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12/12/2015

For the week 12/7-12/11

[Posted 12:00 AM ET, Saturday, from Kiawah, S.C.]

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.

Edition 870

The War on Terror

This week we learned that the two terrorists in San Bernardino had been radicalized years earlier, which among other things means they came to the U.S. beating the process, or, in the case of Syed Farook, returned a changed man.

We also learned they used gun ranges just days before the massacre, while friend Enrique Marquez supplied Syed and his wife, Tashfeen Malik, with two semi-automatic weapons.

We also learned that in all likelihood, though this hasn’t been proven yet, Tashfeen’s marriage to Syed was arranged, and that her K-1  fiancé visa was a sham.  In fiscal year 2014, the U.S. government issued 519 K-1s from Pakistan, where she was originally from.

And we learned the terrorists came up with the wherewithal to purchase the weapons, ammo and other potential instruments of terror with the help of an online loan of $28,500, though there doesn’t as yet appear to be anything illegal with this aspect of the case.

Congress is in the process of tightening the separate visa-waiver program through which 20 million annually enter the U.S. via 38 countries that are visa-free.  The Paris attackers could have easily entered the U.S. through this loophole.

FBI Director James Comey said at a Senate hearing Wednesday that Islamic State remains intent on sending militants into the United States as well as inspiring Americans and visa holders already here to commit jihad.

“They are trying to do two things:  They are trying to motivate people already in the United States to become killers on their behalf, and they would very much like to, as they aspire to be the leader in the global jihad, send people here to the United States to launch attacks,” Comey told the Senate Judiciary Committee.

Comey said as yet they have not found evidence ISIS has specifically sent anyone to America, but his testimony came as authorities in France identified the third body in the Paris attacks, a 23-year-old male from Strasbourg, France, who went to Syria to join ISIS in late 2013.  He then managed to slip back.

U.S. officials, and their European counterparts, now estimate about 31,000 people from more than 100 countries – including about 4,000 with European passports and dozens of Americans – have joined the fight in Iraq and Syria.

A senior official told reporters on the condition of anonymity, “We’ve never seen anything like this historically.”  [Los Angeles Times]

Regarding Farook and Malik, Comey said the couple was “talking to each other about jihad and martyrdom before they became engaged and married and were living in the U.S.”

For its part, Islamic State  formally declared on Saturday that the couple were followers of the militant group.  If ISIS had had any role in directing them you can be sure they would have taken credit for it.  At the same time that doesn’t mean Syed and Tashfeen didn’t receive some kind of support, financial or otherwise, from the group or an affiliate.

So on Sunday night, President Obama gave just his third speech from the Oval Office to address the San Bernardino shootings.

He said the killings were “an act of terrorism designed to kill innocent people.”

But “freedom is more powerful than fear,” Obama warning that falling prey to divisiveness in American society would play into the hands of extremists.

He also said the U.S. must make it harder for potential attackers to obtain guns, and he warned that Americans “cannot turn against one another by letting this fight be defined as a war between America and Islam.”

“If we’re to succeed in defeating terrorism, we must enlist Muslim communities as some of our strongest allies, rather than push them away through suspicion and hate,” he said.

Obama warned that turning against America’s Muslims would be exactly what Islamist extremists in ISIS want.

The president said terrorism had entered a new phase, from large-scale attacks by al-Qaeda to less complicated attacks by radicalized individuals.

And he reassured us, “Our military will continue to hunt down terrorist plotters in any country where it is necessary.”

Plus, we have a coalition of 65 countries!  Yippee!

Criticism was fast and furious following the address, as the Republican candidates for president weighed in.

Donald Trump tweeted that Obama had too little to say about defeating ISIS in the wake of the attacks in Paris and San Bernardino.

“Is that all there is?  We need a new President – FAST!”

Sen. Marco Rubio, appearing on Fox News right after the speech, said Obama did nothing to “assuage people’s fears.”  We are at war with a radical jihadist group. “Without taking the fight to ISIS on the ground, ISIS won’t be defeated.”

House Speaker Paul Ryan called it “disappointing: no new plan, just a half-hearted attempt to defend and distract from a failing policy.”

Editorial / Washington Post

“The heart of President Obama’s address to the country Sunday concerned what he does not want to do in response to terrorism.  After reviewing steps he has already taken or proposed to fight the Islamic State and prevent attacks inside the homeland, the president delivered what sounded like his main appeal: ‘Our success won’t depend on tough talk, or abandoning our values or giving into fear.’  He went on to explain – again – why he opposes ‘a long and costly ground war in Iraq or Syria,’ and why ‘we cannot turn against one another by letting this fight be defined as a war between America and Islam.’

“Mr. Obama had good reasons to make this pitch.  The San Bernardino, Calif., shooting, following closely on the Paris attacks, has understandably raised anxiety among Americans, who wonder, as the president put it, ‘whether we are confronted by a cancer that has no immediate cure.’  It has also prompted irresponsible and bigoted rhetoric on the presidential campaign trail, where GOP candidates are promising to ‘carpet bomb them into oblivion’ (Sen. Ted Cruz of Texas)* or a ‘total and complete shutdown of Muslims entering the United States’ (Donald Trump).

*Ed. I’ll comment on this later.

“While no one – with the partial exception of Sen. Lindsey O. Graham (R-S.C.) – has propped up Mr. Obama’s straw man of launching another U.S. ground war, some are pretending that quick and facile military solutions exist.  More seriously, there is a real danger that the rhetoric of Republicans will poison one of America’s greatest strengths in this fight, which is the vast majority of American Muslims’ relatively strong integration and loyalty to the country….

“Mr. Obama also was correct in saying that he has stepped up the war in Iraq and Syria since the Paris attacks, taking measures that critics (including us) have recommended for a year or more.  Bombing has increased, and Special Operations forces will be deployed in both countries to help coordinate offensives by local troops – though it appears the U.S. boots may not arrive on the ground for months.

“The new measures give the lie to Mr. Obama’s claim a month ago that the only alternative to his military strategy was putting ‘large numbers of U.S. troops on the ground.’  Unfortunately, he still is not doing what is needed to ‘destroy’ the Islamic State, as the president defined the goal on Sunday.  That destruction would require a Sunni ground force, made up of Syrians, Iraqis and perhaps foreign troops from the Persian Gulf and Turkey, with substantial U.S. support.

“But no such force will go after the Islamic State as long as Syrian dictator Bashar al-Assad and his Iranian and Russian allies are waging their barbaric war on Sunnis in Syria.”

Bret Stephens / Wall Street Journal

“Nobody who watched Barack Obama’s speech Sunday night outlining his strategy to defeat Islamic State could have come away disappointed by the performance.  Disappointment presupposes hope for something better.  That ship sailed, and sank, a long time ago.

“By now we are familiar with the cast of Mr. Obama’s mind.  He does not make a case; he preaches a moral. He mistakes repetition for persuasion. He does not struggle with the direction, details or trade-offs of policy because he’s figured them all out.  His policies never fail; it’s our patience that he finds wanting.  He asks not what he can do for his country but what his country can do for him.

“And what’s that?  It is for us to see what has long been obvious to him, like an exasperated teacher explaining simple concepts to a classroom of morons. Anyone?  Anyone?

“That’s why nearly everything the president said last night he has said before, and in the same shopworn phrases.  His four-point strategy for defeating ISIS is unchanged.  His habit of telling us – and our enemies – what he isn’t going to do dates back to the earliest days of his presidency.  His belief that terrorism is another gun-control issue draws on the deep wells of liberal true belief. His demand for symbolic congressional Authorization for Use of Military Force is at least a year old, though as recently as 2013 he was demanding that Congress kill the AUMF altogether.  Back then he was busy boasting that al Qaeda was on a path to defeat.

“The more grating parts of Mr. Obama’s speech came when he touched on the subject of Islam and Muslims.  ‘We cannot,’ he intoned, ‘turn against one another by letting this fight be defined as a war between America and Islam.’  Terrorism, as he sees it, is to be feared less for the harm it causes than for the overreaction it risks eliciting.

“This is the president as master of the pre-emptive self-reproach – the suggestion that Americans are always on the verge of returning to the wickedness whence we came.  But since when have we turned against one another, or defined the war on terror as a war on Islam?....

“If you see something, say something, goes the ubiquitous slogan.  But heaven help you if what you see and say turns out to be the wrong something – an alarm clock, for instance, as opposed to a bomb.

“This is President Obama’s vision of society, and it is why he delivered this sterile, scolding homily that offered no serious defense against the next jihadist massacre. We have become a country that doesn’t rouse itself to seriousness except when a great many people are murdered.  Fourteen deaths apparently isn’t going to move the policy needle, as far as this president is concerned.  Will 1,400?”

John McCain and Lindsey Graham / Wall Street Journal

“After more than a year of an indecisive military campaign, the U.S. still does not have the initiative.  The threat is growing and evolving faster than the administration’s efforts to counter it.  What’s needed is a comprehensive civil-military strategy to destroy ISIS quickly, while creating conditions that can prevent it, or a threat like it, from ever re-emerging.  In short, America must not only win the war, but also prepare to win the peace.  The U.S. has repeatedly failed to do this, and cannot afford to yet again….

“In Syria, there is no coherent strategy to defeat ISIS or  negotiate an end to the civil war, which is the only way to win a lasting peace.  The administration’s military and political efforts are misaligned. Diplomatically, the White House is seeking a political settlement that removes President Bashar Assad from power.  But militarily, by only addressing ISIS and not the Assad regime’s assault on the Syrian people, the administration is effectively acquiescing to the very Russian, Iranian and Syrian forces that are fighting to keep Mr. Assad in power.  This will only lengthen the conflict, strengthen ISIS and exacerbate the refugee crisis….

“President Obama is fond of invoking lessons from America’s recent wars.  The simplest and most important lesson, however, is the one he rarely mentions: Apocalyptic terrorists cannot be allowed to have sanctuary in ungoverned spaces, from which to plan attacks against the West.  Over the past seven years, those conditions have grown across the Middle East and Africa. If these threats are not removed now, and quickly, no one should be surprised when America gets attacked again.”

Editorial / Wall Street Journal

“The President’s 13-minute Oval Office speech at last acknowledged that last week’s attack in San Bernardino by a radicalized Islamist couple was an ‘act of terrorism.’  It would have been hard for him to say otherwise after his own FBI director, James Comey, had admitted this reality on Friday.  Mr. Obama was looking increasingly detached from reality and the speech was an attempt to recover from his claims that the growing jihadist threat is ‘contained.’

“Yet the president devoted most of his speech to defending the strategy he has pursued for 16 months against Islamic State without much success.  He cited his bombing campaign, but he didn’t mention that the vast majority of sorties drop no bombs because of the limits he has placed on the military.  He mentioned the recent allied bombing of Islamic State’s oil infrastructure, but then why has the U.S. waited so long to take this initiative?

“Mr. Obama was, as usual, especially forceful in explaining why he is refusing to deploy more U.S. ground forces to take the battle to the Islamic State homeland in Iraq and Syria.  But also, as usual, he offered up the false dilemma between his own policy and sending tens of thousands of troops to ‘occupy foreign lands.’

“No one is proposing that U.S. ground troops should occupy either country… (But) an expanded U.S. ground force would provide tactical expertise and above all signal to our allies in the region that the U.S. is committed to defeating Islamic State as rapidly as possible.  No one in the region believes that now….

“Perhaps the oddest note in the President’s speech was toward the end when he claimed that the U.S. will defeat the jihadist threat because we are ‘on the right side of history.’  History is made, not delivered as a birthright, and victory against killers has to be won.  Islamic State has been gaining so much ground precisely because it has appeared to be winning.  Mr. Obama has yet to show that he knows what it takes for the U.S. to win.”

*And speaking of winning, about Ted Cruz’ comment we should “carpet bomb” ISIS, in the first, literally, hours after the Paris attacks, I wrote in this space, specifically, the U.S. should carpet bomb Raqqa and Mosul.  I believe that more than ever.  It is impossible to avoid civilian casualties, but as the Journal alludes to above in that last paragraph, ISIS has not tasted real defeat…real pain.  It has lost some battles, but it needs to be obliterated for the disaffected around the world to see a loser, not a winner.  This must occur in their strongholds, only, at first, and as I said that Friday night after Paris, that needs to include their prime havens in Libya as well.  Sen. Cruz was partially correct.  He just needed to be more specific.

If we keep pussyfooting around with our current rules of engagement, our own casualties will pile up, not theirs. 

Washington and Wall Street

While the Street stumbled badly this week, it’s really all about next week and the Federal Reserve’s decision to finally hike interest rates, or so it was presumed until the market’s action on Friday.

The major averages had their worst week in months, with the Dow Jones losing 3.3% to 17265, the S&P 500 declining 3.8% and Nasdaq cratering 4.1%.

So much for the Dec. 4 strong jobs report and any halo effect.  Now it’s about commodities crashing and major credit market dislocations.

Regarding this last bit, Martin Whitman, one of the best-known mutual fund investors for four decades, suddenly decided he had to liquidate his Third Avenue Credit Fund, which focuses on high yield bonds, rather than allowing for investors to withdraw their investments per a normal mutual fund redemption process.

Whitman had to block shareholders from doing so when the portfolio suffered not only from poor performance, but also from illiquidity in his positions amid the rush to the door.

Far more on this next time.

As for the Fed’s potential action next week, former U.S. Treasury Secretary Lawrence Summers does not want to see the Fed hike rates.

“(There) is a profound worry.  U.S. and international experience suggests that once a recovery is mature, the odds that it will end within two years are about half and that it will end in less than three years are over two-thirds. Because normal growth is now below 2 percent rather than 3 percent, as has been the case historically, the risk may even be greater now.  While the risk of recession may seem remote given recent growth, it bears emphasizing that since World War II, no postwar recession has been predicted a year in advance by the Fed, the White House or the consensus forecast….

“I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it.  The knowledge that this is the case must surely reduce confidence and inhibit demand.

“Central bankers bravely assert that they can always use unconventional tools.  But there may be less in the cupboard than they suppose.  The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable.  There are severe limits on how negative rates can become.  A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.

“The Fed will in all likelihood lift rates this month.  Markets will focus on the pace of the Fed’s tightening.  I hope and expect that their response will involve no great turbulence.  But the unresolved question that will hang over the economy is how policy can delay and ultimately contain the next recession.  It demands urgent attention from fiscal as well as monetary policymakers.”

Europe and Asia

The eurozone economy expanded by 0.3% in the third quarter, according to Eurostat, 1.6% year-over-year.  Germany grew 0.3% (1.7% ann.), France 0.3% (1.2%), Spain 0.8% (3.4%), Italy 0.2% (0.8% ann.)

European Central Bank president Mario Draghi sent the euro rising two weeks ago after he announced a smaller cut to the central bank’s deposit rate than some had forecast, as well as an extension to its bond-buying program that some found underwhelming, and this week the euro just kept climbing to $1.10 when parity had been the trade.

Meanwhile, in Greece, where the economy fell 0.9% in the third quarter over the second, parliament approved a 2016 budget by a slim 153 to 145 margin and the people are far from happy as the budget makes further cuts to pensions, as well as defense.

Prime Minister Alexis Tsipras is under immense pressure to begin showing his country’s poorest citizens that progress is being made, but the latest austerity measures were forced on him by Greece’s creditors as his only way of receiving further bailout aid, and he has to exact even further pain in the coming weeks to satisfy the EU, ECB and the IMF.

That said, the banks have been successfully recapitalized.

“A Grexit [from the euro] is no longer on the table,” Tsipras said this week.  “And all the banks have survived….

“Our position is that main pensioners can’t be touched – they’ve been reduced 11 times by previous governments. But it’s a difficult balance: we have to create more jobs but we can’t stage another raid on pensioners.”

The government needs to complete a first review of the latest bailout program in February in order to open promised talks on long-term debt relief from eurozone governments.  The IMF has suspended its share of aid payments until it sees how Athens’ reform efforts go, but then the IMF wants to see Greece receive substantial debt relief, which the EU and ECB are against (read Germany).

Eurobits: Let’s give it up for Ireland.  The Irish economy expanded at a 7% pace in the third quarter vs. a year ago, according to the Central Statistics Office, growing 1.4% in Q3 over Q2, which was actually a slowdown from the first half of the year.  But the recovery is broadening, with construction now picking up after years in the doldrums owing to the Irish property crash.

Poland and Romania are exhibiting strong growth of their own; 3.7% and 3.6%, annualized.

Spain’s big  election is coming up December 20 and a centrist party, Ciudadanos, led by Luis Garicano, has made huge strides this year, rising in the polls from a mere 3% to 19%, thus making it the probable kingmaker.  Should it gain a similar amount of seats, it would be impossible to rule the country without its support.  But Garicano wants to win it all.

I cover the big vote in France, round one, down below.

On the migration front, the EU announced that asylum applications have been surging, with 413,800 people applying for asylum in the third quarter, a jump of 250,400 from the same quarter in 2014; almost twice as many as the second quarter, according to data from Eurostat.  In September alone, more than 160,000 applied for the first time, up from about 60,000 in September last year.

The top three nationalities seeking asylum were unsurprisingly Syrians, Afghanis and Iraqis, with 138,000 from Syria.

The number of asylum seekers in Germany is expected to approach one million this year, 965,000, as the government raised its formal estimate from 800,000.

Of the 965,000 just over half will be Syrians.  206,000 refugees were newly registered in Germany just in November, with 57,800 applying for asylum.  Authorities are granting it to about 70 percent.  What a nightmare.

Turning to Asia, China, in U.S. dollar terms, saw it imports fall 8.7% in November compared with a year  earlier, after a 12.6% drop in October, customs data showed.  Exports last month fell 6.8% year-on-year, steeper than October’s 5% decline.

China’s foreign exchange reserves also plummeted $87bn in November; the third-largest monthly decline on record, renewing worries of capital outflows after reserves had seemingly stabilized.

China’s reserves, $3.4 trillion, are still the world’s largest.  But they have long been seen as the ultimate guarantor of financial stability, so the unprecedented outflows are not good.  The imminent rate hike by the U.S. Federal Reserve isn’t helping matters.

In Japan, it turns out the economy isn’t in recession again after all.  Japan is known for large revisions to initial forecasts, but this one was larger than most.  Output expanded at an annualized rate of 1% in the third quarter, according to the Cabinet Office, when the government first said the economy had contracted by 0.8%. 

Output had contracted 0:5% in the second quarter, which is why the initial estimate on Q3 made it two down quarters in a row, ergo recession, but now, when looking at the first nine months of the year, the economy is growing at an average rate of 1.6%.  [GDP was up 4.4% ann. in the first quarter.]

Street Bytes

--U.S. Treasury Yields

6-mo.  0.51%  2-yr. 0.87%  10-yr. 2.13%  30-yr. 2.87%

There was a major flight to quality on Friday, with equity markets taking on gas and investors looking for stability in their portfolios.

Separately, the producer price index for November rose 0.3%, with the core, ex-food and energy, up a like amount, both stronger than expected.  [For the 12 months, the PPI, though, was down 1.1%, but up 0.5% on core.]

Meanwhile, retail sales for the month rose 0.2%, up 0.4% ex-autos.

--Oil fell to its lowest level in seven years this week, about $35.50 on West Texas Intermediate, $40 on Brent, following last week’s failed OPEC meeting in Vienna where the cartel (if it is that anymore) failed to tackle the global oil glut.  It’s every man for himself these days, with Iran preparing to dump even more supply on the market as sanctions are lifted.  The U.S. and Russia certainly aren’t cutting back.

OPEC’s monthly report on Thursday, after the meeting, revealed output had increased to 31.7 million barrels a day last month from 31.5 the prior month, both far more than the formal production target of 31mbd.

Saudi Arabia continued to pump at record levels, 10.1mbd last month, though it hit 10.6 earlier this year, both figures far surpassing its 2014 average of 9.7mbd.

Iraqi production rose to 4.3mbd in November, from 4.1m the month before as it pumps hard to find money to fight ISIS and support its fragile economy.

OPEC continues to try to undermine higher-cost producers, like the U.S. and Canada, but production from shale and Canada’s tar sands has proved more resilient than many expected.

And then you have the mild weather, plus the heavy leverage that comes with the territory in the oil business.  Many oil and gas companies simply don’t have enough income coming in to pay off their loans.  I mean look at the natural gas market…dead in the water at just a little over $2.00.

And those companies paying a dividend, that long seemed secure, are beginning to slash it, if not eliminate it entirely.

According to FactSet and the Wall Street Journal, “earnings before interest, tax, depreciation and amortization for the world’s five largest, private integrated oil and gas companies have dropped by an eye-popping $232 billion in 2015 and 2016 combined – or about 42%.  The five largest exploration and production companies have seen that proxy of cash flow drop by $83 billion, or close to 60%.”

These figures assume Brent rebounds to $60 next year.

--Chevron, the second-biggest U.S. integrated oil company next to Exxon Mobil, said it is cutting its capital spending budget by 24 percent for 2016 in response to the collapse in oil prices.

--Meanwhile, Anglo American PLC announced a massive restructuring of its mining businesses that will result in the loss of 85,000 jobs, one of the most drastic moves of its kind in the sector as commodity prices worldwide have plunged due to softening demand from China.

UK-based Anglo is the fifth-largest mining company by market value, but now it plans to reduce its portfolio of assets by 60% to focus on those that are still able to generate cash through the price cycle.

So the workforce is going from 135,000 to 50,000; the cuts taking place over a number of years.

Additionally, Anglo is suspending its dividend payments for the second half of this year and next, while slashing its capital expenditures.

--Dow Chemical and DuPont announced they will merge on Friday after days of speculation, thus creating a chemicals colossus with a market value of about $130 billion that will then be broken up into three pieces; agriculture, material sciences and specialty products.  Plastics  and specialty chemicals, for instance, have benefited greatly from falling energy prices, but the agrochemicals divisions are suffering with weaker demand for crop protection products.

Combined the two companies would make it second to BASF of Germany, though a DuPont-Dow combination will face regulatory scrutiny in a number of countries.

Both companies have been fending off attacks from activist investors; Nelson Peltz with DuPont and Daniel Loeb with Dow.  Both claimed their respective targets suffered from corporate clot.

--Speaking of agribusiness, the strong dollar has hit U.S. wheat exports in a big way.  Forecasters project shipments overseas of U.S. wheat will fall to a 44-year low, with buyers such as Egypt looking for less-costly alternatives.  The Agriculture Department said shipments of beef and pork are also down around 10% to 15%. 

Some of the competition on the wheat front is coming from the likes of France, Russia and Ukraine, as well as Romania.  [Jesse Newman / Wall Street Journal]

--General Electric called off a deal to sell its appliance division to Electrolux of Sweden after the Justice Department moved to block the transaction.

--Dutch lender Rabobank said it plans to cut another 9,000 jobs over the next three years, which comes on top of an initial 3,000 cuts previously announced; part of a shrinking of its domestic operations.  The bank was formed in 1898 as a cooperative to serve Dutch farmers.

--Morgan Stanley announced it was laying off 1,200 people from its fixed-income unit as well as back office support after the bank’s worst quarter for bond trading since the financial crisis.

Revenue in fixed-income, currencies and commodities (FICC) has plunged from $1.4bn in the first quarter to $600m in the third.

--Yahoo abandoned plans to spin-off its $32bn stake in Chinese e-commerce group Alibaba under pressure from investors worried about a huge tax bill.

So now the company is looking to spin off its core business instead.  The Alibaba spin-off had been announced back in February and was to take place in weeks.

Yahoo has been waiting on guidance from U.S. authorities on whether the 15% stake in Alibaba would be tax-free, which is how the company described it in February, but many legal experts have been saying, no way…it would generate a large tax bill.

And then you had concerns the new unit would trade at a big discount to New York-listed Alibaba and the whole thing is a mess.

But there are some like Verizon that are interested in looking at the rest of Yahoo.

Meanwhile, CEO Marissa Mayer, now in her fourth year, has struggled to convince investors she has a strategy of any kind, but she had twins on Thursday…so we wish her the best.

[Had there been a change of control in Yahoo and she was terminated without cause, Ms. Mayer would have picked up cash and prizes of $157.9 million, according to an estimate by an outfit that deals in corporate filings; most of it coming in the form of the acceleration of restricted stock and options.

--Volkswagen has concluded that its problems involving carbon dioxide emissions are far less widespread than feared.  The company said only 36,000 vehicles were affected by CO2 errors, and not the 800,000 it had originally suggested.  The results of its study will be submitted to German regulators who will check them before yearend.

VW initially thought the cost to restate fuel efficiency numbers of 800,000 cars would be in the 2bn euro range.

--Despite China’s problems, General Motors set a November sales record there, selling 346,000 vehicles, a 14% increase compared with year ago levels.  GM sells more cars in China than any other country.  By comparison, last month it sold about 229,000 in the U.S.

--McDonald’s all-day breakfast offerings is bringing in new customers and luring back others who had left the company recently, a study from a research and consultancy firm, NPD Group, found.  A third of the customers who bought breakfast foods at lunch or dinner hadn’t ordered from McDonald’s at all before the launch of all-day breakfast on Oct. 6.

Breakfast food orders rose to 47 percent of McDonald’s total orders after the launch, up from 39 percent before, according to NPD.  [Samantha Bomkamp / Chicago Tribune]

--A German consumer goods company, JAB Holding, is buying Keurig Green Mountain for $13.9 billion, an all-cash deal that was a whopping 78 percent premium, taking everyone by surprise.  JAB is on a quest to dominate the global coffee industry.

--As a major customer of Staples, for the life of me I don’t understand why the Federal Trade Commission has blocked for a second time in 20 years Staples’ proposed takeover of Office Depot Inc. because it would squelch competition.  Oh, c’mon.  This isn’t the old days.  Now you have huge competitors such as Amazon and Wal-Mart in the space.

--According to a new analysis of air fares by Expedia and Airlines Reporting Corp., average prices for tickets bought on Friday are 13% higher than on Sunday.

The sweet spot is about two months before departure.  The lowest-priced economy tickets for a flight within North America were sold, on average, 57 days before departure.

But don’t buy too early, which I have done all the time.

“Airlines don’t start actively managing the price of seats on a particular flight until about three months before departure for domestic flights and five or six months for international trips, says Rick Seaney, chief executive for FareCompare, a search site for flights and hotels. That’s when price cutting typically begins.”  [Scott McCartney / Wall Street Journal]

Separately, the study found that airfares globally were 8% lower in October than the same month a year earlier, including a 16% drop for flights within Europe (6% decline for flights within North America).

--CBS said it is holding back a few of its 30-second spots for the Super Bowl so it can sell them at the last minute for “north of $5 million,” as CEO Les Moonves told investors this week.  This year’s Super Bowl drew 114.5 million viewers (the half-time show drew even more), making it the most-watched show in U.S. television history.

The game next Feb. 7 will be Super Bowl 50 and CBS has already received as much as $5 million for some of the spots.

The last Super Bowl, which was NBC’s, had an average price of $4.5 million per 30 seconds.

--The Dec. 3 live production of The Wiz on  NBC dew 11.5 million total viewers (not moi), according to Nielsen, which was behind only The Sound of Music Live in 2013.  This wasn’t too shabby, considering it was a Thursday and went up against a Packers game on NBC, their miraculous comeback over Detroit.

--Walt Disney Co. doubled its investment in Vice Media Inc. to $400 million.  Among its many ventures, Vice produces a weekly news magazine for HBO and in March is slated to begin a daily news show.

--North Face and Esprit co-founder Douglas Tompkins died on Tuesday after a kayaking accident in Chile’s Patagonia, where he had spent the last two decades of his life. He was 72.

Tompkins was known as an “eco baron,” who bought up large swaths of Patagonia to keep it free of development.

He was a former mountain climber and ski bum who together with his wife opened up a small shop in San Francisco, peddling high-end climbing and camping equipment from Europe.  They called it North Face, yet he owned it only for five years before selling it.  Then he and his wife started another clothing business selling women’s dresses out of the back of a Volkswagen bus.  That line would become Esprit de Corps and then just Esprit.

Later, amid a divorce, Douglas sold his shares of Esprit for a reported $150 million and spent the rest of his life on conservation issues.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: Saudi Foreign Minister Adel al-Jubeir said on Thursday that Syrian President Bashar Assad had two choices: “either to leave through negotiations” or be forcibly removed from power.

Al-Jubeir was speaking to reporters in Riyadh during a two-day meeting of Syrian opposition groups.  The talks were aimed at forming a unified front ahead of proposed peace talks with Assad’s government.  [Daily Star]

On the battle field in Syria, both sides could claim victories, with ISIS recapturing some areas in the central part of the country [Ed. Maheen and Hawareen], just weeks after Syrian government forces had taken them. 

Syrian rebels evacuated the last area they held in the city of Homs under a ceasefire deal with the government and the UN, putting all of it under government control.  The rebels were due to go to areas of Idlib province they command.  Food reached the part of Homs the rebels controlled for the first time in a year as the Assad regime had cut it off all this time.

In an area outside of Damascus, held by rebel fighters, at least 19, including six children, were killed in airstrikes, but the Britain-based Observatory for Human Rights didn’t know if it was Syrian or Russian warplanes in the attack.

Russia was blamed by the U.S. for an airstrike that killed Syrian government forces, after Damascus first blamed the U.S.  A Pentagon spokesman said, “We do not have any reason to target the Assad regime or the Syrian army; we are at war only with ISIS.”  [Defense One]

A watchdog group said  that in October alone, between 255 and 375 non-combatants died in at least 44 Russian strikes.

In Iraq, it appears Iraqi forces, backed by U.S. airstrikes, repelled an ISIS counteroffensive after  the army gained a foothold in Ramadi.  Iraq claimed the center of Ramadi was under their control, noting U.S. air power was vital.  This is potentially very good news, but the history of Iraqi forces then holding onto their gains in recent years is not good.

On the oil front, research group IHS claims ISIS has managed to secure some $80m in monthly revenue from both oil and taxation, for the most part, but also through drug trafficking and  selling antiquities.

Separately, Samantha Power, U.S. ambassador to the UN, said on Tuesday that the United States was investigating reports that Iran has tested a medium-range ballistic missile, which would be a violation of a UN resolution.

This comes as Iran is close to meeting the conditions of the July nuclear deal that will lead to some of the international sanctions being lifted as early as January when the agreement is fully implemented.

Republican Senator Bob Corker (Tenn.), chair of the Senate foreign relations committee, said, “Iran violates UN Security Council resolutions because it knows neither this administration nor the UN is likely to take any action.”

Corker added that if the U.S. cannot respond to “a clear violation of a UN Security Council resolution,” then it would be unlikely to re-impose sanctions on Iran if it were found to be violating the nuclear accord.  Democratic Senator Robert Menendez (N.J.) noted: “Something is wrong because the silence is so deafening.”  [Geoff Dyer / Financial Times]

Russia, by the way, has begun deliveries of its advanced S-300 anti-aircraft missile systems to Iran; critical should the U.S. and/or Israel attempt to go after Iran’s nuclear facilities down the road.

And on the Russian-Turkish relations front, they weren’t helped any the other day when a serviceman on the deck of a Russian naval ship allegedly held a rocket launcher on his shoulder while the vessel passed through Istanbul.  Turkish television displayed photographs showing this as the Russian ship passed through the Bosphorus Strait, which bisects Istanbul, with the ship apparently headed to Syria.

Yemen: ISIS claimed responsibility for the killing of the governor of the southern port city of Aden.  An explosion caused by a rocket propelled grenade nailed his convoy.  ISIS has a growing presence in the shattered country.

China: The local government issued its first ‘red alert’ for pollution in Beijing following widespread outrage for failing to do so when pollution was off the charts a week ago; kind of ‘not so’ funny as negotiators in Paris were trying to hammer out the final details of a climate deal.

Schools were shut down when the alert first went out on Monday, while half of all private cars were prohibited from taking to the roads.

The pollution levels in the capital were actually higher than the day the red alert was issued for nine days since November 1, according to data collected at the U.S. Embassy.

You saw the pictures on television.  Just deadly.  Now imagine that it was actually worse in industrialized cities such as Hebei and Henan, which you didn’t see.

On an entirely different matter, China’s corporate executives are ‘disappearing’ at an alarming rate.  China’s largest brokerage, CITIC Securities said on Sunday that it could not contact its two top investment bankers.  That makes six of CITIC’s eight executive committee members now missing, including four taken away by police earlier in the year.

The government has been conducting an insider-trading probe in the wake of the market crash during the summer.

But wait, there’s more!  China’s Warren Buffett, Guo Guangchang, suddenly disappeared on Thursday, only to issue a statement Friday that he was “assisting authorities” in an investigation.  But it’s not like Guo is free

Separately, by way of follow-up on an issue I noted a few weeks ago, Alibaba signed an agreement to buy Hong Kong’s South China Morning Post.  This blows.

North Korea: Leader Kim Jong-un said his country has developed a hydrogen bomb.  Well isn’t that special.  If it’s true, thermonuclear bombs, or hydrogen bombs, are far more powerful than conventional nukes. 

Russia: According to Lt. Gen. Ben Hodges, commander of U.S. Army Europe, Russia has moved ballistic missiles to and conducted nuclear strike drills from its Kaliningrad exclave, prompting Pentagon fears that Moscow is preparing to block access to the Baltic Sear.  Hodges said there is a “significant amount of capability” in Kaliningrad, including anti-ship weapons, air defenses, and electronic warfare equipment.

In a briefing at the Pentagon, Hodges said, “They could make it very difficult for us to get up into the Baltic Sea if we needed to in a contingency.”

This is what sucks.  Russia has been conducting large-scale unannounced “snap exercises” with sophisticated weaponry.  When NATO holds similar drills, Russian observers are invited  and typically attend.

Hodges said, “We find out about them when they’re happening.”  [Marcus Weisgerber / Defense One]

Meanwhile, President Vladimir Putin’s old foe, ex-prisoner Mikhail Khodorkovsky, was summoned for questioning in Moscow on Tuesday in a case involving the 1998 killing of a Siberian mayor the Kremlin has long tried to nail Khodorkovsky with.  He has long denied involvement, which took place in the oil town of Nefteyugansk, which was where Khodorkovsky’s Yukos oil company was headquartered back then.

Khodorkovsky has been in exile in Switzerland since he was freed in 2013 after ten years in prison on tax evasion and embezzlement charges.  He was to be officially charged in this murder case on Friday.

Lastly, Russia’s Economic Development Minister Alexei Ulyukayev forecasted Russia’s GDP would contract by 3.7% this year, with inflation expected to run at a 12.5% pace next year, while oil is forecast at $51.50.

France: In the first round of voting in France’s regional elections, the far-right National Front (FN) scored stunning gains, though the results could change in Sunday’s second round.

But what we do know is that Marine Le Pen’s FN is on the verge of winning its first region since its founding in 1972, with Marine likely to emerge the second-round winner in a northern region, containing the migrant flashpoint of Calais, while her 25-year-old niece, Marion Marechal-Le Pen is in all likelihood going to prevail in the southern Provence-Cote d’Azur region.  [The New York Post has just caught on to the fact that, as I first told you over a year ago, Marion is, err, rather attractive.]

In the first round, FN finished first in six of the country’s 13 regions, and most experts seem to feel they could end up with a stunning four after the second round.

FN won 28% of the vote overall in France, with the center-right Republican party of former president Nicolas Sarkozy winning four regions, 27% of the vote, and the Socialists of President Francois Hollande picking up 23% and three regions.  [Others had 22% of the vote.]

Even if the FN were to emerge with just the regions headed by Marine and Marion, this would give the party tremendous momentum heading into the 2017 presidential elections that are just 18 months away.  For starters, it gives FN their first chance ever to show the public that it can govern more than a few small towns.

But it seems they will be running more than these two regions because, as opposed to the past, Sarkozy is discouraging any attempts in the regions in doubt to join forces with the Socialists  and others to defeat FN.

Back to Marine, National Front can unequivocally say that in the first round it won the vote, making it “the first party of France,” as she put it.

Marine also recognizes she needs the Jewish vote.  Dr. Esther Lopatin, director of a European studies program in Israel, told the Jerusalem Post that Europeans are frustrated by leaders who have ignored their concerns about rapid immigration and radical Islam on the continent.

So while Marine Le Pen has gone to great lengths to show her party is no longer anti-Semitic, as had long been the tradition under her disgraced father, Jean-Marie, Lopatin says that the FN’s sudden ‘love’ of Jews springs rather from a realization that they share a common enemy with the Jewish community in radical Islam.

It’s as if the National Front, says Lopatin, correctly I add, suddenly realizes that “[Jews] contribute to society, they don’t want to destroy our society or impose Shari’a law on our society.  More and more people believe that.”

Marine gets it.  Every chance she now has to support Israel on an issue, she’s doing so.  It will be interesting to see if other far-right parties in Europe take the same course.

That said, Sigmar Gabriel, leader of Germany’s Social  Democrats and the country’s vice-chancellor, called the FN’s vote a “wake-up call for all democrats in Europe.”

“It is of course a shock when rightwing extremists achieve such a result and become the strongest political force in the first round of voting in France – one of the founding members of the EU in the heart of Europe.”

Matteo Renzi, Italy’s prime minister, said in a Facebook post that European institutions needed to “change” or they risked becoming the “best allies of Marine le Pen and those who try to imitate her.”

“Without a strategic design, particularly on the economy and on growth, populist movements will sooner or later prevail also in general elections,” Renzi wrote.

Yes, populist parties are on the rise in Europe, as I warned they would be years ago, tied to the migrant issue, and now the Paris attacks are adding fuel to the fire.  The European Union can’t protect the people, is the growing belief.

This is an unbelievably critical, potentially scary, and depressing time for the EU.

Venezuela: The opposition coalition of the Mesa de la Unidad Democratica, or MUD, captured a super majority of the seats in parliament last weekend in a stunning rebuke of Socialist President Nicolas Maduro.

The margin of victory gives the opposition a wide range of special powers to challenge the Socialists – including petitioning the Supreme Court for presidential impeachment and even a recall referendum to revoke Maduro’s mandate.

But, while a supermajority can also initiate constitutional reform, as well as appoint and remove Supreme Court judges, any reforms can simply be vetoed by the president and overturning same would be very difficult.  He could just exercise emergency powers and ignore parliament.  The vast amount of power in Venezuela still resides in the presidency.

The bottom line, though, is that unless Maduro, who I called an “idiot” years ago, which I stand by, allows for economic reform, the economy will continue to crater.

There is no sign whatsoever Maduro gets it.  If not I expect he will harden his line instead.  Heck, right after the election he said, “The counterrevolutionary right wants to take over this country… We won’t let it!”

For the record, the Venezuelan economy is expected to shrink 10% this year, and another 6% or more in 2016, according to the IMF and World Bank.

The next presidential election is not due until April 2019.  This place will totally implode long before then…and it will explode in other ways.

Nigeria/Chad: A Chad security official says a triple suicide bombing at a market on an island in Lake Chad killed at least 27 people.  The perpetrators were three females, with Nigeria’s Boko Haram the prime suspects.  A hugely significant incident in terms of the political debate in the U.S.,  re the issue of allowing in ‘widows and orphans.’

Random Musings

--In a manifesto simply titled “Donald J. Trump Statement on Preventing Muslim Immigration,” once again the leading contender in virtually every poll, including in the critical first few states, ensured he was the story, and not even the San Bernardino investigation.

Trump called for “a total and complete shutdown of Muslims” entering the United States, imposing a religious test for people setting foot in America.

“Large segments of the Muslim population” are driven by a blind hatred, Trump said, and until and unless “we are able to determine and understand this problem and the dangerous threat it poses,” Muslims should be kept out of the country indefinitely.

At a rally in South Carolina on Monday night, Trump told the crowd: “It’s going to get worse and worse, folks.  You are going to have more World Trade Centers.”

Supporters cheered.  Critics, in both parties, expressed outrage.  For his part, Trump just kept booking media appearances.

Analyst and pollster Stuart Rothenberg told the Los Angeles Times, “I don’t think anything will hurt him for at least another four or five weeks, when there’s a chance voters will start asking a different question.  Instead of saying, ‘Who’s interesting, who’s entertaining?’ they may start asking themselves, ‘Who do I want as president?’”

But Rothenberg adds that until then, “anything that antagonizes members of the political establishment, upsets media pundits or riles Trump’s opponents will only enhance the billionaire’s appeal among his constituency of the angry and aggrieved.” [Mark Z. Barabak and Kurtis Lee / L.A. Times]

Jeb Bush called Trump’s latest bombshell “Unhinged.”  Chris Christie called it “Ridiculous.”  Ohio Governor John Kasich said, “This is just more of the outrageous divisiveness that characterizes his every breath and another reason why he is entirely unsuited to lead the United States.”

Sen. Lindsey Graham of South Carolina said on Twitter that Mr. Trump “has gone from making absurd comments to being downright dangerous with his bombastic rhetoric.”  Such rhetoric could put at risk the lives of U.S. troops abroad in Muslim countries.

Sen. Ted Cruz was more muted. “That is not my policy.  I’ve introduced legislation in the Senate that would put in place a three-year moratorium on refugees coming from countries where ISIS or al Qaeda can control a substantial amount of territory.”

President Obama’s deputy national security adviser, Ben Rhodes, called Trump’s statement “totally contrary to our values as Americans” and that it would hurt out fight against terrorism.

In an interview with CNN, Rhodes said that ISIS “wants to frame this as a war between the United States and Islam. And if we look like we’re applying a religious test to who comes into the country, we’re sending the message that essentially we’re embracing that frame.”

Homeland Security Secretary Jeh Johnson said: “We must not vilify American Muslims.  We must not throw a net of suspicion over American Muslims or any other religion.”

Trump’s proposal is deemed unconstitutional by most legal scholars.  John Yoo, a conservative law professor at the Cal-Berkeley, told the Wall Street Journal that the First Amendment guarantees the free exercise of religion.

“The United States cannot discriminate on the basis of religion.”  Yoo said that while in the past the United States discriminated based on country of origin, that is different from a wholesale religious ban.

Editorial / Washington Post

“Most candidates for the Republican presidential nomination, with an understanding of constitutional, democratic and social norms that Donald J. Trump utterly lacks, have denounced his outrageous call for a ‘total and complete shutdown’ on Muslims entering the United States.

“It is heartening that Mr. Trump’s opponents are finally condemning him in terms they would generally reserve for Democrats, but it also raises a critical question: If the GOP front-runner’s pronouncements are as lunatic and offensive as his rivals say – and they are – isn’t it incumbent on them to make clear they would oppose him if he were the party’s nominee?

“The prospect of an open Republican split may send tremors down the spines of party strategists. They naturally fear an internecine war, a fractured party and maybe an independent Trump candidacy. But even those outcomes would cause less damage to their party and to the nation than uniting behind a candidate whose policies and rhetoric are morally, legally and pragmatically unconscionable – as they have now recognized.

“Sen. Marco Rubio (R-Fla.) said Mr. Trump’s ‘habit of making offensive and outlandish statements will not bring us together.’...House Speaker Paul D. Ryan (R-Wis.) said Mr. Trump’s proposal ‘is not what this party stands for.  And more importantly, it’s not what this country stands for.’....

“Until now, party leader and primary rivals have mostly dodged (the Trump issue) by dismissing (his) chances of winning the nomination.  That’s no longer viable.  Having stood atop the field in the polls for months, and lately having widened his considerable lead, Mr. Trump and his candidacy can no longer be laughed off as a publicity stunt.  For responsible Republicans, the season of denial must end.

“The plain truth is that a Trump presidency would not only fracture American society along ethnic, racial and, we now know, religious lines. It would also demolish American prestige on the world stage and alienate our most important allies.  Think that’s an exaggeration? Then check with David Cameron, the Conservative British prime minister, who called Mr. Trump’s anti-Muslim hate-mongering ‘divisive, unhelpful and quite simply wrong.’...

“As Mr. Trump’s fellow Republican candidates now acknowledge, there is a real-world cost to a campaign that gains traction by spewing hatred, bigotry and rage.  Criticizing Mr. Trump is no longer sufficient. It is time to say clearly he is anathema to the Republican Party, and to the nation.”

Editorial / Wall Street Journal

“Every thesis creates its antithesis, a famous philosopher once said, and so it is now in American politics.  President Obama’s insistent failure to confront the realities of global jihad has produced its opposite in Donald Trump’s unfiltered nationalist id.  This is a reminder of how much damage a misguided American President can do to the country’s political culture.

“The political and media classes have joined in denouncing Mr. Trump for his latest leap beyond normal political boundaries with his call to stop all Muslim immigration to America.  He proposed this in a statement Monday that reflected calculation, not one of his stream-of-consciousness asides in a speech.  He defended it Tuesday, comparing his proposal to FDR’s decision to intern Japanese-Americans in World War II.  To borrow a line, he is no FDR.

“A religious test for entering the U.S. would certainly face constitutional scrutiny, even if it weren’t contrary to America’s best traditions.  The Chinese Exclusion Act of 1882 was not America’s finest hour, and neither were FDR’s internment camps.  A Republican Party that claims to prize freedom should reject both precedents.

“Mr. Trump’s Muslim ban fails above all on its own terms as anti-terror strategy.  The Census Bureau doesn’t track religious affiliation, so it’s hard to know how many Muslim citizens or residents live in America.  Estimates usually make it several million.  But however many there are, Americans are going to need them as allies to fight the radical Islamist infection.

“Their cooperation is more important than ever now that Islamic State is using the Internet to mobilize killers.  Fellow Muslims will see signs of radicalization in their mosques before the police or FBI do.  We want those Muslims coming forward with tips or warnings, but they won’t do so if they feel that their government treats all Muslims as terror suspects.

“Mr. Trump says his immigration ban would be temporary, until we understand the breadth of radicalization.  But such a judgment is inherently subjective, and the global jihadist threat will last for decades.  That’s why it’s been called ‘the long war,’ and such wars are as much ideological as military.

“Mr. Trump might say he’s only referring to foreign Muslims, but that won’t win friends either.  We need moderate Sunni allies across the Arab world to counter Islamist ideology and defeat Islamic State and al Qaeda.  Telling Muslims that they aren’t welcome to immigrate to the U.S. under any circumstances will make it harder for Arabs anywhere to be associated with America.”

Michael Goodwin / New York Post

“My first reaction to Donald Trump’s call to ban new Muslims from entering the United States was that he had simultaneously won the GOP nomination and lost the general election.  My second reaction was that events will prove one of those predictions wrong.

“If there are no more terror attacks in America before the end of the primary season, most Republican voters will see Trump’s plan as too radical and he will lose the nomination.

“On the other hand, if there are more attacks in the homeland, many more voters will move in Trump’s direction and he would almost certainly win the nomination and maybe the presidency.

“In effect, Trump is betting his campaign on there being more attacks.  I hope he is wrong, but fear he will be right.

“To be clear, I don’t support his plan.  Singling out all Muslims is vulgar and probably unconstitutional.  A religious test is un-American.

“The idea is so toxic that it has the unfortunate effect of making President Obama look right for once.  Obama warns repeatedly about Islamophobia, including in his grating Sunday-night lecture, even though there wasn’t much of it.  Jews suffer disproportionately from religious hate crimes, not Muslims.

“Trump obliterated those facts in a heartbeat, a development that could, temporarily at least, contaminate all get-tough approaches on terror and boost Obama and Hillary Clinton.

“Yet Trump’s proposal does not come out of the blue.  Obama and many Democrats actually favor changes in the visa-waiver program to keep some Muslims from entering the country.

“The program lets passport holders from 38 nations enter the U.S. for up to 90 days without a visa.  But after the Paris attacks, which were carried out by French and Belgian nationals moving seamlessly through Europe’s open borders, the White House began to develop restrictions on who was eligible for the waiver.

“One measure would exclude those who had traveled to Syria or Iraq since 2011.  Other parts reportedly would focus restrictions on nationalities, such as people born in Sudan or Iran.  Clearly, most people in those categories would be Muslims.  The disparate impact is why the American Civil Liberties Union, the American-Arab Anti-Discrimination Committee and the National Iranian American Council oppose the legislation, which passed the House Tuesday with more than 400 votes.

“Trump’s plan, then, despite its radical nature, reflects the bipartisan trend to prevent attacks by focusing on potential Muslim terrorists.

“The timing of his plan also matters – it would have been laughable two months ago.  But the Islamic State’s spreading barbarism, and Obama’s tepid response, are changing America’s mood....

“Obama’s knee-jerk response (to Paris and San Bernardino) was to call for more gun control, so the central issue of the campaign is who will best protect America from these savages.

“There are other related facts, too.  Our southern border is porous, and Obama won’t close it.  His plan to exempt thousands from deportation through a questionable executive order was wildly unpopular and is now before the Supreme Court in a constitutional test of its own.

“On top of that, the president wants to let in thousands of Syrian refugees, despite polls showing a large majority of the public is again opposed.  Critics argue that a thorough security vetting is not possible, a view buttressed by FBI Director James Comey, who said he could not promise that terrorists would not slip through.

“These are extraordinary times, with much of the world on fire. Because Obama’s presidency has been marked by lies and failure, he cannot summon the trust of his country at this crucial moment.

“His trust deficit is pushing the political pendulum in the opposite direction. Depending on events, it may swing far enough to carry Donald Trump into the White House.

“In that event, a President Trump would be Barack Obama’s true legacy.”

--Some new polls...as Republicans prepare for a big debate on Tuesday, Dec. 15, in Las Vegas (CNN the debate sponsor).

In a CNN/ORC national poll of registered Republicans and Republican-leaning Independents, Donald Trump receives 36%, with Ted Cruz in second at 16%, Ben Carson, 14%, Marco Rubio 12% and Jeb Bush in fifth at 3%.

The party elite is panicking.

“We’re driving the Republican establishment cra-a-zy,” Trump told a recent cheering crowd in Macon, Georgia.  “Crazy.  Crazy!  They don’t know what to do.”

In a New York Times/CBS News national poll, Trump picks up 35% support among Republican primary voters, compared to 16% for Cruz, 13% for Carson and 9% for Rubio.

A USA TODAY/Suffolk University national survey  has Trump at 27%, Cruz 17%, Rubio 16% and Carson 10%.  In all three, Jeb Bush picks up no more than 4%.

In a CNN/ORC poll of potential Iowa caucusgoers, Trump came in at 33% to Cruz’s 20%.  Carson was third at 16%, followed by Rubio 11% and then Bush way down in fifth at 4%.  Trump had been at 25% in this one in November.

But a new Monmouth University survey of likely Iowa voters has Ted Cruz at 24%, with Trump in second with 19%, Rubio 17% and Carson 13%.  The head of the Monmouth Polling Institute said the two surveys used different methods for determining who was likely to show up at the caucuses next February.

Right after the Paris attacks, a Quinnipiac Univ. survey had Cruz trailing Trump 25% to 23%.

In a CNN/WMUR poll of New Hampshire primary voters, Trump led with 32%, followed by Rubio at 14% and then Chris Christie in third with 9%.  [Bush 8%, Kasich 7%.]  In September, this same poll had Trump leading Carly Fiorina 26-16, with Rubio third at 9% and Christie 5%.  [Fiorina has fallen off the face of the earth, a la Rand Paul, Huckabee and the rest.]

A Fox News poll of likely GOP primary voters in South Carolina had Trump with a 35-15 lead over Ben Carson; Marco Rubio and Ted Cruz tied for third at 14%.

On the Democratic side, Hillary Clinton leads Bernie Sanders in the CNN Iowa poll, 54% to 36%, virtually unchanged from the last CNN survey, while she has a 56-29 lead over Sanders in the USA TODAY national survey.

In the Monmouth Iowa poll, Hillary leads 55-33.  But Sanders actually leads 48-38 among caucusgoers who are under age 50.  So you just know he is praying for godawful weather on Feb. 1st. 

In the CNN/WMUR poll of New Hampshire Democratic voters, Sanders leads Clinton 50-40. The same poll in September had it 46-30, Sanders.

--In a Bloomberg Politics Poll, among likely Republican primary voters, 65% favor Trump’s call to temporarily ban Muslims from entering the U.S.  37% of the same group said his idea makes them more likely to support him, while 16% say less and 46% say it has no impact.

A Wall Street Journal/NBC News survey said 57% of Americans objected to Trump’s proposed ban on Muslims, 25% favored it.  But among Republican primary voters, 38% supported Trump’s position, 39% did not.

In the New York Times/CBS poll, 44% of all Americans believe a terrorist attack is “very” likely in the next few months, and that among Republicans, 7 in 10 believe Trump is well-equipped to deal with the threat.

--Muhammad Ali issued a statement following Trump’s proposal on banning Muslims.

“I am a Muslim, and there is nothing Islamic about killing innocent people in Paris, San Bernardino, or anywhere else in the world.  True Muslims know the ruthless violence of so-called Islamic Jihadists goes against the very tenets of our religion.

“We, as Muslims, have to stand up to those who use Islam to advance their own personal agenda. They have alienated many from learning about Islam. True Muslims know or should know that it goes against our religion to try and force Islam on anybody.

“Speaking as someone who has never been accused of political correctness,” Ali said, “I believe that our political leaders should use their position to bring understanding about the religion of Islam and clarify that these misguided murderers have perverted people’s views on what Islam really is.”

--Of more than 250 Americans who have traveled overseas to join ISIS, a House Homeland Security Committee task force found that 26 percent of them came from Minnesota, where, specifically the Twin Cities area, there are 35,000 Somali Muslim immigrants.  [Scott W. Johnson / The Weekly Standard]

--The New York Times issued its first front-page editorial since 1920.  It happened to be about gun control, reading in part:

“Opponents of gun control are saying, as they do after every killing, that no law can unfailingly forestall a specific criminal.  That is true. They are talking, many with sincerity, about the constitutional challenges to effective gun regulation. Those challenges exist.  They point out that determined killers obtained weapons illegally in places like France, England and Norway that have strict gun laws.  Yes, they did.

“But at least those countries are trying. The United States is not. Worse, politicians abet would-be killers by creating gun markets for them, and voters allow those politicians to keep their jobs.  It is past time to stop talking about halting the spread of firearms, and instead to reduce their number drastically – eliminating some large categories of weapons and ammunition.

“It is not necessary to debate the peculiar wording of the Second Amendment.  No right is unlimited and immune from reasonable regulation.”

William McGurn / Wall Street Journal

“How does a man who entered the White House vowing to restore science to its proper place tell us that gun control is the answer to terrorism?

“After all, California already has strict gun control, as does France, which just had its second terrorist massacre this year.  Not to mention that the one time when terrorists with assault rifles and body armor were foiled, it was because an off-duty traffic cop in Garland, Texas, was carrying a gun – and used it to shoot the two heavily armed Islamists before they could kill anyone.

“Or that ‘common sense gun control’ would have done nothing to stop Richard Reid (the unsuccessful shoe-bomber); the Tsarnaev brothers in Boston (pressure cookers) or the 9/11 hijackers (box-cutters).  Maybe the president should be demanding common sense pressure-cooker control.

“Yet while the critiques of the president’s antigun pitch are correct, they are also beside the point.  Because liberal calls for gun control aren’t about keeping guns from bad guys. It’s what you talk about so you don’t have to talk about the reality of Islamist terror.  And focusing on the weaponry is part of a liberal argument that dates to the Cold War, when calls for arms control were likewise used to avoid addressing the ugly reality of communism.

“Understand this, and you understand why Senate Democrats reacted to San Bernardino by putting forth antigun legislation.  Why the New York Times ran a gun control editorial on its front page, and the Daily News used its own cover to feature the National Rifle Association’s Wayne LaPierre underneath San Bernardino killer Syed Farook – labeling them both terrorists.  And why President Obama used Sunday night’s address to whine about those resisting his call for gun measures that would not have stopped any of the shooters.

“Put simply, today’s liberalism cannot deal with the reality of evil.  So liberals inveigh against the instruments the evil use rather than the evil that motivates them.”

--Score another for U.S. Attorney Preet Bharara of Manhattan who successfully won a second big conviction in his efforts to root out corruption at the highest levels of government in Albany.  Bharara nailed former New York State Sen. Majority Leader Dean Skelos (R), who along with his son was found guilty on a number of charges, after earlier taking down Democratic Assembly Sheldon Silver.  Gov. Andrew Cuomo is next.

--Not for nothing, but my early winter forecast issued a few months ago for the northeast looks pretty good.  The problem for me is its way too warm for a long run down here in South Carolina.  [And sympathies to our friends in the Pacific Northwest who have been getting hammered, but for those in the Sierras, you asked for lots of snow and you’re going to get it through March.]

---

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

God bless America.

---

Gold $1074
Oil $35.36…lowest since 12/08

Returns for the week 12/7-12/11

Dow Jones  -3.3%  [17265]
S&P 500  -3.8%  [2012]
S&P MidCap -4.1%
Russell 2000  -5.1%...worst week since 2012
Nasdaq  -4.1%  [4933]

Returns for the period 1/1/15-12/11/15

Dow Jones  -3.1%
S&P 500  -2.3%
S&P MidCap  -4.4%
Russell 2000  -6.7%
Nasdaq  +4.2%

Bulls  44.9
Bears  27.6  [Source: Investors Intelligence]

Have a great week.  I appreciate your support.

Brian Trumbore

 



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Week in Review

12/12/2015

For the week 12/7-12/11

[Posted 12:00 AM ET, Saturday, from Kiawah, S.C.]

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.

Edition 870

The War on Terror

This week we learned that the two terrorists in San Bernardino had been radicalized years earlier, which among other things means they came to the U.S. beating the process, or, in the case of Syed Farook, returned a changed man.

We also learned they used gun ranges just days before the massacre, while friend Enrique Marquez supplied Syed and his wife, Tashfeen Malik, with two semi-automatic weapons.

We also learned that in all likelihood, though this hasn’t been proven yet, Tashfeen’s marriage to Syed was arranged, and that her K-1  fiancé visa was a sham.  In fiscal year 2014, the U.S. government issued 519 K-1s from Pakistan, where she was originally from.

And we learned the terrorists came up with the wherewithal to purchase the weapons, ammo and other potential instruments of terror with the help of an online loan of $28,500, though there doesn’t as yet appear to be anything illegal with this aspect of the case.

Congress is in the process of tightening the separate visa-waiver program through which 20 million annually enter the U.S. via 38 countries that are visa-free.  The Paris attackers could have easily entered the U.S. through this loophole.

FBI Director James Comey said at a Senate hearing Wednesday that Islamic State remains intent on sending militants into the United States as well as inspiring Americans and visa holders already here to commit jihad.

“They are trying to do two things:  They are trying to motivate people already in the United States to become killers on their behalf, and they would very much like to, as they aspire to be the leader in the global jihad, send people here to the United States to launch attacks,” Comey told the Senate Judiciary Committee.

Comey said as yet they have not found evidence ISIS has specifically sent anyone to America, but his testimony came as authorities in France identified the third body in the Paris attacks, a 23-year-old male from Strasbourg, France, who went to Syria to join ISIS in late 2013.  He then managed to slip back.

U.S. officials, and their European counterparts, now estimate about 31,000 people from more than 100 countries – including about 4,000 with European passports and dozens of Americans – have joined the fight in Iraq and Syria.

A senior official told reporters on the condition of anonymity, “We’ve never seen anything like this historically.”  [Los Angeles Times]

Regarding Farook and Malik, Comey said the couple was “talking to each other about jihad and martyrdom before they became engaged and married and were living in the U.S.”

For its part, Islamic State  formally declared on Saturday that the couple were followers of the militant group.  If ISIS had had any role in directing them you can be sure they would have taken credit for it.  At the same time that doesn’t mean Syed and Tashfeen didn’t receive some kind of support, financial or otherwise, from the group or an affiliate.

So on Sunday night, President Obama gave just his third speech from the Oval Office to address the San Bernardino shootings.

He said the killings were “an act of terrorism designed to kill innocent people.”

But “freedom is more powerful than fear,” Obama warning that falling prey to divisiveness in American society would play into the hands of extremists.

He also said the U.S. must make it harder for potential attackers to obtain guns, and he warned that Americans “cannot turn against one another by letting this fight be defined as a war between America and Islam.”

“If we’re to succeed in defeating terrorism, we must enlist Muslim communities as some of our strongest allies, rather than push them away through suspicion and hate,” he said.

Obama warned that turning against America’s Muslims would be exactly what Islamist extremists in ISIS want.

The president said terrorism had entered a new phase, from large-scale attacks by al-Qaeda to less complicated attacks by radicalized individuals.

And he reassured us, “Our military will continue to hunt down terrorist plotters in any country where it is necessary.”

Plus, we have a coalition of 65 countries!  Yippee!

Criticism was fast and furious following the address, as the Republican candidates for president weighed in.

Donald Trump tweeted that Obama had too little to say about defeating ISIS in the wake of the attacks in Paris and San Bernardino.

“Is that all there is?  We need a new President – FAST!”

Sen. Marco Rubio, appearing on Fox News right after the speech, said Obama did nothing to “assuage people’s fears.”  We are at war with a radical jihadist group. “Without taking the fight to ISIS on the ground, ISIS won’t be defeated.”

House Speaker Paul Ryan called it “disappointing: no new plan, just a half-hearted attempt to defend and distract from a failing policy.”

Editorial / Washington Post

“The heart of President Obama’s address to the country Sunday concerned what he does not want to do in response to terrorism.  After reviewing steps he has already taken or proposed to fight the Islamic State and prevent attacks inside the homeland, the president delivered what sounded like his main appeal: ‘Our success won’t depend on tough talk, or abandoning our values or giving into fear.’  He went on to explain – again – why he opposes ‘a long and costly ground war in Iraq or Syria,’ and why ‘we cannot turn against one another by letting this fight be defined as a war between America and Islam.’

“Mr. Obama had good reasons to make this pitch.  The San Bernardino, Calif., shooting, following closely on the Paris attacks, has understandably raised anxiety among Americans, who wonder, as the president put it, ‘whether we are confronted by a cancer that has no immediate cure.’  It has also prompted irresponsible and bigoted rhetoric on the presidential campaign trail, where GOP candidates are promising to ‘carpet bomb them into oblivion’ (Sen. Ted Cruz of Texas)* or a ‘total and complete shutdown of Muslims entering the United States’ (Donald Trump).

*Ed. I’ll comment on this later.

“While no one – with the partial exception of Sen. Lindsey O. Graham (R-S.C.) – has propped up Mr. Obama’s straw man of launching another U.S. ground war, some are pretending that quick and facile military solutions exist.  More seriously, there is a real danger that the rhetoric of Republicans will poison one of America’s greatest strengths in this fight, which is the vast majority of American Muslims’ relatively strong integration and loyalty to the country….

“Mr. Obama also was correct in saying that he has stepped up the war in Iraq and Syria since the Paris attacks, taking measures that critics (including us) have recommended for a year or more.  Bombing has increased, and Special Operations forces will be deployed in both countries to help coordinate offensives by local troops – though it appears the U.S. boots may not arrive on the ground for months.

“The new measures give the lie to Mr. Obama’s claim a month ago that the only alternative to his military strategy was putting ‘large numbers of U.S. troops on the ground.’  Unfortunately, he still is not doing what is needed to ‘destroy’ the Islamic State, as the president defined the goal on Sunday.  That destruction would require a Sunni ground force, made up of Syrians, Iraqis and perhaps foreign troops from the Persian Gulf and Turkey, with substantial U.S. support.

“But no such force will go after the Islamic State as long as Syrian dictator Bashar al-Assad and his Iranian and Russian allies are waging their barbaric war on Sunnis in Syria.”

Bret Stephens / Wall Street Journal

“Nobody who watched Barack Obama’s speech Sunday night outlining his strategy to defeat Islamic State could have come away disappointed by the performance.  Disappointment presupposes hope for something better.  That ship sailed, and sank, a long time ago.

“By now we are familiar with the cast of Mr. Obama’s mind.  He does not make a case; he preaches a moral. He mistakes repetition for persuasion. He does not struggle with the direction, details or trade-offs of policy because he’s figured them all out.  His policies never fail; it’s our patience that he finds wanting.  He asks not what he can do for his country but what his country can do for him.

“And what’s that?  It is for us to see what has long been obvious to him, like an exasperated teacher explaining simple concepts to a classroom of morons. Anyone?  Anyone?

“That’s why nearly everything the president said last night he has said before, and in the same shopworn phrases.  His four-point strategy for defeating ISIS is unchanged.  His habit of telling us – and our enemies – what he isn’t going to do dates back to the earliest days of his presidency.  His belief that terrorism is another gun-control issue draws on the deep wells of liberal true belief. His demand for symbolic congressional Authorization for Use of Military Force is at least a year old, though as recently as 2013 he was demanding that Congress kill the AUMF altogether.  Back then he was busy boasting that al Qaeda was on a path to defeat.

“The more grating parts of Mr. Obama’s speech came when he touched on the subject of Islam and Muslims.  ‘We cannot,’ he intoned, ‘turn against one another by letting this fight be defined as a war between America and Islam.’  Terrorism, as he sees it, is to be feared less for the harm it causes than for the overreaction it risks eliciting.

“This is the president as master of the pre-emptive self-reproach – the suggestion that Americans are always on the verge of returning to the wickedness whence we came.  But since when have we turned against one another, or defined the war on terror as a war on Islam?....

“If you see something, say something, goes the ubiquitous slogan.  But heaven help you if what you see and say turns out to be the wrong something – an alarm clock, for instance, as opposed to a bomb.

“This is President Obama’s vision of society, and it is why he delivered this sterile, scolding homily that offered no serious defense against the next jihadist massacre. We have become a country that doesn’t rouse itself to seriousness except when a great many people are murdered.  Fourteen deaths apparently isn’t going to move the policy needle, as far as this president is concerned.  Will 1,400?”

John McCain and Lindsey Graham / Wall Street Journal

“After more than a year of an indecisive military campaign, the U.S. still does not have the initiative.  The threat is growing and evolving faster than the administration’s efforts to counter it.  What’s needed is a comprehensive civil-military strategy to destroy ISIS quickly, while creating conditions that can prevent it, or a threat like it, from ever re-emerging.  In short, America must not only win the war, but also prepare to win the peace.  The U.S. has repeatedly failed to do this, and cannot afford to yet again….

“In Syria, there is no coherent strategy to defeat ISIS or  negotiate an end to the civil war, which is the only way to win a lasting peace.  The administration’s military and political efforts are misaligned. Diplomatically, the White House is seeking a political settlement that removes President Bashar Assad from power.  But militarily, by only addressing ISIS and not the Assad regime’s assault on the Syrian people, the administration is effectively acquiescing to the very Russian, Iranian and Syrian forces that are fighting to keep Mr. Assad in power.  This will only lengthen the conflict, strengthen ISIS and exacerbate the refugee crisis….

“President Obama is fond of invoking lessons from America’s recent wars.  The simplest and most important lesson, however, is the one he rarely mentions: Apocalyptic terrorists cannot be allowed to have sanctuary in ungoverned spaces, from which to plan attacks against the West.  Over the past seven years, those conditions have grown across the Middle East and Africa. If these threats are not removed now, and quickly, no one should be surprised when America gets attacked again.”

Editorial / Wall Street Journal

“The President’s 13-minute Oval Office speech at last acknowledged that last week’s attack in San Bernardino by a radicalized Islamist couple was an ‘act of terrorism.’  It would have been hard for him to say otherwise after his own FBI director, James Comey, had admitted this reality on Friday.  Mr. Obama was looking increasingly detached from reality and the speech was an attempt to recover from his claims that the growing jihadist threat is ‘contained.’

“Yet the president devoted most of his speech to defending the strategy he has pursued for 16 months against Islamic State without much success.  He cited his bombing campaign, but he didn’t mention that the vast majority of sorties drop no bombs because of the limits he has placed on the military.  He mentioned the recent allied bombing of Islamic State’s oil infrastructure, but then why has the U.S. waited so long to take this initiative?

“Mr. Obama was, as usual, especially forceful in explaining why he is refusing to deploy more U.S. ground forces to take the battle to the Islamic State homeland in Iraq and Syria.  But also, as usual, he offered up the false dilemma between his own policy and sending tens of thousands of troops to ‘occupy foreign lands.’

“No one is proposing that U.S. ground troops should occupy either country… (But) an expanded U.S. ground force would provide tactical expertise and above all signal to our allies in the region that the U.S. is committed to defeating Islamic State as rapidly as possible.  No one in the region believes that now….

“Perhaps the oddest note in the President’s speech was toward the end when he claimed that the U.S. will defeat the jihadist threat because we are ‘on the right side of history.’  History is made, not delivered as a birthright, and victory against killers has to be won.  Islamic State has been gaining so much ground precisely because it has appeared to be winning.  Mr. Obama has yet to show that he knows what it takes for the U.S. to win.”

*And speaking of winning, about Ted Cruz’ comment we should “carpet bomb” ISIS, in the first, literally, hours after the Paris attacks, I wrote in this space, specifically, the U.S. should carpet bomb Raqqa and Mosul.  I believe that more than ever.  It is impossible to avoid civilian casualties, but as the Journal alludes to above in that last paragraph, ISIS has not tasted real defeat…real pain.  It has lost some battles, but it needs to be obliterated for the disaffected around the world to see a loser, not a winner.  This must occur in their strongholds, only, at first, and as I said that Friday night after Paris, that needs to include their prime havens in Libya as well.  Sen. Cruz was partially correct.  He just needed to be more specific.

If we keep pussyfooting around with our current rules of engagement, our own casualties will pile up, not theirs. 

Washington and Wall Street

While the Street stumbled badly this week, it’s really all about next week and the Federal Reserve’s decision to finally hike interest rates, or so it was presumed until the market’s action on Friday.

The major averages had their worst week in months, with the Dow Jones losing 3.3% to 17265, the S&P 500 declining 3.8% and Nasdaq cratering 4.1%.

So much for the Dec. 4 strong jobs report and any halo effect.  Now it’s about commodities crashing and major credit market dislocations.

Regarding this last bit, Martin Whitman, one of the best-known mutual fund investors for four decades, suddenly decided he had to liquidate his Third Avenue Credit Fund, which focuses on high yield bonds, rather than allowing for investors to withdraw their investments per a normal mutual fund redemption process.

Whitman had to block shareholders from doing so when the portfolio suffered not only from poor performance, but also from illiquidity in his positions amid the rush to the door.

Far more on this next time.

As for the Fed’s potential action next week, former U.S. Treasury Secretary Lawrence Summers does not want to see the Fed hike rates.

“(There) is a profound worry.  U.S. and international experience suggests that once a recovery is mature, the odds that it will end within two years are about half and that it will end in less than three years are over two-thirds. Because normal growth is now below 2 percent rather than 3 percent, as has been the case historically, the risk may even be greater now.  While the risk of recession may seem remote given recent growth, it bears emphasizing that since World War II, no postwar recession has been predicted a year in advance by the Fed, the White House or the consensus forecast….

“I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it.  The knowledge that this is the case must surely reduce confidence and inhibit demand.

“Central bankers bravely assert that they can always use unconventional tools.  But there may be less in the cupboard than they suppose.  The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable.  There are severe limits on how negative rates can become.  A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.

“The Fed will in all likelihood lift rates this month.  Markets will focus on the pace of the Fed’s tightening.  I hope and expect that their response will involve no great turbulence.  But the unresolved question that will hang over the economy is how policy can delay and ultimately contain the next recession.  It demands urgent attention from fiscal as well as monetary policymakers.”

Europe and Asia

The eurozone economy expanded by 0.3% in the third quarter, according to Eurostat, 1.6% year-over-year.  Germany grew 0.3% (1.7% ann.), France 0.3% (1.2%), Spain 0.8% (3.4%), Italy 0.2% (0.8% ann.)

European Central Bank president Mario Draghi sent the euro rising two weeks ago after he announced a smaller cut to the central bank’s deposit rate than some had forecast, as well as an extension to its bond-buying program that some found underwhelming, and this week the euro just kept climbing to $1.10 when parity had been the trade.

Meanwhile, in Greece, where the economy fell 0.9% in the third quarter over the second, parliament approved a 2016 budget by a slim 153 to 145 margin and the people are far from happy as the budget makes further cuts to pensions, as well as defense.

Prime Minister Alexis Tsipras is under immense pressure to begin showing his country’s poorest citizens that progress is being made, but the latest austerity measures were forced on him by Greece’s creditors as his only way of receiving further bailout aid, and he has to exact even further pain in the coming weeks to satisfy the EU, ECB and the IMF.

That said, the banks have been successfully recapitalized.

“A Grexit [from the euro] is no longer on the table,” Tsipras said this week.  “And all the banks have survived….

“Our position is that main pensioners can’t be touched – they’ve been reduced 11 times by previous governments. But it’s a difficult balance: we have to create more jobs but we can’t stage another raid on pensioners.”

The government needs to complete a first review of the latest bailout program in February in order to open promised talks on long-term debt relief from eurozone governments.  The IMF has suspended its share of aid payments until it sees how Athens’ reform efforts go, but then the IMF wants to see Greece receive substantial debt relief, which the EU and ECB are against (read Germany).

Eurobits: Let’s give it up for Ireland.  The Irish economy expanded at a 7% pace in the third quarter vs. a year ago, according to the Central Statistics Office, growing 1.4% in Q3 over Q2, which was actually a slowdown from the first half of the year.  But the recovery is broadening, with construction now picking up after years in the doldrums owing to the Irish property crash.

Poland and Romania are exhibiting strong growth of their own; 3.7% and 3.6%, annualized.

Spain’s big  election is coming up December 20 and a centrist party, Ciudadanos, led by Luis Garicano, has made huge strides this year, rising in the polls from a mere 3% to 19%, thus making it the probable kingmaker.  Should it gain a similar amount of seats, it would be impossible to rule the country without its support.  But Garicano wants to win it all.

I cover the big vote in France, round one, down below.

On the migration front, the EU announced that asylum applications have been surging, with 413,800 people applying for asylum in the third quarter, a jump of 250,400 from the same quarter in 2014; almost twice as many as the second quarter, according to data from Eurostat.  In September alone, more than 160,000 applied for the first time, up from about 60,000 in September last year.

The top three nationalities seeking asylum were unsurprisingly Syrians, Afghanis and Iraqis, with 138,000 from Syria.

The number of asylum seekers in Germany is expected to approach one million this year, 965,000, as the government raised its formal estimate from 800,000.

Of the 965,000 just over half will be Syrians.  206,000 refugees were newly registered in Germany just in November, with 57,800 applying for asylum.  Authorities are granting it to about 70 percent.  What a nightmare.

Turning to Asia, China, in U.S. dollar terms, saw it imports fall 8.7% in November compared with a year  earlier, after a 12.6% drop in October, customs data showed.  Exports last month fell 6.8% year-on-year, steeper than October’s 5% decline.

China’s foreign exchange reserves also plummeted $87bn in November; the third-largest monthly decline on record, renewing worries of capital outflows after reserves had seemingly stabilized.

China’s reserves, $3.4 trillion, are still the world’s largest.  But they have long been seen as the ultimate guarantor of financial stability, so the unprecedented outflows are not good.  The imminent rate hike by the U.S. Federal Reserve isn’t helping matters.

In Japan, it turns out the economy isn’t in recession again after all.  Japan is known for large revisions to initial forecasts, but this one was larger than most.  Output expanded at an annualized rate of 1% in the third quarter, according to the Cabinet Office, when the government first said the economy had contracted by 0.8%. 

Output had contracted 0:5% in the second quarter, which is why the initial estimate on Q3 made it two down quarters in a row, ergo recession, but now, when looking at the first nine months of the year, the economy is growing at an average rate of 1.6%.  [GDP was up 4.4% ann. in the first quarter.]

Street Bytes

--U.S. Treasury Yields

6-mo.  0.51%  2-yr. 0.87%  10-yr. 2.13%  30-yr. 2.87%

There was a major flight to quality on Friday, with equity markets taking on gas and investors looking for stability in their portfolios.

Separately, the producer price index for November rose 0.3%, with the core, ex-food and energy, up a like amount, both stronger than expected.  [For the 12 months, the PPI, though, was down 1.1%, but up 0.5% on core.]

Meanwhile, retail sales for the month rose 0.2%, up 0.4% ex-autos.

--Oil fell to its lowest level in seven years this week, about $35.50 on West Texas Intermediate, $40 on Brent, following last week’s failed OPEC meeting in Vienna where the cartel (if it is that anymore) failed to tackle the global oil glut.  It’s every man for himself these days, with Iran preparing to dump even more supply on the market as sanctions are lifted.  The U.S. and Russia certainly aren’t cutting back.

OPEC’s monthly report on Thursday, after the meeting, revealed output had increased to 31.7 million barrels a day last month from 31.5 the prior month, both far more than the formal production target of 31mbd.

Saudi Arabia continued to pump at record levels, 10.1mbd last month, though it hit 10.6 earlier this year, both figures far surpassing its 2014 average of 9.7mbd.

Iraqi production rose to 4.3mbd in November, from 4.1m the month before as it pumps hard to find money to fight ISIS and support its fragile economy.

OPEC continues to try to undermine higher-cost producers, like the U.S. and Canada, but production from shale and Canada’s tar sands has proved more resilient than many expected.

And then you have the mild weather, plus the heavy leverage that comes with the territory in the oil business.  Many oil and gas companies simply don’t have enough income coming in to pay off their loans.  I mean look at the natural gas market…dead in the water at just a little over $2.00.

And those companies paying a dividend, that long seemed secure, are beginning to slash it, if not eliminate it entirely.

According to FactSet and the Wall Street Journal, “earnings before interest, tax, depreciation and amortization for the world’s five largest, private integrated oil and gas companies have dropped by an eye-popping $232 billion in 2015 and 2016 combined – or about 42%.  The five largest exploration and production companies have seen that proxy of cash flow drop by $83 billion, or close to 60%.”

These figures assume Brent rebounds to $60 next year.

--Chevron, the second-biggest U.S. integrated oil company next to Exxon Mobil, said it is cutting its capital spending budget by 24 percent for 2016 in response to the collapse in oil prices.

--Meanwhile, Anglo American PLC announced a massive restructuring of its mining businesses that will result in the loss of 85,000 jobs, one of the most drastic moves of its kind in the sector as commodity prices worldwide have plunged due to softening demand from China.

UK-based Anglo is the fifth-largest mining company by market value, but now it plans to reduce its portfolio of assets by 60% to focus on those that are still able to generate cash through the price cycle.

So the workforce is going from 135,000 to 50,000; the cuts taking place over a number of years.

Additionally, Anglo is suspending its dividend payments for the second half of this year and next, while slashing its capital expenditures.

--Dow Chemical and DuPont announced they will merge on Friday after days of speculation, thus creating a chemicals colossus with a market value of about $130 billion that will then be broken up into three pieces; agriculture, material sciences and specialty products.  Plastics  and specialty chemicals, for instance, have benefited greatly from falling energy prices, but the agrochemicals divisions are suffering with weaker demand for crop protection products.

Combined the two companies would make it second to BASF of Germany, though a DuPont-Dow combination will face regulatory scrutiny in a number of countries.

Both companies have been fending off attacks from activist investors; Nelson Peltz with DuPont and Daniel Loeb with Dow.  Both claimed their respective targets suffered from corporate clot.

--Speaking of agribusiness, the strong dollar has hit U.S. wheat exports in a big way.  Forecasters project shipments overseas of U.S. wheat will fall to a 44-year low, with buyers such as Egypt looking for less-costly alternatives.  The Agriculture Department said shipments of beef and pork are also down around 10% to 15%. 

Some of the competition on the wheat front is coming from the likes of France, Russia and Ukraine, as well as Romania.  [Jesse Newman / Wall Street Journal]

--General Electric called off a deal to sell its appliance division to Electrolux of Sweden after the Justice Department moved to block the transaction.

--Dutch lender Rabobank said it plans to cut another 9,000 jobs over the next three years, which comes on top of an initial 3,000 cuts previously announced; part of a shrinking of its domestic operations.  The bank was formed in 1898 as a cooperative to serve Dutch farmers.

--Morgan Stanley announced it was laying off 1,200 people from its fixed-income unit as well as back office support after the bank’s worst quarter for bond trading since the financial crisis.

Revenue in fixed-income, currencies and commodities (FICC) has plunged from $1.4bn in the first quarter to $600m in the third.

--Yahoo abandoned plans to spin-off its $32bn stake in Chinese e-commerce group Alibaba under pressure from investors worried about a huge tax bill.

So now the company is looking to spin off its core business instead.  The Alibaba spin-off had been announced back in February and was to take place in weeks.

Yahoo has been waiting on guidance from U.S. authorities on whether the 15% stake in Alibaba would be tax-free, which is how the company described it in February, but many legal experts have been saying, no way…it would generate a large tax bill.

And then you had concerns the new unit would trade at a big discount to New York-listed Alibaba and the whole thing is a mess.

But there are some like Verizon that are interested in looking at the rest of Yahoo.

Meanwhile, CEO Marissa Mayer, now in her fourth year, has struggled to convince investors she has a strategy of any kind, but she had twins on Thursday…so we wish her the best.

[Had there been a change of control in Yahoo and she was terminated without cause, Ms. Mayer would have picked up cash and prizes of $157.9 million, according to an estimate by an outfit that deals in corporate filings; most of it coming in the form of the acceleration of restricted stock and options.

--Volkswagen has concluded that its problems involving carbon dioxide emissions are far less widespread than feared.  The company said only 36,000 vehicles were affected by CO2 errors, and not the 800,000 it had originally suggested.  The results of its study will be submitted to German regulators who will check them before yearend.

VW initially thought the cost to restate fuel efficiency numbers of 800,000 cars would be in the 2bn euro range.

--Despite China’s problems, General Motors set a November sales record there, selling 346,000 vehicles, a 14% increase compared with year ago levels.  GM sells more cars in China than any other country.  By comparison, last month it sold about 229,000 in the U.S.

--McDonald’s all-day breakfast offerings is bringing in new customers and luring back others who had left the company recently, a study from a research and consultancy firm, NPD Group, found.  A third of the customers who bought breakfast foods at lunch or dinner hadn’t ordered from McDonald’s at all before the launch of all-day breakfast on Oct. 6.

Breakfast food orders rose to 47 percent of McDonald’s total orders after the launch, up from 39 percent before, according to NPD.  [Samantha Bomkamp / Chicago Tribune]

--A German consumer goods company, JAB Holding, is buying Keurig Green Mountain for $13.9 billion, an all-cash deal that was a whopping 78 percent premium, taking everyone by surprise.  JAB is on a quest to dominate the global coffee industry.

--As a major customer of Staples, for the life of me I don’t understand why the Federal Trade Commission has blocked for a second time in 20 years Staples’ proposed takeover of Office Depot Inc. because it would squelch competition.  Oh, c’mon.  This isn’t the old days.  Now you have huge competitors such as Amazon and Wal-Mart in the space.

--According to a new analysis of air fares by Expedia and Airlines Reporting Corp., average prices for tickets bought on Friday are 13% higher than on Sunday.

The sweet spot is about two months before departure.  The lowest-priced economy tickets for a flight within North America were sold, on average, 57 days before departure.

But don’t buy too early, which I have done all the time.

“Airlines don’t start actively managing the price of seats on a particular flight until about three months before departure for domestic flights and five or six months for international trips, says Rick Seaney, chief executive for FareCompare, a search site for flights and hotels. That’s when price cutting typically begins.”  [Scott McCartney / Wall Street Journal]

Separately, the study found that airfares globally were 8% lower in October than the same month a year earlier, including a 16% drop for flights within Europe (6% decline for flights within North America).

--CBS said it is holding back a few of its 30-second spots for the Super Bowl so it can sell them at the last minute for “north of $5 million,” as CEO Les Moonves told investors this week.  This year’s Super Bowl drew 114.5 million viewers (the half-time show drew even more), making it the most-watched show in U.S. television history.

The game next Feb. 7 will be Super Bowl 50 and CBS has already received as much as $5 million for some of the spots.

The last Super Bowl, which was NBC’s, had an average price of $4.5 million per 30 seconds.

--The Dec. 3 live production of The Wiz on  NBC dew 11.5 million total viewers (not moi), according to Nielsen, which was behind only The Sound of Music Live in 2013.  This wasn’t too shabby, considering it was a Thursday and went up against a Packers game on NBC, their miraculous comeback over Detroit.

--Walt Disney Co. doubled its investment in Vice Media Inc. to $400 million.  Among its many ventures, Vice produces a weekly news magazine for HBO and in March is slated to begin a daily news show.

--North Face and Esprit co-founder Douglas Tompkins died on Tuesday after a kayaking accident in Chile’s Patagonia, where he had spent the last two decades of his life. He was 72.

Tompkins was known as an “eco baron,” who bought up large swaths of Patagonia to keep it free of development.

He was a former mountain climber and ski bum who together with his wife opened up a small shop in San Francisco, peddling high-end climbing and camping equipment from Europe.  They called it North Face, yet he owned it only for five years before selling it.  Then he and his wife started another clothing business selling women’s dresses out of the back of a Volkswagen bus.  That line would become Esprit de Corps and then just Esprit.

Later, amid a divorce, Douglas sold his shares of Esprit for a reported $150 million and spent the rest of his life on conservation issues.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: Saudi Foreign Minister Adel al-Jubeir said on Thursday that Syrian President Bashar Assad had two choices: “either to leave through negotiations” or be forcibly removed from power.

Al-Jubeir was speaking to reporters in Riyadh during a two-day meeting of Syrian opposition groups.  The talks were aimed at forming a unified front ahead of proposed peace talks with Assad’s government.  [Daily Star]

On the battle field in Syria, both sides could claim victories, with ISIS recapturing some areas in the central part of the country [Ed. Maheen and Hawareen], just weeks after Syrian government forces had taken them. 

Syrian rebels evacuated the last area they held in the city of Homs under a ceasefire deal with the government and the UN, putting all of it under government control.  The rebels were due to go to areas of Idlib province they command.  Food reached the part of Homs the rebels controlled for the first time in a year as the Assad regime had cut it off all this time.

In an area outside of Damascus, held by rebel fighters, at least 19, including six children, were killed in airstrikes, but the Britain-based Observatory for Human Rights didn’t know if it was Syrian or Russian warplanes in the attack.

Russia was blamed by the U.S. for an airstrike that killed Syrian government forces, after Damascus first blamed the U.S.  A Pentagon spokesman said, “We do not have any reason to target the Assad regime or the Syrian army; we are at war only with ISIS.”  [Defense One]

A watchdog group said  that in October alone, between 255 and 375 non-combatants died in at least 44 Russian strikes.

In Iraq, it appears Iraqi forces, backed by U.S. airstrikes, repelled an ISIS counteroffensive after  the army gained a foothold in Ramadi.  Iraq claimed the center of Ramadi was under their control, noting U.S. air power was vital.  This is potentially very good news, but the history of Iraqi forces then holding onto their gains in recent years is not good.

On the oil front, research group IHS claims ISIS has managed to secure some $80m in monthly revenue from both oil and taxation, for the most part, but also through drug trafficking and  selling antiquities.

Separately, Samantha Power, U.S. ambassador to the UN, said on Tuesday that the United States was investigating reports that Iran has tested a medium-range ballistic missile, which would be a violation of a UN resolution.

This comes as Iran is close to meeting the conditions of the July nuclear deal that will lead to some of the international sanctions being lifted as early as January when the agreement is fully implemented.

Republican Senator Bob Corker (Tenn.), chair of the Senate foreign relations committee, said, “Iran violates UN Security Council resolutions because it knows neither this administration nor the UN is likely to take any action.”

Corker added that if the U.S. cannot respond to “a clear violation of a UN Security Council resolution,” then it would be unlikely to re-impose sanctions on Iran if it were found to be violating the nuclear accord.  Democratic Senator Robert Menendez (N.J.) noted: “Something is wrong because the silence is so deafening.”  [Geoff Dyer / Financial Times]

Russia, by the way, has begun deliveries of its advanced S-300 anti-aircraft missile systems to Iran; critical should the U.S. and/or Israel attempt to go after Iran’s nuclear facilities down the road.

And on the Russian-Turkish relations front, they weren’t helped any the other day when a serviceman on the deck of a Russian naval ship allegedly held a rocket launcher on his shoulder while the vessel passed through Istanbul.  Turkish television displayed photographs showing this as the Russian ship passed through the Bosphorus Strait, which bisects Istanbul, with the ship apparently headed to Syria.

Yemen: ISIS claimed responsibility for the killing of the governor of the southern port city of Aden.  An explosion caused by a rocket propelled grenade nailed his convoy.  ISIS has a growing presence in the shattered country.

China: The local government issued its first ‘red alert’ for pollution in Beijing following widespread outrage for failing to do so when pollution was off the charts a week ago; kind of ‘not so’ funny as negotiators in Paris were trying to hammer out the final details of a climate deal.

Schools were shut down when the alert first went out on Monday, while half of all private cars were prohibited from taking to the roads.

The pollution levels in the capital were actually higher than the day the red alert was issued for nine days since November 1, according to data collected at the U.S. Embassy.

You saw the pictures on television.  Just deadly.  Now imagine that it was actually worse in industrialized cities such as Hebei and Henan, which you didn’t see.

On an entirely different matter, China’s corporate executives are ‘disappearing’ at an alarming rate.  China’s largest brokerage, CITIC Securities said on Sunday that it could not contact its two top investment bankers.  That makes six of CITIC’s eight executive committee members now missing, including four taken away by police earlier in the year.

The government has been conducting an insider-trading probe in the wake of the market crash during the summer.

But wait, there’s more!  China’s Warren Buffett, Guo Guangchang, suddenly disappeared on Thursday, only to issue a statement Friday that he was “assisting authorities” in an investigation.  But it’s not like Guo is free

Separately, by way of follow-up on an issue I noted a few weeks ago, Alibaba signed an agreement to buy Hong Kong’s South China Morning Post.  This blows.

North Korea: Leader Kim Jong-un said his country has developed a hydrogen bomb.  Well isn’t that special.  If it’s true, thermonuclear bombs, or hydrogen bombs, are far more powerful than conventional nukes. 

Russia: According to Lt. Gen. Ben Hodges, commander of U.S. Army Europe, Russia has moved ballistic missiles to and conducted nuclear strike drills from its Kaliningrad exclave, prompting Pentagon fears that Moscow is preparing to block access to the Baltic Sear.  Hodges said there is a “significant amount of capability” in Kaliningrad, including anti-ship weapons, air defenses, and electronic warfare equipment.

In a briefing at the Pentagon, Hodges said, “They could make it very difficult for us to get up into the Baltic Sea if we needed to in a contingency.”

This is what sucks.  Russia has been conducting large-scale unannounced “snap exercises” with sophisticated weaponry.  When NATO holds similar drills, Russian observers are invited  and typically attend.

Hodges said, “We find out about them when they’re happening.”  [Marcus Weisgerber / Defense One]

Meanwhile, President Vladimir Putin’s old foe, ex-prisoner Mikhail Khodorkovsky, was summoned for questioning in Moscow on Tuesday in a case involving the 1998 killing of a Siberian mayor the Kremlin has long tried to nail Khodorkovsky with.  He has long denied involvement, which took place in the oil town of Nefteyugansk, which was where Khodorkovsky’s Yukos oil company was headquartered back then.

Khodorkovsky has been in exile in Switzerland since he was freed in 2013 after ten years in prison on tax evasion and embezzlement charges.  He was to be officially charged in this murder case on Friday.

Lastly, Russia’s Economic Development Minister Alexei Ulyukayev forecasted Russia’s GDP would contract by 3.7% this year, with inflation expected to run at a 12.5% pace next year, while oil is forecast at $51.50.

France: In the first round of voting in France’s regional elections, the far-right National Front (FN) scored stunning gains, though the results could change in Sunday’s second round.

But what we do know is that Marine Le Pen’s FN is on the verge of winning its first region since its founding in 1972, with Marine likely to emerge the second-round winner in a northern region, containing the migrant flashpoint of Calais, while her 25-year-old niece, Marion Marechal-Le Pen is in all likelihood going to prevail in the southern Provence-Cote d’Azur region.  [The New York Post has just caught on to the fact that, as I first told you over a year ago, Marion is, err, rather attractive.]

In the first round, FN finished first in six of the country’s 13 regions, and most experts seem to feel they could end up with a stunning four after the second round.

FN won 28% of the vote overall in France, with the center-right Republican party of former president Nicolas Sarkozy winning four regions, 27% of the vote, and the Socialists of President Francois Hollande picking up 23% and three regions.  [Others had 22% of the vote.]

Even if the FN were to emerge with just the regions headed by Marine and Marion, this would give the party tremendous momentum heading into the 2017 presidential elections that are just 18 months away.  For starters, it gives FN their first chance ever to show the public that it can govern more than a few small towns.

But it seems they will be running more than these two regions because, as opposed to the past, Sarkozy is discouraging any attempts in the regions in doubt to join forces with the Socialists  and others to defeat FN.

Back to Marine, National Front can unequivocally say that in the first round it won the vote, making it “the first party of France,” as she put it.

Marine also recognizes she needs the Jewish vote.  Dr. Esther Lopatin, director of a European studies program in Israel, told the Jerusalem Post that Europeans are frustrated by leaders who have ignored their concerns about rapid immigration and radical Islam on the continent.

So while Marine Le Pen has gone to great lengths to show her party is no longer anti-Semitic, as had long been the tradition under her disgraced father, Jean-Marie, Lopatin says that the FN’s sudden ‘love’ of Jews springs rather from a realization that they share a common enemy with the Jewish community in radical Islam.

It’s as if the National Front, says Lopatin, correctly I add, suddenly realizes that “[Jews] contribute to society, they don’t want to destroy our society or impose Shari’a law on our society.  More and more people believe that.”

Marine gets it.  Every chance she now has to support Israel on an issue, she’s doing so.  It will be interesting to see if other far-right parties in Europe take the same course.

That said, Sigmar Gabriel, leader of Germany’s Social  Democrats and the country’s vice-chancellor, called the FN’s vote a “wake-up call for all democrats in Europe.”

“It is of course a shock when rightwing extremists achieve such a result and become the strongest political force in the first round of voting in France – one of the founding members of the EU in the heart of Europe.”

Matteo Renzi, Italy’s prime minister, said in a Facebook post that European institutions needed to “change” or they risked becoming the “best allies of Marine le Pen and those who try to imitate her.”

“Without a strategic design, particularly on the economy and on growth, populist movements will sooner or later prevail also in general elections,” Renzi wrote.

Yes, populist parties are on the rise in Europe, as I warned they would be years ago, tied to the migrant issue, and now the Paris attacks are adding fuel to the fire.  The European Union can’t protect the people, is the growing belief.

This is an unbelievably critical, potentially scary, and depressing time for the EU.

Venezuela: The opposition coalition of the Mesa de la Unidad Democratica, or MUD, captured a super majority of the seats in parliament last weekend in a stunning rebuke of Socialist President Nicolas Maduro.

The margin of victory gives the opposition a wide range of special powers to challenge the Socialists – including petitioning the Supreme Court for presidential impeachment and even a recall referendum to revoke Maduro’s mandate.

But, while a supermajority can also initiate constitutional reform, as well as appoint and remove Supreme Court judges, any reforms can simply be vetoed by the president and overturning same would be very difficult.  He could just exercise emergency powers and ignore parliament.  The vast amount of power in Venezuela still resides in the presidency.

The bottom line, though, is that unless Maduro, who I called an “idiot” years ago, which I stand by, allows for economic reform, the economy will continue to crater.

There is no sign whatsoever Maduro gets it.  If not I expect he will harden his line instead.  Heck, right after the election he said, “The counterrevolutionary right wants to take over this country… We won’t let it!”

For the record, the Venezuelan economy is expected to shrink 10% this year, and another 6% or more in 2016, according to the IMF and World Bank.

The next presidential election is not due until April 2019.  This place will totally implode long before then…and it will explode in other ways.

Nigeria/Chad: A Chad security official says a triple suicide bombing at a market on an island in Lake Chad killed at least 27 people.  The perpetrators were three females, with Nigeria’s Boko Haram the prime suspects.  A hugely significant incident in terms of the political debate in the U.S.,  re the issue of allowing in ‘widows and orphans.’

Random Musings

--In a manifesto simply titled “Donald J. Trump Statement on Preventing Muslim Immigration,” once again the leading contender in virtually every poll, including in the critical first few states, ensured he was the story, and not even the San Bernardino investigation.

Trump called for “a total and complete shutdown of Muslims” entering the United States, imposing a religious test for people setting foot in America.

“Large segments of the Muslim population” are driven by a blind hatred, Trump said, and until and unless “we are able to determine and understand this problem and the dangerous threat it poses,” Muslims should be kept out of the country indefinitely.

At a rally in South Carolina on Monday night, Trump told the crowd: “It’s going to get worse and worse, folks.  You are going to have more World Trade Centers.”

Supporters cheered.  Critics, in both parties, expressed outrage.  For his part, Trump just kept booking media appearances.

Analyst and pollster Stuart Rothenberg told the Los Angeles Times, “I don’t think anything will hurt him for at least another four or five weeks, when there’s a chance voters will start asking a different question.  Instead of saying, ‘Who’s interesting, who’s entertaining?’ they may start asking themselves, ‘Who do I want as president?’”

But Rothenberg adds that until then, “anything that antagonizes members of the political establishment, upsets media pundits or riles Trump’s opponents will only enhance the billionaire’s appeal among his constituency of the angry and aggrieved.” [Mark Z. Barabak and Kurtis Lee / L.A. Times]

Jeb Bush called Trump’s latest bombshell “Unhinged.”  Chris Christie called it “Ridiculous.”  Ohio Governor John Kasich said, “This is just more of the outrageous divisiveness that characterizes his every breath and another reason why he is entirely unsuited to lead the United States.”

Sen. Lindsey Graham of South Carolina said on Twitter that Mr. Trump “has gone from making absurd comments to being downright dangerous with his bombastic rhetoric.”  Such rhetoric could put at risk the lives of U.S. troops abroad in Muslim countries.

Sen. Ted Cruz was more muted. “That is not my policy.  I’ve introduced legislation in the Senate that would put in place a three-year moratorium on refugees coming from countries where ISIS or al Qaeda can control a substantial amount of territory.”

President Obama’s deputy national security adviser, Ben Rhodes, called Trump’s statement “totally contrary to our values as Americans” and that it would hurt out fight against terrorism.

In an interview with CNN, Rhodes said that ISIS “wants to frame this as a war between the United States and Islam. And if we look like we’re applying a religious test to who comes into the country, we’re sending the message that essentially we’re embracing that frame.”

Homeland Security Secretary Jeh Johnson said: “We must not vilify American Muslims.  We must not throw a net of suspicion over American Muslims or any other religion.”

Trump’s proposal is deemed unconstitutional by most legal scholars.  John Yoo, a conservative law professor at the Cal-Berkeley, told the Wall Street Journal that the First Amendment guarantees the free exercise of religion.

“The United States cannot discriminate on the basis of religion.”  Yoo said that while in the past the United States discriminated based on country of origin, that is different from a wholesale religious ban.

Editorial / Washington Post

“Most candidates for the Republican presidential nomination, with an understanding of constitutional, democratic and social norms that Donald J. Trump utterly lacks, have denounced his outrageous call for a ‘total and complete shutdown’ on Muslims entering the United States.

“It is heartening that Mr. Trump’s opponents are finally condemning him in terms they would generally reserve for Democrats, but it also raises a critical question: If the GOP front-runner’s pronouncements are as lunatic and offensive as his rivals say – and they are – isn’t it incumbent on them to make clear they would oppose him if he were the party’s nominee?

“The prospect of an open Republican split may send tremors down the spines of party strategists. They naturally fear an internecine war, a fractured party and maybe an independent Trump candidacy. But even those outcomes would cause less damage to their party and to the nation than uniting behind a candidate whose policies and rhetoric are morally, legally and pragmatically unconscionable – as they have now recognized.

“Sen. Marco Rubio (R-Fla.) said Mr. Trump’s ‘habit of making offensive and outlandish statements will not bring us together.’...House Speaker Paul D. Ryan (R-Wis.) said Mr. Trump’s proposal ‘is not what this party stands for.  And more importantly, it’s not what this country stands for.’....

“Until now, party leader and primary rivals have mostly dodged (the Trump issue) by dismissing (his) chances of winning the nomination.  That’s no longer viable.  Having stood atop the field in the polls for months, and lately having widened his considerable lead, Mr. Trump and his candidacy can no longer be laughed off as a publicity stunt.  For responsible Republicans, the season of denial must end.

“The plain truth is that a Trump presidency would not only fracture American society along ethnic, racial and, we now know, religious lines. It would also demolish American prestige on the world stage and alienate our most important allies.  Think that’s an exaggeration? Then check with David Cameron, the Conservative British prime minister, who called Mr. Trump’s anti-Muslim hate-mongering ‘divisive, unhelpful and quite simply wrong.’...

“As Mr. Trump’s fellow Republican candidates now acknowledge, there is a real-world cost to a campaign that gains traction by spewing hatred, bigotry and rage.  Criticizing Mr. Trump is no longer sufficient. It is time to say clearly he is anathema to the Republican Party, and to the nation.”

Editorial / Wall Street Journal

“Every thesis creates its antithesis, a famous philosopher once said, and so it is now in American politics.  President Obama’s insistent failure to confront the realities of global jihad has produced its opposite in Donald Trump’s unfiltered nationalist id.  This is a reminder of how much damage a misguided American President can do to the country’s political culture.

“The political and media classes have joined in denouncing Mr. Trump for his latest leap beyond normal political boundaries with his call to stop all Muslim immigration to America.  He proposed this in a statement Monday that reflected calculation, not one of his stream-of-consciousness asides in a speech.  He defended it Tuesday, comparing his proposal to FDR’s decision to intern Japanese-Americans in World War II.  To borrow a line, he is no FDR.

“A religious test for entering the U.S. would certainly face constitutional scrutiny, even if it weren’t contrary to America’s best traditions.  The Chinese Exclusion Act of 1882 was not America’s finest hour, and neither were FDR’s internment camps.  A Republican Party that claims to prize freedom should reject both precedents.

“Mr. Trump’s Muslim ban fails above all on its own terms as anti-terror strategy.  The Census Bureau doesn’t track religious affiliation, so it’s hard to know how many Muslim citizens or residents live in America.  Estimates usually make it several million.  But however many there are, Americans are going to need them as allies to fight the radical Islamist infection.

“Their cooperation is more important than ever now that Islamic State is using the Internet to mobilize killers.  Fellow Muslims will see signs of radicalization in their mosques before the police or FBI do.  We want those Muslims coming forward with tips or warnings, but they won’t do so if they feel that their government treats all Muslims as terror suspects.

“Mr. Trump says his immigration ban would be temporary, until we understand the breadth of radicalization.  But such a judgment is inherently subjective, and the global jihadist threat will last for decades.  That’s why it’s been called ‘the long war,’ and such wars are as much ideological as military.

“Mr. Trump might say he’s only referring to foreign Muslims, but that won’t win friends either.  We need moderate Sunni allies across the Arab world to counter Islamist ideology and defeat Islamic State and al Qaeda.  Telling Muslims that they aren’t welcome to immigrate to the U.S. under any circumstances will make it harder for Arabs anywhere to be associated with America.”

Michael Goodwin / New York Post

“My first reaction to Donald Trump’s call to ban new Muslims from entering the United States was that he had simultaneously won the GOP nomination and lost the general election.  My second reaction was that events will prove one of those predictions wrong.

“If there are no more terror attacks in America before the end of the primary season, most Republican voters will see Trump’s plan as too radical and he will lose the nomination.

“On the other hand, if there are more attacks in the homeland, many more voters will move in Trump’s direction and he would almost certainly win the nomination and maybe the presidency.

“In effect, Trump is betting his campaign on there being more attacks.  I hope he is wrong, but fear he will be right.

“To be clear, I don’t support his plan.  Singling out all Muslims is vulgar and probably unconstitutional.  A religious test is un-American.

“The idea is so toxic that it has the unfortunate effect of making President Obama look right for once.  Obama warns repeatedly about Islamophobia, including in his grating Sunday-night lecture, even though there wasn’t much of it.  Jews suffer disproportionately from religious hate crimes, not Muslims.

“Trump obliterated those facts in a heartbeat, a development that could, temporarily at least, contaminate all get-tough approaches on terror and boost Obama and Hillary Clinton.

“Yet Trump’s proposal does not come out of the blue.  Obama and many Democrats actually favor changes in the visa-waiver program to keep some Muslims from entering the country.

“The program lets passport holders from 38 nations enter the U.S. for up to 90 days without a visa.  But after the Paris attacks, which were carried out by French and Belgian nationals moving seamlessly through Europe’s open borders, the White House began to develop restrictions on who was eligible for the waiver.

“One measure would exclude those who had traveled to Syria or Iraq since 2011.  Other parts reportedly would focus restrictions on nationalities, such as people born in Sudan or Iran.  Clearly, most people in those categories would be Muslims.  The disparate impact is why the American Civil Liberties Union, the American-Arab Anti-Discrimination Committee and the National Iranian American Council oppose the legislation, which passed the House Tuesday with more than 400 votes.

“Trump’s plan, then, despite its radical nature, reflects the bipartisan trend to prevent attacks by focusing on potential Muslim terrorists.

“The timing of his plan also matters – it would have been laughable two months ago.  But the Islamic State’s spreading barbarism, and Obama’s tepid response, are changing America’s mood....

“Obama’s knee-jerk response (to Paris and San Bernardino) was to call for more gun control, so the central issue of the campaign is who will best protect America from these savages.

“There are other related facts, too.  Our southern border is porous, and Obama won’t close it.  His plan to exempt thousands from deportation through a questionable executive order was wildly unpopular and is now before the Supreme Court in a constitutional test of its own.

“On top of that, the president wants to let in thousands of Syrian refugees, despite polls showing a large majority of the public is again opposed.  Critics argue that a thorough security vetting is not possible, a view buttressed by FBI Director James Comey, who said he could not promise that terrorists would not slip through.

“These are extraordinary times, with much of the world on fire. Because Obama’s presidency has been marked by lies and failure, he cannot summon the trust of his country at this crucial moment.

“His trust deficit is pushing the political pendulum in the opposite direction. Depending on events, it may swing far enough to carry Donald Trump into the White House.

“In that event, a President Trump would be Barack Obama’s true legacy.”

--Some new polls...as Republicans prepare for a big debate on Tuesday, Dec. 15, in Las Vegas (CNN the debate sponsor).

In a CNN/ORC national poll of registered Republicans and Republican-leaning Independents, Donald Trump receives 36%, with Ted Cruz in second at 16%, Ben Carson, 14%, Marco Rubio 12% and Jeb Bush in fifth at 3%.

The party elite is panicking.

“We’re driving the Republican establishment cra-a-zy,” Trump told a recent cheering crowd in Macon, Georgia.  “Crazy.  Crazy!  They don’t know what to do.”

In a New York Times/CBS News national poll, Trump picks up 35% support among Republican primary voters, compared to 16% for Cruz, 13% for Carson and 9% for Rubio.

A USA TODAY/Suffolk University national survey  has Trump at 27%, Cruz 17%, Rubio 16% and Carson 10%.  In all three, Jeb Bush picks up no more than 4%.

In a CNN/ORC poll of potential Iowa caucusgoers, Trump came in at 33% to Cruz’s 20%.  Carson was third at 16%, followed by Rubio 11% and then Bush way down in fifth at 4%.  Trump had been at 25% in this one in November.

But a new Monmouth University survey of likely Iowa voters has Ted Cruz at 24%, with Trump in second with 19%, Rubio 17% and Carson 13%.  The head of the Monmouth Polling Institute said the two surveys used different methods for determining who was likely to show up at the caucuses next February.

Right after the Paris attacks, a Quinnipiac Univ. survey had Cruz trailing Trump 25% to 23%.

In a CNN/WMUR poll of New Hampshire primary voters, Trump led with 32%, followed by Rubio at 14% and then Chris Christie in third with 9%.  [Bush 8%, Kasich 7%.]  In September, this same poll had Trump leading Carly Fiorina 26-16, with Rubio third at 9% and Christie 5%.  [Fiorina has fallen off the face of the earth, a la Rand Paul, Huckabee and the rest.]

A Fox News poll of likely GOP primary voters in South Carolina had Trump with a 35-15 lead over Ben Carson; Marco Rubio and Ted Cruz tied for third at 14%.

On the Democratic side, Hillary Clinton leads Bernie Sanders in the CNN Iowa poll, 54% to 36%, virtually unchanged from the last CNN survey, while she has a 56-29 lead over Sanders in the USA TODAY national survey.

In the Monmouth Iowa poll, Hillary leads 55-33.  But Sanders actually leads 48-38 among caucusgoers who are under age 50.  So you just know he is praying for godawful weather on Feb. 1st. 

In the CNN/WMUR poll of New Hampshire Democratic voters, Sanders leads Clinton 50-40. The same poll in September had it 46-30, Sanders.

--In a Bloomberg Politics Poll, among likely Republican primary voters, 65% favor Trump’s call to temporarily ban Muslims from entering the U.S.  37% of the same group said his idea makes them more likely to support him, while 16% say less and 46% say it has no impact.

A Wall Street Journal/NBC News survey said 57% of Americans objected to Trump’s proposed ban on Muslims, 25% favored it.  But among Republican primary voters, 38% supported Trump’s position, 39% did not.

In the New York Times/CBS poll, 44% of all Americans believe a terrorist attack is “very” likely in the next few months, and that among Republicans, 7 in 10 believe Trump is well-equipped to deal with the threat.

--Muhammad Ali issued a statement following Trump’s proposal on banning Muslims.

“I am a Muslim, and there is nothing Islamic about killing innocent people in Paris, San Bernardino, or anywhere else in the world.  True Muslims know the ruthless violence of so-called Islamic Jihadists goes against the very tenets of our religion.

“We, as Muslims, have to stand up to those who use Islam to advance their own personal agenda. They have alienated many from learning about Islam. True Muslims know or should know that it goes against our religion to try and force Islam on anybody.

“Speaking as someone who has never been accused of political correctness,” Ali said, “I believe that our political leaders should use their position to bring understanding about the religion of Islam and clarify that these misguided murderers have perverted people’s views on what Islam really is.”

--Of more than 250 Americans who have traveled overseas to join ISIS, a House Homeland Security Committee task force found that 26 percent of them came from Minnesota, where, specifically the Twin Cities area, there are 35,000 Somali Muslim immigrants.  [Scott W. Johnson / The Weekly Standard]

--The New York Times issued its first front-page editorial since 1920.  It happened to be about gun control, reading in part:

“Opponents of gun control are saying, as they do after every killing, that no law can unfailingly forestall a specific criminal.  That is true. They are talking, many with sincerity, about the constitutional challenges to effective gun regulation. Those challenges exist.  They point out that determined killers obtained weapons illegally in places like France, England and Norway that have strict gun laws.  Yes, they did.

“But at least those countries are trying. The United States is not. Worse, politicians abet would-be killers by creating gun markets for them, and voters allow those politicians to keep their jobs.  It is past time to stop talking about halting the spread of firearms, and instead to reduce their number drastically – eliminating some large categories of weapons and ammunition.

“It is not necessary to debate the peculiar wording of the Second Amendment.  No right is unlimited and immune from reasonable regulation.”

William McGurn / Wall Street Journal

“How does a man who entered the White House vowing to restore science to its proper place tell us that gun control is the answer to terrorism?

“After all, California already has strict gun control, as does France, which just had its second terrorist massacre this year.  Not to mention that the one time when terrorists with assault rifles and body armor were foiled, it was because an off-duty traffic cop in Garland, Texas, was carrying a gun – and used it to shoot the two heavily armed Islamists before they could kill anyone.

“Or that ‘common sense gun control’ would have done nothing to stop Richard Reid (the unsuccessful shoe-bomber); the Tsarnaev brothers in Boston (pressure cookers) or the 9/11 hijackers (box-cutters).  Maybe the president should be demanding common sense pressure-cooker control.

“Yet while the critiques of the president’s antigun pitch are correct, they are also beside the point.  Because liberal calls for gun control aren’t about keeping guns from bad guys. It’s what you talk about so you don’t have to talk about the reality of Islamist terror.  And focusing on the weaponry is part of a liberal argument that dates to the Cold War, when calls for arms control were likewise used to avoid addressing the ugly reality of communism.

“Understand this, and you understand why Senate Democrats reacted to San Bernardino by putting forth antigun legislation.  Why the New York Times ran a gun control editorial on its front page, and the Daily News used its own cover to feature the National Rifle Association’s Wayne LaPierre underneath San Bernardino killer Syed Farook – labeling them both terrorists.  And why President Obama used Sunday night’s address to whine about those resisting his call for gun measures that would not have stopped any of the shooters.

“Put simply, today’s liberalism cannot deal with the reality of evil.  So liberals inveigh against the instruments the evil use rather than the evil that motivates them.”

--Score another for U.S. Attorney Preet Bharara of Manhattan who successfully won a second big conviction in his efforts to root out corruption at the highest levels of government in Albany.  Bharara nailed former New York State Sen. Majority Leader Dean Skelos (R), who along with his son was found guilty on a number of charges, after earlier taking down Democratic Assembly Sheldon Silver.  Gov. Andrew Cuomo is next.

--Not for nothing, but my early winter forecast issued a few months ago for the northeast looks pretty good.  The problem for me is its way too warm for a long run down here in South Carolina.  [And sympathies to our friends in the Pacific Northwest who have been getting hammered, but for those in the Sierras, you asked for lots of snow and you’re going to get it through March.]

---

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

God bless America.

---

Gold $1074
Oil $35.36…lowest since 12/08

Returns for the week 12/7-12/11

Dow Jones  -3.3%  [17265]
S&P 500  -3.8%  [2012]
S&P MidCap -4.1%
Russell 2000  -5.1%...worst week since 2012
Nasdaq  -4.1%  [4933]

Returns for the period 1/1/15-12/11/15

Dow Jones  -3.1%
S&P 500  -2.3%
S&P MidCap  -4.4%
Russell 2000  -6.7%
Nasdaq  +4.2%

Bulls  44.9
Bears  27.6  [Source: Investors Intelligence]

Have a great week.  I appreciate your support.

Brian Trumbore