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12/17/2016

For the week 12/12-12/16

[Posted 11:30 PM ET]

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Edition 923

Russia and the Election, the Trump Transition and Washington

[I am doing my best to incorporate some late-breaking events from Friday afternoon.]

Appearing on “Fox News Sunday,” Donald Trump asserted that the allegations that Russia meddled in the presidential election in order to help him win are politicized and “ridiculous,” adding, “I think the Democrats are putting it out because they suffered one of the greatest defeats in the history of politics in this country.” 

Trump also said of the CIA that it had discredited itself over faulty intelligence assessments about Iraq’s weapons stockpile more than a dozen years ago.

“These are the same people that said Saddam Hussein had weapons of mass destruction,” he said.

But Wednesday, NBC News reported that Russian President Vladimir Putin was personally involved in efforts to intervene in the vote, NBC citing two unnamed “senior U.S. intelligence officials.”

New intelligence links Putin directly to the leaks from hacked Democratic National Committee emails, the officials told NBC News with “a high level of confidence.”

NBC reported the Russian activity began as a “vendetta” against Hillary Clinton and grew into an effort to expose corruption in U.S. politics and to undermine America’s international credibility.

The Washington Post previously cited unnamed intelligence sources as saying the CIA believed Russia not only interfered in the election, but intended to help Trump win.

Initially, however, the Office of the Director of National Intelligence and FBI did not believe there was enough evidence to conclude the cyberattacks were intended to help Trump win.

But on Friday, in a message to the agency’s workforce, CIA Director John Brennan wrote:

“Earlier this week, I met separately with (Director) FBI James Comey and DNI Jim Clapper, and there is strong consensus among us on the scope, nature, and intent of Russian interference in our presidential election.

“The three of us also agree that our organizations, along with others, need to focus on completing the thorough review of this issue that has been directed by President Obama and which is being led by the DNI.”

As of tonight, the CIA and FBI had declined to comment.  But CIA and FBI officials do not think Russia had a “single purpose” by intervening during the presidential campaign.  In addition to helping Trump, intelligence officials have told lawmakers that Moscow’s other goal included undermining confidence in the U.S. electoral system.  [Adam Entous and Ellen Nakashima / Washington Post]

Thursday, Trump had tweeted: “If Russia, or some other entity, was hacking, why did the White House wait so long to act?  Why did they only complain after Hillary lost?”

But Friday, in his last press conference of the year, and possibly his presidency, President Obama said that he had held back before Election Day from retaliating against Russia for meddling in the presidential race for fear of inciting further hacking that could have undermined vote counting.  Obama added he was weighing a mix of public and covert actions against the Russians in his last 34 days in office, actions that would increase “the costs for them.”

Thursday night, addressing campaign donors in New York, Hillary Clinton flat out accused Vladimir Putin of orchestrating the hacks against her campaign and the Democratic National Committee “to undermine our democracy,” as part of a “personal beef against me.”  [New York Times]

Meanwhile, Trump’s nominee for secretary of State, Rex Tillerson, has had extensive dealings with Vladimir Putin in his current role as CEO of Exxon Mobil, including receiving a 2013 award from the Kremlin, the Order of Friendship.

Republican Sen. Marco Rubio (Fla.) said that being “‘a friend of Vladimir’ is not an attribute I am hoping for from the next secretary of State.”

New Jersey Democratic Sen. Robert Menendez called the idea Tillerson could be named secretary of state “alarming and absurd,” concluding that “the Trump administration would be guaranteeing Russia has a willing accomplice in the President’s Cabinet guiding our nation’s foreign policy.”

But the chairman of the Foreign Relations Committee, Sen. Bob Corker (R-Tenn.) – who was also considered for secretary of state – said Tillerson would be a good choice, tweeting “he is a very good individual.”

Senate Majority Leader Mitch McConnell (R-Ky.) said on Monday that he did not believe a special committee was needed to set up to discuss Russia’s role in the election, as Sen. John McCain (R-Az.) wants, McConnell saying any investigation ought to be confined to the Senate Intelligence Committee, which, he said, was “more than capable of conducting a complete review of this matter.”

For his part, McCain said in an appearance on “CBS This Morning” that Russian hacking of the Democratic National Committee and related accounts was “another form of warfare.”

Russian Foreign Minister Sergei Lavrov told state TV that he was “dumbstruck” by the NBC report of Putin’s alleged involvement.  “I think this is just silly, and the futility of the attempt to convince somebody of this is absolutely obvious,” he said.

Back to Trump, regarding the issue of his intelligence briefings, the president-elect said on “Fox News Sunday, “I get it when I need it.”

“First of all, these are very good people that are giving me the briefings. And I say, ‘If something should change from this point, immediately call me.  I’m available on one-minute’s notice.”

But he also suggested during the interview it isn’t necessary for him to receive the presidential briefings daily.

“I’m, like, a smart person,” Trump said.  “I don’t have to be told the same thing in the same words every single day for the next eight years.  Could be eight years – but eight years. I don’t need that.”

Opinion...both sides...

Michael V. Hayden, former director of the National Security Agency and the CIA / Washington Post

“A month ago I wrote here about the importance and challenge of the intelligence community establishing a relationship with President-elect Donald Trump.

“That has just gotten more important and more challenging.

“In my November op-ed, I asked: ‘What role will facts and fact-bearers play in the Trump administration?...Which of the president-elect’s existing instincts and judgments are open to revision as more data is revealed?’

“I had in mind the president-elect’s confidence in his own a priori beliefs and specifically his rejection of the intelligence community’s judgment that Russia had stolen American emails and weaponized their content to corrode faith in our electoral processes.

“The president-elect has been unmoved in his rejection of this high-confidence judgment.  In TIME magazine’s article last week naming him ‘Person of the Year,’ Trump repeated, ‘I don’t believe it.  I don’t believe they interfered.’

“Shortly afterward, The Post reported that CIA analysts now believe the Russian aim was to help Trump win.

“Team Trump immediately went into attack mode, employing the bureaucratic equivalent of the ad hominems the president-elect used during the campaign (‘Crooked Hillary,’ ‘Lyin’ Ted,’ ‘Little Marco’).  ‘These are the same people that said Saddam Hussein had weapons of mass destruction,’ its first salvo described the U.S. intelligence community.

“Then Republican National Committee communications director Sean Spicer alleged on CNN that ‘there are people within these agencies who are upset with the outcome of the election.’

“Incompetent.  Politicized.  No need to discuss any further.  Move on....

“An administration-in-waiting more confident in itself, in its own legitimacy, in U.S. institutions and in the people it will soon govern might have said, ‘These are serious issues.  We intend to hear them out.  Nothing is more precious than our democratic process.  We have asked the Obama administration for details.’

“The fact that that didn’t happen should invite tons of commentary.  But not from me.  My narrow concerns as an intelligence officer are the questions raised above.  How will this affect the new president’s relationship with the intelligence community?

“A lot.  And not well.

“First is the question of how the incoming administration values intelligence.  On Sunday, the president-elect again rejected the Russian role, adding that he was smart enough that he didn’t want or need a daily briefing.

“This creates more than hurt feelings. The intelligence community makes great sacrifices, and CIA directors send people into harm’s way to learn things otherwise unavailable. And directors have seen stars carved on the agency’s memorial wall because of it.  If what is gained is not used or wanted or is labeled as suspect or corrupt – by what moral authority does a director put his people at risk?

“Then there is the ethic of the intelligence profession, captured by the gospel of John’s dictum in the agency’s headquarters lobby – that the truth will set you free.

“What happens if the incoming administration directs that the ‘Russia did it’ file be closed?  Would standing intelligence requirements to learn more about this be eliminated?  And if they were, what would the agency do with relevant data that would inevitably come through its collection network?

“And what about the statute that requires the CIA and the rest of the intelligence community to keep Congress ‘fully and currently informed’ about all significant intelligence activities?  Data on a foreign power manipulating the federal electoral process would certainly qualify.  What will the White House position be when the agency is asked by Congress if it has learned anything more on the issue?....

“And, finally, how does the intelligence community break through and explain itself to the incoming team?

“Can it convincingly make a case that an evidence-based description of Russian actions is not the same thing as an attack on the legitimacy of the president-elect?

“Can it explain that, unlike law enforcement that seeks to prove things beyond any reasonable doubt, the purpose of intelligence is to enable meaningful policy and action even in the face of lingering doubt?

“And can it demonstrate that the incoming administration should want – rather than discourage – this to better anticipate global trends and adversarial moves in time to reflect and decide on its own actions?”

Elaine Ou / Bloomberg

“Americans and their news media have displayed a great willingness to believe that the Russian government stands behind the theft and release of emails that may have helped Donald Trump win the U.S. presidential election.

“They should keep in mind that, despite the ‘high confidence’ of intelligence agencies, tracing a data breach is almost never a sure thing.

“Two years ago, Sony Pictures suffered an embarrassing hack that released a trove of confidential data. After four weeks of research, the FBI concluded that the North Korean government was responsible. An FBI press release explained that the conclusion was based partly on the fact that the malware used on Sony was similar to tools found in previous attacks attributed to North Korea.

“In that case, blaming North Korea made sense.  The attack was accompanied by a demand that Sony Pictures pull its film The Interview, a tasteless comedy depicting an effort to assassinate North Korean leader Kim Jong-un.  It seems plausible that Kim might be self-absorbed enough to order a cyberattack to stop the release of an unflattering movie.

“Then in February, the Bangladeshi central bank fell victim to an $81 million cyber heist.  Upon examining the tools used, security researchers discovered the same type of malware that was used against Sony Pictures, including identical encryption keys. As one security researcher explained: ‘If you believe North Korea was behind [the Sony Pictures] attacks, then the bank attacks were also the work of North Korea.’

“Well wait a minute. That seems a bit out of character.  North Korea doesn’t have a history of conducting bank heists for financial gain, and the same attacks were attempted on other banks all around the world.  Are we supposed to believe that the North Korean government was responsible for everything?

“The attribution of a cyberattack to a particular nation-state often relies on the results of previous assessments, and on the assumption that those earlier assessments were correct.  Problem is, there’s rarely any affirmative validation.  If we correctly identify North Korea as the perpetrator of a hack, no North Korean official will come forward and say ‘Whoops!  You got us!’

“Many security experts doubted the FBI’s original assessment of the Sony hack, including one researcher who previously infiltrated Sony’s network himself.  Sony group has a long and well-documented history of network breaches across all its subsidiaries.  Why did the FBI blame North Korea and not ‘somebody sitting in a bed someplace?’....

“Intelligence agencies expect people to trust them, but they also have to earn that trust. It was only last Friday that President Obama ordered a review of potential election-related hacking. While the idea of Russia meddling might fit conveniently into the collective disbelief that Donald Trump could have won the election fairly, we should probably demand more evidence before freaking out.”

Michael Gerson / Washington Post

“A few points:

“First, the debate over whether Russia engaged in cyberespionage to help Trump or just to generally mess with American democracy is utter nonsense.  Russian espionage resulted in the phased leak of material damaging to the Democratic Party and Hillary Clinton at key moments during the presidential campaign. Anyone who finds Russia’s motivation mysterious is being intentionally obtuse.

“Second, if the CIA interpretation is correct, this is not just one provocation among many.  If Putin actually helped elect an American president more favorable to Russian interests, it is surely the largest intelligence coup since the cracking of the Enigma code during World War II.  And it is arguably a bigger deal – more on par with, say, German intelligence helping elect Charles Lindbergh president.

“Third, we will never know for sure if Russian espionage caused Trump to win.  With Clinton losing by an 80,000-vote margin in three key states, everything – her poor messaging, her consistently bungled response to the email controversy, FBI Director James B. Comey’s untimely letter – can be posited as the reason she lost.  A hypothetical outcome minus Russian involvement is not just unknown, it is unknowable.

“Fourth, Trump’s blanket attack on the intelligence community for incompetence – as though he were still going after ‘Little Marco’ or ‘Lyin’ Ted’ – is an insanely dangerous antic that materially undermines American security. Given the extraordinary range of threats faced by the United States – Chinese provocations in the South China Sea, Russian attempts to dominate neighboring countries, North Korea’s progress toward nuclear-tipped missiles that could reach California – a mutual trust between the president and American intelligence services is essential. That relationship has already been seriously damaged.”

Editorial / Wall Street Journal

“If the CIA really does have ‘high confidence’ about Mr. Putin’s motives, this would also be the first time in recent history. These are the same seers who missed the Russian invasion of Crimea, missed the incursion into southern Ukraine, and missed Mr. Putin’s foray into Syria. The intelligence community also claimed ‘high confidence’ in 2008 for its judgment that Iran had suspended its nuclear-weapons program.  That judgment conveniently shut down any further Bush Administration action against Iran.  But a year later, in the Obama Administration, our highly confident spooks disclosed Iran’s secret Fordo underground facility.

“None of this means Americans shouldn’t be alarmed about Russian intentions or cyberattacks.  Mr. Putin is an authoritarian who came of age as a Soviet spy and wants to damage U.S. interests around the world. Rather than dismiss evidence of Russian hacking, Mr. Trump ought to point out that Mr. Obama has done nothing to make Russia pay a price for it.  He should also call for the entire story to come out, not merely alleged facts from anonymous sources.

“All the more so as Mr. Trump undertakes his own attempt to ‘get along’ with the Russian strongman, as he puts it.  Like Presidents Bush and Obama, Mr. Trump thinks he can cajole Mr. Putin into some kind of cooperative grand bargain. The Russian always pockets U.S. concessions and then reneges on his promises.

“A bipartisan group of Senators, including Republicans John McCain and Lindsey Graham, has called for a Senate investigation into the election-related hacks.  That’s fine with us as long as it doesn’t become the partisan exercise that Democrats appear to want.

“But why wait?  U.S. intelligence services already know most of what they’re likely to learn.  Release the evidence now.  Let’s see if the Kremlin really did steal RNC emails, and let’s also hear from those who don’t share CIA Director John Brennan’s ‘high confidence.’  The last thing Americans need is for an outgoing Administration that is still sore over losing an election to assist Vladimir Putin in poisoning the result.”

As for the nomination of Rex Tillerson, Jack Gerard, president of the American Petroleum Institute, said in a statement Tuesday, “Rex Tillerson is world class. He has decades of experience working with global leaders and overseeing the creation of thousands of jobs.  He understands that American voters want to strengthen our national security, grow jobs, and protect American interests globally.”

But while Donald Trump is getting criticism for his oil-centric cabinet selections (see below), as Timothy Cama of The Hill points out, this is no different than what George W. Bush did, with Vice President Dick Cheney (Halliburton), secretary of State Condoleezza Rice (who had been on the board of Chevron Corp.), and Commerce secretary, Donald Evans, who came to the administration from an oil company.

Trump’s nomination of Tillerson received a hearty endorsement from the old Bush team, including Rice, Cheney and Robert Gates, Bush’s second Defense secretary.  The first Defense secretary, Donald Rumsfeld, also hailed the choice of Tillerson.

Democrats such as Sen. Ed Markey (Mass.) aren’t happy.  “In a Donald Trump administration, America’s foreign policy, energy policy and environmental policy are all linked by one thing: oil.”

“Donald Trump is drafting a Cabinet of Big Oil all-stars with the plan to drag us back to 19th century dirty energy sources and derail our 21st century clean energy future.”

Benny Avni / New York Post

“This is a fine time to pick a new secretary of state and, while at it, rethink America’s relations with the world.

“Whatever the arguments against President-elect Donald Trump’s pick for the job, surely the fact that Rex Tillerson has no experience in Washington-led diplomacy shouldn’t be one of them. Just consider the last few days on his predecessor’s watch.

“Aden, Yemen: An ISIS-affiliated suicide bomber killed at least 48 soldiers on Saturday, part of a war that increasingly pits a vicious Iranian-backed group against Muslim Brotherhood-inspired terrorists.

“Two years ago, President Obama cited Yemen as a successful model for U.S.-led diplomacy. Was it?  Well, there was a period of optimism around the beginning of peace talks. But it was brief. Arguably, UN envoy Jamal Benomar deserved the credit for that more than did John Kerry or his predecessor, Hillary Clinton.

“The diplomacy collapsed anyway. War intensified. The body count climbed.  Our diplomats can’t even decide if we support an old ally, Saudi Arabia, or new ‘ally’ Iran. So the war against terror suffers.

“We can’t do much worse.

“Cairo, Egypt: A bomb in an Egyptian Coptic church killed at least 25 worshipers Sunday. ISIS claimed responsibility Tuesday, though the Egypt-born Muslim Brotherhood often incites against Copts.

“When Gen. Abdel Fattah al-Sisi took power by force in June 2014, ousting the failed Muslim Brotherhood leadership, Egyptians largely cheered. Not so our top diplomats. State Department officials shied away from the word ‘coup,’ yet they often chastised Sisi’s high-handed repression of the Brotherhood.  As Egypt fought ISIS expansion in the Sinai, we halted weapons deliveries.

“The result: ISIS is stronger....As an Egyptian diplomat told me recently, Cairo just can’t wait until Obama’s out of office.

“We can’t do much worse.

“Istanbul, Turkey: Two bombs went off near a soccer stadium Saturday, killing at least 44.  The PKK, a militant Kurdish group, claimed credit.  Yet President Recep Tayyip Erdogan nevertheless went after Kurdish political opponents with no ties to the PKK. And he still blames America for backing a failed coup against him this summer.  Turkey remains a powerful NATO member but is not much of a democracy or an ally anymore.

“Obama never used American leverage to end Erdogan’s on-again-off-again cooperation with ISIS, or his war on our Kurdish allies. So our diplomats in Turkey go mostly ignored.

“We can’t do much worse.

“Aleppo and Palmyra, Syria: This week ISIS won back Palmyra....Also this week, combined Russian, Iranian, Hizbullah and Syrian forces all but completed a takeover of Aleppo, once the country’s largest city, now its largest graveyard....

“We lecture the Russians, who then ignore us. We implore the United Nations to do something, anything. We get nothing....

“And as the easy recapture of Palmyra shows, (Russia and Iran) are less interested in combatting ISIS than in killing Assad’s opponents.

“Beyond the United Nations, Kerry has been negotiating with his Russian counterpart, Sergei Lavrov.  But while the crusty Russian diplomat has a strategy, Kerry has nothing but words....

“We can’t do much worse.

“So, yes, Tillerson’s Moscow ties are a legitimate line of inquiry. But for half a decade now Vladimir Putin has controlled the most consequential war theater of the time, not us. We also uttered little more than a pip when he swallowed a chunk of Ukraine and threatened our other allies in the former Soviet bloc.

“Can an oilman with a penchant for global deal-making but no experience in Washington diplomacy do better?  Well, he can’t do much worse.”

---

Wall Street

As expected the Federal Reserve raised its target interest rate for only the second time since 2006.  The Fed noted “that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since midyear.”

The decision was taken by a unanimous vote of the 10 members of the Federal Open Market Committee, the first time the Fed has acted by consensus in months.

But the target funds rate is still just between 0.5 percent and 0.75 percent, historically low as the Fed seeks to support growth by encouraging borrowing and risk-taking.

However, Chair Janet Yellen and her band of merry pranksters continue to predict the economy will expand at only an annual rate of about 2 percent for the next few years, and the Fed gave zero indication that the election of Donald Trump has altered their outlook, even though clearly his stated policies would stoke both growth and inflation, as the markets have been forecasting since election day.

Yes, it’s true.  The Fed can say, well, nothing has been enacted yet, but the whole point of Nov. 8 wasn’t just that Trump had shocked the world, but that he has a Republican Congress to back him up and some of his policy initiatives are indeed going to get through, including probable tax cuts and a large infrastructure program, let alone taking a cleaver to onerous federal regulations that have been harming various sectors of the economy.

I’m the guy, though, who said early this year that the Fed would not act again until December, and that it would get caught with its pants down on the inflation front and that has indeed come to pass.  The Fed is remarkably sanguine on prices, forecasting 2% for years to come when by some gauges inflation is already over their target and is clearly headed higher.   My point has been the Fed will find itself way behind the curve, it is, and that’s why you’ve seen the yield on the 10-year shoot up from 1.37% in early July to over 2.60% this week (before closing at 2.59%), a massive move.  I also agree with bond maven Jeffrey Gundlach, who says if the 10-year hits 3.00%, that will do a real number on housing.

And this will be the conundrum.  At what level do interest rates brush up against what many of us believe won’t be just 2% growth, but 3% or higher?

So now we wait to see what happens in the Trump administration’s first 100 days, and the Fed’s next benchmark meeting in March and whether Congress has been able to pass tax cuts, for one, by then.  [There is an FOMC  meeting Jan. 31-Feb. 1, but that will reveal little. It’s the March 14-15 confab that will be telling, then it’s May 2-3.]

Anyway, with the Fed targeting three hikes next year, it could end up being just two, or it could be five.  I fall in the camp that predicts more than three, for starters.  The 35-year bond bull market is over. Finis.  Hope you had fun.  Now it’s time for savers to get some modicum of revenge, though it’s going to take a while before anyone sees it in their CD or savings rates.

Meanwhile, there was a lot of economic news aside from the Fed announcement.

On the inflation front, the November producer price index rose 0.4%, much higher than expected, and was 0.4% ex-food and energy. For the last 12 months, the PPI was 1.3%, 1.6% on core.

The consumer price index for last month was 0.2%, ditto ex-food and energy, with the CPI up 1.7% year over year, while the core figure was 2.1%.

November retail sales came in at just 0.1%, less than forecast, and up only 0.2% ex-autos.  Not really exciting.

November industrial production fell a larger than expected 0.4%.

And on the real estate front, November housing starts came in at an annualized pace of 1.09 million, far below the expected 1.225m rate, though this has been a volatile indicator recently.  October’s figure was 1.34 million.

Just one note on the congressional front.  Late last Friday, the Senate passed legislation funding the federal government until April 28, avoiding a government shutdown by less than an hour.

So this will make for a busy time when Congress reconvenes in January.  The Senate will have to reach an agreement by late April on spending levels for the rest of the fiscal year, while working on regulatory reform and a budget to pave the way for tax reform, let alone some contentious confirmation hearings and a Supreme Court nominee.

Europe and Asia

The euro slumped below the $1.04 mark against the dollar for the first time since January 2003 as divergent paths for the world’s two major central banks drive it down.

The dollar was rocketing to its highest level in 13 years following the Federal Reserve’s decision to raise rates, while forecasting further hikes next year, this as the European Central Bank is moving in the opposite direction, announcing a nine-month extension to its quantitative easing program the other week, though at a reduced pace later on.

A weak euro is just what the ECB wants, however, as it boosts exports and helps stoke inflation.

There was some important economic data regarding the eurozone, with a flash composite reading for December and the EA19 coming in at 53.9, unchanged from November (50 being the dividing line between growth and contraction), though the manufacturing component, 54.9 vs. 53.7, was a 68-month high, while the services reading for December is 53.1 vs. 53.8.

The flash readings, as provided by Markit, also look at Germany and France.

Germany’s manufacturing figure is 55.5 vs. 54.3 in November, a 35-month high, with services down from 55.1 to 53.8.

France’s manufacturing reading was 53.5 vs. 51.7, a 67-month high, with services rising from 51.6 to 52.6.

Chris Williamson, chief economist, IHS Markit:

“The eurozone economy is ending 2016 on a strong note.  The PMI indicates that business activity has risen at the fastest rate so far this year in the fourth quarter, signaling GDP growth of 0.4 percent [Ed. quarter over quarter]

“However, while the December PMI surveys put the eurozone economy on a strong footing to start 2017, there is clearly the potential for political uncertainty to derail growth as elections loom in the Netherlands, France and Germany, and Brexit discussions begin.”

Eurostat released its reading on inflation for the euro area last month, 0.6% annualized, up from 0.5% in October.  In November 2015 the rate was just 0.1%.  So it continues to tick up, though still far from the 2% target set by the European Central Bank.

In Germany the annualized inflation rate is 0.7%, unchanged from October; France is 0.7%, the highest since May 2014; 0.1% in Italy (up from October’s -0.1%); Spain 0.5%; but Greece -0.2%.

In the U.K., the reading on inflation for November was 1.2% ann., up from 0.9% in October and the highest reading since October 2014.  Conversely, retail sales for November in the U.K., were up only 0.2% over October as rising fuel prices bit.  The Bank of England is rightfully worried that inflation, which it projects at about 2% by end of next year, will crimp growth, which was already slated to be hit by Brexit.

Speaking of Brexit...the U.K. and the European Union took a positive step in agreeing that a transition deal will be needed to cushion the blow from Britain’s exit from the EU.

But negotiators between the two sides – Britain’s Brexit Secretary being David Davis, Michel Barnier the European Commission’s chief negotiator – have to agree on a broad outline for a final deal before starting talks on any transitional arrangements.

“Whatever the transitional arrangement is, we need to know where we are going before we decide on the transition,” Davis told the House of Commons Brexit Committee.  Davis also said he believes an “end game” for the U.K.’s trading relationship with the EU in the two years available for negotiations once official notification is given of the intention to quit is doable.

Davis said no decision had been taken on whether the U.K. should stay in or leave the European single market, where more than 40 percent of British exports are sold, or whether it could pay the EU for trading rights.  “We’re aiming for free access, the maximum free access to all possible markets,” he said.

But remember, Britain also wants to be able to set its own immigration policies and that is a no-go for the EU if Britain thinks it’s also getting free access, at least in the form it has today.

Philip Stephens / Financial Times

“The risk with referendums, as Margaret Thatcher used to say, is that they become a device for demagogues and dictators: the people have spoken so now they must be silent ever more. The point about liberal democracy is that citizens are offered a chance to change their minds.

“Britain’s referendum on EU membership was won by the Eurosceptics.  Only the other day the House of Commons backed by a large margin the government’s plan to begin the process of departure before the end of March 2017 by invoking Article 50 of the EU treaties.

“The leavers, you might imagine, would be brimming with seasonal good cheer. For some, this is the culmination of a life’s political work. They should be dancing in the streets. Instead, gripped by a fear that verges on paranoia, they see dark plots and dastardly conspiracies in every doorway.

“True enough, the judges of the UK Supreme Court have been asked to rule on the legal modalities of the Article 50 process. They may decide, as did a lower court, that parliament should have a say before Mrs. May posts her Article 50 letter to Donald Tusk, the president of the European Council, to start the clock running on a two-year exit timetable.

“The possibility of such scrutiny has provoked uproar among more excitable Brexiters, with the judges condemned as ‘enemies of the people.’  In the manner of authoritarians through the ages, they contend that the rule of law belongs to politicians rather than the courts.

“This is confusing at best for those who took at face value the leavers’ claim to be the champions of parliamentary ‘sovereignty’ against the depredations of Brussels.  Mrs. May’s contention that she can decide without consultation with MPs is calculated, after all, to subtract from this very same sovereignty.

“No one expects Westminster actually to derail the Article 50 process.  What disturbs the leavers is that parliament may take the opportunity to express a view on the relationship Britain should have with the EU once it departs.  The referendum answered a simple ‘in or out’ question, saying nothing about what happens next.

“The Brexiters want a clean break with Brussels and all its works.  A debate about future ties might reach a more nuanced conclusion.  Some who voted for Brexit might want to maintain close collaboration, by, say, staying in the single market and customs union.  Horror of horrors, confronted with the full complexity and costs of Brexit, they might have second thoughts about leaving.”

And so we come to the failure thus far of Prime Minister May to come up with a plan.

Or as Mr. Stephens writes:

“The clear probability is that Britain will indeed leave the union but, to borrow from John Maynard Keynes, faced with some uncomfortable facts, the people might just change their minds. There resides the real source of the Brexiters’ neuroses. It has nothing to do with plots or conspiracies. It is called, simply, democracy.”

It was a rough week for Greece, as European creditors pulled a recently announced debt relief package for the country after Greek Prime Minister Alexis Tsipras announced a Christmas bonus for some 1.6 million low-income pensioners and committed to restore a lower sales tax rate for Aegean Sea islanders; moves that surprised creditors, who then suspended the relief agreed to on Dec. 5.

Tsipras said at a summit of European Union leaders that there is room for “a breakthrough, without blackmail.”

“The (Christmas bonus) does not in any way threaten the bailout program and the targets for the 2016 budget surplus,” Tsipras said, arguing other more crucial issues will determine the success of Greece’s bailout talks with its European creditors and the International Monetary Fund.

He said Germany was the only European country to question the bonus.

Fellow socialist, French President Francois Hollande, came to Tsipras’ defense, as did EU Parliament President Martin Schulz, another socialist, though he said the Greek government’s decisions did not comply with what was agreed to.

The thing is Tsipras in essence lied to the creditors and they’re pissed. 

Tsipras has also seen his Syriza party’s popularity plummet and today they poll at just 16 percent compared to the center-right’s New Democracy at 29 percent, with a new election a certainty in 2017.

So is the Greece crisis back?  For a clue just look at the bond market.  The yield on the Greek 10-year was down to 6.38% just two weeks ago over optimism a debt-relief package was in the works.  Now the yield is back up to 7.07%, a major move...in the wrong direction.

On the other hand, a win by New Democracy in new elections would no doubt be supported by the creditors.

In Italy, the new government led by Prime Minister Paolo Gentiloni received a vote of confidence in the Senate on Wednesday, after receiving one in the lower chamber of parliament the day before, so Gentiloni’s center-left coalition will attempt to quickly ensure stability amid numerous challenges, including its troubled banks, a stagnant economy, and the ongoing migrant crisis.

But when you say “vote of confidence,” it’s more than a little deceiving since the populist 5-Star Movement stayed away from the votes to protest Gentiloni’s “photocopied” Cabinet, which does mirror that of former Prime Minister Matteo Renzi’s, which 5-Star says ignores the results of the Dec. 4 referendum, and they are right.

Gentiloni served as foreign minister under Renzi, while the finance minister, defense minister, and ministers of justice, health, infrastructure and culture remain the same. 

The first thing Gentiloni has to do is tackle the banking crisis and Italy’s Monte dei Paschi bank said it would try to raise $5.3 billion from investors by year end as it seeks to avoid a state rescue.  The world’s oldest bank (loaded with musty money, one must assume) is hoping to exchange debt for equity, selling off its heavy burden of bad loans to those specializing in such distressed paper.

UniCredit SpA, Italy’s biggest bank, plans to raise $13.8 billion in a rights offer, sell off bad loans and slash costs in its deepest overhaul to boost capital levels and profitability.  As part of a three-year plan, the bank will shed an additional 6,500 jobs, bringing the total to 14,000, as it aims for about $2bn in annual cost savings.

The bank expects no revenue growth in the foreseeable future, so it’s about cost cutting and improving the quality of assets and capital levels.

In Asia...Chinese banks extended another $115bn in loans in November and are set to lend a record amount this year as Beijing boosts the economy to meet its growth targets.  But this adds to worries about the risks of prolonged debt-fueled stimulus.

China’s overall debt has jumped to more than 250 percent of GDP from 150 percent at the end of 2006, and throughout history such a surge leads to financial bust or sharp economic slowdown.

The Bank of Japan’s quarterly “tankan” survey of business sentiment improved more than expected in December, +10, which means more optimists than pessimists on the outlook, while a flash reading on manufacturing for December came in at 51.9 vs. 51.3 last month.

Street Bytes

--All three major indices hit new all-time highs this week, but only the Dow Jones finished up, a sixth straight week, 0.4% to 19843.  20000 wasn’t breached.  The S&P 500 and Nasdaq, though, declined 0.1% each.

--U.S. Treasury Yields

6-mo. 0.64%  2-yr. 1.25%  10-yr. 2.59%  30-yr. 3.17%

The 10-year’s earlier yield of 2.60% was its highest since Sept. 2014.  The 2-year is at its highest yield in six years.

--China’s holdings of U.S. Treasuries declined to the lowest level in more than six years as it uses its reserves to support the yuan.  Japan is now No. 1, America’s top foreign creditor, with its holdings edging down too, but at a slower pace.

A monthly Treasury Department report had China with $1.12 trillion in U.S. government bonds, notes and bills in October, down $41.3 billion from the prior month and the lowest level since July 2010.  Japan’s portfolio fell $4.5 billion to $1.13 trillion.  The two nations account for about 37 percent of America’s foreign debt holdings.  [Bloomberg]

--Aside from the critical secretary of State nominee, Rex Tillerson, Donald Trump further filled out his cabinet with the tabbing of former Texas governor and presidential candidate Rick Perry to lead the Department of Energy, which Perry famously forgot the name of in a 2011 Republican presidential primary debate.  “Sorry.  Oops,” he said when he couldn’t remember this was the third federal department he wanted to eliminate.

With Trump promising to unleash fossil fuels, at the expense of the energy department’s alternative energy programs, Perry would play a key role in, for example, the assumed $1 trillion infrastructure program.

Perry also said in 2011 that climate change is a hoax perpetrated by “a substantial number of scientists who have manipulated data so that they will have dollars rolling into their projects.”

But last year he said, “You can have job creation, and you can make your environment better.”  [The Hill]

This will all be part of the confirmation process.

Yes, there is no doubt the oil industry is coming back to power in Washington.  Oil-friendly Oklahoma Attorney General Scott Pruitt was previously selected to lead the Environmental Protection Agency.

And Republican Rep. Ryan Zinke (Mont.) is the nominee for secretary of the Department of the Interior.  Zinke served as a Navy SEAL from 1986 to 2008 before entering politics, campaigning for his House seat on a platform of achieving North American energy independence.  He has frequently voted against environmentalists on issues ranging from coal extraction to oil and gas drilling.

As for the price of crude on the week, Monday, oil rocketed higher to $55 on WTI after non-OPEC countries agreed to cut their output by 558,000 barrels a day in a deal designed to reduce oversupply and boost prices.  OPEC previously committed to halting the supply of 1.2 million barrels, starting from January.  Saudi Arabia also signaled it could cut its output more than first suggested.

So this was Monday.

But then the rest of the week doubts arose about both OPEC and non-OPEC compliance and the price tumbled back to $50, but then finished Friday at $52.03.

--Sen. John McCain, chairman of the Armed Services Committee, said he backed Donald Trump’s criticism of the costs of Lockheed Martin’s F-35 fighter jet program, but said a president has limited authority to do anything about it because funds have already been appropriated by Congress.

McCain has long been a critic of Pentagon cost overruns and he did add in an interview with Reuters that Trump would have the power to reduce future purchases of the new-generation fighters if he decides to do so.  “He can reduce the buy over time, next year, as we look at it again,” McCain said.  “But right now, the acquisition of lots of them is already taking place, and I’m happy to say at fixed-price contract.”

Trump tweeted on Monday, “The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th.”

Jeff Babione, Lockheed Martin’s F-35 program leader, responded by saying the company understands concerns about affordability and has invested millions of dollars to reduce the jet’s price.

A week before the election, the U.S. Defense Department and Lockheed Martin concluded negotiations on their ninth contract for 90 F-35 fighter jets after 14 months of negotiations on the deal, according to the Pentagon.

--The nation’s top tech leaders assembled at Trump Tower on Wednesday for what was billed as an innovation “summit” with the president-elect.

But while many of the same individuals, such as Amazon’s Jeff Bezos, denigrated Trump during the campaign, at least for the day, Trump didn’t fire back at any of them.

Surprisingly, a representative from Twitter wasn’t there (though they didn’t deserve to be from a strictly market cap standpoint), given its Trump’s favorite social media platform, but Politico attributed the absence to the company’s refusal during the campaign to abide Trump’s request to generate a #CrookedHillary emoji.  Trump’s representatives denied this was the reason Twitter was left out, saying it just wasn’t big enough.

Instead you had representatives from the likes of Apple, Amazon, Facebook, Alphabet and Elon Musk of Tesla.

Ahead of the meeting, Trump’s representatives told the press how good Trump was at listening, even to those who despise him, but as the Los Angeles Times’ Evan Halper and David Pierson  reported, “Plenty of folks back in Silicon Valley weren’t buying it.  The executives who flew to New York found themselves confronted with letters, petitions and public scoldings from colleagues who reminded them that Trump has yet to disavow any parts of his agenda that most appalled Silicon Valley during the election.”

For example, “Nearly two dozen advocacy groups, including Amnesty International USA and Democracy for America, demanded to know why most of the companies at the meeting are refusing to pledge not to help Trump build any type of registry for Muslims, as he suggested during the campaign.”

But afterwards, the likes of Jeff Bezos called the meeting “very productive.”

“I shared my view that the administration should make innovation one of its key pillars, which would create a huge number of jobs across the whole country,” Bezos said in a statement.

And it should be pointed out that Elon Musk and Uber CEO Travis Kalanick were added to Trump’s business advisory council, despite the fact both were bitter critics of Trump during the race.

--On the eve of the summit, IBM CEO Ginni Rometty said her company plans to hire about 25,000 people in the U.S. and invest $1 billion over the next four years, though as in the case of other corporate CEOs now groveling at Trump’s feet in order to prevent a tweetstorm, it’s not known how much of what Rometty announced was already in the works prior to the election.

Back in March, for example, Rometty talked about 25,000 positions being open globally, though IBM was cutting some jobs in the U.S. as part of a “workforce rebalancing,” adding staff for the cloud initiative and other specific new projects.

But the other day, Rometty wrote in an op-ed piece for USA TODAY that many technology jobs don’t require an advanced degree and she encouraged government investment in vocational education and training.

“We are hiring because the nature of work is evolving,” Rometty wrote.  That’s also why many of the jobs are hard to fill, she said.  “What matters most is that these employees – with jobs such as cloud computing technicians and services delivery specialists – have relevant skills, often obtained through vocational training.”  [Jing Cao / Bloomberg]

--Yahoo disclosed a second massive data breach, this one from a hack in August 2013 that compromised 1 billion user accounts – twice the size of a previously announced hack the company revealed in September, which went back to 2014.

So with Yahoo trying to finalize a $4.8 billion deal to merge with Verizon, which was already jeopardized by the first disclosure that Verizon didn’t know about prior to its offer for Yahoo, it’s no wonder that Yahoo shares fell on Thursday, the day after the latest announcement.

The latest intrusion involved email addresses, telephone numbers, passwords and even security questions and answers, though the company says credit-card and bank-account information wasn’t accessed.

Many of us are just incredulous that it has taken Yahoo so long to disclose the hacks, though they apparently discovered neither themselves.  Outside experts did.

--Oracle reported earnings for the three months ending Nov. 30 and revenues were relatively flat vs. a year ago at $9.03 billion, just below expectations. Quarterly revenue from its cloud software-as-a-service (SaaS), platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) crossed $1bn for the first time at $1.1bn, but this is still just 12% of overall revenue.  Revenue for the company’s hardware products and support divisions, as well as new software licenses, fell 4%.

The Street isn’t doing cartwheels over the relatively slow growth in cloud, though Oracle CEO Safra Catz vows: “As we get bigger in the cloud, we grow faster in the cloud.”

So the company looks to speed up its cloud growth through its recent acquisition of cloud software company NetSuite, which could double revenue in this area.

The shares nonetheless fell 4% Friday on the overall outlook.

--With Goldman Sachs’ Gary Cohn’s resignation to join the Trump administration as head of the National Economic Council, Goldman announced that investment banking co-head David Solomon and chief financial officer Harvey Schwartz would be co-presidents and co-chief operating officers to replace Cohn, who had been COO.

So this puts them front and center to replace Lloyd Blankfein, 62, who has run Goldman for more than a decade and has undergone chemo treatment for lymphoma within the past year.  Blankfein is said to be staying another year or two.

Martin Chavez, who is responsible for the bank’s technology, becomes deputy chief financial officer in a sign of the growing importance of technology to GS.  Almost one-third of its total employees are engineers.

--Wells Fargo’s problems just continue to multiply, the latest being the sale of Prudential insurance policies by the bank, which Prudential has suspended after a lawsuit alleged that Wells workers sold policies to customers who did not want them. California’s insurance commissioner announced an investigation into the sale of Pru products as the scandal widened.

Prudential had sold about 15,000 small life polices called “MyTerm” through Wells.

--Upscale department store chain Neiman Marcus Group (which includes Bergdorf Goodman) reported quarterly results well below the Street’s expectations, with revenue down 7.4 percent, to $1.08 billion, in its fiscal first quarter ended Oct. 29 – with comp store sales falling a whopping 8 percent. 

Over the same period, same-store sales at Saks Fifth Avenue and Nordstrom were down 4 and 4.5 percent, respectively.

But Saks and Nordstrom had double-digit online sales growth while Neiman Marcus’ were flat.

It seems Neiman is getting hit by its large exposure to Texas, where it has six stores, because of the energy sector’s issues, while it is also suffering in Florida, which has had fewer foreign tourists and where Neiman has seven of its 42 overall stores.  Gee, one of the 42 is one minute from me and I’m guessing I have never been in it! 

I do need to walk around The Mall at Short Hills next week just to see which stores are getting the traffic, not to do any actual shopping mind you, though I’ll get some Christmas cookies at Williams Sonoma for my annual Christmas feast for the family, which is Christmas Eve this year.  [It’s simple.  Catered lasagna, lots of shrimp, beer – both domestic and premium – wine, and a prayer Kim Jong-un doesn’t start firing battle rockets at U.S. possessions or our allies.

--The New York Post reported that the small businesses surrounding Trump Tower are taking a beating from the “frozen zone” and heavy security protecting the president-elect and his family.

Employees are being laid off from Central Park Electronics on Sixth Avenue with sales down 70 percent at Allen M. Jewelers on Madison Avenue, where the owner said no one walked in all one recent day, when given the holiday season “We should be really busy. It’s empty.”

A recent report by the city comptroller said 50 small businesses around Trump Tower found nearly half reporting a “severe” impact from the security plan.

Many of these stores make 30 percent of their annual sales during the Christmas shopping season, according to the National Retail Federation.

Merchants have been highly critical of Mayor Bill de Blasio for not doing anything to help, including making a very public show of support by encouraging people to shop in the area.

--General Motors delivered its first Chevy Bolt to customers in California, turning up the heat on rival Tesla in the latter’s home state.

GM’s Bolt has a range of more than 200 miles, for a starting price lower than $40,000.  Some customers can claim a $7,500 federal tax credit on the purchase.

--Sumner Redstone and his daughter Shari have scrapped plans to merge Viacom and CBS, the two media companies they control, amid disagreements over valuation and management control.  Investors have been betting on a merger after months of discussions between America’s leading broadcast network and the owner of Paramount Pictures and MTV. 

Sumner split CBS from Viacom in 2006, with National Amusements Inc. being the holding company through which Sumner and Shari control 80 percent of both companies.  A proposed all-share merger of the companies was proposed in September to help them compete better in the changing entertainment and media landscape, but the companies were unable to agree on a valuation for Viacom.

Les Moonves, CEO of CBS, wanted full control of the combined operation and Shari Redstone was not willing to give him that, according to a source.

Viacom also owns Comedy Central, BET and Nickelodeon.

Friday, the 93-year-old Redstone resigned as chairman emeritus.  He hasn’t been to a board meeting in two years.

--In the 2016 J.D. Power study of airport satisfaction, no surprise that LaGuardia and Newark Liberty were rated the two worst in the nation, with Boston’s Logan, Chicago’s O’Hare, and Philadelphia airport rounding out the bottom five.

I long refused to go through LaGuardia when I was traveling with PIMCO, but if you need to go to the bathroom, avoid Newark (terminal C has a few toilets...A and B, not so much).  If you’re looking for cleanliness in said facilities, forget it; this being the No. 1 complaint of travelers in rating airports.

On the flip side, travelers rank Portland, Ore., Tampa, Las Vegas, and Orlando as the best large airports.

In the mid-size category, Indianapolis, Buffalo and Southwest Florida International score highly.

I go through Charleston, S.C. once a year and it’s been undergoing a big renovation; a fave of mine with very clean restrooms. 

A massive Boeing plant is attached to Charleston airport as well, thus we move on to the following...

--...Iran and Boeing signed a deal for the sale of 80 airplanes, this before Donald Trump takes office, with Republican supporters in Congress having vowed to try to block any aircraft sales to the dirtballs.

Iran’s national airline, Iran Air, said it signed an agreement to purchase the planes from Boeing at a total cost of $16.6 billion.

In a statement, Boeing said the deal would support tens of thousands of American jobs directly associated with production and delivery, and nearly 100,000 jobs in the broader U.S. aerospace industry.

--Turkey’s economy shrank 1.8 percent in the third quarter, on the back of a sharp slowdown in exports and falling consumer spending, as Turkey suffers from falling tourist revenue, high inflation and a battered currency. 

With all the terror attacks and the failed coup the country has endured the past year or so, it’s easy to see why tourism is cratering and the sector represents a sizable share of GDP, about 12 percent, if memory serves me right.

--Be glad you aren’t a commuter on London’s Southern Rail, which runs trains from central London to Gatwick and Brighton on the south coast.  This week train drivers called a 48-hour strike that led to the worst rail disruption in the country in two decades, though service on the line has been awful for some time, with Southern users dealing with months of delays and cancellations because of high levels of staff sickness. 

The latest issue is who has control of the carriage doors.  Some passengers say they have lost their jobs or have had to quit after endless problems.

Southern says its modernization plans would not cost any jobs but would lead to fewer drivers and conductors being necessary, while the unions argue Southern would eliminate jobs as it adopts more driver-only operated trains and so reduce the safety role the conductors play.  The new transportation secretary said he did not rule out legislation banning strikes.

--Last weekend when I was down in Kiawah, S.C., we were talking about New Zealand at dinner, with one saying he wanted to go skiing there, and Dr. W. and I interjecting that the recent round of severe earthquakes in NZ (over the past five-six years....which is ‘recent’ in earthquake terms), were more than a bit unsettling and you wouldn’t want to be stranded at some of the remote tourist spots, as thousands were the other week.

So on Tuesday, I saw a Reuters note that “roads to whale-watching town remain closed...wine industry also hit...Central Bank estimates quake will cost around $5.8bn....at one of the country’s main ports in Wellington, ‘no-entry’ signs dot parts of the site hit by liquefaction, cracking or buckling, hampering shipments of items like meat and farm produce to destinations including China and Australia.  While 150km away in the resort town of Kaikoura, often touted as the nation’s whale-watching capital, restaurants and hotels lie nearly empty as the roads that once carried in busloads of tourists through steep mountains remain closed.” 

The total costs to the country’s economy are far higher than the $5.8bn figure.

And if you’re a wine connoisseur, the CEO of industry body NZ Wine said that “one in five tanks in the producing region of Marlborough had been damaged during the earthquake.”  Nooo!!!

--Finally, Asahi Group Holdings Ltd. has agreed to buy five Eastern European beer brands from Anheuser-Busch InBev NV for $7.8 billion, the latest overseas deal for a Japanese industry that is struggling at home.

Among the brands to be acquired is Pilsner Urquell.  Asahi previously bought European brands Peroni and Grolsch, the latter with the best bottle in the industry.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: In Syria, the week was about Aleppo (and to a lesser extent Palmyra) as Syrian pro-government and Russian forces committed atrocities  in the final battle for the country’s largest city, with Syrian troops entering homes in eastern Aleppo and killing those inside, including women and children, according to the U.N.  The U.N.’s human rights office said it had reliable evidence that in four areas, 82 civilians were shot on sight.

The U.N.’s children’s agency also said a building housing as many as 100 unaccompanied children was bombed.  No word on how many died.

The last remaining rebel neighborhoods fell and then the Syrian government, Russia and the rebels negotiated a cease-fire and evacuation of up to 50,000 civilians who were besieged.

The evacuation commenced, it ended almost immediately under heavy fire, it restarted the next day, it stopped, it’s supposedly back on as I go to post.  It is sickening

Russian Defense Ministry Spokesman Major General Igor Konashenkov attacked critics of the Syrian army’s campaign to push rebels from Aleppo.

“All the theatrical screams supposedly in defense of the 250,000 civilians remaining in Aleppo, especially those voiced by the British leadership and their colleagues in France, are no more than Russophobic hot air,” Konashenkov said.

He also claimed that civilians in rebel held territory had been terrorized by the rebels, particularly if they expressed dissatisfaction or attempted to leave.  “There was only hunger and total terror from the militants.”

Konashenkov dismissed all footage of Russian bombing in Aleppo and of civilian casualties as ‘cinema,’ saying that such videos were staged by the terrorists.  [Moscow Times]

The U.N.’s human rights chief said the bombing of the last parts of Aleppo held by rebels is probably a war crime.

Zeid Raad al-Hussein, the U.N. High Commissioner for Human Rights, said the Syrian government had “a clear responsibility to ensure its people are safe.”

In a statement, he said: “The way this deal was dangled in front of this battered and beleaguered population – causing them to hope they might indeed live to see another day – and then snatched away just half a day later is also outrageously cruel.”

In taking Aleppo, Assad’s forces will have control over Syria’s biggest cities, representing about 60 percent of its people, but only 40 percent of the country’s territory.   The Kurds control much of the north and ISIS controls the east.

Turkey did announce on Friday that it planned to set up a camp inside Syria to host up to 80,000 people from Aleppo, but will continue to take the sick and wounded to hospitals in Turkey.

Turkey is already sheltering around 2.7 million Syrian refugees.

In the renewed fighting over the city of Palmyra, scores were killed, some in a suspected gas attack as dozens of bodies were found with no visible injuries, but ISIS fighters have recaptured the city.

There are about 150,000 rebels, including jihadists, still fighting Assad and you can expect large numbers of the opposition to transform themselves into a guerrilla-type insurgency, according to analysts.

The war will go on for years to come, but among the many questions to be answered are how long will Russia and Iran stand by Assad if he insists on trying to retake the rest of the country, and what will Turkey do as it combats both ISIS and Kurdish fighters that it says are linked to the PKK, the group that is Turkey’s main domestic terrorist threat.

Separately, the Obama administration and Defense Department announced the U.S. is sending another 200 troops to Syria to push the fight on Islamic State’s declared capital of Raqqa, most of the forces being special operations troops.  The 200 are in addition to an initially authorized 300, who are largely used to recruit, train and advise local Syrian Arab and Kurdish forces who are battling ISIS.

Friday, Vladimir Putin and Turkish President Erdogan said they are working to organize a new series of Syrian peace talks without the involvement of the United States or the United Nations.  Putin, in a major snub to Washington, made clear this was his initiative, and that of Turkey, and if the talks happened they would be in addition to intermittent U.N.-brokered negotiations in Geneva.  The talks are to be held in Kazakhstan, a Russian ally.  A senior Syrian opposition leader said his negotiating committee was willing to join the talks provided that the aim was to set up a transition government.

Until Trump takes office, Putin (and China’s Xi) can be expected to take advantage of the power vacuum in Washington in a big way.

Editorial / Wall Street Journal

“While Washington tries to re-litigate Russia’s role in the 2016 election, serious people should be watching Vladimir Putin’s double game in Syria. Russia’s Syrian government clients were close to capturing the rest of rebel-held Aleppo on Monday, even as Islamic State retook the ancient city of Palmyra from Syrian forces a day earlier.

“These two events are related, and not in a good way.  Mr. Putin has long claimed that his forces in Syria are fighting jihadists, especially ISIS.  But the reality is that the Bashar Assad government and the Russians have long focused nearly all of their military attention against the moderate opposition forces.  Those are the forces backed by the Saudis and sometimes even by the U.S.  Mr. Assad wants to destroy them first because they pose the most serious long-term threat to the regime.

“Islamic State is a less immediate threat to Damascus because its headquarters is in eastern Syria around Raqqa, and in any event is being targeted by U.S. bombing and Kurdish fighters.  Messrs. Putin and Assad are happy to leave that much harder work to others while they dump barrel bombs on civilians in Aleppo.

“The contrast of letting Palmyra fall even as Mr. Assad besieges Aleppo to the last refugee has exposed this Russian cynicism in the raw.  President Obama doesn’t seem to be paying attention, but at least some in Europe are.  ‘The Russians, who claim to be fighting against terrorism, concentrate in fact on Aleppo and have left a space for Daesh – for Islamic State – who are in the process of retaking Palmyra.  Quite a symbol,’ said French Foreign Minister Jean-Marc Ayrault on Monday. Daesh is the Arabic acronym for Islamic State.

“Mr. Ayrault called Russia policy in Syria one of ‘permanent lies,’ which is an understatement.  Donald Trump should understand the kind of dictator he wants to cut a deal with.”

Editorial / Washington Post

“The battle for Aleppo is ending in catastrophe, both for the tens of thousands of people who have been besieged there and for the future of Syria.  On Wednesday, Syrian government and Iranian-led Shiite militia forces renewed attacks on the last rebel-held streets of the city, shredding a promise to allow a peaceful evacuation.  According to the United Nations, the pro-government forces have been executing civilians in the street or in their homes – including, on Monday, at least 11 women and 13 children.  Thousands of men have been rounded up and gang-pressed into the Syrian army, or dispatched to an unknown but likely terrible fate. The United Nations’ term for this nightmare was apt: ‘A complete meltdown of humanity.’

“The meltdown has several dimensions.  One is the utter disrespect for the laws of war by the regime of Bashar al-Assad and its Russian and Iranian allies.  These forces systematically destroyed hospitals, including pediatric facilities; decimated civilian housing with bunker-buster bombs and chlorine gas; and refused to allow food or humanitarian aid of any kind into the besieged districts of the city.

“Aleppo represents ‘the death of respect for international law and the rules of war,’ David Miliband, the former British foreign secretary who now heads the International Rescue Committee, was quoted as saying.  It sets a horrific precedent for conflicts in the 21st century.

“The fall of Aleppo also means the elimination of any prospect in the foreseeable future for the end of Syria’s war or the waves of refugees and international terrorism it is generating. The Assad regime, which represents the minority Alawite sect, is unlikely ever to reestablish control over all of Syria, even with Russian and Iranian help. Even as it was crushing Aleppo, where Western-backed forces were based, it allowed the Islamic State to recapture the city of Palmyra.  But the regime now will have no incentive to negotiate a peace settlement with the Sunni majority or Kurdish community. The likely result is years more of war and a steady stream of recruits for Sunni terrorist movements that target the West as well as Damascus.

“Above all, Aleppo represents a meltdown of the West’s moral and political will – and in particular, a collapse of U.S. leadership. By refusing to intervene against the Assad regime’s atrocities, or even to enforce the ‘red line’ he declared on the use of chemical weapons, President Obama created a vacuum that was filled by Vladimir Putin and Iran’s Revolutionary Guard.  As recently as October, Mr. Obama set aside options drawn up by his advisers to save Aleppo.  Instead, he supported the delusional diplomacy of Secretary of State John F. Kerry, whose endless appeals to Moscow for cease-fires yielded – as Mr. Putin no doubt intended – nothing more than a humiliating display of American weakness.

“On Tuesday, Mr. Obama’s U.N. ambassador, Samantha Power, delivered an impassioned denunciation of the Aleppo carnage, which she said would ‘join the ranks of those events in world history that define modern evil, that stain our conscience decades later.’  She excoriated the Assad regime, Russia and Iran but offered no acknowledgment that the stain of Aleppo extends also to her, the president and American honor. Those who will live with the long-term consequences of the Syrian catastrophe are unlikely to be so forgiving.”

Editorial / The Economist

“Plenty of people share the blame (for Aleppo).  After Mr. Assad drenched his people in nerve gas, crossing an American red line, Britain’s parliament voted against taking even limited military action. As millions of people fled to Syria’s neighbors, including Lebanon and Jordan, most European countries looked the other way – or put up barriers to keep refugees out.

“Particular blame falls on Barack Obama. America’s president has treated Syria as a trap to be avoided. His smug prediction that Russia would be bogged down in a ‘quagmire’ there has proved a historic misjudgment. Throughout his presidency, Mr. Obama has sought to move the world from a system where America often acted alone to defend its values, with a few countries like Britain riding shotgun, to one where the job of protecting international norms fell to all countries – because everyone benefited from the rules. Aleppo is a measure of how that policy has failed. As America has stepped back, the vacuum has been filled not by responsible countries that support the status quo, but by the likes of Russia and Iran which see the promotion of Western values as an insidious plot to bring about regime change in Moscow and Tehran....

“The world has seen what happens when values cannot hold back the chaos and anarchy of geopolitics.  In tragic, abandoned Aleppo the fighting has been merciless. The people who have suffered most are the poor and the innocent.”

Leon Wieseltier / Washington Post...this is the single best piece written on the Syrian War

“Contemplating the extermination of Aleppo and its people, I was reminded of a sentence that I read this summer.  It appeared in an encomium to Elie Wiesel shortly after his death. It was a sterling sentence.  It declared: ‘We must never be bystanders to injustice or indifferent to suffering.’  That was Wiesel’s teaching, exactly. The problem with the sentence is that it was issued by the White House and attributable to President Obama. And so the sentence was not at all sterling. It was outrageously hypocritical.

“How dare Obama, and members of his administration, speak this way.  After five years and more in which the United States’ inaction in Syria has transformed our country into nothing other than a bystander to the greatest atrocity of our time, they have forfeited the right to this language.  Their angry and anguished utterances are merely the manipulation of the rhetoric of conscience on behalf of a policy without a trace of conscience.  You cannot be cold-hearted and high-minded at the same time.  Historians will record – they will not have to dig deeply or interpret wildly to conclude – that all through the excruciations of Aleppo, and more generally of Syria, the United States watched.  As we watched, we made excuses, and occasionally we ornamented our excuses with eloquence. The president is enamored of his eloquence.  But eloquence is precisely what the wrenching circumstances do not require of him.  In circumstances of moral (and strategic) emergency, his responsibility is not to move us. It is to pick up the phone.  ‘Elie did more than just bear witness,’ Obama said in his eulogy, ‘he acted.’ And he added: ‘Just imagine the peace and justice that would be possible in our world if more people lived a little more like Elie Wiesel.’ Just imagine.

“If Obama wants credit for not getting us into another war, the credit is his. If he wants credit for not being guilty of ‘overreach,’ the credit is his.  If he wants credit for conceiving of every obstacle and impediment to American action in every corner of the globe, the credit is his. But it is a shameful and incontrovertible fact of our history that during the past eight years the values of rescue, assistance, protection, humanitarianism and democracy have been demoted in our foreign policy and in many instances banished altogether.  The ruins of the finest traditions of American internationalism, of American leadership in a darkening world, may be found in the ruins of Aleppo. Our ostentatious passivity is a primary cause of that darkening. When they go low, we go home.  The Obama legacy in foreign policy is vacuum-creation, which his addled America-First successor will happily ratify.  Aleppo was not destroyed by the Syrian army. It was destroyed by a savage coalition led and protected by Russia.  While they massacred innocent men, women and children, we anxiously pondered scenarios of ‘deconfliction.’....

“As a direct or indirect consequence of our refusal to respond forcefully to the Syrian crisis, we have beheld secular tyranny, religious tyranny, genocide, chemical warfare, barrel bombs and cluster bombs, the torture and murder of children, the displacement of 11 million people, the destabilization of Turkey, Lebanon and Jordan, the ascendancy of Iran in the region, the emergence of Russia as a global power, the diminishment of the American position in the world, the refugee crisis in Europe, the resurgence of fascism in Europe and a significant new threat to the security of the United States.  It is amazing how much doing nothing can do, especially when it is we who do nothing.

“Not long after he mourned Wiesel, the president engaged in another one of his exercises in empathy without consequences.  At the U.N. Summit for Refugees and Migrants, he spoke of Alan Kurdi, the Syrian boy who washed up dead on a beach in Turkey.  ‘That little boy on the beach could be our son or our grandson,’ the president moistly said.  ‘We cannot avert our eyes or turn our backs.’  And then we proceeded to avert our eyes and turn our backs.  The people who had the power to prevent, stop or even mitigate this catastrophe should now bow their heads and fall silent and reflect on how it is that they brought us so low.  Aleppo is no more, and we are weakened and disgraced.”

Friends, the above is masterful and obviously expresses my own feelings on Syria since 2012, when I began excoriating President Obama and wondering why there wasn’t similar outrage across the country.  History will destroy whatever positive legacy Obama thinks he is leaving.

I saw a picture of him high-fiving Bruce Springsteen in the White House and I was seething.  Barack Obama always just wanted to be Joe Cool.  He didn’t take his global responsibilities seriously in the least.  As a result, we need to pray for the future.  Just as life can be snuffed out in the blink of an eye...a sudden heart attack, getting hit by a distracted driver while crossing the street...so can civilization be snuffed out.  It started in the summer of 2012 when Barack Obama refused to establish a no-fly zone in Syria, working with President Erdogan of Turkey.  It was about the 2012 presidential campaign.  “Bin Laden is dead, GM is alive.”  I knew what would be the result of Obama’s inaction.  I told you; week after week ever since.

Friday, in his press conference, Obama said: “Responsibility for this brutality lies in one place alone: with the Assad regime and its allies Russia and Iran.  And this blood and these atrocities are on their hands.”

Sorry, Mr. President.  You have blood on your own hands.

---

In Iraq, the battle for Mosul is now in its third month and it is not going well recently.  ISIS has been stepping up its counterattacks on Iraqi forces.  There are reports of food, water and fuel shortages, while access to hospitals is limited by the fighting.

An estimated 5,000 militants are dug in amid the city’s population that is still nearly one million.

Separately, according to a London-based arms research group, the Conflict Armaments Research firm, ISIS was manufacturing weapons in and around Mosul on an industrial scale with products largely purchased in bulk from Turkey.  The CAR warns, though, that as Iraq retakes Mosul and takes away ISIS manufacturing capability, those highly-trained fighters who are retreating are taking their expertise with them.  The research group believes the best bombmakers have already been moved out of Mosul and into Syria and southern Turkey.

Executive director James Bevan of the CAR said, “They place a very high value on technical capacity and they will do everything they can to preserve it.”

Iran: The mullahs have told their scientists to start developing a nuclear propulsion system for shipping, in what is said to be a response to the extension of U.S. bilateral sanctions against Tehran.

The U.S. Senate voted earlier this month to give the president authority to impose financial sanctions on Iran for a further 10 years and the Islamic Republic regards the move as a breach of the nuclear agreement between Iran and the P5+1 – the U.S., UK, France, Russia, China and Germany.

Hassan Rouhani, Iran’s president, called on the country’s atomic energy organization to start “designing and constructing a nuclear propulsion system to be used in marine transportation with the cooperation of scientific and research centers.”

It is assumed “shipping” also means submarines.  Back in 2012, Iran announced it was in the initial stages of building its first-ever nuclear-powered sub.

Iran is insisting any work on its vessels will be done within the framework of the nuke accord, but the project would require uranium enriched above the allowable 3.667 percent purity for 15 years.

As for President Obama, he declined to sign the renewal of sanctions against Iran but let it become law anyway, in an apparent bid to alleviate Tehran’s concerns that the U.S. is backsliding on the deal.

So the whole issue is left for the incoming Trump administration, with the president-elect threatening to scrap or try to renegotiate the deal.  Israeli Prime Minister Benjamin Netanyahu will be pressing Trump to scrap it.

Egypt: Aside from the above-noted bombing of the Coptic cathedral in Cairo last Sunday morning that killed 25, Egyptian authorities said this week that traces of explosives had been found on the remains of victims of an Egyptair flight that crashed en route from Paris to Cairo last May 19, killing all 66 people on board.

French investigators had seen trace levels of TNT on the plane’s debris back in September, but the French wanted more time to confirm it,  working with their Egyptian partners.

But some Western sources told Reuters they still believe a technical cause remained the most likely reason for the crash.  No one has ever claimed responsibility, though I argued last spring that if it was AQAP, they would never claim responsibility because they want their methods to be kept secret.

Yemen: The U.S. said it will limit arms sales to Saudi Arabia amid concerns over civilian casualties linked to air strikes in Yemen.  Precision-guided weapons will no longer be delivered, a Pentagon official said.

Back in October, more than 140 people were killed in a strike on a funeral.  A Saudi-led coalition was blamed for the attack.

Russia:

Ralph Peters / New York Post

“Vladimir Putin is our enemy. Not because we want him to be, but because resentment and hatred of the United States is central to his being.  Russia’s president yearns to do us harm.

“He blames us for the Soviet Union’s self-wrought collapse. He blames us for the Soviet Union’s self-wrought collapse. He blames us for Russian stagnation. He blames us for the derelict lot of his drunken, diseased country. And he wants revenge.

“Putin has five strategic goals: He wants international sanctions lifted, Europe divided and NATO destroyed.  He seeks to restore the empire of the czars.  And he wants to humiliate the United States.

“Americans and Europeans are targets of a ruthless, audacious and skillful disinformation campaign portraying Russia as a victim, not an aggressor.  Not since the heyday of the Soviet-sponsored Ban-the-Bomb movement in the 1950s has Kremlin propaganda thrived so broadly.

“We naively insist the truth will prevail.  That’s nonsense.  Putin knows that big lies work, if repeated until absorbed. And he’s aided by Western stooges who, for money or malice or moral malfeasance, abet Putin in deluding our populations....

“(Let’s) look at the facts of what Putin has done.

“ – He interfered with our presidential election via computer hacking, the use of front organizations and fake news (Kremlin-gate may prove our worst political scandal).  His military challenges us in the skies and at sea.  In Afghanistan, his agents assist the Taliban.  In Syria, his jets target Syrian hospitals, clinics and civilians in a literal ‘Slaughter of the Innocents’ at Christmastide.

“ – He invaded Georgia and Ukraine (the latter twice). He threatens the NATO-member Baltic states and subsidizes Europe’s extremist political parties to radicalize electorates, undercut democracy and realign nations with Russia.

“ – At home, he suffocated Russia’s nascent democracy, crushed the free press, jailed and murdered his opposition, cheated foreign investors and turned Russia into a gangster state where the czar is the only law....

“Russia’s problems are made in Russia. We’ve tried to help, not harm.  But Russians refuse to help themselves, preferring brutality, squalor and hostility to the rule of law and civilization.

“As for the upside-down charge that NATO’s eastward expansion signaled aggression against Russia, look at how Putin has treated non-NATO-member Ukraine and you’ll understand why the newly free states of eastern Europe cling to history’s greatest peacetime alliance....

“Russia’s victims scream warnings from the grave.

“In today’s age of cyber-assaults, Russian subversion and Putin’s naked aggression, fear is back. We must decide what we value, either freedom and decency, or foolhardy efforts to make friends or monsters.

“To align ourselves with Putin in 2017 would be the equivalent of allying with Hitler in 1937.”

Thomas L. Friedman / New York Times

“Already, some GOP lawmakers who love our country more than they fear Trump’s tweets – like Senators Lindsey Graham and John McCain – are insisting that Russia’s apparent cyberhacking to help Trump win election be investigated by Congress.  If Congress affirms what the intelligence community believes – that Russia intervened in our democratic process – that is an act of war.  And it calls for the severest economic sanctions.

“At the same time, Trump’s readiness to dismiss the entire intelligence community because its conclusions contradict his instincts and interests could really haunt him down the road.

“Let’s imagine that in six months the CIA concludes that North Korea is about to perfect a nuclear missile that can reach our West Coast and President Trump orders a pre-emptive strike, one that unleashes a lot of instability in Asia.  And then the next day Trump and his national security adviser, Mike Flynn, the purveyor of fake news about Hillary Clinton, defend themselves by saying, ‘We acted on the ‘high confidence’ assessment of the CIA.’ Who’s going to believe them after they just trashed the CIA?

“Finally, Trump has demonstrated a breathtaking naivete toward Putin.  Putin wanted Trump to win because he thinks that he’ll be a chaos president who will weaken America’s influence in the world by weakening its commitment to liberal values and will weaken America’s ability to lead a Western coalition to confront Putin’s aggression in Europe.  Putin is out to erode democracy wherever he can.   Trump needs to send Putin a blunt message today: ‘I am not your chump.’

“As Stanford University democracy expert Larry Diamond noted in an essay on Atlantic.com last week: ‘The most urgent foreign-policy question now is how America will respond to the mounting threat that Putin’s Russia poses to freedom and its most important anchor, the Western alliance.  Nothing will more profoundly shape the kind of world we live in than how the Trump administration responds to that challenge.’”

On the Ukraine front, European Union leaders agreed on Thursday to spell out limits to a landmark cooperation accord with Ukraine to address Dutch concerns and prevent it from unraveling, the Netherlands being the only EU country that has yet to ratify the deal, which would become void without its endorsement.  Dutch Prime Minister Mark Rutte has to convince parliament to overwrite a referendum result in April when voters rejected the deal.

The so-called association agreement establishes closer political ties and aims to free up trade between Ukraine and the bloc as the former Soviet republic moves closer to Western Europe and away from Moscow’s orbit. But the leaders agreed it did not make Ukraine a candidate for EU membership, and did not entitle Kiev to financial aid or military assistance from the bloc.

The accord has huge symbolic importance for Ukraine and its future direction.

Separately, the EU agreed on Thursday to extend the main economic sanctions against Russia until mid-2017.

China: Beijing issued a blunt warning to Donald Trump that any attempt to challenge the “One China” policy could affect peace in the Taiwan Strait.  Under the “One China” policy, the U.S. has formal ties with China rather than the island of Taiwan, which China sees as a breakaway province, though under the 1979 Taiwan Relations Act, the United States provides Taiwan with defensive weapons.

An Fengshan, a spokesman for China’s policy-making Taiwan Affairs Office warned: “Upholding the ‘One China’ principle is the political basis of developing China-U.S. relations, and is the cornerstone of peace and stability in the Taiwan Strait,” he said.

“If this basis is interfered with or damaged then the healthy, stable development of China-U.S. relations is out of the question, and peace and stability in the Taiwan Strait will be seriously impacted,” he added.

The Global Times, a Communist Party mouthpiece, suggested Taiwan would be taken by force if the “One China” policy isn’t upheld.

“China must resolutely battle Mr. Trump, only after a few serious rebuffs then will he truly understand that China and other global powers cannot be bullied.”

He may be a businessman, the editorial went on, “but in the field of diplomacy, he is as ignorant as a child.”

Admiral Harry Harris, head of the U.S. Pacific Command, vowed the U.S. will keep challenging Beijing’s “assertive, aggressive behavior in the South China Sea.... We wil cooperate where we can but we will be ready to confront where we must,” referring to the growing military presence on artificial islands being built by China.

Washington has long said it does not recognize claims by China to virtually all the natural resources in the South China Sea, with its South East Asian neighbors having their own claims.

China has also long said it has no intention to militarize the islands in the strategic trade route, but the Asia Maritime Transparency Initiative (AMTI) said it has evidence China is installing weapons, including anti-aircraft and anti-missile systems, on all seven of the artificial islands it has built thus far.  China had previously built military-length airstrips on these islands.

The AMTI said, “Among other things, (the gun and missile emplacement) would be the last line of defense against cruise missiles launched by the United States or others against these soon-to-be-operational air bases.”

Editorial / The Economist

“By the end of this month, say Chinese officials, work will be completed on a big upgrade of facilities at a monument to one of the scariest moments in the recent history of relations between China and the United States: an upsurge of tensions in the Taiwan Strait in the mid-1990s that saw the two nuclear powers inching towards the brink of war.  The structure is a concrete tower on an island in the strait, just off the Chinese coast.  Atop it more than 100 generals watched a mock invasion of Taiwan by China’s army on the beach below.  ‘Unite the motherland, invigorate China,’ says a slogan in gold characters down the side of the building.  The meaning of these words at a place where tanks and troops once stormed ashore with warplanes streaking overhead is: we want Taiwan back, by force if necessary.

“The building work involves an expansion of the tower’s car park, improvements to the road up to it and other changes to make the place on Pingtan Island in Fujian province more tourist-friendly.  The timing may be fortuitous.  On December 11th America’s president-elect, Donald Trump, in an interview with Fox News, questioned what China regards as a sacred underpinning of its relationship with America: the principle that there is but ‘one China’ (which, decoded, means that the government of Taiwan is illegitimate).  China, bristling with rage, may well seek to remind its citizens, as well as America, of what happened when that principle was last challenged by the United States with a decision in 1995 by its then president, Bill Clinton, to allow his Taiwanese counterpart, Lee Teng-hui, to pay a private visit to America.  Handy, then, that Pingtan will be able to handle extra busloads of visitors to that hilltop where China’s brass surveyed the pretend assault....

“Mr. Trump’s remarks would have riled the Chinese leadership at any time. But they are particularly unwelcome at this juncture for China’s leader, Xi Jinping. He is absorbed by preparations for crucial meetings due to be held late in 2017 at which sweeping reshuffles of the Politburo and other Communist Party bodies will be announced.  Those trying to block his appointments would be quick to seize on any sign that he is being soft on America over such a sensitive matter as Taiwan.  Should Mr. Trump persist in challenging the one-China idea, the risk of escalation will be even greater than usual in the build-up to the conclaves – all the more so, perhaps, given Mr. Xi’s insistence that differences between China and Taiwan ‘cannot be passed on from generation to generation.’  Hawkish colleagues may say that it is time to settle the issue by force.

“Street protests in China against America or Taiwan would also make it more difficult for Mr. Xi to compromise: he would fear becoming a target himself of Chinese nationalists’ wrath.”

Friday, we learned that a Chinese naval ship seized an underwater naval drone that was being used by the U.S. Navy to test water conditions in the South China Sea.

The Pentagon announced the incident had happened on Thursday, about 50 nautical miles northwest of Subic Bay, in international waters.

Sen. John McCain said Friday afternoon that the seizure is a “flagrant violation” of the laws of the seas.

“China had no right to seize this vehicle,” McCain said.  “And the United States must not stand for such outrageous conduct.”

McCain said the incident fits a pattern of increasingly destabilizing Chinese behavior.

“This behavior will continue until it is met with a strong and determined U.S. response, which until now the Obama administration has failed to provide.  Freedom of the seas and the principles of the rules-based order are not self-enforcing.  American leadership is required in their defense.”

There is no doubt China was sending a message to Donald Trump.  Patrick Cronin, an expert on the region at the Center for a New American Security, said: “Rather than wait several weeks, Beijing is advancing a provocative action offshore from a U.S. ally that had recently kowtowed to China,” referring to the location near the Philippines.  The signal China wishes to send is unambiguous, Cronin said: “‘If you challenge our sovereignty we will challenge yours.’  The U.S. response needs to be equally clear: if anyone messes with our Navy the response will not be limited to words.”  [Washington Post]

North Korea: Editorial / Financial Times

“The Asia-Pacific region is an increasingly important driver of global growth, and sits in an increasingly delicate strategic equilibrium.  One country poses an imminent danger to the region’s stability and therefore its prosperity: North Korea.  The regime in Pyongyang is persistent in pursuit of nuclear weapons and the missiles to deploy them over long distances.  The stand-off is terribly dangerous already, and will grow worse. Stronger international engagement is needed – now.

“Experts believe that North Korea possesses more than 20 nuclear bombs. It has deployed ballistic missiles with ranges that extend to Japan, and has been performing tests with the aim of developing missiles that can reach the west coast of the U.S. It is a matter of time before it can make nuclear bombs compact enough for such missiles to carry: five years is the consensus estimate. The U.S. and its allies could not and should not tolerate this....

“The international community needs to bring North Korea back to the table for multilateral talks, with the end of the missile program as the proximate goal. There are three keys for success. First, an unambiguous warning to Pyongyang that the world will never, under any conditions, acknowledge it as a legitimate or permanent nuclear power. Second, backing these warnings with heavier sanctions. Finally, the U.S., South Korea and Japan must accelerate their cooperation on a missile defense network in the region.”

As for China, it must support sanctions, with China accounting for 90 percent of North Korea’s international trade.

But China doesn’t like the idea of missile defense in South Korea and Japan because it is worried it will weaken its own missile capability.

Japan: Talks between Japanese Prime Minister Shinzo Abe and Russian President Putin over a territorial dispute going back to the end of World War II, the Kuril Islands, yielded little other than a joint economic development agreement.

The islands are claimed by Tokyo, but administered by Russia since they were seized by the Soviet Union from Japan at the end of the war.

Abe had hoped for a breakthrough on ownership, which was to be part of a formal peace treaty ending World War II.  But Putin is playing hardball, just wanting economic aid.

*Note to Mark N.  I will circle back to the Finland issue next WIR.  I ran out of time this week and want to do it justice.  Late-breaking developments in Poland may dovetail with the issue we discussed as well.

Random Musings

--The Electoral College gathers on Monday to formalize the presidential election result.  The tally should read Trump 306, Clinton 232.  Many Republican electors are being inundated with emails, and worse, urging them not to vote for Trump and the stories on suspected Russian interference aren’t helping.

--Donald Trump said he would put his two sons Don and Eric in charge of his businesses by Inauguration Day Jan. 20, but offered no information about his own role.

In a series of tweets late Monday, Trump said he would make no new business deals during his time in the White House, though this came on the same day he said he was postponing a Dec. 15 news conference to announce how he was handling his businesses.  Now we are told the announcement will come after New Year’s.

Legitimately, it is complicated and Trump has a team of lawyers looking at the problem of his organization in general.

Meanwhile, we learned daughter Ivanka will have an office in the East Wing of the White House, one that has previously been for the First Lady (Melania already saying she will be in New York until at least the end of son Barron’s school year), while Ivanka’s husband, Jared Kushner, will occupy a West Wing office as a senior adviser to the president.

An analysis of Trump’s assets by Bloomberg finds ties to businesses and governments in 20 countries, with such ties raising serious questions about his policies and possible constitutional issues.

Trump is trying to assure everyone that legal documents are being drawn up “which take me completely out of business operations,” he has tweeted, though he clearly isn’t planning a sale of any assets as yet, and you have the optics of his children and Jared sitting at the tech summit in Trump Tower on Wednesday.

Then on Thursday, Trump tweeted: “The media tries so hard to make my move to the White House, as it pertains to my business, so complex – when actually it isn’t!”

--I have spent a lot of time the past year, already, writing of President Obama’s legacy, and after New Year’s this will dominate my comments, I imagine, until Inauguration Day because it will be a dominating theme of the opinion pieces around the country, and world.

Here’s an example of what is to come, this blurb from Joe Klein in TIME:

“(There) are two important achievements of the President’s time in office that need to be acknowledged. One is the stimulus plan he fought for and passed in 2009, which prevented a depression and responsibly laid the groundwork for the economic recovery we’re now experiencing.  (Those Democrats who believe that the 2016 election was lost only because of economics are deluding themselves; it was lost because of tribalism.) And overseas, Obama made some mistakes, but he got the big things right: he was not arrogant, he was not bellicose, he reached out to enemies in Cuba and Iran – gestures that will eventually pay off, I believe – and most important, he was confident that our ways will prevail over Islamic extremism (just ask any man or woman in Mosul how they felt about ISIS rule).”

Oh brother.  Mr. Klein is playing the role of village idiot with these brief foreign policy remarks.  But I’ll save my fire for later, beyond what I’ve already said on Aleppo above.

I also have to go into President Obama’s legacy comments in his Friday press conference.

--Ohio Republican Gov. John Kasich rejected the so-called “heartbeat bill,” breaking with his party to veto legislation that would have given Ohio the strictest abortion ban in the nation.

Kasich did tighten the state’s abortion laws by signing a bill that would prevent abortions after 20 weeks’ gestation, when opponents of the procedure say fetuses can feel pain.

But many conservative Republicans wanted Kasich to sign the first bill to prevent thousands of abortions.  The measure would have prohibited abortions after a heartbeat was detected, which can be as early as six weeks’ gestation.

--Bill Sternberg, editor of the Editorial Page of USA TODAY:

“As a skeptical journalist well versed in human foibles, I could count my heroes on one hand.

“There was my dad, an Army veteran of World War II who died three years ago at age 89.

“There was Carl Sagan, the brilliant astronomer who taught me about the cosmos in college and who died at age 62 in 1996.

“There was Arnold Palmer, the swashbuckling golfer who epitomized class, who died in September at age 87.

“And there was John Glenn, the first American to orbit the Earth, who died Thursday at age 95.

“As heroes go, Glenn was the real deal.  I was only 6 when he climbed aboard Friendship 7, circled the planet three times and endured a harrowing re-entry, but I remember being swept up in the excitement surrounding the Mercury space program.

“After leaving NASA in 1964, Glenn – who had survived 149 combat mission in two wars before he went into space – turned to politics, only to see his first run for a Senate seat from Ohio interrupted by, of all things, a serious bathroom accident. Life can be funny like that.

“Glenn was finally elected to the Senate in 1974; I met him when I was the Washington correspondent for more than a dozen newspapers scattered around Ohio.

“As a politician, Glenn was, for better or worse, the anti-Trump.  Low key. A workhorse, not a show horse. A moderate. An expert on difficult, important issues such as nuclear proliferation and weapons systems.  A dedicated family man who stayed married to the same woman, his beloved Annie, for 73 years. Cordial to the press corps, he’d welcome us to his home in Potomac, Md., for holiday get-togethers.

“For all his virtues, though, Glenn was not a very good candidate, which is one reason why he never became president.  When he sought the Democratic nomination in 1984, I traveled with the campaign in the Deep South.

“Wherever he went, Glenn was roundly cheered and quickly surrounded by autograph seekers. But he had trouble translating his popularity into votes.  His small-town Ohio values – ‘God and flag and motherhood and patriotism’ – didn’t add up to a substantive platform. His campaign was poorly organized. And his speaking style was wooden....

“At age 77, near the end of his fourth and final Senate term, Glenn returned to space aboard the shuttle Discovery. The scientific rationale was a bit thin, but who could quibble?

“Tom Wolfe, who wrote about Glenn and his fellow astronauts in The Right Stuff, called Glenn ‘the last true national hero America has ever had.’  That he was.  And now, he too is gone.”

Mr. Sternberg’s portrayal of Glenn the candidate is spot on.  And ditto Mr. Wolfe’s description.

--After nearly a week of painful testimony, a Charleston, S.C. jury found Dylann Roof guilty of federal hate crimes resulting in the death of nine black parishioners at the historic Mother Emanuel church in June 2015.  The Justice Department is seeking the death penalty and this phase is set to begin next month. 

--Finally, Happy Birthday, Pope Francis, who turns 80 Saturday.  He has already had a most consequential papacy, transforming the Church, so I leave you with a bit from an op-ed in the Wall Street Journal by Javier Martinez-Brocal, director of Rome Reports, a TV news agency that specializes in coverage of the Vatican.

“Returning from the U.S. last year, Francis reflected on the passing nature of power.  ‘Here today, gone tomorrow...What’s important is that you do good with it if you have it.’  As he turns 80, and his time as the vicar of Christ comes closer to its end, he can now focus on making sure others do good with the power he leaves them.”

---

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

God bless America.

---

Gold $1136...down a sixth straight week
Oil $52.03

Returns for the week 12/12-12/16

Dow Jones  +0.4%  [19843]
S&P 500  -0.1%  [2258]
S&P MidCap  -1.5%
Russell 2000  -1.7%
Nasdaq  -0.1%  [5437]

Returns for the period 1/1/16-12/16/16

Dow Jones  +13.9%
S&P 500  +10.5%
S&P MidCap  +19.2%
Russell 2000  +20.1%
Nasdaq  +8.6%

Bulls 59.6
Bears  19.2  [Source: Investors Intelligence...reminder, a 60 reading for the Bulls would be a major warning signal...like ‘Sell, Sell, Sell!!!’]

Have a great week.

Brian Trumbore



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Week in Review

12/17/2016

For the week 12/12-12/16

[Posted 11:30 PM ET]

Note: StocksandNews has significant ongoing costs and your help is greatly appreciated.  Click on the gofundme link or send a check to PO Box 990, New Providence, NJ  07974.

Edition 923

Russia and the Election, the Trump Transition and Washington

[I am doing my best to incorporate some late-breaking events from Friday afternoon.]

Appearing on “Fox News Sunday,” Donald Trump asserted that the allegations that Russia meddled in the presidential election in order to help him win are politicized and “ridiculous,” adding, “I think the Democrats are putting it out because they suffered one of the greatest defeats in the history of politics in this country.” 

Trump also said of the CIA that it had discredited itself over faulty intelligence assessments about Iraq’s weapons stockpile more than a dozen years ago.

“These are the same people that said Saddam Hussein had weapons of mass destruction,” he said.

But Wednesday, NBC News reported that Russian President Vladimir Putin was personally involved in efforts to intervene in the vote, NBC citing two unnamed “senior U.S. intelligence officials.”

New intelligence links Putin directly to the leaks from hacked Democratic National Committee emails, the officials told NBC News with “a high level of confidence.”

NBC reported the Russian activity began as a “vendetta” against Hillary Clinton and grew into an effort to expose corruption in U.S. politics and to undermine America’s international credibility.

The Washington Post previously cited unnamed intelligence sources as saying the CIA believed Russia not only interfered in the election, but intended to help Trump win.

Initially, however, the Office of the Director of National Intelligence and FBI did not believe there was enough evidence to conclude the cyberattacks were intended to help Trump win.

But on Friday, in a message to the agency’s workforce, CIA Director John Brennan wrote:

“Earlier this week, I met separately with (Director) FBI James Comey and DNI Jim Clapper, and there is strong consensus among us on the scope, nature, and intent of Russian interference in our presidential election.

“The three of us also agree that our organizations, along with others, need to focus on completing the thorough review of this issue that has been directed by President Obama and which is being led by the DNI.”

As of tonight, the CIA and FBI had declined to comment.  But CIA and FBI officials do not think Russia had a “single purpose” by intervening during the presidential campaign.  In addition to helping Trump, intelligence officials have told lawmakers that Moscow’s other goal included undermining confidence in the U.S. electoral system.  [Adam Entous and Ellen Nakashima / Washington Post]

Thursday, Trump had tweeted: “If Russia, or some other entity, was hacking, why did the White House wait so long to act?  Why did they only complain after Hillary lost?”

But Friday, in his last press conference of the year, and possibly his presidency, President Obama said that he had held back before Election Day from retaliating against Russia for meddling in the presidential race for fear of inciting further hacking that could have undermined vote counting.  Obama added he was weighing a mix of public and covert actions against the Russians in his last 34 days in office, actions that would increase “the costs for them.”

Thursday night, addressing campaign donors in New York, Hillary Clinton flat out accused Vladimir Putin of orchestrating the hacks against her campaign and the Democratic National Committee “to undermine our democracy,” as part of a “personal beef against me.”  [New York Times]

Meanwhile, Trump’s nominee for secretary of State, Rex Tillerson, has had extensive dealings with Vladimir Putin in his current role as CEO of Exxon Mobil, including receiving a 2013 award from the Kremlin, the Order of Friendship.

Republican Sen. Marco Rubio (Fla.) said that being “‘a friend of Vladimir’ is not an attribute I am hoping for from the next secretary of State.”

New Jersey Democratic Sen. Robert Menendez called the idea Tillerson could be named secretary of state “alarming and absurd,” concluding that “the Trump administration would be guaranteeing Russia has a willing accomplice in the President’s Cabinet guiding our nation’s foreign policy.”

But the chairman of the Foreign Relations Committee, Sen. Bob Corker (R-Tenn.) – who was also considered for secretary of state – said Tillerson would be a good choice, tweeting “he is a very good individual.”

Senate Majority Leader Mitch McConnell (R-Ky.) said on Monday that he did not believe a special committee was needed to set up to discuss Russia’s role in the election, as Sen. John McCain (R-Az.) wants, McConnell saying any investigation ought to be confined to the Senate Intelligence Committee, which, he said, was “more than capable of conducting a complete review of this matter.”

For his part, McCain said in an appearance on “CBS This Morning” that Russian hacking of the Democratic National Committee and related accounts was “another form of warfare.”

Russian Foreign Minister Sergei Lavrov told state TV that he was “dumbstruck” by the NBC report of Putin’s alleged involvement.  “I think this is just silly, and the futility of the attempt to convince somebody of this is absolutely obvious,” he said.

Back to Trump, regarding the issue of his intelligence briefings, the president-elect said on “Fox News Sunday, “I get it when I need it.”

“First of all, these are very good people that are giving me the briefings. And I say, ‘If something should change from this point, immediately call me.  I’m available on one-minute’s notice.”

But he also suggested during the interview it isn’t necessary for him to receive the presidential briefings daily.

“I’m, like, a smart person,” Trump said.  “I don’t have to be told the same thing in the same words every single day for the next eight years.  Could be eight years – but eight years. I don’t need that.”

Opinion...both sides...

Michael V. Hayden, former director of the National Security Agency and the CIA / Washington Post

“A month ago I wrote here about the importance and challenge of the intelligence community establishing a relationship with President-elect Donald Trump.

“That has just gotten more important and more challenging.

“In my November op-ed, I asked: ‘What role will facts and fact-bearers play in the Trump administration?...Which of the president-elect’s existing instincts and judgments are open to revision as more data is revealed?’

“I had in mind the president-elect’s confidence in his own a priori beliefs and specifically his rejection of the intelligence community’s judgment that Russia had stolen American emails and weaponized their content to corrode faith in our electoral processes.

“The president-elect has been unmoved in his rejection of this high-confidence judgment.  In TIME magazine’s article last week naming him ‘Person of the Year,’ Trump repeated, ‘I don’t believe it.  I don’t believe they interfered.’

“Shortly afterward, The Post reported that CIA analysts now believe the Russian aim was to help Trump win.

“Team Trump immediately went into attack mode, employing the bureaucratic equivalent of the ad hominems the president-elect used during the campaign (‘Crooked Hillary,’ ‘Lyin’ Ted,’ ‘Little Marco’).  ‘These are the same people that said Saddam Hussein had weapons of mass destruction,’ its first salvo described the U.S. intelligence community.

“Then Republican National Committee communications director Sean Spicer alleged on CNN that ‘there are people within these agencies who are upset with the outcome of the election.’

“Incompetent.  Politicized.  No need to discuss any further.  Move on....

“An administration-in-waiting more confident in itself, in its own legitimacy, in U.S. institutions and in the people it will soon govern might have said, ‘These are serious issues.  We intend to hear them out.  Nothing is more precious than our democratic process.  We have asked the Obama administration for details.’

“The fact that that didn’t happen should invite tons of commentary.  But not from me.  My narrow concerns as an intelligence officer are the questions raised above.  How will this affect the new president’s relationship with the intelligence community?

“A lot.  And not well.

“First is the question of how the incoming administration values intelligence.  On Sunday, the president-elect again rejected the Russian role, adding that he was smart enough that he didn’t want or need a daily briefing.

“This creates more than hurt feelings. The intelligence community makes great sacrifices, and CIA directors send people into harm’s way to learn things otherwise unavailable. And directors have seen stars carved on the agency’s memorial wall because of it.  If what is gained is not used or wanted or is labeled as suspect or corrupt – by what moral authority does a director put his people at risk?

“Then there is the ethic of the intelligence profession, captured by the gospel of John’s dictum in the agency’s headquarters lobby – that the truth will set you free.

“What happens if the incoming administration directs that the ‘Russia did it’ file be closed?  Would standing intelligence requirements to learn more about this be eliminated?  And if they were, what would the agency do with relevant data that would inevitably come through its collection network?

“And what about the statute that requires the CIA and the rest of the intelligence community to keep Congress ‘fully and currently informed’ about all significant intelligence activities?  Data on a foreign power manipulating the federal electoral process would certainly qualify.  What will the White House position be when the agency is asked by Congress if it has learned anything more on the issue?....

“And, finally, how does the intelligence community break through and explain itself to the incoming team?

“Can it convincingly make a case that an evidence-based description of Russian actions is not the same thing as an attack on the legitimacy of the president-elect?

“Can it explain that, unlike law enforcement that seeks to prove things beyond any reasonable doubt, the purpose of intelligence is to enable meaningful policy and action even in the face of lingering doubt?

“And can it demonstrate that the incoming administration should want – rather than discourage – this to better anticipate global trends and adversarial moves in time to reflect and decide on its own actions?”

Elaine Ou / Bloomberg

“Americans and their news media have displayed a great willingness to believe that the Russian government stands behind the theft and release of emails that may have helped Donald Trump win the U.S. presidential election.

“They should keep in mind that, despite the ‘high confidence’ of intelligence agencies, tracing a data breach is almost never a sure thing.

“Two years ago, Sony Pictures suffered an embarrassing hack that released a trove of confidential data. After four weeks of research, the FBI concluded that the North Korean government was responsible. An FBI press release explained that the conclusion was based partly on the fact that the malware used on Sony was similar to tools found in previous attacks attributed to North Korea.

“In that case, blaming North Korea made sense.  The attack was accompanied by a demand that Sony Pictures pull its film The Interview, a tasteless comedy depicting an effort to assassinate North Korean leader Kim Jong-un.  It seems plausible that Kim might be self-absorbed enough to order a cyberattack to stop the release of an unflattering movie.

“Then in February, the Bangladeshi central bank fell victim to an $81 million cyber heist.  Upon examining the tools used, security researchers discovered the same type of malware that was used against Sony Pictures, including identical encryption keys. As one security researcher explained: ‘If you believe North Korea was behind [the Sony Pictures] attacks, then the bank attacks were also the work of North Korea.’

“Well wait a minute. That seems a bit out of character.  North Korea doesn’t have a history of conducting bank heists for financial gain, and the same attacks were attempted on other banks all around the world.  Are we supposed to believe that the North Korean government was responsible for everything?

“The attribution of a cyberattack to a particular nation-state often relies on the results of previous assessments, and on the assumption that those earlier assessments were correct.  Problem is, there’s rarely any affirmative validation.  If we correctly identify North Korea as the perpetrator of a hack, no North Korean official will come forward and say ‘Whoops!  You got us!’

“Many security experts doubted the FBI’s original assessment of the Sony hack, including one researcher who previously infiltrated Sony’s network himself.  Sony group has a long and well-documented history of network breaches across all its subsidiaries.  Why did the FBI blame North Korea and not ‘somebody sitting in a bed someplace?’....

“Intelligence agencies expect people to trust them, but they also have to earn that trust. It was only last Friday that President Obama ordered a review of potential election-related hacking. While the idea of Russia meddling might fit conveniently into the collective disbelief that Donald Trump could have won the election fairly, we should probably demand more evidence before freaking out.”

Michael Gerson / Washington Post

“A few points:

“First, the debate over whether Russia engaged in cyberespionage to help Trump or just to generally mess with American democracy is utter nonsense.  Russian espionage resulted in the phased leak of material damaging to the Democratic Party and Hillary Clinton at key moments during the presidential campaign. Anyone who finds Russia’s motivation mysterious is being intentionally obtuse.

“Second, if the CIA interpretation is correct, this is not just one provocation among many.  If Putin actually helped elect an American president more favorable to Russian interests, it is surely the largest intelligence coup since the cracking of the Enigma code during World War II.  And it is arguably a bigger deal – more on par with, say, German intelligence helping elect Charles Lindbergh president.

“Third, we will never know for sure if Russian espionage caused Trump to win.  With Clinton losing by an 80,000-vote margin in three key states, everything – her poor messaging, her consistently bungled response to the email controversy, FBI Director James B. Comey’s untimely letter – can be posited as the reason she lost.  A hypothetical outcome minus Russian involvement is not just unknown, it is unknowable.

“Fourth, Trump’s blanket attack on the intelligence community for incompetence – as though he were still going after ‘Little Marco’ or ‘Lyin’ Ted’ – is an insanely dangerous antic that materially undermines American security. Given the extraordinary range of threats faced by the United States – Chinese provocations in the South China Sea, Russian attempts to dominate neighboring countries, North Korea’s progress toward nuclear-tipped missiles that could reach California – a mutual trust between the president and American intelligence services is essential. That relationship has already been seriously damaged.”

Editorial / Wall Street Journal

“If the CIA really does have ‘high confidence’ about Mr. Putin’s motives, this would also be the first time in recent history. These are the same seers who missed the Russian invasion of Crimea, missed the incursion into southern Ukraine, and missed Mr. Putin’s foray into Syria. The intelligence community also claimed ‘high confidence’ in 2008 for its judgment that Iran had suspended its nuclear-weapons program.  That judgment conveniently shut down any further Bush Administration action against Iran.  But a year later, in the Obama Administration, our highly confident spooks disclosed Iran’s secret Fordo underground facility.

“None of this means Americans shouldn’t be alarmed about Russian intentions or cyberattacks.  Mr. Putin is an authoritarian who came of age as a Soviet spy and wants to damage U.S. interests around the world. Rather than dismiss evidence of Russian hacking, Mr. Trump ought to point out that Mr. Obama has done nothing to make Russia pay a price for it.  He should also call for the entire story to come out, not merely alleged facts from anonymous sources.

“All the more so as Mr. Trump undertakes his own attempt to ‘get along’ with the Russian strongman, as he puts it.  Like Presidents Bush and Obama, Mr. Trump thinks he can cajole Mr. Putin into some kind of cooperative grand bargain. The Russian always pockets U.S. concessions and then reneges on his promises.

“A bipartisan group of Senators, including Republicans John McCain and Lindsey Graham, has called for a Senate investigation into the election-related hacks.  That’s fine with us as long as it doesn’t become the partisan exercise that Democrats appear to want.

“But why wait?  U.S. intelligence services already know most of what they’re likely to learn.  Release the evidence now.  Let’s see if the Kremlin really did steal RNC emails, and let’s also hear from those who don’t share CIA Director John Brennan’s ‘high confidence.’  The last thing Americans need is for an outgoing Administration that is still sore over losing an election to assist Vladimir Putin in poisoning the result.”

As for the nomination of Rex Tillerson, Jack Gerard, president of the American Petroleum Institute, said in a statement Tuesday, “Rex Tillerson is world class. He has decades of experience working with global leaders and overseeing the creation of thousands of jobs.  He understands that American voters want to strengthen our national security, grow jobs, and protect American interests globally.”

But while Donald Trump is getting criticism for his oil-centric cabinet selections (see below), as Timothy Cama of The Hill points out, this is no different than what George W. Bush did, with Vice President Dick Cheney (Halliburton), secretary of State Condoleezza Rice (who had been on the board of Chevron Corp.), and Commerce secretary, Donald Evans, who came to the administration from an oil company.

Trump’s nomination of Tillerson received a hearty endorsement from the old Bush team, including Rice, Cheney and Robert Gates, Bush’s second Defense secretary.  The first Defense secretary, Donald Rumsfeld, also hailed the choice of Tillerson.

Democrats such as Sen. Ed Markey (Mass.) aren’t happy.  “In a Donald Trump administration, America’s foreign policy, energy policy and environmental policy are all linked by one thing: oil.”

“Donald Trump is drafting a Cabinet of Big Oil all-stars with the plan to drag us back to 19th century dirty energy sources and derail our 21st century clean energy future.”

Benny Avni / New York Post

“This is a fine time to pick a new secretary of state and, while at it, rethink America’s relations with the world.

“Whatever the arguments against President-elect Donald Trump’s pick for the job, surely the fact that Rex Tillerson has no experience in Washington-led diplomacy shouldn’t be one of them. Just consider the last few days on his predecessor’s watch.

“Aden, Yemen: An ISIS-affiliated suicide bomber killed at least 48 soldiers on Saturday, part of a war that increasingly pits a vicious Iranian-backed group against Muslim Brotherhood-inspired terrorists.

“Two years ago, President Obama cited Yemen as a successful model for U.S.-led diplomacy. Was it?  Well, there was a period of optimism around the beginning of peace talks. But it was brief. Arguably, UN envoy Jamal Benomar deserved the credit for that more than did John Kerry or his predecessor, Hillary Clinton.

“The diplomacy collapsed anyway. War intensified. The body count climbed.  Our diplomats can’t even decide if we support an old ally, Saudi Arabia, or new ‘ally’ Iran. So the war against terror suffers.

“We can’t do much worse.

“Cairo, Egypt: A bomb in an Egyptian Coptic church killed at least 25 worshipers Sunday. ISIS claimed responsibility Tuesday, though the Egypt-born Muslim Brotherhood often incites against Copts.

“When Gen. Abdel Fattah al-Sisi took power by force in June 2014, ousting the failed Muslim Brotherhood leadership, Egyptians largely cheered. Not so our top diplomats. State Department officials shied away from the word ‘coup,’ yet they often chastised Sisi’s high-handed repression of the Brotherhood.  As Egypt fought ISIS expansion in the Sinai, we halted weapons deliveries.

“The result: ISIS is stronger....As an Egyptian diplomat told me recently, Cairo just can’t wait until Obama’s out of office.

“We can’t do much worse.

“Istanbul, Turkey: Two bombs went off near a soccer stadium Saturday, killing at least 44.  The PKK, a militant Kurdish group, claimed credit.  Yet President Recep Tayyip Erdogan nevertheless went after Kurdish political opponents with no ties to the PKK. And he still blames America for backing a failed coup against him this summer.  Turkey remains a powerful NATO member but is not much of a democracy or an ally anymore.

“Obama never used American leverage to end Erdogan’s on-again-off-again cooperation with ISIS, or his war on our Kurdish allies. So our diplomats in Turkey go mostly ignored.

“We can’t do much worse.

“Aleppo and Palmyra, Syria: This week ISIS won back Palmyra....Also this week, combined Russian, Iranian, Hizbullah and Syrian forces all but completed a takeover of Aleppo, once the country’s largest city, now its largest graveyard....

“We lecture the Russians, who then ignore us. We implore the United Nations to do something, anything. We get nothing....

“And as the easy recapture of Palmyra shows, (Russia and Iran) are less interested in combatting ISIS than in killing Assad’s opponents.

“Beyond the United Nations, Kerry has been negotiating with his Russian counterpart, Sergei Lavrov.  But while the crusty Russian diplomat has a strategy, Kerry has nothing but words....

“We can’t do much worse.

“So, yes, Tillerson’s Moscow ties are a legitimate line of inquiry. But for half a decade now Vladimir Putin has controlled the most consequential war theater of the time, not us. We also uttered little more than a pip when he swallowed a chunk of Ukraine and threatened our other allies in the former Soviet bloc.

“Can an oilman with a penchant for global deal-making but no experience in Washington diplomacy do better?  Well, he can’t do much worse.”

---

Wall Street

As expected the Federal Reserve raised its target interest rate for only the second time since 2006.  The Fed noted “that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since midyear.”

The decision was taken by a unanimous vote of the 10 members of the Federal Open Market Committee, the first time the Fed has acted by consensus in months.

But the target funds rate is still just between 0.5 percent and 0.75 percent, historically low as the Fed seeks to support growth by encouraging borrowing and risk-taking.

However, Chair Janet Yellen and her band of merry pranksters continue to predict the economy will expand at only an annual rate of about 2 percent for the next few years, and the Fed gave zero indication that the election of Donald Trump has altered their outlook, even though clearly his stated policies would stoke both growth and inflation, as the markets have been forecasting since election day.

Yes, it’s true.  The Fed can say, well, nothing has been enacted yet, but the whole point of Nov. 8 wasn’t just that Trump had shocked the world, but that he has a Republican Congress to back him up and some of his policy initiatives are indeed going to get through, including probable tax cuts and a large infrastructure program, let alone taking a cleaver to onerous federal regulations that have been harming various sectors of the economy.

I’m the guy, though, who said early this year that the Fed would not act again until December, and that it would get caught with its pants down on the inflation front and that has indeed come to pass.  The Fed is remarkably sanguine on prices, forecasting 2% for years to come when by some gauges inflation is already over their target and is clearly headed higher.   My point has been the Fed will find itself way behind the curve, it is, and that’s why you’ve seen the yield on the 10-year shoot up from 1.37% in early July to over 2.60% this week (before closing at 2.59%), a massive move.  I also agree with bond maven Jeffrey Gundlach, who says if the 10-year hits 3.00%, that will do a real number on housing.

And this will be the conundrum.  At what level do interest rates brush up against what many of us believe won’t be just 2% growth, but 3% or higher?

So now we wait to see what happens in the Trump administration’s first 100 days, and the Fed’s next benchmark meeting in March and whether Congress has been able to pass tax cuts, for one, by then.  [There is an FOMC  meeting Jan. 31-Feb. 1, but that will reveal little. It’s the March 14-15 confab that will be telling, then it’s May 2-3.]

Anyway, with the Fed targeting three hikes next year, it could end up being just two, or it could be five.  I fall in the camp that predicts more than three, for starters.  The 35-year bond bull market is over. Finis.  Hope you had fun.  Now it’s time for savers to get some modicum of revenge, though it’s going to take a while before anyone sees it in their CD or savings rates.

Meanwhile, there was a lot of economic news aside from the Fed announcement.

On the inflation front, the November producer price index rose 0.4%, much higher than expected, and was 0.4% ex-food and energy. For the last 12 months, the PPI was 1.3%, 1.6% on core.

The consumer price index for last month was 0.2%, ditto ex-food and energy, with the CPI up 1.7% year over year, while the core figure was 2.1%.

November retail sales came in at just 0.1%, less than forecast, and up only 0.2% ex-autos.  Not really exciting.

November industrial production fell a larger than expected 0.4%.

And on the real estate front, November housing starts came in at an annualized pace of 1.09 million, far below the expected 1.225m rate, though this has been a volatile indicator recently.  October’s figure was 1.34 million.

Just one note on the congressional front.  Late last Friday, the Senate passed legislation funding the federal government until April 28, avoiding a government shutdown by less than an hour.

So this will make for a busy time when Congress reconvenes in January.  The Senate will have to reach an agreement by late April on spending levels for the rest of the fiscal year, while working on regulatory reform and a budget to pave the way for tax reform, let alone some contentious confirmation hearings and a Supreme Court nominee.

Europe and Asia

The euro slumped below the $1.04 mark against the dollar for the first time since January 2003 as divergent paths for the world’s two major central banks drive it down.

The dollar was rocketing to its highest level in 13 years following the Federal Reserve’s decision to raise rates, while forecasting further hikes next year, this as the European Central Bank is moving in the opposite direction, announcing a nine-month extension to its quantitative easing program the other week, though at a reduced pace later on.

A weak euro is just what the ECB wants, however, as it boosts exports and helps stoke inflation.

There was some important economic data regarding the eurozone, with a flash composite reading for December and the EA19 coming in at 53.9, unchanged from November (50 being the dividing line between growth and contraction), though the manufacturing component, 54.9 vs. 53.7, was a 68-month high, while the services reading for December is 53.1 vs. 53.8.

The flash readings, as provided by Markit, also look at Germany and France.

Germany’s manufacturing figure is 55.5 vs. 54.3 in November, a 35-month high, with services down from 55.1 to 53.8.

France’s manufacturing reading was 53.5 vs. 51.7, a 67-month high, with services rising from 51.6 to 52.6.

Chris Williamson, chief economist, IHS Markit:

“The eurozone economy is ending 2016 on a strong note.  The PMI indicates that business activity has risen at the fastest rate so far this year in the fourth quarter, signaling GDP growth of 0.4 percent [Ed. quarter over quarter]

“However, while the December PMI surveys put the eurozone economy on a strong footing to start 2017, there is clearly the potential for political uncertainty to derail growth as elections loom in the Netherlands, France and Germany, and Brexit discussions begin.”

Eurostat released its reading on inflation for the euro area last month, 0.6% annualized, up from 0.5% in October.  In November 2015 the rate was just 0.1%.  So it continues to tick up, though still far from the 2% target set by the European Central Bank.

In Germany the annualized inflation rate is 0.7%, unchanged from October; France is 0.7%, the highest since May 2014; 0.1% in Italy (up from October’s -0.1%); Spain 0.5%; but Greece -0.2%.

In the U.K., the reading on inflation for November was 1.2% ann., up from 0.9% in October and the highest reading since October 2014.  Conversely, retail sales for November in the U.K., were up only 0.2% over October as rising fuel prices bit.  The Bank of England is rightfully worried that inflation, which it projects at about 2% by end of next year, will crimp growth, which was already slated to be hit by Brexit.

Speaking of Brexit...the U.K. and the European Union took a positive step in agreeing that a transition deal will be needed to cushion the blow from Britain’s exit from the EU.

But negotiators between the two sides – Britain’s Brexit Secretary being David Davis, Michel Barnier the European Commission’s chief negotiator – have to agree on a broad outline for a final deal before starting talks on any transitional arrangements.

“Whatever the transitional arrangement is, we need to know where we are going before we decide on the transition,” Davis told the House of Commons Brexit Committee.  Davis also said he believes an “end game” for the U.K.’s trading relationship with the EU in the two years available for negotiations once official notification is given of the intention to quit is doable.

Davis said no decision had been taken on whether the U.K. should stay in or leave the European single market, where more than 40 percent of British exports are sold, or whether it could pay the EU for trading rights.  “We’re aiming for free access, the maximum free access to all possible markets,” he said.

But remember, Britain also wants to be able to set its own immigration policies and that is a no-go for the EU if Britain thinks it’s also getting free access, at least in the form it has today.

Philip Stephens / Financial Times

“The risk with referendums, as Margaret Thatcher used to say, is that they become a device for demagogues and dictators: the people have spoken so now they must be silent ever more. The point about liberal democracy is that citizens are offered a chance to change their minds.

“Britain’s referendum on EU membership was won by the Eurosceptics.  Only the other day the House of Commons backed by a large margin the government’s plan to begin the process of departure before the end of March 2017 by invoking Article 50 of the EU treaties.

“The leavers, you might imagine, would be brimming with seasonal good cheer. For some, this is the culmination of a life’s political work. They should be dancing in the streets. Instead, gripped by a fear that verges on paranoia, they see dark plots and dastardly conspiracies in every doorway.

“True enough, the judges of the UK Supreme Court have been asked to rule on the legal modalities of the Article 50 process. They may decide, as did a lower court, that parliament should have a say before Mrs. May posts her Article 50 letter to Donald Tusk, the president of the European Council, to start the clock running on a two-year exit timetable.

“The possibility of such scrutiny has provoked uproar among more excitable Brexiters, with the judges condemned as ‘enemies of the people.’  In the manner of authoritarians through the ages, they contend that the rule of law belongs to politicians rather than the courts.

“This is confusing at best for those who took at face value the leavers’ claim to be the champions of parliamentary ‘sovereignty’ against the depredations of Brussels.  Mrs. May’s contention that she can decide without consultation with MPs is calculated, after all, to subtract from this very same sovereignty.

“No one expects Westminster actually to derail the Article 50 process.  What disturbs the leavers is that parliament may take the opportunity to express a view on the relationship Britain should have with the EU once it departs.  The referendum answered a simple ‘in or out’ question, saying nothing about what happens next.

“The Brexiters want a clean break with Brussels and all its works.  A debate about future ties might reach a more nuanced conclusion.  Some who voted for Brexit might want to maintain close collaboration, by, say, staying in the single market and customs union.  Horror of horrors, confronted with the full complexity and costs of Brexit, they might have second thoughts about leaving.”

And so we come to the failure thus far of Prime Minister May to come up with a plan.

Or as Mr. Stephens writes:

“The clear probability is that Britain will indeed leave the union but, to borrow from John Maynard Keynes, faced with some uncomfortable facts, the people might just change their minds. There resides the real source of the Brexiters’ neuroses. It has nothing to do with plots or conspiracies. It is called, simply, democracy.”

It was a rough week for Greece, as European creditors pulled a recently announced debt relief package for the country after Greek Prime Minister Alexis Tsipras announced a Christmas bonus for some 1.6 million low-income pensioners and committed to restore a lower sales tax rate for Aegean Sea islanders; moves that surprised creditors, who then suspended the relief agreed to on Dec. 5.

Tsipras said at a summit of European Union leaders that there is room for “a breakthrough, without blackmail.”

“The (Christmas bonus) does not in any way threaten the bailout program and the targets for the 2016 budget surplus,” Tsipras said, arguing other more crucial issues will determine the success of Greece’s bailout talks with its European creditors and the International Monetary Fund.

He said Germany was the only European country to question the bonus.

Fellow socialist, French President Francois Hollande, came to Tsipras’ defense, as did EU Parliament President Martin Schulz, another socialist, though he said the Greek government’s decisions did not comply with what was agreed to.

The thing is Tsipras in essence lied to the creditors and they’re pissed. 

Tsipras has also seen his Syriza party’s popularity plummet and today they poll at just 16 percent compared to the center-right’s New Democracy at 29 percent, with a new election a certainty in 2017.

So is the Greece crisis back?  For a clue just look at the bond market.  The yield on the Greek 10-year was down to 6.38% just two weeks ago over optimism a debt-relief package was in the works.  Now the yield is back up to 7.07%, a major move...in the wrong direction.

On the other hand, a win by New Democracy in new elections would no doubt be supported by the creditors.

In Italy, the new government led by Prime Minister Paolo Gentiloni received a vote of confidence in the Senate on Wednesday, after receiving one in the lower chamber of parliament the day before, so Gentiloni’s center-left coalition will attempt to quickly ensure stability amid numerous challenges, including its troubled banks, a stagnant economy, and the ongoing migrant crisis.

But when you say “vote of confidence,” it’s more than a little deceiving since the populist 5-Star Movement stayed away from the votes to protest Gentiloni’s “photocopied” Cabinet, which does mirror that of former Prime Minister Matteo Renzi’s, which 5-Star says ignores the results of the Dec. 4 referendum, and they are right.

Gentiloni served as foreign minister under Renzi, while the finance minister, defense minister, and ministers of justice, health, infrastructure and culture remain the same. 

The first thing Gentiloni has to do is tackle the banking crisis and Italy’s Monte dei Paschi bank said it would try to raise $5.3 billion from investors by year end as it seeks to avoid a state rescue.  The world’s oldest bank (loaded with musty money, one must assume) is hoping to exchange debt for equity, selling off its heavy burden of bad loans to those specializing in such distressed paper.

UniCredit SpA, Italy’s biggest bank, plans to raise $13.8 billion in a rights offer, sell off bad loans and slash costs in its deepest overhaul to boost capital levels and profitability.  As part of a three-year plan, the bank will shed an additional 6,500 jobs, bringing the total to 14,000, as it aims for about $2bn in annual cost savings.

The bank expects no revenue growth in the foreseeable future, so it’s about cost cutting and improving the quality of assets and capital levels.

In Asia...Chinese banks extended another $115bn in loans in November and are set to lend a record amount this year as Beijing boosts the economy to meet its growth targets.  But this adds to worries about the risks of prolonged debt-fueled stimulus.

China’s overall debt has jumped to more than 250 percent of GDP from 150 percent at the end of 2006, and throughout history such a surge leads to financial bust or sharp economic slowdown.

The Bank of Japan’s quarterly “tankan” survey of business sentiment improved more than expected in December, +10, which means more optimists than pessimists on the outlook, while a flash reading on manufacturing for December came in at 51.9 vs. 51.3 last month.

Street Bytes

--All three major indices hit new all-time highs this week, but only the Dow Jones finished up, a sixth straight week, 0.4% to 19843.  20000 wasn’t breached.  The S&P 500 and Nasdaq, though, declined 0.1% each.

--U.S. Treasury Yields

6-mo. 0.64%  2-yr. 1.25%  10-yr. 2.59%  30-yr. 3.17%

The 10-year’s earlier yield of 2.60% was its highest since Sept. 2014.  The 2-year is at its highest yield in six years.

--China’s holdings of U.S. Treasuries declined to the lowest level in more than six years as it uses its reserves to support the yuan.  Japan is now No. 1, America’s top foreign creditor, with its holdings edging down too, but at a slower pace.

A monthly Treasury Department report had China with $1.12 trillion in U.S. government bonds, notes and bills in October, down $41.3 billion from the prior month and the lowest level since July 2010.  Japan’s portfolio fell $4.5 billion to $1.13 trillion.  The two nations account for about 37 percent of America’s foreign debt holdings.  [Bloomberg]

--Aside from the critical secretary of State nominee, Rex Tillerson, Donald Trump further filled out his cabinet with the tabbing of former Texas governor and presidential candidate Rick Perry to lead the Department of Energy, which Perry famously forgot the name of in a 2011 Republican presidential primary debate.  “Sorry.  Oops,” he said when he couldn’t remember this was the third federal department he wanted to eliminate.

With Trump promising to unleash fossil fuels, at the expense of the energy department’s alternative energy programs, Perry would play a key role in, for example, the assumed $1 trillion infrastructure program.

Perry also said in 2011 that climate change is a hoax perpetrated by “a substantial number of scientists who have manipulated data so that they will have dollars rolling into their projects.”

But last year he said, “You can have job creation, and you can make your environment better.”  [The Hill]

This will all be part of the confirmation process.

Yes, there is no doubt the oil industry is coming back to power in Washington.  Oil-friendly Oklahoma Attorney General Scott Pruitt was previously selected to lead the Environmental Protection Agency.

And Republican Rep. Ryan Zinke (Mont.) is the nominee for secretary of the Department of the Interior.  Zinke served as a Navy SEAL from 1986 to 2008 before entering politics, campaigning for his House seat on a platform of achieving North American energy independence.  He has frequently voted against environmentalists on issues ranging from coal extraction to oil and gas drilling.

As for the price of crude on the week, Monday, oil rocketed higher to $55 on WTI after non-OPEC countries agreed to cut their output by 558,000 barrels a day in a deal designed to reduce oversupply and boost prices.  OPEC previously committed to halting the supply of 1.2 million barrels, starting from January.  Saudi Arabia also signaled it could cut its output more than first suggested.

So this was Monday.

But then the rest of the week doubts arose about both OPEC and non-OPEC compliance and the price tumbled back to $50, but then finished Friday at $52.03.

--Sen. John McCain, chairman of the Armed Services Committee, said he backed Donald Trump’s criticism of the costs of Lockheed Martin’s F-35 fighter jet program, but said a president has limited authority to do anything about it because funds have already been appropriated by Congress.

McCain has long been a critic of Pentagon cost overruns and he did add in an interview with Reuters that Trump would have the power to reduce future purchases of the new-generation fighters if he decides to do so.  “He can reduce the buy over time, next year, as we look at it again,” McCain said.  “But right now, the acquisition of lots of them is already taking place, and I’m happy to say at fixed-price contract.”

Trump tweeted on Monday, “The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th.”

Jeff Babione, Lockheed Martin’s F-35 program leader, responded by saying the company understands concerns about affordability and has invested millions of dollars to reduce the jet’s price.

A week before the election, the U.S. Defense Department and Lockheed Martin concluded negotiations on their ninth contract for 90 F-35 fighter jets after 14 months of negotiations on the deal, according to the Pentagon.

--The nation’s top tech leaders assembled at Trump Tower on Wednesday for what was billed as an innovation “summit” with the president-elect.

But while many of the same individuals, such as Amazon’s Jeff Bezos, denigrated Trump during the campaign, at least for the day, Trump didn’t fire back at any of them.

Surprisingly, a representative from Twitter wasn’t there (though they didn’t deserve to be from a strictly market cap standpoint), given its Trump’s favorite social media platform, but Politico attributed the absence to the company’s refusal during the campaign to abide Trump’s request to generate a #CrookedHillary emoji.  Trump’s representatives denied this was the reason Twitter was left out, saying it just wasn’t big enough.

Instead you had representatives from the likes of Apple, Amazon, Facebook, Alphabet and Elon Musk of Tesla.

Ahead of the meeting, Trump’s representatives told the press how good Trump was at listening, even to those who despise him, but as the Los Angeles Times’ Evan Halper and David Pierson  reported, “Plenty of folks back in Silicon Valley weren’t buying it.  The executives who flew to New York found themselves confronted with letters, petitions and public scoldings from colleagues who reminded them that Trump has yet to disavow any parts of his agenda that most appalled Silicon Valley during the election.”

For example, “Nearly two dozen advocacy groups, including Amnesty International USA and Democracy for America, demanded to know why most of the companies at the meeting are refusing to pledge not to help Trump build any type of registry for Muslims, as he suggested during the campaign.”

But afterwards, the likes of Jeff Bezos called the meeting “very productive.”

“I shared my view that the administration should make innovation one of its key pillars, which would create a huge number of jobs across the whole country,” Bezos said in a statement.

And it should be pointed out that Elon Musk and Uber CEO Travis Kalanick were added to Trump’s business advisory council, despite the fact both were bitter critics of Trump during the race.

--On the eve of the summit, IBM CEO Ginni Rometty said her company plans to hire about 25,000 people in the U.S. and invest $1 billion over the next four years, though as in the case of other corporate CEOs now groveling at Trump’s feet in order to prevent a tweetstorm, it’s not known how much of what Rometty announced was already in the works prior to the election.

Back in March, for example, Rometty talked about 25,000 positions being open globally, though IBM was cutting some jobs in the U.S. as part of a “workforce rebalancing,” adding staff for the cloud initiative and other specific new projects.

But the other day, Rometty wrote in an op-ed piece for USA TODAY that many technology jobs don’t require an advanced degree and she encouraged government investment in vocational education and training.

“We are hiring because the nature of work is evolving,” Rometty wrote.  That’s also why many of the jobs are hard to fill, she said.  “What matters most is that these employees – with jobs such as cloud computing technicians and services delivery specialists – have relevant skills, often obtained through vocational training.”  [Jing Cao / Bloomberg]

--Yahoo disclosed a second massive data breach, this one from a hack in August 2013 that compromised 1 billion user accounts – twice the size of a previously announced hack the company revealed in September, which went back to 2014.

So with Yahoo trying to finalize a $4.8 billion deal to merge with Verizon, which was already jeopardized by the first disclosure that Verizon didn’t know about prior to its offer for Yahoo, it’s no wonder that Yahoo shares fell on Thursday, the day after the latest announcement.

The latest intrusion involved email addresses, telephone numbers, passwords and even security questions and answers, though the company says credit-card and bank-account information wasn’t accessed.

Many of us are just incredulous that it has taken Yahoo so long to disclose the hacks, though they apparently discovered neither themselves.  Outside experts did.

--Oracle reported earnings for the three months ending Nov. 30 and revenues were relatively flat vs. a year ago at $9.03 billion, just below expectations. Quarterly revenue from its cloud software-as-a-service (SaaS), platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) crossed $1bn for the first time at $1.1bn, but this is still just 12% of overall revenue.  Revenue for the company’s hardware products and support divisions, as well as new software licenses, fell 4%.

The Street isn’t doing cartwheels over the relatively slow growth in cloud, though Oracle CEO Safra Catz vows: “As we get bigger in the cloud, we grow faster in the cloud.”

So the company looks to speed up its cloud growth through its recent acquisition of cloud software company NetSuite, which could double revenue in this area.

The shares nonetheless fell 4% Friday on the overall outlook.

--With Goldman Sachs’ Gary Cohn’s resignation to join the Trump administration as head of the National Economic Council, Goldman announced that investment banking co-head David Solomon and chief financial officer Harvey Schwartz would be co-presidents and co-chief operating officers to replace Cohn, who had been COO.

So this puts them front and center to replace Lloyd Blankfein, 62, who has run Goldman for more than a decade and has undergone chemo treatment for lymphoma within the past year.  Blankfein is said to be staying another year or two.

Martin Chavez, who is responsible for the bank’s technology, becomes deputy chief financial officer in a sign of the growing importance of technology to GS.  Almost one-third of its total employees are engineers.

--Wells Fargo’s problems just continue to multiply, the latest being the sale of Prudential insurance policies by the bank, which Prudential has suspended after a lawsuit alleged that Wells workers sold policies to customers who did not want them. California’s insurance commissioner announced an investigation into the sale of Pru products as the scandal widened.

Prudential had sold about 15,000 small life polices called “MyTerm” through Wells.

--Upscale department store chain Neiman Marcus Group (which includes Bergdorf Goodman) reported quarterly results well below the Street’s expectations, with revenue down 7.4 percent, to $1.08 billion, in its fiscal first quarter ended Oct. 29 – with comp store sales falling a whopping 8 percent. 

Over the same period, same-store sales at Saks Fifth Avenue and Nordstrom were down 4 and 4.5 percent, respectively.

But Saks and Nordstrom had double-digit online sales growth while Neiman Marcus’ were flat.

It seems Neiman is getting hit by its large exposure to Texas, where it has six stores, because of the energy sector’s issues, while it is also suffering in Florida, which has had fewer foreign tourists and where Neiman has seven of its 42 overall stores.  Gee, one of the 42 is one minute from me and I’m guessing I have never been in it! 

I do need to walk around The Mall at Short Hills next week just to see which stores are getting the traffic, not to do any actual shopping mind you, though I’ll get some Christmas cookies at Williams Sonoma for my annual Christmas feast for the family, which is Christmas Eve this year.  [It’s simple.  Catered lasagna, lots of shrimp, beer – both domestic and premium – wine, and a prayer Kim Jong-un doesn’t start firing battle rockets at U.S. possessions or our allies.

--The New York Post reported that the small businesses surrounding Trump Tower are taking a beating from the “frozen zone” and heavy security protecting the president-elect and his family.

Employees are being laid off from Central Park Electronics on Sixth Avenue with sales down 70 percent at Allen M. Jewelers on Madison Avenue, where the owner said no one walked in all one recent day, when given the holiday season “We should be really busy. It’s empty.”

A recent report by the city comptroller said 50 small businesses around Trump Tower found nearly half reporting a “severe” impact from the security plan.

Many of these stores make 30 percent of their annual sales during the Christmas shopping season, according to the National Retail Federation.

Merchants have been highly critical of Mayor Bill de Blasio for not doing anything to help, including making a very public show of support by encouraging people to shop in the area.

--General Motors delivered its first Chevy Bolt to customers in California, turning up the heat on rival Tesla in the latter’s home state.

GM’s Bolt has a range of more than 200 miles, for a starting price lower than $40,000.  Some customers can claim a $7,500 federal tax credit on the purchase.

--Sumner Redstone and his daughter Shari have scrapped plans to merge Viacom and CBS, the two media companies they control, amid disagreements over valuation and management control.  Investors have been betting on a merger after months of discussions between America’s leading broadcast network and the owner of Paramount Pictures and MTV. 

Sumner split CBS from Viacom in 2006, with National Amusements Inc. being the holding company through which Sumner and Shari control 80 percent of both companies.  A proposed all-share merger of the companies was proposed in September to help them compete better in the changing entertainment and media landscape, but the companies were unable to agree on a valuation for Viacom.

Les Moonves, CEO of CBS, wanted full control of the combined operation and Shari Redstone was not willing to give him that, according to a source.

Viacom also owns Comedy Central, BET and Nickelodeon.

Friday, the 93-year-old Redstone resigned as chairman emeritus.  He hasn’t been to a board meeting in two years.

--In the 2016 J.D. Power study of airport satisfaction, no surprise that LaGuardia and Newark Liberty were rated the two worst in the nation, with Boston’s Logan, Chicago’s O’Hare, and Philadelphia airport rounding out the bottom five.

I long refused to go through LaGuardia when I was traveling with PIMCO, but if you need to go to the bathroom, avoid Newark (terminal C has a few toilets...A and B, not so much).  If you’re looking for cleanliness in said facilities, forget it; this being the No. 1 complaint of travelers in rating airports.

On the flip side, travelers rank Portland, Ore., Tampa, Las Vegas, and Orlando as the best large airports.

In the mid-size category, Indianapolis, Buffalo and Southwest Florida International score highly.

I go through Charleston, S.C. once a year and it’s been undergoing a big renovation; a fave of mine with very clean restrooms. 

A massive Boeing plant is attached to Charleston airport as well, thus we move on to the following...

--...Iran and Boeing signed a deal for the sale of 80 airplanes, this before Donald Trump takes office, with Republican supporters in Congress having vowed to try to block any aircraft sales to the dirtballs.

Iran’s national airline, Iran Air, said it signed an agreement to purchase the planes from Boeing at a total cost of $16.6 billion.

In a statement, Boeing said the deal would support tens of thousands of American jobs directly associated with production and delivery, and nearly 100,000 jobs in the broader U.S. aerospace industry.

--Turkey’s economy shrank 1.8 percent in the third quarter, on the back of a sharp slowdown in exports and falling consumer spending, as Turkey suffers from falling tourist revenue, high inflation and a battered currency. 

With all the terror attacks and the failed coup the country has endured the past year or so, it’s easy to see why tourism is cratering and the sector represents a sizable share of GDP, about 12 percent, if memory serves me right.

--Be glad you aren’t a commuter on London’s Southern Rail, which runs trains from central London to Gatwick and Brighton on the south coast.  This week train drivers called a 48-hour strike that led to the worst rail disruption in the country in two decades, though service on the line has been awful for some time, with Southern users dealing with months of delays and cancellations because of high levels of staff sickness. 

The latest issue is who has control of the carriage doors.  Some passengers say they have lost their jobs or have had to quit after endless problems.

Southern says its modernization plans would not cost any jobs but would lead to fewer drivers and conductors being necessary, while the unions argue Southern would eliminate jobs as it adopts more driver-only operated trains and so reduce the safety role the conductors play.  The new transportation secretary said he did not rule out legislation banning strikes.

--Last weekend when I was down in Kiawah, S.C., we were talking about New Zealand at dinner, with one saying he wanted to go skiing there, and Dr. W. and I interjecting that the recent round of severe earthquakes in NZ (over the past five-six years....which is ‘recent’ in earthquake terms), were more than a bit unsettling and you wouldn’t want to be stranded at some of the remote tourist spots, as thousands were the other week.

So on Tuesday, I saw a Reuters note that “roads to whale-watching town remain closed...wine industry also hit...Central Bank estimates quake will cost around $5.8bn....at one of the country’s main ports in Wellington, ‘no-entry’ signs dot parts of the site hit by liquefaction, cracking or buckling, hampering shipments of items like meat and farm produce to destinations including China and Australia.  While 150km away in the resort town of Kaikoura, often touted as the nation’s whale-watching capital, restaurants and hotels lie nearly empty as the roads that once carried in busloads of tourists through steep mountains remain closed.” 

The total costs to the country’s economy are far higher than the $5.8bn figure.

And if you’re a wine connoisseur, the CEO of industry body NZ Wine said that “one in five tanks in the producing region of Marlborough had been damaged during the earthquake.”  Nooo!!!

--Finally, Asahi Group Holdings Ltd. has agreed to buy five Eastern European beer brands from Anheuser-Busch InBev NV for $7.8 billion, the latest overseas deal for a Japanese industry that is struggling at home.

Among the brands to be acquired is Pilsner Urquell.  Asahi previously bought European brands Peroni and Grolsch, the latter with the best bottle in the industry.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: In Syria, the week was about Aleppo (and to a lesser extent Palmyra) as Syrian pro-government and Russian forces committed atrocities  in the final battle for the country’s largest city, with Syrian troops entering homes in eastern Aleppo and killing those inside, including women and children, according to the U.N.  The U.N.’s human rights office said it had reliable evidence that in four areas, 82 civilians were shot on sight.

The U.N.’s children’s agency also said a building housing as many as 100 unaccompanied children was bombed.  No word on how many died.

The last remaining rebel neighborhoods fell and then the Syrian government, Russia and the rebels negotiated a cease-fire and evacuation of up to 50,000 civilians who were besieged.

The evacuation commenced, it ended almost immediately under heavy fire, it restarted the next day, it stopped, it’s supposedly back on as I go to post.  It is sickening

Russian Defense Ministry Spokesman Major General Igor Konashenkov attacked critics of the Syrian army’s campaign to push rebels from Aleppo.

“All the theatrical screams supposedly in defense of the 250,000 civilians remaining in Aleppo, especially those voiced by the British leadership and their colleagues in France, are no more than Russophobic hot air,” Konashenkov said.

He also claimed that civilians in rebel held territory had been terrorized by the rebels, particularly if they expressed dissatisfaction or attempted to leave.  “There was only hunger and total terror from the militants.”

Konashenkov dismissed all footage of Russian bombing in Aleppo and of civilian casualties as ‘cinema,’ saying that such videos were staged by the terrorists.  [Moscow Times]

The U.N.’s human rights chief said the bombing of the last parts of Aleppo held by rebels is probably a war crime.

Zeid Raad al-Hussein, the U.N. High Commissioner for Human Rights, said the Syrian government had “a clear responsibility to ensure its people are safe.”

In a statement, he said: “The way this deal was dangled in front of this battered and beleaguered population – causing them to hope they might indeed live to see another day – and then snatched away just half a day later is also outrageously cruel.”

In taking Aleppo, Assad’s forces will have control over Syria’s biggest cities, representing about 60 percent of its people, but only 40 percent of the country’s territory.   The Kurds control much of the north and ISIS controls the east.

Turkey did announce on Friday that it planned to set up a camp inside Syria to host up to 80,000 people from Aleppo, but will continue to take the sick and wounded to hospitals in Turkey.

Turkey is already sheltering around 2.7 million Syrian refugees.

In the renewed fighting over the city of Palmyra, scores were killed, some in a suspected gas attack as dozens of bodies were found with no visible injuries, but ISIS fighters have recaptured the city.

There are about 150,000 rebels, including jihadists, still fighting Assad and you can expect large numbers of the opposition to transform themselves into a guerrilla-type insurgency, according to analysts.

The war will go on for years to come, but among the many questions to be answered are how long will Russia and Iran stand by Assad if he insists on trying to retake the rest of the country, and what will Turkey do as it combats both ISIS and Kurdish fighters that it says are linked to the PKK, the group that is Turkey’s main domestic terrorist threat.

Separately, the Obama administration and Defense Department announced the U.S. is sending another 200 troops to Syria to push the fight on Islamic State’s declared capital of Raqqa, most of the forces being special operations troops.  The 200 are in addition to an initially authorized 300, who are largely used to recruit, train and advise local Syrian Arab and Kurdish forces who are battling ISIS.

Friday, Vladimir Putin and Turkish President Erdogan said they are working to organize a new series of Syrian peace talks without the involvement of the United States or the United Nations.  Putin, in a major snub to Washington, made clear this was his initiative, and that of Turkey, and if the talks happened they would be in addition to intermittent U.N.-brokered negotiations in Geneva.  The talks are to be held in Kazakhstan, a Russian ally.  A senior Syrian opposition leader said his negotiating committee was willing to join the talks provided that the aim was to set up a transition government.

Until Trump takes office, Putin (and China’s Xi) can be expected to take advantage of the power vacuum in Washington in a big way.

Editorial / Wall Street Journal

“While Washington tries to re-litigate Russia’s role in the 2016 election, serious people should be watching Vladimir Putin’s double game in Syria. Russia’s Syrian government clients were close to capturing the rest of rebel-held Aleppo on Monday, even as Islamic State retook the ancient city of Palmyra from Syrian forces a day earlier.

“These two events are related, and not in a good way.  Mr. Putin has long claimed that his forces in Syria are fighting jihadists, especially ISIS.  But the reality is that the Bashar Assad government and the Russians have long focused nearly all of their military attention against the moderate opposition forces.  Those are the forces backed by the Saudis and sometimes even by the U.S.  Mr. Assad wants to destroy them first because they pose the most serious long-term threat to the regime.

“Islamic State is a less immediate threat to Damascus because its headquarters is in eastern Syria around Raqqa, and in any event is being targeted by U.S. bombing and Kurdish fighters.  Messrs. Putin and Assad are happy to leave that much harder work to others while they dump barrel bombs on civilians in Aleppo.

“The contrast of letting Palmyra fall even as Mr. Assad besieges Aleppo to the last refugee has exposed this Russian cynicism in the raw.  President Obama doesn’t seem to be paying attention, but at least some in Europe are.  ‘The Russians, who claim to be fighting against terrorism, concentrate in fact on Aleppo and have left a space for Daesh – for Islamic State – who are in the process of retaking Palmyra.  Quite a symbol,’ said French Foreign Minister Jean-Marc Ayrault on Monday. Daesh is the Arabic acronym for Islamic State.

“Mr. Ayrault called Russia policy in Syria one of ‘permanent lies,’ which is an understatement.  Donald Trump should understand the kind of dictator he wants to cut a deal with.”

Editorial / Washington Post

“The battle for Aleppo is ending in catastrophe, both for the tens of thousands of people who have been besieged there and for the future of Syria.  On Wednesday, Syrian government and Iranian-led Shiite militia forces renewed attacks on the last rebel-held streets of the city, shredding a promise to allow a peaceful evacuation.  According to the United Nations, the pro-government forces have been executing civilians in the street or in their homes – including, on Monday, at least 11 women and 13 children.  Thousands of men have been rounded up and gang-pressed into the Syrian army, or dispatched to an unknown but likely terrible fate. The United Nations’ term for this nightmare was apt: ‘A complete meltdown of humanity.’

“The meltdown has several dimensions.  One is the utter disrespect for the laws of war by the regime of Bashar al-Assad and its Russian and Iranian allies.  These forces systematically destroyed hospitals, including pediatric facilities; decimated civilian housing with bunker-buster bombs and chlorine gas; and refused to allow food or humanitarian aid of any kind into the besieged districts of the city.

“Aleppo represents ‘the death of respect for international law and the rules of war,’ David Miliband, the former British foreign secretary who now heads the International Rescue Committee, was quoted as saying.  It sets a horrific precedent for conflicts in the 21st century.

“The fall of Aleppo also means the elimination of any prospect in the foreseeable future for the end of Syria’s war or the waves of refugees and international terrorism it is generating. The Assad regime, which represents the minority Alawite sect, is unlikely ever to reestablish control over all of Syria, even with Russian and Iranian help. Even as it was crushing Aleppo, where Western-backed forces were based, it allowed the Islamic State to recapture the city of Palmyra.  But the regime now will have no incentive to negotiate a peace settlement with the Sunni majority or Kurdish community. The likely result is years more of war and a steady stream of recruits for Sunni terrorist movements that target the West as well as Damascus.

“Above all, Aleppo represents a meltdown of the West’s moral and political will – and in particular, a collapse of U.S. leadership. By refusing to intervene against the Assad regime’s atrocities, or even to enforce the ‘red line’ he declared on the use of chemical weapons, President Obama created a vacuum that was filled by Vladimir Putin and Iran’s Revolutionary Guard.  As recently as October, Mr. Obama set aside options drawn up by his advisers to save Aleppo.  Instead, he supported the delusional diplomacy of Secretary of State John F. Kerry, whose endless appeals to Moscow for cease-fires yielded – as Mr. Putin no doubt intended – nothing more than a humiliating display of American weakness.

“On Tuesday, Mr. Obama’s U.N. ambassador, Samantha Power, delivered an impassioned denunciation of the Aleppo carnage, which she said would ‘join the ranks of those events in world history that define modern evil, that stain our conscience decades later.’  She excoriated the Assad regime, Russia and Iran but offered no acknowledgment that the stain of Aleppo extends also to her, the president and American honor. Those who will live with the long-term consequences of the Syrian catastrophe are unlikely to be so forgiving.”

Editorial / The Economist

“Plenty of people share the blame (for Aleppo).  After Mr. Assad drenched his people in nerve gas, crossing an American red line, Britain’s parliament voted against taking even limited military action. As millions of people fled to Syria’s neighbors, including Lebanon and Jordan, most European countries looked the other way – or put up barriers to keep refugees out.

“Particular blame falls on Barack Obama. America’s president has treated Syria as a trap to be avoided. His smug prediction that Russia would be bogged down in a ‘quagmire’ there has proved a historic misjudgment. Throughout his presidency, Mr. Obama has sought to move the world from a system where America often acted alone to defend its values, with a few countries like Britain riding shotgun, to one where the job of protecting international norms fell to all countries – because everyone benefited from the rules. Aleppo is a measure of how that policy has failed. As America has stepped back, the vacuum has been filled not by responsible countries that support the status quo, but by the likes of Russia and Iran which see the promotion of Western values as an insidious plot to bring about regime change in Moscow and Tehran....

“The world has seen what happens when values cannot hold back the chaos and anarchy of geopolitics.  In tragic, abandoned Aleppo the fighting has been merciless. The people who have suffered most are the poor and the innocent.”

Leon Wieseltier / Washington Post...this is the single best piece written on the Syrian War

“Contemplating the extermination of Aleppo and its people, I was reminded of a sentence that I read this summer.  It appeared in an encomium to Elie Wiesel shortly after his death. It was a sterling sentence.  It declared: ‘We must never be bystanders to injustice or indifferent to suffering.’  That was Wiesel’s teaching, exactly. The problem with the sentence is that it was issued by the White House and attributable to President Obama. And so the sentence was not at all sterling. It was outrageously hypocritical.

“How dare Obama, and members of his administration, speak this way.  After five years and more in which the United States’ inaction in Syria has transformed our country into nothing other than a bystander to the greatest atrocity of our time, they have forfeited the right to this language.  Their angry and anguished utterances are merely the manipulation of the rhetoric of conscience on behalf of a policy without a trace of conscience.  You cannot be cold-hearted and high-minded at the same time.  Historians will record – they will not have to dig deeply or interpret wildly to conclude – that all through the excruciations of Aleppo, and more generally of Syria, the United States watched.  As we watched, we made excuses, and occasionally we ornamented our excuses with eloquence. The president is enamored of his eloquence.  But eloquence is precisely what the wrenching circumstances do not require of him.  In circumstances of moral (and strategic) emergency, his responsibility is not to move us. It is to pick up the phone.  ‘Elie did more than just bear witness,’ Obama said in his eulogy, ‘he acted.’ And he added: ‘Just imagine the peace and justice that would be possible in our world if more people lived a little more like Elie Wiesel.’ Just imagine.

“If Obama wants credit for not getting us into another war, the credit is his. If he wants credit for not being guilty of ‘overreach,’ the credit is his.  If he wants credit for conceiving of every obstacle and impediment to American action in every corner of the globe, the credit is his. But it is a shameful and incontrovertible fact of our history that during the past eight years the values of rescue, assistance, protection, humanitarianism and democracy have been demoted in our foreign policy and in many instances banished altogether.  The ruins of the finest traditions of American internationalism, of American leadership in a darkening world, may be found in the ruins of Aleppo. Our ostentatious passivity is a primary cause of that darkening. When they go low, we go home.  The Obama legacy in foreign policy is vacuum-creation, which his addled America-First successor will happily ratify.  Aleppo was not destroyed by the Syrian army. It was destroyed by a savage coalition led and protected by Russia.  While they massacred innocent men, women and children, we anxiously pondered scenarios of ‘deconfliction.’....

“As a direct or indirect consequence of our refusal to respond forcefully to the Syrian crisis, we have beheld secular tyranny, religious tyranny, genocide, chemical warfare, barrel bombs and cluster bombs, the torture and murder of children, the displacement of 11 million people, the destabilization of Turkey, Lebanon and Jordan, the ascendancy of Iran in the region, the emergence of Russia as a global power, the diminishment of the American position in the world, the refugee crisis in Europe, the resurgence of fascism in Europe and a significant new threat to the security of the United States.  It is amazing how much doing nothing can do, especially when it is we who do nothing.

“Not long after he mourned Wiesel, the president engaged in another one of his exercises in empathy without consequences.  At the U.N. Summit for Refugees and Migrants, he spoke of Alan Kurdi, the Syrian boy who washed up dead on a beach in Turkey.  ‘That little boy on the beach could be our son or our grandson,’ the president moistly said.  ‘We cannot avert our eyes or turn our backs.’  And then we proceeded to avert our eyes and turn our backs.  The people who had the power to prevent, stop or even mitigate this catastrophe should now bow their heads and fall silent and reflect on how it is that they brought us so low.  Aleppo is no more, and we are weakened and disgraced.”

Friends, the above is masterful and obviously expresses my own feelings on Syria since 2012, when I began excoriating President Obama and wondering why there wasn’t similar outrage across the country.  History will destroy whatever positive legacy Obama thinks he is leaving.

I saw a picture of him high-fiving Bruce Springsteen in the White House and I was seething.  Barack Obama always just wanted to be Joe Cool.  He didn’t take his global responsibilities seriously in the least.  As a result, we need to pray for the future.  Just as life can be snuffed out in the blink of an eye...a sudden heart attack, getting hit by a distracted driver while crossing the street...so can civilization be snuffed out.  It started in the summer of 2012 when Barack Obama refused to establish a no-fly zone in Syria, working with President Erdogan of Turkey.  It was about the 2012 presidential campaign.  “Bin Laden is dead, GM is alive.”  I knew what would be the result of Obama’s inaction.  I told you; week after week ever since.

Friday, in his press conference, Obama said: “Responsibility for this brutality lies in one place alone: with the Assad regime and its allies Russia and Iran.  And this blood and these atrocities are on their hands.”

Sorry, Mr. President.  You have blood on your own hands.

---

In Iraq, the battle for Mosul is now in its third month and it is not going well recently.  ISIS has been stepping up its counterattacks on Iraqi forces.  There are reports of food, water and fuel shortages, while access to hospitals is limited by the fighting.

An estimated 5,000 militants are dug in amid the city’s population that is still nearly one million.

Separately, according to a London-based arms research group, the Conflict Armaments Research firm, ISIS was manufacturing weapons in and around Mosul on an industrial scale with products largely purchased in bulk from Turkey.  The CAR warns, though, that as Iraq retakes Mosul and takes away ISIS manufacturing capability, those highly-trained fighters who are retreating are taking their expertise with them.  The research group believes the best bombmakers have already been moved out of Mosul and into Syria and southern Turkey.

Executive director James Bevan of the CAR said, “They place a very high value on technical capacity and they will do everything they can to preserve it.”

Iran: The mullahs have told their scientists to start developing a nuclear propulsion system for shipping, in what is said to be a response to the extension of U.S. bilateral sanctions against Tehran.

The U.S. Senate voted earlier this month to give the president authority to impose financial sanctions on Iran for a further 10 years and the Islamic Republic regards the move as a breach of the nuclear agreement between Iran and the P5+1 – the U.S., UK, France, Russia, China and Germany.

Hassan Rouhani, Iran’s president, called on the country’s atomic energy organization to start “designing and constructing a nuclear propulsion system to be used in marine transportation with the cooperation of scientific and research centers.”

It is assumed “shipping” also means submarines.  Back in 2012, Iran announced it was in the initial stages of building its first-ever nuclear-powered sub.

Iran is insisting any work on its vessels will be done within the framework of the nuke accord, but the project would require uranium enriched above the allowable 3.667 percent purity for 15 years.

As for President Obama, he declined to sign the renewal of sanctions against Iran but let it become law anyway, in an apparent bid to alleviate Tehran’s concerns that the U.S. is backsliding on the deal.

So the whole issue is left for the incoming Trump administration, with the president-elect threatening to scrap or try to renegotiate the deal.  Israeli Prime Minister Benjamin Netanyahu will be pressing Trump to scrap it.

Egypt: Aside from the above-noted bombing of the Coptic cathedral in Cairo last Sunday morning that killed 25, Egyptian authorities said this week that traces of explosives had been found on the remains of victims of an Egyptair flight that crashed en route from Paris to Cairo last May 19, killing all 66 people on board.

French investigators had seen trace levels of TNT on the plane’s debris back in September, but the French wanted more time to confirm it,  working with their Egyptian partners.

But some Western sources told Reuters they still believe a technical cause remained the most likely reason for the crash.  No one has ever claimed responsibility, though I argued last spring that if it was AQAP, they would never claim responsibility because they want their methods to be kept secret.

Yemen: The U.S. said it will limit arms sales to Saudi Arabia amid concerns over civilian casualties linked to air strikes in Yemen.  Precision-guided weapons will no longer be delivered, a Pentagon official said.

Back in October, more than 140 people were killed in a strike on a funeral.  A Saudi-led coalition was blamed for the attack.

Russia:

Ralph Peters / New York Post

“Vladimir Putin is our enemy. Not because we want him to be, but because resentment and hatred of the United States is central to his being.  Russia’s president yearns to do us harm.

“He blames us for the Soviet Union’s self-wrought collapse. He blames us for the Soviet Union’s self-wrought collapse. He blames us for Russian stagnation. He blames us for the derelict lot of his drunken, diseased country. And he wants revenge.

“Putin has five strategic goals: He wants international sanctions lifted, Europe divided and NATO destroyed.  He seeks to restore the empire of the czars.  And he wants to humiliate the United States.

“Americans and Europeans are targets of a ruthless, audacious and skillful disinformation campaign portraying Russia as a victim, not an aggressor.  Not since the heyday of the Soviet-sponsored Ban-the-Bomb movement in the 1950s has Kremlin propaganda thrived so broadly.

“We naively insist the truth will prevail.  That’s nonsense.  Putin knows that big lies work, if repeated until absorbed. And he’s aided by Western stooges who, for money or malice or moral malfeasance, abet Putin in deluding our populations....

“(Let’s) look at the facts of what Putin has done.

“ – He interfered with our presidential election via computer hacking, the use of front organizations and fake news (Kremlin-gate may prove our worst political scandal).  His military challenges us in the skies and at sea.  In Afghanistan, his agents assist the Taliban.  In Syria, his jets target Syrian hospitals, clinics and civilians in a literal ‘Slaughter of the Innocents’ at Christmastide.

“ – He invaded Georgia and Ukraine (the latter twice). He threatens the NATO-member Baltic states and subsidizes Europe’s extremist political parties to radicalize electorates, undercut democracy and realign nations with Russia.

“ – At home, he suffocated Russia’s nascent democracy, crushed the free press, jailed and murdered his opposition, cheated foreign investors and turned Russia into a gangster state where the czar is the only law....

“Russia’s problems are made in Russia. We’ve tried to help, not harm.  But Russians refuse to help themselves, preferring brutality, squalor and hostility to the rule of law and civilization.

“As for the upside-down charge that NATO’s eastward expansion signaled aggression against Russia, look at how Putin has treated non-NATO-member Ukraine and you’ll understand why the newly free states of eastern Europe cling to history’s greatest peacetime alliance....

“Russia’s victims scream warnings from the grave.

“In today’s age of cyber-assaults, Russian subversion and Putin’s naked aggression, fear is back. We must decide what we value, either freedom and decency, or foolhardy efforts to make friends or monsters.

“To align ourselves with Putin in 2017 would be the equivalent of allying with Hitler in 1937.”

Thomas L. Friedman / New York Times

“Already, some GOP lawmakers who love our country more than they fear Trump’s tweets – like Senators Lindsey Graham and John McCain – are insisting that Russia’s apparent cyberhacking to help Trump win election be investigated by Congress.  If Congress affirms what the intelligence community believes – that Russia intervened in our democratic process – that is an act of war.  And it calls for the severest economic sanctions.

“At the same time, Trump’s readiness to dismiss the entire intelligence community because its conclusions contradict his instincts and interests could really haunt him down the road.

“Let’s imagine that in six months the CIA concludes that North Korea is about to perfect a nuclear missile that can reach our West Coast and President Trump orders a pre-emptive strike, one that unleashes a lot of instability in Asia.  And then the next day Trump and his national security adviser, Mike Flynn, the purveyor of fake news about Hillary Clinton, defend themselves by saying, ‘We acted on the ‘high confidence’ assessment of the CIA.’ Who’s going to believe them after they just trashed the CIA?

“Finally, Trump has demonstrated a breathtaking naivete toward Putin.  Putin wanted Trump to win because he thinks that he’ll be a chaos president who will weaken America’s influence in the world by weakening its commitment to liberal values and will weaken America’s ability to lead a Western coalition to confront Putin’s aggression in Europe.  Putin is out to erode democracy wherever he can.   Trump needs to send Putin a blunt message today: ‘I am not your chump.’

“As Stanford University democracy expert Larry Diamond noted in an essay on Atlantic.com last week: ‘The most urgent foreign-policy question now is how America will respond to the mounting threat that Putin’s Russia poses to freedom and its most important anchor, the Western alliance.  Nothing will more profoundly shape the kind of world we live in than how the Trump administration responds to that challenge.’”

On the Ukraine front, European Union leaders agreed on Thursday to spell out limits to a landmark cooperation accord with Ukraine to address Dutch concerns and prevent it from unraveling, the Netherlands being the only EU country that has yet to ratify the deal, which would become void without its endorsement.  Dutch Prime Minister Mark Rutte has to convince parliament to overwrite a referendum result in April when voters rejected the deal.

The so-called association agreement establishes closer political ties and aims to free up trade between Ukraine and the bloc as the former Soviet republic moves closer to Western Europe and away from Moscow’s orbit. But the leaders agreed it did not make Ukraine a candidate for EU membership, and did not entitle Kiev to financial aid or military assistance from the bloc.

The accord has huge symbolic importance for Ukraine and its future direction.

Separately, the EU agreed on Thursday to extend the main economic sanctions against Russia until mid-2017.

China: Beijing issued a blunt warning to Donald Trump that any attempt to challenge the “One China” policy could affect peace in the Taiwan Strait.  Under the “One China” policy, the U.S. has formal ties with China rather than the island of Taiwan, which China sees as a breakaway province, though under the 1979 Taiwan Relations Act, the United States provides Taiwan with defensive weapons.

An Fengshan, a spokesman for China’s policy-making Taiwan Affairs Office warned: “Upholding the ‘One China’ principle is the political basis of developing China-U.S. relations, and is the cornerstone of peace and stability in the Taiwan Strait,” he said.

“If this basis is interfered with or damaged then the healthy, stable development of China-U.S. relations is out of the question, and peace and stability in the Taiwan Strait will be seriously impacted,” he added.

The Global Times, a Communist Party mouthpiece, suggested Taiwan would be taken by force if the “One China” policy isn’t upheld.

“China must resolutely battle Mr. Trump, only after a few serious rebuffs then will he truly understand that China and other global powers cannot be bullied.”

He may be a businessman, the editorial went on, “but in the field of diplomacy, he is as ignorant as a child.”

Admiral Harry Harris, head of the U.S. Pacific Command, vowed the U.S. will keep challenging Beijing’s “assertive, aggressive behavior in the South China Sea.... We wil cooperate where we can but we will be ready to confront where we must,” referring to the growing military presence on artificial islands being built by China.

Washington has long said it does not recognize claims by China to virtually all the natural resources in the South China Sea, with its South East Asian neighbors having their own claims.

China has also long said it has no intention to militarize the islands in the strategic trade route, but the Asia Maritime Transparency Initiative (AMTI) said it has evidence China is installing weapons, including anti-aircraft and anti-missile systems, on all seven of the artificial islands it has built thus far.  China had previously built military-length airstrips on these islands.

The AMTI said, “Among other things, (the gun and missile emplacement) would be the last line of defense against cruise missiles launched by the United States or others against these soon-to-be-operational air bases.”

Editorial / The Economist

“By the end of this month, say Chinese officials, work will be completed on a big upgrade of facilities at a monument to one of the scariest moments in the recent history of relations between China and the United States: an upsurge of tensions in the Taiwan Strait in the mid-1990s that saw the two nuclear powers inching towards the brink of war.  The structure is a concrete tower on an island in the strait, just off the Chinese coast.  Atop it more than 100 generals watched a mock invasion of Taiwan by China’s army on the beach below.  ‘Unite the motherland, invigorate China,’ says a slogan in gold characters down the side of the building.  The meaning of these words at a place where tanks and troops once stormed ashore with warplanes streaking overhead is: we want Taiwan back, by force if necessary.

“The building work involves an expansion of the tower’s car park, improvements to the road up to it and other changes to make the place on Pingtan Island in Fujian province more tourist-friendly.  The timing may be fortuitous.  On December 11th America’s president-elect, Donald Trump, in an interview with Fox News, questioned what China regards as a sacred underpinning of its relationship with America: the principle that there is but ‘one China’ (which, decoded, means that the government of Taiwan is illegitimate).  China, bristling with rage, may well seek to remind its citizens, as well as America, of what happened when that principle was last challenged by the United States with a decision in 1995 by its then president, Bill Clinton, to allow his Taiwanese counterpart, Lee Teng-hui, to pay a private visit to America.  Handy, then, that Pingtan will be able to handle extra busloads of visitors to that hilltop where China’s brass surveyed the pretend assault....

“Mr. Trump’s remarks would have riled the Chinese leadership at any time. But they are particularly unwelcome at this juncture for China’s leader, Xi Jinping. He is absorbed by preparations for crucial meetings due to be held late in 2017 at which sweeping reshuffles of the Politburo and other Communist Party bodies will be announced.  Those trying to block his appointments would be quick to seize on any sign that he is being soft on America over such a sensitive matter as Taiwan.  Should Mr. Trump persist in challenging the one-China idea, the risk of escalation will be even greater than usual in the build-up to the conclaves – all the more so, perhaps, given Mr. Xi’s insistence that differences between China and Taiwan ‘cannot be passed on from generation to generation.’  Hawkish colleagues may say that it is time to settle the issue by force.

“Street protests in China against America or Taiwan would also make it more difficult for Mr. Xi to compromise: he would fear becoming a target himself of Chinese nationalists’ wrath.”

Friday, we learned that a Chinese naval ship seized an underwater naval drone that was being used by the U.S. Navy to test water conditions in the South China Sea.

The Pentagon announced the incident had happened on Thursday, about 50 nautical miles northwest of Subic Bay, in international waters.

Sen. John McCain said Friday afternoon that the seizure is a “flagrant violation” of the laws of the seas.

“China had no right to seize this vehicle,” McCain said.  “And the United States must not stand for such outrageous conduct.”

McCain said the incident fits a pattern of increasingly destabilizing Chinese behavior.

“This behavior will continue until it is met with a strong and determined U.S. response, which until now the Obama administration has failed to provide.  Freedom of the seas and the principles of the rules-based order are not self-enforcing.  American leadership is required in their defense.”

There is no doubt China was sending a message to Donald Trump.  Patrick Cronin, an expert on the region at the Center for a New American Security, said: “Rather than wait several weeks, Beijing is advancing a provocative action offshore from a U.S. ally that had recently kowtowed to China,” referring to the location near the Philippines.  The signal China wishes to send is unambiguous, Cronin said: “‘If you challenge our sovereignty we will challenge yours.’  The U.S. response needs to be equally clear: if anyone messes with our Navy the response will not be limited to words.”  [Washington Post]

North Korea: Editorial / Financial Times

“The Asia-Pacific region is an increasingly important driver of global growth, and sits in an increasingly delicate strategic equilibrium.  One country poses an imminent danger to the region’s stability and therefore its prosperity: North Korea.  The regime in Pyongyang is persistent in pursuit of nuclear weapons and the missiles to deploy them over long distances.  The stand-off is terribly dangerous already, and will grow worse. Stronger international engagement is needed – now.

“Experts believe that North Korea possesses more than 20 nuclear bombs. It has deployed ballistic missiles with ranges that extend to Japan, and has been performing tests with the aim of developing missiles that can reach the west coast of the U.S. It is a matter of time before it can make nuclear bombs compact enough for such missiles to carry: five years is the consensus estimate. The U.S. and its allies could not and should not tolerate this....

“The international community needs to bring North Korea back to the table for multilateral talks, with the end of the missile program as the proximate goal. There are three keys for success. First, an unambiguous warning to Pyongyang that the world will never, under any conditions, acknowledge it as a legitimate or permanent nuclear power. Second, backing these warnings with heavier sanctions. Finally, the U.S., South Korea and Japan must accelerate their cooperation on a missile defense network in the region.”

As for China, it must support sanctions, with China accounting for 90 percent of North Korea’s international trade.

But China doesn’t like the idea of missile defense in South Korea and Japan because it is worried it will weaken its own missile capability.

Japan: Talks between Japanese Prime Minister Shinzo Abe and Russian President Putin over a territorial dispute going back to the end of World War II, the Kuril Islands, yielded little other than a joint economic development agreement.

The islands are claimed by Tokyo, but administered by Russia since they were seized by the Soviet Union from Japan at the end of the war.

Abe had hoped for a breakthrough on ownership, which was to be part of a formal peace treaty ending World War II.  But Putin is playing hardball, just wanting economic aid.

*Note to Mark N.  I will circle back to the Finland issue next WIR.  I ran out of time this week and want to do it justice.  Late-breaking developments in Poland may dovetail with the issue we discussed as well.

Random Musings

--The Electoral College gathers on Monday to formalize the presidential election result.  The tally should read Trump 306, Clinton 232.  Many Republican electors are being inundated with emails, and worse, urging them not to vote for Trump and the stories on suspected Russian interference aren’t helping.

--Donald Trump said he would put his two sons Don and Eric in charge of his businesses by Inauguration Day Jan. 20, but offered no information about his own role.

In a series of tweets late Monday, Trump said he would make no new business deals during his time in the White House, though this came on the same day he said he was postponing a Dec. 15 news conference to announce how he was handling his businesses.  Now we are told the announcement will come after New Year’s.

Legitimately, it is complicated and Trump has a team of lawyers looking at the problem of his organization in general.

Meanwhile, we learned daughter Ivanka will have an office in the East Wing of the White House, one that has previously been for the First Lady (Melania already saying she will be in New York until at least the end of son Barron’s school year), while Ivanka’s husband, Jared Kushner, will occupy a West Wing office as a senior adviser to the president.

An analysis of Trump’s assets by Bloomberg finds ties to businesses and governments in 20 countries, with such ties raising serious questions about his policies and possible constitutional issues.

Trump is trying to assure everyone that legal documents are being drawn up “which take me completely out of business operations,” he has tweeted, though he clearly isn’t planning a sale of any assets as yet, and you have the optics of his children and Jared sitting at the tech summit in Trump Tower on Wednesday.

Then on Thursday, Trump tweeted: “The media tries so hard to make my move to the White House, as it pertains to my business, so complex – when actually it isn’t!”

--I have spent a lot of time the past year, already, writing of President Obama’s legacy, and after New Year’s this will dominate my comments, I imagine, until Inauguration Day because it will be a dominating theme of the opinion pieces around the country, and world.

Here’s an example of what is to come, this blurb from Joe Klein in TIME:

“(There) are two important achievements of the President’s time in office that need to be acknowledged. One is the stimulus plan he fought for and passed in 2009, which prevented a depression and responsibly laid the groundwork for the economic recovery we’re now experiencing.  (Those Democrats who believe that the 2016 election was lost only because of economics are deluding themselves; it was lost because of tribalism.) And overseas, Obama made some mistakes, but he got the big things right: he was not arrogant, he was not bellicose, he reached out to enemies in Cuba and Iran – gestures that will eventually pay off, I believe – and most important, he was confident that our ways will prevail over Islamic extremism (just ask any man or woman in Mosul how they felt about ISIS rule).”

Oh brother.  Mr. Klein is playing the role of village idiot with these brief foreign policy remarks.  But I’ll save my fire for later, beyond what I’ve already said on Aleppo above.

I also have to go into President Obama’s legacy comments in his Friday press conference.

--Ohio Republican Gov. John Kasich rejected the so-called “heartbeat bill,” breaking with his party to veto legislation that would have given Ohio the strictest abortion ban in the nation.

Kasich did tighten the state’s abortion laws by signing a bill that would prevent abortions after 20 weeks’ gestation, when opponents of the procedure say fetuses can feel pain.

But many conservative Republicans wanted Kasich to sign the first bill to prevent thousands of abortions.  The measure would have prohibited abortions after a heartbeat was detected, which can be as early as six weeks’ gestation.

--Bill Sternberg, editor of the Editorial Page of USA TODAY:

“As a skeptical journalist well versed in human foibles, I could count my heroes on one hand.

“There was my dad, an Army veteran of World War II who died three years ago at age 89.

“There was Carl Sagan, the brilliant astronomer who taught me about the cosmos in college and who died at age 62 in 1996.

“There was Arnold Palmer, the swashbuckling golfer who epitomized class, who died in September at age 87.

“And there was John Glenn, the first American to orbit the Earth, who died Thursday at age 95.

“As heroes go, Glenn was the real deal.  I was only 6 when he climbed aboard Friendship 7, circled the planet three times and endured a harrowing re-entry, but I remember being swept up in the excitement surrounding the Mercury space program.

“After leaving NASA in 1964, Glenn – who had survived 149 combat mission in two wars before he went into space – turned to politics, only to see his first run for a Senate seat from Ohio interrupted by, of all things, a serious bathroom accident. Life can be funny like that.

“Glenn was finally elected to the Senate in 1974; I met him when I was the Washington correspondent for more than a dozen newspapers scattered around Ohio.

“As a politician, Glenn was, for better or worse, the anti-Trump.  Low key. A workhorse, not a show horse. A moderate. An expert on difficult, important issues such as nuclear proliferation and weapons systems.  A dedicated family man who stayed married to the same woman, his beloved Annie, for 73 years. Cordial to the press corps, he’d welcome us to his home in Potomac, Md., for holiday get-togethers.

“For all his virtues, though, Glenn was not a very good candidate, which is one reason why he never became president.  When he sought the Democratic nomination in 1984, I traveled with the campaign in the Deep South.

“Wherever he went, Glenn was roundly cheered and quickly surrounded by autograph seekers. But he had trouble translating his popularity into votes.  His small-town Ohio values – ‘God and flag and motherhood and patriotism’ – didn’t add up to a substantive platform. His campaign was poorly organized. And his speaking style was wooden....

“At age 77, near the end of his fourth and final Senate term, Glenn returned to space aboard the shuttle Discovery. The scientific rationale was a bit thin, but who could quibble?

“Tom Wolfe, who wrote about Glenn and his fellow astronauts in The Right Stuff, called Glenn ‘the last true national hero America has ever had.’  That he was.  And now, he too is gone.”

Mr. Sternberg’s portrayal of Glenn the candidate is spot on.  And ditto Mr. Wolfe’s description.

--After nearly a week of painful testimony, a Charleston, S.C. jury found Dylann Roof guilty of federal hate crimes resulting in the death of nine black parishioners at the historic Mother Emanuel church in June 2015.  The Justice Department is seeking the death penalty and this phase is set to begin next month. 

--Finally, Happy Birthday, Pope Francis, who turns 80 Saturday.  He has already had a most consequential papacy, transforming the Church, so I leave you with a bit from an op-ed in the Wall Street Journal by Javier Martinez-Brocal, director of Rome Reports, a TV news agency that specializes in coverage of the Vatican.

“Returning from the U.S. last year, Francis reflected on the passing nature of power.  ‘Here today, gone tomorrow...What’s important is that you do good with it if you have it.’  As he turns 80, and his time as the vicar of Christ comes closer to its end, he can now focus on making sure others do good with the power he leaves them.”

---

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

God bless America.

---

Gold $1136...down a sixth straight week
Oil $52.03

Returns for the week 12/12-12/16

Dow Jones  +0.4%  [19843]
S&P 500  -0.1%  [2258]
S&P MidCap  -1.5%
Russell 2000  -1.7%
Nasdaq  -0.1%  [5437]

Returns for the period 1/1/16-12/16/16

Dow Jones  +13.9%
S&P 500  +10.5%
S&P MidCap  +19.2%
Russell 2000  +20.1%
Nasdaq  +8.6%

Bulls 59.6
Bears  19.2  [Source: Investors Intelligence...reminder, a 60 reading for the Bulls would be a major warning signal...like ‘Sell, Sell, Sell!!!’]

Have a great week.

Brian Trumbore