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02/06/2016

For the week 2/1-2/5

 [Posted 12:00 AM ET]

Note: This site has costs.  Please click on the gofundme link or send a check to PO Box 990, New Providence, NJ  07974.  It’s appreciated.  Jim D., thank you for your ongoing support.

Edition 878

Washington and Wall Street

After a two-week winning streak, stocks resumed their slide, with Nasdaq getting absolutely crushed, including some once high-flying names, that sent the benchmark tech index to its lowest weekly close since October 2014.  Even companies that reported good news, either this week or before, like Facebook and Google, were slammed.  In some cases, as with Amazon and the cloud providers, and a Tesla, it’s about valuations, but Facebook and Google really don’t have that problem (I’m cutting Facebook some slack in this regard). 

The straw that broke the camel’s back, though, was LinkedIn, which, as I describe below, guided lower, substantially, and the shares fell 44% in response.  Yup, 44.

In a nutshell, all momentum issues were seemingly taken out to the woodshed and shot.  When something like this takes place, it always takes a while to repair the damage so don’t look for any of these holdings to suddenly bounce back to new highs.  Ain’t gonna happen.

Meanwhile, it was a volatile week on the bond and currency front as there were all kinds of crosscurrents in terms of the U.S. Federal Reserve and what they may do at their next meeting in March and beyond.  Will the Fed hike interest rates four times in 2016 as they strongly hinted at in December?  Sure doesn’t look that way.

But at mid-week, suddenly the sentiment was that the Fed, given what was happening around the world and the apparent softness in the U.S., couldn’t possibly raise rates at all this year.

Then came Friday’s employment report for January and sentiment switched back to maybe the Fed will raise in March, or at least another few times over the course of 2016, as the economy created 151,000 jobs, less than expected but very solid nonetheless given the sour sentiment around the world, with the unemployment rate ticking down to 4.9%, an 8-year low, and, most importantly, average hourly wages rising 0.5%, or a solid 2.5% over the past 12 months.

Coupled with revisions to November (up to 280,000) and December (down to a still robust 262,000) and we’re back to the 230,000 monthly average we’ve been producing for a while now.

So the jobs report erased some earlier putrid data, such as the January ISM manufacturing reading of 48.2, contraction mode, while December consumption (consumer spending) was unchanged and factory orders for December were down a worse than expected 2.9% (though the new orders component was OK).

On the other hand, December personal income was up 0.3%, while the January ISM reading on the service sector came in at 53.5, which while above the 50 dividing line between growth and contraction was nonetheless a 23-month low.

So with all the above out before Friday’s jobs data, it was no wonder that the dollar reversed course mid-week, with those betting on a strengthening dollar in a rising U.S. interest rate environment caught with their pants down, and the zipper stuck, and some traders were slaughtered, while commodities such as gold that benefit from a weaker dollar rose.  [Oil did briefly, too, but then once again fundamentals, read ‘oversupply,’ took over and crude finished down on the week, with the dollar strengthening anew on Friday.]

Confused?  Let’s face it, it’s going to be a very confusing and volatile year and we haven’t even been talking about the impact geopolitics will have on the markets, in a big way, before too much longer.  I’ll get into this in an extensive way next week, beyond my comments below on Europe, the Middle East and Asia.

Back to the interest rate debate, Federal Reserve Bank of New York President William Dudley said recent market turmoil may alter the U.S. growth outlook, while Fed governor Lael Brainard told the Wall Street Journal that market volatility was strengthening the case for going slowly on any further interest-rate hikes.  Or as Ms. Brainard put it, “Recent developments reinforce the case for watchful waiting.”

Then you had Fed Vice Chairman Stanley Fischer, who said it was too difficult to gauge the impact on the U.S. economy from all the gyrations in global financial markets and uncertainty over China’s growth prospects.

“If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States,” Fischer told the Council on Foreign Relations.  “But we have seen similar periods of volatility in recent years that have left little permanent imprint on the economy.”

As to the March Fed meeting, Fischer said, “We simply do not know.  The world is an uncertain place, and all monetary policy makers can really be sure of is that what will happen is often different from what we currently expect.”

With the 10-year hitting 1.79% at one point on Wednesday, its lowest level in a year, some, such as Goldman Sachs’ chief economist Jan Hatzius were warning the “bond market is underestimating to a significant degree the amount of monetary normalization that we’re likely to see.”  Hatzius is calling for the yield on the benchmark to hit 3.00% by year end, which, depending on the speed of the rise, would certainly convulse global markets further.

Robert J. Samuelson / Washington Post

“In 1992, James Carville popularized the adage ‘It’s the economy, stupid.’  If the economy is ailing, people tend to vote against the party in the White House. That happened in the 1992 election.  A recession that started in 1990 was officially over, but it didn’t seem over to millions of Americans.  They sent President George H.W. Bush into retirement.  The question now is whether something similar will happen in 2016....

“Here’s a report from economists Beth Ann Bovino and Satyam Panday of Standard & Poor’s.  There have been, they say, 11 economic expansions – periods when production and employment are generally increasing – since World War II, averaging just over 58 months, or nearly five years each.  By this measure, the present expansion – which started in the third quarter of 2009 and has lasted 78 months – is past its prime and could be near its end.

“But the S&P economists doubt that.  Indeed, they argue just the opposite.  ‘We may be, more or less, at mid-cycle,’ they write, ‘with room to grow and the underlying momentum to do so.’  Translation: With a little luck, the expansion could run another five or six years.

“What has killed most post-World War II expansions, they argue, is the Federal Reserve raising interest rates to quash inflation. But there’s no evidence of runaway inflation now, they say.  Indeed, they estimate that the economy is operating well below its potential output, and this limits the power of companies to raise prices.  If firms raise prices too much, other suppliers will undercut them and steal market share....

“To be sure, the labor market – with the unemployment rate at 5 percent – seems near ‘full employment.’  Superficially, this indicates that a tight job market could drive up wages and lead to an inflationary wage-price spiral.  But this danger is minimized, say the S&P economists, because broader unemployment measures suggest the labor market is not so tight.  They cite the so-called ‘U-6’ measure, which includes the official unemployed, discouraged workers and part-timers who’d like full-time jobs.  U-6 is now 9.9 percent; its pre-recession low was 8.4 percent in 2007.

“The political implications are self-evident.  If the S&P economists and other forecasters are correct – there is no recession – it will be easier for the Democratic nominee to run on Obama’s record and to credit his policies with reducing the distress of the Great Recession, which (of course) will be blamed on George W. Bush and Republicans.  But if a conspicuous slowdown or recession materializes, the opposite will be true.  Republicans will be better able to peddle their narrative of businesses being over-regulated, over-taxed and harassed.

“One way or another, it’s still the economy, stupid.”

And, your editor would add, with geopolitics as a huge wild card.

Europe and Asia

There was a slew of economic data for the eurozone.  First off, you had the PMIs on manufacturing and the service sector, as put out by Markit.

The euro area manufacturing PMI was 52.3 in January vs. December’s 53.2.

Germany had the same numbers, 52.3 vs. 53.2; France was 50.0 vs. 51.4 in December; Italy was 53.2 vs. 55.6; Spain improved to 55.4 vs. 53.0; Greece was 50.0 vs. 50.2.

On the services side, the overall eurozone PMI was 53.6, down from 54.3 in December.

Germany was 55.0 vs. 56.0; France ticked up to 50.3 vs. 49.8; Italy fell to 53.6 vs. 55.3; and Spain was 54.6.

I do have to add that Ireland’s service sector PMI came in at 64.0!  The best since 2006.

The final eurozone comp for January was 53.6 vs. 54.3.

In non-euro UK, the manufacturing PMI was 52.9 in January vs. 52.1 the prior month.  The services PMI (services being 79% of Britain’s economy) was a solid 55.6, better than expected.

Eurozone retail trade rose 0.3% in December over November, up 1.4% year over year; up a respectable 2.4% for all of 2015.

Industrial (producer) prices, though, fell 0.8% in December over November, down 3% year over year, which is not good.

On the unemployment front, the eurozone jobless rate was 10.4% in December vs. 10.5% in November and 11.4% in December 2014.  [Eurostat]

Yes, there has been improvement in the euro area, but in some cases the rate is still very high.

That’s not the case in Germany, where the unemployment rate is 4.5% (the government pegs it at 6.2%, still an historic post-unification low).

But France is at 10.2%, Italy 11.4%, Spain 20.8% (though down from 23.6% in the past year), and Greece 24.5% (October).

Ireland continues to improve at 8.8%, but I have to note Finland, whose jobless rate has moved up to 9.5% from 9.0% in the past year.

On the youth front, you still have sky high jobless rates of 48.6% in Greece (Oct.), 46.0% in Spain and 37.9% in Italy.

European Central Bank President Mario Draghi once again tried to reassure investors that the ECB will do what it takes to get the inflation rate up to its target 2%, including further easing measures to be announced at its next meeting in March.

Speaking the other day at a lecture sponsored by the Bundesbank, Draghi said:

“There is no reason for central banks to resign their mandates simply because we are all being affected by global disinflation.  In fact, if all central banks submit to that logic then it becomes self-fulfilling.  If, on the other hand, we all act to deliver our mandates, then global disinflationary forces can eventually be tamed.”

Bond yields in the eurozone hit new record lows in many cases this week, including Germany’s 2-year government bond that dipped below minus 0.5% for the first time, as the 10-year bund traded at a yield of just 0.27% before finishing the week at 0.29%.

The Bank of England said interest rates are set to remain at their current rock-bottom levels for at least another year.  The BoE projects inflation will remain below 1 percent for all of 2016, while the growth forecast was reduced to 2.2 percent from a prior 2.5 percent forecast.

And the European Commission said it trimmed its 2016 growth forecast for the 19-nation eurozone to 1.7 percent from 1.8 percent, with Germany, France and Italy all performing worse than predicted just three months ago, while inflation will come in at just 0.5 percent for 2016.

Greece was in the news this week for the wrong reasons as there was major labor unrest, with a little violence thrown in.  The police even joined in on the demonstrations on Friday, protesting against a new round of pension cuts, and a 24-hour strike Thursday grounded dozens of domestic flights as ferries remained docked at ports, while schools, courts and pharmacies shut down for the day.

Writing in TIME, Ian Bremmer had the following take on Greece.

“A few months and a million migrants ago, Greece’s financial problems were the biggest story in Europe. Yet despite last year’s bailout, Greece and its struggle could again push European unity to the brink, because the country’s reform process is headed for a confrontation.

“As Greek Prime Minister Alexis Tsipras and his Syriza party celebrate one year in power, they now turn to a contentious question: pension reform.  Greek unions have responded to threats of pension cuts with strikes and angry protests.  Syriza and its coalition partner control just 153 of 300 seats in Parliament, a bare majority that leaves no political room for maneuver. Tsipras’ domestic political enemies are circling like buzzards....

“As if Athens didn’t have enough problems, the country’s inability to slow the flow of migrants into Europe has angered EU policymakers.  Greece has constructed just two of five promised reception camps meant to process migrants, and EU officials have threatened to cut the country out of the Schengen Agreement, which allows for free movement across borders, if the Syriza-led government fails to comply.  That would shift Europe’s border to the north, leaving Greece flooded with refugees who have nowhere to go.

“But Tsipras’ biggest problem may be that German Chancellor Angela Merkel can no longer afford to compromise with his government.  Merkel has gambled that Germans will allow her to accept future waves of refugees into her country with no limit on their number.  But as ordinary Germans fear the effect of the migrant surge on the country’s security and identity, Merkel has seen her approval ratings fall to their lowest levels in more than four years.  She might soon become too politically weak to throw Greece yet another much needed lifeline.  Trapped between an increasingly angry Greek public and creditors in no mood for concession, Tsipras might again find himself in the firing line.”

And he is.

Then there is Britain and the coming referendum on staying in or out of the EU, “Brexit.” Prime Minister David Cameron has put himself in a box and this was not a good week for him.

Cameron met with European Council President Donald Tusk as the clock ticks away for the “Brexit” vote, most likely June 23.  Cameron wanted to be able to tell his people that he negotiated separate protections for Britain, outside existing European Union rules, when it comes to migration and the paying of benefits, as well as protections for sovereignty and competitiveness.

Tusk’s proposal recognizes Britain’s “special status” in the EU but there were few real details ahead of a critical EU summit Feb. 18-19.

Cameron did secure the power to restrict benefits for new migrant workers but only up to four years, which begs the question, what happens after?

And there are major issues on protecting the interests of non-euro members, such as the UK, as the eurozone becomes more dominant.

Conservative Eurosceptics denounced the deal in the strongest terms, with many in Cameron’s cabinet threatening to break away and vote to leave the union.

Plus there are concerns in Eastern Europe over Cameron’s plan to restrict benefits to migrants.

And France doesn’t want Britain to be shielded from financial regulations intended to govern the eurozone, or a British veto.  [Get used to the term “brake clause” on both the migrant and economic legislation issues.]

UKIP leader Nigel Farage of the Eurosceptic crowd said the draft deal worked out between the EU and Cameron was “hardly worth the wait” and “really rather pathetic,” adding that it had “no treaty change, no powers returned, and no control of our borders.” [BBC News]

The bottom line is Britain, at least the conservatives, don’t want to have to abide by the EU’s liberal welfare benefits for migrants, because the UK wants to severely limit migration by making it less attractive in the first place.  But the EU doesn’t want to alter its principle of free movement of workers within the bloc’s single market.

The other part is that Britain wants to be exempted from the EU principle of “ever closer union” between member states, seeking the ability of non-euro countries to form coalitions to block some new EU laws such as on business regulation.

But this has to be done by treaty, and in many cases treaty changes have to be approved by the parliaments in the member states and this process can take years.

Yet Cameron boxed himself in by setting a referendum deadline as part of his recent re-election bid.

So the EU is offering vague assurances and language in order to avoid treaty changes that still must at some point be enacted.

If you’re an average Brit, and you’re faced with the momentous ‘in or out’ decision, but the promises being made (such as limiting welfare benefits, though only for four years), are vague and not bound by any formal changes in the governing treaty, what do you really have?  [Hint: Nothing.]

Then there is another issue.  Cameron devolved power to the governments of Scotland, Wales and Northern Ireland as part of the effort to keep the UK whole (and not have Scotland, for example, break off),  and now those governments are voting in May to elect members to their new governments.  The leaders of all three don’t want their voters confused by having to go to the polls twice in a month.

Cameron basically said this was hogwash.

So we wait to see the fireworks at the EU summit in about ten days.

The latest poll, though, has the campaign to take Britain out of the EU leading by 9 percentage points, which would be disastrous and would roil global markets further.

---

Just a few brief notes on Asia as China prepares for its big holiday, and a break for some of us as well it is hoped.  The government reported the manufacturing PMI for January was 49.4, a 3-year low, while the services reading was 53.5 vs. 54.4 in December.  The Caixin private PMI for manufacturing was 48.4, up from 48.2, while services rose to 52.4 vs. 50.2, which is encouraging, Caixin having more credibility than the National Bureau of Statistics.

The National Development and Reform Commission set an economic growth target range of 6.5 percent to 7 percent for this year.

In Japan the manufacturing PMI was 52.3 in January vs. 52.6 in December.  South Korea’s was 49.5 vs. 50.7, while Taiwan’s was 50.6 vs. 51.7 the prior month.

Street Bytes

--Nasdaq cratered 5.4% this week to 4363 and is now down 16.4% from its all-time high of 5218.  The Dow Jones fell 1.6% to 16204, while the S&P 500 lost 3.1% to 1880.

The carnage included stocks like Amazon, now $498 after hitting an all-time high of $696 just last Dec. 29, or down 28% in five weeks.  Facebook fell 12% in a number of days.  Alphabet (Google) is off about 16% from its after-market high during the week.  A data-analysis software maker, Tableau Software Inc., lost 49% on Friday alone.  Salesforce Inc. was down 13% on Friday, Workday Inc. down 16%.  Just brutal stuff.

And Tesla is at a 2-year low, which is very much warranted...the most overrated company in the history of mankind, in terms of its share price.  Note to Teslarians...we aren’t all buying $60,000 electric vehicles anytime soon.

--U.S. Treasury Yields

6-mo. 0.43%  2-yr. 0.72% 10-yr. 1.84%  30-yr. 2.67%

How many of you expected a 10-year yield at this level after the Fed hiked in December?  I sure as hell didn’t see it.

--The average price for a gallon of gasoline in the U.S. fell to $1.80 this week, the lowest since January 2009.

--I noted the other day how the World Bank was worried about the emerging market situation and countries dependent on oil revenues with big debt loads, such as Azerbaijan.  This week Nigeria asked the World Bank and African Development Bank for a $3.5bn emergency loan to fill a gap in its budget amid tumbling prices. 

--Royal Dutch Shell said fourth-quarter profit fell 44%, basically in line with expectations as the company proceeds with its acquisition of BG Group Plc, which has oil fields in Brazil and natural-gas assets from Australia to Kazakhstan.  Needless to say, Shell is cutting capital spending in response to the collapse in prices.

In fact, it is cutting 10,000 jobs, including because of its takeover of BG, while continuing to slash capital spending.

--Exxon Mobil Corp. posted its weakest annual results in more than a decade, with CEO Rex Tillerson saying in a news release the company would slash spending by 25% this year, though it plans to continue investing so that it can replace the oil it pumped.

Net income for the fourth quarter was $2.78bn, down 58 percent but above what the Street expected.  At least its refining and marketing operations reported rising profits in the quarter to $1.4bn.  It was the oil and gas production side that took a hit to profits.

--Chevron announced it would cut spending by $9 billion and lay off 4,000 workers this year after reporting a surprise fourth-quarter loss of $588m.... Chevron at least was able to replace its reserves, though it took a big writedown of about $500m on a large project in the Gulf.

--BP said Tuesday it would reduce its head count in its refining and marketing arm by 3,000 by the end of 2017, bringing the number of job reductions announced in the past year to 7,000, as the oil giant posted a loss of $6.48 billion for 2015; $3.3bm for the quarter.  The company also said the cost of its Gulf of Mexico spill is now $55.5 billion before taxes over five years.

CEO Bob Dudley said “2016 is going to be tough.”

--ConocoPhillips has become the first large U.S. oil production company to cut its dividend, 66 percent, after saying in December its dividend was “the highest priority use of our cash.”

CEO Ryan Lance said: “While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time.”

Conoco also lowered its capital expenditure guidance to $6.4bn from $7.7bn.

--U.S. auto sales dropped in January from a year ago, with the industry overall selling about 1.15 million vehicles during the month, a decline of 0.3 percent from January 2015, according to Autodata.  But the industry insists it will exceed last year’s record annual sales of nearly 17.5 million, though GM said sales could plateau over the next few years, rather than reaching a peak and falling off, as CEO Mary Barra put it on an investor call.  She predicted “many years of strong performance” ahead.

General Motors reported sales rose 0.5 percent for the month vs. year ago levels, Ford’s were down 2.6 percent, and Fiat Chrysler’s increased 6.9 percent.

With gasoline prices where they are, SUV sales remain strong.

Separately, Honda’s sales declined 1.7 percent, Toyota’s fell 4.7 percent and Nissan’s increased 1.6 percent.

--Ford said it would cut hundreds of jobs in Europe in an attempt to maintain profits after finally turning positive in the region for the first time in five years.  Ford had $4.5bn in pre-tax losses there between 2011 and 2014. 

Last year, Ford’s passenger car sales grew 8.6 percent in Europe to just under 1m units, second behind Volkswagen’s namesake brand.

Volkswagen reported a decline in sales of nearly 9 percent there as it continues to suffer from the emissions cheating scandal.  The company then said it was not holding its shareholders’ meeting on time nor releasing quarterly results as initially planned while it spends more time on working out its numbers due to the crisis.

GM reported another loss for its own European operations, $298m in the fourth quarter, though down from $393m in the year ago period.

--UPS, a bellwether for the overall economy, reported sales rose 1 percent in the December quarter, with average daily shipments in the U.S. up 2.4 percent for the holiday period.  The company issued solid guidance for all of 2016 and the shares rose.

--Emerson Electric Co., an industrial conglomerate, is another bellwether and it reported fiscal first-quarter sales for its process-management unit, which supplies instruments and software to control oil refineries, chemical plants and other industrial processes, fell 14% from a year earlier.  [Total sales fell 15.6 percent.]

North America sales plunged 23 percent, Europe was down 6 percent, and Asia down 13 percent.

CEO David Farr told analysts, “We’re going to have to take some additional restructuring in 2016 and 2017 in that space.  We’ll need to take [production] capacity off line.”

Farr said he doesn’t expect capital spending on equipment in the oil and gas sector to recover until the middle of 2017, noting that 2016 “will clearly be a tougher year than we thought.”

--Credit Suisse reported its first full-year loss since 2008 and the shares were hit hard.

CEO Tidjane Thiam said “Market conditions in January 2016 have remained challenging and we expect markets to remain volatile throughout the remainder of the first quarter of 2016 as macroeconomic issues persist.”

Basically, this bank is a mess.  Revenue fell 3.4%.  It is also slashing 4,000 jobs in its attempt to reduce costs.

--UBS shares suffered heavy losses after the Swiss bank reported disappointing fourth quarter results.  The wealth management business had a 27 percent fall in adjusted pretax profits in the fourth quarter of 2015, with the Wealth Management Americas division seeing its profits plunge 72 percent the previous year.

CEO Sergio Ermotti warned, “We have begun a year that really looks very challenging.”  Ermotti also blamed “very low levels of client activity” for depressing profits.

--Google parent Alphabet Inc. reported revenue at its core internet businesses, including search, YouTube and Android, rose 14% last year to $74.54 billion from $65.67 billion in 2014.

Fourth-quarter net income totaled $4.92 billion, vs. $4.68bn in the same period a year earlier.  Revenue rose 18% to $21.33bn, up from $18.1bn a year.

Ex-charges, Alphabet earned $8.67 a share, far above consensus estimates of $8.10, with revenue also exceeding.

So, as noted above, the stock in the after-market soared to over $810 but then cratered the rest of the week to a finish of $683.  For a brief moment in after-market trading, Alphabet’s market cap exceeded Apple’s, but at the end of the week it was over $50bn behind.  [$521bn to $469bn.]

--Yahoo reported a 15 percent fall in adjusted quarterly revenue as it struggles to keep its share of online search and display advertising in the face of the Facebook and Google juggernauts.

Yahoo’s revenue – after deducting fees paid to partner websites – fell to $1 billion in the fourth quarter from $1.18bn a year earlier.

Yahoo is laying off about 1,700 employees and shedding some of its units as it remains to be seen whether CEO Marissa Mayer can save her own job.  I heard her in an interview with CNBC on Wednesday and she was miserable, to put it mildly.

Among the products to be dumped will be Yahoo Games, Yahoo TV and some of the digital magazines that Mayer started as CEO, while various offices in the Middle East and Latin America will be closed.

Yahoo has been struggling for 3 ½ years and Wall Street has given up on this becoming any kind of resurrection story. 

On a conference call, Mayer also said rumors that $7 million was spent on holiday parties in December was an “untruth.”

Bottom line, Mayer said the company is exploring strategic alternatives that could include the sale of its core internet business.

Way back in 2003, Yahoo reportedly had the chance to buy Google for $5bn, two years before its IPO.  But Yahoo’s CEO at the time, Terry Semel, who was out of Hollywood, wasn’t prepared to pay more than $3bn for what was then still a start-up.  [John McDuling / Sydney Morning Herald]

--According to Gartner research, sales of smartwatches will rise 66 percent from 30.32 million units in 2015 to 50.4m this year generating some $11.5bn in revenue, which would be positive for Apple.  [This is a stupid product...like the Segway...or Diet Fresca.]

--Sumner Redstone, the 92-year-old media titan who helped shape modern Hollywood, is finally officially out as chairman of CBS Corp. and Viacom Inc.  Leslie Moonves, CBS CEO, replaces Redstone at CBS while Philippe Dauman, Viacom CEO, was named chairman of the media company. 

Sumner’s daughter, Shari, is not happy Dauman now has both titles, with Shari being vice chair.

No one outside the company believes this is best for Viacom, which needs to make some changes.

The Redstone family controls nearly 80% of the voting stock of both CBS and Viacom through an investment vehicle, National Amusements Inc.

Meanwhile, none of us have actually seen Sumner Redstone in years.  He could be a yard gnome, for all we know.  If he was a lawn jockey (which I aspire to...provided there is free domestic), there should be a record of that.

--Honda Motor is recalling an additional 2.2 million vehicles in the U.S. due to the Takata air bag issue.  According to the Wall Street Journal, some 50 million vehicles globally (all impacted automakers) are now involved.

Having driven a Honda for over 25 years (really), I often wonder how I was driving, in essence, a time bomb.  And having had four accidents in what is now 2 ½ years, I thank my lucky stars the air bags didn’t accidentally go off.

“What happened to Trumbore?”

“He was rear-ended by a distracted driver, his airbag exploded, and the shrapnel severed an artery.”

In all seriousness, the Takata situation is scary as hell.

--As noted above, shares in LinkedIn plunged over 40% following the company’s earnings release.  The professional social network issued downbeat guidance for 2016, partly due to a decision to close a marketing service that will reduce revenues by $50m this year but leave it better positioned in the future, according to executives.

LinkedIn said it expected revenues of $820m this quarter and $3.6bn-$3.65bn for the whole year compared to the Street’s expectations of $867m and $3.91bn.  Earnings are also expected to fall far short of current forecasts.

--ChemChina is acquiring agribusiness group Syngenta for around $43bn in what would be China’s biggest-ever outbound acquisition.  Swiss-based Syngenta is a pesticide and seed maker.

ChemChina bought Italian tire maker Pirelli last year for $7.9bn.  And it recently agreed to buy Krauss Maffee, a German machinery company.

--The U.S. government on Monday wrapped up its investigation into two outbreaks of E. coli at Chipotle, with the Centers for Disease Control and Prevention saying the outbreaks “appear to be over,” but, the regulator was unable to determine the specific ingredient that caused the illnesses, so that’s rather unsettling.

Chipotle shares have tumbled to $462, down 38% from its August high.

--GoPro Inc. reported weak fourth-quarter earnings and a reduced forecast as the shares continue to plunge, now $10.50, down from $65 as recently as last August.  The company has reduced its workforce 7% and announced a 50% price cut to its newest camera.

The action-camera market is becoming saturated and this is all GoPro has at the moment.  CEO Nicholas Woodman said the company is planning to release new editing software in March because “it’s still too hard to offload, access and edit GoPro content.”

Revenue fell 31% in the quarter and for the current one the forecast is bleak.

--Amazon.com is preparing to open 300 to 400 bookstores, according to mall operator General Growth Properties Inc., per their earnings call on Tuesday.  The CEO, Sandeep Mathrani, told analysts, “You’ve got Amazon opening brick-and-mortar bookstores and their goal is to open, as I understand, 300 to 400.”

This would be a huge blow to Barnes & Noble Inc., which operates 640 stores. 

But at the same time, it would take years for Amazon to bring such an initiative to fruition.

--Former Turing Pharmaceuticals CEO Martin Shkreli on Thursday called members of the U.S. Congress “imbeciles” on Twitter, moments after he invoked the Fifth in refusing to testify before a House committee on why his company raised the price of a lifesaving drug 5,000 percent.

The jerk should be cleaning showers at Rikers Island.

--Since 1995, the Top 10 in-game ad buyers at the Super Bowl:

Budweiser $213.7 million
Bud Light $201.9
Coca-Cola $114.5
Pepsi $106.4
Universal Pictures $95.0
Doritos $83.4
Toyota $70.8
Chevrolet $68.5
Paramount Pictures $64.5
GoDaddy.com $60.9

[Source: ESPN The Magazine]

Good luck with your Super Bowl box!  I’m in one where the grand prize is $6.8 mil---....oops, better keep quiet on this.  [Then again, the IRS’ computers were down this week so nothing to worry about.]

Foreign Affairs

Syria/ISIS/Russia/Turkey

Friday / Daily Star of Lebanon: “The Syrian government’s military offensive around the city of Aleppo has prompted at least 15,000 people to flee and involved a reported 13 airstrikes on medical facilities in January, the United Nations said Friday.

“ ‘The UN has verified that at least 15,000 people are fleeing from north of Aleppo city and tens of thousands have reportedly gathered at the border crossing with Turkey,’ a UN spokeswoman said in an emailed comment.

“ ‘Local sources say that while the Turkish border remains closed to civilian movement, those requiring urgent medical care have been receiving treatment from local hospitals in Turkey.’

“The civilians are reported to have joined the exodus after fierce fighting by advancing government forces who severed the rebels’ main supply route into Syria’s second city.

“Western nations have accused the Syrian government of sabotaging peace talks with its military offensive, and Washington has demanded Moscow halt its campaign in support of President Bashar Assad.”

Gee, you think Vladimir Putin will listen to the big, bad U.S.?

The action on the ground, and in the air, has picked up immensely in just the past two weeks and there is a very real fear among the rebels that the Assad government is suddenly on the verge of winning the war outright owing to the support of Russia, first and foremost, which bucked up the regime at a time when it was on the verge of collapse.

The Syrian Observatory for Human Rights, the British-based activist monitor that has done yeoman’s work for years with its sources on the ground, estimates 40,000 people have fled the government offensive near Aleppo.

Turkish Prime Minister Ahmet Davutoglu said Thursday that up to 70,000 people were heading to his country.

Turkey is already hosting 2.5 million Syrian refugees, many of whom have, and will eventually, attempt to move on to Europe.

A video released by activists on Thursday showed a child who said: “We were driven from our homes because of Russia, Iran, Bashar and Hizbullah.  We ask (Turkish President) Erdogan to let us into his territory.”

Aleppo, which was once the country’s economic powerhouse but has long since been destroyed, has been divided between opposition and government forces since mid-2012.

But since Russia began its aerial support Sept. 30, Syria’s army has been on the move.

Syrian forces, backed by Russian airpower, also retook a rebel bastion in Deraa province this week.

Meanwhile, Moscow’s relations with Ankara continue to deteriorate. Thursday, the Kremlin accused Turkey of actively preparing to invade Syria.  Davutoglu has accused Russia of “committing the same war crimes” as the government.  If Assad, with Russia and Iran, controls Aleppo, it greatly increases their bargaining power in any negotiations and only exacerbates tensions with Turkey which has long demanded Assad must go.

President Erdogan urgently sought an audience with Putin, but for the second time he was rebuffed since the downing of a Russian military jet in November.

On Thursday, Secretary of State John Kerry said he had warned Moscow to stop targeting the Syrian opposition in what he described as a “robust” phone call with Russian Foreign Minister Sergei Lavrov.

For his part, Lavrov said this week his country wouldn’t stop its current campaign in Syria, until it defeats “terrorist groups” [Ed. i.e., the rebels, not ISIS.]

British Foreign Secretary Philip Hammond said on Monday that Russia’s actions in Syria have undermined international efforts to end the Syrian war.

“It’s a source of constant grief to me that everything we are doing is being undermined by the Russians,” he said to Reuters.

On Thursday, the peace talks in Geneva unraveled and the United Nations suspended the long-awaited conference, as opposition groups called for international pressure to halt the government advance.

If the rebels cannot regain control of the supply route to Turkey, the exodus will only worsen.

An aid conference taking place in London is also in a shambles, given the Syrian army’s gains.

German Chancellor Angela Merkel said, “The German government is convinced that the great migration of refugees can only be resolved by addressing its root cause in the region.”

What a sickening tragedy.  What a legacy Barack Obama is leaving.  Did you see the pictures from Aleppo and Homs this week?  Utter destruction...beyond rebuilding in our lifetime, as I’ve been saying now for years.

Sunday, an ISIS suicide attack outside Damascus at a revered Shiite shrine killed at least 70.

Meanwhile, the BBC reports that senior ISIS commanders continue to move from Iraq and Syria to Libya, according to Libyan intelligence officials.

ISIS first gained control of Sirte, Muammar Gaddafi’s hometown, last year.  ISIS is believed to be receiving support from some loyalists of the former regime.

Editorial / Washington Post

“The people of Madaya, a Syrian town besieged by the government, are still starving. According to Doctors Without Borders, 16 more people have died of hunger despite a single delivery of aid last month, bringing to 51 the number who have perished from lack of food since December.  Moreover, the town of 20,000 people, says the United Nations chief humanitarian coordinator, is ‘the tip of the iceberg.’  Close to 500,000 Syrians are cut off from food assistance, Stephen O’Brien told the UN Security Council, and the government has denied about 100 of the UN’s 113 requests to deliver aid in the past year.

“Secretary of State John F. Kerry has been denouncing this atrocity in recent days.  ‘People are dying; children are suffering not as an accident of war, but as the consequence of an intentional tactic – surrender or starve,’ he said Sunday.  ‘And that tactic is directly contrary to the laws of war.’  Unfortunately, the Obama administration’s handling of the Syrian crisis appears to be enabling those very war crimes....

“Mr. Kerry (and the White House) are responding with nothing but rhetoric.  ‘We haven’t seen a catastrophe like this since World War II, and it’s unfolding before our eyes,’ Mr. Kerry said Tuesday.  ‘People in Madaya [are] eating leaves and grass or animals of one kind of another that they manage to capture.’  He declared: ‘The Syrian regime has a responsibility – in fact, all parties to the conflict have a duty to facilitate humanitarian access to Syrians in desperate need.  And this has to happen not a week from now....It ought to happen in the first few days.’

“Or else what?  On that, Mr. Kerry has had exactly nothing to say.  Expect the sieges, the bombing, the starvation – and the statements – to continue.”

One of my main goals in life at this point is to make sure that when I die, I will have left the true story of this war and President Obama’s direct responsibility.  I want future historians, even hundreds of years from now, to understand just how godawful he has been, and how hundreds of thousands, literally, have lost their lives because of his inaction.  It’s all in these pages.  The proof.  The truth.

Iran: As the Feb. 26 parliamentary and Assembly of Experts elections draw near, President Hassan Rouhani reiterated this week that the Islamic Republic’s policy is not “domination” over the region, but rather to make the region “powerful.” 

In a televised interview on Tuesday, Rouhani said:

“We do not seek tension with Islamic countries.  However, if they continue their destructive behavior, what happens is first of all they will get hurt, and what is more is that we will give a proper answer, which may even be punitive if the occasion warrants.”

Regarding the Syria crisis and terrorist activities, he said Iran seeks to help the regional people against terrorism, help establish peace, make sure of all countries’ territorial integrity, and have people decide their own fate.

“We are ready to help fight terrorism, ready to have the sides establish ceasefire; and believe that the future of Syria lies in political talks,” Rouhani said.

Really, he said all this, per the Tehran Times.

Regarding the Iranian elections, Rouhani said he hoped that they will be held with “optimum participation and optimum competitiveness.”

People’s participation in the elections is “very, very” important and they should not think that the elections are “engineered,” he stressed.

Really, Rouhani said this.  Forget that over 95% of the moderates looking to run were denied the opportunity.

Editorial / Wall Street Journal

“In other news from the receding tide of war, the Ayatollah Ali Khamenei has given medals to the Iranian Revolutionary Guards who recently captured and humiliated American sailors.

“Iran state media reported Sunday that the Supreme Leader had awarded the Fath, or Victory, medal to the head of the Revolutionary Guards navy and four commanders who were involved in seizing two U.S. Navy boats in January....

“The Guards released the boats and crew, but not before deliberately embarrassing the sailors, the Navy, and the U.S. by broadcasting photos of the Americans in captivity, including one of the U.S. sailors on their knees with their hands behind their heads under armed Iranian guard.

“Secretary of State John Kerry initially hailed the return of the sailors as a sign of the great new era of U.S.-Iran cooperation in the wake of the nuclear accord.  ‘I think we can all imagine how a similar situation might have played out three or four years ago, and the fact that today this kind of issue can be resolved peacefully and efficiently is a testament to the critical role diplomacy plays in keeping our country safe, secure, and strong,’ Mr. Kerry said.

“Mr. Kerry later said he was ‘infuriated’ by the footage of the U.S. sailors and that ‘I immediately contacted my counterpart. And we indicated our disgust.’

“Apparently that disgust didn’t register with the people who really run Iran – that is, the Revolutionary Guards and the Ayatollah, who has now slapped the U.S. again by awarding medals to those who humiliated our sailors.  Maybe the Ayatollah will give Mr. Kerry a medal too.”

Jordan: King Abdullah said his country is at the “boiling point” in terms of the hundreds of thousands of Syrian refugees in his country.

“Sooner or later, I think, the dam is going to burst,” Abdullah warned.

Jordan desperately needs more aid, especially if the world community expects it to continue to take in more refugees.

Jordan is hosting 635,000 Syrians; at least that is the number registered with the UN.  But, the government says another one million are living there.

25% of the state budget is spent on refugees!  Think about that. Think of the strain then on regular public services for the Jordanian people.

Afghanistan: A suicide bomber killed 20 people at a police headquarters in Kabul, with most of the victims being police.  The Taliban claimed responsibility.

U.S. Army Gen. John F. Campbell, who has led the international force in Afghanistan since August 2014 but is now stepping down, told Congress that security there will continue to deteriorate unless the U.S. military makes a long-term commitment to stay.

President Obama wants to cut the current contingent of 9,800 military advisors and Special Operations troops by half by the time he leaves office.

“Afghanistan is at an inflection point,” Campbell said.  “I believe if we do not make deliberate, measured adjustments, 2016 is at risk of being no better, and possibly worse, than 2015.”

ISIS, by the way, now has anywhere between 1,000 and 3,000 fighters in Afghanistan as well.

Israel: You can’t make this up.  Herb Keinon / Jerusalem Post:

“The Foreign Ministry moved swiftly on Wednesday to change what it termed a ‘horrible headline’ the American CBS News outlet put on its story about the terrorist attack at Jerusalem’s Damascus Gate.

“At about 4 p.m. the network’s website put the following headline on a story about the attack: ‘3 Palestinians killed as daily violence grinds on.’  About 90 minutes later it was changed to this: ‘Israeli police kill 3 alleged Palestinian attackers.’

“Foreign Ministry spokesman Emmanuel Nachshon said the original headline was ‘biased and dishonest,’ and an example of ‘unparalleled chutzpah.’

“The ministry, the Government Press Office and the National Information Directorate all worked to get the headline changed, he said.

“The new headline, he said, ‘was not ideal, but better.’

“The headline was later changed a third time, reading: ‘Palestinians kill Israeli officer, wound another before being killed.’”

Yes, you read it right.  Freakin’ CBS first put this story out without mentioning that the Palestinians, in another terror attack, killed the police officer!

In November 2014, CNN ran a ticker that read, ‘4 Israelis, 2 Palestinians dead in Jerusalem,’ without noting the two Palestinians were the terrorists!

Since the September 13, Rosh Hashanah attack, in which a 64-year-old grandfather was killed, over 30 Israelis have died in terror attacks here and 300 have been wounded.  Palestinian media reports 167 Palestinians have been killed in the same time period.  [I do not know how many of them were terrorists.]

Separately, the Immigration Absorption Ministry and the Jewish Agency estimate the number of immigrants to Israel will be 33,000 in 2016; including 10,000 from France and 7,000 each from Russia and Ukraine.

The number of Jews experiencing anti-Semitism in France is soaring and more than half of French Jews are contemplating leaving. But according to French media, 60 percent of Frenchmen believe that Jews bear at least some responsibility for the rise in anti-Semitism.  40 percent said that Jews are “a little too present in the media.”

An Ipsos poll in France also found that half of Frenchmen did not believe immigration enriched their country, with a third stating that “racist reactions may be justified.”  [Jerusalem Post]

China: Editorial / Wall Street Journal...on a topic I’ve been writing about.

“Chinese dissident journalist Li Xin went missing on Jan. 11 in Thailand.  On Wednesday he phoned his wife from China, telling her, ‘I came back to China willingly to face investigation.’  Mr. Li’s wife, He Fangmei, wasn’t fooled.  ‘I know it was all their words, and that Li Xin was speaking against his wishes,’ she told the Journal.

“Ms. He is right to be skeptical.  In recent months several Chinese dissidents have disappeared from Thailand and Hong Kong and reappeared in mainland police custody.  At least two say they went to China of their own free will and the world shouldn’t interfere – words their friends and family say were spoken under duress.

“Gui Minhai, a Hong Kong publisher of dissident books who holds a Swedish passport, disappeared from Thailand on Oct. 17. Thai authorities say they had no record of  him leaving the country.  Mr. Gui made a contrite appearance on Chinese state television on Jan. 17 and said he returned to China voluntarily to face charges from a 2003 drunk-driving case.  Three of Mr. Gui’s colleagues went missing while visiting China in October.

“Another of Mr. Gui’s colleagues, Lee Bo, told reporters he wasn’t afraid as long as he stayed in Hong Kong.  Famous last words. He was last seen at his Hong Kong warehouse on Dec. 30, and the local government has no record of him crossing the border to China.  Mr. Lee telephoned his wife from Shenzhen to say he is assisting police with an investigation, and he has since written two letters saying he doesn’t want assistance.  Mr. Lee is British, but neither he nor Mr. Gui have been allowed to meet with consular officials....

“Mainland security officials have long operated in Hong Kong without local permission.  The abduction of Mr. Lee appears to be the first case of its kind, but Chinese police have grabbed people from Macau. Hong Kong Chief Executive Leung Chun-ying has politicized the police department, so it wouldn’t be surprising if some officers work with their mainland counterparts to monitor China’s critics.

“Beijing seems willing to accept harm done to its international reputation by ignoring the laws of extradition. The message sent at home is clear: If you oppose the Communist Party, there is nowhere in the world you can hide.”

Well, on Friday, the South China Morning Post reported: “Guangdong police confirmed for the first time that three Hong Kong booksellers who had not been heard of since they went missing last October were being investigated in mainland China.

“They also told Hong Kong police that missing Causeway Bay Books owner Lee Po [Ed. the Journal has it ‘Bo’...I’ll go with the SCMP], who is also on the mainland, had rejected their request to meet him.

“After Gui Minhai, another bookseller missing since October, earlier said on state TV that he had turned himself in over a fatal accident he was involved in 12 years ago, the Guangdong Provincial Public Security Department said on Thursday night that his three colleagues were suspected to be involved in Gui’s case and were also ‘involved in illegal activities on the mainland.’

“This was the first time Guangdong police had confirmed that Lui Por, Cheung Chi-ping and Lam Wing-kee were in custody on the mainland.”

This is beyond outrageous.

On another issue, a U.S. warship sailed near a disputed island in the South China Sea last Saturday in another demonstration of the U.S.’s freedom to navigate in international waters.

Beijing immediately said the destroyer Curtis Wilbur “sabotaged the peace” in severely violating Chinese law.

And then there was the Ponzi scheme.  Chinese police arrested 20 associated with one that allegedly took more than $7.6bn from investors, according to Xinhua news agency.

Separately, China grinds to a halt for seven days on Sunday, with the start of the Chinese New Year.  Last Monday, as many went home for extended vacations, 100,000 were stranded in the main train station in Guangzhou as a storm led to heavy delays.  Imagine the restroom facilities in the place.  Yuck. 

North Korea: Pyongyang is strongly hinting it will be launching a ballistic missile as early as Sunday.  The government says it is a satellite launch, but it is clearly another missile test.

Japan has put its military on alert to shoot down any rocket that threatens its territory.  The U.S. and South Korea are on alert to do the same.

This could be a ‘lead’ in next week’s review.

Russia: U.S. Secretary of Defense Ash Carter named Russia and China as some of the biggest “evolving challenges” to the U.S. military.  Iran, North Korea and the Islamic State are the three other challenges the U.S. is facing, according to Carter.

Meanwhile, that daffy Chechen leader Ramzan Kadyrov posted a video on Instagram directly threatening Russian opposition leader Mikhail Kasyanov.  In the video Kasyanov and a party deputy chairman are shown in a sniper’s crosshairs.

The clip was later removed.  Last month, Kadyrov labeled Putin’s opponents “jackals” and “enemies of the people.”

Nigeria: Boko Haram has lost some territory to Nigeria’s army, but the killing continues and has picked up in recent weeks.  In a heinous, brutal raid, over 85 were killed in a rampage last weekend in a village in the northeastern part of the country, with homes burned to the ground, people burned alive inside them, and children abducted.  At one point the survivors fled to a huge tree that was the local meeting place.  A suicide bomber then arrived and detonated his belt.

The New York Times reported one man said the attackers snatched his four children and ran off.

Incredibly, Boko Haram, which is now formally aligned with ISIS, has killed 20,000 in a six-year period, while displacing another 2.5 million.

Somalia: It sure looks like a bomb went off on the Somali jetliner that punched a three-foot hole in the fuselage and sucked out a passenger, who it now appears was a suicide bomber with the explosives hidden in his laptop.  If this is indeed the case, those behind it now know they need to make the device just a little more powerful to bring an entire aircraft down.

The explosion rocked the Daallo Airlines flight, some 15 minutes after it left Mogadishu.  Two passengers were seriously hurt.

Random Musings

--Iowa Caucus results....

Republicans:

Ted Cruz 28%
Donald Trump 24%
Marco Rubio 23%
Ben Carson 9%

[Or, looked at another way, 61% for the ‘anti-establishment’ crowd.]

Democrats:

Hillary Clinton 50% [49.89]
Bernie Sanders 50% [49.54]

--So it was pretty clear who the winners and losers were.  Ted Cruz and Marco Rubio were the big winners for the Republicans, with Trump a loser vs. expectations.

Hillary Clinton is a winner because she eked out a win, however marginal, and Sanders is also a winner for going toe to toe with her after being down 50 points in the polls last spring and early summer.

But the Iowa Democrat Party is a big loser for having a totally corrupt process that included six coin tosses to determine precinct winners.

Ben Carson was another loser, though not necessarily because of his own doing, while Sarah Palin was a big one...but then we already knew that.

I do have to note one other poll for the record...the morning of the caucuses, Quinnipiac University released its final numbers and it had Trump with a 31-24 lead over Cruz, with Rubio at 17% and Carson 8%.  On January 26, Quinnipiac had it Trump 31-29, and Rubio at 13%.  So they got the Rubio surge right and totally botched the rest.  Quinnipiac’s final tally had Sanders ahead 49-46, so nothing wrong here.

And then there was the Des Moines Register poll.  As every single mainstream media outlet said, “the gold standard” of polls.  Saturday evening before the caucus, the Register/Bloomberg survey (the Bloomberg organization is innocent in this matter), had Trump leading 28-23, with Rubio at 15% and Carson 10%.

Not quite, Register.

--Did the Democrats call it right?  Just as the Republicans botched Iowa in 2012, with Rick Santorum being declared a winner over Mitt Romney, but not until two weeks after the vote, Bernie Sanders supporters have a legitimate gripe over this year’s tabulation, though Iowa Democratic Party officials have said the result is final.

It was at 2:30 a.m. Tuesday that the Democrats announced Clinton had eked out a slim victory, 700.59 delegate “equivalents” for Clinton; 696.82 for Sanders.  [These would be delegates to the state convention.]

Sanders campaign aides said they’ve found some discrepancies between tallies at the precinct level and numbers that were reported to the state party. The Iowa Democrat Party has an idiotic mathematical formula that doesn’t treat one vote as one vote, like the Republicans’ straw poll.

But in the case of the Sanders’ camp’s complaints, the state party chairman said, no way, when it comes to reviewing the tabulation.  What a bunch of a-holes.  The Democrats here also don’t actually release head counts.  That’s astounding.

The Des Moines Register interviewed a myriad of Democrat caucusgoers and they all spoke of major confusion at the precincts.

--On caucus night, in conceding he finished second (at least for 24 hours), Donald Trump was humble and told supporters he was “honored” to finish second to Cruz.  You didn’t have the usual bombast.

But among the mistakes Trump made in Iowa, by his own admission the day after, was skipping the final debate and not having a stronger ground game.

“I think it could’ve been with the debate,” when asked in New Hampshire about his second-place finish.  “I think some people were disappointed that I didn’t go into the debate.”

Heck, it’s also one thing to hold rallies in front of large crowds, but having been to Iowa myself a number of times during the political season, you have to mingle at least a few times with the folks in the diners and coffee shops. 

--So on to New Hampshire and a new set of polls.

A CNN/WMUR poll (the latest one, released tonight) has Trump at 28%, with Rubio rising to 17%, Cruz and Kasich tied at 13%, Jeb Bush and his mother at 9%, and Chris Christie at 4%.

A separate Univ. of Massachusetts tracking poll has Trump leading Rubio 36-15, with Cruz at 14%.

A Wall Street Journal/NBC News/Marist poll has Trump leading with 30%, Rubio at 17% and Cruz 15%.

On the Democratic side, the WSJ/NBC poll has Sanders with a 58-38 lead over Clinton.

The CNN/WMUR poll has Sanders up 61-30.

--I watched the entire debate Thursday between Clinton and Sanders and it was most entertaining.  Except on the email issue in particular, MSNBC did a pretty good job.

But when the emails was raised, as Clinton tried to spin and claim she was only doing what her predecessors had done, Chuck Todd didn’t simply say, ‘but they weren’t using a private server.’

Sanders and Clinton fought over who was the better progressive, with Clinton saying she’s “a progressive who gets things done.”

Clinton also directly accused Sanders of carting out a kind of passive-aggressive campaign against her, hinting she was bought by corporate money.

“And I just absolutely reject that, Senator,” she said.  “And I really don’t think these kinds of attacks by insinuation are worthy of you.

“So I think it’s time to end the very artful smear that you and your campaign have been carrying out,” she added, saying “let’s talk about the issues.”

For about the only time in the evening, there were boos and gasps at the “artful smear” remark which was classic Clinton.

For his part, Sanders was pretty good but he totally blew it on not going after Hillary’s disastrous foreign policy record beyond just saying he was against the Iraq war.

Earlier in the week, when questioned at a town hall meeting why she had to be paid $675,000 for three speeches she gave for Goldman Sachs, Hillary said: “Well, I don’t know.  That’s what they offered.”

--Ben Carson slashed his staff and reduced salaries.  As confidant Armstrong Williams put it, the goal is to “get really lean...so that he can sustain his campaign until the convention.”

--Jennifer Rubin / Washington Post

“For those who wondered if the GOP would come to its senses and who doubted all those Donald Trump supporters would show up at the polls, there was a nearly audible sigh of relief Monday night. For Sen. Ted Cruz, his turnout machine overcame a poor final debate performance and a rocky few weeks.  He won the Iowa caucuses with about 28 percent.  A loss would have been devastating; he now will try to break the pattern of Iowa winners who went on to lose the nomination....

“The big question now is whether the GOP was scared but not scarred by the Trump phenomenon.  If Trump now fades, the GOP of 2016 will resemble the GOP of 2012 or 2008: A fiery right-winger who wooed evangelical voters won Iowa.  Ho-hum.  There, however, may very well be new twists and turns.  Republicans will be poised to see if the polls in New Hampshire reflect Trump’s loss, knocking him down from his perch there too.

“And the ‘real winner,’ as the MSM likes to say, is Sen. Marco Rubio (Fla.), who took in about 23 percent, far outpacing his polling and virtually tying Trump.  He withstood an avalanche of negative ads, most particularly from Jeb Bush’s Right to Rise Super PAC.  Mike Huckabee has announced he is getting out of the race, the beginning – Rubio hopes – of a stampede of dropouts that will leave him as the standard bearer of the mainstream Republican majority....

“After months of turmoil and jaw-dropping polls, media coverage and debates, the race could now settle into a predictable pattern – the far right insurgent Cruz against the middle-of-the-road Rubio, who hopes to eventually pull in supporters of candidates like Jeb Bush, Ohio Gov. John Kasich and others. Before we get there, however, comes New Hampshire, which is now a must-win state for Trump.  If he loses twice it is hard to see him going forward.  It will also be the moment of truth for many candidates, the final chance for them to establish themselves as contenders.”

--Bret Stephens / Wall Street Journal

“We live in an era of mediocrity and anxiety, not collapse and tragedy.

“The real difference, to adapt a line from Daniel Patrick Moynihan, is that we’ve spent the better part of a generation defining ‘presidential’ down.  There was a time when some form of military experience or outstanding civilian service was considered a prerequisite for the presidency.  Or when first-term senators did not presume to run for the White House without putting in time, paying dues, making friends and authoring some significant piece of legislation.  Or when conspicuous character flaws or pending legal jeopardies were automatic and irrevocable disqualifications.

“But all that is in the past now, and the moment that happened can be precisely dated. It began with Bubba.  It began when America made its first presidential-level accommodation with the mores of the 1960s, and when it made a self-conscious choice to redefine, and demote, the concept of character in the hierarchy of political virtues.

“Jimmy Carter came to office promising never to lie; he pledged an American government ‘as good as its people.’  Bill Clinton lied, flagrantly and frequently, and he made us complicit in his lies.  With Bubba we became a nation of pseudo-sophisticates, people who believed that the mark of the discerning voter was to see through – and past – the ‘character’ issue.  What mattered were results.  In the halcyon 1990s, that seemed to work.

“Today’s degraded politics is partly a result of that moral accommodation.  It’s also the result of an intellectual accommodation.  Let’s face it: If Mr. Clinton brought dishonor to the Oval Office, George W. Bush brought shallowness to it.  Presidential aspirants were once expected to deliver finely tuned debating points about Quemoy and Matsu.  After W, it became pedantic to expect candidates to know the names of the leaders of India and Pakistan.

“And now we have Mr. Trump, who lived through the entire Cold War without, it seems, ever hearing of the nuclear triad, or thinking about it, or being embarrassed by the thought that he’d never heard or thought of it....

“Sober up, America.  We’re a republic only for as long as we can keep it.”

--Personally, I would not make too much out of Ted Cruz’s win in Iowa in terms of national appeal.  For starters, I may be naïve but it does matter that none of his fellow senators like the guy.

--Mike Huckabee, Rand Paul and Rick Santorum all dropped out within 48 hours of Iowa, while Martin O’Malley did so on the Democrat side.

While I won’t say any disparaging words about any of the above, some Republicans were getting irked with Paul because they want him to focus on his Senate reelection bid in a year where the Democrats have a solid shot at retaking the Senate.

--Editorial / Wall Street Journal

“Pollsters asked voters entering the caucus sites to select the issue that was most important to them, offering four choices in the GOP contest: immigration, the economy and jobs, terrorism, and government spending.  Only 13% of voters chose immigration as most important, well behind the other three.  Government spending was number one at 32%, the economy was second (27%) and terrorism third (25%).

“Among the immigration-first voters, Donald Trump (44%) and Ted Cruz (34%) did best while Marco Rubio won only 10%, well below his totals among voters who cared more about the other three issues. This isn’t surprising given the priority that Messrs. Trump and Cruz put on closing the U.S. borders and deporting illegals in the U.S.  In politics you are what you emphasize.

“But immigration clearly wasn’t the killer app in Iowa that Mr. Cruz hoped it would be against Mr. Rubio.  The Texan repeatedly threw the ‘amnesty’ charge at his Senate colleague for having voted for the Gang of Eight reform in 2013.  Yet Mr. Rubio survived the attack and staged a rally in the final week to come close to beating Mr. Trump for second place....

“Conservative Iowa is supposed to be the red-hot center of anti-immigration politics led by Rep. Steve King, who backed Mr. Cruz.  But even in the Hawkeye State immigration doesn’t appear to be the presidential litmus test for Republican voters that some on the right have tried to make it.  GOP voters are smart enough to know that reviving economic growth and preventing terrorism are higher priorities.

“The immigration debate isn’t over this year, and on Tuesday in New Hampshire Mr. Cruz launched another assault on Mr. Rubio. But the Iowa results suggest that the Floridian can neutralize the attack if he isn’t defensive and fights back.  He’d be that much better positioned for the general election if he does.”

--President Obama made his first U.S. visit to a mosque on Wednesday and urged voters to reject the “inexcusable political rhetoric” he said has been part of the campaign, without naming names.

“I know that in Muslim communities across our country, this is a time of concern and, frankly, some fear,” he told about 200 gathered at the Islamic Society of Baltimore, which is home to one of the larger mosques in the country.

“Let me say it as clearly as I can, as president of the United States, you fit in here,” said the president.  “You’re not Muslim or American, you’re Muslim and American.  Don’t grow cynical.”

I’m half-Slovak.  I’m allowed to be cynical.

-- The World Health Organization declared the Zika virus to be an international public health emergency as it continues to explode in Latin America.

WHO director general, Margaret Chan called Zika an “extraordinary event” that needed a coordinated response.

“I am now declaring that the recent cluster of microcephaly and other neurological abnormalities reported in Latin America following a similar cluster in French Polynesia in 2014 constitutes a public health emergency of international concern.”

Chan said the priorities were to protect pregnant women and their babies from harm and to control the mosquitoes that are spreading the virus.

Currently, there is no vaccine or medication to stop Zika.

Previously, the WHO warned Zika is likely to “spread explosively” across nearly all of the Americas.

I should probably be putting Zika virus stories in Street Bytes because the economic impact is growing and could do so exponentially.

Health officials in Brazil reported two cases of the virus being transmitted through blood transfusions. The American Red Cross announced it is asking potential blood donors who have been in Mexico, the Caribbean or Central or South America to wait at least 28 days after their trip before donating.

Spain reported on Thursday that it was the first European country to confirm the Zika virus in a pregnant woman.  The woman caught it in Colombia, after which she traveled to Spain, where she is one of six confirmed cases in Catalonia and 10 across the country, but the only one who acquired the virus during pregnancy. All ten caught it outside Spain.

Texas officials on Tuesday reported the first case of Zika being sexually transmitted by an infected traveler returning from Venezuela.  Friday, the CDC said American males who have traveled to the hot zone should practice safe sex.

But while some of this is scary, especially the potential link to Guillain-Barre syndrome, as of today it is important to emphasize that unless you are pregnant, or thinking about having a baby, there is little reason, as yet, for concern.  There have been no deaths connected to Zika and for the 20% or so who contract the virus and have actual symptoms, they are usually mild and last just a few days.

The thing is the birth defects the medical community is seeing are absolutely heart-breaking. That one picture you’ve seen of the baby in Brazil with the abnormally small head just makes you want to cry, and there are a reported 4,000 cases of microcephaly – babies born with small brains – in Brazil alone since October.

Zika is real.  In certain parts of the world it is true terror.  Of course scientists are scared to death this thing could mutate into something far worse.

At the same time, people around the world are going to have to accept massive spraying programs.

And for now, it is totally rational to follow the latest travel recommendations.

Lastly, the Brazilian government had to come out this week and announce there was no risk of canceling the Olympic Games in Rio.  President Dilma Rousseff’s chief of staff said on Monday. “We have to explain to those coming to Brazil, the athletes, that there is zero risk if you are not a pregnant woman.”

But if there are more cases of Guillain-Barre, or another development we don’t know of yet, that indeed would be a game-changer.

--The UN ruled Friday that WikiLeaks founder Julian Assange has been “arbitrarily detained” by the UK and Sweden since his arrest in 2010 and that he should be allowed to leave Ecuador’s Embassy in London without facing arrest.  He has been holed up there since June 2012, with British authorities saying he would immediately face arrest if he stepped outside and face extradition to Sweden and the U.S.

Sweden still wants to try him in a suspected rape case, while the U.S. seeks to charge Assange with espionage related to WikiLeaks’ publication of thousands of diplomatic letters.

The UN ruling is nonbinding.

--There were 51 murders in Chicago in the month of January, making it the deadliest start to a year there in at least 16 years.

And then six more in a single home on Thursday, though I don’t have all the details as yet.

-- I normally don’t comment on individual crime cases but your heart goes out to the family of 13-year-old Nicole Lovell, slain, allegedly, by a student from Virginia Tech, with another implicated.  It’s just not right. If the individual(s) arrested did it, no doubt he (they) should be put to death.

But I mention it for those parents out there of teenage kids in particular.  Ask them if they are using Kik, a messaging app, and if they are do all you can to get your kids off it.  There’s nothing but danger lurking on it.

--Finally, in another awful story, last weekend, as reported by CNN, “A British helicopter pilot was fatally shot by elephant poachers while flying an anti-poaching mission in Tanzania, a member of Parliament and a conservation fund said Saturday.”

The pilot “managed to land the chopper but died before he was able to be rescued,” said the country’s former tourism minister, who said he flew (with the victim) many times.

I have long said, both here and in another column I write, that I imagine for those returning from the likes of Iraq and Afghanistan, the perfect mission for someone who wants to leave the military but still loves serving a bigger cause than themselves would be to join a UN-sanctioned force whose sole mission was to support Africa’s great wildlife....and blow away poachers.  There actually are a few vets involved in independent, African-government sanctioned outfits, but it deserves global support.

---

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

God bless America.

---

Gold $1173
Oil $30.89

Returns for the week 2/1-2/5

Dow Jones  -1.6%  [16204]
S&P 500  -3.1%  [1880]
S&P MidCap  -2.9%
Russell 2000  -4.8%
Nasdaq  -5.4%  [4363]

Returns for the period 1/1/16-2/5/16

Dow Jones  -7.0%
S&P 500  -8.0%
S&P MidCap  -8.5%
Russell 2000  -13.2%
Nasdaq  -12.9%

Bulls  34.0
Bears  38.1  [Source: Investors Intelligence]

Dr. Bortrum posted a new column.  All the people he met in 36 years at Bell Labs.  It’s quite a galaxy of greats.  Check it out.

Have a good week.  I appreciate your support.

Brian Trumbore

 



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Week in Review

02/06/2016

For the week 2/1-2/5

 [Posted 12:00 AM ET]

Note: This site has costs.  Please click on the gofundme link or send a check to PO Box 990, New Providence, NJ  07974.  It’s appreciated.  Jim D., thank you for your ongoing support.

Edition 878

Washington and Wall Street

After a two-week winning streak, stocks resumed their slide, with Nasdaq getting absolutely crushed, including some once high-flying names, that sent the benchmark tech index to its lowest weekly close since October 2014.  Even companies that reported good news, either this week or before, like Facebook and Google, were slammed.  In some cases, as with Amazon and the cloud providers, and a Tesla, it’s about valuations, but Facebook and Google really don’t have that problem (I’m cutting Facebook some slack in this regard). 

The straw that broke the camel’s back, though, was LinkedIn, which, as I describe below, guided lower, substantially, and the shares fell 44% in response.  Yup, 44.

In a nutshell, all momentum issues were seemingly taken out to the woodshed and shot.  When something like this takes place, it always takes a while to repair the damage so don’t look for any of these holdings to suddenly bounce back to new highs.  Ain’t gonna happen.

Meanwhile, it was a volatile week on the bond and currency front as there were all kinds of crosscurrents in terms of the U.S. Federal Reserve and what they may do at their next meeting in March and beyond.  Will the Fed hike interest rates four times in 2016 as they strongly hinted at in December?  Sure doesn’t look that way.

But at mid-week, suddenly the sentiment was that the Fed, given what was happening around the world and the apparent softness in the U.S., couldn’t possibly raise rates at all this year.

Then came Friday’s employment report for January and sentiment switched back to maybe the Fed will raise in March, or at least another few times over the course of 2016, as the economy created 151,000 jobs, less than expected but very solid nonetheless given the sour sentiment around the world, with the unemployment rate ticking down to 4.9%, an 8-year low, and, most importantly, average hourly wages rising 0.5%, or a solid 2.5% over the past 12 months.

Coupled with revisions to November (up to 280,000) and December (down to a still robust 262,000) and we’re back to the 230,000 monthly average we’ve been producing for a while now.

So the jobs report erased some earlier putrid data, such as the January ISM manufacturing reading of 48.2, contraction mode, while December consumption (consumer spending) was unchanged and factory orders for December were down a worse than expected 2.9% (though the new orders component was OK).

On the other hand, December personal income was up 0.3%, while the January ISM reading on the service sector came in at 53.5, which while above the 50 dividing line between growth and contraction was nonetheless a 23-month low.

So with all the above out before Friday’s jobs data, it was no wonder that the dollar reversed course mid-week, with those betting on a strengthening dollar in a rising U.S. interest rate environment caught with their pants down, and the zipper stuck, and some traders were slaughtered, while commodities such as gold that benefit from a weaker dollar rose.  [Oil did briefly, too, but then once again fundamentals, read ‘oversupply,’ took over and crude finished down on the week, with the dollar strengthening anew on Friday.]

Confused?  Let’s face it, it’s going to be a very confusing and volatile year and we haven’t even been talking about the impact geopolitics will have on the markets, in a big way, before too much longer.  I’ll get into this in an extensive way next week, beyond my comments below on Europe, the Middle East and Asia.

Back to the interest rate debate, Federal Reserve Bank of New York President William Dudley said recent market turmoil may alter the U.S. growth outlook, while Fed governor Lael Brainard told the Wall Street Journal that market volatility was strengthening the case for going slowly on any further interest-rate hikes.  Or as Ms. Brainard put it, “Recent developments reinforce the case for watchful waiting.”

Then you had Fed Vice Chairman Stanley Fischer, who said it was too difficult to gauge the impact on the U.S. economy from all the gyrations in global financial markets and uncertainty over China’s growth prospects.

“If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States,” Fischer told the Council on Foreign Relations.  “But we have seen similar periods of volatility in recent years that have left little permanent imprint on the economy.”

As to the March Fed meeting, Fischer said, “We simply do not know.  The world is an uncertain place, and all monetary policy makers can really be sure of is that what will happen is often different from what we currently expect.”

With the 10-year hitting 1.79% at one point on Wednesday, its lowest level in a year, some, such as Goldman Sachs’ chief economist Jan Hatzius were warning the “bond market is underestimating to a significant degree the amount of monetary normalization that we’re likely to see.”  Hatzius is calling for the yield on the benchmark to hit 3.00% by year end, which, depending on the speed of the rise, would certainly convulse global markets further.

Robert J. Samuelson / Washington Post

“In 1992, James Carville popularized the adage ‘It’s the economy, stupid.’  If the economy is ailing, people tend to vote against the party in the White House. That happened in the 1992 election.  A recession that started in 1990 was officially over, but it didn’t seem over to millions of Americans.  They sent President George H.W. Bush into retirement.  The question now is whether something similar will happen in 2016....

“Here’s a report from economists Beth Ann Bovino and Satyam Panday of Standard & Poor’s.  There have been, they say, 11 economic expansions – periods when production and employment are generally increasing – since World War II, averaging just over 58 months, or nearly five years each.  By this measure, the present expansion – which started in the third quarter of 2009 and has lasted 78 months – is past its prime and could be near its end.

“But the S&P economists doubt that.  Indeed, they argue just the opposite.  ‘We may be, more or less, at mid-cycle,’ they write, ‘with room to grow and the underlying momentum to do so.’  Translation: With a little luck, the expansion could run another five or six years.

“What has killed most post-World War II expansions, they argue, is the Federal Reserve raising interest rates to quash inflation. But there’s no evidence of runaway inflation now, they say.  Indeed, they estimate that the economy is operating well below its potential output, and this limits the power of companies to raise prices.  If firms raise prices too much, other suppliers will undercut them and steal market share....

“To be sure, the labor market – with the unemployment rate at 5 percent – seems near ‘full employment.’  Superficially, this indicates that a tight job market could drive up wages and lead to an inflationary wage-price spiral.  But this danger is minimized, say the S&P economists, because broader unemployment measures suggest the labor market is not so tight.  They cite the so-called ‘U-6’ measure, which includes the official unemployed, discouraged workers and part-timers who’d like full-time jobs.  U-6 is now 9.9 percent; its pre-recession low was 8.4 percent in 2007.

“The political implications are self-evident.  If the S&P economists and other forecasters are correct – there is no recession – it will be easier for the Democratic nominee to run on Obama’s record and to credit his policies with reducing the distress of the Great Recession, which (of course) will be blamed on George W. Bush and Republicans.  But if a conspicuous slowdown or recession materializes, the opposite will be true.  Republicans will be better able to peddle their narrative of businesses being over-regulated, over-taxed and harassed.

“One way or another, it’s still the economy, stupid.”

And, your editor would add, with geopolitics as a huge wild card.

Europe and Asia

There was a slew of economic data for the eurozone.  First off, you had the PMIs on manufacturing and the service sector, as put out by Markit.

The euro area manufacturing PMI was 52.3 in January vs. December’s 53.2.

Germany had the same numbers, 52.3 vs. 53.2; France was 50.0 vs. 51.4 in December; Italy was 53.2 vs. 55.6; Spain improved to 55.4 vs. 53.0; Greece was 50.0 vs. 50.2.

On the services side, the overall eurozone PMI was 53.6, down from 54.3 in December.

Germany was 55.0 vs. 56.0; France ticked up to 50.3 vs. 49.8; Italy fell to 53.6 vs. 55.3; and Spain was 54.6.

I do have to add that Ireland’s service sector PMI came in at 64.0!  The best since 2006.

The final eurozone comp for January was 53.6 vs. 54.3.

In non-euro UK, the manufacturing PMI was 52.9 in January vs. 52.1 the prior month.  The services PMI (services being 79% of Britain’s economy) was a solid 55.6, better than expected.

Eurozone retail trade rose 0.3% in December over November, up 1.4% year over year; up a respectable 2.4% for all of 2015.

Industrial (producer) prices, though, fell 0.8% in December over November, down 3% year over year, which is not good.

On the unemployment front, the eurozone jobless rate was 10.4% in December vs. 10.5% in November and 11.4% in December 2014.  [Eurostat]

Yes, there has been improvement in the euro area, but in some cases the rate is still very high.

That’s not the case in Germany, where the unemployment rate is 4.5% (the government pegs it at 6.2%, still an historic post-unification low).

But France is at 10.2%, Italy 11.4%, Spain 20.8% (though down from 23.6% in the past year), and Greece 24.5% (October).

Ireland continues to improve at 8.8%, but I have to note Finland, whose jobless rate has moved up to 9.5% from 9.0% in the past year.

On the youth front, you still have sky high jobless rates of 48.6% in Greece (Oct.), 46.0% in Spain and 37.9% in Italy.

European Central Bank President Mario Draghi once again tried to reassure investors that the ECB will do what it takes to get the inflation rate up to its target 2%, including further easing measures to be announced at its next meeting in March.

Speaking the other day at a lecture sponsored by the Bundesbank, Draghi said:

“There is no reason for central banks to resign their mandates simply because we are all being affected by global disinflation.  In fact, if all central banks submit to that logic then it becomes self-fulfilling.  If, on the other hand, we all act to deliver our mandates, then global disinflationary forces can eventually be tamed.”

Bond yields in the eurozone hit new record lows in many cases this week, including Germany’s 2-year government bond that dipped below minus 0.5% for the first time, as the 10-year bund traded at a yield of just 0.27% before finishing the week at 0.29%.

The Bank of England said interest rates are set to remain at their current rock-bottom levels for at least another year.  The BoE projects inflation will remain below 1 percent for all of 2016, while the growth forecast was reduced to 2.2 percent from a prior 2.5 percent forecast.

And the European Commission said it trimmed its 2016 growth forecast for the 19-nation eurozone to 1.7 percent from 1.8 percent, with Germany, France and Italy all performing worse than predicted just three months ago, while inflation will come in at just 0.5 percent for 2016.

Greece was in the news this week for the wrong reasons as there was major labor unrest, with a little violence thrown in.  The police even joined in on the demonstrations on Friday, protesting against a new round of pension cuts, and a 24-hour strike Thursday grounded dozens of domestic flights as ferries remained docked at ports, while schools, courts and pharmacies shut down for the day.

Writing in TIME, Ian Bremmer had the following take on Greece.

“A few months and a million migrants ago, Greece’s financial problems were the biggest story in Europe. Yet despite last year’s bailout, Greece and its struggle could again push European unity to the brink, because the country’s reform process is headed for a confrontation.

“As Greek Prime Minister Alexis Tsipras and his Syriza party celebrate one year in power, they now turn to a contentious question: pension reform.  Greek unions have responded to threats of pension cuts with strikes and angry protests.  Syriza and its coalition partner control just 153 of 300 seats in Parliament, a bare majority that leaves no political room for maneuver. Tsipras’ domestic political enemies are circling like buzzards....

“As if Athens didn’t have enough problems, the country’s inability to slow the flow of migrants into Europe has angered EU policymakers.  Greece has constructed just two of five promised reception camps meant to process migrants, and EU officials have threatened to cut the country out of the Schengen Agreement, which allows for free movement across borders, if the Syriza-led government fails to comply.  That would shift Europe’s border to the north, leaving Greece flooded with refugees who have nowhere to go.

“But Tsipras’ biggest problem may be that German Chancellor Angela Merkel can no longer afford to compromise with his government.  Merkel has gambled that Germans will allow her to accept future waves of refugees into her country with no limit on their number.  But as ordinary Germans fear the effect of the migrant surge on the country’s security and identity, Merkel has seen her approval ratings fall to their lowest levels in more than four years.  She might soon become too politically weak to throw Greece yet another much needed lifeline.  Trapped between an increasingly angry Greek public and creditors in no mood for concession, Tsipras might again find himself in the firing line.”

And he is.

Then there is Britain and the coming referendum on staying in or out of the EU, “Brexit.” Prime Minister David Cameron has put himself in a box and this was not a good week for him.

Cameron met with European Council President Donald Tusk as the clock ticks away for the “Brexit” vote, most likely June 23.  Cameron wanted to be able to tell his people that he negotiated separate protections for Britain, outside existing European Union rules, when it comes to migration and the paying of benefits, as well as protections for sovereignty and competitiveness.

Tusk’s proposal recognizes Britain’s “special status” in the EU but there were few real details ahead of a critical EU summit Feb. 18-19.

Cameron did secure the power to restrict benefits for new migrant workers but only up to four years, which begs the question, what happens after?

And there are major issues on protecting the interests of non-euro members, such as the UK, as the eurozone becomes more dominant.

Conservative Eurosceptics denounced the deal in the strongest terms, with many in Cameron’s cabinet threatening to break away and vote to leave the union.

Plus there are concerns in Eastern Europe over Cameron’s plan to restrict benefits to migrants.

And France doesn’t want Britain to be shielded from financial regulations intended to govern the eurozone, or a British veto.  [Get used to the term “brake clause” on both the migrant and economic legislation issues.]

UKIP leader Nigel Farage of the Eurosceptic crowd said the draft deal worked out between the EU and Cameron was “hardly worth the wait” and “really rather pathetic,” adding that it had “no treaty change, no powers returned, and no control of our borders.” [BBC News]

The bottom line is Britain, at least the conservatives, don’t want to have to abide by the EU’s liberal welfare benefits for migrants, because the UK wants to severely limit migration by making it less attractive in the first place.  But the EU doesn’t want to alter its principle of free movement of workers within the bloc’s single market.

The other part is that Britain wants to be exempted from the EU principle of “ever closer union” between member states, seeking the ability of non-euro countries to form coalitions to block some new EU laws such as on business regulation.

But this has to be done by treaty, and in many cases treaty changes have to be approved by the parliaments in the member states and this process can take years.

Yet Cameron boxed himself in by setting a referendum deadline as part of his recent re-election bid.

So the EU is offering vague assurances and language in order to avoid treaty changes that still must at some point be enacted.

If you’re an average Brit, and you’re faced with the momentous ‘in or out’ decision, but the promises being made (such as limiting welfare benefits, though only for four years), are vague and not bound by any formal changes in the governing treaty, what do you really have?  [Hint: Nothing.]

Then there is another issue.  Cameron devolved power to the governments of Scotland, Wales and Northern Ireland as part of the effort to keep the UK whole (and not have Scotland, for example, break off),  and now those governments are voting in May to elect members to their new governments.  The leaders of all three don’t want their voters confused by having to go to the polls twice in a month.

Cameron basically said this was hogwash.

So we wait to see the fireworks at the EU summit in about ten days.

The latest poll, though, has the campaign to take Britain out of the EU leading by 9 percentage points, which would be disastrous and would roil global markets further.

---

Just a few brief notes on Asia as China prepares for its big holiday, and a break for some of us as well it is hoped.  The government reported the manufacturing PMI for January was 49.4, a 3-year low, while the services reading was 53.5 vs. 54.4 in December.  The Caixin private PMI for manufacturing was 48.4, up from 48.2, while services rose to 52.4 vs. 50.2, which is encouraging, Caixin having more credibility than the National Bureau of Statistics.

The National Development and Reform Commission set an economic growth target range of 6.5 percent to 7 percent for this year.

In Japan the manufacturing PMI was 52.3 in January vs. 52.6 in December.  South Korea’s was 49.5 vs. 50.7, while Taiwan’s was 50.6 vs. 51.7 the prior month.

Street Bytes

--Nasdaq cratered 5.4% this week to 4363 and is now down 16.4% from its all-time high of 5218.  The Dow Jones fell 1.6% to 16204, while the S&P 500 lost 3.1% to 1880.

The carnage included stocks like Amazon, now $498 after hitting an all-time high of $696 just last Dec. 29, or down 28% in five weeks.  Facebook fell 12% in a number of days.  Alphabet (Google) is off about 16% from its after-market high during the week.  A data-analysis software maker, Tableau Software Inc., lost 49% on Friday alone.  Salesforce Inc. was down 13% on Friday, Workday Inc. down 16%.  Just brutal stuff.

And Tesla is at a 2-year low, which is very much warranted...the most overrated company in the history of mankind, in terms of its share price.  Note to Teslarians...we aren’t all buying $60,000 electric vehicles anytime soon.

--U.S. Treasury Yields

6-mo. 0.43%  2-yr. 0.72% 10-yr. 1.84%  30-yr. 2.67%

How many of you expected a 10-year yield at this level after the Fed hiked in December?  I sure as hell didn’t see it.

--The average price for a gallon of gasoline in the U.S. fell to $1.80 this week, the lowest since January 2009.

--I noted the other day how the World Bank was worried about the emerging market situation and countries dependent on oil revenues with big debt loads, such as Azerbaijan.  This week Nigeria asked the World Bank and African Development Bank for a $3.5bn emergency loan to fill a gap in its budget amid tumbling prices. 

--Royal Dutch Shell said fourth-quarter profit fell 44%, basically in line with expectations as the company proceeds with its acquisition of BG Group Plc, which has oil fields in Brazil and natural-gas assets from Australia to Kazakhstan.  Needless to say, Shell is cutting capital spending in response to the collapse in prices.

In fact, it is cutting 10,000 jobs, including because of its takeover of BG, while continuing to slash capital spending.

--Exxon Mobil Corp. posted its weakest annual results in more than a decade, with CEO Rex Tillerson saying in a news release the company would slash spending by 25% this year, though it plans to continue investing so that it can replace the oil it pumped.

Net income for the fourth quarter was $2.78bn, down 58 percent but above what the Street expected.  At least its refining and marketing operations reported rising profits in the quarter to $1.4bn.  It was the oil and gas production side that took a hit to profits.

--Chevron announced it would cut spending by $9 billion and lay off 4,000 workers this year after reporting a surprise fourth-quarter loss of $588m.... Chevron at least was able to replace its reserves, though it took a big writedown of about $500m on a large project in the Gulf.

--BP said Tuesday it would reduce its head count in its refining and marketing arm by 3,000 by the end of 2017, bringing the number of job reductions announced in the past year to 7,000, as the oil giant posted a loss of $6.48 billion for 2015; $3.3bm for the quarter.  The company also said the cost of its Gulf of Mexico spill is now $55.5 billion before taxes over five years.

CEO Bob Dudley said “2016 is going to be tough.”

--ConocoPhillips has become the first large U.S. oil production company to cut its dividend, 66 percent, after saying in December its dividend was “the highest priority use of our cash.”

CEO Ryan Lance said: “While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time.”

Conoco also lowered its capital expenditure guidance to $6.4bn from $7.7bn.

--U.S. auto sales dropped in January from a year ago, with the industry overall selling about 1.15 million vehicles during the month, a decline of 0.3 percent from January 2015, according to Autodata.  But the industry insists it will exceed last year’s record annual sales of nearly 17.5 million, though GM said sales could plateau over the next few years, rather than reaching a peak and falling off, as CEO Mary Barra put it on an investor call.  She predicted “many years of strong performance” ahead.

General Motors reported sales rose 0.5 percent for the month vs. year ago levels, Ford’s were down 2.6 percent, and Fiat Chrysler’s increased 6.9 percent.

With gasoline prices where they are, SUV sales remain strong.

Separately, Honda’s sales declined 1.7 percent, Toyota’s fell 4.7 percent and Nissan’s increased 1.6 percent.

--Ford said it would cut hundreds of jobs in Europe in an attempt to maintain profits after finally turning positive in the region for the first time in five years.  Ford had $4.5bn in pre-tax losses there between 2011 and 2014. 

Last year, Ford’s passenger car sales grew 8.6 percent in Europe to just under 1m units, second behind Volkswagen’s namesake brand.

Volkswagen reported a decline in sales of nearly 9 percent there as it continues to suffer from the emissions cheating scandal.  The company then said it was not holding its shareholders’ meeting on time nor releasing quarterly results as initially planned while it spends more time on working out its numbers due to the crisis.

GM reported another loss for its own European operations, $298m in the fourth quarter, though down from $393m in the year ago period.

--UPS, a bellwether for the overall economy, reported sales rose 1 percent in the December quarter, with average daily shipments in the U.S. up 2.4 percent for the holiday period.  The company issued solid guidance for all of 2016 and the shares rose.

--Emerson Electric Co., an industrial conglomerate, is another bellwether and it reported fiscal first-quarter sales for its process-management unit, which supplies instruments and software to control oil refineries, chemical plants and other industrial processes, fell 14% from a year earlier.  [Total sales fell 15.6 percent.]

North America sales plunged 23 percent, Europe was down 6 percent, and Asia down 13 percent.

CEO David Farr told analysts, “We’re going to have to take some additional restructuring in 2016 and 2017 in that space.  We’ll need to take [production] capacity off line.”

Farr said he doesn’t expect capital spending on equipment in the oil and gas sector to recover until the middle of 2017, noting that 2016 “will clearly be a tougher year than we thought.”

--Credit Suisse reported its first full-year loss since 2008 and the shares were hit hard.

CEO Tidjane Thiam said “Market conditions in January 2016 have remained challenging and we expect markets to remain volatile throughout the remainder of the first quarter of 2016 as macroeconomic issues persist.”

Basically, this bank is a mess.  Revenue fell 3.4%.  It is also slashing 4,000 jobs in its attempt to reduce costs.

--UBS shares suffered heavy losses after the Swiss bank reported disappointing fourth quarter results.  The wealth management business had a 27 percent fall in adjusted pretax profits in the fourth quarter of 2015, with the Wealth Management Americas division seeing its profits plunge 72 percent the previous year.

CEO Sergio Ermotti warned, “We have begun a year that really looks very challenging.”  Ermotti also blamed “very low levels of client activity” for depressing profits.

--Google parent Alphabet Inc. reported revenue at its core internet businesses, including search, YouTube and Android, rose 14% last year to $74.54 billion from $65.67 billion in 2014.

Fourth-quarter net income totaled $4.92 billion, vs. $4.68bn in the same period a year earlier.  Revenue rose 18% to $21.33bn, up from $18.1bn a year.

Ex-charges, Alphabet earned $8.67 a share, far above consensus estimates of $8.10, with revenue also exceeding.

So, as noted above, the stock in the after-market soared to over $810 but then cratered the rest of the week to a finish of $683.  For a brief moment in after-market trading, Alphabet’s market cap exceeded Apple’s, but at the end of the week it was over $50bn behind.  [$521bn to $469bn.]

--Yahoo reported a 15 percent fall in adjusted quarterly revenue as it struggles to keep its share of online search and display advertising in the face of the Facebook and Google juggernauts.

Yahoo’s revenue – after deducting fees paid to partner websites – fell to $1 billion in the fourth quarter from $1.18bn a year earlier.

Yahoo is laying off about 1,700 employees and shedding some of its units as it remains to be seen whether CEO Marissa Mayer can save her own job.  I heard her in an interview with CNBC on Wednesday and she was miserable, to put it mildly.

Among the products to be dumped will be Yahoo Games, Yahoo TV and some of the digital magazines that Mayer started as CEO, while various offices in the Middle East and Latin America will be closed.

Yahoo has been struggling for 3 ½ years and Wall Street has given up on this becoming any kind of resurrection story. 

On a conference call, Mayer also said rumors that $7 million was spent on holiday parties in December was an “untruth.”

Bottom line, Mayer said the company is exploring strategic alternatives that could include the sale of its core internet business.

Way back in 2003, Yahoo reportedly had the chance to buy Google for $5bn, two years before its IPO.  But Yahoo’s CEO at the time, Terry Semel, who was out of Hollywood, wasn’t prepared to pay more than $3bn for what was then still a start-up.  [John McDuling / Sydney Morning Herald]

--According to Gartner research, sales of smartwatches will rise 66 percent from 30.32 million units in 2015 to 50.4m this year generating some $11.5bn in revenue, which would be positive for Apple.  [This is a stupid product...like the Segway...or Diet Fresca.]

--Sumner Redstone, the 92-year-old media titan who helped shape modern Hollywood, is finally officially out as chairman of CBS Corp. and Viacom Inc.  Leslie Moonves, CBS CEO, replaces Redstone at CBS while Philippe Dauman, Viacom CEO, was named chairman of the media company. 

Sumner’s daughter, Shari, is not happy Dauman now has both titles, with Shari being vice chair.

No one outside the company believes this is best for Viacom, which needs to make some changes.

The Redstone family controls nearly 80% of the voting stock of both CBS and Viacom through an investment vehicle, National Amusements Inc.

Meanwhile, none of us have actually seen Sumner Redstone in years.  He could be a yard gnome, for all we know.  If he was a lawn jockey (which I aspire to...provided there is free domestic), there should be a record of that.

--Honda Motor is recalling an additional 2.2 million vehicles in the U.S. due to the Takata air bag issue.  According to the Wall Street Journal, some 50 million vehicles globally (all impacted automakers) are now involved.

Having driven a Honda for over 25 years (really), I often wonder how I was driving, in essence, a time bomb.  And having had four accidents in what is now 2 ½ years, I thank my lucky stars the air bags didn’t accidentally go off.

“What happened to Trumbore?”

“He was rear-ended by a distracted driver, his airbag exploded, and the shrapnel severed an artery.”

In all seriousness, the Takata situation is scary as hell.

--As noted above, shares in LinkedIn plunged over 40% following the company’s earnings release.  The professional social network issued downbeat guidance for 2016, partly due to a decision to close a marketing service that will reduce revenues by $50m this year but leave it better positioned in the future, according to executives.

LinkedIn said it expected revenues of $820m this quarter and $3.6bn-$3.65bn for the whole year compared to the Street’s expectations of $867m and $3.91bn.  Earnings are also expected to fall far short of current forecasts.

--ChemChina is acquiring agribusiness group Syngenta for around $43bn in what would be China’s biggest-ever outbound acquisition.  Swiss-based Syngenta is a pesticide and seed maker.

ChemChina bought Italian tire maker Pirelli last year for $7.9bn.  And it recently agreed to buy Krauss Maffee, a German machinery company.

--The U.S. government on Monday wrapped up its investigation into two outbreaks of E. coli at Chipotle, with the Centers for Disease Control and Prevention saying the outbreaks “appear to be over,” but, the regulator was unable to determine the specific ingredient that caused the illnesses, so that’s rather unsettling.

Chipotle shares have tumbled to $462, down 38% from its August high.

--GoPro Inc. reported weak fourth-quarter earnings and a reduced forecast as the shares continue to plunge, now $10.50, down from $65 as recently as last August.  The company has reduced its workforce 7% and announced a 50% price cut to its newest camera.

The action-camera market is becoming saturated and this is all GoPro has at the moment.  CEO Nicholas Woodman said the company is planning to release new editing software in March because “it’s still too hard to offload, access and edit GoPro content.”

Revenue fell 31% in the quarter and for the current one the forecast is bleak.

--Amazon.com is preparing to open 300 to 400 bookstores, according to mall operator General Growth Properties Inc., per their earnings call on Tuesday.  The CEO, Sandeep Mathrani, told analysts, “You’ve got Amazon opening brick-and-mortar bookstores and their goal is to open, as I understand, 300 to 400.”

This would be a huge blow to Barnes & Noble Inc., which operates 640 stores. 

But at the same time, it would take years for Amazon to bring such an initiative to fruition.

--Former Turing Pharmaceuticals CEO Martin Shkreli on Thursday called members of the U.S. Congress “imbeciles” on Twitter, moments after he invoked the Fifth in refusing to testify before a House committee on why his company raised the price of a lifesaving drug 5,000 percent.

The jerk should be cleaning showers at Rikers Island.

--Since 1995, the Top 10 in-game ad buyers at the Super Bowl:

Budweiser $213.7 million
Bud Light $201.9
Coca-Cola $114.5
Pepsi $106.4
Universal Pictures $95.0
Doritos $83.4
Toyota $70.8
Chevrolet $68.5
Paramount Pictures $64.5
GoDaddy.com $60.9

[Source: ESPN The Magazine]

Good luck with your Super Bowl box!  I’m in one where the grand prize is $6.8 mil---....oops, better keep quiet on this.  [Then again, the IRS’ computers were down this week so nothing to worry about.]

Foreign Affairs

Syria/ISIS/Russia/Turkey

Friday / Daily Star of Lebanon: “The Syrian government’s military offensive around the city of Aleppo has prompted at least 15,000 people to flee and involved a reported 13 airstrikes on medical facilities in January, the United Nations said Friday.

“ ‘The UN has verified that at least 15,000 people are fleeing from north of Aleppo city and tens of thousands have reportedly gathered at the border crossing with Turkey,’ a UN spokeswoman said in an emailed comment.

“ ‘Local sources say that while the Turkish border remains closed to civilian movement, those requiring urgent medical care have been receiving treatment from local hospitals in Turkey.’

“The civilians are reported to have joined the exodus after fierce fighting by advancing government forces who severed the rebels’ main supply route into Syria’s second city.

“Western nations have accused the Syrian government of sabotaging peace talks with its military offensive, and Washington has demanded Moscow halt its campaign in support of President Bashar Assad.”

Gee, you think Vladimir Putin will listen to the big, bad U.S.?

The action on the ground, and in the air, has picked up immensely in just the past two weeks and there is a very real fear among the rebels that the Assad government is suddenly on the verge of winning the war outright owing to the support of Russia, first and foremost, which bucked up the regime at a time when it was on the verge of collapse.

The Syrian Observatory for Human Rights, the British-based activist monitor that has done yeoman’s work for years with its sources on the ground, estimates 40,000 people have fled the government offensive near Aleppo.

Turkish Prime Minister Ahmet Davutoglu said Thursday that up to 70,000 people were heading to his country.

Turkey is already hosting 2.5 million Syrian refugees, many of whom have, and will eventually, attempt to move on to Europe.

A video released by activists on Thursday showed a child who said: “We were driven from our homes because of Russia, Iran, Bashar and Hizbullah.  We ask (Turkish President) Erdogan to let us into his territory.”

Aleppo, which was once the country’s economic powerhouse but has long since been destroyed, has been divided between opposition and government forces since mid-2012.

But since Russia began its aerial support Sept. 30, Syria’s army has been on the move.

Syrian forces, backed by Russian airpower, also retook a rebel bastion in Deraa province this week.

Meanwhile, Moscow’s relations with Ankara continue to deteriorate. Thursday, the Kremlin accused Turkey of actively preparing to invade Syria.  Davutoglu has accused Russia of “committing the same war crimes” as the government.  If Assad, with Russia and Iran, controls Aleppo, it greatly increases their bargaining power in any negotiations and only exacerbates tensions with Turkey which has long demanded Assad must go.

President Erdogan urgently sought an audience with Putin, but for the second time he was rebuffed since the downing of a Russian military jet in November.

On Thursday, Secretary of State John Kerry said he had warned Moscow to stop targeting the Syrian opposition in what he described as a “robust” phone call with Russian Foreign Minister Sergei Lavrov.

For his part, Lavrov said this week his country wouldn’t stop its current campaign in Syria, until it defeats “terrorist groups” [Ed. i.e., the rebels, not ISIS.]

British Foreign Secretary Philip Hammond said on Monday that Russia’s actions in Syria have undermined international efforts to end the Syrian war.

“It’s a source of constant grief to me that everything we are doing is being undermined by the Russians,” he said to Reuters.

On Thursday, the peace talks in Geneva unraveled and the United Nations suspended the long-awaited conference, as opposition groups called for international pressure to halt the government advance.

If the rebels cannot regain control of the supply route to Turkey, the exodus will only worsen.

An aid conference taking place in London is also in a shambles, given the Syrian army’s gains.

German Chancellor Angela Merkel said, “The German government is convinced that the great migration of refugees can only be resolved by addressing its root cause in the region.”

What a sickening tragedy.  What a legacy Barack Obama is leaving.  Did you see the pictures from Aleppo and Homs this week?  Utter destruction...beyond rebuilding in our lifetime, as I’ve been saying now for years.

Sunday, an ISIS suicide attack outside Damascus at a revered Shiite shrine killed at least 70.

Meanwhile, the BBC reports that senior ISIS commanders continue to move from Iraq and Syria to Libya, according to Libyan intelligence officials.

ISIS first gained control of Sirte, Muammar Gaddafi’s hometown, last year.  ISIS is believed to be receiving support from some loyalists of the former regime.

Editorial / Washington Post

“The people of Madaya, a Syrian town besieged by the government, are still starving. According to Doctors Without Borders, 16 more people have died of hunger despite a single delivery of aid last month, bringing to 51 the number who have perished from lack of food since December.  Moreover, the town of 20,000 people, says the United Nations chief humanitarian coordinator, is ‘the tip of the iceberg.’  Close to 500,000 Syrians are cut off from food assistance, Stephen O’Brien told the UN Security Council, and the government has denied about 100 of the UN’s 113 requests to deliver aid in the past year.

“Secretary of State John F. Kerry has been denouncing this atrocity in recent days.  ‘People are dying; children are suffering not as an accident of war, but as the consequence of an intentional tactic – surrender or starve,’ he said Sunday.  ‘And that tactic is directly contrary to the laws of war.’  Unfortunately, the Obama administration’s handling of the Syrian crisis appears to be enabling those very war crimes....

“Mr. Kerry (and the White House) are responding with nothing but rhetoric.  ‘We haven’t seen a catastrophe like this since World War II, and it’s unfolding before our eyes,’ Mr. Kerry said Tuesday.  ‘People in Madaya [are] eating leaves and grass or animals of one kind of another that they manage to capture.’  He declared: ‘The Syrian regime has a responsibility – in fact, all parties to the conflict have a duty to facilitate humanitarian access to Syrians in desperate need.  And this has to happen not a week from now....It ought to happen in the first few days.’

“Or else what?  On that, Mr. Kerry has had exactly nothing to say.  Expect the sieges, the bombing, the starvation – and the statements – to continue.”

One of my main goals in life at this point is to make sure that when I die, I will have left the true story of this war and President Obama’s direct responsibility.  I want future historians, even hundreds of years from now, to understand just how godawful he has been, and how hundreds of thousands, literally, have lost their lives because of his inaction.  It’s all in these pages.  The proof.  The truth.

Iran: As the Feb. 26 parliamentary and Assembly of Experts elections draw near, President Hassan Rouhani reiterated this week that the Islamic Republic’s policy is not “domination” over the region, but rather to make the region “powerful.” 

In a televised interview on Tuesday, Rouhani said:

“We do not seek tension with Islamic countries.  However, if they continue their destructive behavior, what happens is first of all they will get hurt, and what is more is that we will give a proper answer, which may even be punitive if the occasion warrants.”

Regarding the Syria crisis and terrorist activities, he said Iran seeks to help the regional people against terrorism, help establish peace, make sure of all countries’ territorial integrity, and have people decide their own fate.

“We are ready to help fight terrorism, ready to have the sides establish ceasefire; and believe that the future of Syria lies in political talks,” Rouhani said.

Really, he said all this, per the Tehran Times.

Regarding the Iranian elections, Rouhani said he hoped that they will be held with “optimum participation and optimum competitiveness.”

People’s participation in the elections is “very, very” important and they should not think that the elections are “engineered,” he stressed.

Really, Rouhani said this.  Forget that over 95% of the moderates looking to run were denied the opportunity.

Editorial / Wall Street Journal

“In other news from the receding tide of war, the Ayatollah Ali Khamenei has given medals to the Iranian Revolutionary Guards who recently captured and humiliated American sailors.

“Iran state media reported Sunday that the Supreme Leader had awarded the Fath, or Victory, medal to the head of the Revolutionary Guards navy and four commanders who were involved in seizing two U.S. Navy boats in January....

“The Guards released the boats and crew, but not before deliberately embarrassing the sailors, the Navy, and the U.S. by broadcasting photos of the Americans in captivity, including one of the U.S. sailors on their knees with their hands behind their heads under armed Iranian guard.

“Secretary of State John Kerry initially hailed the return of the sailors as a sign of the great new era of U.S.-Iran cooperation in the wake of the nuclear accord.  ‘I think we can all imagine how a similar situation might have played out three or four years ago, and the fact that today this kind of issue can be resolved peacefully and efficiently is a testament to the critical role diplomacy plays in keeping our country safe, secure, and strong,’ Mr. Kerry said.

“Mr. Kerry later said he was ‘infuriated’ by the footage of the U.S. sailors and that ‘I immediately contacted my counterpart. And we indicated our disgust.’

“Apparently that disgust didn’t register with the people who really run Iran – that is, the Revolutionary Guards and the Ayatollah, who has now slapped the U.S. again by awarding medals to those who humiliated our sailors.  Maybe the Ayatollah will give Mr. Kerry a medal too.”

Jordan: King Abdullah said his country is at the “boiling point” in terms of the hundreds of thousands of Syrian refugees in his country.

“Sooner or later, I think, the dam is going to burst,” Abdullah warned.

Jordan desperately needs more aid, especially if the world community expects it to continue to take in more refugees.

Jordan is hosting 635,000 Syrians; at least that is the number registered with the UN.  But, the government says another one million are living there.

25% of the state budget is spent on refugees!  Think about that. Think of the strain then on regular public services for the Jordanian people.

Afghanistan: A suicide bomber killed 20 people at a police headquarters in Kabul, with most of the victims being police.  The Taliban claimed responsibility.

U.S. Army Gen. John F. Campbell, who has led the international force in Afghanistan since August 2014 but is now stepping down, told Congress that security there will continue to deteriorate unless the U.S. military makes a long-term commitment to stay.

President Obama wants to cut the current contingent of 9,800 military advisors and Special Operations troops by half by the time he leaves office.

“Afghanistan is at an inflection point,” Campbell said.  “I believe if we do not make deliberate, measured adjustments, 2016 is at risk of being no better, and possibly worse, than 2015.”

ISIS, by the way, now has anywhere between 1,000 and 3,000 fighters in Afghanistan as well.

Israel: You can’t make this up.  Herb Keinon / Jerusalem Post:

“The Foreign Ministry moved swiftly on Wednesday to change what it termed a ‘horrible headline’ the American CBS News outlet put on its story about the terrorist attack at Jerusalem’s Damascus Gate.

“At about 4 p.m. the network’s website put the following headline on a story about the attack: ‘3 Palestinians killed as daily violence grinds on.’  About 90 minutes later it was changed to this: ‘Israeli police kill 3 alleged Palestinian attackers.’

“Foreign Ministry spokesman Emmanuel Nachshon said the original headline was ‘biased and dishonest,’ and an example of ‘unparalleled chutzpah.’

“The ministry, the Government Press Office and the National Information Directorate all worked to get the headline changed, he said.

“The new headline, he said, ‘was not ideal, but better.’

“The headline was later changed a third time, reading: ‘Palestinians kill Israeli officer, wound another before being killed.’”

Yes, you read it right.  Freakin’ CBS first put this story out without mentioning that the Palestinians, in another terror attack, killed the police officer!

In November 2014, CNN ran a ticker that read, ‘4 Israelis, 2 Palestinians dead in Jerusalem,’ without noting the two Palestinians were the terrorists!

Since the September 13, Rosh Hashanah attack, in which a 64-year-old grandfather was killed, over 30 Israelis have died in terror attacks here and 300 have been wounded.  Palestinian media reports 167 Palestinians have been killed in the same time period.  [I do not know how many of them were terrorists.]

Separately, the Immigration Absorption Ministry and the Jewish Agency estimate the number of immigrants to Israel will be 33,000 in 2016; including 10,000 from France and 7,000 each from Russia and Ukraine.

The number of Jews experiencing anti-Semitism in France is soaring and more than half of French Jews are contemplating leaving. But according to French media, 60 percent of Frenchmen believe that Jews bear at least some responsibility for the rise in anti-Semitism.  40 percent said that Jews are “a little too present in the media.”

An Ipsos poll in France also found that half of Frenchmen did not believe immigration enriched their country, with a third stating that “racist reactions may be justified.”  [Jerusalem Post]

China: Editorial / Wall Street Journal...on a topic I’ve been writing about.

“Chinese dissident journalist Li Xin went missing on Jan. 11 in Thailand.  On Wednesday he phoned his wife from China, telling her, ‘I came back to China willingly to face investigation.’  Mr. Li’s wife, He Fangmei, wasn’t fooled.  ‘I know it was all their words, and that Li Xin was speaking against his wishes,’ she told the Journal.

“Ms. He is right to be skeptical.  In recent months several Chinese dissidents have disappeared from Thailand and Hong Kong and reappeared in mainland police custody.  At least two say they went to China of their own free will and the world shouldn’t interfere – words their friends and family say were spoken under duress.

“Gui Minhai, a Hong Kong publisher of dissident books who holds a Swedish passport, disappeared from Thailand on Oct. 17. Thai authorities say they had no record of  him leaving the country.  Mr. Gui made a contrite appearance on Chinese state television on Jan. 17 and said he returned to China voluntarily to face charges from a 2003 drunk-driving case.  Three of Mr. Gui’s colleagues went missing while visiting China in October.

“Another of Mr. Gui’s colleagues, Lee Bo, told reporters he wasn’t afraid as long as he stayed in Hong Kong.  Famous last words. He was last seen at his Hong Kong warehouse on Dec. 30, and the local government has no record of him crossing the border to China.  Mr. Lee telephoned his wife from Shenzhen to say he is assisting police with an investigation, and he has since written two letters saying he doesn’t want assistance.  Mr. Lee is British, but neither he nor Mr. Gui have been allowed to meet with consular officials....

“Mainland security officials have long operated in Hong Kong without local permission.  The abduction of Mr. Lee appears to be the first case of its kind, but Chinese police have grabbed people from Macau. Hong Kong Chief Executive Leung Chun-ying has politicized the police department, so it wouldn’t be surprising if some officers work with their mainland counterparts to monitor China’s critics.

“Beijing seems willing to accept harm done to its international reputation by ignoring the laws of extradition. The message sent at home is clear: If you oppose the Communist Party, there is nowhere in the world you can hide.”

Well, on Friday, the South China Morning Post reported: “Guangdong police confirmed for the first time that three Hong Kong booksellers who had not been heard of since they went missing last October were being investigated in mainland China.

“They also told Hong Kong police that missing Causeway Bay Books owner Lee Po [Ed. the Journal has it ‘Bo’...I’ll go with the SCMP], who is also on the mainland, had rejected their request to meet him.

“After Gui Minhai, another bookseller missing since October, earlier said on state TV that he had turned himself in over a fatal accident he was involved in 12 years ago, the Guangdong Provincial Public Security Department said on Thursday night that his three colleagues were suspected to be involved in Gui’s case and were also ‘involved in illegal activities on the mainland.’

“This was the first time Guangdong police had confirmed that Lui Por, Cheung Chi-ping and Lam Wing-kee were in custody on the mainland.”

This is beyond outrageous.

On another issue, a U.S. warship sailed near a disputed island in the South China Sea last Saturday in another demonstration of the U.S.’s freedom to navigate in international waters.

Beijing immediately said the destroyer Curtis Wilbur “sabotaged the peace” in severely violating Chinese law.

And then there was the Ponzi scheme.  Chinese police arrested 20 associated with one that allegedly took more than $7.6bn from investors, according to Xinhua news agency.

Separately, China grinds to a halt for seven days on Sunday, with the start of the Chinese New Year.  Last Monday, as many went home for extended vacations, 100,000 were stranded in the main train station in Guangzhou as a storm led to heavy delays.  Imagine the restroom facilities in the place.  Yuck. 

North Korea: Pyongyang is strongly hinting it will be launching a ballistic missile as early as Sunday.  The government says it is a satellite launch, but it is clearly another missile test.

Japan has put its military on alert to shoot down any rocket that threatens its territory.  The U.S. and South Korea are on alert to do the same.

This could be a ‘lead’ in next week’s review.

Russia: U.S. Secretary of Defense Ash Carter named Russia and China as some of the biggest “evolving challenges” to the U.S. military.  Iran, North Korea and the Islamic State are the three other challenges the U.S. is facing, according to Carter.

Meanwhile, that daffy Chechen leader Ramzan Kadyrov posted a video on Instagram directly threatening Russian opposition leader Mikhail Kasyanov.  In the video Kasyanov and a party deputy chairman are shown in a sniper’s crosshairs.

The clip was later removed.  Last month, Kadyrov labeled Putin’s opponents “jackals” and “enemies of the people.”

Nigeria: Boko Haram has lost some territory to Nigeria’s army, but the killing continues and has picked up in recent weeks.  In a heinous, brutal raid, over 85 were killed in a rampage last weekend in a village in the northeastern part of the country, with homes burned to the ground, people burned alive inside them, and children abducted.  At one point the survivors fled to a huge tree that was the local meeting place.  A suicide bomber then arrived and detonated his belt.

The New York Times reported one man said the attackers snatched his four children and ran off.

Incredibly, Boko Haram, which is now formally aligned with ISIS, has killed 20,000 in a six-year period, while displacing another 2.5 million.

Somalia: It sure looks like a bomb went off on the Somali jetliner that punched a three-foot hole in the fuselage and sucked out a passenger, who it now appears was a suicide bomber with the explosives hidden in his laptop.  If this is indeed the case, those behind it now know they need to make the device just a little more powerful to bring an entire aircraft down.

The explosion rocked the Daallo Airlines flight, some 15 minutes after it left Mogadishu.  Two passengers were seriously hurt.

Random Musings

--Iowa Caucus results....

Republicans:

Ted Cruz 28%
Donald Trump 24%
Marco Rubio 23%
Ben Carson 9%

[Or, looked at another way, 61% for the ‘anti-establishment’ crowd.]

Democrats:

Hillary Clinton 50% [49.89]
Bernie Sanders 50% [49.54]

--So it was pretty clear who the winners and losers were.  Ted Cruz and Marco Rubio were the big winners for the Republicans, with Trump a loser vs. expectations.

Hillary Clinton is a winner because she eked out a win, however marginal, and Sanders is also a winner for going toe to toe with her after being down 50 points in the polls last spring and early summer.

But the Iowa Democrat Party is a big loser for having a totally corrupt process that included six coin tosses to determine precinct winners.

Ben Carson was another loser, though not necessarily because of his own doing, while Sarah Palin was a big one...but then we already knew that.

I do have to note one other poll for the record...the morning of the caucuses, Quinnipiac University released its final numbers and it had Trump with a 31-24 lead over Cruz, with Rubio at 17% and Carson 8%.  On January 26, Quinnipiac had it Trump 31-29, and Rubio at 13%.  So they got the Rubio surge right and totally botched the rest.  Quinnipiac’s final tally had Sanders ahead 49-46, so nothing wrong here.

And then there was the Des Moines Register poll.  As every single mainstream media outlet said, “the gold standard” of polls.  Saturday evening before the caucus, the Register/Bloomberg survey (the Bloomberg organization is innocent in this matter), had Trump leading 28-23, with Rubio at 15% and Carson 10%.

Not quite, Register.

--Did the Democrats call it right?  Just as the Republicans botched Iowa in 2012, with Rick Santorum being declared a winner over Mitt Romney, but not until two weeks after the vote, Bernie Sanders supporters have a legitimate gripe over this year’s tabulation, though Iowa Democratic Party officials have said the result is final.

It was at 2:30 a.m. Tuesday that the Democrats announced Clinton had eked out a slim victory, 700.59 delegate “equivalents” for Clinton; 696.82 for Sanders.  [These would be delegates to the state convention.]

Sanders campaign aides said they’ve found some discrepancies between tallies at the precinct level and numbers that were reported to the state party. The Iowa Democrat Party has an idiotic mathematical formula that doesn’t treat one vote as one vote, like the Republicans’ straw poll.

But in the case of the Sanders’ camp’s complaints, the state party chairman said, no way, when it comes to reviewing the tabulation.  What a bunch of a-holes.  The Democrats here also don’t actually release head counts.  That’s astounding.

The Des Moines Register interviewed a myriad of Democrat caucusgoers and they all spoke of major confusion at the precincts.

--On caucus night, in conceding he finished second (at least for 24 hours), Donald Trump was humble and told supporters he was “honored” to finish second to Cruz.  You didn’t have the usual bombast.

But among the mistakes Trump made in Iowa, by his own admission the day after, was skipping the final debate and not having a stronger ground game.

“I think it could’ve been with the debate,” when asked in New Hampshire about his second-place finish.  “I think some people were disappointed that I didn’t go into the debate.”

Heck, it’s also one thing to hold rallies in front of large crowds, but having been to Iowa myself a number of times during the political season, you have to mingle at least a few times with the folks in the diners and coffee shops. 

--So on to New Hampshire and a new set of polls.

A CNN/WMUR poll (the latest one, released tonight) has Trump at 28%, with Rubio rising to 17%, Cruz and Kasich tied at 13%, Jeb Bush and his mother at 9%, and Chris Christie at 4%.

A separate Univ. of Massachusetts tracking poll has Trump leading Rubio 36-15, with Cruz at 14%.

A Wall Street Journal/NBC News/Marist poll has Trump leading with 30%, Rubio at 17% and Cruz 15%.

On the Democratic side, the WSJ/NBC poll has Sanders with a 58-38 lead over Clinton.

The CNN/WMUR poll has Sanders up 61-30.

--I watched the entire debate Thursday between Clinton and Sanders and it was most entertaining.  Except on the email issue in particular, MSNBC did a pretty good job.

But when the emails was raised, as Clinton tried to spin and claim she was only doing what her predecessors had done, Chuck Todd didn’t simply say, ‘but they weren’t using a private server.’

Sanders and Clinton fought over who was the better progressive, with Clinton saying she’s “a progressive who gets things done.”

Clinton also directly accused Sanders of carting out a kind of passive-aggressive campaign against her, hinting she was bought by corporate money.

“And I just absolutely reject that, Senator,” she said.  “And I really don’t think these kinds of attacks by insinuation are worthy of you.

“So I think it’s time to end the very artful smear that you and your campaign have been carrying out,” she added, saying “let’s talk about the issues.”

For about the only time in the evening, there were boos and gasps at the “artful smear” remark which was classic Clinton.

For his part, Sanders was pretty good but he totally blew it on not going after Hillary’s disastrous foreign policy record beyond just saying he was against the Iraq war.

Earlier in the week, when questioned at a town hall meeting why she had to be paid $675,000 for three speeches she gave for Goldman Sachs, Hillary said: “Well, I don’t know.  That’s what they offered.”

--Ben Carson slashed his staff and reduced salaries.  As confidant Armstrong Williams put it, the goal is to “get really lean...so that he can sustain his campaign until the convention.”

--Jennifer Rubin / Washington Post

“For those who wondered if the GOP would come to its senses and who doubted all those Donald Trump supporters would show up at the polls, there was a nearly audible sigh of relief Monday night. For Sen. Ted Cruz, his turnout machine overcame a poor final debate performance and a rocky few weeks.  He won the Iowa caucuses with about 28 percent.  A loss would have been devastating; he now will try to break the pattern of Iowa winners who went on to lose the nomination....

“The big question now is whether the GOP was scared but not scarred by the Trump phenomenon.  If Trump now fades, the GOP of 2016 will resemble the GOP of 2012 or 2008: A fiery right-winger who wooed evangelical voters won Iowa.  Ho-hum.  There, however, may very well be new twists and turns.  Republicans will be poised to see if the polls in New Hampshire reflect Trump’s loss, knocking him down from his perch there too.

“And the ‘real winner,’ as the MSM likes to say, is Sen. Marco Rubio (Fla.), who took in about 23 percent, far outpacing his polling and virtually tying Trump.  He withstood an avalanche of negative ads, most particularly from Jeb Bush’s Right to Rise Super PAC.  Mike Huckabee has announced he is getting out of the race, the beginning – Rubio hopes – of a stampede of dropouts that will leave him as the standard bearer of the mainstream Republican majority....

“After months of turmoil and jaw-dropping polls, media coverage and debates, the race could now settle into a predictable pattern – the far right insurgent Cruz against the middle-of-the-road Rubio, who hopes to eventually pull in supporters of candidates like Jeb Bush, Ohio Gov. John Kasich and others. Before we get there, however, comes New Hampshire, which is now a must-win state for Trump.  If he loses twice it is hard to see him going forward.  It will also be the moment of truth for many candidates, the final chance for them to establish themselves as contenders.”

--Bret Stephens / Wall Street Journal

“We live in an era of mediocrity and anxiety, not collapse and tragedy.

“The real difference, to adapt a line from Daniel Patrick Moynihan, is that we’ve spent the better part of a generation defining ‘presidential’ down.  There was a time when some form of military experience or outstanding civilian service was considered a prerequisite for the presidency.  Or when first-term senators did not presume to run for the White House without putting in time, paying dues, making friends and authoring some significant piece of legislation.  Or when conspicuous character flaws or pending legal jeopardies were automatic and irrevocable disqualifications.

“But all that is in the past now, and the moment that happened can be precisely dated. It began with Bubba.  It began when America made its first presidential-level accommodation with the mores of the 1960s, and when it made a self-conscious choice to redefine, and demote, the concept of character in the hierarchy of political virtues.

“Jimmy Carter came to office promising never to lie; he pledged an American government ‘as good as its people.’  Bill Clinton lied, flagrantly and frequently, and he made us complicit in his lies.  With Bubba we became a nation of pseudo-sophisticates, people who believed that the mark of the discerning voter was to see through – and past – the ‘character’ issue.  What mattered were results.  In the halcyon 1990s, that seemed to work.

“Today’s degraded politics is partly a result of that moral accommodation.  It’s also the result of an intellectual accommodation.  Let’s face it: If Mr. Clinton brought dishonor to the Oval Office, George W. Bush brought shallowness to it.  Presidential aspirants were once expected to deliver finely tuned debating points about Quemoy and Matsu.  After W, it became pedantic to expect candidates to know the names of the leaders of India and Pakistan.

“And now we have Mr. Trump, who lived through the entire Cold War without, it seems, ever hearing of the nuclear triad, or thinking about it, or being embarrassed by the thought that he’d never heard or thought of it....

“Sober up, America.  We’re a republic only for as long as we can keep it.”

--Personally, I would not make too much out of Ted Cruz’s win in Iowa in terms of national appeal.  For starters, I may be naïve but it does matter that none of his fellow senators like the guy.

--Mike Huckabee, Rand Paul and Rick Santorum all dropped out within 48 hours of Iowa, while Martin O’Malley did so on the Democrat side.

While I won’t say any disparaging words about any of the above, some Republicans were getting irked with Paul because they want him to focus on his Senate reelection bid in a year where the Democrats have a solid shot at retaking the Senate.

--Editorial / Wall Street Journal

“Pollsters asked voters entering the caucus sites to select the issue that was most important to them, offering four choices in the GOP contest: immigration, the economy and jobs, terrorism, and government spending.  Only 13% of voters chose immigration as most important, well behind the other three.  Government spending was number one at 32%, the economy was second (27%) and terrorism third (25%).

“Among the immigration-first voters, Donald Trump (44%) and Ted Cruz (34%) did best while Marco Rubio won only 10%, well below his totals among voters who cared more about the other three issues. This isn’t surprising given the priority that Messrs. Trump and Cruz put on closing the U.S. borders and deporting illegals in the U.S.  In politics you are what you emphasize.

“But immigration clearly wasn’t the killer app in Iowa that Mr. Cruz hoped it would be against Mr. Rubio.  The Texan repeatedly threw the ‘amnesty’ charge at his Senate colleague for having voted for the Gang of Eight reform in 2013.  Yet Mr. Rubio survived the attack and staged a rally in the final week to come close to beating Mr. Trump for second place....

“Conservative Iowa is supposed to be the red-hot center of anti-immigration politics led by Rep. Steve King, who backed Mr. Cruz.  But even in the Hawkeye State immigration doesn’t appear to be the presidential litmus test for Republican voters that some on the right have tried to make it.  GOP voters are smart enough to know that reviving economic growth and preventing terrorism are higher priorities.

“The immigration debate isn’t over this year, and on Tuesday in New Hampshire Mr. Cruz launched another assault on Mr. Rubio. But the Iowa results suggest that the Floridian can neutralize the attack if he isn’t defensive and fights back.  He’d be that much better positioned for the general election if he does.”

--President Obama made his first U.S. visit to a mosque on Wednesday and urged voters to reject the “inexcusable political rhetoric” he said has been part of the campaign, without naming names.

“I know that in Muslim communities across our country, this is a time of concern and, frankly, some fear,” he told about 200 gathered at the Islamic Society of Baltimore, which is home to one of the larger mosques in the country.

“Let me say it as clearly as I can, as president of the United States, you fit in here,” said the president.  “You’re not Muslim or American, you’re Muslim and American.  Don’t grow cynical.”

I’m half-Slovak.  I’m allowed to be cynical.

-- The World Health Organization declared the Zika virus to be an international public health emergency as it continues to explode in Latin America.

WHO director general, Margaret Chan called Zika an “extraordinary event” that needed a coordinated response.

“I am now declaring that the recent cluster of microcephaly and other neurological abnormalities reported in Latin America following a similar cluster in French Polynesia in 2014 constitutes a public health emergency of international concern.”

Chan said the priorities were to protect pregnant women and their babies from harm and to control the mosquitoes that are spreading the virus.

Currently, there is no vaccine or medication to stop Zika.

Previously, the WHO warned Zika is likely to “spread explosively” across nearly all of the Americas.

I should probably be putting Zika virus stories in Street Bytes because the economic impact is growing and could do so exponentially.

Health officials in Brazil reported two cases of the virus being transmitted through blood transfusions. The American Red Cross announced it is asking potential blood donors who have been in Mexico, the Caribbean or Central or South America to wait at least 28 days after their trip before donating.

Spain reported on Thursday that it was the first European country to confirm the Zika virus in a pregnant woman.  The woman caught it in Colombia, after which she traveled to Spain, where she is one of six confirmed cases in Catalonia and 10 across the country, but the only one who acquired the virus during pregnancy. All ten caught it outside Spain.

Texas officials on Tuesday reported the first case of Zika being sexually transmitted by an infected traveler returning from Venezuela.  Friday, the CDC said American males who have traveled to the hot zone should practice safe sex.

But while some of this is scary, especially the potential link to Guillain-Barre syndrome, as of today it is important to emphasize that unless you are pregnant, or thinking about having a baby, there is little reason, as yet, for concern.  There have been no deaths connected to Zika and for the 20% or so who contract the virus and have actual symptoms, they are usually mild and last just a few days.

The thing is the birth defects the medical community is seeing are absolutely heart-breaking. That one picture you’ve seen of the baby in Brazil with the abnormally small head just makes you want to cry, and there are a reported 4,000 cases of microcephaly – babies born with small brains – in Brazil alone since October.

Zika is real.  In certain parts of the world it is true terror.  Of course scientists are scared to death this thing could mutate into something far worse.

At the same time, people around the world are going to have to accept massive spraying programs.

And for now, it is totally rational to follow the latest travel recommendations.

Lastly, the Brazilian government had to come out this week and announce there was no risk of canceling the Olympic Games in Rio.  President Dilma Rousseff’s chief of staff said on Monday. “We have to explain to those coming to Brazil, the athletes, that there is zero risk if you are not a pregnant woman.”

But if there are more cases of Guillain-Barre, or another development we don’t know of yet, that indeed would be a game-changer.

--The UN ruled Friday that WikiLeaks founder Julian Assange has been “arbitrarily detained” by the UK and Sweden since his arrest in 2010 and that he should be allowed to leave Ecuador’s Embassy in London without facing arrest.  He has been holed up there since June 2012, with British authorities saying he would immediately face arrest if he stepped outside and face extradition to Sweden and the U.S.

Sweden still wants to try him in a suspected rape case, while the U.S. seeks to charge Assange with espionage related to WikiLeaks’ publication of thousands of diplomatic letters.

The UN ruling is nonbinding.

--There were 51 murders in Chicago in the month of January, making it the deadliest start to a year there in at least 16 years.

And then six more in a single home on Thursday, though I don’t have all the details as yet.

-- I normally don’t comment on individual crime cases but your heart goes out to the family of 13-year-old Nicole Lovell, slain, allegedly, by a student from Virginia Tech, with another implicated.  It’s just not right. If the individual(s) arrested did it, no doubt he (they) should be put to death.

But I mention it for those parents out there of teenage kids in particular.  Ask them if they are using Kik, a messaging app, and if they are do all you can to get your kids off it.  There’s nothing but danger lurking on it.

--Finally, in another awful story, last weekend, as reported by CNN, “A British helicopter pilot was fatally shot by elephant poachers while flying an anti-poaching mission in Tanzania, a member of Parliament and a conservation fund said Saturday.”

The pilot “managed to land the chopper but died before he was able to be rescued,” said the country’s former tourism minister, who said he flew (with the victim) many times.

I have long said, both here and in another column I write, that I imagine for those returning from the likes of Iraq and Afghanistan, the perfect mission for someone who wants to leave the military but still loves serving a bigger cause than themselves would be to join a UN-sanctioned force whose sole mission was to support Africa’s great wildlife....and blow away poachers.  There actually are a few vets involved in independent, African-government sanctioned outfits, but it deserves global support.

---

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

God bless America.

---

Gold $1173
Oil $30.89

Returns for the week 2/1-2/5

Dow Jones  -1.6%  [16204]
S&P 500  -3.1%  [1880]
S&P MidCap  -2.9%
Russell 2000  -4.8%
Nasdaq  -5.4%  [4363]

Returns for the period 1/1/16-2/5/16

Dow Jones  -7.0%
S&P 500  -8.0%
S&P MidCap  -8.5%
Russell 2000  -13.2%
Nasdaq  -12.9%

Bulls  34.0
Bears  38.1  [Source: Investors Intelligence]

Dr. Bortrum posted a new column.  All the people he met in 36 years at Bell Labs.  It’s quite a galaxy of greats.  Check it out.

Have a good week.  I appreciate your support.

Brian Trumbore