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03/21/2015

For the week 3/16-3/20

[Posted 12:00 AM ET]

Edition 832

Washington and Wall Street

Before I get to the Federal Reserve and its critical meeting that primed the markets further, the Organization for Economic Cooperation and Development issued its latest outlook for the global economy and the OECD sharply upgraded its economic forecasts for the eurozone. For the U.S., the OECD now forecasts growth of 3.1% this year, unchanged, and 3% in 2016 (ditto), while Canada is projected at 2.2% this year and 2.1% next.

Japan is forecast to grow by 1% in 2015 and 1.4% in 2016, China by 7% in both 2015 and 2016, India by 7.7% in 2015 and 8% next year. And Brazil is forecast to shrink by 0.5% in 2015, before returning to 1.2% growth in 2016.

The euro area is now forecast to grow at a 1.4% rate in 2015 and 2% in 2016, up 0.3 percentage points from the OECD’s November report, with Germany up 1.7% this year (0.6% faster than initially forecast) and 2.2% next; France growing 1.1% in 2015 and 1.7% in ’16; and Italy seeing 0.6% growth this year and 1.3% next. [For 2015 up 0.3 and 0.4 percentage points, respectively, for these last two.]

The U.K. is forecast to grow at 2.6% in 2015 and 2.5% in ’16.

Overall, the OECD now says the global economy is expected to grow 4% this year, before accelerating to 4.3% in 2016, though it concedes growth is excessively reliant on monetary policy, and that governments need to speed up structural reforms and increase investment to complement what the central banks are doing.

Catherine Mann, OECD chief economist, said, “Excessive reliance on monetary policy alone is building up financial risks, while not yet reviving business investment." [Financial Times]

OK, so let’s focus on the U.S. Prior to the Tuesday-Wednesday Fed meeting, many voices, including Christine Lagarde, head of the IMF, economist Paul Krugman, and hedge fund king Ray Dalio of Bridgewater Associates, were warning of the Fed taking away the punch bowl too soon. Not that anyone thought it will raise interest rates for the first time in ten years before, say, June, but as Lagarde and the others said, any rate increases here could trigger instability in emerging markets and elsewhere. 

Dalio warned the Fed risked causing a 1937-style stock market slump when it finally moves. In a note to clients and followers:

“We don’t know – nor does the Fed know – exactly how much tightening will knock over the apple cart. What we do hope the Fed knows, which we don’t know, is how exactly it will fix things if it knocks it over....

“We are cautious about exposures,” the note added. “For the reasons explained, we do not want to have any concentrated bets, especially at this time.”

Dalio, and his partner Mark Dinner, wrote further: “If one agrees that either a) we are near the end of the developed country central bankers’ ability to be effective in stimulating money and credit growth or b) the dollar is the world’s reserve currency and that the world needs easier rather than tighter money policies, then one would hope that the Fed will be very cautious about tightening.”

Bridgewater, which has one of the best track records around, is worried about emerging market corporations, such as Chinese property companies, that have borrowed dollars, despite their lack of dollar revenues, without understanding how strong the currency would become.

Lagarde said she is concerned over the “spillover” effects from rate hikes that could lead to a re-run of the crisis developing markets saw nearly two years ago, after then-Fed chairman Ben Bernanke hinted at the end of Fed bond-buying, or “quantitative easing.” [Henny Sender and Stephen Foley / Financial Times]

So the concern was that this week the Fed would remove the word “patient” from their accompanying statement, which would then signal the first rate rise in June or shortly thereafter. 

Well what did Chair Janet Yellen and her band of merry pranksters do? They removed the word patient, but then lowered their forecasts for future hikes in the funds rate, while also lowering other targets. The markets rallied and bond yields fell. To wit:

In removing ‘patient’, “This change in forward guidance does not indicate that the [Fed] has decided on the timing of the initial increase in the target,” the Fed said in its statement.

Fifteen of the 17 Fed officials said they expected to start moving rates up in 2015, but they essentially cut in half the estimate of how high they’d go...from 1.125% by year end to just 0.625%. [And only 1.87% for 2016 vs. the previous 2.50% estimate.] The policy statement also said an April hike was definitely off the table (though many commentators missed that the Fed said this in January), but June is still a possibility, only now it won’t necessarily presage a series of quarter-point hikes, rather itsy-bitsy steps...teeny-tiny ones that will add teeny-tiny amounts to your savings accounts and CDs that pay interest. Perhaps enough for a postage stamp or two.

What Fed officials also did was revise down their projections for economic growth to between 2.3% and 2.7% in 2015 (reminder...up above the OECD is saying 3%), which is a downgrade from their December estimate of 2.6% to 3.0%, while the forecasts for 2016 and 2017 were reduced a little as well.

[A survey of economists by the Wall Street Journal has a new estimate for first-quarter growth of 2.3%, but 2.9% for the full year.]

“Economic growth has moderated somewhat,” the statement read. In January the pace was described as “solid.”

The Fed also importantly reduced its outlook for inflation, projecting just 0.6% to 0.8% this year, and still under the target 2.0% in 2016.

All this while the labor market continues to improve, with the jobless rate projected now to fall further from its current 5.5% to 5.0% by year-end.

Bottom line, inflation is the key and there is little reason for the Fed to move until it is at 2% or higher, which it does see over the medium term. I will continue to focus on wage growth, which is also currently 2%.

The Fed left it very clear it was going to be extremely careful before tightening monetary policy, especially in any significant way. Or, as Chair Yellen put it succinctly in her post-meeting press conference, just because the Fed removed the word “patient” doesn’t mean the central bank was “impatient” when it came to hiking rates. Yellen also noted the dollar’s recent surge restrains import prices and inflation.

So in response the Dow Jones reversed about 400 points from its Wednesday morning lows, pre-Fed statement, finishing up 227 points; it then fell 117 on Thursday, but rose another 168 on Friday.

Just a few other notes...February industrial production rose 0.1%, though the manufacturing component for the report fell a third consecutive month, not good, while February housing starts were at an annualized rate of 897,000, down 17% from the prior month, the most in four years, though here the godawful weather in the Northeast and Midwest provides a legitimate excuse.

Here’s the thing. It’s easy to see why the Fed changed its language on the economy to ‘moderate’ growth from ‘solid.’ Recent news on industrial production, retail sales and housing have indeed been disappointing.

Finally, the House and Senate both released their budget outlines for fiscal 2016 (which starts Oct. 1) and I’m not going to waste my time or yours since these often change drastically before the final plans are hashed out in conference. I will just say Republicans seem to be cutting some spending unrealistically, while ignoring how the rapidly changing geopolitical scene is going to force us to spend far more on defense than either party currently understands. I believe the budget picture could get sloppy again much quicker than currently believed, and there are still zero signs, realistically, that entitlement spending is going to be attacked, even as Republicans pay it some lip service.

Actually, parts of the Republican budget are laughable, especially in terms of revenues.   As for the debt ceiling issue that has been raised again, that too is not of immediate concern, even as the Treasury is forced to take its now familiar “extraordinary measures.” We are not near a crisis in this regard; with most believing the U.S. wouldn’t reach a critical stage again until after Labor Day.

Europe and Asia

It’s still all about Greece and once again its crunch time as it is facing 2 billion euro in immediate debt payments – 350m to the IMF while needing to refinance 1.6bn in short-term notes as Greece has to come up with funds to meet salaries and pensions at a minimum at month’s end.

It was a tension convention this week as harsh words were exchanged by all sides amid reports by the Financial Times that 400m euro a day was being withdrawn by Greek depositors in a slow-motion bank run (my description).

On Wednesday, Greek Prime Minister Alexis Tsipras railed against the country’s creditors, who he says come to Greece to inspect ministries and “humiliate” local officials with questioning, sometimes making them wait until the early hours of the morning. “We will not tolerate such phenomena, either in Greece, or abroad,” he told parliament.

“People have asked us to put an end to austerity and bailout agreements, to begin the process of reclaiming the dignity of the nation,” Tsipras said. “We respond today, tomorrow and on Friday in parliament by building a wall of sovereignty and dignity.” [Bloomberg]

At the same time, a poll of Germans by broadcaster ZDF found 52% no longer want Greece to remain in the eurozone, up from 41% last month. 80% of Germans feel Greece’s new government “isn’t behaving seriously toward its European partners.” 82% doubt Greece will honor its commitments on budget cuts and reforms.

The European Commission, European Central Bank and IMF have complained they are receiving little from Greece on its finances as the two sides appear to be talking past each other.

Prime Minister Tsipras, for example, is seeking to help the poor through legislation with funding to pay electric bills and for food stamps, but this is exactly what the ‘troika’ doesn’t want to see.

Tsipras finished the week, though, by saying his government would come up with a new reform plan that would pass muster in a matter of days. German Chancellor Angela Merkel and the others were doubtful, and then the conversation degenerated all over again.

Time really is running out, as reflected in the pricing of Greek bonds, with short-term yields having climbed to near 25% and the Greek 10-year at 11.10% at the close, Friday (it had been much higher earlier), vs. the German bund yield of 0.18%. Just a slight difference between the two.

Speaking after a middle-of-the-night meeting with Tsipras and others, Merkel said: “The Greek government will take full responsibility for the reforms and submit a list of (them) in the coming days....Everything is supposed to be completed quickly,” she added.

A senior EU official was quoted by the BBC as saying, the message to Greece was simple – “give us a list fast, then you can get the money fast.”

But only once that list is evaluated will the nations using the euro hand over more money.

The bailout, recall, was extended Feb. 20 to the end of June, but only assuming Greece met the creditors’ terms.

The fact is, however, the Greek economy is once again in freefall, tax revenues are hard to uncover, you have the mini-bank run, and the political volatility. The ECB only raised the maximum amount of emergency liquidity available to Greek lenders by $435 million, less than the Greek central bank requested. There is the fear the banks will use the money to finance the Greek government, which would violate EU law.

There is still a real chance Greece will exit the euro.

Irish Prime Minister Enda Kenny, whose country went through wrenching austerity and came out the other end with the best growth in the eurozone, said, “The feeling among the political leaders is that Greece and Greek politicians have got to live up to their responsibilities here. The prime minister asked for time and space and he’s been given that to come forward with sustainable and workable proposals, and obviously Greece needs to reflect on that very quickly now because time is running out.” [Irish Independent]

Eurobits....

--Thousands of anti-capitalist protesters surrounded the new European Central Bank building in Frankfurt on Wednesday, with 80 officers injured in the ensuing melee; numerous cars, including police vehicles, torched. The new edifice cost 1.2bn euro so it’s an easy target for the anti-austerity crowd. One protest leader told the Financial Times: “The opening of the new ECB building is not a reason to celebrate. It’s a reason to protest for a social and democratic Europe.” Katja Kipping, leader of the leftwing Die Linke party, added: “The result of the troika regime is poverty, high youth unemployment and economic recession.”

--A flash reading on construction for January in the eurozone came in up 1.9% over December, according to Eurostat, while February inflation was as first estimated by the same agency, -0.3% annualized vs. -0.6% in January. 

--German business sentiment indicators continue to improve sharply.

--Wage growth in the U.K. for the rolling three months to January weakened to 1.8% from a 2%+ pace, though inflation was only 0.3%, ergo at least ‘real’ wages are up decently.

--Ireland made the last of its early loan repayments to the IMF, leaving the country with just under a fifth of the original 22.5bn euro bailout left to pay. Slainte!

Wolfgang Munchau / Financial Times

“When German economic illiteracy meets with Greek diplomatic illiteracy, nothing good will come of it. Last week, a Greek minister threatened to swamp Germany with Islamic refugees. The Germans are again debating an accidental Greek exit from the eurozone: Grexident. Alexis Tsipras, the Greek prime minister, linked a claim about second world war reparation payments against Germany to present discussions on the extension of a loan agreement.

“The reparations claim itself is not frivolous. There are even German lawyers who believe Athens has a case. But it is politically mad to link the two. What we are hearing is not the usual noise: there is a loss of trust.

“The conclusion I draw from this is that the odds of a Greek exit from the eurozone have shortened dramatically in the past two weeks. The two sides may tone down their rhetoric in the coming days but I cannot see the creditor countries relenting on the conditions of last month’s debt rollover agreement. Nor can I see the Greek government fulfilling them. Since nobody knows how many days or weeks Athens is from insolvency, the risk of a sudden exit is clear and present. Grexit may never happen – but it is time to get ready.”

Just a note or two on China...Premier Li Keqiang at his annual press conference following the end of the National People’s Congress, said the country faces an uphill task meeting its lowered economic growth target of 7 percent this year.

“It will by no means be easy to meet this target,” he said. “The pain is still there and the pain is becoming even more intense. Shedding government powers will touch on vested interests. However painful it is, the wrist-cutting efforts will be carried out continuously until the job is done.”

Sounds bloody, and not exactly 7 percentish.

Meanwhile, the latest out of the National Bureau of Statistics on the housing sector shows the 70-city home price index for February fell 5.7% year over year, vs. January’s 5.1% decline and December’s 4.3% fall. That’s not exactly a favorable trend. Home prices fell in 69 of the 70 from a year earlier.

Street Bytes

--The Dow Jones ended a three-week losing streak, finishing up 2.1% to 18127, while the S&P 500 rose 2.7% and Nasdaq advanced 3.2% to 5026, just 22 points shy of its record March 10, 2000 close of 5048.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.58% 10-yr. 1.93% 30-yr. 2.51%

Treasuries rallied big after the Fed’s dovish comments. Consider this. In less than three months the 10-year has gone from a 12/31/14 close of 2.17% down to 1.64%, then up to 2.24% and now back down to 1.93%. These are huge percentage moves.

Internationally I do have to add that the Tokyo Nikkei is up six weeks in a row, but the biggest story of 2015 is Frankfurt’s DAX, up a whopping 10 straight weeks...22.8% for the year...as it hits one record high after another.

--Oh, those daffy Chinese...including the Chinese military, which may have been involved in a cyber hack at Register.com, which manages more than 1.4m website addresses for businesses around the world.

The FBI is investigating whether hackers stole network and employee passwords, for about a year. While Register.com reported the hack to the FBI in short order, it did not advise customers or investors and it is not known to have caused any customer disruptions.

Which is another reason why the FBI believes this was state-sponsored, with the Bureau thinking the Chinese were just looking to assess vulnerabilities in the Internet infrastructure; such as crashing intended sites and/or stealing data.

Register.com is a unit of Web.com. Another subsidiary of Web.com is Network Solutions, the third largest Internet registrar in the world.

Separately, Yahoo is shuttering its China office, resulting in the loss of about 350 jobs. Yahoo has been in retreat in China since 2013 as it had a rough relationship with the Chinese government, though the company insists this is not about the government, but rather a desire to cut its global operating costs.

--The drought in California just gets worse and worse. According to a NASA scientist, Jay Famiglietti, the state has about one year of water left in its reservoirs. The availability of tap water is very much in question. Talk of desalination of the Pacific Ocean is basically beyond realistic in terms of costs, especially for agriculture. There’s also increasing talk of “peak water.”

Peter Gleick, president of the Pacific Institute, a research organization, told USA TODAY’s Doyle Rice, “All bets are off on water policy” as the drought goes on for five, 10 or 20 years....We’ve reached ‘peak water’ in most western watersheds, and there’s no more water to be had.”

Here’s a stark example of the future and what Gleick is talking about, from Bettina Boxall / Los Angeles Times:

“Parts of the San Joaquin Valley are deflating like a tire with a slow leak as growers pull more and more water from the ground. The land subsidence is cracking irrigation canals, buckling roads and permanently depleting storage space in the vast aquifer that underlies California’s heartland.

“The overpumping has escalated during the past drought-plagued decade, driving groundwater levels to historic lows in some places. But in a large swath of the valley, growers have been sucking more water from its sands and clays than nature or man puts back for going on a century.

“They are eroding their buffer against future droughts and hastening the day, experts warn, when they will be forced to let more than a million acres of cropland turn to dust because they have exhausted their supplies of readily available groundwater.”

The snowpack in the Sierra Nevada this season is going to set a 25-year low.

So Thursday, Gov. Jerry Brown and top lawmakers unveiled a $1 billion emergency plan designed as a mix of short-term and long-term relief, including new projects for water recycling and desalination.

--Shares in Biogen rose nearly 10% on Friday on word early trials of its experimental Alzheimer’s drug showed promise; slowing the rate of cognitive decline. The drug is called Aducanumab and is one of several drugs under development by the big pharmaceutical companies that are trying to attack “amyloid plaque,” the sticky build up in the brain that many scientists believe is responsible for Alzheimer’s.

I have never over the 16 years of this column hyped medical discoveries because they always prove to be so long in coming, if ever. But we all should hope this one is real. A lot of responsible researchers seem to believe it has promise.

--The Dept. of Health and Human Services says the number of uninsured in America has declined by 16.5% from five years ago, when ObamaCare was signed into law. Director of the Office of Health Reform for HHS, Meena Seshamani, said, “Today, we know that the Affordable Care Act is working... These numbers represent real people.”

Well it ain’t workin’ for me, babe! I’ll save my own mini-nightmare for some other week, but let’s just say for now, what had been a great deal for moi is now not so great...and it’s not just about paying a higher premium.

--The Bank of New York Mellon reached a $714 million settlement in a currency trading case filed back in 2011 by Preet Bharara, the United States attorney in Manhattan, and New York’s attorney general, Eric Schneiderman, with BONY having been accused of cheating government pension funds and other investors for more than a decade through currency manipulation. Authorities accused the bank of assuring clients they would receive the best execution when BONY often gave clients near the bottom of the range, enabling it to make extra cash.

But the settlement would appear to be a fraction of the suspected gains. As part of the penalty, however, the bank had to end the employment “of certain executives involved in the fraud,” including a managing director, while tightening disclosure requirements to clients.

BONY can now move on, after fighting the case for years in attacking what it called “prosecutorial overreach.”

Preet Bharara said in a statement: “Motivated by outsized profits and bonuses,” the bank and its executives “repeatedly misled clients to believe that the pricing they were getting on foreign exchange was far better than it actually was.”

--Oracle is turning up the heat on its software rivals, claiming it has seen a surge in its new cloud services business, though it still just accounts for 6 percent of its overall revenues; which were unchanged from a year earlier, though the company said it would have been up 6 percent without currency volatility, which is lame, though everyone will be citing it with release of the first quarter results.

But the shares rose as Oracle raised the dividend, which, of course, benefits chairman Larry Ellison, who assured us he recused himself from the decision to do so.

Anyway, Ellison pounded away on the fact Oracle’s cloud business was up 29 percent from a year earlier, though he emphasized customer demand was far stronger. He said Oracle would surpass Salesforce.com by end of 2015, a year earlier than he had previously forecast, and he added  “we’re nearly three times bigger than Workday now,” which proves Ellison doesn’t know math because it’s not even 2 ½ times WDAY, plus the latter’s revenues grew 59 percent. [Right, Jimbo?!]

--FedEx reported earnings for the December to February quarter that exceeded expectations, though it narrowed its forecast for the year to May 31, rather than raising it, so the shares traded down a bit. Revenue at FedEx Ground rose 12 percent, even as volume was up 7 percent, because the company was able to increase some rates. Revenue in the core FedEx Express air parcel business fell marginally.

Meanwhile, the company received a “significant” boost from lower fuel prices.

--Tesla Motors Inc. can once again sell cars from company-owned dealerships in New Jersey, with Gov. Chris Christie allowing up to four locations. [I’m assuming one is next door to me at The Mall at Short Hills...I’ll have to do a channel check.] Last year New Jersey’s Motor Vehicle Commission revoked Tesla’s dealership licenses. It’s all about the automaker’s direct sales method that eliminates independent dealers.

But it’s also about where do you get your car serviced... just remember that, Tesla fans.

--General Motors is closing its plant in Russia amidst a dire outlook for Russian auto sales. As the Wall Street Journal reported, “industry volumes in the country fell 10% in 2014, and declines widened in January and February as the economy weakened and the ruble continued to soften.”

GM made some major mistakes in Russia and is taking a $600 million charge in the first quarter to unwind operations there. As recently as 2012, it had announced plans for a major expansion in St. Petersburg, for example.

Last year, GM sold 189,000 vehicles in Russia, 15% of GM Europe’s total and 2% of its global sales. [WSJ]

--Tiffany & Co. has become a major barometer for the high-end sector of the global economy as it receives about 50% of its sales from overseas. Friday the company reported earnings and revenues for the three- and 12-month periods ending Jan. 31, 2015, that were basically in line with expectations, though worldwide sales were down 1% from the prior year for the fourth quarter, up 5% for the full year, not taking into consideration currency fluctuations.

Same-store sales in the Asia-Pacific rose 3% in Q4. In Europe, comp store sales rose a solid 4%. For Q4 in the U.S., comp sales were flat, but up 6% for the full year.

--The Commerce Department reported the number of tourist to the U.S. rose 7 percent in 2014 to nearly 75 million. But with the rising dollar making travel here more expensive, spending fell slightly in January and is expected to continue to do so the balance of the year. The biggest impact from a revenue standpoint will be with European travelers, especially in New York.

--Since mid-2009, the bottom of the financial crisis, only 2 percent of the 528,000 jobs added in New York City have been on Wall Street, as reported by Nicole Gelinas of the New York Post. In the previous two downturns Wall Street was 10 percent of the recovery.

--Apple Inc. is planning to put together an online television service that would have about 25 channels, anchored by the likes of ABC, CBS and Fox, which would be available on Apple devices such as Apple TV. NBCUniversal is not involved in current talks because of a fall-out between the two, including NBC’s parent Comcast.

ABC’s package would of course include Disney and ESPN. Priced at about $30 per month, it would work across all Apple devices.

--Prime-time broadcast network ratings were off 12 percent in February compared to a year ago, while cable networks dropped 11 percent, according to a report by media analyst Michael Nathanson. Seeing as metrics like this determine what advertisers pay for TV time, this isn’t good. It also marks the fifth straight month of double-digit declines. [Claire Atkinson / New York Post]

--Jeff Sommer of the New York Times, working with S&P Dow Jones, conducted a study last summer titled “Does Past Performance Matter? The Persistence Scorecard,” which is updated twice a year. Sommer first focused on the data beginning March 2009, the start of the bull market.

“It included 2,862 broad, actively managed domestic stock mutual funds that were in operation for the 12 months through 2010. The S&P Dow Jones team winnowed the funds based on performance. It selected the 25 percent of funds with the best returns over those 12 months – and then asked how many of those funds actually remained in the top quarter in each of the four succeeding 12-month periods through March 2014.

“The answer was a remarkably low: two.

“Just two funds – the Hodges Small Cap fund and the AMG SouthernSun (sic) Small Cap fund – managed to hold on to their berths in the top quarter every year for five years running.”

Both, however, have finally stumbled in the year since. I think you know what the conclusion is of the author. Buy low-cost index funds.

--The Journal had a story on the efforts to replace the Port Authority Bus Terminal in Manhattan. I haven’t been through there since the 1980s, but picture it opened in 1950 and has been a cesspool since, like, 1952. And, as the Journal notes, comedian John Oliver declared it “the single worst place on Planet Earth” and said even the cockroaches are trying to escape.

Well the cost to replace it is estimated at $8 billion to $11 billion. On one hand this seems realistic, but on the other, many huge sports stadiums are built for under $1 billion, so I’m thinking $5 billion? Just sayin’.

Anyway, don’t look for a replacement soon if you use the current dump. Whenever authorities decide to proceed, it will take a decade or longer to replace it.

By the way, 80,000 riders enter Manhattan through the terminal ‘during morning rush hours,’ while about 40,000 do via Penn Station. Boy, I wouldn’t have guessed this. I feel soooo stupid!

--U.S. revenues from subscription streaming music services such as Spotify have eclipsed CD sales, hitting $1.87 billion in the U.S. in 2014, while sales of CDs fell 12.7% to $1.85bn. But sales of vinyl records rose 50% to $315m.

Downloads peaked in 2012 and have been in decline ever since, falling 8.7% to $2.58bn, equivalent to 37 percent of total industry revenues, according to data from the Recording Industry Association of America. [Matthew Garrahan / Financial Times]

--Lester Holt has won the evening network news race in all five of the weeks’ he’s hosted after replacing Brian Williams, though his lead for the week of March 9 to 13 was his narrowest thus far over “ABC World News Tonight.”

--What a boon for HBO...the success of “The Jinx” and the arrest of Robert Durst. You have to be psyched for those who produced the documentary, including filmmaker Andrew Jarecki. That’s the kind of success story I love to see in America.

Foreign Affairs

Iran: Its crunch time in terms of the Iranian nuclear talks. A deal is supposed to be worked out in the next ten days, allowing time to iron out final details by June 30. President Obama sent a video message to the Iranian people for Persian New Year.

“We have the best opportunity in decades to pursue a different future between our countries,” though, “This moment may not come again soon.

“I believe that our nations have an historic opportunity to resolve this issue peacefully – an opportunity we should not miss.”

Obama said isolation awaited if an agreement was not reached.

But Obama not only has problems convincing Congress on the merits of the deal being discussed, the other members of the P5+1 (Russia, China, Britain, France and Germany) have issues with Iran’s continuing hardline stance when it comes to the easing of sanctions should an agreement be reached.

The deal being discussed would commit Tehran to a 40% cut in the number of centrifuges used to enrich uranium and in turn the sanctions would be eased sharply, including a UN embargo on conventional arms that would be partially lifted.

But the P5+1 is differing with Iran on the timing of the lifting of sanctions, as well as how long the deal is in force and just what the inspection regime will entail.

360 members of Congress sent a letter to the White House reminding the president that a lifting of sanctions requires new legislation.

So at last word, the U.S. is saying any agreement would restrict Iran’s nuclear activities for 10 to 15 years, but while we’ve heard particularly in the last 4-6 weeks that a deal could be close, the parties haven’t begun working on the draft that is supposed to be completed by March 31, with Iranian Foreign Minister Mohammad Javad Zarif, Iran’s chief nuclear negotiator, saying they are “still a distance” from a deal.

The big sticking point for Israeli Prime Minister Benjamin Netanyahu has been that when the agreement expires, say in ten years, Iran would face no restrictions whatsoever, but the White House is saying Iran would face a variety of restrictions indefinitely, including tough monitoring and inspections, yet there is no way Iran would accept this.

Another issue is, say the P5+1 and Iran do reach an agreement. How long will the sanctions really remain in place? Most experts agree they will go away in short order, especially in terms of how the non-U.S. members apply them.

But if I had to point to one sticking point, it’s on the inspections front and any agreement reached on the nuclear program won’t include restrictions on Iran’s military projects, such as its ballistic missile program, let alone experiments on nuclear triggers, which you need to weaponize the missiles in the first place. International Atomic Energy Agency inspectors have never been allowed onto suspected bases where such projects are taking place, as I’ve been pounding the table on for years and years.

Separately, while the issue of the Republican letter to the Iranian leadership has come up in negotiations between Sec. of State John Kerry and Zarif, it is more of a distraction than an actual hindrance in discussions.

Daniel Henninger / Wall Street Journal

“In a letter last weekend to Sen. Bob Corker, chairman of the Foreign Relations Committee, White House Chief of Staff Denis McDonough doubled down on Barack Obama’s general theory of American politics – my way or the highway. He wrote that other arms agreements haven’t gone through the Senate and that Mr. Corker and his Senate colleagues should step away from the Iran deal.

“In fact, Presidents Kennedy, Nixon and Reagan all submitted major arms-control treaties and agreements for Senate approval. They did so to give their work political credibility with the American people and indeed the world. But somehow Mr. Obama believes he has an exemption from the basics of U.S. politics. So we wake up one day to find he is substituting the judgment of the Security Council, with such famous allies as Russia and China, for consent from the U.S. Senate. Result: an arms deal as politically flaccid as ObamaCare....

“As important as the constitutional issues raised by Mr. Obama’s unilateral authority is the political damage he has done to traditional relationships between the presidency and the institutions his methods have marginalized.

“The Obama presidency has sucked the oxygen out of politics in Washington and indeed the world. But politics abhors a vacuum. The Senate letter to Iran more than anything is the system bursting outside its normal channels. Desperate Ukraine, abandoned to Russia by the U.S., has pathetically asked the U.N. to send blue-helmeted peacekeepers to eastern Ukraine.

“No serious person can be shocked if what happens after the Iran nuclear agreement looks a lot like the ObamaCare rollout – shambles of half-done details. With ObamaCare, America’s courts and bureaucracies are available to clean up the mess. But you may not like the cleanup crew that shows up for the ObamaCare of arms-control deals.”

Jennifer Rubin / Washington Post

“Recall where this administration started: No Iranian enrichment. No sanctions lifted until Iran complies with its responsibilities. Iran must fully disclose its past illegal activities and allow unrestricted inspections. Iran must dismantle the Arak heavy-water reactor. Now look where we are heading: Iran gets thousands of centrifuges and has gotten recognition of its right to enrich. Sanctions will go away ‘swiftly.’ Iran does not reveal past activities. It keeps intact the Arak reactor. After a 10-year period, it is treated like all other NPT signatory countries.

“No wonder the president will have to go back to the U.N. Security Council. His ‘deal’ will have violated virtually every provision and restriction on Iran’s nuclear capability. No wonder he won’t submit the deal for congressional approval; even the most sympathetic Democrat would be hard pressed to explain a capitulation this extensive and a deal this lopsided. Obama is not getting a ‘bad’ deal; he is simply surrendering to every significant demand, if reports are true. And Democrats obsess over the format of a letter. You would think they would be more concerned about a complete collapse of American credibility, a Middle East nuclear arms race and the world’s largest state sponsor of terror gaining a nuclear blackmail card.”

Israel: What an incredible turn of events in the Israeli elections. Four days before the vote on Tuesday, I told you of two polls that had Isaac Herzog’s Zionist Union ahead of Benjamin Netanyahu’s Likud party 24-21 and 25-21 in terms of projected seats in the Knesset. Boy did Israeli pollsters have it wrong as Netanyahu veered hard right in the final 24 hours to get his supporters to turn out.

Likud ended up with 30 seats out of 120 in parliament, while the Zionist Union captured 24. Netanyahu should have no problem in forming a coalition within the allotted time as he’ll be set to serve a record fourth term as prime minister, thus becoming longest-serving PM ever.

Asked on Monday by an interviewer: “If you are prime minister, a Palestinian state will not be established?”

“Indeed,” Netanyahu answered.

The Zionist Union had campaigned on a platform of trying to repair ties both with the Palestinians and Washington.

But in his first interview since the vote, Netanyahu watered down his pre-election vow not to allow the establishment of a Palestinian state.

In an interview with MSNBC, he said he did want a two-state solution, but added “circumstances have to change.”

“I don’t want a one-state solution. I want a sustainable, peaceful two-state solution, but for that circumstances have to change,” he told MSNBC’s Andrea Mitchell.

“I never changed my speech in Bar Ilan University six years ago calling for a demilitarized Palestinian state that recognizes the Jewish state. What has changed is the reality,” he said.

But in his interview, Netanyahu cited Palestinian leader Mahmoud Abbas’ refusal to recognize Israel as a Jewish state.

The White House is choosing to believe his words prior to the election. President Obama waited until Thursday to call and congratulate the prime minister, taking the opportunity to remind him where the United States stood on a two-state solution.

The damage was done, going back essentially to over a year ago, and well before Netanyahu’s speech before the U.S. Congress to warn of a bad deal in the Iranian nuclear talks.

The White House said there would be “consequences” for Israel as it “re-evaluates” its diplomatic strategy. The New York Times reported the administration is considering agreeing to the passage of a United Nations Security Council resolution “embodying the principles of a two-state solution that would include Israel’s 1967 borders with Palestine and mutually agreed swaps of territory.”

A senior White House official told the Times: “The premise of our position internationally has been to support direct negotiations between the Israelis and the Palestinians. We are now in a reality where the Israeli government no longer supports direct negotiations. Therefore we clearly have to factor that into our decisions going forward.”

Charles Krauthammer / Washington Post

“Of all the idiocies uttered in reaction to Benjamin Netanyahu’s stunning election victory, none is more ubiquitous than the idea that peace prospects are now dead because Netanyahu has declared that there will be no Palestinian state while he is Israel’s prime minister.

“I have news for the lowing herds: There would be no peace and no Palestinian state if Isaac Herzog were prime minister either. Or Ehud Barak or Ehud Olmert for that matter. The latter two were (non-Likud) prime ministers who offered the Palestinians their own state – with its capital in Jerusalem and every Israeli in the new Palestine uprooted – only to be rudely rejected.

“This is not ancient history. This is 2000, 2001 and 2008 – three astonishingly concessionary peace offers within the past 15 years. Every one rejected.

“The fundamental reality remains: This generation of Palestinian leadership – from Yasser Arafat to Mahmoud Abbas – has never and will never sign its name to a final peace settlement dividing the land with a Jewish state. And without that, no Israeli government of any kind will agree to a Palestinian state.

“Today, however, there is a second reason a peace agreement is impossible: the supreme instability of the entire Middle East. For half a century, it was run by dictators no one liked but with whom you could do business. For example, the 1974 Israel-Syria disengagement agreement yielded more than four decades of near-total quiet on the border because the Assad dictatorships so decreed.

“That authoritarian order is gone, overthrown by the Arab Spring.”

Syria, Egypt, Libya, now Tunisia, it would seem.

“From Mali to Iraq, everything is in flux. Amid this mayhem, by what magic would the West Bank, riven by a bitter Fatah-Hamas rivalry, be an island of stability? What would give any Israeli-Palestinian peace agreement even a modicum of durability?....

“Israel is ringed by jihadi terrorists in Sinai, Hamas in Gaza, Hizbullah in Lebanon, Islamic State and Iranian proxies in Syria, and a friendly but highly fragile Jordan. Israelis have no idea who ends up running any of these places. Will the Islamic State advance to an Israeli border? Will Iranian Revolutionary Guards appear on the Golan Heights? No one knows....

“I understand the crushing disappointment of the Obama administration and its media poodles at the spectacular success of the foreign leader they loathe more than any other on the planet. The consequent seething and sputtering are understandable, if unseemly. Blaming Netanyahu for banishing peace, however, is mindless.”

Michael Young / Daily Star

“Benjamin Netanyahu’s victory in Israel’s general elections means that any hope of serious negotiations between Israelis and Palestinians – never particularly high in the first place – is now virtually nil.

“But more uncertain, and interesting, is what it will do to relations between the United States and Israel.

“Under Barack Obama, the United States has adopted a radically new vision for the Middle East and Israel’s status in it. Obama seeks to put in place a regional balance of power, one in which Iran would play a major role. A nuclear deal with Tehran is the cornerstone of that effort. It would allow the Americans to disengage from a region that has been a drain on their limited resources; a region that, to Obama, offers few long-term advantages.

“This American attitude has helped Netanyahu, but it also contains many risks for Israel. The Israeli prime minister can delight in the fact that the Israeli-Palestinian conflict is today of little concern to Obama, who regards American mediation as a thankless, unending task destined to fail. That allows the Israelis to pursue their occupation of Palestinian land at will and ensure that no peace deal ever becomes possible.

“But there is also a downside. Obama’s implicit message is that in a new Middle East Israel will more or less be on its own, having to invent a new purpose for itself in the emerging regional realignment, across from Iran. And as a more unpredictable region takes form, Israel’s power will be eroded by its inability to reach a settlement with the nearly 4 million Palestinians in and around the territories it controls.

“America will not abandon Israel, any more than it will Jordan, Saudi Arabia and the Gulf states. But nor will it expend valuable political capital to save Israel from itself. Especially when Israelis seem unwilling to understand the urgency of a peace settlement with the Palestinians. The reality is that Israel has no solution to the demographic time bomb in its midst....

“Netanyahu is a disgraceful figure, and if he forms a government he will only push the region into new catastrophes. But he is right in seeing a fundamental change in the American approach. Yet his victory may only serve to accelerate Obama’s shift, reinforcing the president’s conviction that Israelis are incapable of making difficult choices with the Palestinians. Let them pay the price for their stubbornness, he may be thinking; but there is no reason for the United States to do so as well.

“Those who will welcome Netanyahu’s win are the Iranians. An Israeli villain allows them to advance their agenda more easily. Tehran grasped Obama’s intentions early on, and now they are preparing to square off against an Israel stuck in its ways, surrounded by countries disgusted with its policies. And this time the Americans may simply stand by, allowing things to happen.”

Lastly, Prince Turki al-Faisal, a senior member of the Saudi royal family, stated what should be obvious to all in an interview with the BBC. Regarding the Iran nuke talks:

“I’ve always said whatever comes out of these talks, we will want the same. So if Iran has the ability to enrich uranium to whatever level, it’s not just Saudi Arabia that’s going to ask for that.

“The whole world will be an open door to go that route without any inhibition, and that’s my main objection to this P5+1 process.”

Iraq / Syria / ISIS: In his most expansive comments yet since the latest crisis in Iraq and Syria, General David Petraeus answered written questions from the Washington Post’s Liz Sly.

Appearing at a forum in Iraq for the first time in three years, Petraeus said “It is impossible to return to Iraq without a keen sense of opportunities lost. These include the mistakes we, the U.S., made here, and likewise the mistakes the Iraqis themselves have made. This includes the squandering of so much of what we and our coalition and Iraqi partners paid such a heavy cost to achieve, the continuing failure of Iraq’s political leaders to solve longstanding political disputes, and the exploitation of these failures by extremists on both sides of the sectarian and ethnic divides.”

What went wrong?

“The proximate cause of Iraq’s unraveling was the increasing authoritarian, sectarian and corrupt conduct of the Iraqi government and its leader after the departure of the last U.S. combat forces in 2011. The actions of the Iraqi prime minister undid the major accomplishment of the Surge. (They) alienated the Iraqi Sunnis and once again created in the Sunni areas fertile fields for the planting of the seeds of extremism, essentially opening the door to the takeover of the Islamic State. Some may contend that all of this was inevitable. Iraq was bound to fail, they will argue, because of the inherently sectarian character of the Iraqi people. I don’t agree with that assessment.

“The tragedy is that political leaders failed so badly at delivering what Iraqis clearly wanted – and for that, a great deal of responsibilities lies with Prime Minister Maliki.”

Petraeus added he wished the United States had kept a substantial force on the ground.

On Iran’s growing role in Iraq:

“The current Iranian regime is not our ally in the Middle East. It is ultimately part of the problem, not the solution. The more the Iranians are seen to be dominating the region, the more it is going to inflame Sunni radicalism and fuel the rise of groups like the Islamic State. While the U.S. and Iran may have convergent interests in the defeat of Daesh [IS], our interests generally diverge. The Iranian response to the open hand offered by the U.S. has not been encouraging.”

As for the Iraqi offensive to retake Tikrit, by week’s end it appeared to have stalled as Iraqi troops suffered heavy casualties. Cemetery workers in the city of Najaf to the south have received about 60 war dead each day. Soldiers are saying the fight for the center of the city has been tougher than expected.

This does not bode well when it comes to plans to retake Mosul.

In Syria, President Bashar Assad said Monday he is waiting for action from Washington after Sec. of State Kerry acknowledged talks with Damascus were necessary to end the civil war.

But then Kerry’s people were forced to clarify his comment, saying Assad had no role in the country’s future, while several countries backing the opposition said they would never negotiate with him.

It was last Sunday in an interview with CBS News, that Kerry said “Well, we have to negotiate in the end,” when asked whether he would negotiate with Assad.

Meanwhile, the Syrian Observatory for Human Rights, said on Tuesday that government forces had carried out a poison gas* attack that killed six people in the northwest, with medics posting videos of young children suffering what they said was suffocation.

*ISIS was also recently accused of using gas (chlorine) in attacks against Kurdish peshmerga forces.

Editorial / Washington Post

“Four years ago this week people across Syria began marching peacefully to demand democratic reforms. The country they sought to improve literally no longer exists. In death, destruction, refugees and sheer horror, Syria’s war outstrips any other of this century. That it has faded from public attention reflects not an easing of the crisis, but an abdication by the United States and other powers of their commitments to prevent mass murder.

“Since Bashar al-Assad’s regime first responded to the peaceful demonstrators with gunfire, 6 percent of the prewar population of 20 million have been killed or wounded, and another 23 percent have left the country – including 4 million who live as refugees, according to a U.N.-supported study released last week. Outside of Damascus, most major cities have been reduced to rubble; a study of satellite images shows that 83 percent of the country’s electric lighting has been eliminated.

“Humanitarian groups attempting to serve the Syrians still in the country say the situation has grown worse...

“The Obama administration, which once proclaimed the prevention of genocide a national security priority, has not even pretended to have a strategy for Syria since the collapse of a peace conference in Geneva 12 months ago....

“At best, Syria’s continued agony will be the price for progress elsewhere in the Middle East. More likely, the Assad regime’s unchecked slaughter will continue to destabilize the region.”

Lebanon: This country of just four million now has 1.2 million Syrian refugees, and 500,000 Palestinian and Iraqi refugees. But despite tightened visa regulations in an attempt to stop the flow of Syrians across the border, Lebanon is granting Assyrian’s, the Christian minority, access to the country, citing the threat from the Islamic State campaign against them.

But for most Lebanon is just a stopover on the way to Europe. The Middle East continues to be emptied of all Christians it seems. It’s sickening.

Tunisia: At least 22, seventeen of them foreign tourists, were killed in a terror attack on a leading museum in the capital of Tunis. Among the dead were cruise ship passengers from Japan, Colombia, Australia, France, Poland, Italy, Spain and Germany. It was the first attack of its kind in Tunis and ISIS, which has a training base 40 miles from the Tunisian border, was among the Islamist groups claiming responsibility.

Tunisia had been labeled the Arab Spring’s main success story after recently holding democratic elections, but this is a huge step backwards, especially for a country largely dependent on tourism, the pace of which will now plummet. For starters, cruise ships canceled all future trips there.

Yemen: On Friday, suicide bombers attacked two mosques in the capital of Sanaa, killing over 135. Three attackers struck worshippers attending noon prayers. The mosques are mainly used by supporters of the Houthi rebel movement, which controls Sanaa. ISIS claimed responsibility, which if confirmed would be the first time IS has conducted operations in Yemen. Heretofore, al-Qaeda has conducted similar attacks, with Yemen being the base for al-Qaeda in the Arabian Peninsula (AQAP).

Somalia: A key member of the al-Shabaab terror network was killed by an American drone. Adan Garar was said to be behind the West Gate Mall attack in Nairobi, Kenya as well as other attacks and the Pentagon said in a statement: “His death has dealt another significant blow to the al-Shabaab terrorist organization in Somalia.”

Russia / Ukraine: It was last March 21 that Russia’s parliament approved the annexation of Crimea. Russian President Vladimir Putin addressed an audience in Moscow, Wednesday, to mark the first anniversary, having returned from his mysterious 10-day absence two days before.

In acknowledging issues have mounted since the annexation, he assured the throng that Russia would overcome all obstacles in its path.

“We ourselves will continue moving forward. We will strengthen our statehood and our country. We will overcome the difficulties that we have so easily created for ourselves over these recent times,” he declared.

“We will also overcome, of course, the problems and obstacles that others try to create for us from outside. Such attempts are doomed to fail in general when it comes to Russia.”

Then Putin said: “Friends, we in Russia always saw the Russians and Ukrainians as a single people. I still think this way now. Radical nationalism is always harmful and dangerous, of course. I am sure that the Ukrainian people will yet come to an objective and worthy appraisal of those who brought their country to the state in which it is in today.”

A concert was held on the edge of Red Square, just a few hundred meters from where Boris Nemtsov was gunned down.

The European Union has vowed to keep economic sanctions on Russia in place until a Ukraine cease-fire is fully working, with German Chancellor Merkel saying this week that it would be wrong to ease up prematurely. 

Ukrainian Prime Minister Arseniy Yatseniuk said “Russia is constantly provoking the EU and NATO, starting with submarines and ending with Bear jets flying across the borders of NATO member states. Russia is trying to create turbulence in the EU through supporting far-right political movements,” he added. “This is a copycat case of what they did in Ukraine.” [Financial Times]

Speaking of air incursions, Russia is expanding its strategic bomber flights around the globe, stepping up its intimidation campaign. According to NATO Sec. Gen. Jens Stoltenberg, Russian bombers forced NATO to scramble jets to intercept Russian military aircraft over 400 times last year – more than twice as often as in 2013.   Such behavior is likely to only increase as Russia’s Defense Ministry pledged to expand strategic bomber flights well beyond Russia’s borders. Some of these are indeed armed with nuclear bombs and cruise missiles.

The U.K.’s Daily Mail reported this week that Russia has a fleet of converted fishing boats equipped with intelligence-gathering equipment sitting off Britain’s east coast. The boats’ mission is probably two-fold. They can intercept voice transmissions from as far away as 320 kilometers, plus they can monitor airbases to alert Russian military planes flying close to British airspace that planes have been scrambled to confront them.

As for the investigation into the assassination of opposition leader Boris Nemtsov, it is increasingly apparent that Chechen leader Ramzan Kadyrov, Putin’s handpicked leader there going back to 2007, had a hand in the killing, if not directly ordering it, which would mean he’s gone rogue. Russia’s Federal Security Service, or FSB (successor to the KGB), has grown increasingly impatient with Kadyrov as he has become harder to control. He is also clearly losing the support of Putin.

When the prime suspect in the assassination was arrested, it was Kadyrov who praised him as a “real Russian patriot” as it became clear the suspect was the deputy head of an elite police unit loyal to Kadyrov in Chechnya. A hit list of other Kremlin critics was apparently found in Chechnya.

Alexander Baunov, a senior associate at the Carnegie Moscow Center, told Bloomberg News: “Putin has become a hostage to his own policy of radicalizing supporters so they can spring to action whenever he needs then. His authoritarianism is sliding into decentralized terror. His backers think he’s much more radical than he really is and are acting without clear orders.”

Ah yes, that ‘dark force’ I’ve talked about for years now...the alternative government as some are now saying.

In other developments...Putin is planning a visit to China in September to mark the 70th anniversary of the end of the second world war, while Putin has invited North Korean leader Kim Jong-un to Moscow to view Russia’s own celebrations for the end of the war, with Kim supposedly having accepted, which would mean he feels secure enough to leave the country without fear of not being let back in.

David Ignatius / Washington Post

“The debate about Russian aggression isn’t just about Ukraine. Putin’s activities are rekindling core concerns that created the NATO alliance. Unfortunately, this time around, there appears to be less trans-Atlantic resolve to combat Russian threats.

“The Obama administration is debating how to augment its Russia policy, but there are clear internal disagreements. Defense Secretary Ashton Carter and Gen. Martin Dempsey, chairman of the Joint Chiefs, appear to favor sending lethal arms to Ukraine. But President Obama seems caught between a desire to contain Russian actions and his continuing hope for Moscow’s cooperation both in the Iran nuclear talks and in settling the Syrian civil war.

“A vivid example of the Cold War time warp was Putin’s revelation in a Russian documentary last weekend that he considered putting Russian nuclear forces on alert early last year when Russia intervened in Crimea after the Ukraine government collapsed. His comment illustrated anew the danger that the Ukraine conflict could spiral out of control. In a sign of darkening times, Russia announced Tuesday that, as part of a war-game exercise, it will send advanced missiles to its Baltic enclave of Kaliningrad and nuclear-capable bombers to Crimea, the Associated Press reported.

“The arms-control process, which helped steady the Cold War, now seems to be running in reverse. Russia withdrew last week from consultations about the 1990 Conventional Forces in Europe treaty, signaling that it has effectively abandoned that pact. Moscow has also balked at discussing any additional cuts in nuclear weapons in a once-planned expansion of the 2010 ‘New START’ treaty.

“The most worrisome breakdown of U.S.-Russian détente may be the unraveling of the 1987 pact governing medium-range nuclear forces in Europe, known as the INF treaty. Last July, the United States accused Russia of breaching that pact by testing a ground-launched cruise missile that violated agreed limits. The Russians countered with accusations about alleged U.S. violations.”

This is all incredibly depressing. It’s also clear NATO is in no position to react to Russian aggression in, say, the Baltics. Or, as David Ignatius puts it: “It has been so long since NATO was really tested that alliance members may have forgotten what collective self-defense really means.”

On the issue of nukes in Crimea, Putin told state television channel Rossia-1 that concerns of a potential Western intervention into Crimea last year forced him and his top security officials to consider putting Russia’s nuclear arsenal on combat alert.

“We were ready to do this. I spoke to my colleagues and told them that [Crimea] is our historic territory, Russians live there. They were in danger. We couldn’t abandon them,” Putin said in the interview.

But Putin added “the circumstances did not call for such actions, which would have been contrary to our own interests.” [Moscow Times]

Your editor...WIR 1/3/15: “Vladimir Putin is not in a position to expand operations in Ukraine these days, nor to make a move on Moldova, Georgia, or one of the Baltic republics, but he will place nuclear weapons in Crimea as a way of riling up the West.” [Not a bad call, potentially, as it turns out.]

Back to Putin’s disappearance, it is a sign of troubles behind the scenes at the Kremlin as I’ve discussed for years, and that the catalyst could be the assassination of Nemtsov.

China: The foreign ministers of China, Japan and South Korea are meeting in Seoul this weekend for the first time in three years, in an attempt to ease tensions in the region.

A professor at Seoul’s Sogang University told the Financial Times: “There is a growing consensus in the region that things will have to improve to better deal with this paradoxical situation. The countries are heavily reliant on each other economically, but in terms of foreign policy it’s no secret that they hate each other.”

Meanwhile, France, Germany and Italy have all agreed to follow Britain in joining a China-led international development bank, much to the chagrin of the U.S. The Asian Infrastructure Investment Bank is viewed as a potential rival to the World Bank, which is based in Washington.

The AIIB is part of a fight over who will most influence trade in Asia over the coming decades, and who will define the rules.

Separately, China has become the world’s third-largest exporter of arms after the United States and Russia, according to the Stockholm International Peace Research Institute. But the U.S. and Russia are a combined 58% of the market to China’s 5%.

On a different issue, Palau is a tropical paradise in Micronesia I am familiar with, being near the island of Yap where I have traveled from time to time. Palau is part of the ‘milk run’ between Guam and Manila.

But Palau, which also has a history from World War II, is now being overrun by Chinese tourists, who in February represented 62% of all visitors. As described in a story in the South China Morning Post:

“Strapped into life-jackets and screaming with excitement, groups of boisterous Chinese thrill-seekers tear around Palau’s ‘Milky Way’ lagoon on a flotilla of speedboats – a spectacle unfamiliar to locals just a few months ago.”

What a freakin’ nightmare. The place will be destroyed in two years. Hotels are being built to cater to the Chinese.

Said a local taxi driver: “They wreck corals and throw their rubbish in the sea.”

One a-hole Chinese tour operator is passing out leaflets “including photos of grinning Chinese tourists holding up turtles they had removed from the water – in one case by its flippers.”

Finally, as noted earlier, Chinese Premier Li Keqiang held his annual press conference and reiterated the government is committed to tackling smog, but then he avoided answering a question as to why the Commies blocked a documentary on the Internet about the country’s chronic air pollution.

Brazil: Huge anti-government protests were held last Sunday as federal prosecutors brought further charges against ruling Workers’ party officials over the Petrobras corruption scandal. The party’s treasurer was accused of soliciting donations from a Petrobras director.

President Dilma Rousseff continues to deny any involvement, even though she was Petrobras’ chairman of the board from 2003 to 2010 when much of the graft was taking place. In response to the demonstrations, though, her government is introducing a package of anti-corruption measures. In a recent poll, Rousseff’s approval rating has fallen to 23%.

Random Musings

--According to a new CNN/ORC poll, Hillary Clinton holds a nearly 50-point lead over Vice President Joe Biden, 62% to 15%. Massachusetts Sen. Elizabeth Warren comes in at 10%. If Warren didn’t enter the race, the polls show Hillary’s lead goes to 67% to 16%.

In terms of potential matchups, no Republican gets within 10 points of Clinton, with Sen. Rand Paul the closest, Clinton winning 54% to 43%. Both Jeb Bush and Scott Walker receive 40% to Clinton’s 55%. Mike Huckabee loses 55% to 41%.

On the Republican side, Bush leads with 16%, Walker is next at 13%, Paul 12% and Huckabee 10%. Ben Carson takes 9%, Chris Christie and Marco Rubio are at 7%. Ergo, we have a long, long way to go. [Two who should just pack it in, now, are Rick Santorum (1%) and Rick Perry (4%).]

But in terms of visibility, nearly 58% of Americans haven’t formed an opinion of Scott Walker, and 48% haven’t heard of or don’t know about Marco Rubio. [23% haven’t formed an opinion of Jeb Bush.]

--On the email front, the Clinton camp sought to clarify earlier statements that while more than 30,000 “work-related” emails were turned over to the State Department, nearly 32,000 “private” ones were deleted.

Now the story is Clinton’s team individually read “every email” before discarding those deemed private.

But as South Carolina GOP Rep. Trey Gowdy said when asked whether he was now reassured that “every email” was read before being either deleted or turned over: “I have zero interest in looking at her personal emails. But who gets to decide what’s personal and what’s public? And if it’s a mixed-use email, and lots of emails we get in life are both personal and work, I just can’t trust her lawyers to make the determination that the public’s getting everything they’re entitled to.” [Fox News]

Separately, the State Department last weekend disclosed that until last month it had no way of routinely preserving senior officials’ emails. Instead it relied on individual employees to decide if certain ones should be forwarded to a special record-keeping server, or printed out and filed. Hillary has emphasized that since she was corresponding frequently with other department officials on their government accounts, those emails were being preserved on government servers. Ah, not quite.

--Maureen Dowd / New York Times

“Since open letters to secretive and duplicitous regimes are in fashion, we would like to post an Open Letter to the Leaders of the Clinton Republic of Chappaqua:

“It has come to our attention while observing your machinations during your attempted restoration that you may not fully understand our constitutional system. Thus, we are writing to bring to your attention two features of our democracy: The importance of preserving historical records and the ill-advised gluttony of an American feminist icon wallowing in regressive Middle Eastern states’ payola.

“You should seriously consider these characteristics of our nation as the Campaign-That-Must-Not-Be-Named progresses.

“If you, Hillary Rodham Clinton, are willing to cite your mother’s funeral to get sympathy for ill-advisedly deleting 30,000 emails, it just makes us want to sigh: O.K., just take it. If you want it that bad, go ahead and be president and leave us in peace. (Or war, if you have your hawkish way.) You’re still idling on the runway, but we’re already jet-lagged. It’s all so drearily familiar that I know we’re only moments away from James Carville writing a column in David Brock’s Media Matters, headlined, ‘In Private, Hillary’s Really a Hoot.’...

“Instead of raising us up by behaving like exemplary, sterling people, you bring us down to your own level, a place of blurred lines and fungible ethics and sleazy associates. Your family’s foundation gobbles tens of millions from Saudi Arabia and other repressive regimes, whose unspoken message is: ‘We’re going to give you money to go improve the world. Now leave us alone to go persecute women.’

“That’s an uncomfortable echo of a Clintonian trade-off, which goes: ‘We’re going to give you the first woman president who will improve the country. Now leave us alone to break any rules we please.’”

--Edward Klein, author of the recent book “Blood Feud: The Clintons vs. the Obamas,” wrote in an opinion piece for the New York Post that “Obama senior adviser Valerie Jarrett leaked to the press details of Hillary Clinton’s use of a private email address during her time as secretary of state, sources tell me.

“But she did so through people outside the administration, so the story couldn’t be traced to her or the White House.

“In addition, at Jarrett’s behest, the State Department was ordered to launch a series of investigations into Hillary’s conduct at Foggy Bottom, including the use of her expense account, the disbursement of funds, her contact with foreign leaders and her possible collusion with the Clinton Foundation.

“Six separate probes into Hillary’s performance have been going on at the State Department. I’m told that the email scandal was timed to come out just as Hillary was on the verge of formally announcing that she was running for president – and that there’s more to come.

“Members of Bill Clinton’s camp say the former president suspects the White House is the source of the leak and is furious.”

For her part, during the 2014 midterm elections campaign, “Jarrett was heard to complain bitterly that the Clintons were turning congressmen, senators, governors and grass-root party members against Obama by portraying him as an unpopular president who was an albatross around the neck of the party.

“Jarrett was said to be livid that most Democrats running for election refused to be seen campaigning with the president. She blamed the Clintons for marginalizing the president and for trying to wrestle control of the Democratic Party away from Obama.

“And she vowed payback.”

--The Wall Street Journal reported Friday that with regards to the Clinton Foundation swearing off donations from foreign governments when Hillary Clinton was secretary of state, “That didn’t stop the foundation from raising millions of dollars from foreigners with connections to their home governments, a review of foundation disclosures shows.”

Specifically, “more than a dozen foreign individuals and their foundations and companies were large donors to the Clinton Foundation in the years after Mrs. Clinton became secretary of state in 2009, collectively giving between $34 million and $68 million.” Some donors also provided direct funding to charities sponsored by the foundation to the tune of $60 million.

Then, when she left the State Department in 2013, the foundation began to accept donations directly from foreign governments again.

--Back to the polls, a Rasmussen survey reveals that 36% of Democrats think their party needs a fresh face and 21% are undecided.

Among all voters, 48% share a favorable opinion of Hillary, while 49% view her unfavorably. In September, 53% viewed Clinton favorably, 45% unfavorably. [84% of Democrats still view her favorably today.]

--But wait...there’s more! A Reuters/Ipsos poll shows support for Mrs. Clinton’s candidacy has dropped about 15 points since mid-February among Democrats. Support from Democrats likely to vote in the primaries has dropped to a low in the mid-50s since the email crisis hit.

--Michael Goodwin / New York Post

“With each passing day, it gets harder to see the reports of pending criminal charges against Sen. Robert Menendez (D-N.J.) as anything other than a political hit job.

“It’s now been 10 days since every major news organization reported that anonymous sources in the Justice Department said the New Jersey Democrat would be charged with corruption, yet no charges have been filed.

“The time lag adds to the suspicion that the rumors aimed to punish Menendez for opposing President Obama’s feckless Iran policy and to scare off senators who might join him.

“If there is a criminal case against Menendez, let’s see it now. If there isn’t, then Barack Obama really is Richard Nixon.”

--I’ve told you how I’d love to see Ohio Republican Gov. John Kasich run for president, but it’s not realistic at this time. As George Will writes in his Washington Post op-ed this week, Kasich would only run if “Jeb Bush fails to gain momentum commensurate with his fundraising,” Kasich having experienced “the steamroller” of the Bush family’s money train back in 1999 when Kasich ran briefly.

But as we all know, no Republican has won the presidency without taking Ohio, “and last year Kasich was reelected by 31 points, carrying 86 of 88 counties, including Cuyahoga (Cleveland). Events are pushing foreign policy to the center of presidential politics, which suits Kasich, 62, who spent 18 years on the House Armed Services Committee, meshing weaponry with strategy.”

Let’s face it, Kasich’s background and skillset set him up beautifully, but at times he can be a policy wonk, and he can also be preachy, such as on his Christianity.

But he’s authentic, and as he told Mr. Will, there will be “twists and turns” in the path to the nomination, and as Will concludes, like a football player on the bench, Kasich is suited up.

--Sen. Tom Cotton garnered a ton of press with his role in crafting the letter to Tehran’s leadership, but his first actual “maiden speech” on the floor of the Senate was just this past Monday. As Mike DeBonis of the Washington Post noted, traditionally a freshman senator goes through a period of silence before making “a statement of principles or objectives rather than a comment on the partisan issue of the day.”

So Cotton chose to give a half-hour speech “calibrated to further establish (him) as the Republican Party’s young leading light on foreign affairs and defense,” the mantle currently worn by John McCain (R-Ariz.) and Lindsey Graham (R-S.C.).

Cotton said: “An alarm should be sounding in our ears. Our enemies, sensing weakness and hence opportunity, have become steadily more aggressive. Our allies, uncertain of our commitment and capability, have begun to conclude that they must look out for themselves, even where it is unhelpful to stability and order. Our military, suffering from years of neglect, has seen its relative strength decline to historic levels.”

And...American must have “such hegemonic strength that no sane adversary would ever imagine challenging the United States. ‘Good enough’ is not and will never be good enough.” This will cost money, but the budget can’t be balanced on the backs of the military. 

“Our enemies and allies alike must know that aggressors will pay an unspeakable price for challenging the United States,” Cotton said.  “The best way to impose that price is global military dominance.” [Mike DeBonis]

--Rep. Aaron Schock (R-Ill.) announced his resignation from Congress on Tuesday. The 33-year-old pretty boy crossed the line innumerable times in terms of using his taxpayer-funded account for official expenses that included $40,000 on decorating his Capitol Hill office like something out of “Downtown Abbey.” The Office of Congressional Ethics had commenced a probe and it was clear he wasn’t going to survive it, the OCE being the initial vehicle that then passes down recommendations to the House Ethics Committee.

The Washington Post reported House Speaker John Boehner and House Majority Leader Kevin McCarthy were “dismayed” Schock reached his decision before conferring with them.

Schock is from a solidly Republican district and in a special election that must now be called, isn’t likely to draw a strong Democratic challenge. 

--George Will / Washington Post

“Fifty years ago this month, (Daniel Patrick) Moynihan, then a 37-year-old social scientist working in the Labor Department, wrote a report, ‘The Negro Family: The Case for National action,’ that was leaked in July. The crisis he discerned was that 23.6 percent of African American births were to unmarried women. Among the ‘tangle’ of pathologies he associated with the absence of fathers was a continually renewed cohort of inadequately socialized adolescent males. This meant dangerous neighborhoods and schools where disciplining displaced teaching. He would later write: ‘A community that allows a large number of young men to grow up in broken families, dominated by women, never acquiring any stable relationship to male authority...that community asks for and gets chaos.’

“Academic sensitivity enforcers and race-mongers denounced him as a racist who was ‘blaming the victim.’ Today, 72 percent of African American children are born to single women, 48 percent of first births of all races and ethnicities are to unmarried women, and more than 3 million mothers under 30 are not living with the fathers of their children.

“In 1966, Sargent Shriver, head of President Lyndon B. Johnson’s ‘War on Poverty,’ was asked how long it would take to win the war. He replied, ‘About 10 years.’ The conventional wisdom was John F. Kennedy’s cheerful expectation that a rising economic tide would lift all boats. America now knows that bad family structure defeats good economic numbers.

“Today, a nation dismayed by inequality and the intergenerational transmission of poverty must face the truth that political scientist Lawrence Mead enunciated nearly 25 years ago: ‘The inequalities that stem from the workplace are now trivial in comparison to those stemming from family structure. What matters for success is less whether your father was rich or poor than whether you knew your father at all.’”

--Pope Francis surprised Italian officials with his announcement last weekend that an Extraordinary Jubilee Year will begin December 8, which could draw millions of Catholics to Rome. In 2000, when Pope John Paul II called one, 25 million Roman Catholics flocked to Rome. Today, such a crowd would pose a security nightmare, with Islamic State having already singled out the Vatican.

The other day, Father Silvano Tomasi, the Vatican’s ambassador to Geneva, advocated use of force against IS jihadists if a political solution could not be found, a rare stance for the Church.

Some don’t believe the crowds would be as big as 2000 because that was the millennium. On the other hand, Pope Francis is immensely popular and it’s become relatively cheap to travel to Italy.

--The murder rate in New York City has ticked up this year, about 11% as of the last reporting vs. last year’s historic low. Perhaps more telling, shootings are up 21%. There’s no reason for panic, yet, but the coming summer could be a real test for Mayor Bill de Blasio.

--New York Democratic Gov. Andrew Cuomo’s approval rating has dropped to its lowest level since he took office in 2011. A new Quinnipiac University poll shows it at 50%, down from 58% in a Dec. 22 survey. Education seems to be the prime source of the decline as his handling of the issue garners a dismal 28% approval rating.

--Congratulations to Boston for breaking its old snowfall record of 107.9 inches set in 1995-96, in topping 110 after Friday’s storm (my guess as I go to post). Mayor Walsh tweeted, “We are truly a title city. There will be no parade.”

--Finally, prayers to the people of the Pacific island nation of Vanuatu following one of the strongest storms in recorded history, Cyclone Pam, which packed sustained winds of 155 mph and destroyed the infrastructure virtually everywhere across the island chain that relies on tourism (40% of GDP). Crops were also destroyed. One wonders how everyone will survive once the emergency aid stops.

---

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

God bless America.
---

Gold closed at $1184
Oil $45.72

Returns for the week 3/16-3/20

Dow Jones +2.1% [18127]
S&P 500 +2.7% [2108]
S&P MidCap +3.2%
Russell 2000 +2.8%
Nasdaq +3.2% [5026]

Returns for the period 1/1/15-3/20/15

Dow Jones +1.7%
S&P 500 +2.4%
S&P MidCap +6.0%
Russell 2000 +5.1%
Nasdaq +6.1%

Bulls 53.6
Bears 14.1 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

03/21/2015

For the week 3/16-3/20

[Posted 12:00 AM ET]

Edition 832

Washington and Wall Street

Before I get to the Federal Reserve and its critical meeting that primed the markets further, the Organization for Economic Cooperation and Development issued its latest outlook for the global economy and the OECD sharply upgraded its economic forecasts for the eurozone. For the U.S., the OECD now forecasts growth of 3.1% this year, unchanged, and 3% in 2016 (ditto), while Canada is projected at 2.2% this year and 2.1% next.

Japan is forecast to grow by 1% in 2015 and 1.4% in 2016, China by 7% in both 2015 and 2016, India by 7.7% in 2015 and 8% next year. And Brazil is forecast to shrink by 0.5% in 2015, before returning to 1.2% growth in 2016.

The euro area is now forecast to grow at a 1.4% rate in 2015 and 2% in 2016, up 0.3 percentage points from the OECD’s November report, with Germany up 1.7% this year (0.6% faster than initially forecast) and 2.2% next; France growing 1.1% in 2015 and 1.7% in ’16; and Italy seeing 0.6% growth this year and 1.3% next. [For 2015 up 0.3 and 0.4 percentage points, respectively, for these last two.]

The U.K. is forecast to grow at 2.6% in 2015 and 2.5% in ’16.

Overall, the OECD now says the global economy is expected to grow 4% this year, before accelerating to 4.3% in 2016, though it concedes growth is excessively reliant on monetary policy, and that governments need to speed up structural reforms and increase investment to complement what the central banks are doing.

Catherine Mann, OECD chief economist, said, “Excessive reliance on monetary policy alone is building up financial risks, while not yet reviving business investment." [Financial Times]

OK, so let’s focus on the U.S. Prior to the Tuesday-Wednesday Fed meeting, many voices, including Christine Lagarde, head of the IMF, economist Paul Krugman, and hedge fund king Ray Dalio of Bridgewater Associates, were warning of the Fed taking away the punch bowl too soon. Not that anyone thought it will raise interest rates for the first time in ten years before, say, June, but as Lagarde and the others said, any rate increases here could trigger instability in emerging markets and elsewhere. 

Dalio warned the Fed risked causing a 1937-style stock market slump when it finally moves. In a note to clients and followers:

“We don’t know – nor does the Fed know – exactly how much tightening will knock over the apple cart. What we do hope the Fed knows, which we don’t know, is how exactly it will fix things if it knocks it over....

“We are cautious about exposures,” the note added. “For the reasons explained, we do not want to have any concentrated bets, especially at this time.”

Dalio, and his partner Mark Dinner, wrote further: “If one agrees that either a) we are near the end of the developed country central bankers’ ability to be effective in stimulating money and credit growth or b) the dollar is the world’s reserve currency and that the world needs easier rather than tighter money policies, then one would hope that the Fed will be very cautious about tightening.”

Bridgewater, which has one of the best track records around, is worried about emerging market corporations, such as Chinese property companies, that have borrowed dollars, despite their lack of dollar revenues, without understanding how strong the currency would become.

Lagarde said she is concerned over the “spillover” effects from rate hikes that could lead to a re-run of the crisis developing markets saw nearly two years ago, after then-Fed chairman Ben Bernanke hinted at the end of Fed bond-buying, or “quantitative easing.” [Henny Sender and Stephen Foley / Financial Times]

So the concern was that this week the Fed would remove the word “patient” from their accompanying statement, which would then signal the first rate rise in June or shortly thereafter. 

Well what did Chair Janet Yellen and her band of merry pranksters do? They removed the word patient, but then lowered their forecasts for future hikes in the funds rate, while also lowering other targets. The markets rallied and bond yields fell. To wit:

In removing ‘patient’, “This change in forward guidance does not indicate that the [Fed] has decided on the timing of the initial increase in the target,” the Fed said in its statement.

Fifteen of the 17 Fed officials said they expected to start moving rates up in 2015, but they essentially cut in half the estimate of how high they’d go...from 1.125% by year end to just 0.625%. [And only 1.87% for 2016 vs. the previous 2.50% estimate.] The policy statement also said an April hike was definitely off the table (though many commentators missed that the Fed said this in January), but June is still a possibility, only now it won’t necessarily presage a series of quarter-point hikes, rather itsy-bitsy steps...teeny-tiny ones that will add teeny-tiny amounts to your savings accounts and CDs that pay interest. Perhaps enough for a postage stamp or two.

What Fed officials also did was revise down their projections for economic growth to between 2.3% and 2.7% in 2015 (reminder...up above the OECD is saying 3%), which is a downgrade from their December estimate of 2.6% to 3.0%, while the forecasts for 2016 and 2017 were reduced a little as well.

[A survey of economists by the Wall Street Journal has a new estimate for first-quarter growth of 2.3%, but 2.9% for the full year.]

“Economic growth has moderated somewhat,” the statement read. In January the pace was described as “solid.”

The Fed also importantly reduced its outlook for inflation, projecting just 0.6% to 0.8% this year, and still under the target 2.0% in 2016.

All this while the labor market continues to improve, with the jobless rate projected now to fall further from its current 5.5% to 5.0% by year-end.

Bottom line, inflation is the key and there is little reason for the Fed to move until it is at 2% or higher, which it does see over the medium term. I will continue to focus on wage growth, which is also currently 2%.

The Fed left it very clear it was going to be extremely careful before tightening monetary policy, especially in any significant way. Or, as Chair Yellen put it succinctly in her post-meeting press conference, just because the Fed removed the word “patient” doesn’t mean the central bank was “impatient” when it came to hiking rates. Yellen also noted the dollar’s recent surge restrains import prices and inflation.

So in response the Dow Jones reversed about 400 points from its Wednesday morning lows, pre-Fed statement, finishing up 227 points; it then fell 117 on Thursday, but rose another 168 on Friday.

Just a few other notes...February industrial production rose 0.1%, though the manufacturing component for the report fell a third consecutive month, not good, while February housing starts were at an annualized rate of 897,000, down 17% from the prior month, the most in four years, though here the godawful weather in the Northeast and Midwest provides a legitimate excuse.

Here’s the thing. It’s easy to see why the Fed changed its language on the economy to ‘moderate’ growth from ‘solid.’ Recent news on industrial production, retail sales and housing have indeed been disappointing.

Finally, the House and Senate both released their budget outlines for fiscal 2016 (which starts Oct. 1) and I’m not going to waste my time or yours since these often change drastically before the final plans are hashed out in conference. I will just say Republicans seem to be cutting some spending unrealistically, while ignoring how the rapidly changing geopolitical scene is going to force us to spend far more on defense than either party currently understands. I believe the budget picture could get sloppy again much quicker than currently believed, and there are still zero signs, realistically, that entitlement spending is going to be attacked, even as Republicans pay it some lip service.

Actually, parts of the Republican budget are laughable, especially in terms of revenues.   As for the debt ceiling issue that has been raised again, that too is not of immediate concern, even as the Treasury is forced to take its now familiar “extraordinary measures.” We are not near a crisis in this regard; with most believing the U.S. wouldn’t reach a critical stage again until after Labor Day.

Europe and Asia

It’s still all about Greece and once again its crunch time as it is facing 2 billion euro in immediate debt payments – 350m to the IMF while needing to refinance 1.6bn in short-term notes as Greece has to come up with funds to meet salaries and pensions at a minimum at month’s end.

It was a tension convention this week as harsh words were exchanged by all sides amid reports by the Financial Times that 400m euro a day was being withdrawn by Greek depositors in a slow-motion bank run (my description).

On Wednesday, Greek Prime Minister Alexis Tsipras railed against the country’s creditors, who he says come to Greece to inspect ministries and “humiliate” local officials with questioning, sometimes making them wait until the early hours of the morning. “We will not tolerate such phenomena, either in Greece, or abroad,” he told parliament.

“People have asked us to put an end to austerity and bailout agreements, to begin the process of reclaiming the dignity of the nation,” Tsipras said. “We respond today, tomorrow and on Friday in parliament by building a wall of sovereignty and dignity.” [Bloomberg]

At the same time, a poll of Germans by broadcaster ZDF found 52% no longer want Greece to remain in the eurozone, up from 41% last month. 80% of Germans feel Greece’s new government “isn’t behaving seriously toward its European partners.” 82% doubt Greece will honor its commitments on budget cuts and reforms.

The European Commission, European Central Bank and IMF have complained they are receiving little from Greece on its finances as the two sides appear to be talking past each other.

Prime Minister Tsipras, for example, is seeking to help the poor through legislation with funding to pay electric bills and for food stamps, but this is exactly what the ‘troika’ doesn’t want to see.

Tsipras finished the week, though, by saying his government would come up with a new reform plan that would pass muster in a matter of days. German Chancellor Angela Merkel and the others were doubtful, and then the conversation degenerated all over again.

Time really is running out, as reflected in the pricing of Greek bonds, with short-term yields having climbed to near 25% and the Greek 10-year at 11.10% at the close, Friday (it had been much higher earlier), vs. the German bund yield of 0.18%. Just a slight difference between the two.

Speaking after a middle-of-the-night meeting with Tsipras and others, Merkel said: “The Greek government will take full responsibility for the reforms and submit a list of (them) in the coming days....Everything is supposed to be completed quickly,” she added.

A senior EU official was quoted by the BBC as saying, the message to Greece was simple – “give us a list fast, then you can get the money fast.”

But only once that list is evaluated will the nations using the euro hand over more money.

The bailout, recall, was extended Feb. 20 to the end of June, but only assuming Greece met the creditors’ terms.

The fact is, however, the Greek economy is once again in freefall, tax revenues are hard to uncover, you have the mini-bank run, and the political volatility. The ECB only raised the maximum amount of emergency liquidity available to Greek lenders by $435 million, less than the Greek central bank requested. There is the fear the banks will use the money to finance the Greek government, which would violate EU law.

There is still a real chance Greece will exit the euro.

Irish Prime Minister Enda Kenny, whose country went through wrenching austerity and came out the other end with the best growth in the eurozone, said, “The feeling among the political leaders is that Greece and Greek politicians have got to live up to their responsibilities here. The prime minister asked for time and space and he’s been given that to come forward with sustainable and workable proposals, and obviously Greece needs to reflect on that very quickly now because time is running out.” [Irish Independent]

Eurobits....

--Thousands of anti-capitalist protesters surrounded the new European Central Bank building in Frankfurt on Wednesday, with 80 officers injured in the ensuing melee; numerous cars, including police vehicles, torched. The new edifice cost 1.2bn euro so it’s an easy target for the anti-austerity crowd. One protest leader told the Financial Times: “The opening of the new ECB building is not a reason to celebrate. It’s a reason to protest for a social and democratic Europe.” Katja Kipping, leader of the leftwing Die Linke party, added: “The result of the troika regime is poverty, high youth unemployment and economic recession.”

--A flash reading on construction for January in the eurozone came in up 1.9% over December, according to Eurostat, while February inflation was as first estimated by the same agency, -0.3% annualized vs. -0.6% in January. 

--German business sentiment indicators continue to improve sharply.

--Wage growth in the U.K. for the rolling three months to January weakened to 1.8% from a 2%+ pace, though inflation was only 0.3%, ergo at least ‘real’ wages are up decently.

--Ireland made the last of its early loan repayments to the IMF, leaving the country with just under a fifth of the original 22.5bn euro bailout left to pay. Slainte!

Wolfgang Munchau / Financial Times

“When German economic illiteracy meets with Greek diplomatic illiteracy, nothing good will come of it. Last week, a Greek minister threatened to swamp Germany with Islamic refugees. The Germans are again debating an accidental Greek exit from the eurozone: Grexident. Alexis Tsipras, the Greek prime minister, linked a claim about second world war reparation payments against Germany to present discussions on the extension of a loan agreement.

“The reparations claim itself is not frivolous. There are even German lawyers who believe Athens has a case. But it is politically mad to link the two. What we are hearing is not the usual noise: there is a loss of trust.

“The conclusion I draw from this is that the odds of a Greek exit from the eurozone have shortened dramatically in the past two weeks. The two sides may tone down their rhetoric in the coming days but I cannot see the creditor countries relenting on the conditions of last month’s debt rollover agreement. Nor can I see the Greek government fulfilling them. Since nobody knows how many days or weeks Athens is from insolvency, the risk of a sudden exit is clear and present. Grexit may never happen – but it is time to get ready.”

Just a note or two on China...Premier Li Keqiang at his annual press conference following the end of the National People’s Congress, said the country faces an uphill task meeting its lowered economic growth target of 7 percent this year.

“It will by no means be easy to meet this target,” he said. “The pain is still there and the pain is becoming even more intense. Shedding government powers will touch on vested interests. However painful it is, the wrist-cutting efforts will be carried out continuously until the job is done.”

Sounds bloody, and not exactly 7 percentish.

Meanwhile, the latest out of the National Bureau of Statistics on the housing sector shows the 70-city home price index for February fell 5.7% year over year, vs. January’s 5.1% decline and December’s 4.3% fall. That’s not exactly a favorable trend. Home prices fell in 69 of the 70 from a year earlier.

Street Bytes

--The Dow Jones ended a three-week losing streak, finishing up 2.1% to 18127, while the S&P 500 rose 2.7% and Nasdaq advanced 3.2% to 5026, just 22 points shy of its record March 10, 2000 close of 5048.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.58% 10-yr. 1.93% 30-yr. 2.51%

Treasuries rallied big after the Fed’s dovish comments. Consider this. In less than three months the 10-year has gone from a 12/31/14 close of 2.17% down to 1.64%, then up to 2.24% and now back down to 1.93%. These are huge percentage moves.

Internationally I do have to add that the Tokyo Nikkei is up six weeks in a row, but the biggest story of 2015 is Frankfurt’s DAX, up a whopping 10 straight weeks...22.8% for the year...as it hits one record high after another.

--Oh, those daffy Chinese...including the Chinese military, which may have been involved in a cyber hack at Register.com, which manages more than 1.4m website addresses for businesses around the world.

The FBI is investigating whether hackers stole network and employee passwords, for about a year. While Register.com reported the hack to the FBI in short order, it did not advise customers or investors and it is not known to have caused any customer disruptions.

Which is another reason why the FBI believes this was state-sponsored, with the Bureau thinking the Chinese were just looking to assess vulnerabilities in the Internet infrastructure; such as crashing intended sites and/or stealing data.

Register.com is a unit of Web.com. Another subsidiary of Web.com is Network Solutions, the third largest Internet registrar in the world.

Separately, Yahoo is shuttering its China office, resulting in the loss of about 350 jobs. Yahoo has been in retreat in China since 2013 as it had a rough relationship with the Chinese government, though the company insists this is not about the government, but rather a desire to cut its global operating costs.

--The drought in California just gets worse and worse. According to a NASA scientist, Jay Famiglietti, the state has about one year of water left in its reservoirs. The availability of tap water is very much in question. Talk of desalination of the Pacific Ocean is basically beyond realistic in terms of costs, especially for agriculture. There’s also increasing talk of “peak water.”

Peter Gleick, president of the Pacific Institute, a research organization, told USA TODAY’s Doyle Rice, “All bets are off on water policy” as the drought goes on for five, 10 or 20 years....We’ve reached ‘peak water’ in most western watersheds, and there’s no more water to be had.”

Here’s a stark example of the future and what Gleick is talking about, from Bettina Boxall / Los Angeles Times:

“Parts of the San Joaquin Valley are deflating like a tire with a slow leak as growers pull more and more water from the ground. The land subsidence is cracking irrigation canals, buckling roads and permanently depleting storage space in the vast aquifer that underlies California’s heartland.

“The overpumping has escalated during the past drought-plagued decade, driving groundwater levels to historic lows in some places. But in a large swath of the valley, growers have been sucking more water from its sands and clays than nature or man puts back for going on a century.

“They are eroding their buffer against future droughts and hastening the day, experts warn, when they will be forced to let more than a million acres of cropland turn to dust because they have exhausted their supplies of readily available groundwater.”

The snowpack in the Sierra Nevada this season is going to set a 25-year low.

So Thursday, Gov. Jerry Brown and top lawmakers unveiled a $1 billion emergency plan designed as a mix of short-term and long-term relief, including new projects for water recycling and desalination.

--Shares in Biogen rose nearly 10% on Friday on word early trials of its experimental Alzheimer’s drug showed promise; slowing the rate of cognitive decline. The drug is called Aducanumab and is one of several drugs under development by the big pharmaceutical companies that are trying to attack “amyloid plaque,” the sticky build up in the brain that many scientists believe is responsible for Alzheimer’s.

I have never over the 16 years of this column hyped medical discoveries because they always prove to be so long in coming, if ever. But we all should hope this one is real. A lot of responsible researchers seem to believe it has promise.

--The Dept. of Health and Human Services says the number of uninsured in America has declined by 16.5% from five years ago, when ObamaCare was signed into law. Director of the Office of Health Reform for HHS, Meena Seshamani, said, “Today, we know that the Affordable Care Act is working... These numbers represent real people.”

Well it ain’t workin’ for me, babe! I’ll save my own mini-nightmare for some other week, but let’s just say for now, what had been a great deal for moi is now not so great...and it’s not just about paying a higher premium.

--The Bank of New York Mellon reached a $714 million settlement in a currency trading case filed back in 2011 by Preet Bharara, the United States attorney in Manhattan, and New York’s attorney general, Eric Schneiderman, with BONY having been accused of cheating government pension funds and other investors for more than a decade through currency manipulation. Authorities accused the bank of assuring clients they would receive the best execution when BONY often gave clients near the bottom of the range, enabling it to make extra cash.

But the settlement would appear to be a fraction of the suspected gains. As part of the penalty, however, the bank had to end the employment “of certain executives involved in the fraud,” including a managing director, while tightening disclosure requirements to clients.

BONY can now move on, after fighting the case for years in attacking what it called “prosecutorial overreach.”

Preet Bharara said in a statement: “Motivated by outsized profits and bonuses,” the bank and its executives “repeatedly misled clients to believe that the pricing they were getting on foreign exchange was far better than it actually was.”

--Oracle is turning up the heat on its software rivals, claiming it has seen a surge in its new cloud services business, though it still just accounts for 6 percent of its overall revenues; which were unchanged from a year earlier, though the company said it would have been up 6 percent without currency volatility, which is lame, though everyone will be citing it with release of the first quarter results.

But the shares rose as Oracle raised the dividend, which, of course, benefits chairman Larry Ellison, who assured us he recused himself from the decision to do so.

Anyway, Ellison pounded away on the fact Oracle’s cloud business was up 29 percent from a year earlier, though he emphasized customer demand was far stronger. He said Oracle would surpass Salesforce.com by end of 2015, a year earlier than he had previously forecast, and he added  “we’re nearly three times bigger than Workday now,” which proves Ellison doesn’t know math because it’s not even 2 ½ times WDAY, plus the latter’s revenues grew 59 percent. [Right, Jimbo?!]

--FedEx reported earnings for the December to February quarter that exceeded expectations, though it narrowed its forecast for the year to May 31, rather than raising it, so the shares traded down a bit. Revenue at FedEx Ground rose 12 percent, even as volume was up 7 percent, because the company was able to increase some rates. Revenue in the core FedEx Express air parcel business fell marginally.

Meanwhile, the company received a “significant” boost from lower fuel prices.

--Tesla Motors Inc. can once again sell cars from company-owned dealerships in New Jersey, with Gov. Chris Christie allowing up to four locations. [I’m assuming one is next door to me at The Mall at Short Hills...I’ll have to do a channel check.] Last year New Jersey’s Motor Vehicle Commission revoked Tesla’s dealership licenses. It’s all about the automaker’s direct sales method that eliminates independent dealers.

But it’s also about where do you get your car serviced... just remember that, Tesla fans.

--General Motors is closing its plant in Russia amidst a dire outlook for Russian auto sales. As the Wall Street Journal reported, “industry volumes in the country fell 10% in 2014, and declines widened in January and February as the economy weakened and the ruble continued to soften.”

GM made some major mistakes in Russia and is taking a $600 million charge in the first quarter to unwind operations there. As recently as 2012, it had announced plans for a major expansion in St. Petersburg, for example.

Last year, GM sold 189,000 vehicles in Russia, 15% of GM Europe’s total and 2% of its global sales. [WSJ]

--Tiffany & Co. has become a major barometer for the high-end sector of the global economy as it receives about 50% of its sales from overseas. Friday the company reported earnings and revenues for the three- and 12-month periods ending Jan. 31, 2015, that were basically in line with expectations, though worldwide sales were down 1% from the prior year for the fourth quarter, up 5% for the full year, not taking into consideration currency fluctuations.

Same-store sales in the Asia-Pacific rose 3% in Q4. In Europe, comp store sales rose a solid 4%. For Q4 in the U.S., comp sales were flat, but up 6% for the full year.

--The Commerce Department reported the number of tourist to the U.S. rose 7 percent in 2014 to nearly 75 million. But with the rising dollar making travel here more expensive, spending fell slightly in January and is expected to continue to do so the balance of the year. The biggest impact from a revenue standpoint will be with European travelers, especially in New York.

--Since mid-2009, the bottom of the financial crisis, only 2 percent of the 528,000 jobs added in New York City have been on Wall Street, as reported by Nicole Gelinas of the New York Post. In the previous two downturns Wall Street was 10 percent of the recovery.

--Apple Inc. is planning to put together an online television service that would have about 25 channels, anchored by the likes of ABC, CBS and Fox, which would be available on Apple devices such as Apple TV. NBCUniversal is not involved in current talks because of a fall-out between the two, including NBC’s parent Comcast.

ABC’s package would of course include Disney and ESPN. Priced at about $30 per month, it would work across all Apple devices.

--Prime-time broadcast network ratings were off 12 percent in February compared to a year ago, while cable networks dropped 11 percent, according to a report by media analyst Michael Nathanson. Seeing as metrics like this determine what advertisers pay for TV time, this isn’t good. It also marks the fifth straight month of double-digit declines. [Claire Atkinson / New York Post]

--Jeff Sommer of the New York Times, working with S&P Dow Jones, conducted a study last summer titled “Does Past Performance Matter? The Persistence Scorecard,” which is updated twice a year. Sommer first focused on the data beginning March 2009, the start of the bull market.

“It included 2,862 broad, actively managed domestic stock mutual funds that were in operation for the 12 months through 2010. The S&P Dow Jones team winnowed the funds based on performance. It selected the 25 percent of funds with the best returns over those 12 months – and then asked how many of those funds actually remained in the top quarter in each of the four succeeding 12-month periods through March 2014.

“The answer was a remarkably low: two.

“Just two funds – the Hodges Small Cap fund and the AMG SouthernSun (sic) Small Cap fund – managed to hold on to their berths in the top quarter every year for five years running.”

Both, however, have finally stumbled in the year since. I think you know what the conclusion is of the author. Buy low-cost index funds.

--The Journal had a story on the efforts to replace the Port Authority Bus Terminal in Manhattan. I haven’t been through there since the 1980s, but picture it opened in 1950 and has been a cesspool since, like, 1952. And, as the Journal notes, comedian John Oliver declared it “the single worst place on Planet Earth” and said even the cockroaches are trying to escape.

Well the cost to replace it is estimated at $8 billion to $11 billion. On one hand this seems realistic, but on the other, many huge sports stadiums are built for under $1 billion, so I’m thinking $5 billion? Just sayin’.

Anyway, don’t look for a replacement soon if you use the current dump. Whenever authorities decide to proceed, it will take a decade or longer to replace it.

By the way, 80,000 riders enter Manhattan through the terminal ‘during morning rush hours,’ while about 40,000 do via Penn Station. Boy, I wouldn’t have guessed this. I feel soooo stupid!

--U.S. revenues from subscription streaming music services such as Spotify have eclipsed CD sales, hitting $1.87 billion in the U.S. in 2014, while sales of CDs fell 12.7% to $1.85bn. But sales of vinyl records rose 50% to $315m.

Downloads peaked in 2012 and have been in decline ever since, falling 8.7% to $2.58bn, equivalent to 37 percent of total industry revenues, according to data from the Recording Industry Association of America. [Matthew Garrahan / Financial Times]

--Lester Holt has won the evening network news race in all five of the weeks’ he’s hosted after replacing Brian Williams, though his lead for the week of March 9 to 13 was his narrowest thus far over “ABC World News Tonight.”

--What a boon for HBO...the success of “The Jinx” and the arrest of Robert Durst. You have to be psyched for those who produced the documentary, including filmmaker Andrew Jarecki. That’s the kind of success story I love to see in America.

Foreign Affairs

Iran: Its crunch time in terms of the Iranian nuclear talks. A deal is supposed to be worked out in the next ten days, allowing time to iron out final details by June 30. President Obama sent a video message to the Iranian people for Persian New Year.

“We have the best opportunity in decades to pursue a different future between our countries,” though, “This moment may not come again soon.

“I believe that our nations have an historic opportunity to resolve this issue peacefully – an opportunity we should not miss.”

Obama said isolation awaited if an agreement was not reached.

But Obama not only has problems convincing Congress on the merits of the deal being discussed, the other members of the P5+1 (Russia, China, Britain, France and Germany) have issues with Iran’s continuing hardline stance when it comes to the easing of sanctions should an agreement be reached.

The deal being discussed would commit Tehran to a 40% cut in the number of centrifuges used to enrich uranium and in turn the sanctions would be eased sharply, including a UN embargo on conventional arms that would be partially lifted.

But the P5+1 is differing with Iran on the timing of the lifting of sanctions, as well as how long the deal is in force and just what the inspection regime will entail.

360 members of Congress sent a letter to the White House reminding the president that a lifting of sanctions requires new legislation.

So at last word, the U.S. is saying any agreement would restrict Iran’s nuclear activities for 10 to 15 years, but while we’ve heard particularly in the last 4-6 weeks that a deal could be close, the parties haven’t begun working on the draft that is supposed to be completed by March 31, with Iranian Foreign Minister Mohammad Javad Zarif, Iran’s chief nuclear negotiator, saying they are “still a distance” from a deal.

The big sticking point for Israeli Prime Minister Benjamin Netanyahu has been that when the agreement expires, say in ten years, Iran would face no restrictions whatsoever, but the White House is saying Iran would face a variety of restrictions indefinitely, including tough monitoring and inspections, yet there is no way Iran would accept this.

Another issue is, say the P5+1 and Iran do reach an agreement. How long will the sanctions really remain in place? Most experts agree they will go away in short order, especially in terms of how the non-U.S. members apply them.

But if I had to point to one sticking point, it’s on the inspections front and any agreement reached on the nuclear program won’t include restrictions on Iran’s military projects, such as its ballistic missile program, let alone experiments on nuclear triggers, which you need to weaponize the missiles in the first place. International Atomic Energy Agency inspectors have never been allowed onto suspected bases where such projects are taking place, as I’ve been pounding the table on for years and years.

Separately, while the issue of the Republican letter to the Iranian leadership has come up in negotiations between Sec. of State John Kerry and Zarif, it is more of a distraction than an actual hindrance in discussions.

Daniel Henninger / Wall Street Journal

“In a letter last weekend to Sen. Bob Corker, chairman of the Foreign Relations Committee, White House Chief of Staff Denis McDonough doubled down on Barack Obama’s general theory of American politics – my way or the highway. He wrote that other arms agreements haven’t gone through the Senate and that Mr. Corker and his Senate colleagues should step away from the Iran deal.

“In fact, Presidents Kennedy, Nixon and Reagan all submitted major arms-control treaties and agreements for Senate approval. They did so to give their work political credibility with the American people and indeed the world. But somehow Mr. Obama believes he has an exemption from the basics of U.S. politics. So we wake up one day to find he is substituting the judgment of the Security Council, with such famous allies as Russia and China, for consent from the U.S. Senate. Result: an arms deal as politically flaccid as ObamaCare....

“As important as the constitutional issues raised by Mr. Obama’s unilateral authority is the political damage he has done to traditional relationships between the presidency and the institutions his methods have marginalized.

“The Obama presidency has sucked the oxygen out of politics in Washington and indeed the world. But politics abhors a vacuum. The Senate letter to Iran more than anything is the system bursting outside its normal channels. Desperate Ukraine, abandoned to Russia by the U.S., has pathetically asked the U.N. to send blue-helmeted peacekeepers to eastern Ukraine.

“No serious person can be shocked if what happens after the Iran nuclear agreement looks a lot like the ObamaCare rollout – shambles of half-done details. With ObamaCare, America’s courts and bureaucracies are available to clean up the mess. But you may not like the cleanup crew that shows up for the ObamaCare of arms-control deals.”

Jennifer Rubin / Washington Post

“Recall where this administration started: No Iranian enrichment. No sanctions lifted until Iran complies with its responsibilities. Iran must fully disclose its past illegal activities and allow unrestricted inspections. Iran must dismantle the Arak heavy-water reactor. Now look where we are heading: Iran gets thousands of centrifuges and has gotten recognition of its right to enrich. Sanctions will go away ‘swiftly.’ Iran does not reveal past activities. It keeps intact the Arak reactor. After a 10-year period, it is treated like all other NPT signatory countries.

“No wonder the president will have to go back to the U.N. Security Council. His ‘deal’ will have violated virtually every provision and restriction on Iran’s nuclear capability. No wonder he won’t submit the deal for congressional approval; even the most sympathetic Democrat would be hard pressed to explain a capitulation this extensive and a deal this lopsided. Obama is not getting a ‘bad’ deal; he is simply surrendering to every significant demand, if reports are true. And Democrats obsess over the format of a letter. You would think they would be more concerned about a complete collapse of American credibility, a Middle East nuclear arms race and the world’s largest state sponsor of terror gaining a nuclear blackmail card.”

Israel: What an incredible turn of events in the Israeli elections. Four days before the vote on Tuesday, I told you of two polls that had Isaac Herzog’s Zionist Union ahead of Benjamin Netanyahu’s Likud party 24-21 and 25-21 in terms of projected seats in the Knesset. Boy did Israeli pollsters have it wrong as Netanyahu veered hard right in the final 24 hours to get his supporters to turn out.

Likud ended up with 30 seats out of 120 in parliament, while the Zionist Union captured 24. Netanyahu should have no problem in forming a coalition within the allotted time as he’ll be set to serve a record fourth term as prime minister, thus becoming longest-serving PM ever.

Asked on Monday by an interviewer: “If you are prime minister, a Palestinian state will not be established?”

“Indeed,” Netanyahu answered.

The Zionist Union had campaigned on a platform of trying to repair ties both with the Palestinians and Washington.

But in his first interview since the vote, Netanyahu watered down his pre-election vow not to allow the establishment of a Palestinian state.

In an interview with MSNBC, he said he did want a two-state solution, but added “circumstances have to change.”

“I don’t want a one-state solution. I want a sustainable, peaceful two-state solution, but for that circumstances have to change,” he told MSNBC’s Andrea Mitchell.

“I never changed my speech in Bar Ilan University six years ago calling for a demilitarized Palestinian state that recognizes the Jewish state. What has changed is the reality,” he said.

But in his interview, Netanyahu cited Palestinian leader Mahmoud Abbas’ refusal to recognize Israel as a Jewish state.

The White House is choosing to believe his words prior to the election. President Obama waited until Thursday to call and congratulate the prime minister, taking the opportunity to remind him where the United States stood on a two-state solution.

The damage was done, going back essentially to over a year ago, and well before Netanyahu’s speech before the U.S. Congress to warn of a bad deal in the Iranian nuclear talks.

The White House said there would be “consequences” for Israel as it “re-evaluates” its diplomatic strategy. The New York Times reported the administration is considering agreeing to the passage of a United Nations Security Council resolution “embodying the principles of a two-state solution that would include Israel’s 1967 borders with Palestine and mutually agreed swaps of territory.”

A senior White House official told the Times: “The premise of our position internationally has been to support direct negotiations between the Israelis and the Palestinians. We are now in a reality where the Israeli government no longer supports direct negotiations. Therefore we clearly have to factor that into our decisions going forward.”

Charles Krauthammer / Washington Post

“Of all the idiocies uttered in reaction to Benjamin Netanyahu’s stunning election victory, none is more ubiquitous than the idea that peace prospects are now dead because Netanyahu has declared that there will be no Palestinian state while he is Israel’s prime minister.

“I have news for the lowing herds: There would be no peace and no Palestinian state if Isaac Herzog were prime minister either. Or Ehud Barak or Ehud Olmert for that matter. The latter two were (non-Likud) prime ministers who offered the Palestinians their own state – with its capital in Jerusalem and every Israeli in the new Palestine uprooted – only to be rudely rejected.

“This is not ancient history. This is 2000, 2001 and 2008 – three astonishingly concessionary peace offers within the past 15 years. Every one rejected.

“The fundamental reality remains: This generation of Palestinian leadership – from Yasser Arafat to Mahmoud Abbas – has never and will never sign its name to a final peace settlement dividing the land with a Jewish state. And without that, no Israeli government of any kind will agree to a Palestinian state.

“Today, however, there is a second reason a peace agreement is impossible: the supreme instability of the entire Middle East. For half a century, it was run by dictators no one liked but with whom you could do business. For example, the 1974 Israel-Syria disengagement agreement yielded more than four decades of near-total quiet on the border because the Assad dictatorships so decreed.

“That authoritarian order is gone, overthrown by the Arab Spring.”

Syria, Egypt, Libya, now Tunisia, it would seem.

“From Mali to Iraq, everything is in flux. Amid this mayhem, by what magic would the West Bank, riven by a bitter Fatah-Hamas rivalry, be an island of stability? What would give any Israeli-Palestinian peace agreement even a modicum of durability?....

“Israel is ringed by jihadi terrorists in Sinai, Hamas in Gaza, Hizbullah in Lebanon, Islamic State and Iranian proxies in Syria, and a friendly but highly fragile Jordan. Israelis have no idea who ends up running any of these places. Will the Islamic State advance to an Israeli border? Will Iranian Revolutionary Guards appear on the Golan Heights? No one knows....

“I understand the crushing disappointment of the Obama administration and its media poodles at the spectacular success of the foreign leader they loathe more than any other on the planet. The consequent seething and sputtering are understandable, if unseemly. Blaming Netanyahu for banishing peace, however, is mindless.”

Michael Young / Daily Star

“Benjamin Netanyahu’s victory in Israel’s general elections means that any hope of serious negotiations between Israelis and Palestinians – never particularly high in the first place – is now virtually nil.

“But more uncertain, and interesting, is what it will do to relations between the United States and Israel.

“Under Barack Obama, the United States has adopted a radically new vision for the Middle East and Israel’s status in it. Obama seeks to put in place a regional balance of power, one in which Iran would play a major role. A nuclear deal with Tehran is the cornerstone of that effort. It would allow the Americans to disengage from a region that has been a drain on their limited resources; a region that, to Obama, offers few long-term advantages.

“This American attitude has helped Netanyahu, but it also contains many risks for Israel. The Israeli prime minister can delight in the fact that the Israeli-Palestinian conflict is today of little concern to Obama, who regards American mediation as a thankless, unending task destined to fail. That allows the Israelis to pursue their occupation of Palestinian land at will and ensure that no peace deal ever becomes possible.

“But there is also a downside. Obama’s implicit message is that in a new Middle East Israel will more or less be on its own, having to invent a new purpose for itself in the emerging regional realignment, across from Iran. And as a more unpredictable region takes form, Israel’s power will be eroded by its inability to reach a settlement with the nearly 4 million Palestinians in and around the territories it controls.

“America will not abandon Israel, any more than it will Jordan, Saudi Arabia and the Gulf states. But nor will it expend valuable political capital to save Israel from itself. Especially when Israelis seem unwilling to understand the urgency of a peace settlement with the Palestinians. The reality is that Israel has no solution to the demographic time bomb in its midst....

“Netanyahu is a disgraceful figure, and if he forms a government he will only push the region into new catastrophes. But he is right in seeing a fundamental change in the American approach. Yet his victory may only serve to accelerate Obama’s shift, reinforcing the president’s conviction that Israelis are incapable of making difficult choices with the Palestinians. Let them pay the price for their stubbornness, he may be thinking; but there is no reason for the United States to do so as well.

“Those who will welcome Netanyahu’s win are the Iranians. An Israeli villain allows them to advance their agenda more easily. Tehran grasped Obama’s intentions early on, and now they are preparing to square off against an Israel stuck in its ways, surrounded by countries disgusted with its policies. And this time the Americans may simply stand by, allowing things to happen.”

Lastly, Prince Turki al-Faisal, a senior member of the Saudi royal family, stated what should be obvious to all in an interview with the BBC. Regarding the Iran nuke talks:

“I’ve always said whatever comes out of these talks, we will want the same. So if Iran has the ability to enrich uranium to whatever level, it’s not just Saudi Arabia that’s going to ask for that.

“The whole world will be an open door to go that route without any inhibition, and that’s my main objection to this P5+1 process.”

Iraq / Syria / ISIS: In his most expansive comments yet since the latest crisis in Iraq and Syria, General David Petraeus answered written questions from the Washington Post’s Liz Sly.

Appearing at a forum in Iraq for the first time in three years, Petraeus said “It is impossible to return to Iraq without a keen sense of opportunities lost. These include the mistakes we, the U.S., made here, and likewise the mistakes the Iraqis themselves have made. This includes the squandering of so much of what we and our coalition and Iraqi partners paid such a heavy cost to achieve, the continuing failure of Iraq’s political leaders to solve longstanding political disputes, and the exploitation of these failures by extremists on both sides of the sectarian and ethnic divides.”

What went wrong?

“The proximate cause of Iraq’s unraveling was the increasing authoritarian, sectarian and corrupt conduct of the Iraqi government and its leader after the departure of the last U.S. combat forces in 2011. The actions of the Iraqi prime minister undid the major accomplishment of the Surge. (They) alienated the Iraqi Sunnis and once again created in the Sunni areas fertile fields for the planting of the seeds of extremism, essentially opening the door to the takeover of the Islamic State. Some may contend that all of this was inevitable. Iraq was bound to fail, they will argue, because of the inherently sectarian character of the Iraqi people. I don’t agree with that assessment.

“The tragedy is that political leaders failed so badly at delivering what Iraqis clearly wanted – and for that, a great deal of responsibilities lies with Prime Minister Maliki.”

Petraeus added he wished the United States had kept a substantial force on the ground.

On Iran’s growing role in Iraq:

“The current Iranian regime is not our ally in the Middle East. It is ultimately part of the problem, not the solution. The more the Iranians are seen to be dominating the region, the more it is going to inflame Sunni radicalism and fuel the rise of groups like the Islamic State. While the U.S. and Iran may have convergent interests in the defeat of Daesh [IS], our interests generally diverge. The Iranian response to the open hand offered by the U.S. has not been encouraging.”

As for the Iraqi offensive to retake Tikrit, by week’s end it appeared to have stalled as Iraqi troops suffered heavy casualties. Cemetery workers in the city of Najaf to the south have received about 60 war dead each day. Soldiers are saying the fight for the center of the city has been tougher than expected.

This does not bode well when it comes to plans to retake Mosul.

In Syria, President Bashar Assad said Monday he is waiting for action from Washington after Sec. of State Kerry acknowledged talks with Damascus were necessary to end the civil war.

But then Kerry’s people were forced to clarify his comment, saying Assad had no role in the country’s future, while several countries backing the opposition said they would never negotiate with him.

It was last Sunday in an interview with CBS News, that Kerry said “Well, we have to negotiate in the end,” when asked whether he would negotiate with Assad.

Meanwhile, the Syrian Observatory for Human Rights, said on Tuesday that government forces had carried out a poison gas* attack that killed six people in the northwest, with medics posting videos of young children suffering what they said was suffocation.

*ISIS was also recently accused of using gas (chlorine) in attacks against Kurdish peshmerga forces.

Editorial / Washington Post

“Four years ago this week people across Syria began marching peacefully to demand democratic reforms. The country they sought to improve literally no longer exists. In death, destruction, refugees and sheer horror, Syria’s war outstrips any other of this century. That it has faded from public attention reflects not an easing of the crisis, but an abdication by the United States and other powers of their commitments to prevent mass murder.

“Since Bashar al-Assad’s regime first responded to the peaceful demonstrators with gunfire, 6 percent of the prewar population of 20 million have been killed or wounded, and another 23 percent have left the country – including 4 million who live as refugees, according to a U.N.-supported study released last week. Outside of Damascus, most major cities have been reduced to rubble; a study of satellite images shows that 83 percent of the country’s electric lighting has been eliminated.

“Humanitarian groups attempting to serve the Syrians still in the country say the situation has grown worse...

“The Obama administration, which once proclaimed the prevention of genocide a national security priority, has not even pretended to have a strategy for Syria since the collapse of a peace conference in Geneva 12 months ago....

“At best, Syria’s continued agony will be the price for progress elsewhere in the Middle East. More likely, the Assad regime’s unchecked slaughter will continue to destabilize the region.”

Lebanon: This country of just four million now has 1.2 million Syrian refugees, and 500,000 Palestinian and Iraqi refugees. But despite tightened visa regulations in an attempt to stop the flow of Syrians across the border, Lebanon is granting Assyrian’s, the Christian minority, access to the country, citing the threat from the Islamic State campaign against them.

But for most Lebanon is just a stopover on the way to Europe. The Middle East continues to be emptied of all Christians it seems. It’s sickening.

Tunisia: At least 22, seventeen of them foreign tourists, were killed in a terror attack on a leading museum in the capital of Tunis. Among the dead were cruise ship passengers from Japan, Colombia, Australia, France, Poland, Italy, Spain and Germany. It was the first attack of its kind in Tunis and ISIS, which has a training base 40 miles from the Tunisian border, was among the Islamist groups claiming responsibility.

Tunisia had been labeled the Arab Spring’s main success story after recently holding democratic elections, but this is a huge step backwards, especially for a country largely dependent on tourism, the pace of which will now plummet. For starters, cruise ships canceled all future trips there.

Yemen: On Friday, suicide bombers attacked two mosques in the capital of Sanaa, killing over 135. Three attackers struck worshippers attending noon prayers. The mosques are mainly used by supporters of the Houthi rebel movement, which controls Sanaa. ISIS claimed responsibility, which if confirmed would be the first time IS has conducted operations in Yemen. Heretofore, al-Qaeda has conducted similar attacks, with Yemen being the base for al-Qaeda in the Arabian Peninsula (AQAP).

Somalia: A key member of the al-Shabaab terror network was killed by an American drone. Adan Garar was said to be behind the West Gate Mall attack in Nairobi, Kenya as well as other attacks and the Pentagon said in a statement: “His death has dealt another significant blow to the al-Shabaab terrorist organization in Somalia.”

Russia / Ukraine: It was last March 21 that Russia’s parliament approved the annexation of Crimea. Russian President Vladimir Putin addressed an audience in Moscow, Wednesday, to mark the first anniversary, having returned from his mysterious 10-day absence two days before.

In acknowledging issues have mounted since the annexation, he assured the throng that Russia would overcome all obstacles in its path.

“We ourselves will continue moving forward. We will strengthen our statehood and our country. We will overcome the difficulties that we have so easily created for ourselves over these recent times,” he declared.

“We will also overcome, of course, the problems and obstacles that others try to create for us from outside. Such attempts are doomed to fail in general when it comes to Russia.”

Then Putin said: “Friends, we in Russia always saw the Russians and Ukrainians as a single people. I still think this way now. Radical nationalism is always harmful and dangerous, of course. I am sure that the Ukrainian people will yet come to an objective and worthy appraisal of those who brought their country to the state in which it is in today.”

A concert was held on the edge of Red Square, just a few hundred meters from where Boris Nemtsov was gunned down.

The European Union has vowed to keep economic sanctions on Russia in place until a Ukraine cease-fire is fully working, with German Chancellor Merkel saying this week that it would be wrong to ease up prematurely. 

Ukrainian Prime Minister Arseniy Yatseniuk said “Russia is constantly provoking the EU and NATO, starting with submarines and ending with Bear jets flying across the borders of NATO member states. Russia is trying to create turbulence in the EU through supporting far-right political movements,” he added. “This is a copycat case of what they did in Ukraine.” [Financial Times]

Speaking of air incursions, Russia is expanding its strategic bomber flights around the globe, stepping up its intimidation campaign. According to NATO Sec. Gen. Jens Stoltenberg, Russian bombers forced NATO to scramble jets to intercept Russian military aircraft over 400 times last year – more than twice as often as in 2013.   Such behavior is likely to only increase as Russia’s Defense Ministry pledged to expand strategic bomber flights well beyond Russia’s borders. Some of these are indeed armed with nuclear bombs and cruise missiles.

The U.K.’s Daily Mail reported this week that Russia has a fleet of converted fishing boats equipped with intelligence-gathering equipment sitting off Britain’s east coast. The boats’ mission is probably two-fold. They can intercept voice transmissions from as far away as 320 kilometers, plus they can monitor airbases to alert Russian military planes flying close to British airspace that planes have been scrambled to confront them.

As for the investigation into the assassination of opposition leader Boris Nemtsov, it is increasingly apparent that Chechen leader Ramzan Kadyrov, Putin’s handpicked leader there going back to 2007, had a hand in the killing, if not directly ordering it, which would mean he’s gone rogue. Russia’s Federal Security Service, or FSB (successor to the KGB), has grown increasingly impatient with Kadyrov as he has become harder to control. He is also clearly losing the support of Putin.

When the prime suspect in the assassination was arrested, it was Kadyrov who praised him as a “real Russian patriot” as it became clear the suspect was the deputy head of an elite police unit loyal to Kadyrov in Chechnya. A hit list of other Kremlin critics was apparently found in Chechnya.

Alexander Baunov, a senior associate at the Carnegie Moscow Center, told Bloomberg News: “Putin has become a hostage to his own policy of radicalizing supporters so they can spring to action whenever he needs then. His authoritarianism is sliding into decentralized terror. His backers think he’s much more radical than he really is and are acting without clear orders.”

Ah yes, that ‘dark force’ I’ve talked about for years now...the alternative government as some are now saying.

In other developments...Putin is planning a visit to China in September to mark the 70th anniversary of the end of the second world war, while Putin has invited North Korean leader Kim Jong-un to Moscow to view Russia’s own celebrations for the end of the war, with Kim supposedly having accepted, which would mean he feels secure enough to leave the country without fear of not being let back in.

David Ignatius / Washington Post

“The debate about Russian aggression isn’t just about Ukraine. Putin’s activities are rekindling core concerns that created the NATO alliance. Unfortunately, this time around, there appears to be less trans-Atlantic resolve to combat Russian threats.

“The Obama administration is debating how to augment its Russia policy, but there are clear internal disagreements. Defense Secretary Ashton Carter and Gen. Martin Dempsey, chairman of the Joint Chiefs, appear to favor sending lethal arms to Ukraine. But President Obama seems caught between a desire to contain Russian actions and his continuing hope for Moscow’s cooperation both in the Iran nuclear talks and in settling the Syrian civil war.

“A vivid example of the Cold War time warp was Putin’s revelation in a Russian documentary last weekend that he considered putting Russian nuclear forces on alert early last year when Russia intervened in Crimea after the Ukraine government collapsed. His comment illustrated anew the danger that the Ukraine conflict could spiral out of control. In a sign of darkening times, Russia announced Tuesday that, as part of a war-game exercise, it will send advanced missiles to its Baltic enclave of Kaliningrad and nuclear-capable bombers to Crimea, the Associated Press reported.

“The arms-control process, which helped steady the Cold War, now seems to be running in reverse. Russia withdrew last week from consultations about the 1990 Conventional Forces in Europe treaty, signaling that it has effectively abandoned that pact. Moscow has also balked at discussing any additional cuts in nuclear weapons in a once-planned expansion of the 2010 ‘New START’ treaty.

“The most worrisome breakdown of U.S.-Russian détente may be the unraveling of the 1987 pact governing medium-range nuclear forces in Europe, known as the INF treaty. Last July, the United States accused Russia of breaching that pact by testing a ground-launched cruise missile that violated agreed limits. The Russians countered with accusations about alleged U.S. violations.”

This is all incredibly depressing. It’s also clear NATO is in no position to react to Russian aggression in, say, the Baltics. Or, as David Ignatius puts it: “It has been so long since NATO was really tested that alliance members may have forgotten what collective self-defense really means.”

On the issue of nukes in Crimea, Putin told state television channel Rossia-1 that concerns of a potential Western intervention into Crimea last year forced him and his top security officials to consider putting Russia’s nuclear arsenal on combat alert.

“We were ready to do this. I spoke to my colleagues and told them that [Crimea] is our historic territory, Russians live there. They were in danger. We couldn’t abandon them,” Putin said in the interview.

But Putin added “the circumstances did not call for such actions, which would have been contrary to our own interests.” [Moscow Times]

Your editor...WIR 1/3/15: “Vladimir Putin is not in a position to expand operations in Ukraine these days, nor to make a move on Moldova, Georgia, or one of the Baltic republics, but he will place nuclear weapons in Crimea as a way of riling up the West.” [Not a bad call, potentially, as it turns out.]

Back to Putin’s disappearance, it is a sign of troubles behind the scenes at the Kremlin as I’ve discussed for years, and that the catalyst could be the assassination of Nemtsov.

China: The foreign ministers of China, Japan and South Korea are meeting in Seoul this weekend for the first time in three years, in an attempt to ease tensions in the region.

A professor at Seoul’s Sogang University told the Financial Times: “There is a growing consensus in the region that things will have to improve to better deal with this paradoxical situation. The countries are heavily reliant on each other economically, but in terms of foreign policy it’s no secret that they hate each other.”

Meanwhile, France, Germany and Italy have all agreed to follow Britain in joining a China-led international development bank, much to the chagrin of the U.S. The Asian Infrastructure Investment Bank is viewed as a potential rival to the World Bank, which is based in Washington.

The AIIB is part of a fight over who will most influence trade in Asia over the coming decades, and who will define the rules.

Separately, China has become the world’s third-largest exporter of arms after the United States and Russia, according to the Stockholm International Peace Research Institute. But the U.S. and Russia are a combined 58% of the market to China’s 5%.

On a different issue, Palau is a tropical paradise in Micronesia I am familiar with, being near the island of Yap where I have traveled from time to time. Palau is part of the ‘milk run’ between Guam and Manila.

But Palau, which also has a history from World War II, is now being overrun by Chinese tourists, who in February represented 62% of all visitors. As described in a story in the South China Morning Post:

“Strapped into life-jackets and screaming with excitement, groups of boisterous Chinese thrill-seekers tear around Palau’s ‘Milky Way’ lagoon on a flotilla of speedboats – a spectacle unfamiliar to locals just a few months ago.”

What a freakin’ nightmare. The place will be destroyed in two years. Hotels are being built to cater to the Chinese.

Said a local taxi driver: “They wreck corals and throw their rubbish in the sea.”

One a-hole Chinese tour operator is passing out leaflets “including photos of grinning Chinese tourists holding up turtles they had removed from the water – in one case by its flippers.”

Finally, as noted earlier, Chinese Premier Li Keqiang held his annual press conference and reiterated the government is committed to tackling smog, but then he avoided answering a question as to why the Commies blocked a documentary on the Internet about the country’s chronic air pollution.

Brazil: Huge anti-government protests were held last Sunday as federal prosecutors brought further charges against ruling Workers’ party officials over the Petrobras corruption scandal. The party’s treasurer was accused of soliciting donations from a Petrobras director.

President Dilma Rousseff continues to deny any involvement, even though she was Petrobras’ chairman of the board from 2003 to 2010 when much of the graft was taking place. In response to the demonstrations, though, her government is introducing a package of anti-corruption measures. In a recent poll, Rousseff’s approval rating has fallen to 23%.

Random Musings

--According to a new CNN/ORC poll, Hillary Clinton holds a nearly 50-point lead over Vice President Joe Biden, 62% to 15%. Massachusetts Sen. Elizabeth Warren comes in at 10%. If Warren didn’t enter the race, the polls show Hillary’s lead goes to 67% to 16%.

In terms of potential matchups, no Republican gets within 10 points of Clinton, with Sen. Rand Paul the closest, Clinton winning 54% to 43%. Both Jeb Bush and Scott Walker receive 40% to Clinton’s 55%. Mike Huckabee loses 55% to 41%.

On the Republican side, Bush leads with 16%, Walker is next at 13%, Paul 12% and Huckabee 10%. Ben Carson takes 9%, Chris Christie and Marco Rubio are at 7%. Ergo, we have a long, long way to go. [Two who should just pack it in, now, are Rick Santorum (1%) and Rick Perry (4%).]

But in terms of visibility, nearly 58% of Americans haven’t formed an opinion of Scott Walker, and 48% haven’t heard of or don’t know about Marco Rubio. [23% haven’t formed an opinion of Jeb Bush.]

--On the email front, the Clinton camp sought to clarify earlier statements that while more than 30,000 “work-related” emails were turned over to the State Department, nearly 32,000 “private” ones were deleted.

Now the story is Clinton’s team individually read “every email” before discarding those deemed private.

But as South Carolina GOP Rep. Trey Gowdy said when asked whether he was now reassured that “every email” was read before being either deleted or turned over: “I have zero interest in looking at her personal emails. But who gets to decide what’s personal and what’s public? And if it’s a mixed-use email, and lots of emails we get in life are both personal and work, I just can’t trust her lawyers to make the determination that the public’s getting everything they’re entitled to.” [Fox News]

Separately, the State Department last weekend disclosed that until last month it had no way of routinely preserving senior officials’ emails. Instead it relied on individual employees to decide if certain ones should be forwarded to a special record-keeping server, or printed out and filed. Hillary has emphasized that since she was corresponding frequently with other department officials on their government accounts, those emails were being preserved on government servers. Ah, not quite.

--Maureen Dowd / New York Times

“Since open letters to secretive and duplicitous regimes are in fashion, we would like to post an Open Letter to the Leaders of the Clinton Republic of Chappaqua:

“It has come to our attention while observing your machinations during your attempted restoration that you may not fully understand our constitutional system. Thus, we are writing to bring to your attention two features of our democracy: The importance of preserving historical records and the ill-advised gluttony of an American feminist icon wallowing in regressive Middle Eastern states’ payola.

“You should seriously consider these characteristics of our nation as the Campaign-That-Must-Not-Be-Named progresses.

“If you, Hillary Rodham Clinton, are willing to cite your mother’s funeral to get sympathy for ill-advisedly deleting 30,000 emails, it just makes us want to sigh: O.K., just take it. If you want it that bad, go ahead and be president and leave us in peace. (Or war, if you have your hawkish way.) You’re still idling on the runway, but we’re already jet-lagged. It’s all so drearily familiar that I know we’re only moments away from James Carville writing a column in David Brock’s Media Matters, headlined, ‘In Private, Hillary’s Really a Hoot.’...

“Instead of raising us up by behaving like exemplary, sterling people, you bring us down to your own level, a place of blurred lines and fungible ethics and sleazy associates. Your family’s foundation gobbles tens of millions from Saudi Arabia and other repressive regimes, whose unspoken message is: ‘We’re going to give you money to go improve the world. Now leave us alone to go persecute women.’

“That’s an uncomfortable echo of a Clintonian trade-off, which goes: ‘We’re going to give you the first woman president who will improve the country. Now leave us alone to break any rules we please.’”

--Edward Klein, author of the recent book “Blood Feud: The Clintons vs. the Obamas,” wrote in an opinion piece for the New York Post that “Obama senior adviser Valerie Jarrett leaked to the press details of Hillary Clinton’s use of a private email address during her time as secretary of state, sources tell me.

“But she did so through people outside the administration, so the story couldn’t be traced to her or the White House.

“In addition, at Jarrett’s behest, the State Department was ordered to launch a series of investigations into Hillary’s conduct at Foggy Bottom, including the use of her expense account, the disbursement of funds, her contact with foreign leaders and her possible collusion with the Clinton Foundation.

“Six separate probes into Hillary’s performance have been going on at the State Department. I’m told that the email scandal was timed to come out just as Hillary was on the verge of formally announcing that she was running for president – and that there’s more to come.

“Members of Bill Clinton’s camp say the former president suspects the White House is the source of the leak and is furious.”

For her part, during the 2014 midterm elections campaign, “Jarrett was heard to complain bitterly that the Clintons were turning congressmen, senators, governors and grass-root party members against Obama by portraying him as an unpopular president who was an albatross around the neck of the party.

“Jarrett was said to be livid that most Democrats running for election refused to be seen campaigning with the president. She blamed the Clintons for marginalizing the president and for trying to wrestle control of the Democratic Party away from Obama.

“And she vowed payback.”

--The Wall Street Journal reported Friday that with regards to the Clinton Foundation swearing off donations from foreign governments when Hillary Clinton was secretary of state, “That didn’t stop the foundation from raising millions of dollars from foreigners with connections to their home governments, a review of foundation disclosures shows.”

Specifically, “more than a dozen foreign individuals and their foundations and companies were large donors to the Clinton Foundation in the years after Mrs. Clinton became secretary of state in 2009, collectively giving between $34 million and $68 million.” Some donors also provided direct funding to charities sponsored by the foundation to the tune of $60 million.

Then, when she left the State Department in 2013, the foundation began to accept donations directly from foreign governments again.

--Back to the polls, a Rasmussen survey reveals that 36% of Democrats think their party needs a fresh face and 21% are undecided.

Among all voters, 48% share a favorable opinion of Hillary, while 49% view her unfavorably. In September, 53% viewed Clinton favorably, 45% unfavorably. [84% of Democrats still view her favorably today.]

--But wait...there’s more! A Reuters/Ipsos poll shows support for Mrs. Clinton’s candidacy has dropped about 15 points since mid-February among Democrats. Support from Democrats likely to vote in the primaries has dropped to a low in the mid-50s since the email crisis hit.

--Michael Goodwin / New York Post

“With each passing day, it gets harder to see the reports of pending criminal charges against Sen. Robert Menendez (D-N.J.) as anything other than a political hit job.

“It’s now been 10 days since every major news organization reported that anonymous sources in the Justice Department said the New Jersey Democrat would be charged with corruption, yet no charges have been filed.

“The time lag adds to the suspicion that the rumors aimed to punish Menendez for opposing President Obama’s feckless Iran policy and to scare off senators who might join him.

“If there is a criminal case against Menendez, let’s see it now. If there isn’t, then Barack Obama really is Richard Nixon.”

--I’ve told you how I’d love to see Ohio Republican Gov. John Kasich run for president, but it’s not realistic at this time. As George Will writes in his Washington Post op-ed this week, Kasich would only run if “Jeb Bush fails to gain momentum commensurate with his fundraising,” Kasich having experienced “the steamroller” of the Bush family’s money train back in 1999 when Kasich ran briefly.

But as we all know, no Republican has won the presidency without taking Ohio, “and last year Kasich was reelected by 31 points, carrying 86 of 88 counties, including Cuyahoga (Cleveland). Events are pushing foreign policy to the center of presidential politics, which suits Kasich, 62, who spent 18 years on the House Armed Services Committee, meshing weaponry with strategy.”

Let’s face it, Kasich’s background and skillset set him up beautifully, but at times he can be a policy wonk, and he can also be preachy, such as on his Christianity.

But he’s authentic, and as he told Mr. Will, there will be “twists and turns” in the path to the nomination, and as Will concludes, like a football player on the bench, Kasich is suited up.

--Sen. Tom Cotton garnered a ton of press with his role in crafting the letter to Tehran’s leadership, but his first actual “maiden speech” on the floor of the Senate was just this past Monday. As Mike DeBonis of the Washington Post noted, traditionally a freshman senator goes through a period of silence before making “a statement of principles or objectives rather than a comment on the partisan issue of the day.”

So Cotton chose to give a half-hour speech “calibrated to further establish (him) as the Republican Party’s young leading light on foreign affairs and defense,” the mantle currently worn by John McCain (R-Ariz.) and Lindsey Graham (R-S.C.).

Cotton said: “An alarm should be sounding in our ears. Our enemies, sensing weakness and hence opportunity, have become steadily more aggressive. Our allies, uncertain of our commitment and capability, have begun to conclude that they must look out for themselves, even where it is unhelpful to stability and order. Our military, suffering from years of neglect, has seen its relative strength decline to historic levels.”

And...American must have “such hegemonic strength that no sane adversary would ever imagine challenging the United States. ‘Good enough’ is not and will never be good enough.” This will cost money, but the budget can’t be balanced on the backs of the military. 

“Our enemies and allies alike must know that aggressors will pay an unspeakable price for challenging the United States,” Cotton said.  “The best way to impose that price is global military dominance.” [Mike DeBonis]

--Rep. Aaron Schock (R-Ill.) announced his resignation from Congress on Tuesday. The 33-year-old pretty boy crossed the line innumerable times in terms of using his taxpayer-funded account for official expenses that included $40,000 on decorating his Capitol Hill office like something out of “Downtown Abbey.” The Office of Congressional Ethics had commenced a probe and it was clear he wasn’t going to survive it, the OCE being the initial vehicle that then passes down recommendations to the House Ethics Committee.

The Washington Post reported House Speaker John Boehner and House Majority Leader Kevin McCarthy were “dismayed” Schock reached his decision before conferring with them.

Schock is from a solidly Republican district and in a special election that must now be called, isn’t likely to draw a strong Democratic challenge. 

--George Will / Washington Post

“Fifty years ago this month, (Daniel Patrick) Moynihan, then a 37-year-old social scientist working in the Labor Department, wrote a report, ‘The Negro Family: The Case for National action,’ that was leaked in July. The crisis he discerned was that 23.6 percent of African American births were to unmarried women. Among the ‘tangle’ of pathologies he associated with the absence of fathers was a continually renewed cohort of inadequately socialized adolescent males. This meant dangerous neighborhoods and schools where disciplining displaced teaching. He would later write: ‘A community that allows a large number of young men to grow up in broken families, dominated by women, never acquiring any stable relationship to male authority...that community asks for and gets chaos.’

“Academic sensitivity enforcers and race-mongers denounced him as a racist who was ‘blaming the victim.’ Today, 72 percent of African American children are born to single women, 48 percent of first births of all races and ethnicities are to unmarried women, and more than 3 million mothers under 30 are not living with the fathers of their children.

“In 1966, Sargent Shriver, head of President Lyndon B. Johnson’s ‘War on Poverty,’ was asked how long it would take to win the war. He replied, ‘About 10 years.’ The conventional wisdom was John F. Kennedy’s cheerful expectation that a rising economic tide would lift all boats. America now knows that bad family structure defeats good economic numbers.

“Today, a nation dismayed by inequality and the intergenerational transmission of poverty must face the truth that political scientist Lawrence Mead enunciated nearly 25 years ago: ‘The inequalities that stem from the workplace are now trivial in comparison to those stemming from family structure. What matters for success is less whether your father was rich or poor than whether you knew your father at all.’”

--Pope Francis surprised Italian officials with his announcement last weekend that an Extraordinary Jubilee Year will begin December 8, which could draw millions of Catholics to Rome. In 2000, when Pope John Paul II called one, 25 million Roman Catholics flocked to Rome. Today, such a crowd would pose a security nightmare, with Islamic State having already singled out the Vatican.

The other day, Father Silvano Tomasi, the Vatican’s ambassador to Geneva, advocated use of force against IS jihadists if a political solution could not be found, a rare stance for the Church.

Some don’t believe the crowds would be as big as 2000 because that was the millennium. On the other hand, Pope Francis is immensely popular and it’s become relatively cheap to travel to Italy.

--The murder rate in New York City has ticked up this year, about 11% as of the last reporting vs. last year’s historic low. Perhaps more telling, shootings are up 21%. There’s no reason for panic, yet, but the coming summer could be a real test for Mayor Bill de Blasio.

--New York Democratic Gov. Andrew Cuomo’s approval rating has dropped to its lowest level since he took office in 2011. A new Quinnipiac University poll shows it at 50%, down from 58% in a Dec. 22 survey. Education seems to be the prime source of the decline as his handling of the issue garners a dismal 28% approval rating.

--Congratulations to Boston for breaking its old snowfall record of 107.9 inches set in 1995-96, in topping 110 after Friday’s storm (my guess as I go to post). Mayor Walsh tweeted, “We are truly a title city. There will be no parade.”

--Finally, prayers to the people of the Pacific island nation of Vanuatu following one of the strongest storms in recorded history, Cyclone Pam, which packed sustained winds of 155 mph and destroyed the infrastructure virtually everywhere across the island chain that relies on tourism (40% of GDP). Crops were also destroyed. One wonders how everyone will survive once the emergency aid stops.

---

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

God bless America.
---

Gold closed at $1184
Oil $45.72

Returns for the week 3/16-3/20

Dow Jones +2.1% [18127]
S&P 500 +2.7% [2108]
S&P MidCap +3.2%
Russell 2000 +2.8%
Nasdaq +3.2% [5026]

Returns for the period 1/1/15-3/20/15

Dow Jones +1.7%
S&P 500 +2.4%
S&P MidCap +6.0%
Russell 2000 +5.1%
Nasdaq +6.1%

Bulls 53.6
Bears 14.1 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore