Week in Review

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Week in Review

12/26/2015

For the week 12/21-12/25

 [Posted Friday a.m.]

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Edition 872

Washington and Wall Street

I went to The Mall at Short Hills on Wednesday to pick up a few things and decided I’d go around noon to see how crowded it was.  I had no problem finding a parking space, when in past years at that time of day, two days before Christmas, it could take 20 minutes to find one.

The Apple store was less crowded, by far, than three weeks earlier at 10:00 a.m.

And in walking through Macy’s I was floored by the discounts, and not just on winter clothing.  I mean 65% off of nice athletic gear, for example.  I do realize this is what is happening all around the country.

According to RetailNext, which collects data through analytics software it provides to retailers, sales at physical stores fell 6.7% over last weekend, while traffic declined 10.4%; worse than the 5.8% decline in sales and 8% drop in traffic recorded from Nov. 1 through Dec. 14.

But as business is increasingly going online, the fact is online is still just 10% of total sales, physical stores the other 90%.  [Forrester Research Inc., however, says e-commerce could account for 14% of sales this season.]

By the way, 10% to 15% of holiday sales occur the week after Christmas, according to the National Retail Federation, which had forecast a total increase of 3.7% for November and December over last year’s pace.

Yup, it will be interesting to see how it all shakes out when the final reports start rolling in.

I cover Wall Street’s action down below.

Europe and Asia

There was literally zero major economic news in the eurozone this week but the big story revolved around Spain’s election last weekend, where Prime Minister Mariano Rajoy failed to hold a parliamentary majority, as expected, though the results revealed a political situation far more complicated than once thought prior to the vote.

Sunday’s election gave Rajoy’s Popular Party 123 seats in the 350-member lower house of parliament, down from the 186 won in 2011.  The Socialists will have 90 seats, followed by the far-left Podemos and allies with 69 and the business-friendly, centrist Ciudadanos with 40.

I wrote the other week that it seemed Rajoy, while he would lose his majority, could safely stay in power with a reasonable partner, but I also noted Ciudadanos had said it wouldn’t join a government with Rajoy and the two together now wouldn’t have the 176 they’d need anyway.

So a “grand coalition” of the Socialist and Popular parties?  Socialist leader Pedro Sanchez said no way...Spain wanted “a move to the left.”  There has also never been a coalition between these two.

For its part Podemos is the virulently anti-austerity party; the policy Rajoy followed for four years.

Well, you don’t have to be a sabermetrician to see that the numbers just don’t add up for any party in a coalition.  The second, third and fourth place finishers could form one, but no way Ciudadanos and the Socialists would get along, let alone with Podemos.

The reason why this vote is such a huge deal in Spain is the conservative Popular Party has dominated politics in the country for decades.

Bottom line...who the heck knows?  European markets were unsettled following the election and for good reason. This is an important country, to say the least.  It’s recovered and is growing at a 3% clip, but the austerity moves were very painful and the people continue to feel them, with unemployment still running at 21%.

Ambrose Evans-Pritchard / Daily Telegraph

“Spain risks months of political paralysis and a corrosive showdown with Germany over fiscal austerity after insurgent movements smashed the traditional two-party system, leaving the country almost ungovernable.

“The electoral earthquake over the weekend in one of the eurozone’s ‘big four’ states has echoes of the shock upsets in Greece and Portugal this year, a reminder that the delayed political fuse from years of economic depression and mass unemployment can detonate even once the worst seems to be over....

“Pablo Iglesias, the pony-tailed leader of the Podemos rebellion, warned Brussels, Berlin, and Frankfurt that Spain was retaking control over its own destiny after years of kowtowing to eurozone demands.

“ ‘Our message to Europe is clear.  Spain will never again be the periphery of Germany.  We will strive to restore the meaning of the word sovereignty to our country,’ he said....

“It had been widely assumed that Mr. Rajoy would have enough seats to form a coalition with the free-market and anti-corruption party Ciudadanos, but this new reform movement stalled in the closing weeks of the campaign.

“ ‘There is enormous austerity fatigue and the country as a whole has clearly shifted to the Left,’ said sovereign bond strategist Nicholas Spiro.  Yet the Left has not won enough votes either to form a clear government.

“ ‘The issue now is whether Spain is governable.  All the parties are at daggers drawn and this could drag on for weeks.  I don’t see any sustainable solution.  We can certainly forget about reform,’ he said....

“If a Socialist-Podemos coalition takes charge at the head of a Left alliance, it will not be singing the IMF tune.

“It would also be a foreign policy disaster for German Chancellor Angela Merkel, who has already lost Italy, Greece, and Portugal to the Left, and faces the growing risk of an anti-austerity ‘Latin bloc’ led by the Socialists in France.

“A swing to the Left in Spain would change the balance of power in the European Council and spell the end of Mrs. Merkel’s control over the EMU policy machinery.”

Tony Barber / Financial Times

“Whether it concerns terrorism, immigration, homegrown political extremism, the eurozone’s unity, unemployment, lackluster economic growth or even Europe’s military defenses, national governments and the EU apparatus in Brussels look increasingly as if they are not up to the numerous challenges bearing down simultaneously from every direction.  This should worry not just Europeans but their friends and partners in the Americas and Asia....

“Just as the eurozone crisis split the currency union between northern and southern Europeans, so the refugee emergency is dividing the EU between its older western European member states and its newer central and eastern ones.  The Schengen system of border-free travel, a cornerstone of EU integration, is already fragmenting along west-east lines.  If the barriers that separated the two halves of Europe before 1989 are not to re-emerge, it will be essential that western Europeans resist the temptation of imagining that they would be better off in a union, as in the cold war era, of 15 or fewer nations....

“More than at any point since its creation in the 1957 Treaty of Rome, the EU appears vulnerable over the coming 12 to 24 months to a succession of dreadful blows and upsets.

“All are potentially fatal to the EU’s unity – not least Britain’s referendum, due by the end of 2017, on whether to stay in the bloc – but not necessarily to the EU’s survival as such.

“Like Cavafy’s imaginary state, or like the Holy Roman Empire, which lasted for 1,000 years before Napoleon put it out of its misery in 1806, the EU may not disintegrate but slip into a glacial decline, its political and bureaucratic elites continuing faithfully to observe the rites of a confederacy bereft of power and relevance.  It is not an outcome that any European with a grain of common sense should wish for. But it is no longer inconceivable.”

Eurobits:

--(Non-euro) Britain’s economy grew by 0.4% in the third quarter, less than earlier estimated, and in annual terms GDP is up 2.1% rather than a previous reading of 2.3%.

--French consumer spending fell the most in nearly two years in November as unseasonably warm weather held back clothing purchases, but there was little sign the Nov. 13 attacks by Islamist gunmen and suicide bombers in Paris had any real impact on consumer spending.

The INSEE statistics agency said spending dropped 1.1% last month from October, when an increase was expected.

But December has also been unseasonably warm in France (sound familiar?) so Q4 doesn’t look good overall.

On the migration front, Germany is cracking down on those trying to enter the country from the Balkans, nations such as Albania and Kosovo, while it welcomes refugees from Syria.  Many Balkan migrants, seeking asylum, now face deportation.  No more “economic” migrants.  But this is a mere drop in the bucket, 18,000 having been deported out of 1 million registered asylum seekers this year, with new arrivals still coming.

Austria, following Germany’s lead (seeing how most heading to Germany first go through Austria) said it would accept no more than 100,000 migrants a year, which is equivalent to more than 1% of its population.

Turning to Asia, China’s government plans for more “flexible” fiscal and monetary policies bolstered commodities around the world this week.  The commodities bull run was all China and China growth, and the crash in the sector has been all about China’s slowdown.

But is there real cause for hope? China’s official news agency Xinhua said the country is considering a “fund to cut excessive steel output,” for one.

Chinese leaders approved an economic blueprint for 2015 that reflects that debt and investment, as in endless rail lines, airports, highways and apartment blocks, let alone too many factories producing the same product, can no longer power the second-largest economy in the world.

At the annual year-end gathering of China’s top economic minds, called the Central Economic Work Conference, attendees discussed the prospects for a long period of stagnant growth.

But it seems they now recognize how Chinese consumers are demanding safer food, better medical care and certainly less pollution, and therein lie opportunities.

So the new plan, as released through Xinhua, calls for slashing the stockpile of unsold homes, reducing industrial overcapacity, and mitigating financial risks.

The official policy and growth forecast won’t be released until March when China’s legislature convenes, but it’s widely expected Beijing will announce a GDP target lower than this year’s 7%.

Street Bytes

--A rebound in the price of oil was seemingly the main catalyst for a strong rally this week, as the Dow Jones picked up 2.5% to 17552, while the S&P 500 gained 2.8% and Nasdaq 2.6%.

Which means the S&P is now +0.1% for the year, while the Dow remains in the red, -1.5%.  [Nasdaq is +6.6%.]

Ergo, four more trading days in 2015 to determine whether it’s black or red for the main benchmarks.  It could be quite exciting New Year’s Eve, if you’re into this kind of thing.  My own forecast for the year is in the balance.

--U.S. Treasury Yields

6-mo. 0.47%  2-yr. 1.00%  10-yr. 2.24%  30-yr. 2.96%

There was some economic data this week.

November durable goods were unchanged (-0.1% ex-transportation), while November personal income was +0.3%, ditto consumption, both in line.

The numbers on housing were not as good as expected.  Existing home sales for November were down 10.5% on the month to the lowest annual pace in 19 months, while new home sales were up a less than expected 4.3%.

And we had our final revision to third-quarter GDP, +2.0%, with, importantly, household consumption revised up to 3.0%.

--The U.S. average gas price dropped below $2 per gallon on Monday for the first time since March 25, 2009, according to AAA.  AAA estimates that cheaper gas prices have saved Americans more than $115 billion on gasoline thus far in 2015, or $550 per licensed driver.

--The price of Brent crude, the global benchmark, fell to $36.17 per barrel on Monday, the weakest since July 2004, while West Texas Intermediate, which I quote at the end of WIR each week, was below $34.50.  The two prices then crossed paths at around $36.15, a rarity, the next day.

Russian production surpassed 10 million bpd, the highest since the collapse of the Soviet Union, while OPEC output remains near record levels above 31.5m bpd.  Saudi Arabia upped production to 10.276m between September and October.

But this coming year it’s all about Iran ramping up sales once sanctions are lifted, while the U.S., having voted to lift a 40-year-old ban on crude exports, could lead to even more production being released on the global market.

OPEC lowered its long-term estimates for oil demand, but at the same time states that $400bn of oil related investments will be needed every year between now and 2040 to cover future demand, which it sees increasing by more than 18m barrels a day to 109.8m b/d by the end of the period.

Over the medium term, OPEC’s World Oil Outlook sees demand increasing by 1m b/d, from 92.8m b/d in 2015 to 97.4m by 2020.

OPEC also sees a rebound to $70 in the reference basket by 2020; $95 by 2040.

But in the short term, crude oil got a boost as U.S. inventories fell sharply last week in a sign that perhaps energy companies are slowing production with such low prices.  Oil stocks slid by 5.9m barrels last week when a 1.4m increase was expected, so the change in direction led to a $3.00-$3.50 rally off the lows, with crude finishing the week at $38.10 on WTI, $37.90 on Brent.

--Royal Dutch Shell PLC cut its planned capital spending for 2016 by $2 billion, to $33 billion.

--ConocoPhillips, a pioneer of foreign investment in Russia’s energy industry, has sold out of  its last venture with Russian oil and gas company Rosneft, thus leaving the country after more than 25 years.

Western oil majors who sought to gain access to Russia’s huge oil reserves have often been stymied by Russia’s bureaucracy and local oligarchs.

Not everyone is pulling out though.  BP last June agreed to pay $750m for a stake in a Rosneft project.  Others seem to be waiting for changes in the Kremlin, not that any are in the offing.

--Canada’s 23 largest energy producers are set to spend 11% less in 2016 than this year, a cut of about $2.6 billion.  Since the rout in the price of crude began 18 months ago, 40,000 jobs related to the oil and natural gas sectors have been lost.

--According to the Federal Reserve Bank of Dallas, bankruptcies among oil and gas companies have reached quarterly levels last seen in the Great Recession.  At least nine O&G companies that accounted for more than $2 billion in debt have filed for bankruptcy in the fourth quarter.

Since peaking in October 2014, U.S. oil and gas employment has fallen by 70,000 jobs, analysts wrote in the report.

--Congratulations to Elon Musk’s SpaceX, which marked the first flight of its Falcon 9 rocket since an explosion last June by succeeding where no one else has before; returning the booster rocket that had deployed 11 small satellites into space.

SpaceX hopes the ability to reuse rockets could significantly reduce the cost of space launches.

Amazon’s Blue Origin succeeded in retrieving a rocket after space flight on November 23, but that rocket flew straight up into space and back down, while Falcon 9 performed a complex series of maneuvers before returning to Cape Canaveral.

--A ninth motorist’s death* has been linked to an exploding Takata airbag, federal regulators announced Wednesday.  The accident occurred in July near Pittsburgh, a teenage driver who was in a 2001 Honda Accord, which has been under recall.

*This includes a woman in Malaysia.  You may have seen other reports saying the Pittsburgh victim was the “eighth” victim...that’s eight in the U.S.

--Editorial / Wall Street Journal

“The executives at Chipotle Mexican Grill have been, well, dining out for years on their self-styled reputation for ‘food with integrity.’  So their competitors who by implication lack integrity can be forgiven if they indulge in a little Schadenfreude about the company’s recent trouble with food-borne disease....

“Since July the burrito seller has been connected to five outbreaks spanning several states. At least 50 customers have munched on something laced with E. coli, and more than 120 in Boston came down with the gastrointestinal norovirus.

“The company has closed and scrubbed scores of restaurants but says it still has no idea what’s poisoning people, and here’s a possible reason: About 10% of chipotle’s produce – the most common disease culprit – is grown locally.  Chipotle calls this local-sourcing part of its commitment to ‘the very best ingredients,’ but working with so many suppliers makes it difficult to catch the offending tomato.

“Founder Steve Ellis vowed on a global groveling tour that Chipotle will ramp up safety measures at the company’s nearly 2,000 locations.  The company will likely rely less on local suppliers, many of whom can’t comply with sophisticated testing. The company will also chop, prepare and hermetically seal ingredients such as cilantro and lettuce in a central kitchen before shipping it to local restaurants.

“In other words, Mr. Ellis promises to bring his restaurants into the 20th century. One reason large chains dice foodstuffs in a central kitchen is to avoid contamination.  And while Chipotle derides ‘factory farming’....such economies of scale exist to deliver safer food at a lower price.”

[This week the Centers for Disease Control and Prevention said five more people became sick after eating at two Chipotle restaurants in Kansas and Oklahoma.]

--Nike Inc.’s quarterly profit jumped 20% as the company continues to kick butt around the world.  It was also the 14th straight quarter Nike beat profit estimates, but then executives cautioned gross margins may weaken a little so the stock traded down a bit. 

Nonetheless, Nike has been a big winner this year, with revenue up 4% for the quarter ended Nov. 30, though ex-currency fluctuations it rose 12%.  Sales in China were up 24%, 31% in constant currency. Future orders in China jumped 34%.

--JPMorgan Chase was ordered to pay a $307 million penalty for failing to disclose to clients that it was steering them to the bank’s own investment products rather than those offered by rivals.  I can certainly relate to this, going back to my days in the fund business.  The clients also weren’t told they were investing in a more expensive share class of proprietary mutual funds, which generated greater profits for the bank.

--The Bureau of Labor Statistics released its state employment data last Friday and I always seem to miss this before I post that evening.

With the overall unemployment rate for the U.S. at 5.0% for November, some selected state rates:

Arizona 6.0%, California 5.7%, Florida 5.0%, Illinois 5.7%, New Jersey 5.3%, New York 4.8%, Texas 4.6%, Virginia 4.2%.

California’s rate fell 1.7%, Nov. 2014 to Nov. 2015.  The 5.7% rate is the lowest there in eight years.

--Uber and Lyft raised a combined $3.1 billion from investors.  Lyft is raising $1bn at a valuation of $4.5bn, which is more than double its valuation in May, while Uber is raising $2.1bn at a valuation of $62.5bn.

Uber has been aggressively expanding in India and China, while Lyft is focused on gaining market share in the U.S., especially in New York and San Francisco.

--There has been some great news in California, re the drought.  The snowpack in the Sierra Nevada is higher than average for this time of year.  It was 111% of average for the date a number of days ago, which was before a new round of storms dumped a ton more on Thursday.

As reported by the Los Angeles Times, last year at this time the snowpack was just half of norm, and it got worse from there.

April 1 is when snowpack reaches its peak and El Nino is going to wallop the state the next few months, particularly February (says moi...January say the real experts).  In a typical year snow provides a full third of the state’s water supply.

--Toshiba announced it would report its largest loss ever, $4.5bn for the year to March 2016, as it launches a restructuring effort to fix its unprofitable consumer electronics businesses.  As many as 7,800 jobs could be cut, including in the executive ranks.

Toshiba is still dealing with the fallout from an accounting scandal that saw it inflate profits by $1.3bn over a seven-year period.

--Starbucks remains Manhattan’s most populous retailer, with 220 locations, 15 more than last year.  Across the five boroughs of Gotham, Starbucks added 27 locations in total this year.

Overall, Dunkin’ Donuts is the biggest in NYC with 568 locations, with Subway at 444, down 18 stores in the past year.  [Crain’s New York Business]

--The Beatles’ catalog – 13 original albums and four compilations – is now available on nine subscription streaming music services: Spotify, Apple Music, Google Play, Amazon Prime Music, Tidal, Deezer, Microsoft Groove, Napster/Rhapsody and Slacker Radio.

The Beatles had been holding out for years before reaching an agreement with Apple in 2010 for iTunes, but streaming could not be ignored.

--For the record, “Star Wars: The Force Awakens” opened to an estimated $238 million opening weekend in the U.S. and Canada, the record for the largest opening of a film ever; besting last June’s “Jurassic World” ($208.8 million).

But even more astounding is the previous record for a December opening was “The Hobbit: An Unexpected Journey,” which took in $85 million in domestic receipts in 2012.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Iran:

David A. Graham / Defense One

“For a guy who rose to the presidency in large part by relying on his abilities as a communicator, Barack Obama seems to have little regard for messaging.  The president evinces a view of public relations as a distasteful business – one that is necessary, he grudgingly acknowledges, but also an essentially cosmetic, irrelevant one.

“During an interview with NPR’s Steve Inskeep, Obama again tried to reassure citizens that ISIS is not an existential threat to the United States.  ‘They can hurt us, and they can hurt our people and our families,’ he said.  ‘The most damage they can do, though, is if they start changing how we live and what our values are.’

“He said one reason for the problem is his own communications.  ‘Now on our side, I think that there is a legitimate criticism of what I’ve been doing and our administration has been doing in the sense that we haven’t, you know, on a regular basis I think described all the work that we’ve been doing for more than a year now to defeat ISIL,’ Obama said.  Meanwhile, he blamed ‘the media for pursuing ratings.’

“The president also said during an off-the-record conversation with columnists last week that his Oval Office address hadn’t gone far enough, a shortcoming he attributed to his own failure to watch enough cable news to understand the depth of anxiety.

“In other words, the strategy is working, and the White House just needs to communicate that better.  The fights against domestic terror and ISIS alike are going great, if only people would understand it.”

On the ground, Iraqi forces made initial progress in retaking Ramadi, but ISIS seemed to be making a stand, with anywhere from 300-350 fighters estimated to be hunkered down for a fight to the death.  As of this writing, the Iraqi offensive had stalled at the city center.

Assuming Ramadi does fall, though, the issue is can Iraq’s forces hold onto it, which has been the problem in the past.  Plus local Sunni tribes are suspicious of Iraq’s security forces.  But should Ramadi fall and be held, it would be the second major city after Tikrit to be retaken from Islamic State in Iraq.

The Iraqi army is also looking to retake Mosul, ISIL’s main stronghold in Iraq.  Coalition airstrikes have begun to destroy targets in the city.

Meanwhile, Amnesty International said in a report that at least 200 civilians had been killed in Russian air strikes in Syria, quoting witnesses and activists.  The human rights group accused Russia of using cluster bombs and unguided munitions on civilian areas and that such attacks could constitute war crimes.

Moscow insists it is only targeting the positions of “terrorist” groups, but we know that Russia’s definition of a terrorist group is rather different from that of the U.S.-led coalition.

In Washington, President Obama’s order to intensify air strikes is forcing the debate about changing the rules of engagement when it comes to bombing and current restrictions against ISIS targets that threaten civilians.  The caution exhibited thus far, where each strike has to individually be approved by top officers at the coalition operations center in Baghdad, is not going to destroy ISIS, for sure.

As reported by Karen DeYoung and Missy Ryan of the Washington Post: “France and Britain, both newcomers to the Syrian air campaign after last month’s Islamic State attacks in Paris, have chafed at the tight guidelines, officials acknowledged.  ‘War is a messy business; you cannot eliminate all risk,’ British Defense Secretary Michael Fallon warned in a Sunday Times (London) interview this month.

“In Iraq, local commanders have publicly complained about U.S. reluctance to strike targets in populated areas.

“According to new figures released by the military Tuesday, about 56 percent of all coalition aircraft return from ‘strike missions’ without having used their weapons.”  That actually compares with 75 percent a few months ago.

I was watching a CNN report the other day where they showed ISIS’ operations compound in the center of Raqqa, but the U.S. refuses to take it out because of the civilians who are being used as human shields, with one floor of the compound apparently harboring ISIS prisoners.

Not to beat a dead horse, but as I’ve mentioned countless times, we’re worried about civilian casualties now when between summer of 2012 and today, the death toll in the Syrian war has soared from 20,000 to over 300,000...the vast majority of them being civilians killed by the Assad regime.  Who was so concerned about the 280,000?  It blows my mind.  Excellent reports, like the above-referenced Washington Post one, fail to draw this distinction.  The Republican presidential candidates, in calling for an intensified air campaign, don’t use my example, which the American people, and our leaders, need to hear over and over and over again until it hits them.  ‘Oh, now I see....’

[Retired Lt. Col. Ralph Peters does get it and I quote him below.]

Yes, I called for carpet-bombing; but not of the unspecific Ted Cruz variety (he’s a mess in explaining what he seeks to do and accomplish).

I said you carpet bomb Mosul and Raqqa, ISIL’s “capitals” in Iraq and Syria, for one reason and one reason only.  They have not felt real pain.  They suffer battle losses, perhaps the latest being in Ramadi, but it would be tough for ISIS to use film of hundreds dead in the streets of one of these two cities as a recruiting tool.  They can tout dying on the battlefield against the infidels as something glorious.  Not being blown to bits in their beds.

And as for the collateral damage, don’t you understand?  We long lost the hearts and minds in this region, save for the Kurds.

Editorial / Washington Post

“The UN Security Council unanimously passed a resolution Friday [Dec. 18] demanding that ‘all parties immediately cease any attacks against civilians and civilian objects’ as well as ‘any indiscriminate use of weapons, including through shelling and aerial bombardment.’  Less than 48 hours later, Russian planes carried out at least six airstrikes on civilian targets in the northern Syrian provincial capital of Idlib, killing scores of people.  It was a blatant violation of the resolution Russia had just voted for – and an indication of how Vladimir Putin actually regards the diplomatic deals on Syria the Obama administration has been pushing.

“According to local sources cited by Reuters and The Post’s Hugh Naylor, the Russian bombing struck a marketplace in the heart of Idlib as well as a courthouse.  Rescue workers told Reuters they had confirmed 43 dead and that dozens more bodies had yet to be identified or pulled from the rubble.  While the town is controlled by a rebel alliance composed mostly of Islamist factions, it is nowhere near territory held by the Islamic State. And few would argue that a souq was not a civilian target.

“Not just the Security Council’s ambassadors should be embarrassed by this outrage.  There is also Secretary of State John F. Kerry, who just last Tuesday emerged from a meeting with Mr. Putin saying that the Russian ruler would ‘take on board’ Mr. Kerry’s objections to airstrikes on Syrian targets outside Islamic State-held land.  Perhaps Mr. Putin tossed the U.S. concerns back overboard once Mr. Kerry had left Moscow.  More likely, he never had any intention of altering Russia’s policy of proclaiming war against the Islamic State while focusing its fire on the forces opposed to Syrian dictator Bashar al-Assad.”

Ralph Peters / New York Post

“Stop pretending that war can be waged gently.

“Kill the enemy. Accept that there will be civilian casualties and collateral damage.  Get the lawyers out of the targeting process and off the battlefield. Rules of engagement should empower our troops, not shield our enemies.

“The morbid ‘humanitarianism’ of the left ignores the proven principle that winning fast spares lives.  As a result of our reluctance to fight promptly, powerfully and ruthlessly, there are now 300,000 dead in Syria, untold numbers dead in Iraq and rising body counts elsewhere, with millions of refugees.  And because our enemies know that we don’t strike populated areas, they base themselves in crowded neighborhoods, guaranteeing more civilian deaths.”

Iran, part II: Foreign Minister Mohammad Javad Zarif told state media on Monday that a new United States visa restriction that applies to Europeans and others who have visited so-called high-risk countries is a violation of the nuclear agreement.

The restriction prohibits visa-free travel to the U.S. for anyone who has visited or holds citizenship in Syria, Iraq, Sudan and Iran.

Iran argues it shouldn’t be on the list because it opposes ISIS, the reason for the new rules.

Secretary of State John Kerry is now promising in a letter to Zarif, “We will implement them (the restrictions) so as not to interfere with legitimate business interests of Iran.”

Oh brother.  But Iran does have a point.  Saudi Arabia and Pakistan aren’t on the high-risk countries list, though 15 of 19 participants in the attacks of Sept. 11, 2001, were from Saudi Arabia.  And the San Bernardino couple had ties to both countries.  [Thomas Erdbrink / New York Times]

Editorial / Washington Post

“Iran is following through on the nuclear deal it struck with a U.S.-led coalition in an utterly predictable way: It is racing to fulfill those parts of the accord that will allow it to collect $100 billion in frozen funds and end sanctions on its oil exports and banking system, while expanding its belligerent and illegal activities in other areas – and daring the West to respond.

“Unfortunately, the Obama administration’s response to these provocations has also been familiar.  It is doing its best to downplay them – and thereby encouraging Tehran to press for still-greater advantage.

“We’ve pointed out how the regime of Ayatollah Ali Khamenei has unjustly sentenced Post correspondent Jason Rezaian to prison and arrested two businessmen with U.S. citizenship or residence since signing the nuclear accord.  There have been no penalties for those outrageous violations of human rights.  Now a United Nations panel has determined that Iran test-fired a nuclear-capable missile on Oct. 10 with a range of at least 600 miles, in violation of a UN resolution that prohibits such launches.  Moreover, it appears likely that a second missile launch occurred on Nov. 21, also in violation of Security Council Resolution 1929.

“The U.S. response?  ‘We are now actively considering the appropriate consequences to that launch in October,’ State Department official Stephen Mull testified at a Senate committee hearing Thursday.  In other words, there have so far been none....

“It’s not hard to guess the reasons for this fecklessness.  President Obama is reluctant to do anything that might derail the nuclear deal before Iran carries out its commitments, including uninstalling thousands of centrifuges and diluting or removing tons of enriched uranium.  The same logic prompted him to tolerate Iran’s malign interventions in Syria, Yemen and elsewhere, along with the arrest of Mr. Rezaian, while the pact was under negotiation....

“By flouting the UN resolutions, Iran is clearly testing the will of the United States and its allies to enforce the overall regime limiting its nuclear ambitions. If there is no serious response, it will press the boundaries in other areas – such as the inspection regime.  It will take maximum advantage of Mr. Obama’s fear of undoing a legacy achievement, unless and until its bluff is called. That’s why the administration would be wise to take firm action now in response to the missile tests rather than trying to sweep them under the carpet.”

Israel: There are growing concerns Israel and Hizbullah could be headed to round three after Israeli forces launched a missile strike that killed a senior Hizbullah leader, Samir Kuntar, and several others in Syria.

In 1979, Kuntar, then just 16, led a raid in which he and a group of attackers infiltrated Israel from Lebanon, killed an Israeli police officer, kidnapped a man and his four-year-old daughter from their home, and then executed the two as troops were bearing down on him.

Kuntar was sentenced to life in prison, but was controversially released in 2008 as part of a prisoner exchange.  He received a hero’s welcome in Lebanon and was received in Tehran by then-President Mahmoud Ahmadinejad.  Kuntar has been rising up the ranks in Hizbullah.  They promised revenge.

But Hizbullah is currently heavily engaged in Syria, so it would seem unlikely the group would attempt to retaliate in any way that would lead to a massive Israeli response.

On a totally different issue, a new poll by WIN/Gallup International reveals that Israelis have a slightly higher opinion of Vladimir Putin than they do of Barack Obama.

Afghanistan: Six American soldiers were killed in one of the deadliest attacks against U.S. forces here this year, a Taliban suicide bomber on a motorcycle driving into a military convoy near Bagram Air Base on Monday.

The Taliban has been seizing territory across Afghanistan, which is increasingly putting Americans in the fight in support of struggling Afghan forces.

And as Ahmed Rashid writes in an op-ed for the Financial Times regarding the deepening crisis:

“(The U.S., Britain and their NATO allies) have displayed a total reluctance to acknowledge publicly what is happening on the ground.  There has been virtual silence from U.S. President Barack Obama and U.K. Prime Minister David Cameron and their respective governments, even as Britain and the U.S. have sent special forces to the beleaguered southern province of Helmand to stave off a Taliban attempt to conquer it. Defense ministry officials on both sides of the Atlantic have handled the crisis as though it were merely a spot of bother.

“Afghanistan is becoming an unacknowledged disaster zone just a year after the withdrawal of the bulk of western forces, which at their peak in 2012 numbered 140,000.  Now a few special forces are sent in periodically and expected to fix the country in a hurry....

“But Helmand is not only the failure of the west.  President Ashraf Ghani has proved unable to forge a political consensus at home, and he has failed to carry out badly needed reforms.  The economy, which had grown so dependent on servicing western troops, has collapsed since they left.  Afghans now constitute the second largest group of migrants trying to enter Europe.”

China: Beijing and northern parts of the country continue to get hammered by heavy pollution, with coal-burning pollutants being the prime contributor. While the growth of coal consumption has fallen significantly, it still accounts for 66% of the country’s annual energy use in 2014, official figures show.

Friday (today), the smog was so thick at least 227 flights were canceled at Beijing’s main international airport.

Separately, there was an awful landslide in Shenzhen that killed dozens.  A waste dump that had been ordered closed over safety fears created the landslide that destroyed or damaged over 30 buildings, with the landslide covering 100,000 square meters at an industrial park.

The owners of the dump piled earth and construction rubbish 20 stories high...and then it collapsed.  Good god.  People living in the area had been complaining to authorities that it looked unstable, plus the number of trucks carrying waste to the site had increased in recent months, they said.  [South China Morning Post]

Meanwhile, China’s Defense Ministry said over the weekend that the United States committed a “serious military provocation” by flying B-52 bombers over an artificial island in the South China Sea.  The ministry confirmed that two U.S. Air Force strategic bombers had entered airspace near a Chinese controlled man-made island on December 10 and accused the U.S. of deliberately raising tensions in the disputed region.

North Korea: In an op-ed for the Washington Post (based on an article in Washington Quarterly), Mitchell Wallerstein, a former deputy assistant secretary of defense, writes that ignoring North Korea’s nuclear program could prove to be a dangerous mistake.

“It is too easy to dismiss as bluster the near-constant stream of threats coming out of Pyongyang. But while the world looks the other way, North Korea’s young and isolated leader, Kim Jong Un, is aggressively pursuing four parallel military initiatives: expanding the amount of fissile material (plutonium and highly enriched uranium) the country possesses; producing a longer-range missile capable initially of reaching targets in the Pacific and eventually the continental United States; developing a smaller and lighter nuclear warhead to sit atop a long-range missile; and seeking a survivable, strategic ‘deterrent’ via  a small missile-launch submarine or mobile, land-based missile launch system.  There is much that we do not know about what goes on inside this highly secretive state, but there is both commercially available satellite imagery and credible deductive analysis to support the conclusion that North Korea is making progress on all four fronts....

“(A) diplomatic solution, preferably one brokered by China, remains the preferred approach. But if diplomacy fails – or if Pyongyang refuses to engage without making extortionist demands – the Obama administration should state unambiguously that the United States will impose secondary sanctions if any additional nuclear or long-range missile tests take place and that it is prepared to engage militarily to prevent North Korea from acquiring the capability to use nuclear weapons and long-range missiles to threaten U.S. territory or the territory of U.S. allies.”

Nigeria: President Muhammadu Buhari said Nigeria has “technically won the war” against Boko Haram, telling the BBC the Islamist militants no longer mount “conventional attacks” against security forces or population centers.  It has been reduced to fighting with IEDs and is a force only in its heartland of Borno state.

The group’s six-year insurgency in the northeast part of the country has claimed 17,000 lives, destroyed more than 1,000 schools and displaced 1.5 million.

Buhari said he had given the army until the end of the year to defeat the group.

Well, I have no clue if the president is even close to the truth, but Boko Haram has indeed lost control of some towns it once controlled.

Brazil: As if this country doesn’t already have enough problems, health officials are urging women not to get pregnant, especially in the country’s northeast, where officials have linked a mosquito-borne virus called Zika to a surge in newborn microcephaly, “a neurological disorder that can result in incomplete brain development,” according to a CNN story.

More than 2,400 suspected cases have been reported this year, compared with 147 cases last year.  Doctors are investigating 29 related infant deaths.

Six states have declared a state of emergency, including Pernambuco state, where more than 900 cases have been reported.

This is awful! And you know this warm winter we’re having in the northeast U.S. sure isn’t doing anything to kill mosquito larvae.  The last two winters, where we had bitter cold for long stretches, the kind you need to kill the bastards, certainly led to less mosquito-related illnesses, like West Nile.

Actually, here’s something you won’t find anywhere else in relation to the above story.  I looked up the stats on West Nile for the state of New York and compared 2012 with 2014, the latter a brutal winter.

2012...107 human cases
2014...26

[Source: CDC]

Back to Brazil, of course you have the Olympics coming up and if this outbreak continues to grow, that’s not exactly the kind of publicity their Dept. of Tourism would want.

From CNN: In Rio de Janeiro, the host city (for the Games), “officials said they have already made more than 9 million house visits to eradicate the stagnant pools used as a breeding ground for mosquitoes and are monitoring 391 pregnant women who are suspected of having Zika infections.”

Also: “With the hot, rainy summer just beginning, the concern is Brazil could see a big spike in Zika.”

Kenya: Finally, this is easily the best story of the week, via the BBC.

“A group of Kenyan Muslims traveling on a bus ambushed by Islamist gunmen protected Christian passengers by refusing to be split into groups, according to eyewitnesses.

“They told the militants ‘to kill them together or leave them alone,’ a local governor told Kenyan media.

“At least two people were killed in the attack, near the northeastern village of El Wak on the Somali border.

“The Somali based al-Shabab group is the main suspect for the attack....

“ ‘The locals showed a sense of patriotism and belonging to each other,’ Mandera governor Ali Roba told Kenya’s private Daily Nation newspaper.

“The militants decided to leave after the passengers’ show of unity, he added.”

God bless us, everyone.  And we pray for the victims.

Random Musings

--In the polls:

A new CNN/ORC national poll released Wednesday has Donald Trump way ahead with 39%, more than double Ted Cruz’ 18%.  Marco Rubio and Ben Carson are tied for third at 10% among registered Republicans and independents leaning Republican.  Chris Christie was at 5%, Rand Paul 4% and Jeb Bush, staggeringly, polled 3% nationally.

Among those watching the Republican debate on Dec. 15, 33% said Trump did the best job, 28% Cruz.  And when it comes to the question of who can best handle the economy, Trump receives 57% to Cruz’ 8%.

A Quinnipiac University national poll had a far different result than CNN’s, with Trump’s lead over Cruz only 28-24.  Rubio was third at 12% and Carson had 10%.

[Among Democrats in this one, Hillary Clinton tops Bernie Sanders 61 to 30, with Martin O’Malley at 2%.  Clinton tops Trump 47-40 head to head.  But In the CNN poll, Clinton leads Sanders only 50-34.  However, head to head, while she beats Trump 49-47, a tie, statistically, Cruz leads her 48-46 and Rubio does the same, 49-46 (also ties).]

Moving to state polls, the latest CBS/YouGov/Battleground surveys of key states revealed:

In New Hampshire, Trump polled 32%  to Cruz’ 14% and Rubio’s 13%.  [Chris Christie 11%.]

[On the Democratic side, Sanders beats Clinton 56-42.  Go Bernie, Go Bernie, Go Bernie, Go!]

In Iowa, Cruz leads Trump 40-31, Rubio 12%.

In South Carolina, Trump leads Cruz 38-23, Rubio 12%.

Also from the CNN poll, the top issue for all voters in New Hampshire was terrorism (66%) and in Iowa (61%).

But while Trump continued to lead every national survey, and most of the early primary and caucus state polls, the Quinnipiac survey revealed that 50% of American voters say they would be embarrassed to have Trump as president.

--Bret Stephens / Wall Street Journal

“Dear fellow conservatives:

“Let us now pledge to elect Hillary Clinton as the 45th president of the United States.

“Let’s skip the petty dramas of primaries and caucuses, the debate histrionics, the sour spectacle of the convention in Cleveland.  Let’s fast-forward past that sinking October feeling when we belatedly realize we’re going to lose – and lose badly.

“Let’s move straight to that first Tuesday in November, when we grimly pull the lever for the candidate who has passed all the Conservative Purity Tests (CPTs), meaning we’ve upheld the honor of our politically hopeless cause.  Let’s stop pretending we want to be governed by someone we agree with much of the time, when we can have the easy and total satisfaction of a president we can loathe and revile all the time.

“Let’s do this because it’s what we want.  Maybe secretly, maybe unconsciously, but desperately. We want four – and probably eight – more years of cable-news neuralgia.  We want to drive ourselves to work as Mark Levin or Laura Ingraham scratch our ideological itches until they bleed a little.  We want the refiner’s fire that is our righteous indignation at a country we claim no longer to recognize – ruled by impostors and overrun by foreigners.

“We also want to turn the Republican Party into a gated community.  So much nicer that way.  If the lesson of Mitt Romney’s predictable loss in 2012 was that it’s bad politics to tell America’s fastest-growing ethnic group that some of their relatives should self-deport, or to castigate 47% of the country as a bunch of moochers – well, so what?  Abraham Lincoln once said ‘If you would win a man to your cause, first convince him that you are his sincere friend.’  What.  Ever.  Now the party of Lincoln has as its front-runner an insult machine whose political business is to tell Mexicans, Muslims, physically impaired journalists, astute Jewish negotiators and others who cross his sullen gaze that he has no use for them or their political correctness....

“Donald Trump is a candidate of impulses, not ideas.... This doesn’t seem to have perturbed his supporters in the slightest.  Mr. Cruz is happy to be on any side of an issue so long as he can paint himself as a ‘real Republican’ – the implicit goal here being the automatic excommunication of anyone who disagrees with him.  Naturally, he’s rising.

“What we won’t accept, however, is a standard-bearer whose convictions or personality might conceivably appeal to those wavering voters who usually decide elections in this country.  Of all the reasons to dislike Mr. Rubio, surely the greatest is that he’s the only Republican who consistently outpolls Mrs. Clinton in general election matchups.

“Didn’t we already mention that our subliminal goal is to lose this election?”

--George Will / Washington Post

“If you look beyond Donald Trump’s comprehensive unpleasantness – is there a disagreeable human trait he does not have? – you might see this: He is a fundamentally sad figure. His compulsive boasting is evidence of insecurity.  His unassuageable neediness suggests an aching hunger for others’ approval to ratify his self-admiration.  His incessant announcements of his self-esteem indicate that he is not self-persuaded.  Now, panting with a puppy’s insatiable eagerness to be petted, Trump has reveled in the approval of Vladimir Putin, murderer and war criminal....

“Certainly conservatives consider it crucial to deny the Democratic Party a third consecutive term controlling the executive branch.  Extending from eight to 12 years its use of unbridled executive power would further emancipate the administrative state from control by either a withering legislative branch or a supine judiciary.  But first things first.  Conservatives’ highest priority now must be to prevent Trump from winning the Republican nomination in this, the GOP’s third epochal intraparty struggle in 104 years.”

[Mr. Will noting the first two were in 1912 with Theodore Roosevelt/President Taft and 1964 with Barry Goldwater against the Republican establishment, i.e.,  Nelson Rockefeller.]

“In 2016, a Trump nomination would not just mean another Democratic presidency. It would also mean the loss of what Taft and then Goldwater made possible – a conservative party as a constant presence in U.S. politics....

“One hundred and four years of history is in the balance.  If Trump is the Republican nominee in 2016, there might not be a conservative party in 2020 either.”

--Robert Samuelson / Washington Post

“What his supporters most like about Trump, even if they disagree with some of his policies (as some inevitably do), is that he defines himself – he does not let others do it for him, and this rubs off on them.  It’s liberating. As he asserts his moral superiority over the judgments of the ‘political establishment’ and ‘mainstream media,’ so can his supporters defy others’ hostile judgments of their values. In the contest for the high moral ground, they have a champion and a spokesman.  They feel better about themselves. These are the psychic benefits.

“For the ‘political establishment’ and ‘mainstream media’ – admittedly ambiguous groups – this poses a dilemma.  When Trump makes proposals that strike them as simplistic, unworkable, undesirable or, worse, racist, they have two choices, both bad.  If they decide not to react, their silence may seem to condone policies that they abhor.  The second choice is to denounce many of Trump’s ideas, but this plays into his hands because the more he is attacked by despised outsiders, the more popular and admired he becomes among supporters.

“What results is a bizarre, though fascinating, spectacle.  Trump proposes.  His opponents (pundits, politicians, ‘experts’) pounce – criticizing and fulminating. And Trump’s popularity rises.

“It is not inevitable that this cycle continue indefinitely. Trump may stumble. Some other candidate – or candidates – may soar. The avalanche of criticism may reach a critical mass, raising fresh doubt among some followers.  Or Trump’s outsize ego may begin to offend onetime allies.  Politics is a fickle business.  Still, Trump’s success has so far stunned many veteran reporters and election observers who have underestimated his political skills.”

--Regarding Donald Trump’s claim that there were “thousands” of Muslims celebrating 9/11 in Jersey City, N.J., NJ.com (NJ Advance Media/Star-Ledger) did an extensive study  and found that there were indeed “small pockets of people celebrating before the groups dispersed or were broken up by authorities.”

But Trump’s “broad assertion that thousands of people cheered (was) baseless.  At the same time, the inquiry provides the first credible indication of at least two modest celebrations, as described by on-the-record sources who say they witnessed the behavior.”

The report is indeed extensive, and enough for Trump to co-opt, but nothing anywhere near what The Donald is ascribing.

Again, in all cases, these were “small” groups.  But, collectively, it is/was disturbing, Jersey City being a notorious place for extremism given its connection to the first attack on the World Trade Center in 1993.

Excellent reporting by the Star-Ledger/NJ.com.

--South Carolina Republican Sen. Lindsey Graham dropped out of the presidential race.  I like the man.  I believe both he and his best friend John McCain are right when it comes to foreign policy today.  But many Americans don’t want to hear the truth.  Or are flatly disinterested.  And to a certain extent, that’s their right as an American, but there will come a time when it does interest them and they’ll be like, ‘what just happened?’

If you educate yourself on foreign policy and you and I disagree, I totally respect that.  If you put your head in the sand, or in your iPhone 24/7, I don’t.

--The Washington Post gets a big “A-Hole of the Year” mention for running an editorial cartoon on its website that depicted Ted Cruz’ young daughters as trained monkeys.

The cartoon by Ann Telnaes was later replaced by a note from editorial page editor, Fred Hiatt, who admitted he had failed to look at the cartoon before it was published, and that “It’s generally been the policy of our editorial section to leave children out of it.”

--The Obama administration is crowing about the enrollment season on HealthCare.gov.  More than 8.2 million people have signed up or renewed coverage through the site.

Health and Human Services Secretary Sylvia Burwell says more first-time customers are signing up and the number of young adults enrolling is also increasing. The figure doesn’t include states running their own health insurance websites, such as California and New York.

--Last week I blasted TIME’s decision to name Angela Merkel as “Person of the Year,” saying Abu Bakr Baghdadi deserved the nod.

This week the Associated Press’ annual poll of U.S. editors and news directors said the top news story of 2015 was the expanding influence of ISIS, with the No. 2 story being the U.S. Supreme Court’s ruling that led to legalization of same-sex marriage in all 50 states.

Thank you, AP.  And I don’t necessarily disagree with your No. 2 choice, either.

--According to a Gallup poll, the number of adults in America who do not affiliate with any faith has increased to 19.6 percent from 14.6 percent in 2008.

--The record temperature for Newark, N.J., about 20 minutes from me, was 64 for Christmas Eve and we hit 72 yesterday.

Kind of likin’ El Nino, frankly....that is until I come down with West Nile next summer. 

---

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

We pray for those who lost their lives in Afghanistan this week, and the victims of the tornadoes down south.

God bless America.

---

Gold $1076
Oil $38.10

Returns for the week 12/21-12/25

Dow Jones  +2.5%  [17552]
S&P 500  +2.8%  [2060]
S&P MidCap  +3.0%
Russell 2000  +3.0%
Nasdaq  +2.6%  [5048]

Returns for the period 1/1/15-12/25/15

Dow Jones  -1.5%
S&P 500  +0.1%
S&P MidCap  -2.5%
Russell 2000  -4.2%
Nasdaq  +6.6%

Bulls  36.7
Bears  29.6  [Source: Investors Intelligence]

Due to time constraints this coming week, not sure how I’m going to wrap up the year and talk about 2016 so I may split it up over the next two WIRs.  I mean New Year’s Eve is about college football, boys and girls.  I’m going to shoot to post sometime New Year’s Day, probably at night to get all the yearend returns in.

In the meantime, Merry Christmas! 

Brian Trumbore

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