotational forces....

“In the event of a conflict, Gen. Breedlove said the U.S. will face a problem both with flying troops from the U.S. to Europe, as well as moving forces and equipment from airports and seaports to front-line conflict zones.

“ ‘The Russian navy is not going to stand by and watch us reinforce Europe,’ in the event of a confrontation, said Gen. Breedlove.  ‘For two decades we haven’t thought about the fact that we are going to have to fight our way across the Atlantic.’”

The West is lucky to have Gen. Breedlove in charge.  He is one man who gets it.

Myanmar: The opposition National League for Democracy, headed by Nobel laureate Aung San Suu Kyi’s, won a landslide election victory in last weekend’s vote, though the final result wasn’t known until Friday, and even now some seats are still being contested.

With more than 80% of contested seats declared, the National League has more than the two-thirds it needs to choose the president, ending decades of military-backed rule.

A quarter of seats are automatically held by the military, meaning it remains hugely influential.

Under the constitution Ms. Suu Kyi cannot become president herself, due to a technicality: She has close relatives who are foreign-born, but Myanmar is on track to form its first civilian government in more than 50 years.

Suu Kyi has said she will become the country’s de facto leader, acting “above the president,” but the military will continue to play a role and it is unclear just how much power she’ll have.

Random Musings

--So I watched the Republican presidential debate on Tuesday and it’s always funny how everyone has a different opinion of who the winners and losers were.  I just thought the whole exercise was rather non-descript.  Fox Business’ moderators deserve credit for keeping the debate from going off the rails but in terms of the candidates, the bottom line is you can no longer say “it’s early.”

True, it’s early in terms of the fall 2016 campaign, but we are just 10 weeks from the Iowa caucuses (Feb. 1), to be followed eight days later by New Hampshire (Feb. 9), and it’s clear both Donald Trump and Ben Carson are going to be around long after these two openers.  One of them is also likely to win the two.

So it’s all about who is still standing after New Hampshire.  Marco Rubio and Ted Cruz will be around, but if you aren’t top six in Iowa and/or top five in New Hampshire, there really is zero reason to continue.

As for my personal pick(s), I have been careful not to say anything in this regard for a month or so.  Last time I revealed my hand I said I liked Rubio and John Kasich, but I also said of the latter, months ago, that the rap on the Ohio governor was he tended to get “preachy” and that side of him revealed itself in a bad way in Milwaukee.  He is the most qualified man or woman on the stage, but he blew his admittedly very long shot at the nomination.  Kasich would be a terrific veep candidate, still, seeing as how Ohio is also rather important, but the next debate he needs to turn the charm back on. Tuesday, he was an a-hole.

As for Sen. Rubio, he’s obviously made some big strides in recent weeks.  But, overall, my mind is still very open and I’ll leave it at that.

Meanwhile, Jeb Bush continues to flounder.

John Podhoretz / New York Post

“Poor Jeb Bush. He needed a triumph in Tuesday night’s debate to do something to turn around his degenerating campaign – something dynamic, something memorable, something powerful.

“Bush was substantive.  But so was Marco Rubio.

“He was detailed. But so was Carly Fiorina.

“He was serious.  But so was Ted Cruz.

“He wasn’t out of his depth, the way Ben Carson was when he talked about foreign policy and banking policy – in a series of answers that gave new meaning to the word ‘incoherence.’

“He wasn’t bizarre, the way Donald Trump was when he said we should have taken ‘big chunks of oil’ from Iraq and given those big chunks to wounded veterans.

“He wasn’t rude and interrupting and wildly discursive, the way John Kasich was.

“And he didn’t assert that it was a violation of conservatism to increase military spending from its current historical lows, the way Rand Paul did.

“He made no mistakes. But, alas for him, he was boring.  And, for better or worse, no one else on stage was. This was Bush’s best debate, and that’s a big problem for him, because it was only really good if you contrast it with his previous performances....

“All the elements are in place for Jeb Bush to have a new moment in the sun. All the elements except for Jeb Bush....

“There’s no reason to believe Trump and Carson harmed themselves with their core supporters.  There’s some reason to think Ted Cruz helped himself quite a bit, and that Rubio helped himself some.

“But ah, Jeb.”

Edward Luce / Financial Times

“U.S. election cycles are geological compared to other democracies.  So it is important to avoid what Washington pundit David Rothkopf calls ‘temporal narcissism.’  Yet the fourth debate may well prove a staging post on the Republican party’s return to the debates that preceded the rise of Mr. Trump.  Those differences are real.

“The contest between Marco Rubio, the new establishment favorite, and Ted Cruz, the man every establishment Republican detests (some openly), is increasingly central to the 2016 race.  Mr. Rubio wants to personify the middle class American dream.  Mr. Cruz stands for purish constitutionalism. Likewise, the clash between Rand Paul, the erstwhile libertarian, and Messrs. Rubio and Cruz over foreign policy on Tuesday represents sharp policy contrasts within the GOP.  The latter two argued for muscular spending on defense.  Mr. Paul dismissed most U.S. foreign policy intervention as a waste. The more such rifts are explored, the less Mr. Trump and Mr. Carson seem able to contribute.

“Two conclusions are worth stating. First, the usual health warning about journalistic limitations. I could be wrong in thinking it was a bad night for Mr. Trump and Mr. Carson.  What counts are the views of registered Republicans.

“The late Democratic senator Daniel Patrick Moynihan once said that you are entitled to your own views but not to your own facts.  When it comes to debates there are only perceptions – and the gulf between the GOP grass roots and the professional media is vast.

“Second, Mr. Bush once again failed to trouble the scorers.  In the last week, he relaunched his campaign with a ‘Jeb’ll fix it’ mantra....(But) on Tuesday, Mr. Bush sank a little further below the waves.  If Jeb can’t swim by now, he never will.  I make this second observation with more confidence.”

Charles Krauthammer / Washington Post

“Fox Business...conducted a meaty debate during which a tomato or two was occasionally tossed.  John Kasich came itching for a fight. Donald Trump pitched back with his usual high-mindedness, responding at one point to Kasich with ‘I’ve built an unbelievable company worth billions and billions of dollars.  I don’t have to hear from this man.’

“Despite such exceptions, the Fox Business debate marks the point at which the GOP campaign begins leaving the entertainment phase and entering the serious season.  The moderators’ modesty and straightforwardness created an atmosphere of transparency that allowed the candidates to reveal themselves, advertently or not.

“Kasich did.  Unfortunately, it was an irritable self-righteous Kasich who showed up, doing himself no good.  At the other end of the podium, Rand Paul had his best night.  He certainly deserves credit for courage.  His noninterventionist foreign policy is far outside the GOP mainstream, which is why Marco Rubio won the room in their exchange on defense spending and intervention.  But Paul defended his minority view stoutly, regardless.  Give him points for principle.

“In a year when showmanship is king, however, principle won’t help him much to get out of single digits.  You could almost see Paul on the far right of the stage and Kasich on the far left dropping through trapdoors, leaving six finalists.

“Or perhaps not six.  Jeb Bush, too, had his best night.  He was competent and solid but, unfortunately, still inarticulate.  You almost feel sorry for the travail he is about to endure on his increasingly long-shot campaign.”

Kathleen Parker / Washington Post...on Dr. Ben Carson.

“The problem with ‘bad’ Ben Carson is that hardly any of his stories can be verified by reporters, leading to doubts about their veracity.  If most people fib or exaggerate their resumes to get their dream job, what kind of man diminishes a story beloved by all? Why not just tell us Ronald Reagan was a pessimist?

“On the one hand, one might say, who cares?  On the other, people naturally would be curious to know more about histories that conflict so dramatically with the persona of a man they thought they knew.

“Is he telling the truth? Does his memory not serve? Stories also have changed in the tellings, which isn’t unusual among storytellers.  It’s when you decide to run for president that they become problematic.  Rather than offering clarity, Carson has defaulted to blaming the media for unfair, disproportionate vetting.

“Nonsense.  Why bait a hook if you don’t want a fish?”

--Not many polls this week.  A Monmouth University Poll of likely South Carolina voters had Carson edging Trump 28-27, with Rubio third at 11%, followed by Ted Cruz (9%) and Jeb Bush (7%).

On the Democratic side, the same Monmouth survey had Hillary Clinton holding a 69-21 lead over Bernie Sanders in the Palmetto state.

--President Obama suffered a big blow to his immigration policy when a U.S. appeals court ordered Obama not to implement his executive order that shields more than 4m illegal immigrants from deportation, on the grounds that the administration would probably lose a legal challenge brought by Texas and 25 other states.

So there is a real possibility the case could be heard by the Supreme Court.

Obama’s plan was laid out last November after Congress failed to pass comprehensive immigration reform.  The executive order bars the deportation of the parents of U.S. citizens or legal permanent residents who have been in the U.S. for more than five years.

New House Speaker Paul Ryan recently told CBS News that he would not push for immigration reform because Congress could not trust Mr. Obama.

“I think it would be a ridiculous notion to try and work on an issue like this with a president we simply cannot trust on this issue.”

Well, you saw in Tuesday’s debate how the issue is still front and center.

--Editorial / Washington Post

“Solar flares, coronal mass ejections, solar particle events, solar wind – these aren’t terms that only science fiction characters and astronauts need worry about.  Though Earth’s atmosphere and magnetic field protect humanity from a wide range of deadly space hazards, the safety blanket is not impermeable. The boisterous, volatile sun regularly throws off plasma, other particles and radiation that, with the right intensity and heading, could wreak havoc on modern society.  In fact, extreme ‘space weather’ recently came scarily close to slamming into Earth – and it has a shockingly high chance of knocking out power grids and doing other damage in the next 10 years, according to scientists’ best estimates.

“That’s why it’s good the White House recently released a strategy to prepare for disastrous space weather.  Now comes the hard part – putting time and money into the strategy....

“A huge coronal mass ejection – a discharge of plasma from the sun’s corona – hit Earth in 1859, scrambling telegraph networks and even causing some telegraph stations to burn down. Nowadays, human society is far more dependent on all sorts of electronics, from the satellites in orbit to the power stations, on the ground, that are vulnerable to interference from solar events.  A relatively small solar discharge hit the planet in 1989, knocking out power to millions in Quebec.  A much larger one nearly hit Earth in 2012.  ‘We’ve dodged a lot of bullets,’ says the University of Colorado’s Daniel Baker, a space weather expert.

“A 2009 National Academy of Sciences study concluded that a head-on collision with a large-scale geomagnetic storm could do astounding amounts of damage, costing $2 trillion in the first year of recovery.  Gas pipelines and drinking water pumps could be knocked out.  Experts estimate that there is a 12 percent chance of such an event occurring within the next 10 years – in the same ballpark as a magnitude 8 earthquake striking the country.”

Bottom line, Congress needs to fund satellite programs to improve space weather forecasting.  If warned in time, power companies and others can minimize the damage a major solar event would cause.

--Gee, the University of Missouri received some good publicity this week.  Or maybe not.  I imagine it will be easier to get in next fall if you are a high school senior looking for a backup school.

Actually, I was sickened by a lot of what I saw on other college campuses in terms of the denial of “free speech” and a student at Yale using the F-word in a diatribe against a professor there.

--Some postmortems on President Obama’s decision to kill the Keystone XL pipeline project.

Editorial / New York Post

“So much for President Obama’s ‘all of the above’ energy policy – and the idea that Democrats are the ‘party of science.’

“And jobs? Forget those, too.

“All that went out the window Friday (Nov.6) when Obama, after years of dithering, finally nixed the Keystone XL pipeline that would have transported oil from Canada down to Gulf Coast refineries.

“Secretary of State John Kerry, who made the official call, admitted it was pure politics.

“ ‘This decision could not be made solely on the numbers,’ he said.  ‘The United States cannot ask other nations to make tough choices to address climate change if we are unwilling to make them ourselves.  Denying the Keystone XL pipeline is one of those tough choices – but it is the right decision, for America and the world.’

“Not that killing Keystone actually does squat about climate change: The oil will just go by rail and sea instead – at higher cost, and with greater risk of spills.  That’s why State’s environmental review gave the project a clean bill of health.

“But green superstition holds that anything connected to oil (or coal, or even natural gas) is evil. And Obama clearly buys it.”

Editorial / Washington Post

“President Obama rejected the Keystone XL oil pipeline on Friday, ending an unseemly political dispute marked by activist hysteria, GOP hyperbole, presidential weakness and a general incapability of various sides to see the policy question for what it was: a mundane infrastructure approval that didn’t pose a high threat to the environment but also didn’t promise much economic development.  The politicization of this regulatory decision, and the consequent warping of the issue to the point that it was described in existential terms, was  a national embarrassment, reflecting poorly on the United States’ capability to treat parties equitably under law and regulation....

“Mr. Obama and members of his administration argued that rejecting Keystone XL would show that the United States was serious about fighting climate change in advance of an international conference on the topic in Paris later this month.

“Yet world governments are smart enough to recognize what many activists apparently have not: The Keystone XL fight hardly matters in the grand scheme of the global climate.  Perceptions of U.S. climate leadership depend on Environmental Protection Agency rules to reduce emissions from U.S. power plants and cars, not on a domestic political psychodrama.”

--I have gotten a kick out of the war of words between George Will and Bill O’Reilly over O’Reilly’s “Killing Reagan.”

Will:

“Were the lungs the seat of wisdom, Fox News host Bill O’Reilly would be wise, but they are not and he is not.  So it is not astonishing that he is doubling down on his wager that the truth cannot catch up with him.  It has, however, already done so.

“The prolific O’Reilly has, with his collaborator Martin Dugard, produced five ‘history’ books in five years: ‘Killing Lincoln,’ ‘Killing Kennedy,’ ‘Killing Jesus,’ ‘Killing Patton’ and now the best-selling ‘Killing Reagan.’  Because no one actually killed Reagan, O’Reilly keeps his lucrative series going by postulating that the bullet that struck Reagan in March 1981 kind of, sort of killed him, although he lived 23 more years.

“O’Reilly ‘reports’ that the trauma of the assassination attempt was somehow causally related to the ‘fact’ that Reagan was frequently so mentally incompetent that senior aides contemplated using the Constitution’s 25th Amendment to remove him from office.  But neither O’Reilly nor Dugard spoke with any of those aides – not with Ed Meese, Jim Baker, George Shultz or any of the scores of others who could, and would, have demolished O’Reilly’s theory. O’Reilly now airily dismisses them because they ‘have skin in the game.’  His is an interesting approach to writing history: Never talk to anyone with firsthand knowledge of your subject.

“Instead, O’Reilly made the book’s ‘centerpiece’ a memo he has never seen and never tried to see until 27 days after the book was published.  Then Dugard asked the Reagan Presidential Library to find it.

“Recently on Fox News, O’Reilly put this on the screen from Sue Janzen of Yorba Linda, Calif.: ‘We went to the Reagan Library, and were told they do not sell Killing Reagan because it’s not factual.’  Then O’Reilly said: ‘You were deceived, Sue. The Reagan Library is angry at Martin Dugard and me because we’re seeking’ the Cannon memo.  He added: ‘The memo’s disappeared.  But Dugard and I are on the case and the library is not happy about it.’

“ ‘Disappeared’?  His crude intimation was that the allegedly deceptive library is hiding the memo. The library, however, has never had it because when James Cannon wrote it, he was not a member of the White House staff, hence the memo was not a ‘presidential record.’....

“(O’Reilly) began his profitable paltering with America’s past with ‘Killing Lincoln.’  Historians advising the National Park Service, which administers Ford’s Theatre, found a multitude of errors in the first, uncorrected version, in which, for example, O’Reilly repeatedly places Lincoln in the Oval Office, which was built in 1909. The Theatre bookstore still does not sell ‘Killing Lincoln.’  The Theatre gift shop, a commercial rather than educational entity, does.  Four ‘histories’ later, O’Reilly remains slipshod....

“Tidying up after O’Reilly could be a full-time job but usually is not worth the trouble. When, however, O’Reilly’s vast carelessness pollutes history and debases the historian’s craft, the mess is, unlike O’Reilly, to be taken seriously.”

--Baltimore will surpass 300 homicides this year for the first time since 1999.  In 2011, Baltimore celebrated its first year since 1978 with fewer than 200.  [Kevin Rector / Baltimore Sun]

--I was reading a story in the Star-Ledger on the heroin epidemic in my state of New Jersey, similar to far too many other states these days, and I was floored to see there were 781 heroin-related deaths here, according to the N.J. Department of Criminal Justice – “eclipsing homicide, suicide, car accidents and AIDS.”  In four separate counties, the approximate increase in heroin-related overdose deaths in 2014 over 2013 was 25%. 

---

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

God bless America.

Vive Le France!

---

Gold $1083
Oil $40.73

Returns for the week 11/9-11/13

Dow Jones  -3.7%  [17245]
S&P 500   -3.6%  [2023]
S&P MidCap  -3.9%
Russell 2000  -4.4%
Nasdaq  -4.3%  [4927]

Returns for the period 1/1/15-11/13/15

Dow Jones  -3.2%
S&P 500  -1.7%
S&P MidCap  -3.2%
Russell 2000  -4.8%
Nasdaq  +4.05%

Bulls 45.3
Bears 28.9  [Source: Investors Intelligence]

Brian Trumbore



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-11/14/2015-      
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Week in Review

11/14/2015

For the week 11/9-11/13

[Posted 11:30 PM ET, Friday]

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

*Special thanks this week to Scot B.

Edition 866

Special Note: 9:00 PM ET, Friday.

It’s important for you to understand the process for writing this column which hasn’t changed for nearly 17 years...the only running history of our times, covering both global financial markets and geopolitics.

I finish the body of the column around 4:00 pm on Fridays and then spend the next 6-8 hours proofing it and adding market commentary following Wall Street’s close.  Once the column is posted late Friday night, I then immediately begin working on the next one.

So the news of the Paris attacks hit about 4:30 pm ET today and I want you to know that I have not changed one word of the body of the column, which starts with “Washington and Wall Street,” except to add a few lines on the market and plug in some numbers.  That includes my personal note on the threat facing Moscow, which in light of today’s attacks I would upgrade to a Level One warning for all Muscovites.

For these nearly 17 years there has been one overriding theme of StocksandNews, that being to give readers a solid review of their world each week, and in terms of the financial markets to give a heads up on geopolitical events that could shape consumer and investor confidence and thus impact stock and bond prices.

Through my travels I have also sought to provide you with unique insight into some of the world’s hot spots.  Through my pubbing, I alerted you before anyone else (including Wall Street), to the fact the real estate bubble was global, not just in the U.S., when I kept hearing from Brits and Germans, for example, over many a pint that they were buying second homes in Spain.

I went to Beirut and hired out a driver to take me to Hizbullah territory, weeks after former Prime Minister Rafik Hariri was assassinated in 2005, and as I’ll describe more fully next week, told you all of how the United States was already screwing up in not giving the then-reeling Lebanese government massive support, the lack thereof leading to Hizbullah gaining a permanent foothold in same...which was outrageous.

I went back to Beirut in 2010.  I’ve been to the Balkans, Jordan, Morocco, Turkey multiple times, eastern Europe, Russia, China, the DMZ, Taiwan...even Paraguay.

I am the only American, I can guarantee, who walked alongside French National Front leader Marine Le Pen, on May Day in 2011 and 2014, not because I supported the far-right leader, but to get a better sense of what her movement was about, and to see her followers up close.  [I was impressed...they weren’t jack-booted thugs.]

I have been warning since the days of the late Joerg Haider in Austria about the rise of the far-right in Europe, though as I admitted months ago, yes, I was early.

I have been all over the migrant issue, long before it evolved into a true crisis, for years, and told you of how this would change the face of Europe for generations to come.

For years I’ve issued specific warnings about soft terror targets in Europe (such as the Christmas markets in Germany).

So next week I’m writing my manifesto...and it won’t be kind to George W. Bush and Barack Obama, who as long-time readers have known since about 2009-10, I have labeled two of the five worst presidents in American history.

I need to repeat how I called it in 2012, regarding Syria, and how I correctly said back then it was “over.”  It was “too late.”  Indeed it was.

But for now, anyone with half a brain understands we are reaping the whirlwind.  We, the Western world, are paying the price for sticking our heads in the sand, not caring about the world around us, and not holding our leaders accountable, both in the United States and abroad.

As for Paris, I have told you countless times over the years, including more than once since the Charlie Hebdo attacks, that I wish every American could take the train from Charles de Gaulle Airport into the center of Paris; to see the ugly suburbs, to see some of the ugly individuals who hop on the train, to get a sense of the teeming ghettos...the boiling cauldrons of hate.

I love Paris.  I have been there at least eight times in my life.  I adore the history, and I can’t stand the stereotypes we hear of in America about the French people.  They’ve always been super kind to me.  Of course if you treat people and their culture with respect, it’s funny how it redounds back to you.

In writing about the migrant crisis, I have expressed my support for the Hungarian government in their crackdown.  This is not post-World War II, as Europeans are rapidly learning.  I have had no problem agreeing with those both here and in Europe who say, ‘We don’t know who these people are that are crossing our borders.’  Heck, I told you how Pope Francis himself recently expressed his concerns on the topic.

For now, I leave you with two thoughts.  If given the opportunity, and if I were born and raised in France, I’d have to think seriously about voting for Marine Le Pen.

Second, America, acting alone, but perhaps with Russian cooperation, needs to carpet bomb Raqqa and Mosul, and any known ISIS headquarters in Libya.  There can be no warning.  [France can do its own thing...but for their sake, I wouldn’t want them receiving anymore blowback then they’re already susceptible to.  Al-Qaeda needs to be dealt with separately.] 

Innocents will die.  There will then be massive protests in both the U.S. and Europe, with innocents probably dying then too.

But remember.  The ending to World War II was awful...whether it was Dresden or Hiroshima.  There will be those who say what I am proposing is nuts...that it won’t in any way end the terror threat and may even make it worse.

I disagree.  I am the one, the only one, who said long before 9/11 that the United States, acting with Britain (because of their historical ties to Rhodesia) should have taken out Zimbabwe’s Robert Mugabe.  I’ll never be able to prove that may have given bin Laden second thoughts, but we elect our leaders to do one thing...lead...and sometimes that requires thinking outside the box.

Far more next week.  In the meantime, I did add one line at the end of my original column.  Vive Le France!

Washington and Wall Street

There were six Fed speakers on Thursday at various forums and there is now renewed confusion over what the Open Market Committee will do when it meets Dec. 15-16, after it seemed a lock to finally raise interest rates following the strong October jobs report of Nov. 6.

New York Fed chief William Dudley said he’s amenable to a rate hike, but it depends on economic data the next few weeks (such as one more jobs report and further data on retail sales and manufacturing).

Dudley cited “the many positives of the economic outlook,” including solid consumer spending and business investment growth and the housing recovery.”

“The economy looks to be in decent shape and is likely to continue to grow and at slightly above trend,” he said in his speech.

While Dudley notes inflation is below the Fed’s 2% annual target, waiting too long to raise rates could allow inflation to accelerate too rapidly.

St. Louis Fed chief James Bullard, considered a “hawk” on the board, suggested the Fed should raise rates as soon as possible.

Chicago Fed president Charles Evans, considered a “dove,” said he wants to wait to raise rates, citing low inflation and the risk of derailing the economy.

Richmond Fed president Jeffrey M. Lacker said he would prefer a pace of rate hikes “a little more rapid” than one percentage point a year.

“I think there’s a chance we are behind the curve, but it will be a year or two before we figure that out,” he said in an interview.  “We have room to accelerate if we find out that we wish we’d started earlier.”

Fed Vice Chairman Stanley Fischer said the Fed’s decision to delay raising interest rates has helped to offset the economic headwinds caused by a strengthening U.S. dollar, but that it “may be appropriate” to raise rates next month.

“While the dollar’s appreciation and foreign weakness have been a sizable shock, the U.S. economy appears to be weathering them reasonably well,” Fischer said at a Fed conference Thursday evening. 

As for inflation, Fischer noted: “Some of the forces holding down inflation in 2015 – particularly those due to a stronger dollar and lower energy prices – will begin to fade next years.” 

Tuesday, San Francisco Fed president John Williams said there’s a “very strong case” for the Fed to raise rates if the economy continues to improve and policymakers are confident that inflation will pick up.  [USA TODAY; New York Times; Bloomberg]

Bottom line: We’re back to ‘who the heck knows?’ come December.

But speaking of inflation, the producer price index for October came in at -0.4% when a gain of 0.2% had been forecast.  Ex-food and energy, the PPI was -0.3%.  Year over year, producer prices have fallen 1.6%, while the core is up a mere 0.1%.

Retail sales for October were also less than expected, 0.1%, 0.2% ex-autos.

Separately, the Organization for Economic Cooperation and Development (OECD) reduced its forecast for global growth this year yet again to 2.9%, amid a “further sharp slowdown” in emerging market economies and a deterioration in global trade.  A year ago the OECD forecast growth for 2015 of 3.7%.

The forecast for 2015 for the United States is 2.4%, for the euro area (EA19) 1.5%, 0.6% in Japan and 6.8% in China.

Next year the OECD sees global growth of 3.3%.  [U.S. 2.5%; EA19 1.8%; Japan 1.0%; China 6.5%.]

Europe and Asia

According to a flash estimate for the third quarter as released by Eurostat, the statistics arm of the European Union, seasonally adjusted GDP rose in the euro area by 0.3%, compared with the previous quarter (which was up 0.4%), up 1.6% year over year.  Growth in Germany was 0.3% for the quarter (1.7% yoy), France 0.3% (1.2%), Spain 0.8% (3.4%), and Italy 0.2% (0.9%).  Greece was -0.5% as Q3 took in the latest financial crisis there, though this wasn’t as bad as expected.  Portugal, in the midst of a political crisis, reported stagnant growth for Q3, up 1.4% year over year, both well below forecasts.  [Non-euro U.K. was 0.5%, 2.3% yoy.]

Certainly the lackluster growth gives credence to European Central Bank talk of further quantitative easing, as president Mario Draghi hinted the ECB was readying more measures for its December policy meeting, telling the European Parliament on Thursday that “signs of a sustained turnaround in core inflation have somewhat weakened.”  The most recent reading on core inflation for October was 1.0%, with the ECB’s target being 2%.

Draghi added: “The option of doing nothing would go against price stability.  That is what will outline the strategy for the coming months.”

Back to Greece, despite the poor GDP data for the third quarter, and ongoing concerns over the implementation of its latest bailout agreement, the yield on Greek ten-year debt has dropped below 7% for the first time since October 2014, having surged as high as 18.7% in July of this year when concerns of a “Grexit” predominated.

In Spain, the Constitutional Court blocked Catalonia’s regional parliament from moving toward independence, thus further raising tensions between separatists and the central government in Madrid.  Spain holds national elections next month and the Catalan issue has benefited Prime Minister Mariano Rajoy.

Earlier in the week, Catalonia’s parliament approved a resolution to proceed by a 72-63 vote.

And Portugal’s government collapsed after just a few days when it failed to get its legislative program through a parliament dominated by a leftist, anti-austerity alliance at odds with prevailing policies in the eurozone.

The largely figurehead president had appointed former Prime Minister Pedro Passos Coelho, who for four years led Portugal through the austerity grinder of spending cuts and tax increases that met the demands of its bailout lenders and stabilized the economy, though it fell sharply from 2011 to 2013.

Then in the Oct. 4 parliamentary election. Passos Coelho’s center-right coalition finished first but it lost its majority in parliament to a gaggle of leftist parties, which then voted down his budget 123-107, a requirement for him to continue.

So the mainstream Socialists were joined in the vote by the Left Bloc, comprised of Communists, Greens and three far-left parties opposed to Portugal’s membership in NATO and the common currency.

It appears another election is in order with some kind of caretaker format, led by the Socialists, in the interim.  Not exactly a great situation.

And in the U.K., Prime Minister David Cameron laid out his four goals for reforming Britain’s membership in the EU, including restrictions on benefits for people coming to the U.K., a controversial topic within the EU, having promised an in/out referendum before the end of 2017.

But this is mainly a topic for 2016 and ’17 and I’m not going to spend much time on it the rest of this year.

For now, Cameron did rule out a second referendum if Britain voted to leave, saying: “You the British people will decide.  At that moment you will hold this country’s destiny in your hands.  This is a huge decision for our country – perhaps the biggest we will make in our lifetimes.  And it will be a final decision.”

Cameron wants to get the European Union to agree to his reform demands in order to keep Britain in the club, but with issues like the following, the mood of the people is sour.

On the migration front, German finance minister Wolfgang Schauble took a swipe at his boss, Chancellor Angela Merkel, when he said Germany faces “an avalanche” of refugees triggered by “careless” actions.

“You can trigger avalanches when a rather careless skier goes on to the slope...and moves a bit of snow,” said Schauble on Wednesday evening.  “I don’t know whether we are already at the stage where the avalanche has reached the valley or whether we are [still] on the first third of the slope [and there is more to come].”

On Sunday, Schauble defended interior minister Thomas de Maiziere after de Maiziere was forced by Ms. Merkel to withdraw plans for denying most Syrian refugees rights to bring their families to Germany.

But with Schauble’s backing, de Maiziere was able to give a speech to the Bundestag on Wednesday, wherein he said: “We cannot double or triple our high refugee numbers through family reunion.”

Merkel’s coalition is floundering as she fights to maintain support for her welcoming stance, and she’s beginning to waver, with the government cutting cash benefits for asylum seekers, while declaring that Germany can return refugees to all western Balkan countries, rather than granting them asylum in Germany.

[Merkel and Schauble, once close allies, also clashed over the last 86bn euro bailout for Greece, with Schauble saying at the time that a Grexit might be preferable.]

Elsewhere, Slovenia announced on Friday that 12,000 people came into the country on Thursday, bringing the total number of refugees passing through to nearly 200,000.  This is a country of just two million!  Slovenia has started erecting razor-wire on its border with Croatia, which is fueling tension between these two.

Migrants switched to Slovenia as a gateway to Western Europe after Hungary shut its border with Croatia.

Sweden, which I noted the other week is also getting swamped, especially relative to its population, announced the introduction of temporary border checks to control the flow of migrants.

The UN said this week that nearly 800,000 migrants have arrived in Europe by sea so far in 2015, with 650,000 of these via Turkey and Greece.

---

Turning to Asia, there was a slew of economic data on China, much of it poor.  First, the good news was October retail sales were up a respectable 11% in October, year over year, a tick better than September’s 10.9% pace, according to the National Bureau of Statistics.  And the China Association of Automobile Manufacturers said car sales rose 13.3% in October year over year, which compared to September’s pace of up 1.6%.  The reason for October’s pickup, though, was a government incentive program where the purchase tax was cut in half.

Car sales fell, yoy, from June thru August by 3.4%, 6.6%, and 3.4%, respectively.

The other data was mediocre at best.  Industrial production for October was up 5.6%, yoy, vs. September’s up 5.7%.  This figure was solidly in double-digits during boom times.

Fixed asset investment (like for roads, railroads and airports), rose 10.2% for the first ten months of the year, the slowest since 2000.

Consumer prices rose 1.3% annualized in October vs. 1.6% in September, according to the NBS, with pork prices rising 15.8% yoy, while egg prices fell 13.8%.

Producer prices fell 5.9%, the 44th consecutive month of declines.

October exports fell 6.9% year over year, while imports cratered 18.8%, both worse than expected.

Finally, Credit Suisse estimates total bank lending in China may have shrunk by 42% in October, which is not good.

In Japan, a key figure is machine orders and they leapt 7.5% in September from August’s 5.7% drop, a far better than expected performance.  The year on year rate for September is -1.7%, better than August’s -3.5%.  So this indicator perhaps augurs well for business spending in the coming months.

Street Bytes

--After a six-week winning streak, stocks suffered their worst declines since the week ending August 21, as investors had second thoughts about a Fed rate hike.  It also didn’t help oil was tumbling anew and the retail outlook had turned gloomy.

The Dow Jones lost 3.7% to 17245 and is now back in negative territory for the year, as is the S&P 500, which lost 3.6%.  Nasdaq is still in positive territory for 2015, though it lost 4.3%.

--U.S. Treasury Yields

6-mo. 0.29%  2-yr. 0.83%  10-yr. 2.27%  30-yr. 3.05%

--According to its annual outlook, the International Energy Agency said oil demand would rise by less than 1 percent a year between now and 2020, a slower pace than necessary to mop up the oil glut with the price of West Texas Intermediate at $40.75, a multiyear low.  [It was briefly a few cents lower in August.]

The slowdown in demand follows a 15-year surge in consumption, fueled by rapid growth in China and other emerging markets.

But China is moving more towards a consumer-led economy and away from energy-intensive growth.

Fatih Birol, executive director of the IEA, told the Financial Times: “Demand is not as strong as we have seen in the past as a result of efficiency [and climate] policies [globally],” adding growth in renewables will further restrict demand.

The IEA does not expect crude oil to reach $80 a barrel until 2020, under its “central scenario.”  Further, the IEA does not forecast oil demand will hit 103.5m b/d until 2040 – it is currently 94.5m b/d.  That is staggering.

Mr. Birol said, “Big energy companies are underestimating the effects of (climate change initiatives) on the demand side.”

Now such long-range forecasts are notoriously inaccurate on the price front, but the demand forecast is usually pretty good.

Saudi officials, meanwhile, warned that a prolonged period of $50 oil and investment cuts would have a “substantial and long-lasting” impact on future oil supplies and could lead to a price spike.  Saudi Arabia also said it is determined to protect its global market share and will continue to produce oil at record levels, saying it will be vindicated when prices recover in one to two years.

Separately, on Friday the IEA announced global oil inventories have risen to a record 3bn barrels, breaching 97m barrels a day.

--Robert Samuelson / Washington Post...on the campaign being waged against Exxon Mobil, with various environmental and civil rights groups urging Attorney General Loretta Lynch to open a “federal probe” of the energy giant.  The charge is that Exxon “systematically misled the public” on climate change, even as its executives recognized the dangers.

“This is a dangerous and self-serving exercise that brings us back to free speech. Genuinely free speech transcends accepted and respected beliefs.  It includes viewpoints that are wrong, offensive and ignorant.  We take pride in the marketplace of ideas – a dividend of free speech – to sort the worthy from the unworthy.  If government assumes that function, you no longer have free speech.

“The advocates of a probe into Exxon Mobil are essentially proposing that the company be punished for expressing its opinions. These opinions may be smart or stupid, constructive or destructive, sensible or self-interested.  Whatever, they deserve protection.  An investigation would, at the least, constitute a form of harassment that would warn other companies to be circumspect in airing their views.  Matters could be worse if the government somehow imposes monetary penalties or opens the floodgates to suits by plaintiffs’ attorneys, a la the tobacco industry.  Significantly, the letter to Attorney General Lynch does not allege any violation of law.

“Exxon Mobil (2014 earnings: $32.5 billion) does not command our sympathy. But free speech does not belong only to the sympathetic. Casting Exxon Mobil as the scapegoat for global warming’s dilemmas is historically inaccurate and a political cheap shot with troubling constitutional implications.”

--Macy’s Inc., the largest U.S. department-store company, saw its shares decline 14% on Wednesday (20% for the week), the most in more than six years, after the chain missed third-quarter sales estimates and cut its annual profit forecast.  Revenue fell 5.2% in the quarter ended Oct. 31, far worse than the Street expected.

CEO Terry Lundgren said the company has worked to reduce costs and add lower-priced outlets, aiming to coax customers back into stores, but the chain was dealt a setback when unseasonably warm weather hurt sales of fall goods, which forced Macy’s to cut prices to reduce its inventory.

The retailer now sees full-year revenues falling 2.7% to 3.1%.

--Nordstrom Inc. cut its profit and sales forecasts after reporting disappointing third-quarter results, citing sales that have been slowing since August, with the slowdown across all categories, regions and channels.  The shares fell 15% on the news, 20% for the week like Macy’s.

Nordstrom executives say they don’t have a ready explanation for the poor performance and they are moving quickly to mark down goods that aren’t selling.

While sales increased 6.6% for the three months that ended Oct. 31, excluding newly opened or closed locations, sales increased just 0.9%.  The company expects full year same-store sales to increase 2.5% to 3%, vs. a previous forecast of 3.5% to 4.5%.

--Shares in JC Penney Co. fell about 10% on Friday (though they had rallied earlier in the week), after signaling that sales growth during the holiday season may slow from the third quarter’s pace. 

Same-store sales this year will rise 4% to 5%, after Q3’s comp sales increased 6.4%.

The company lost 47 cents per share, ex-items, when analysts had projected a loss of 56 cents.  Overall revenue rose 4.8%.

--Cisco Systems Inc. said profit rose 33% in its fiscal first quarter, with revenue rising 3.6%.  But the shares fell in after-hours trading, after the company issued guidance for the current quarter that falls short of Street expectations.

CEO Chuck Robbins did say orders in China jumped 40% in the first quarter, after a string of declines due to local fears about the security of foreign hardware.

Overall revenues for the fourth quarter are expected to be flat to up 2% from the year-earlier period.

But on a separate topic, the acquisition game, CEO Robbins told the Financial Times that Cisco would only look for “small strategic acquisitions” and that deals like Dell’s planned purchase of storage maker EMC – the biggest acquisition ever attempted in the tech world – would not provoke a change in strategy.

“My personal opinion is that the market is moving too fast for these big mergers to be effective,” he said.

--Two Israelis and an American with ties to Russia were charged in connection with an alleged massive hacking scheme against the likes of JPMorgan Chase, Fidelity Investments and the Wall Street Journal.  The three allegedly stole the personal information and data of more than 100m people.

But this wasn’t hacking to steal money out of client accounts or for identity theft, rather the  three employed hundreds of people and operated in more than a dozen countries for the purposes of manipulating stock prices in schemes that generated tens of millions of dollars in proceeds.

As reported by the Financial Times:

“As part of that effort, the suspects sought to market the stocks they were allegedly manipulating to customers of the companies they had hacked. They also launched cyberattacks to help them process payments for illegal drug suppliers, counterfeit software, malware distributors, illegal online casinos and an illegal bitcoin exchange known as Coin.ms.”

--Microsoft will allow foreign customers to hold data in new European facilities in Germany that will shield customers from U.S. government surveillance.  The new data centers will be under the control of Deutsche Telekom, the German telecommunications group, and are intended to put the data of European governments and business customers, along with millions of citizens, out of reach from U.S. authorities.

CEO Satya Nadella, at a press conference in Berlin, said: “These new data center regions will enable customers to use the full power of Microsoft’s cloud in Germany...and ensure that a German company retains control of the data.”

Analysts called this a “watershed moment,” as it’s the first time a U.S. tech group accepted it was unable to keep customer data private and out of the reach of the U.S. government.

So this means you can expect other customers will demand cloud computing providers such as Google and Amazon provide a similar service to protect privacy.

Deutsche Telekom’s T-Systems will act as a “trustee” of the two new data centers in Germany.

--Mutual-fund group Fidelity Investments reduced the estimated value of its stake in Snapchat by 25% in September, according to regulatory filings; a significant step as more and more, investors wonder about the valuations of private tech startups.

Recently, Square Inc., a payment processor, proposed to value itself at $3.9 billion in a planned IPO, down from $6bn last year.  Others have been scaling back their expected valuations as well.

--As reported by the Wall Street Journal, bonuses on the Street are expected to drop for the first time in four years, according to consulting firm Johnson Associates Inc.  Volatility in global markets  delayed companies’ plans to go public, affecting investment bankers in particular, while bonuses are expected to drop for fixed-income traders for a fifth straight year “as large banks continue to wrestle with new regulations that rein in risk-taking.”  [Justin Baer / WSJ]

--Farmland values fell in much of the Midwest in the third quarter.  The St. Louis Fed’s district, which includes parts of Illinois, Indiana and Missouri, dropped 2.6% from a year earlier, while the Kansas City Fed’s district, which includes Kansas and Nebraska, fell 1% (nonirrigated land rose 0.4%).

The Chicago district, which includes Illinois and Iowa, saw prices that were unchanged vs. year ago levels.

But with falling commodity prices softening demand for cropland, and farm income falling sharply, land values should continue to cool.  [Jesse Newman / Wall Street Journal]

--Deutsche Lufthansa AG canceled 930 flights scheduled for Wednesday at its three main German hubs as a string of walkouts by cabin crews wracked the airline.  Labor leaders have been locked in battle with management’s efforts to restructure to compete with low-cost rivals such as Ryanair and EasyJet, Europe’s two biggest discount carriers.  Lufthansa’s strategy hinges on development of its Eurowings division into a low-cost arm.

--The Department of Justice has blocked an attempt by United Continental to purchase 24 more gates at Newark Airport.  United intended to purchase the slots from Delta, which would have added to the 902 it already controls at Newark, which is 73 percent of the total.

In the complaint filed by Justice, it reads: “In short, permitting United to acquire more slots would further entrench United’s dominance at Newark and foreclose competition that is already in critically short supply.  As a result, passengers at Newark would face even higher fares and fewer choices.”

I just want the Justice Department to issue a similar complaint about Newark’s lack of bathrooms.  Otherwise, this is one ruling I agree with.

--U.K. engineering group Rolls-Royce saw its shares crater 20% on Thursday after the jet engine maker issued its fifth profit warning in 20 months and gave notice it was reviewing shareholder payouts.  It was the second worst day for the company since its IPO in 1987.

Rolls-Royce is the world’s second-largest maker of aerospace engines. Analysts say the company is massively bloated and it needs to become leaner to compete against the likes of General Electric and Pratt & Whitney.

Decisions by big airlines to retire older aircraft earlier than expected and in greater numbers is taking a toll on Rolls-Royce’s service earnings.  This segment, servicing and maintaining engines, accounts for about half of the group’s revenue, with bigger turbines for long-haul jets representing the majority.  [Financial Times]

--As reported by Hugo Martin of the Los Angeles Times, by the end of the year, the airline industry is expected to have collected $59.2 billion in passenger fees and other income besides airfares, an 18.8% increase over last year.

Based on an analysis of 180 airlines worldwide, Wisconsin-based IdeaWorks Co. estimates the industry will generate $36.7 billion from passenger fees, including checked bag fees and food sales, with the rest coming from items such as the sale of frequent flier miles to credit card companies.

Such fees will generate 8% of the industry’s total revenue, according to IdeaWorks.

--E-commerce giant Alibaba broke its own record for sales on China’s Singles Day, the world’s biggest online shopping event; $14bn.  In comparison, sales on Cyber Monday, the biggest online shopping day in the U.S., hit $1.35bn, according to ComScore.

--Anheuser-Busch InBev said it has finalized an agreement to acquire rival SABMiller for about $105 billion.

In hopes of gaining regulatory approval, SABMiller said it would sell its 58 percent stake in MillerCoors in the United States to its joint venture partner Molson Coors Brewing Company for about $12 billion.

--Nissan Motor Co. joined Toyota and Honda in deciding to stop using Takata air bag inflators.  More than 30 million cars have been recalled worldwide since 2008 over Takata’s defective inflators that have been linked to eight deaths and more than 100 injuries.

--In further evidence of Russia’s deep recession, the number of new passenger cars sold in the country dropped by 43 percent in the first nine months of the year, the RIA Novosti news agency reported.

--Pemex, Mexico’s cash-strapped state oil company, has pension liabilities of some $90bn, equivalent to about 9 percent of Mexico’s GDP.  So the company just reached a deal with its powerful union to modify its burdensome pension scheme, as reported by the Financial Times’ Jude Webber.

“But employees need not fear the generous cradle-to-grave embrace of the country’s biggest company is about to disappear: they can retire on 100 percent pay at the age of 60, after 30 years’ service – an increase of five years compared with the previous regime.”

Recently Pemex announced a third-quarter loss of nearly $10bn.

--Apple Inc. is hiring an additional 1,000 employees for its operations in Cork, Ireland, as the company doubles down on its European headquarters despite EU pressure on the Irish government to review its tax deal with them.  I didn’t realize Apple already has 5,000 employees in Ireland.

EU antitrust regulators are examining sweetheart tax deals that gave companies like Apple an illegal advantage over other companies.  Apple counters it is receiving the same treatment and is subject to the same tax laws as other companies doing business in the country.

Speaking of Apple, I went to The Mall at Short Hills, a one-minute drive from my place, to do a channel check on the crowd at the Apple store on a Wednesday morning and I was a little surprised how crowded it was, though it was Veterans Day so many had the day off.

But I’m amazed every time I go “The Mall,” as it’s known in these parts, because it is so over-the-top in the kind of stores it has.  I mean most of these places just need 3 or 4 sales a week to pay the rent, I’m imagining.  So my friend Jimbo alerted me the other day to a new store, “The Art of Shaving,” and let’s just say it’s interesting.  Actually I really can’t comment further, it’s about the sales personnel.

But here it was, Nov. 11, and there was Santa, taking photos with the little ones and this was the most authentic looking Santa I’ve ever seen.  In fact I think it’s the real Santa, just pressing the flesh before his major crunch starts Thanksgiving weekend.  [“Would you freakin’ elves do a better job with the Star Wars toys?!  Do I have to do everything myself around here?!”]    

--From the Wall Street Journal’s “Heard on the Street” column:

“The cord-cutting results are in.  But there will be plenty of debate about what the data means.

“U.S. Pay-TV providers lost a net 357,000 subscribers in the third quarter, according to MoffettNathanson. That was more than double what they lost in the third quarter of 2014, but well down on a loss of 605,000 in the second quarter....

“For the industry as a whole, viewers continued to cut the cord, but the pace wasn’t as alarming as it seemed in the second quarter. That prior period caused media-stock investors to hit the panic button over cord-cutting.  Even if this quarter was a stalemate, that is better than a rout.”

What a lot of people are beginning to understand is that cord-cutting is not in any way a cheaper long-term option. 

--Update: Chipotle Mexican Grill Inc. is preparing to reopen 43 restaurants in the Pacific Northwest following an E. coli outbreak that sickened over 40 customers (15 in Oregon, 27 in Washington state).

--Chinese billionaire Liu Yiqian stunned the art world in paying $170 million for Amedeo Modigliani’s Reclining Nude.  It was the second-highest price achieved at auction for a work of art.

Mr. Liu made his estimated $2.1 billion fortune through the stock market and once paid $63 million for a Tibetan tapestry.  He said he was placing the Modigliani in his own museum so that ordinary Chinese will be able to view it.

It is pretty amazing that Liu grew up in a working class family in Shanghai, saved enough to buy his own taxi, and then realized he had “an exceptional nose for the market,” as he told Bloomberg earlier this year.

In May an anonymous buyer paid $179 million for a Picasso.

[A friend, who needs to go nameless, said Alberto Vargas’ girls were better than Modigliani’s and thus worth even more.]

--Sotheby’s says a rare blue diamond has sold for a record $48.5 million at a Geneva auction. The 12.03-carat Blue Moon diamond, set in a ring, had been estimated to go for $35 million to $55 million.

Sotheby’s said the jewel was purchased by a Hong Kong private collector.  I hope whoever ends up wearing it doesn’t accidentally leave it someplace like a restroom at Newark Airport.

--I’m surprised “The Peanuts Movie” had a solid debut last weekend with $45 million in domestic ticket sales.  Didn’t see that coming.  About 70% of the viewers were families.

Disney’s “Star Wars: The Force Awakens” opens on Dec. 18.

--New York Attorney General Eric Schneiderman is playing the role of spoilsport for fantasy sports fans in the state, issuing a cease-and-desist order to DraftKings and FanDuel, which they are contesting.  Schneiderman alleges they are illegal gambling operations.

But as the Wall Street Journal editorialized:

“The kicker is that the AG isn’t seeking to close down the companies’ offices in New York, which employ hundreds and pour in tax revenue from its operations in other states.  If the businesses are illegal, why not bar them entirely?  But then Mr. Schneiderman’s prosecutions are often driven more by politics than law. This one looks like a head-to-head competition with U.S. Attorney Preet Bharara, who also opened an investigation into the sites last month.

“FanDuel and DraftKings can challenge his order in court, but in the meantime tens of thousands of fantasy players can thank Mr. Schneiderman for ruining a diversion from life’s other burdens.”

Frankly, Schneiderman is a loathsome ass.  I do like Bharara.

--Finally, the local NBC affiliate in New York has been running a series this week that is highly disgusting.  Their investigation found that when you ordered meals off two delivery sites, Seamless and grubHub, often the restaurants you thought you were ordering from didn’t exist...they were fake addresses.  Ergo, you got your food at the agreed upon price, but you have no idea where it’s made, which is pretty important for you and health officials if you got sick.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Iran: Syrian government forces achieved their highest-profile victory since Russian intervention in retaking a key airbase east of Aleppo from ISIS.  Over 100 were killed in the fighting, according to the Britain-based Syrian Observatory for Human Rights.  But at the same time, rebels fired two rockets on the loyalist stronghold of Latakia, killing at least 23 civilians, the deadliest attack on the heartland of the Alawite sect, to which Assad and many high-ranking security officials belong, and where Russia has its airbase and sea port.

For its part the United States and its allies sharply increased airstrikes against oil fields in eastern Syria controlled by Islamic State.  The oil has been generating $40 million a month for the group.  After being overly cautious in terms of potential civilian casualties in any bombing campaign, the White House has finally decided to step up attacks and inflict damage that takes longer to fix.

And then at week’s end we learned the U.S. is aiding Kurdish fighters as they launched an offensive to retake the Iraqi border town of Sinjar, which is on a key supply line between ISIS’ strongholds Raqqa in Syria and Mosul in northern Iraq.  The Kurds reportedly reached the town center on Friday, a huge morale booster, though Kurdish forces encountered little resistance, suggesting ISIS fighters pulled out prior to the advance.

Past ‘victories’ have also been fleeting, witness a past attempt to retake Sinjar that stalled in December.  The fight to take the Kurdish town of Kobani in northern Syria took about four months – despite hundreds of airstrikes by the U.S.  Sinjar was first taken by IS in August last year shortly after they seized Iraq’s second-largest city, Mosul.

The Pentagon also announced that IS militant Mohammed Emwazi, known as Jihadi John, was killed in a “flawless clean hit” in Syria.  Initially it was reported he had been “evaporated” by the U.S. drone strike.

Emwazi was the face of ISIS terror and he first came to notoriety in a video in August 2014 which showed the beheading of U.S. journalist James Foley.  He also appeared in videos showing the killings of U.K. hostages Alan Henning and David Haines, as well as American journalist Steven Sotloff and two Japanese journalists shortly before they were killed.

As for Russia, no doubt it will increase its military involvement in Syria in light of the terrorist bombing of Metrojet Flight 9268.  But any escalation has to be weighed back in Moscow against probable retaliation against Russian interests worldwide.  From personal experience, I’d be leery of going to the Bolshoi theatre.  [I’ve been appalled at the lack of security there in my trips to Moscow in the past, including right after the Chechen terror attack on a Moscow theatre in 2002.]

In Beirut, Lebanon, twin suicide bombings hit a Shiite religious gathering on Thursday in a neighborhood controlled by Hizbullah, killing at least 43 and wounding more than 180.  The near-simultaneous blasts, just 150 meters apart, were carried out by men wearing explosive belts.  But it could have been much worse.  A third bomber’s belt only partially detonated, while a fourth was arrested.  This individual then confessed he was part of a four-person ISIS cell sent in from Syria in retaliation for Hizbullah, Russian and Iranian attacks on ISIL.

Meanwhile, in Tehran, President Hasan Rohani said the nuclear deal between world powers and Iran could lead to better relations between Tehran and Washington, however, Rohani said he expected the United States to apologize to Iranians before diplomatic relations could be restored. 

In an interview with an Italian newspaper, ahead of a trip to Italy this weekend, his first to a European capital, Rohani said:

“If (the agreement) is well applied it can lay the foundation for fewer tensions with the United States, creating the conditions to open a new era.  But if the Americans don’t respect their part of the nuclear accord, then surely our relationship will remain as it has been in the past,” he said.

Rohani added that if the Americans “modify their policies, correct errors committed in these 37 years and apologize to the Iranian people, the situation will change and good things can happen.”

What a guy.

Israel: Prime Minister Benjamin Netanyahu met with President Obama in the oval office, the first such face-to-face conversation between the two since October 2014.  The administration conceded that there is no hope of a two-state agreement between Israelis and Palestinians in Obama’s remaining 14 months in office.  Netanyahu did pledge his support for a two-state solution on Monday morning, but reality is intervening.

The Palestinians, for example, have insisted they will not talk with Israel until it halts all settlement building in east Jerusalem and the West Bank and Netanyahu has refused to do so, offering the stumbling block to a two-state solution is the Palestinian refusal to recognize Israel as a Jewish state.

Separately, in a speech at the American Enterprise Institute this week where Netanyahu was honored, the prime minister said he told President Putin in Moscow in September that for Israel, its red line when it came to Russian efforts in Syria was that Iran not be allowed to establish an offensive corridor on Syria’s border with the Golan Heights.

China: The U.S. flew two B-52 bombers near the artificial islands China built in the South China Sea in yet another challenge to Beijing’s claims of sovereignty in the region.  Two weeks earlier, a U.S. Navy destroyer sailed within 12 nautical miles of some of the islands, which the U.S. contends China will use for military purposes to enforce its territorial claims as well as control one of the world’s vital shipping lanes.

In the case of the B-52 flights, Chinese air-traffic controllers warned one of the aircraft that it had “violated the security of my reef,” as U.S. Army Major Dave Eastburn, a spokesman for the U.S. Pacific Command, related.

The flights, incidentally, originated from Andersen Air Force Base on Guam, which Americans need to know is a critical, and rapidly expanding area of operation, with growing Chinese military capabilities an increasing threat to the island as well.

Speaking of which, Defense One’s Patrick Tucker reports: “A group of scientists from China may have created a stealth material that could make future fighter jets very difficult to detect by some of today’s most cutting-edge anti-stealth radar.

“The researchers developed a new material they say can defeat microwave radar at ultrahigh frequencies, or UHF.  Such material is usually too thick to be applied to aircraft like fighter jets, but this new material is thin enough for military aircraft, ships, and other equipment.”

The Chinese team published their paper in the Journal of Applied Physics.

On Taiwan, President Ma Ying-jeou is under fire from opponents who accused him of selling out by holding a historic summit last weekend with China’s President Xi Jinping.

The meeting in Singapore was the first between the leaders of the two sides since their split in 1949.  Taiwan has never formally declared its independence from Beijing, which sees it as a renegade province to be reunified with the mainland, by force if necessary.

Ma, though, has encouraged ties with the mainland, including the start of direct flights between the two that have spurred tourism, but this policy of alignment has become increasingly unpopular, with the pro-independence Democratic Progressive Party (DPP) looking for a big victory in upcoming presidential elections.  Protesters tried to storm parliament in Taipei as Ma left for Singapore on Saturday.

Also last Saturday, in a speech at the National University of Singapore, President Xi said China will always ensure freedom of navigation and flight in the South China Sea, but that disputes over the contested waters should be settled only by the countries directly involved, which was a veiled reference to the United States, stressing Beijing was committed to a peaceful resolution with “countries with a direct stake in the issue.”

And on the replacement of China’s “one-child policy” with a two-child one, from an editorial in The Economist:

“Bizarrely, the (Communist) party still believes that coercion remains necessary. Those who have had two children in violation of the previous policy will still have to pay off their fines. It is likely that those who have three children will be punished. There is no evidence that lifting these controls would result in a crippling population surge.  So the party’s insistence on maintaining them appears mostly a way of demonstrating power and saving face – as well as the jobs of the 1m-strong army of family-planning officials, who thrive on issuing fines.

“The party would struggle to admit that the world’s biggest attempt at demographic engineering has failed. But that is what it must do by lifting the remaining restrictions.  Not for the sake of boosting the birth rate – it may well be too late for that.  Rather because, after forcing so many Chinese to suffer to such little effect, a disastrous policy deserves to be abolished.”

Lastly, President Xi, contrary to reports he may be winding up his signature anti-corruption purge, has doubled down, detaining the heads of three industry giants – in banking, aviation and auto manufacturing (the second in command at Agricultural Bank of China, the president of Dongfeng Motor and chairman of China Southern Airlines, Asia’s largest carrier).

It’s all about intense factional fighting and efforts to cement positions ahead of the next political cycle.

Bo Zhiyue, director of the New Zealand Contemporary China Research Center in Wellington, told the Financial Times’ Lucy Hornby:

“Once you have a campaign like this going on you have people working within the campaign to secure their own position or defeat internal rivals for promotion.”

Hornby:

“Reports of teams from the anti-corruption watchdog ensconced in financial offices – as part of investigations also manned from province or company offices – ‘is making people nervous,’ Mr. Bo said.”

Russia: President Vladimir Putin ordered an investigation into claims the country’s athletes have been part of a systematic doping scheme, as he addressed a World Anti-Doping Agency independent commission that revealed sweeping findings on Monday.

Putin said he wanted “professional cooperation” with anti-doping bodies.  “A sporting contest is only interesting when it is honest.”

The problem is Wada uncovered evidence of Russian government involvement, with officials in the testing labs.

[Friday, the IAAF suspended Russian track and field from next year's Olympics unless it convinces the world it has cleaned up its act.]

Editorial / New York Post

“Last December, Wada set up an independent commission to check out a German documentary’s charges of massive doping by Russian track-and-field athletes.

“ ‘It’s worse than we thought,’ Richard Pound, the commission chairman, said Monday.  His report points to a ‘deeply rooted culture of cheating.’

“The abuse goes back years, to the 2012 London Games and earlier.  Russian officials gave performance-enhancing drugs to athletes, warned the jocks about ‘surprise’ drug tests and paid more than $1 million in bribes to bury ‘positive’ test results.

“The official Russian anti-doping lab was part of the scam – with the Federal Security Bureau deeply involved....

“Big picture: Global athletics – hosting top events, having Russian jocks win big – are key to legitimizing Putin’s corrupt rule. His regime will bribe, cheat and cover up as needed to inflate Russia’s image.”

Separately, the Russian Justice Ministry accused the Memorial human rights organization of seeking to overthrow the government.  Memorial received a letter from Justice on Nov. 9 accusing them of “undermining the constitutional order of the Russian Federation, calling for the overthrow of the current government and changing the country’s political regime,” the chairman of the NGO’s board Alexander Cherkasov wrote on the Memorial website on Tuesday.

Memorial board member Oleg Orlov said of the 15-page letter, which will be challenged in court:

“Not a single example was given of a call to overthrow the government, but there are examples of our criticism of the authorities and our disagreement with them, our utterances.  Apparently, now criticism of the authorities is equivalent to calling for the overthrow of the government.”  [Moscow Times]

Lastly, Julian E. Barnes and Gordon Lubold / Wall Street Journal:

“Senior U.S. military leaders have proposed sending more forces into Europe on a rotating basis to build up the American presence and are stepping up training exercises to counter potential Russian interference with troop transfers in the event of a crisis with Moscow.

“The new steps would allow for the presence of multiple U.S. brigades in Europe at any given time, increasing that number above current limits....

“Gen. Philip Breedlove, the supreme allied commander of the North Atlantic Treaty Organization, said he would like to see more brigades committed to Europe as rotational forces....

“In the event of a conflict, Gen. Breedlove said the U.S. will face a problem both with flying troops from the U.S. to Europe, as well as moving forces and equipment from airports and seaports to front-line conflict zones.

“ ‘The Russian navy is not going to stand by and watch us reinforce Europe,’ in the event of a confrontation, said Gen. Breedlove.  ‘For two decades we haven’t thought about the fact that we are going to have to fight our way across the Atlantic.’”

The West is lucky to have Gen. Breedlove in charge.  He is one man who gets it.

Myanmar: The opposition National League for Democracy, headed by Nobel laureate Aung San Suu Kyi’s, won a landslide election victory in last weekend’s vote, though the final result wasn’t known until Friday, and even now some seats are still being contested.

With more than 80% of contested seats declared, the National League has more than the two-thirds it needs to choose the president, ending decades of military-backed rule.

A quarter of seats are automatically held by the military, meaning it remains hugely influential.

Under the constitution Ms. Suu Kyi cannot become president herself, due to a technicality: She has close relatives who are foreign-born, but Myanmar is on track to form its first civilian government in more than 50 years.

Suu Kyi has said she will become the country’s de facto leader, acting “above the president,” but the military will continue to play a role and it is unclear just how much power she’ll have.

Random Musings

--So I watched the Republican presidential debate on Tuesday and it’s always funny how everyone has a different opinion of who the winners and losers were.  I just thought the whole exercise was rather non-descript.  Fox Business’ moderators deserve credit for keeping the debate from going off the rails but in terms of the candidates, the bottom line is you can no longer say “it’s early.”

True, it’s early in terms of the fall 2016 campaign, but we are just 10 weeks from the Iowa caucuses (Feb. 1), to be followed eight days later by New Hampshire (Feb. 9), and it’s clear both Donald Trump and Ben Carson are going to be around long after these two openers.  One of them is also likely to win the two.

So it’s all about who is still standing after New Hampshire.  Marco Rubio and Ted Cruz will be around, but if you aren’t top six in Iowa and/or top five in New Hampshire, there really is zero reason to continue.

As for my personal pick(s), I have been careful not to say anything in this regard for a month or so.  Last time I revealed my hand I said I liked Rubio and John Kasich, but I also said of the latter, months ago, that the rap on the Ohio governor was he tended to get “preachy” and that side of him revealed itself in a bad way in Milwaukee.  He is the most qualified man or woman on the stage, but he blew his admittedly very long shot at the nomination.  Kasich would be a terrific veep candidate, still, seeing as how Ohio is also rather important, but the next debate he needs to turn the charm back on. Tuesday, he was an a-hole.

As for Sen. Rubio, he’s obviously made some big strides in recent weeks.  But, overall, my mind is still very open and I’ll leave it at that.

Meanwhile, Jeb Bush continues to flounder.

John Podhoretz / New York Post

“Poor Jeb Bush. He needed a triumph in Tuesday night’s debate to do something to turn around his degenerating campaign – something dynamic, something memorable, something powerful.

“Bush was substantive.  But so was Marco Rubio.

“He was detailed. But so was Carly Fiorina.

“He was serious.  But so was Ted Cruz.

“He wasn’t out of his depth, the way Ben Carson was when he talked about foreign policy and banking policy – in a series of answers that gave new meaning to the word ‘incoherence.’

“He wasn’t bizarre, the way Donald Trump was when he said we should have taken ‘big chunks of oil’ from Iraq and given those big chunks to wounded veterans.

“He wasn’t rude and interrupting and wildly discursive, the way John Kasich was.

“And he didn’t assert that it was a violation of conservatism to increase military spending from its current historical lows, the way Rand Paul did.

“He made no mistakes. But, alas for him, he was boring.  And, for better or worse, no one else on stage was. This was Bush’s best debate, and that’s a big problem for him, because it was only really good if you contrast it with his previous performances....

“All the elements are in place for Jeb Bush to have a new moment in the sun. All the elements except for Jeb Bush....

“There’s no reason to believe Trump and Carson harmed themselves with their core supporters.  There’s some reason to think Ted Cruz helped himself quite a bit, and that Rubio helped himself some.

“But ah, Jeb.”

Edward Luce / Financial Times

“U.S. election cycles are geological compared to other democracies.  So it is important to avoid what Washington pundit David Rothkopf calls ‘temporal narcissism.’  Yet the fourth debate may well prove a staging post on the Republican party’s return to the debates that preceded the rise of Mr. Trump.  Those differences are real.

“The contest between Marco Rubio, the new establishment favorite, and Ted Cruz, the man every establishment Republican detests (some openly), is increasingly central to the 2016 race.  Mr. Rubio wants to personify the middle class American dream.  Mr. Cruz stands for purish constitutionalism. Likewise, the clash between Rand Paul, the erstwhile libertarian, and Messrs. Rubio and Cruz over foreign policy on Tuesday represents sharp policy contrasts within the GOP.  The latter two argued for muscular spending on defense.  Mr. Paul dismissed most U.S. foreign policy intervention as a waste. The more such rifts are explored, the less Mr. Trump and Mr. Carson seem able to contribute.

“Two conclusions are worth stating. First, the usual health warning about journalistic limitations. I could be wrong in thinking it was a bad night for Mr. Trump and Mr. Carson.  What counts are the views of registered Republicans.

“The late Democratic senator Daniel Patrick Moynihan once said that you are entitled to your own views but not to your own facts.  When it comes to debates there are only perceptions – and the gulf between the GOP grass roots and the professional media is vast.

“Second, Mr. Bush once again failed to trouble the scorers.  In the last week, he relaunched his campaign with a ‘Jeb’ll fix it’ mantra....(But) on Tuesday, Mr. Bush sank a little further below the waves.  If Jeb can’t swim by now, he never will.  I make this second observation with more confidence.”

Charles Krauthammer / Washington Post

“Fox Business...conducted a meaty debate during which a tomato or two was occasionally tossed.  John Kasich came itching for a fight. Donald Trump pitched back with his usual high-mindedness, responding at one point to Kasich with ‘I’ve built an unbelievable company worth billions and billions of dollars.  I don’t have to hear from this man.’

“Despite such exceptions, the Fox Business debate marks the point at which the GOP campaign begins leaving the entertainment phase and entering the serious season.  The moderators’ modesty and straightforwardness created an atmosphere of transparency that allowed the candidates to reveal themselves, advertently or not.

“Kasich did.  Unfortunately, it was an irritable self-righteous Kasich who showed up, doing himself no good.  At the other end of the podium, Rand Paul had his best night.  He certainly deserves credit for courage.  His noninterventionist foreign policy is far outside the GOP mainstream, which is why Marco Rubio won the room in their exchange on defense spending and intervention.  But Paul defended his minority view stoutly, regardless.  Give him points for principle.

“In a year when showmanship is king, however, principle won’t help him much to get out of single digits.  You could almost see Paul on the far right of the stage and Kasich on the far left dropping through trapdoors, leaving six finalists.

“Or perhaps not six.  Jeb Bush, too, had his best night.  He was competent and solid but, unfortunately, still inarticulate.  You almost feel sorry for the travail he is about to endure on his increasingly long-shot campaign.”

Kathleen Parker / Washington Post...on Dr. Ben Carson.

“The problem with ‘bad’ Ben Carson is that hardly any of his stories can be verified by reporters, leading to doubts about their veracity.  If most people fib or exaggerate their resumes to get their dream job, what kind of man diminishes a story beloved by all? Why not just tell us Ronald Reagan was a pessimist?

“On the one hand, one might say, who cares?  On the other, people naturally would be curious to know more about histories that conflict so dramatically with the persona of a man they thought they knew.

“Is he telling the truth? Does his memory not serve? Stories also have changed in the tellings, which isn’t unusual among storytellers.  It’s when you decide to run for president that they become problematic.  Rather than offering clarity, Carson has defaulted to blaming the media for unfair, disproportionate vetting.

“Nonsense.  Why bait a hook if you don’t want a fish?”

--Not many polls this week.  A Monmouth University Poll of likely South Carolina voters had Carson edging Trump 28-27, with Rubio third at 11%, followed by Ted Cruz (9%) and Jeb Bush (7%).

On the Democratic side, the same Monmouth survey had Hillary Clinton holding a 69-21 lead over Bernie Sanders in the Palmetto state.

--President Obama suffered a big blow to his immigration policy when a U.S. appeals court ordered Obama not to implement his executive order that shields more than 4m illegal immigrants from deportation, on the grounds that the administration would probably lose a legal challenge brought by Texas and 25 other states.

So there is a real possibility the case could be heard by the Supreme Court.

Obama’s plan was laid out last November after Congress failed to pass comprehensive immigration reform.  The executive order bars the deportation of the parents of U.S. citizens or legal permanent residents who have been in the U.S. for more than five years.

New House Speaker Paul Ryan recently told CBS News that he would not push for immigration reform because Congress could not trust Mr. Obama.

“I think it would be a ridiculous notion to try and work on an issue like this with a president we simply cannot trust on this issue.”

Well, you saw in Tuesday’s debate how the issue is still front and center.

--Editorial / Washington Post

“Solar flares, coronal mass ejections, solar particle events, solar wind – these aren’t terms that only science fiction characters and astronauts need worry about.  Though Earth’s atmosphere and magnetic field protect humanity from a wide range of deadly space hazards, the safety blanket is not impermeable. The boisterous, volatile sun regularly throws off plasma, other particles and radiation that, with the right intensity and heading, could wreak havoc on modern society.  In fact, extreme ‘space weather’ recently came scarily close to slamming into Earth – and it has a shockingly high chance of knocking out power grids and doing other damage in the next 10 years, according to scientists’ best estimates.

“That’s why it’s good the White House recently released a strategy to prepare for disastrous space weather.  Now comes the hard part – putting time and money into the strategy....

“A huge coronal mass ejection – a discharge of plasma from the sun’s corona – hit Earth in 1859, scrambling telegraph networks and even causing some telegraph stations to burn down. Nowadays, human society is far more dependent on all sorts of electronics, from the satellites in orbit to the power stations, on the ground, that are vulnerable to interference from solar events.  A relatively small solar discharge hit the planet in 1989, knocking out power to millions in Quebec.  A much larger one nearly hit Earth in 2012.  ‘We’ve dodged a lot of bullets,’ says the University of Colorado’s Daniel Baker, a space weather expert.

“A 2009 National Academy of Sciences study concluded that a head-on collision with a large-scale geomagnetic storm could do astounding amounts of damage, costing $2 trillion in the first year of recovery.  Gas pipelines and drinking water pumps could be knocked out.  Experts estimate that there is a 12 percent chance of such an event occurring within the next 10 years – in the same ballpark as a magnitude 8 earthquake striking the country.”

Bottom line, Congress needs to fund satellite programs to improve space weather forecasting.  If warned in time, power companies and others can minimize the damage a major solar event would cause.

--Gee, the University of Missouri received some good publicity this week.  Or maybe not.  I imagine it will be easier to get in next fall if you are a high school senior looking for a backup school.

Actually, I was sickened by a lot of what I saw on other college campuses in terms of the denial of “free speech” and a student at Yale using the F-word in a diatribe against a professor there.

--Some postmortems on President Obama’s decision to kill the Keystone XL pipeline project.

Editorial / New York Post

“So much for President Obama’s ‘all of the above’ energy policy – and the idea that Democrats are the ‘party of science.’

“And jobs? Forget those, too.

“All that went out the window Friday (Nov.6) when Obama, after years of dithering, finally nixed the Keystone XL pipeline that would have transported oil from Canada down to Gulf Coast refineries.

“Secretary of State John Kerry, who made the official call, admitted it was pure politics.

“ ‘This decision could not be made solely on the numbers,’ he said.  ‘The United States cannot ask other nations to make tough choices to address climate change if we are unwilling to make them ourselves.  Denying the Keystone XL pipeline is one of those tough choices – but it is the right decision, for America and the world.’

“Not that killing Keystone actually does squat about climate change: The oil will just go by rail and sea instead – at higher cost, and with greater risk of spills.  That’s why State’s environmental review gave the project a clean bill of health.

“But green superstition holds that anything connected to oil (or coal, or even natural gas) is evil. And Obama clearly buys it.”

Editorial / Washington Post

“President Obama rejected the Keystone XL oil pipeline on Friday, ending an unseemly political dispute marked by activist hysteria, GOP hyperbole, presidential weakness and a general incapability of various sides to see the policy question for what it was: a mundane infrastructure approval that didn’t pose a high threat to the environment but also didn’t promise much economic development.  The politicization of this regulatory decision, and the consequent warping of the issue to the point that it was described in existential terms, was  a national embarrassment, reflecting poorly on the United States’ capability to treat parties equitably under law and regulation....

“Mr. Obama and members of his administration argued that rejecting Keystone XL would show that the United States was serious about fighting climate change in advance of an international conference on the topic in Paris later this month.

“Yet world governments are smart enough to recognize what many activists apparently have not: The Keystone XL fight hardly matters in the grand scheme of the global climate.  Perceptions of U.S. climate leadership depend on Environmental Protection Agency rules to reduce emissions from U.S. power plants and cars, not on a domestic political psychodrama.”

--I have gotten a kick out of the war of words between George Will and Bill O’Reilly over O’Reilly’s “Killing Reagan.”

Will:

“Were the lungs the seat of wisdom, Fox News host Bill O’Reilly would be wise, but they are not and he is not.  So it is not astonishing that he is doubling down on his wager that the truth cannot catch up with him.  It has, however, already done so.

“The prolific O’Reilly has, with his collaborator Martin Dugard, produced five ‘history’ books in five years: ‘Killing Lincoln,’ ‘Killing Kennedy,’ ‘Killing Jesus,’ ‘Killing Patton’ and now the best-selling ‘Killing Reagan.’  Because no one actually killed Reagan, O’Reilly keeps his lucrative series going by postulating that the bullet that struck Reagan in March 1981 kind of, sort of killed him, although he lived 23 more years.

“O’Reilly ‘reports’ that the trauma of the assassination attempt was somehow causally related to the ‘fact’ that Reagan was frequently so mentally incompetent that senior aides contemplated using the Constitution’s 25th Amendment to remove him from office.  But neither O’Reilly nor Dugard spoke with any of those aides – not with Ed Meese, Jim Baker, George Shultz or any of the scores of others who could, and would, have demolished O’Reilly’s theory. O’Reilly now airily dismisses them because they ‘have skin in the game.’  His is an interesting approach to writing history: Never talk to anyone with firsthand knowledge of your subject.

“Instead, O’Reilly made the book’s ‘centerpiece’ a memo he has never seen and never tried to see until 27 days after the book was published.  Then Dugard asked the Reagan Presidential Library to find it.

“Recently on Fox News, O’Reilly put this on the screen from Sue Janzen of Yorba Linda, Calif.: ‘We went to the Reagan Library, and were told they do not sell Killing Reagan because it’s not factual.’  Then O’Reilly said: ‘You were deceived, Sue. The Reagan Library is angry at Martin Dugard and me because we’re seeking’ the Cannon memo.  He added: ‘The memo’s disappeared.  But Dugard and I are on the case and the library is not happy about it.’

“ ‘Disappeared’?  His crude intimation was that the allegedly deceptive library is hiding the memo. The library, however, has never had it because when James Cannon wrote it, he was not a member of the White House staff, hence the memo was not a ‘presidential record.’....

“(O’Reilly) began his profitable paltering with America’s past with ‘Killing Lincoln.’  Historians advising the National Park Service, which administers Ford’s Theatre, found a multitude of errors in the first, uncorrected version, in which, for example, O’Reilly repeatedly places Lincoln in the Oval Office, which was built in 1909. The Theatre bookstore still does not sell ‘Killing Lincoln.’  The Theatre gift shop, a commercial rather than educational entity, does.  Four ‘histories’ later, O’Reilly remains slipshod....

“Tidying up after O’Reilly could be a full-time job but usually is not worth the trouble. When, however, O’Reilly’s vast carelessness pollutes history and debases the historian’s craft, the mess is, unlike O’Reilly, to be taken seriously.”

--Baltimore will surpass 300 homicides this year for the first time since 1999.  In 2011, Baltimore celebrated its first year since 1978 with fewer than 200.  [Kevin Rector / Baltimore Sun]

--I was reading a story in the Star-Ledger on the heroin epidemic in my state of New Jersey, similar to far too many other states these days, and I was floored to see there were 781 heroin-related deaths here, according to the N.J. Department of Criminal Justice – “eclipsing homicide, suicide, car accidents and AIDS.”  In four separate counties, the approximate increase in heroin-related overdose deaths in 2014 over 2013 was 25%. 

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

God bless America.

Vive Le France!

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Gold $1083
Oil $40.73

Returns for the week 11/9-11/13

Dow Jones  -3.7%  [17245]
S&P 500   -3.6%  [2023]
S&P MidCap  -3.9%
Russell 2000  -4.4%
Nasdaq  -4.3%  [4927]

Returns for the period 1/1/15-11/13/15

Dow Jones  -3.2%
S&P 500  -1.7%
S&P MidCap  -3.2%
Russell 2000  -4.8%
Nasdaq  +4.05%

Bulls 45.3
Bears 28.9  [Source: Investors Intelligence]

Brian Trumbore