Week in Review

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Week in Review

01/09/2016

For the week 1/4-1/8

 [Posted 11:30 PM ET, Friday]

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Edition 874

Washington and Wall Street

President Barack Obama delivers his final State of the Union address on Tuesday and for the life of me, I don’t know what he can possibly talk about that is in the least bit positive, save for solid jobs growth in America, if you just look at the raw numbers as released by the Labor Department on Friday, and not at how the Middle Class continues to fall behind for a myriad of reasons.  More on this below.

But I need to start by citing again much of what I said were some of the issues for 2016, exactly as I wrote it a week ago, posting at 2:00 PM ET on New Year’s Day.

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“As to my own take, the issues for 2016 are numerous, but they start with China and its economy, as well as the increasing risks of a military clash over disputed territory in the South China Sea, President Xi Jinping’s ongoing crackdown on freedoms of all kinds, and China’s response to Taiwan’s upcoming presidential election.

“Next would be the Middle East.  Is there any kind of broad ceasefire in Syria? Does it really matter anymore? [No.]  When will Iraq attempt to retake Mosul, and does ISIS make a stand or melt away beforehand?  What of Iran’s ongoing infiltration in the entire region, its increasing provocations towards the U.S., and the status of the Iranian nuclear deal and the ending of sanctions?  How will Congress react?

“Does the refugee situation in Jordan explode?  What of the ticking time bomb in Lebanon?

“How does Putin play his cards this year, both in Eastern Europe and the Middle East?

“Can Israel avoid a third war with Hizbullah for at least another year, and will ISIS launch an attack inside Israel?

“How does Europe handle its migrant crisis?  Does the far-right continue to make gains across the continent?  Does David Cameron hold his EU referendum in June?  Should the voters elect to leave the EU (‘Brexit’), it would convulse markets in a huge way.

“Does North Korea lash out and surprise the world with an attack on South Korea?  Is Kim removed?....

“It’s going to be a truly tumultuous year.  Fasten your seat belts and keep them on at all times.”

Just about 15 hours after writing this we learned of the execution in Saudi Arabia of a leading Shia cleric that roiled the region, and a few days after, North Korea conducted its fourth nuclear bomb test, catching U.S. intelligence once again with its pants down.

China’s stock market also became a leading financial story the first week of the year, and Wall Street and other world bourses proceeded to join China in having their worst opening weeks in history.

I do want to re-emphasize, however, the upcoming election in Taiwan, Jan. 16.  While it’s a foregone conclusion who the victor will be (more next week on this topic), the outcome won’t be to Xi Jinping’s liking.  Just keep this in the back of your mind as you assess global risks.

Yup, keep those seat belts fastened.

Some additional Big Picture thoughts from others.

Editorial / Financial Times [Jan. 4]

“The best place to look for a sudden surprise in 2016 could be China.  One of the keys to Chinese success over the past 25 years is that the government has managed to keep economics exciting and politics boring. That could change this year.

“President Xi Jinping’s anti-corruption campaign is sweeping up some of the most powerful and richest people in China – senior generals, the head of China’s internal security service, billionaires, chief executives, television personalities.

“All this is taking place against the background of a slowing economy, a crackdown on free expression and widespread public anxiety about pollution and industrial accidents.  Beneath the calm official exterior of Chinese politics, the potential for a backlash, either from the public or from some of the groups threatened by the anti-corruption campaign, is surely growing....

“The EU is a tough sell at the moment. It is struggling economically, is politically divided and cannot agree on a strategy to deal with the refugees and migrants coming into Europe.  That plays directly to Brexit supporters’ most politically potent issue – immigration.”

Bret Stephens / Wall Street Journal [Jan. 4]

“Two thousand sixteen will be the year of America living dangerously.  Barack Obama will devote his last full year in office to shaping a liberal legacy, irrespective of real-world results. America’s enemies will see his last year as an opportunity to take what they can, while they can. America’s allies, or former allies, will do what they must....

“Expect 2016 to be rich in such incidents and worse – the inevitable result of Mr. Obama’s deliberate abandonment of Pax Americana as the organizing principle in international relations.  Turkey, Egypt, Saudi Arabia and other allies will freelance foreign policies in ways over which we have little say, even as we are embroiled in the consequences.  Moscow, Beijing and Tehran will continue to take hammers to the soft plaster of U.S. resolve as they seek regional dominance.  The nuclear deal will become a dead letter even as Mr. Obama insists on fulfilling our end of the bargain.  China will continue to build islands while buying us off in the paper currency of climate agreements and other liberal hobbyhorses. Russia will seek to test and humiliate NATO.

“And there will be mass-casualty terror attacks on the scale of Paris.  If you’re reading this column on a major metropolitan commuter network, look up from your paper....

“In 1947 Democrat Harry Truman and Republican Arthur Vandenberg saved the Western world when they agreed that American prosperity at home depended on the security of our friends abroad.  In 2016 we’ll learn if that saving consensus still holds.  Buckle up.”

James Lindsay (Council on Foreign Relations) / Defense One [Jan. 6]

“As we enter 2016, here are five big foreign policy questions I am pondering:

“Are we on the verge of a global economic slowdown, and if so, what will be its consequences?....

“Will Europe turn the corner in 2016 or continue to fray?  It’s been a rough several years for what Americans like to call the ‘Old World.’  A crushing recession.  Austerity plans that inflicted deep pain but produced a feeble recovery....A populist (and at times xenophobic) backlash against Brussels and the idea of an ‘ever closer union.’  And, a refugee and migrant crisis that revealed bitter divisions both between countries and within them....If Europe doesn’t get its mojo back in 2016, will we be talking in 2017 about the unraveling of the European Union, one of the great accomplishments of the post-World War II era?

“What will be the Kremlin’s next surprise?  In 2014, it was the annexation of Crimea.  In 2015, it was the intervention in Syria....Does (Putin) have a new move for 2016? If so, what is it and where will it be?

“Does the White House – or anyone else – have a strategy for dealing with a newly energized Iran?....

“What will the United States do if China escalates the island-building dispute in the South China Sea?...What if China contests, either by intent or accident, future military operations by the United States or a U.S. ally near one of the new islands?  And even if Beijing continues to opt for diplomatic protests, can the United States or the countries in the region stand idly by while it, so to speak, changes the facts on the ground?”

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Meanwhile, I wonder how President Obama will respond to the pictures we all saw on Thursday out of Syria and the besieged settlement of Madaya (near Damascus), where up to 40,000 people have been forced to turn to leaves and flower petals for food after eating all the town’s stray dogs and cats.  People are starving to death, though frankly we’ve known this for years as Syria has long been a humanitarian catastrophe, with the United States doing little on the aid front (don’t believe what the White House tells you), and President Obama’s inaction directly leading to situations like in Madaya.

As the Irish Independent reported on the town: “The situation is so desperate that starving residents spend their days trying not to move in an attempt to conserve energy.  With temperatures falling, the Red Cross says locals have been forced to burn plastic to keep warm, exposing themselves to fumes....

“The Red Cross says it hopes to be in a position to bring aid to Madaya in the coming days but food packages are likely to have a limited effect.

“In mid-October more than 20 lorries were allowed to deliver medical and humanitarian supplies to Madaya but those items have already run out.  The situation has deteriorated significantly since then, meaning larger and more frequent deliveries are desperately required.”

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Before I get to the economic data, including the strong jobs report, a word or two on the global outlook.

According to Consensus Forecasts, growth around the world is expected to be 2.8% in 2016, up from 2.6% in 2015.  The eurozone is expected to grow 1.7%, while the UK is forecast to grow by 2.3% and the U.S. by 2.5%.  Japan’s forecast is for 1.2% growth this year, up from 0.6%.  China 6.5%, India 7.8%, Asia (ex-Japan) 5.7%.  But Brazil is forecast to contract 2.2%, after minus 3.5% in 2015, and Russia will contract minus 0.2%, against minus 3.8% in 2015.

The World Bank weighed in and sees the global economy growing 2.9% this year, up from an expected 2.4% in 2015, but 2016 was already shaping up to be “risky” and the forecast for this year “comes with the realization that there are fault-lines below the surface,” said Kaushik Basu, the World Bank’s chief economist.

Additionally, as a result of reduced Chinese demand, 42 of the 46 commodities that the World Bank tracks traded at their lowest level since the early 1980s in 2015.

As for the economic news of the week here at home, the ISM reading on manufacturing for December was a putrid 48.2, the worst since 2009 as manufacturers grapple with the stronger dollar and weak global demand.  The ISM reading on services (non-mfg.) was a solid 55.9, though this was the lowest since March 2014.

Readings on November construction spending and factory orders were both down, -0.4% and -0.2%, respectively.

But then you had Friday’s jobs report for the month of December and it came in far better than expected, up 292,000 vs. expectations for a gain of 200,000, with the unemployment rate holding steady at 5.0%. Revisions to October and November also added 50,000 more jobs, with November’s payroll gain now 252,000 and October’s 307,000.  The fourth-quarter thus saw the best three-month stretch of job creation in 2015, while for the year the economy added an average of 221,000 jobs a month, down from the 260,000 average in 2014, but still the second-best year since 1999.

Average hourly earnings fell by 1 cent in December, but over the past year have risen a decent 2.5%, a stronger pace than any of the previous five years.  [The average annual increase for non-managers in the 30 years prior to the start of the Great Recession, however, was nearly 4%.]

The labor-force participation rate rose to 62.6%, but this is still near a 40-year low, while a broader measure of unemployment that includes those working part-time jobs or too discouraged to look for work, U-6, stayed at 9.9%, down from 11.2% a year earlier.

Next week, though, it’s about fourth-quarter earnings as the reports begin to pour in the next three weeks.  I can’t imagine the guidance will be strong for virtually all sectors.

As for the just completed holiday shopping season, a few numbers have emerged. First Data Corp., which collects credit card receipts, says for the period Oct. 31 thru Jan. 4, sales were up just 3.3%.  ComScore projects e-commerce sales for November and December rose 13%, which is actually so-so.  For all the talk on this space, it remains only about 10% of overall retail sales.

The National Retail Federation is to release its definitive holiday sales results next week.

Europe and Asia

First, there was a slew of economic data to start the new year for the eurozone.  The final manufacturing PMI (courtesy of Markit) for December was a solid 53.2 vs. 52.8 in November.  The non-manufacturing services reading was 54.2, unchanged from November.

For Germany: manufacturing was 53.2, services 56.0. France: 51.4 mfg., 49.8 services in December (see impact of Paris attacks). Italy: 55.6 mfg. (57-mo. high), 55.3 services (69-mo. high).  Spain: 53.0 mfg., 55.1 services. Greece: 50.2 mfg. (19-mo. high and vs. 48.1 Nov.)  Non-euro UK: 51.9 mfg. (vs. 52.5 Nov.), 55.9 services.

A flash reading on eurozone inflation for December came in at a disappointing 0.2% annualized rate, same as November and well off the European Central Bank’s 2% target. [Source: Eurostat]

But the eurozone unemployment rate was 10.5% in November, the lowest since October 2011.  October was revised down from 10.7% to 10.6%.  [Eurostat]

Individually, Germany’s unemployment rate was 4.5%, France 10.1% (10.5% Nov. 2014), Italy 11.3% (down from 13.1% in Nov. ‘14), Spain 21.4% (23.7% Nov. ‘14), and Greece 24.6% (September).  Ireland’s rate is all the way back down to 8.8% (10.4% a year earlier).

But while the picture is improving, you still have youth jobless rates of 47.5% and 49.5% in the likes of Spain and Greece, respectively.

Separately, eurozone retail trade for November was down 0.3% over October.

Phil Smith / Markit

“The recovery in the eurozone retail sector has faded in the final months of the year, reflecting softer trends in both Germany and France.  Although German retailers recorded a slight rise in sales in December, growth on a year-on-year basis eased further and was well down on the highs seen over the summer.  Meanwhile, France has endured a renewed downturn as already fragile demand conditions were made worse by the effects of the Paris attacks.”

Overall, the European Commission is calling for GDP to rise 1.8% in 2016, after a projected 1.6% rise in 2015.  The numbers are definitely better, such as in the bulk of the PMIs, and the strengthening dollar has helped Europe’s exporters in a big way.

But there has been little in the way of needed structural economic reforms and many budget deficits, such as in Italy, let alone Greece, remain monstrously high, and the fact is that growth is still less than 2% with zero inflation when the eurozone needs pricing power.

Plus you have political uncertainty in Spain, ditto ongoing issues in Portugal and Greece, plus France’s huge election in 2017, a German chancellor under growing pressure and the looming British referendum on staying in the EU.

Finally, on the migration front, the picture continued to worsen.  Denmark imposed controls on its southern frontier with Germany in a move that is intended to stem the flow, a decision the Danish prime minister, Lars Lokke Rasmussen, said was prompted by Sweden’s move hours earlier to introduce identity checks on all passengers arriving by train, bus or ferry from Denmark.

Rasmussen summed it up: “The new Swedish requirement for ID checks poses a serious risk of a large number of asylum seekers accumulating in a short time, for example in and around Copenhagen, threatening public order and safety.  We do not want this.”

The Danish controls are said to be temporary but could be extended.  The country is also now going so far as to fine travel companies if they bring undocumented migrants into the country.

Germany’s foreign ministry said Schengen, Europe’s passport-free travel zone, was “in danger.”

After Sweden saw a surge of 160,000 asylum-seekers last year, the center-left government has buckled under pressure from local authorities and the public to crack down.

I mean picture that Stockholm received 115,000 of the total asylum applications in the final four months of 2015!  Who are these people? 

I also can’t help but comment on the events of New Year’s Eve in Cologne, Germany; the “New Year’s Eve Assaults,” as it’s being called, where scores of women were sexually assaulted and robbed outside the city’s main train station.  What has come to light is that the male mob of up to 1,000 was comprised mostly of Arab or North African youths.  Friday, the Cologne police chief was fired for not having appropriate security in place.

I know Cologne well and specifically the area around the train station, which is next to the grand cathedral.  I have written often of my 2007 trip there to tour the Christmas markets and I loved Cologne.  I stayed at a nice hotel directly across from the cathedral and station because I was able to walk to the train I then took to Berlin for a few days, before returning to Cologne on the back end.

I’d have to go over my notes but I sure don’t remember a huge refugee problem and of course this was 8 years ago.  But I do remember writing of the interesting bars in the station and hung out there one evening, talking to locals.

So I can’t imagine what Cologne looks like today, let alone other major cities across Europe, though as you know I sure warned you long ago of the changes taking place in Paris.

The words you constantly hear regarding the migrant crisis are “assimilation” and “parallel societies and communities.”

The migrants are not assimilating, and they are instead creating parallel societies.  Yes, Europe as you and I knew it is history.  For those of us who love the place, it’s depressing.

A few months ago I wrote of the chief concern of German security officials, as German Chancellor Merkel looks the other way.  Germany has taken in 1 million+ refugees/asylum-seekers/migrants in the past 12 months.  Few of these folks arrive with any kind of family contacts. 

Let’s say you’re Syrian.  You desperately look for others of your kind in Berlin, or Hamburg, or Cologne, and lying in wait are the radicals, the Islamic extremists, who take these mostly naïve folks in, bring them to their mosques, make friends, and there isn’t the slightest attempt to get them to understand German culture.  They are fed, both figuratively and literally, the Islamist hard line and over time, you have thousands of future terrorists and abettors.  It is scary as hell what is happening across the pond.

And it never had to get so out of control.  It’s all in these pages, friends.  Since February 1999.  You also know who is largely responsible for the mess today.   He made a nice chip shot in Hawaii over the holidays.

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On to China.  Market regulators, in an attempt to avoid a repeat of the incredible volatility of 2015, particularly during the crash in the Chinese stock market last summer, decided that effective Monday, Jan. 4, they would establish circuit breakers that would help restore calm, but instead, because the range on the breakers was so narrow, regulators ended up doing the opposite, causing panic.  Both Monday and Thursday, the Chinese stock exchanges, such as the leading Shanghai market, fell the new 7% limit, causing full-day suspensions in trading.  Thursday’s trading lasted a mere 29 minutes.

During the relative calm of Tuesday and Wednesday, only government buying from the “national team” of state-backed funds bucked up stocks, thus preventing further 7% moves.

So by Thursday night, officials removed the circuit breakers and Friday was a little more normal, though with more artificial buying.

There were some fundamental reasons for the collapse in share prices that led to a full week decline on the Shanghai Composite of 9.97%, the worst start to a year in the 25-year history of China’s stock market.  Major concerns over economic growth remain and only intensified with some of the data this week.

The government’s official PMI on manufacturing came in at 49.7 in December, below the 50 dividing line between growth and contraction, though the reading on the service sector was a solid 54.4.

But the Caixin private reading on manufacturing was just 48.2 in December (vs. 48.6 in November), while the services reading was 50.2 for last month (down from 51.2).  The latter was the second-lowest since the series began in 2005.

And then there is China’s currency, the sinking yuan, which is adding concern about the strength of the economy.  Famed investor George Soros said this week, “China has a major adjustment problem.  I would say it amounts to a crisis (as it attempts a shift from an emphasis on manufacturing to a consumer-led economy).”

Mexico’s finance minister warned of a full-blown currency war, “owing to China’s decelerating economy that will start a round of competitive devaluations.”  [Financial Times]

When it comes to the markets, Chinese regulators haven’t a clue.  The national team of funds, for example, was to have ceased operations late August, only it’s been resurrected.  The circuit breakers were put in place, only to be taken away.

So we’ll see what fun and games the coming week brings.

Meanwhile, in Japan, its manufacturing PMI for December came in at 52.6, unchanged from November, while auto sales rose 3.1% year over year in December, as reported by the Japan Automobile Manufacturers Association.

Lastly, just a few other manufacturing PMIs for December.  Russia 48.7 (vs. 50.1 in Nov.), South Korea 50.7 (49.1), Taiwan 51.7 (49.5), and India 49.1 (50.3...floods in the south negatively impacted things last month).

Street Bytes

--Pretty amazing we just went through our worst ever five-day start to a year in terms of market returns.  The Dow Jones lost 6.2% on the week to close at 16346.  It is now down 10.7% from its all-time high of 18312, an official correction, again.  The S&P 500 lost 6.1% and is now off 9.8% from its high, and Nasdaq, in losing 7.3%, is down 11.0% from its record mark of 5218 at 4643.

Aside from China’s Shanghai Composite losing 10% on the week, Tokyo’s Nikkei fell 7.0%, Frankfurt’s DAX lost 8.3%, London’s FTSE 5.3% and Paris’ CAC 40 dropped 6.5%.  That’s pretty ugly stuff, boys and girls.

Europe’s Stoxx 600 (their version of the S&P 500), lost 6.7% in one week, after picking up a solid 6.8% all of 2015.

--As January goes, so goes the year, as an adage on Wall Street has it.  The annual showing for the S&P 500 has mirrored the month of January in 62 of the past 85 years, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.  So this week’s debacle doesn’t bode well for U.S. equities.

--See my Wall Street History link for all kinds of market returns related to 2015.

--U.S. Treasury Yields

6-mo. 0.44%  2-yr. 0.93%  10-yr. 2.12%  30-yr. 2.91%

Bonds rallied in a classic flight to safety, as well as the realization it’s going to be tough for the Federal Reserve to hike interest rates much this year assuming the volatility continues.

--In his monthly investment outlook, Janus Capital’s Bill Gross notes some of the following:

“Fact – The U.S. government has current outstanding debt of approximately $16 trillion or close to 100% of GDP.  The present value, however, of Medicaid ($35 trillion), Medicare ($23 trillion), and Social Security ($8 trillion) promised under existing programs totals $66 trillion or another 400% of GDP.   We are broke and don’t even know it.”

And we have a severe demographic problem: “too few Millennials to take care of too many Boomers.”

--The slump in global oil prices (lowest since 2004 this week) could hit bottom in the first quarter, according to BP CEO Bob Dudley in a BBC radio interview last Saturday.

The ongoing collapse in the energy sector triggered layoffs of more than 258,000 workers globally, according to a study by industry consultant Graves & Co.  And the industry will see a fresh round of cuts in early 2016 as well.

The number of active oil and gas rigs in the U.S. fell 61% to 698 as of Dec. 31 compared to a year earlier, according to Baker Hughes’ Rig Count.

Texas’ exploration and production companies have shed at least 60,000 jobs, according to Karr Ingham, petroleum economist for the Texas Alliance of Energy Producers, or about one-fifth of their workforce in the state.  Companies here have seen revenue losses of up to 70% over the last year, he said.  [Nathan Bomey / USA TODAY]

Of course it was growth in the energy sector that helped propel job growth in the U.S. before the price collapse. 

--I wrote the following on 12/26/15 in this space:

“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.”

Shares in Apple this week cratered anew and are now down almost 30% from their peak as iPhone sales have become a huge cause for concern.  Clearly, my amateur channel check two days before Christmas (a particular store where virtually every New York-based analyst would have sent someone) was but one example of the concerns.

But I’ve written in the past of China and I’ve been surprised how bullish the company has been on its prospects there when the government can slam the door on every single American company doing business with the mainland in a heartbeat whenever it feels compelled to.  And maybe, in a fit of nationalism, that time is 2016.

Apple is unbelievably naïve to think they can have their way, their ‘market share,’ in China, for years to come.

They’re nuts!  I have written in the past about the strides the Chinese companies are making there, ripping off Apple’s technology, of course.  Companies like Xiaomi, which boasts quarter after quarter how their share is growing.  [And now super cheap knockoffs of Xiaomi are gaining traction of their own...the market is a freakin’ mess.  I imagine we’ll start hearing stories of cheap iPhone knockoffs blowing heads off.  Think cheap batteries and hoverboards catching fire.]

President Xi is also on his anti-corruption campaign and going after some of China’s elite, which could, for example, one day take down Jack Ma (which is why I would never invest in Ali Baba...and boy I’ve been right on this one...), but when China’s leadership feels compelled to adopt the nationalism card to take the populous’ attention away from their growing misery amidst a collapsing economy, who will see their stores and products shut down and banned?  Companies like Apple and Cisco Systems.  [Cisco, unlike Apple, gets it and operates there on pins and needles...doing what it can, and it seems to be playing the game pretty smartly.]

Yup, I know I’m not the only one who watched the Tim Cook interview with Charlie Rose on “60 Minutes” and the pictures of the multi-$billion new headquarters going up and thinking, boy, if that isn’t a ‘top’ I don’t know what is. 

Don’t get me wrong.   Apple obviously survives as a company, and its App Store billings topped a record $20 billion in 2015, though this figure represents slower growth than some expected, and I like Tim Cook and am behind him 100% in any tax maneuvers he may make overseas that he is able to get away with, but this company’s hyper-growth days are long over, baby.  Investors have finally realized this.  [And I’m not even slamming Apple Watch!]

--Macy’s announced that after a disappointing holiday season it was cutting about 4,800 jobs and closing 40 stores.  The department store chain said same-store sales for November and December fell 4.7% compared with a year earlier, which sucks.  I told you how I went through one of their stores near me a few days before Christmas and couldn’t believe the markdowns. 

CEO Terry J. Lundgren, who just two years ago couldn’t do anything wrong, called the holiday season “challenging,” blaming the “historically warm weather” in November and December, with 80% of the drop in comp sales due to slow buying of cold-weather gear.

But online sales increased 25%.

As for the job cuts, 3,000 are in stores, a call-center is being closed, and 165 executive positions are being culled.  Macy’s also sharply lowered its earnings guidance for the fourth quarter, which includes January.

--Want some good news?  U.S. automakers reported a record sales year of 17.5m vehicles, the culmination of a terrific six-year recovery.  The 17.5 (17.47m) exceeds the previous record of 17.3m set in 2000.  Sales had bottomed in 2009 at only 10.4m light vehicles.  Then....

2011...12.7m
2012...14.4
2013...15.5
2014...16.5
2015...17.5

For the month of December, General Motors’ reported sales rose 5.7%, with Ford up 8.4% and Fiat Chrysler 13%.  For Fiat Chrysler, its strongest sales in a December since Chrysler was founded in 1925, with the bulk of the gain coming from a 42% surge for its JeepSUV brand.

Toyota’s December sales rose 10.8%, Nissan’s leapt 18.7% and Honda’s were up 3%.

As for 2016, most experts expect a small gain over last year.

But the news for Volkswagen wasn’t good.  Its U.S. sales dropped 9% last month from a year earlier, after a 15% drop in November on the heels of the emissions scandal.

And now the German automaker faces a lawsuit filed by the Department of Justice on behalf of the EPA.

German politicians fear that a hefty U.S. fine could adversely impact jobs in the country as VW employs 270,000 in Germany.  Depending on the size of the agreed to fine, this could become a big political issue between the two countries.

[And to start things off, Friday, VW was accused by New York Attorney General Eric Schneiderman and others of failing to cooperate with the emissions investigation.  Schneiderman accused VW of being “slow” and “spotty” in producing documents from its U.S. files, while VW claims it is only following German privacy laws.]

--Shares in Tesla had a rough week (down 12%) after the company said it delivered 17,400 cars last quarter, compared with a previous outlook for 17,000 to 19,000.  The electric carmaker said it also delivered just 208 of its Model X SUV, which launched with a two-year delay in September.  The car is built on the same platform as the Model S vehicles which led to production bottlenecks.

--What a disaster Chipotle’s various outbreaks have been.  This week it was served with a federal subpoena as part of a criminal investigation into a norovirus outbreak at a California restaurant in August, before all its other issues with E-Coli, and a separate norovirus episode in Boston were exposed.

Chipotle also announced that sales plunged 30 percent in December and that it expected same-store sales to fall 14.6 percent for the full fourth quarter, worse than the company first thought and the first decline since the company went public in 2006.

And Chipotle retracted its sales guidance for 2016, saying recently it could no longer reasonably predict sales trends given the food scares.  The stock is down 45% from its Aug. 5, 2015, closing high.

--Yahoo is planning on cutting 10% of its workforce, or more than 1,000 employees, as part of a reorganization.  The cuts would be companywide, with the media business, European operations and platform technology group bearing the brunt of them, according to a report initially from Business Insider. 

--Netflix Inc. announced it was expanding into an additional 130 countries, including new markets like Russia, India and Singapore.  Netflix is now in 190 countries and its original programming will be available in all markets and in 17 languages.

But Netflix isn’t yet available in China.  “Right now we’re in the relationship-building phase,” CEO Reed Hastings said.  “Getting to know partners and government.”  Good luck, Mr. Hastings.  Watch your back.

--Twitter is exploring extending the length permitted in a tweet to 10,000 characters vs. the current 140-character limit, which is incredibly stupid.  I’ve advocated it should be extended just another ten to 150, which makes all the difference in the world.

Twitter shares traded below $20 for the first time ever this week, closing at $19.98.

--Macau’s key gaming market fell to a five-year low in 2015, with casino revenue slowed by the sinking Chinese economy and Beijing’s anti-corruption crackdown that has crushed the high-end gambling business.

For 2015, Macau’s casinos collected $28.93 billion, a 34.3 percent decline over 2014 and the second straight annual decrease.  It was also the first time since 2010 the casino industry didn’t crack the $30 billion figure.  Macau’s record was $45.2bn in revenue in 2013.

December marked the 19th straight monthly gaming revenue decline, down 21.2 percent year over year, so the rate of decline is at least lessening some.

The lousy news overall though comes as Las Vegas Sands Corp., Wynn Resorts Ltd., and MGM Resorts International, are all planning multi-billion dollar resort openings this year.  Total development cost of the three projects is $9.9 billion.  [Howard Stutz / Las Vegas Review-Journal]

--Meanwhile, Nevada’s casino industry reported on Friday that it lost $662 million last year, the sixth straight year in the red, including 2009’s staggering loss of $6.8 billion.

Nevada’s 271 casinos collected $24.6 billion in fiscal 2015 (ending June 30), according to the state’s Gaming Control Board, up from $21 billion in 2010, but visitors are spending money on restaurants and shows, not actually gambling, which is way down, according to an analyst for the Control Board.

So, for example, the Strip is at an all-time high in revenue, driven by hotel rooms, but gaming is lagging.  [CNN.com]

--United Continental announced its CEO, Oscar Munoz, had received a heart transplant.  Munoz was previously expected to return to work in the first quarter after a heart attack in October.

--Valeant Pharmaceutical was forced to appoint a new interim CEO,  Howard Schiller, while its current one, Michael Pearson, remains hospitalized for pneumonia.  I hope he didn’t start out in the New Jersey hospital I think he did.  He’s now at another.

--Morningstar Inc., the mutual-fund research company, reported that Vanguard took in a record $236 billion last year, as the pioneer of passively managed, lower-cost index funds exceeded its previous record set in 2014 of $214.5bn.  It now has assets under management in the U.S. of $3.1 trillion.

--Also according to Morningstar, PIMCO’s flagship Total Return Fund returned just 0.7% in 2015, but this beat former manager Bill Gross’ Janus Global Unconstrained Bond Fund, which had a negative 0.7% return in its first year under his management.

Both funds, however, beat their respective benchmarks.

--Steven A. Cohen, the one-time hedge-fund king, is set to return to the industry by 2018 as part of a settlement reached with federal regulators regarding his failure to supervise a convicted insider-trader at Cohen’s SAC Capital Advisors LLC.  Cohen neither admitted nor denied the SEC’s claims that he failed to monitor Mathew Martoma, according to a statement on Friday.

Cohen agreed to have an independent consultant ensure that he has sufficient safeguards in place, plus he’ll have to undergo routine SEC inspections.

I wish Cohen would buy the New York Mets, frankly.  [He currently has a small stake.]

--I saw a fascinating statistic in National Geographic magazine the other day.  “Since 2012, China has made more cement than the U.S. has since 1900.”  Think mass urbanization. Plus one of the biggest projects in China, the Three Gorges Dam, required 12 million tons of cement, or more than the UK produces in a year.

“In 2014 China produced enough cement to make 330 billion cubic feet of concrete.  That’s enough to cover the entire island of Manhattan with a block 520 feet thick.”

Good lord.  That’s one way to rid the island of its rat issue.  Then again, you’d block the subways.  Never mind....

--Shares in gunmakers Smith & Wesson and Sturm, Ruger soared this week after President Obama unveiled a set of measures aimed at reducing gun violence.  Smith & Wesson lifted its profit and sales guidance for this quarter.  Previous efforts by the government to tighten gun laws also led to higher purchases.

--Greg Fleming, the No. 2 at Morgan Stanley and head of the wealth division, stepped down, replaced by Colm Kelleher, the London-based head of the institutional securities division.

But Kelleher is one year older, at 58, than CEO James Gorman, the Aussie, who isn’t acting like he is stepping down anytime soon.  With both being from overseas, you’d expect them to drink ‘premium’ when they head out for a strategy pint.

--In just 20 days, “Star Wars: The Force Awakens,” officially became the highest grossing movie in U.S. history on Wednesday, surpassing the previous domestic record of $760.5 million held by 2009’s “Avatar.”

And “Star Wars” opens in China on Saturday, so no doubt we’ll be talking about massive numbers from there next week.

--And just a follow-up to my note last time on the New Year’s Eve bowl games, the semifinals for the College Football Playoff.  ESPN has made a big, 12-year bet that viewers will tune in in lieu of more traditional New Year’s Eve activities and at least this time, the network was wrong.  Ratings plunged 38.5% and 34.4% for the two semis vs. ratings garnered for the two contests last year, which fell on New Year’s Day.

Foreign Affairs

Saudi Arabia / Iran: The execution of Shiite cleric Nimr al-Nimr erases any progress that may have been made to resolve the crises in Syria and Yemen, where the majority Sunni kingdom and mainly Shiite Iran support rival players.  An organized mob torched the Saudi embassy in Tehran.  Saudi Arabia broke off diplomatic relations with Iran in response, followed by allies Bahrain, United Arab Emirates and Sudan.  Kuwait announced it was recalling its ambassador to Iran.  Saudi Arabia gave Iranian diplomats two days to leave.

Iranian President Hassan Rohani said: “Saudi Arabia cannot hide its crime of beheading a religious leader by severing political relations with Iran.”

Jamal Khashoggi, a former media adviser to Saudi Prince Turki al-Faisal, told Bloomberg News, “We and the Iranians are like fire and dynamite in one room.  It doesn’t matter who’s the dynamite and who’s the fire.”

Ian Bremmer, president of the Eurasia Group, said on Bloomberg: “If Saudi Arabia and Iran have broken diplomatic relations you cannot resolve any other issues in the region, not Yemen, not Syria, not Iraq, not anything and those proxy wars across the Middle East will intensify. This not only has a knock-on effect in instability across the Middle East, but also of course expands the refugee crisis.”

Meanwhile, with critical elections coming up in February, hardliners in Iran seized on al-Nimr’s execution and the sacking of the embassy to undermine President Rohani and his allies. Supreme Leader Ayatollah Ali Khamenei said the kingdom will face “divine revenge.”

“The unjustly spilt blood of this martyr will have quick consequences,” Khamenei told clerics in the Iranian capital.  “God will not forgive.”

Iran’s powerful Revolutionary Guard said in a statement that Saudi Arabia’s “medieval act of savagery” will lead to the “downfall” of the monarchy.

At least two Sunni Muslim mosques were attacked in Iraq in apparent retaliation for the execution.

Editorial / The Economist

“For years Saudi Arabia seemed inert, relying on its vast oil wealth and the might of its American patron to buy quiet at home and impose stasis on its neighbors.  But oil prices have tumbled, America has stood back from leadership in the Middle East, the region is on fire and power has shifted to a new generation – notably King Salman’s 30-year-old favored son, Muhammad bin Salman.  A sandstorm of change is rousing the desert kingdom.

“The visible result is the brutal treatment of dissent at home and assertiveness abroad that has just been on chilling display....

“Away from the headlines, however, a different assertiveness could prove equally consequential.  Prince Muhammad has drawn up a blueprint designed to throw open Saudi Arabia’s closed economy and government – including, he says, the possible sale of shares in the national oil firm, Saudi Aramco.

“Coupling geopolitical swagger with sweeping economic change is a gamble.  The outcome will determine the survival of the House of Saud and shape the future of the Arab world.

“What is Arabic for Thatcherism?....

“Roughly 70% of Saudis are under 30. At the same time, two-thirds of Saudi workers are employed by the government. With the workforce projected to double by 2030, the country will prosper only if the sleepy statist economy is turned on its head, diversifying from oil, boosting private business and introducing market-driven efficiencies....

“The other obstacle is geopolitics.  As Iran has become more assertive, the Saudis have stepped in as the champion of Sunni Muslims.  They have confronted Iranian-supported allies such as the Houthis in Yemen and Bashar al-Assad in Syria, as well as Shia malcontents at home and in neighboring Sunni-ruled countries like Bahrain.

“The new leadership argues that stability requires it to send a signal to terrorists (hence the executions).  It feels obliged to defend its interests by resisting Iran which, it says, is bent on recreating a Persian empire.  The argument is flawed: Saudi Arabia instead risks leading one side in a Muslim sectarian struggle it can neither win nor afford.  The war in Yemen is a morass; support for Egypt and other Sunni allies is a drain.  Defense and security already take over 25% of government spending and will eat up a growing share of a shrinking budget.  Regional tensions will also deter private investment.  Who would put trillions into an isolated economy in a region in turmoil?

“The new regime seems to regard boldness at home and abroad as signs of a strong Saudi Arabia.  Yet, though a muscular foreign policy plays well among Saudis, the economy will not thrive if the royal family ends up inflaming its region and blocking social reform at home.  If Prince Muhammad is to remake his country, not wreck it, he needs to understand that.”

Editorial / Wall Street Journal

“The U.S. didn’t listen to Saudi Arabia about the Iran nuclear deal, which it believes signals a U.S. strategic tilt toward Iran and its Shiite allies in the Middle East.  They see the Administration backing down on sanctions against Iran for testing ballistic missiles that can reach Riyadh long before they get to New York.  They feel under threat from an Iran liberated from sanctions, and they don’t believe President Obama will defend them in a conflict. Why should they heed the U.S. now?

“A Middle East dividing into Sunni and Shiite blocs is the predictable consequence of Mr. Obama’s strategy of retreat from the region.  As elsewhere, U.S. allies in the Middle East will do what they feel they must to survive, never mind American disapproval.”

Charles Krauthammer / Washington Post

“If you’re going to engage in a foreign policy capitulation, might as well do it when everyone is getting tanked and otherwise occupied. Say, around New Year’s Eve.

“Here’s the story.  In October, Iran test-fires a nuclear-capable ballistic missile in brazen violation of a Security Council resolution explicitly prohibiting such launches.  President Obama does nothing.  One month later, Iran does it again. The administration makes a few gestures at the U.N.  Then nothing.  Then finally, on Dec. 30, the White House announces a few sanctions.

“They are weak, aimed mostly at individuals and designed essentially for show.  Amazingly, even that proves too much.  By 10 p.m. that night, the administration caves.  The White House sends out an email saying that sanctions are off – and the Iranian president orders the military to expedite the missile program.

“Is there any red line left?  First, the Syrian chemical weapons. Then the administration insistence that there would be no nuclear deal unless Iran accounted for its past nuclear activities.  (It didn’t.)  And unless Iran permitted inspection of its Parchin nuclear testing facility.  (It was allowed self-inspection and declared itself clean.)  And now, illegal ballistic missiles.

“The premise of the nuclear deal was that it would constrain Iranian actions.  It’s had precisely the opposite effect.  It has deterred us from offering even the mildest pushback to any Iranian violations lest Iran walk away and leave Obama legacy-less.

“Just two weeks ago, Iran’s Revolutionary Guards conducted live-fire exercises near the Strait of Hormuz.  It gave nearby U.S. vessels exactly 23 seconds of warning. One rocket was launched 1,500 yards from the USS Harry S. Truman.

“Obama’s response?  None.

“The Gulf Arabs – rich, weak and, since FDR, dependent on America for security – are bewildered. They’re still reeling from the nuclear deal, which Obama declared would be unaffected by Iranian misbehavior elsewhere.  The result was to assure Tehran that it would pay no price for its aggression in Syria and Yemen, subversion in Saudi Arabia and Bahrain, and support for terrorism.

“Obama seems not to understand that disconnecting the nuclear issue gave the mullahs license to hunt in the region.  For the Saudis, however, it’s not just blundering but betrayal. From the very beginning, they’ve seen Obama tilting toward Tehran as he fancies himself Nixon in China, turning Iran into a strategic partner in managing the Middle East.

“This is even scarier because it is delusional. If anything, Obama’s openhanded appeasement has encouraged Iran’s regional adventurism and intense anti-Americanism.

“The Saudis, sensing abandonment, are near panic. Hence the reckless execution of the firebrand Shiite insurrectionist, Sheik Nimr al-Nimr, that has brought the region to a boil.”

Yemen: Saudi-led airstrikes targeted Iranian-allied Houthi forces this week amid the escalation in tensions between the kingdom and Iran.  A ceasefire that had been declared in December never really took hold.

Bobby Ghosh (former editor at TIME) / Defense One

“Of the two things Saudi Arabia did on Jan. 2 to make the world a more dangerous place, one has caught all the attention: the execution of the dissident Shia cleric Nimr al-Nimr. That led to the fire-bombing of the Saudi embassy in Tehran, and Riyadh’s retaliatory decision to break off diplomatic ties.

“The other, however, has gone almost unnoticed: the formal ending of a poorly-observed truce in Yemen, and new airstrikes by a Saudi-led coalition of Arab states against Shia rebels known as the Houthis....

“Yemen’s civil war, raging for nearly a year, seems fated to constantly be drowned out by tumult elsewhere in the region.  (When it does get some press, headline writers inevitably label it the ‘forgotten war.’)  Nearly 3,000 civilians have been killed [Ed. 6,000 overall] in the fighting, the country’s already fragile economy has been shattered, and attempts at negotiated settlement have gone nowhere.  The resumption of airstrikes by the Saudi-led coalition – which enjoys U.S. support – means the impoverished nation at the foot of the Arabian Peninsula is not likely to find peace anytime soon....

“(There) are dangers, too, for the wider world.  Thriving in the chaos created by the civil war are two terrorist groups with international ambitions: the well-established al-Qaeda in the Arabian Peninsula (AQAP) and the newcomers of ISIL.  The collapse of Yemen’s internal security apparatus has allowed ISIL to spread quickly, with a string of high-profile attacks; in December, it claimed responsibility for a car-bombing that killed the governor of Aden and several of his bodyguards.  Some of these gains have come at the expense of AQAP, forcing the older group to reassert its dominance....

“All of this means greater tragedies will be visited upon the Yemenis in 2016.  Perhaps the greatest of them is that it will continue to be lost in the din of other conflicts.”

Libya: At least 50 people were killed in a truck bomb attack on a military camp at a city between Tripoli and Misurata.  A branch of ISIS claimed responsibility, which has gained a foothold here, as a civil war between two feuding governments – east and west – continues amidst the chaos that followed the collapse of Gaddafi’s dictatorship in 2011.

There has been talk of a national unity government but until that has been established the West, specifically Italy and perhaps the UK in terms of ground forces, shouldn’t get involved.  In the meantime, ISIS will help fill the vacuum.  This past week it shelled the Libyan oil port of Es Sidra, hitting a storage tank with a long-range rocket.

Libya’s crude oil production has dropped to less than a quarter of a 2011 high of 1.6 million barrels per day.  The storage tank hit in the attack was holding about 400,000 barrels of oil.

Iraq/Syria/ISIS: Last week I wrote that the retaking of the city of Ramadi, while a military victory for the Iraqi army, was hardly a triumph because what were the people coming back to?    The other day, Iraqi government officials estimated that “about 80% of Ramadi, the capital of Anbar province, was destroyed. Anbar officials estimate the price tag for reconstruction will be $10 billion.”  [Wall Street Journal]

So take this one example and think about Syria and the tens of similar ones of destruction there.  It’s why for years I’ve said the war in Syria was “over.”  You will never put that country back together, certainly not for generations to come.

Back in Iraq, of 18 cities and towns freed from ISIS control thus far, most of them, including Sinjar, Beiji and Tikrit – “have been almost completely flattened,” as noted in a UN report and by the Journal.

Israel: Congratulations to Israeli security forces for hunting down and killing the Arab Israeli who went on a Jan. 1 gun rampage in Tel Aviv, killing two.  Nashat Melhem was killed in a shootout Friday in a northern town.  It now seems Israeli officials believe he was a true terrorist, not a “murderer,” as Prime Minister Netanyahu was careful to call him at first.

India/Pakistan: Just days after a most positive development in the region, the surprise visit of Indian Prime Minister Modi to Pakistan to meet with his counterpart there and set the tone for future scheduled peace talks, militants wearing army uniforms stormed an Indian air force base near the Pakistani border and killed seven Indian soldiers and wounded 20 more, with at least four assailants dying in a day-long battle that followed.

Officials in India said they had credible evidence the attackers were from Pakistan.  As has happened in the past, peace efforts are often met with violence, leading India to argue there are strong elements inside Pakistan’s military and intelligence agencies that are encouraging the militant groups.

North Korea: The announcement came Wednesday that the North had carried out another nuclear test, with Pyongyang claiming it was a powerful H-bomb, though the initial evidence said otherwise...that it was a more conventional atomic bomb, which is bad enough.

South Korean President Park Geun-hye called the test a “grave provocation,” while Japanese Prime Minister Shinzo Abe said, “This nuclear test by North Korea is a major threat to our country’s security...Also, it is clearly a violation of United Nations Security Council resolutions.”

The United States, South Korea and Japan said they will be united in their response, while virtually everyone else around the world, including the Russians and Chinese, condemned it, though Moscow was on the fence in supporting further sanctions, ditto Beijing.

Friday, South Korea resumed its cross-border propaganda broadcasts (employing booming loudspeakers) that Pyongyang considers an act of war. 

Editorial / The Economist

“A fourth nuclear test had been expected.  But most experts dismiss the claim that this was a hydrogen bomb of the sort found in advanced nuclear arsenals.  Thermonuclear weapons, far more powerful than the atomic kind, are almost certainly beyond the North’s know-how.  The explosion was roughly as big as the atom bomb detonated in 2013; even a failed detonation of an H-bomb would be more powerful.  At a push, the North may have tested a ‘boosted-fission’ weapon that uses a fusion additive to achieve a bigger bang.  If so, it would mark a next step in the North’s nuclear program – and a serious one.

“A second nuclear test only four years into the rule of Kim Jong Un, the odious young head of the mafia family that controls North Korea, is a sobering reminder of the progress that three generations of Kims have made in expanding their nuclear capability – despite outside efforts to curb it.  This week South Korea suggested that the North had also tested a submarine-launched ballistic missile in December.  Such developments pose little immediate threat to the outside world.  Few think that North Korea has yet managed to miniaturize its nuclear weapons to fit them onto missiles.  But the indications are that its capabilities are growing faster than outsiders expected....

“Under Barack Obama, America has let its North Korea policy drift.  But the country that can do most is North Korea’s big neighbor and supposed friend, China.  Its banks are the main conduit for North Korean money.  More worryingly, China does next to nothing to stop the flow of nuclear technology between rogue states and North Korea. China’s sway over its neighbor is sometimes exaggerated, yet it is an economic lifeline, providing the regime with aid and trade.  China is unhappy at the prospect of a nuclear-armed North Korea; but it is even more worried that the regime might collapse, possibly leading to a takeover by South Korea and America and the flight of millions of desperate North Koreans across its border.

“Ideally, China would abandon the murderous Mr. Kim.  But even if it is unwilling to go that far, it can use the billions in aid and subsidized trade that it gives North Korea to press change upon the young dictator....

“For decades North Korea has been adept at shaking down outsiders: first the Soviet Union, sometimes America and now China.  Before it is too late, Beijing should stop subsidizing a vile dynasty that gives nothing but headaches in return.”

Editorial / Wall Street Journal

“The temptation in most world capitals will be to denounce North Korea’s Wednesday nuclear test but do little beyond attempting to bribe dictator Kim Jong Un with more cash in return for more disarmament promises.  The more realistic view is to see this as another giant step toward a dangerous new era of nuclear proliferation that the world ignores at its peril.

“Pyongyang says the explosion, its fourth so far and first since 2013, was a ‘completely successful’ test of a miniaturized hydrogen bomb.  That would represent a technological leap, as H-bombs can be thousands of times stronger than the atomic weapons that North Korea tested previously.  Pyongyang often lies, and the White House said Wednesday the initial U.S. analysis suggests it wasn’t an H-bomb.

“But even an upgraded atomic bomb using boosted fission would give Kim a more powerful weapon than the bombs dropped on Hiroshima and Nagasaki.  Kim is estimated to have enough uranium and plutonium production for 50 to 100 bombs by 2020.

“This threat is growing well beyond Asia as the North makes progress on warhead miniaturization and missile delivery.  U.S. Admiral Bill Gortney of the North American Aerospace Defense Command said last year that Pyongyang has ‘the capability to reach the [U.S.] homeland with a nuclear weapon from a rocket.’...

“The larger story here is the rapid fraying of the world’s antinuclear proliferation regime, assisted by the illusion of arms control.  The failure with North Korea goes back to Bill Clinton’s 1994 Agreed Framework, which he hailed as ‘a good deal’ because ‘North Korea will freeze and then dismantle its nuclear program’ in return for food and energy aid.  The North took the cash and kept working toward a plutonium and uranium bomb....

“The West wants to believe the Iran nuclear deal is an anti-proliferation triumph, but Iran’s neighbors view it as a delaying action at best.  They think it guarantees that Iran will eventually build a weapon.  Over time this will encourage others in the Middle East to seek their own nuclear deterrent....

“North Korea’s latest test should spur a new global resolve against Pyongyang, but it probably won’t. China once again expressed its disapproval but it has never been willing to squeeze its client state....

“The only real solution is to put regime change at the heart of U.S. policy. This would mean stronger defenses in the South, stepped-up sanctions and enforcement to undercut Pyongyang’s illicit trade and access to foreign goods, as well as expanded efforts to facilitate the flow of refugees out of the North.

“The Obama Administration has no inclination to do any of this, and it is unlikely to start now. The result is that while Mr. Obama entered office promising to pursue ‘a world without nuclear weapons,’ he will leave having set loose a new era of nuclear proliferation.”

China: Hong Kong’s booksellers have been disappearing.

Editorial / Washington Post

“The steely president of China, Xi Jinping, was quite possibly shaken up when he read book titles being peddled in Hong Kong lately. One was ‘The collapse of Xi Jinping in 2017.’ Another was ‘The Great Depression of 2017.’  A forthcoming title was reported to describe Mr. Xi’s love life before he became president.  The books came from Mighty Current, a publisher specializing in volumes that are highly critical of China’s Communist Party leaders and often filled with lurid and poorly sourced gossip.  If Mr. Xi didn’t see the books personally, his security henchmen certainly could not have failed to notice.

“In recent months, something happened to five men who led and worked at the publishing house.  On Oct. 17, Gui Minhai, the owner, who had a Swedish passport, vanished from his beachfront apartment in Thailand. Then three others associated with the publisher disappeared while visiting the mainland Chinese cities of Dongguan and Shenzhen.  Most recently, Lee Bo, a business partner of Mr. Gui, disappeared on Dec. 30; according to Mr. Lee’s wife, he was lured to a Hong Kong warehouse where the publisher stores its books and did not return.

“So far, there is no solid information about what happened to the five.  But all signs point to Chinese state security officers kidnapping and detaining them....

“Hong Kong, a former British colony, was turned over to China in 1997 with an explicit promise that it could preserve its cherished freedoms under the principle of ‘one country, two systems,’ meaning that China’s rulers, who tolerate little dissent at home, would not interfere with its freewheeling capitalism or democracy.  If security thugs from the party-state in Beijing are now snatching Hong Kong booksellers who publish critical words about China’s leaders, then the pledge of 1997 is in tatters.”

Separately, China landed a plane on one of its new island runways in the South China Sea and military flights will be sure to follow. In response to the airstrip, Vietnam launched a formal diplomatic protest while the Philippines planned on doing the same.  A spokesman for the Philippines, Charles Jose, told reporters that both countries have claims to the area that overlaps with China.

“That’s the fear, that China has been building runways on the artificial islands for over a year, and the plane’s landing was not a surprise, although it will almost certainly increase tensions.” [Reuters]

Lastly, back to Xi Jinping, Simon Denyer of the Washington Post reports he has outlawed internal dissent within the Communist Party through new disciplinary rules “that have led to the firings of an academic, a newspaper editor and a senior police officer for ‘improper discussion’ of government policy.”

One academic told the Post, “Xi is conceited and refuses to listen to second opinions. He has chosen to live in an isolated space, surrounded by flatterers. He has no idea what is going on in the real world.”

The guy is the one I most fear in the world today, even more so than Putin, who is bad enough.

Venezuela: The opposition-led legislature was sworn in on Tuesday following December’s election where the Mesa de la Unidad Democratica (MUD) coalition won a “supermajority,” 112 of 167 seats, two-thirds, which allows legislators to challenge President Nicolas Maduro, including dismissing ministers or even cutting his term short.  But the Supreme Court, with 13 justices supportive of his policies, was packed during the lame-duck legislative session at the end of December and the court has begun barring newly elected MUD lawmakers from taking their seats (at least attempting to, last I saw). 

There seems little doubt 2016 won’t go well in this basket case of a nation.  Violence has been soaring and the economy is expected to contract at least another 7 percent this year (after contracting 8 percent in 2015, according to the World Bank) amid plunging oil prices.  Couple this with Maduro, who I have long maintained is a flat-out idiot, and you have the formula for a tremendous explosion.

Random Musings

--Still not a lot of post-holiday polls released as yet and while I’m not into NBC News/Survey Monkey’s national poll, the one revealed on Tuesday did show Donald Trump at 35% of Republican and GOP-leaning registered voters in the online survey, with Ted Cruz at 18% and Marco Rubio 13%.  Ben Carson was at 9%, Jeb Bush 6% and Chris Christie 4%.

A Public Policy Polling survey of New Hampshire primary voters has Trump leading with 29%, Rubio 15%, Christie and Kasich at 11%, and Bush and Cruz 10%.

--Editorial / New York Post

“Even though Donald Trump had already warned that Bill Clinton’s past indiscretions would be ‘fair game’ in the presidential race, the ex-president seemed surprised to face the issue as he began to take a prominent role in his wife’s campaign.

“Asked by ABC News (about the topic), Bill stammered for several seconds about how ‘the Republicans have to decide who they want to nominate’ before declaring, ‘I think there’s always attempts to take the election away from the people.’

“In other words – no real answer.

“At a New Hampshire rally, Hillary dismissed a heckler who asked about previous sexual-assault claims against Bill by saying the questioner was ‘rude.’

“With far larger issues out there – jobs, terrorism, etc. – we’d rather the race not be dominated by talk of Bill’s, uh, love life.

“Yet Hillary Clinton has made ‘women’s issues’ central to her campaign.  ‘I can’t think of anything more of an outsider than electing the first woman president,’ she has said.

“But today those issues very much include things like sexual assault and harassment, and how institutions should deal with such cases – major topics on college campuses right now.

“So a campaign surrogate who also happens to be a former president impeached over his lying about an affair with a female subordinate will inevitably be ‘fair game’ for the campaign trail.”

--Chris Christie supposedly has momentum in New Hampshire and for him it’s all about finishing no worse than third there so he can move on.  But this means he is receiving fire from the other candidates and he’s been hitting back.

Philip Rucker and Robert Costa / Washington Post

“Signaling a turn among center-right candidates into a tougher phase, Sen. Marco Rubio charged that Christie has been too closely aligned with President Obama on gun control, health care and Common Core education standards, echoing twin attack ads aired here by his allied super PAC.  Meanwhile, allies of Ohio Gov. John Kasich filled mailboxes in New Hampshire with a biting pamphlet that reads, ‘Chris Christie: Tough talk.  Weak record.’

“In an interview Tuesday with The Washington Post, Christie responded with a sharp broadside against Rubio and shrugged off Kasich, vowing that voters would coalesce around his candidacy in spite of his ideological impurity because he projects strength.

“ ‘I just don’t think Marco Rubio’s going to be able to slime his way to the White House,’ Christie said.  ‘He wants to put out a whole bunch of negative ads? Go ahead. I hope that he will acknowledge at some point that I couldn’t care less.’...

“Christie is gambling that, in a race dominated by Trump’s pugnacity, his attitude and experience will offset his past statements and blemishes.  After he climbed the political ladder in heavily Democratic New Jersey, Christie’s national candidacy is now becoming a test of whether an outsize persona can blanket over a record seen by conservative activists as inconsistent, if not disloyal....

“In the recent past, Republican presidential primaries were shaped by whether candidates passed a series of ideological benchmarks.  But the 2016 race has been dominated instead by personality.  This shift is most evident in the front-running candidacy of Trump, whose past is littered with conservative apostasies.

“ ‘Nobody cares,’ Republican strategist Alex Castellanos said.  ‘Political records and promised plans have turned to dust in front of us...That’s not what this election seems to be about for Republicans.  It’s about rescuing the country before it goes over the cliff.’”

As for John Kasich, last Sunday on “Meet the Press” he said: “Here in Ohio, we have a balanced budget; they don’t over in New Jersey...Our credit has been strengthened; their credit has been downgraded. We’ve got more jobs.”

You go, Gov. Kasich!  [I’m supporting my fellow Slovak.  He’s half Czech, half Croatian, to be accurate.]

--Not that he’s going to win, but Bernie Sanders lit into Wall Street this week, speaking in Manhattan.

“Will the folks on Wall Street like me?  No. Will they begin to play by the rules if I’m president?  You better believe it.”

“Dodd-Frank should have broken up Citigroup and other too-big-to-fail banks into pieces...and that is exactly what we need to do, and that’s what I commit to do as president.”

Sanders said he would require the Treasury secretary to create a list of such banks within his first 100 days as president.

Opponents argue breaking up the 39 institutions Dodd-Frank deems “systemically important” would be massively inefficient.

Sanders, by the way, raised $33 million in the fourth quarter, just $4m less than Hillary.

--Ramesh Ponnuru had an op-ed in Bloomberg concerning 2016 and a breakdown in the electorate.

Following the 2012 election, there was much hand-wringing about how Mitt Romney gained only 27% of the Hispanic vote compared to John McCain’s 31% in 2008, and how Republicans couldn’t possibly win without gaining more of this segment of the electorate, which in 2012 was 10% of all voters.  [Separately, McCain received 4% of blacks and Romney 6%.]

But Mr. Ponnuru points out that in using a RealClearPolitics interactive tool that allows for simulating different election scenarios, if next November the Republicans had the same performance as 2012, but took in “3.3 percent more than Romney from whites,” they win.

Romney did well among whites, though...59%.

--Meanwhile, yours truly is among those that is concerned about the GOP losing the Senate, as it currently has just a 54-46 majority (including two independents who caucus with Democrats).  Of the 34 seats up for grabs in November, 24 are currently Republican, 10 Democratic.

The Wall Street Journal’s Gerald Seib also points out that many of the swing states that will determine the presidential election – such as Ohio, Pennsylvania, North Carolina, Colorado, Nevada and Wisconsin – are also home to highly competitive Senate races.

--While President Obama vetoed it, for the first time Republicans sent him a full bill to repeal ObamaCare that rips out major pillars of the Affordable Care Act, including government subsidies to help low- and middle-income Americans buy coverage and federal aid to help states expand their Medicaid programs.

The proposal saves money, but it leaves millions without health coverage.  The bill, which also cut federal funding for Planned Parenthood, passed Wednesday on a largely party-line vote, 240-181.

Speaker Paul Ryan has promised he will follow up with a substantive healthcare alternative later this year.

--I was half-watching President Obama’s announcement of executive actions that he was taking to enhance federal gun laws, working on a column, and I look up and he’s crying.  Why? I mused.

Here’s my take on the issue.  I personally don’t own a gun.  But I do have a Swiss Army Knife with the hacksaw attachment so watch out.

None of what President Obama is proposing would have stopped any of the recent heinous mass-shootings and I’ve always just been one to say, ‘enforce the laws we already have on the books.’

But I’m not going to argue with the following either.

Gabrielle Giffords / Washington Post

“(This week) President Obama announced that his administration will significantly narrow the loopholes that let people buy guns without a background check.  It is the right, responsible thing to do.

“The president’s reasonable proposal addresses a lethal problem: People who are in the business of selling guns can avoid the current requirement to conduct background checks on their buyers by claiming not to be gun dealers.  Go to a gun show, for example, and in booths right next to licensed gun dealers whose customers have to undergo background checks, you will see others who operate outside of the rules, selling dozens or hundreds of the same guns each year without background checks.

“The steps announced this week will narrow that gap by requiring anyone who sells a significant number of guns or operates like a commercial dealer to get a license and require each buyer to pass a criminal background check.  Truly private sales, such as simply selling a gun to a neighbor or a friend, will not be affected.  But, based on analysis by the gun-violence-prevention organization I co-founded, millions of firearms transactions that currently happen with no questions asked will be subject to background checks.”

But President Obama also wants to increase the number of background-check examiners and related staff by 50 percent and he doesn’t have the money for the program, which is part of the political debate.

--Meanwhile, the homicide rate in New York was up 5% in 2015, the first increase in five years and off a historic low...from 333 to 350.  More than a third of the homicides were gang related.

New York City has a population of about 8.5 million.  Chicago has one of 2.7 million.  But it had nearly 470 homicides last year, the most of all cities in the U.S., and its worst year since 2012.

Philadelphia, with 1.6 million in population, had 277 murders, a 12 percent increase from 2014.

Los Angeles, with 3.9 million, had 280 murders, a 10 percent increase from the prior year.

And then there was Baltimore, which had 344 homicides, six fewer than New York, but Baltimore has a population of only 620,000 vs. New York’s 8.5m.  Baltimore’s tally was second only to the record 353 in 1993, but back then the city had 100,000 more residents.

--Nassim Nicholas Taleb, who writes of Black Swan events, had a brief essay in the Wall Street Journal on “The Real Risks to Worry About,” one of which was the following.

“Terrorism is a problem we’re managing, but epidemics such as Ebola are patently not. The most worrisome fact of 2015 was the reaction to the threat of Ebola, with the media confusing a multiplicative disease with an ordinary one and shaming people for overreacting.  Cancer rates cannot quadruple from one month to the next; epidemics can.  We are clearly unprepared to deal with such threats.”

--The U.S. Agriculture and Health and Human Services departments issued new dietary guidelines Thursday urging Americans to cut back on sugar and less saturated fat and sodium.  Men and teenage boys were also urged to lower their consumption of red meat and poultry, though lean meat and poultry are part of a healthy diet.

The guidelines, issued every five years, weren’t as strict as expected and removed a long-standing specific limit on daily cholesterol intake – a move welcomed by egg producers in particular.

As for the recommendations on sugar, what it boils down to is you’re not supposed to have more than a can of soda a day.

Coffee can also be part of a healthy diet, but the guidelines said it is best to limit intake to three to five 8-ounce cups of it.  No word on guidelines for those of us who drink ‘domestic.’

--As reported by Geoffrey Mohan of the Los Angeles Times, “The U.S. Environmental Protection Agency said Wednesday that imidacloprid (sic), a nicotine-imitating chemical found in at least 188 farm and household products in California, ‘potentially poses risks to hives when the pesticide comes in contact with certain crops that attract pollinators.’”

Ergo, the insecticide threatens honeybees, which pollinate crucial food crops with a value of $14 billion in terms of the agricultural economy nationwide.

The EPA is slated to wrap up risk assessments on three other pesticides known as neonicotinoids.  So by next year, the agency could tighten controls or outright ban them.

Pesticide industry advocates said it was premature to talk about a ban on the chemical.

--Mexican drug kingpin “El Chapo” was arrested after his escape from a maximum security prison in Mexico six months ago.  Five of his associates were reportedly killed in the raid to recapture him.  Kudos to Mexican Marines, who were relentless in their pursuit of “El Primo Dirtball.”  You’d hope this is a turning point in the war there, but we won’t get too carried away yet.

--The Northeast finally saw a touch of winter, with more on the way this coming week, as the temperature in Central Park fell below 32 on Monday for the first time in a record 279 straight days, the previous record being 274. 

More importantly, California is receiving its rain (and mountain snows) as long predicted, with as much as 15 inches of rain expected in the next two weeks.

--A Monmouth University poll finds that 70% of Americans say that the world’s climate is undergoing a change leading to more extreme weather patterns and sea level rise, including 41% who call climate change a very serious problem.  But of course there is a political divide.  A majority of Democrats (63%) and a plurality of independents (42%) see climate change as a very serious issue, while just 18% of Republicans agree.  On the flip side, a plurality of Republicans (43%) believe climate change is not happening at all, compared with just 17% of independents and 10% of Democrats.  [Monmouth University Polling]

--I’m giving you all a homework assignment.  If you missed the PBS Frontline two-hour documentary on “Benjamin Netanyahu’s War,” watch it.  PBS makes it available on its web site.  Truly outstanding.

--Finally, we acknowledge the heroism of Philadelphia police officer Jesse Hartnett, who survived an ambush by a man, Edward Archer, who fired 11 shots into Hartnett’s cruiser Thursday night, hitting Hartnett three times in his left arm, yet Hartnett returned fire, hitting Archer in the buttocks.  Archer then claimed he had pledged allegiance to ISIS.  

Hartnett’s name has been immediately placed in the December file for “Person of the Year.”  Archer is now in the same file for a different reason.

Sadly, this is yet another example of what’s to come.

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

God bless America.

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Gold $1104
Oil $33.16...how low can it go?

Returns for the week 1/4-1/8...and 2016

Dow Jones  -6.2%
S&P 500  -6.1%
S&P MidCap  -6.4%
Russell 2000  -7.9%
Nasdaq  -7.3%

Bulls  34.7
Bears 31.6 [Source: Investors Intelligence]

Have a great week.  I appreciate your support.

Brian Trumbore

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