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12/31/2016

For the week 12/26-12/30

[Posted 11:30 p.m. ET, Friday]

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

Edition 925

[This one is especially long as I cover the U.S./Israel/UN situation in great detail.]

Washington and Wall Street...2016/17

2016 Returns

Dow Jones  +13.4%
S&P 500  +9.5%
Nasdaq  +7.5%

Frankfurt  +6.9% (local currency)
London  +14.4%
Paris  +4.9%

Tokyo  +0.4%
Shanghai  -12.3%

The year started off with the worst decline in U.S. history, down 10.5% on the S&P by mid-February, but then the market rallied back 21% the rest of the way, the widest band since 2009.

The poor start was due to oil to a great extent, as it cratered to $26 a barrel, before staging a big rally of its own.

After nailing 2015 market returns, I failed badly in 2016, calling for minus 5% on the S&P and Dow, and minus 2% for Nasdaq, though I was a lot closer on Nov. 8.

Geopolitically, I wrote some of the following a year ago (over two WIRs, due to the timing then of the New Year’s holiday):

“On the migration front, German Chancellor Angela Merkel continued to tell her people that the country will benefit from the record influx of migrants.

“ ‘There is no doubt, the influx of so many people will demand a great deal from us. It will cost time, strength and money – particularly with regards to the important task of integrating those who will stay here permanently,’ she said in a New Year address televised (earlier).

“Merkel said anyone who wants to live in Germany must respect German values, traditions, law and language as preconditions for good cohabitation.”

Well they haven’t, pure and simple.

But I wrote: “Merkel is going to have a bad year in 2016 and may not make it into 2017.”  I was too pessimistic.

I also wrote last yearend:

“(Merkel’s) increasingly a lone voice in the wilderness as Europe turns on its migrants.  Even Sweden, which welcomed more refugees per capita than any other country, now feels overwhelmed.”  [Still true.]

I quoted historian Niall Ferguson and his take on Europe, writ large:

“The biggest problem is the fifth column within Europe – people who aren’t loyal to their European states even though they are citizens, second- and third-generation.  Potentially, there are thousands of jihadists or sympathizers.

“Europe’s problems are unsolvable.  Anybody who thinks this great wave of immigration solves Europe’s demographic deficit hasn’t been to the suburbs of Paris.”

Nothing has changed over the ensuing year.  You can make the same comment for the next few generations.

Among my other thoughts last year, I wrote:

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

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

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

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

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

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

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

[Just a few days after writing the above, North Korea conducted its fourth nuclear bomb test, catching U.S. intelligence with its pants down once again.]

I also wrote a year ago:

“I do want to re-emphasize, however, the upcoming election in Taiwan, Jan. 16.  While it’s a foregone conclusion who the victor will be [Tsai], the outcome won’t be to Xi Jinping’s liking.”

Thankfully, I was wrong on the refugee issue, for now, in Jordan and Lebanon, but I wouldn’t go out on a limb and say this will be the case, stability, for another year.

On Syria, I told you in 2012 the war was over...the West had lost, and that was one of my better calls ever for the almost 18 years of this column.

While I wasn’t very specific last year on other predictions, I missed the equity market impact of Brexit, which was swift for only a day, but the big move was in the global bond markets, with the yield on the German 10-year Bund declining from 0.09% the day of the Brexit vote (June 23) to -0.19% July 8.  The British 10-year saw its yield drop from 1.37% to 0.73% over the same essentially two weeks.  The U.S. 10-year fell from 1.74% to 1.37% (the cycle low).  Yields then spiked in the fall over questions on how long the ECB’s quantitative easing program would be maintained, while they took off in the U.S. after Trump’s election and assumptions for growth.

As for 2017...there isn’t a soul alive who can tell you how the year will pan out.  Starting with the fact that few, at least among my set, forecast a year ago that Donald Trump would emerge victorious come November 2016.  The first caucus was weeks away, after all.

But with his election, we enter 2017 with more uncertainty than just about any time in our history.  If you think that’s an exaggeration, you are sadly mistaken.

I’m 58 and have been politically aware since the mid-1960s.  [I would listen to my transistor radio on Sunday nights, lying in bed, and hear the weekly death counts in Vietnam...usually something like 200 U.S. dead and 2,000+ North Vietnamese/Viet Cong and wonder how we couldn’t be winning.]

Looking back, especially over the last 36 years, whenever we had a transition of power there was some certainty, especially domestically.  Even in the certainty that while policies would change, it would be a relatively smooth process. 

But this time, what is so different is foreign policy.  I have said a number of times over the past few months that I am not concerned, in the grand scheme of things, with domestic policy.  Certain segments of the population may have to fight harder, but the American Experiment will survive.  Sleepless nights from time to time, but the Sun will indeed come up the next morning.

That is not the case anymore in terms of foreign policy, and it is this front, in the era of terrorism, weapons of mass destruction, and rising despots that you know occupies my mind, 24/7. 

So you tell me what is going to happen on the Russia and China fronts the next four years (or 3-6 months)?  You tell me what Kim Jong-un is going to do?  You tell me when that inevitable WMD terror attack is coming...or that cyberattack that takes out the power grid for a third of the nation?

The thing is, what is really different is the man who takes over on Jan. 20, Donald Trump.

It’s not enough to say, well, I like his prime Cabinet selections in terms of national security, which I do...Tillerson (assuming he doesn’t have a secret pact of some kind with Russia’s Igor Sechin), Mattis, and Kelly.

I loved the Cabinet George W. Bush brought into the White House in Jan. 2001...Cheney, Rumsfeld, Powell and Rice. What a powerful, experienced lineup...and yet they still created a mess...then exacerbated ten-fold by Barack Obama.

We just don’t know what Donald Trump will do?  We all should hope that he’s a spectacular president, that four years from now he’s captured 58% of the popular vote in a real landslide, not the fake one he talks about.

That would be a sign that relations with Russia and China are on a stable footing; that there have been no major military conflicts in the South China Sea; the status of Taiwan is unchanged; Russia gets to keep Crimea but gives up on further designs for Eastern Ukraine; Putin doesn’t make a move on the Baltics; Syria is still a hellhole but the conflict is largely confined; Iraq, having finally routed ISIS, with major U.S. help, is stable; Turkey gets along well enough with the European Union and doesn’t open the spigot on the millions of refugees it has taken in following the first wave; the remnants of ISIS launch an occasional terror attack in Europe, but they are no worse than what we’ve already seen and Europe gradually grabs the worst of the group, leaving the dead-enders who don’t have the ability, smarts and financing to use WMDs; Kim Jong-un is killed by one of his generals (who then seeks reconciliation with Seoul and massive aid from the international community in return for giving up the nukes).

Now ask me if I believe any of this (especially my pipedream on North Korea...if Kim is killed by one of his generals, the guy is likely worse, not better, just because there is no way, with the security apparatus there, that one general could put together the leaders of all the major army divisions to participate in a coup like that).

But so much of the above falls back on Donald Trump and he alone.  I am not confident he has the temperament, and he will be tested time and time again.  He is, after all, the ultimate decision-maker, a man who 24/7 wants to dominate the news cycle, first and foremost, and a man who doesn’t understand that, around the world, words matter.

I just see these coming years as being nothing but “stress city.” Domestically, we’ll be fine.  The economy may even rock...it better because the deficits are otherwise going to explode, with the interest expense skyrocketing (exacerbating the problem in terms of choosing ‘winners’ and ‘losers’...see Thomas Donlan below).

I know on more than one occasion over the years I’ve talked of fastening your seatbelts... “It’s going to be a bumpy ride.”

But now, forget the seatbelt.  That’s not going to do you any good.  Just pray you don’t have a Takata airbag...which is my way of saying, these next few years are going to be like playing Russian Roulette....

....Speaking of Russia, the Obama administration struck back at the Kremlin for its efforts to influence the 2016 election, booting 35 Russian intelligence operatives (posing as diplomats) from the U.S., with two compounds on Long Island and in Maryland where intelligence activities were taking place being shut down, while imposing sanctions on Russia’s two leading intelligence services.

The administration also sanctioned four top officers from the Russian military intelligence unit known as the G.R.U., which the White House believes ordered the attacks on the Democratic National Committee and other political organizations.

The expulsion of the 35 spies was in response to the harassment of American diplomats in Russia.

In conjunction with this, the FBI and the Department of Homeland Security released a joint report detailing how investigators linked the Russian government to hacks on various Democratic political organizations, including samples of malware and other indicators of Russian cyberactivity, with network addresses of computers commonly used by the Russians to launch attacks.

President Obama is clearly trying to box-in President-elect Donald Trump, who has consistently cast doubt on the Russians being responsible for the hacking of the D.N.C. and other political institutions.

Trump responded to the sanctions by saying it was time to “move on,” but adding he would meet with intelligence officials next week to get an assessment of the situation.

But when he takes office Trump will have to decide whether to lift the sanctions on the Russians, while Republicans in Congress such as Senators John McCain and Lindsey Graham have been calling for a public investigation into Russia’s actions, with McCain announcing hearings for Jan. 5.

As for the Russian response, Dmitri Peskov, Vladimir Putin’s spokesman, told reporters: “We regret that this decision was made by the U.S. administration and President Obama personally.  As we have said before, we believe such decisions and such sanctions are ungrounded and illegal from the point of view of international law.”

Peskov added some manner of reciprocal answer can be expected.  “The response will be formulated in a direction determined by the president of Russia.”

This was all Thursday.

Friday, Russian Foreign Minister Sergei Lavrov said 35 U.S. diplomats would be expelled in retaliation, while banning U.S. diplomatic staff from two facilities in Moscow that they’ve been using, but Lavrov said this was his proposal to Vladimir Putin, and then Putin said no one would be kicked out.

In a statement on the Kremlin website, Vlad said: “We will not create problems for U.S. diplomats.  We won’t be expelling anyone.  We won’t forbid families and children to use their usual recreation places during the New Year’s celebration.  Furthermore, I invite all children of American diplomats accredited in Russia to the New Year’s shows and Christmas Tree in the Kremlin.”

[Hey, kids.  Having been to the Kremlin myself, I’d take Putin up on this offer. The sweets would be unbelievable.]

Donald Trump then tweeted, because this is what he does: “Great move on delay (by V. Putin) – I always knew he was very smart!”

Oh, The Donald loves those exclamation points.

Speaking from Ukraine, Sen. John McCain said Russia must be made to pay the price for cyberattacks.

“When you attack a country, it’s an act of war,” McCain said in an interview with Ukraine TV, while on an official fact-finding trip with other senators, including Lindsey Graham.  “And so we have to make sure that there is a price to pay, so that we can perhaps persuade the Russians to stop these kinds of attacks on our very fundamentals of democracy.”

The White House has been undecided on what to do about the hacking issue, but it’s amazing to me that the president waited until well after the election to make a move when he clearly had the intelligence in the fall to do so and instead he just sat back; his point being he didn’t want to rock the boat during the election, and risk retaliation ahead of Election Day.  But then why do it now as he’s walking out the door?  [Other than to piss Trump off.]

House Speaker Paul Ryan said in a statement that despite the measures being overdue “it is an appropriate way to end eight years of failed policy with Russia,” adding “it serves as a prime example of this administration’s ineffective foreign policy that has left America weaker in the eyes of the world.”

Democratic Sen. Ben Cardin applauded the sanctions but said they weren’t enough, saying he would establish a committee “to further examine the attack and Russia’s efforts to interfere in our election.”

Editorial / Wall Street Journal

“President Obama promised retaliation against Russia’s cyber-meddling in this year’s U.S. elections ‘at a time and place of our choosing,’ and on Thursday he followed through with an order to expel Russian agents and sanction Russian intelligence agencies.  That’s a start, but the pity is that it comes at the end of a Presidency that held on to its Kremlin illusions for too long – and on the eve of another Presidency that risks making the same mistake.

“Mr. Obama ordered that 35 Russian operatives be expelled and Russian intelligence compounds in Maryland and New York shut down.  Nine Russian entities and individuals have been sanctioned, including four Russian military intelligence officers.

“More importantly, technical data on Russian hacking methods will be declassified to help network experts ‘identify, detect and disrupt Russia’s global campaign of malicious cyber activities.’  Mr. Obama also promised that he would take other steps, ‘some of which will not be publicized.’

“Let’s hope so, because efforts to sanction Russia’s powerful FSB and GRU intelligence agencies won’t carry much sting with the officials and hired hackers who carried out the cyberattacks....

“(But) Mr. Obama’s order amounts to a far too late signaling exercise to underscore U.S. displeasure, rather than a serious retaliatory strike that imposes real costs on responsible Russian officials.  House Speaker Paul Ryan was right to support Mr. Obama’s actions, but he was also right to add with no small irony that they are ‘an appropriate way to end eight years of failed policy with Russia.’....

“The Obama Administration has fretted that the U.S. must maintain ‘escalation dominance’ against Russia, which may explain why even Thursday’s steps were so modest.  But Mr. Obama’s timid responses so far to Moscow – and to attacks from China and North Korea – have emboldened its hackers to meddle in the U.S. political process.  The Russian regime is nothing if not a respecter of power, and only a U.S. president willing to exercise it will get the Kremlin to stop.

“Which brings us to Donald Trump, who told reporters who asked about Kremlin hacking on Wednesday that the U.S. should ‘get on with our lives’ and that ‘the whole age of the computer has made it where nobody knows exactly what’s going on.’  Lord knows what the President-elect means by that, but it seems to extend his strange and dangerous habit of making excuses for Mr. Putin and treating hacking as a nuisance, not a threat to U.S. national and economic security.”

[This was before Trump’s shocking tweet on Friday.]

Editorial / New York Post

“In his waning days in the White House, President Obama is desperately trying to make his policies as permanent as possibly by tying the hands of his successor – and far more than other presidents have done on their way out.

“From his dramatic and disastrous change of U.S. policy on Israel to his executive order restricting 1.65 million acres of land from development despite local objections, Obama is trying to make it impossible for Donald Trump and a GOP-controlled Congress to govern.

“Even Thursday’s announcement of wide-ranging sanctions against Russia presents Trump with a foreign-policy crisis immediately upon taking office.

“By contrast, many of Obama’s predecessors have stood back in their final days in office and refrained from any dramatic shifts, in deference to the agenda of the man voters sent to succeed them.

“But Obama won’t accept the election results.  As he suggested the other day, Trump’s election was a fluke – and he himself would have easily been re-elected if allowed to stand for a third term.

“He believes this not just because he’s an effective campaigner, but because he thinks his ‘vision’ and policies continue to be backed by ‘a majority of the American people.’

“But Obama, like many Democrats, fails to understand what happened in the election: Voters were calling for real change from the status quo – from his policies.  Indeed, before the vote, he himself said it was a referendum on him and his policies.

“Memo to the president: You lost....

“Obama’s failure to follow tradition and respect voters is par for the course. He spent much of his tenure pushing the bounds and overstepping his constitutional authority – through regulatory edicts and executive actions. So his latest power grab should come as no surprise.

“But it’s one thing for Obama to have delusions about the popularity of his agenda.  It’s quite another to try to preserve a discredited legacy by handcuffing America’s next democratically elected president.”

Leonid Bershidsky / Bloomberg

“One of President Barack Obama’s most important legacies is a sense that the U.S. is no longer the dominant global power: It can be ignored.  It’s a new reality that became apparent this year as various authoritarian regimes and populist movements have tested it out.

“President Vladimir Putin’s Russia has been at the forefront of the effort.  In the latest development...the foreign and defense ministers of Russia, Iran and Turkey met in Moscow to discuss a plan for Syria. The U.S. was not invited. Instead, the ministers adopted a statement saying the three countries were willing to serve as the guarantors of a deal between the Syrian government and opposition.  All other countries with ‘influence on the situation on the ground’ are welcome to join, the statement said.

“This is the kind of call the U.S. has grown accustomed to making during the post-Cold War decades of Pax Americana.  Now, three authoritarian regimes – one of them, Turkish President Recep Tayyip Erdogan’s, an increasingly nominal U.S. ally, and the other two open U.S. adversaries – feel empowered enough to assume their role in an area where perhaps the biggest threat to the West, the Islamic State, operates....

“Under Obama, the U.S. managed to project an image of a country focused entirely on its own interests, sometimes dressed up as values, but unwilling to stake much on defending them.  It managed to look passive-aggressive to both allies and foes.

“Proponents of a values-based U.S. foreign policy fear that Donald Trump will not pursue one, preferring a transactional approach.  That’s O.K. if the alternative is Obama’s insistence on values without strong action to back it up.  Perhaps the U.S. cannot afford to be more forceful: There is no electoral support for boots on the ground in the Middle East, much less for risking clashes with Russia or China. But that means the U.S. shouldn’t pretend to project liberal democratic principles internationally: It’ll just be an empty promise.

“Breaking the values mold and moving to transactional diplomacy isn’t an easy path, however.  It requires a clear understanding of U.S. business and military interests in every part of the world and of what the U.S. is willing to give up to secure these interests.  A transaction involves give and take – a concept that was ignored during the Pax Americana years.  Trump may be interested in working this way, but he’d need a different foreign policy community to play the new game:  To the existing one horse-trading is a foreign concept.”

Wall Street, part deux

The S&P/Case-Shiller home price index for October came in up 5.6%, (vs. 5.4% in September) with the 20-city index up 5.1% year-over-year.  Prices in Seattle lead the way the past 12 months, up 10.7%, with Portland up 10.3%.

But this data is before the sharp rise in mortgage rates for November and December so the next two months’ figures will be telling.  Thus far, home sales numbers, post-election, have been solid.

Friday, the Chicago Purchasing Managers Index for December came in at 54.6 (50 being the dividing line between growth and contraction), well below expectations, with slowing orders (worrisome).

We still await holiday-shopping figures for November and December, though we know brick-and-mortar traffic, by most estimates, was down about 10%, while comScore said online sales for the season were up 16-19%.  The National Retail Federation had forecast overall sales of +3.6%.

GDP in the fourth-quarter is still projected to be around 2%, which would be in line with the 2.1% average we have seen since the recession, the Obama economy, while the Commerce Department reports it was 2.8% from 2001 to 2007.

As for earnings, the current estimate is for a solid 2017, with better year-over-year comparisons.

As I alluded to above, one issue that is going to reemerge in 2017 is the federal deficit.  Back on Dec. 17, Thomas G. Donlan wrote the following in Barron’s on the topic.

“No matter who’s in the majority on Capitol Hill, the Congressional Budget Office always delivers the same Christmas card to all Washington insiders and outsiders. It’s titled, ‘Options for Reducing the Deficit.’  It ought to have a picture of a big lump of coal on the cover, for presidents and most of their congressional playmates have been naughty boys and girls.

“They are hyperenthusiastic consumers and unwilling savers.  The federal budget deficit reported for the fiscal year that ended on Sept. 30, 2016, was $587 billion, or 3.2% of gross domestic product.  It was the first increase in the deficit-to-GDP ratio since fiscal 2009.

“The national debt was reported to be 77% of GDP, up by three percentage points since 2015 and the highest ratio since 1950.  And that was merely what the government calls debt held by the public.  The debt held by the public’s trust funds, such as the Social Security trust fund, adds another $5 trillion, for true total debt of more than $19 trillion.

“This is a worsening problem, though some economists deny it. Even if the deficit cooperates and dips in this fiscal year and the next one, that’s the end of the beginning.  If nobody does anything for 10 years, the fiscal 2026 deficit will hit $1.2 trillion, and debt held by the public will reach $23 trillion, 86% of GDP. If nobody does anything for 30 years, debt held by the public will reach about 150% of GDP – if lenders are willing....

“How can we get away with this? The CBO isn’t sure.

“ ‘To put the federal budget on a sustainable long-term path, lawmakers would need to make significant policy changes – allowing revenues to rise more than they would under current law, reducing spending for large benefit programs to amounts below those currently projected, or adopting some combination of those approaches.’”

Spending is going to have to be cut in some areas and this will be big to many Americans, as Donlan concludes, “the losers won’t think (the cuts) are fair.”

Of course others say we can grow ourselves out of the deficit.

R. Glenn Hubbard, chairman of the Council of Economic Advisers under President George W. Bush, had some of the following in an op-ed for the New York Times on Tuesday.

“Resetting expectations for long-term growth requires policies that enhance productivity growth and support work. At the same time, a well-structured infrastructure program can augment aggregate demand in this transition, while bolstering productivity over time.

“Two building blocks to raise productivity are tax reform and regulatory reform.  Tax reform can raise investment and productivity by significantly reducing marginal tax rates on business income, while broadening the tax base.  There is no arrow in the policy quiver that dominates fundamental tax reform in raising incomes – economists estimate gains as large as a 0.5 percentage-point increase in economic growth annually for a decade.  These gains come principally from raising investment in the United States and reducing wasteful tax distortions of business planning.  Regulatory reform is a second building block for growth by weakening impediments to investment in energy and utilities, while overhauling financial regulation to improve credit availability for small and midsize firms.

“Work is vital for growth, incomes and social dignity.  Tax reform is a core element here, too – raising returns to work by reducing tax rates on incremental earnings.  But broader support for work is needed economically, and its absence figured in the understandable economic anxiety during the campaign.

“These additional building blocks provide the broader support for work. First, market-based health care reforms – widely analyzed before the Affordable Care Act’s more regulatory approach – can slow the rate of growth of health care costs. This slowing is important, as it permits compensation to workers to shift toward wages, raising incomes.

“Second, we should strengthen substantially the earned-income tax credit for childless workers to encourage and support entry-level work and the earnings-building skills that work provides.

“Third, current spending on unwieldy federal job training programs can be directed toward personal re-employment accounts for income support and enhanced personalized training for individuals who are most likely to experience long-lasting unemployment given economic dislocations from technological change or domestic or foreign competition....

“Early equity market gains after Mr. Trump’s election offer a vote of optimism in the potential impact of a different economic policy direction.

“Now, the right building blocks, action and communication can sustain that optimism and generate higher incomes and greater opportunity.”

Europe and Asia

There was literally zero sweeping economic news for the eurozone this week, but across the region, and the world, that will change in a big way early next week following the end of the fourth quarter and the year. 

Bigger picture, in a survey of business leaders in Germany by Reuters, all expressed fears about uncertainties, especially with elections in France and Germany and protectionist trends in some countries.  “Expect the unexpected,” the leader of the German Industry Association (BDI) told Reuters.  “The level of global uncertainty has increased as has the unpredictability.  Unfortunately I fear that won’t change very much in 2017.”

BDI President Ulrich Grillo said he fears political instability could increase due to a combination of growing self-doubt in the West, autocrats flexing their muscles elsewhere and the rise of populists. Anton Boerner, head of the German trade association (BGA), said all the external uncertainties were weighing on export firms.  “Nationalist trends are poison for society as a whole and Europe needs to be reminded of all that it has in common,” said Ingo Kramer, president of the Employers’ Association.  He said an increase in protectionism would be devastating for Germany, in particular, which relies on exports for about half of its economic output.  [Gernot Heller / Reuters]

Brexit, too, remains a major concern.

Eurobits

--Italy’s economy minister called the European Central Bank to task for nearly doubling its estimated capital shortfall for ailing Monte dei Paschi di Siena bank, which is being bailed out by the Italian government.

Pier Carlo Padoan said in a newspaper interview the ECB’s new capital target of nearly 9bn euro (8.8bn, $9.2bn), up from a 5bn gap previously indicated by the bank (which was based on the results of a 2015 stress test), was the result of a “very rigid stance” in its assessment of the bank’s risk profile.

The criticism is the ECB just suddenly came up with the new figure without warning (in a five-line letter to boot...on Christmas Day), while Italy has been working with Monte dei Paschi on a potential solution for months.  The higher capital requirement thus increases the cost of the bank’s rescue and now Italy has to pump 6.5bn euro to salvage the lender, this after creating a 20bn bank bailout fund for all of Italy’s struggling banks that are dealing with massive amounts of underperforming loans.

Recall, the rest of the money Monte dei Paschi needs will come from the forced conversion of its subordinated bonds into shares, in line with European rules on bank crises.

But the rescue, as I noted last week, also involves protecting Italy’s retail savers, who are heavily into Italian junior bank bonds (think CD-type instruments), by converting them to safe senior bonds, only this most likely runs afoul of EU rules, which you know the Germans won’t stand for, so there’s no guarantee the European Commission and the ECB will approve any final plan for Monte dei Paschi.  To be continued....

--Martin Schulz, the European Parliament president who is returning to German politics and was expected to run as the Social Democrats’ (SPD) candidate for chancellor next year, is not now doing so, according to Der Spiegel on Friday.

So this would clear the way for SPD chairman Sigmar Gabriel to be the party’s candidate to challenge Chancellor Angela Merkel and her bid for a fourth term.  The SPD is a junior partner in a grand coalition with Merkel’s conservatives.

A survey by pollster Forsa published on Dec. 28 put support for Merkel’s bloc at 38 percent, while the SPD is second at 20 percent.

Support for the anti-immigration Alternative for Germany (AfD) party is 12 percent.  [An Insa poll taken after the Berlin attack has AfD at 15.5%.]

Merkel is continuing to feel heat over the Christmas market catastrophe and one example of the issues she faces is contained in an article for the Wall Street Journal by Anton Troianovski.

The attacker, Anis Amri, was a 24-yeard old Tunisian who had been denied asylum in Germany, was supposed to be deported, but was allowed to travel around the country.

“As of Nov. 30, of the 32,714 Tunisian asylum seekers in the country, the government had determined that nearly 1,500 needed to be repatriated, but only 111 had been sent back to Tunisia, according to the German Interior Ministry.  The acceptance rate for Tunisian asylum requests was 0.8%, a ministry spokeswoman said.

“Ms. Merkel’s pledge to accelerate deportations may not be enough to quell the unease.  Germany’s failure to stop or deport Mr. Amri provides fodder for Merkel critics who claim that her government has lost control of law and order.”

A lawmaker for the AfD told the Journal: “The state has failed.  It’s almost as though the coordinated protection of the citizenry is politically undesirable.”

Germany is due to hold parliamentary elections in September.

--As the year ends and France gears up for its April 23/May 7 presidential election, Francois Fillon destroys the National Front’s Marine Le Pen in a run-off, 66-34, according to a Kantar Sofres poll.

In Asia, President Xi Jinping told a meeting of the Communist Party’s financial and economic leaders that China doesn’t need to meet the objective of 6.5% growth if doing so creates too much risk, according to a source at the meeting who then told Bloomberg.  Leaders instead said the economy would remain stable as long as employment stayed firm.

Most analysts have been talking about 6.5% growth next year, and that has been the word from official mouthpieces connected to the Economy Ministry.

But the alarm has definitely been sounded about unsustainable debt, with China’s debt-to-GDP ratio rising to about 270% this year, according to the source.  [Others place it closer to 250%, still awful.]

On a related note, the Chinese Academy of Social Sciences, a Communist Party think-tank, says the capital outflow from China shows no sign of abating, with Chinese foreign exchange reserves shrinking by about a quarter from $3.99 trillion in June 2014 to $3.05 trillion as of November.

China must “safeguard the foreign reserve pool” as this is a higher priority than propping up the yuan’s exchange rate, best left to market forces, said Yu Yongding of the CASS.

“The key issue is the foreign reserve,” Yu continued.  “If we keep guarding the currency rate, the reserve drops, and when it drops to an inadequate level, we will face even bigger depreciation pressure for the currency.”

Right on, Yu.  But it’s been a vicious circle.  Money is leaving as more citizens and companies rush to get their currency out before the yuan’s value deteriorates further.

One focus of the Chinese government in the coming years is an expansion of the railway system, to the tune of $500 billion by 2020, to bolster growth and improve connectivity across the country.

High-speed rail lines would expand by more than half over a five-year period, a boon to various Chinese suppliers.  China would also add 3,000 kilometers to its urban rail transit system.

In Japan, the core consumer price index for November came in -0.4% year-over-year, while it was -0.6% yoy in Tokyo, specifically, which is looked at closely, the worst deflation since Feb. 2013 there.  [Core in Japan doesn’t include fresh food.]

Household spending fell 1.5% in November, the ninth straight month of declines.

But the Bank of Japan remains upbeat on the economy overall.

Street Bytes

--On the week, the Dow Jones (and Japan’s Nikkei) both saw their seven-week winning streaks snapped as the Dow fell 0.9% to finish the year at 19762, while the S&P 500 lost 1.1% to 2238 and Nasdaq declined 1.5% to 5383.

The Dow failed to pierce 20000 at yearend after getting oh so close.

As for my 2017 prognostication, I’ll go with the Dow and S&P rising 10%, Nasdaq 7%.

--U.S. Treasury Yields

12/31/15

6-mo. 0.47%  2-yr. 1.05%  10-yr. 2.27%  30-yr. 3.02%

12/31/16

6-mo. 0.61%  2-yr. 1.19%  10-yr. 2.44%  30-yr. 3.07%

The above comparison masks the intra-year volatility as the 10-year bottomed at 1.37% (1.366%) in July and then shot up to 2.61% before rallying back some the past few weeks.

I’ll say the Federal Reserve raises interest rates four times in 2017.

--As of Monday, AAA reported that the national average for regular unleaded gasoline sat at $2.29 per gallon, 29 cents more year-over-year.

As for 2017, all eyes are on OPEC to see if it can stick to its six-month promise to cut 1.8 million b/d of crude.  OPIS, an oil information service, estimates compliance will be around 70%.

For the year, oil had its biggest annual percentage gain since 2009, with WTI closing at $53.89, up from $37.04 at the start of the year.

Crude prices have still basically halved since last topping $100 a barrel in July 2014.

--There were only 105 initial public offerings in 2016 – down from 275 in 2014, and the fewest since 2009.  The 105 took in just $18.9 billion, the smallest such haul since 2003, according to Renaissance Capital and Barron’s.  [Ernst & Young put it at 112 companies raising $21.3 billion this year, down more than 35% from the prior year.]

But Renaissance and Ernst & Young’s Global IPO Trends studies call for optimism in 2017, especially with the election behind us. 

Further, part of the issue this year was the sky-high valuations accorded high-profile firms, including Uber, Snapchat (aka Snap), Dropbox, Spotify and Airbnb.  There is a wide gap between what venture capitalists believe a company is worth and what IPO investors are willing to pay for it.

But for 2017, Snap has already filed for a $4-billion IPO that could value the company as high as $40 billion.

--Amazon.com Inc. said it shipped more than 1 billion items worldwide this holiday season, its best year ever, with the Amazon Echo home assistant and its smaller version, Echo Dot, topping the best-sellers list, according to Jeff Wilke, chief executive of Amazon’s worldwide consumer division.  Wilke said, “Despite our best efforts and ramped-up production, we still had trouble keeping (Echo and Echo Dot) in stock.”  The sales of the duo were nine times greater than last year, but the company didn’t give any specific numbers.

Another big seller for Amazon was the 72-pack Keurig K-Cups.

--President-elect Trump took credit on Wednesday for a decision by Sprint to add 5,000 jobs in the United States even though the company later said that the jobs were part of a previously announced commitment by Japan’s SoftBank, which owns a controlling stake in Sprint, to invest $50 billion in the United States and create 50,000 positions.

SoftBank is also a major investor in OneWeb, a satellite start-up that Trump said would create an additional 3,000 jobs in the United States.  But this too, like SoftBank’s $50 billion investment in the U.S., predates the election.

--Shares in Toshiba fell more than 40% this week after the Japanese titan announced it was facing a multibillion-dollar writedown at its U.S. nuclear division Westinghouse.  Shares in some of Japan’s biggest banks have also been sliding after the electronics-to-nuclear conglomerate raised the prospect of losses on its loans.

For example, Sumitomo Mitsui Trust has a particularly large exposure to Toshiba and its shares fell 4%.  Other banks fell similar amounts, all of which suggests some kind of restructuring at Toshiba seems inevitable.

The company’s banks have continually bailed it out after one business mishap after another, including accounting issues in recent years; like year’s biggie that led to top management being replaced after the company acknowledged it had improperly padded its results for years.

As reported by the Financial Times: “Toshiba’s goodwill issue relates to its U.S. nuclear business Westinghouse’s purchase last year of construction contractor Stone & Webster from Chicago Bridge & Iron (CB&I). It initially booked goodwill of $87m on the deal, but the rising cost of materials and goodwill to complete several nuclear plants in the U.S. mean the company’s assets are worth less than expected.

“Lower asset values would mean a higher figure for goodwill, which Toshiba would have to write off, hitting its net equity.”  And there are other issues.  Toshiba’s CEO blamed an inefficient labor force at Westinghouse amid the cost overruns in completing several reactors, including two for power utility Southern Co.

--Apple’s lead over Samsung in the holiday smartphone race shrunk this year – despite Samsung’s Galaxy Note 7 disaster, according to Yahoo’s Flurry Analytics.

The iPhone was still on top, claiming 44% of smartphone “activations” during the week leading up to Christmas, which is more than twice the 21% of total smartphone and tablet activations claimed by Samsung. 

But last year the ratio was 49-20, and in 2014, the year of the breakout iPhone 6 model – the iPhone’s market share surged to 51.3%.

On the other hand, both Apple and Samsung combined maintained their huge lead over competitors like LG, Huawei, Amazon, Xiaomi and Motorola.

--Airbus and Boeing have major issues with their four-engine long-haul planes.  The heyday for them is ending.  Airbus Group SE announced it was cutting production again for its A380 superjumbo and, as the Wall Street Journal reports, “faces the prospect of losing money on the plane again already next year.”

Boeing has had to cut production plans for its 747-8 jumbo jet due to slack demand.

Talk about a slide in demand, Airbus built 27 A380s last year and plans to produce just 12 a year starting in 2018.  The company was hoping to break-even on the 20 it is scheduled to deliver next year.

But now Airbus is delaying six of the A380s for next year to 2018 and another six from 2018 to 2019.

It doesn’t help that Emirates Airlines, which was to take delivery of the first Rolls-Royce-powered A380s, has issues due to concerns with the engine, though Airbus says they’ve been resolved.

The A380 seats on average 544 passengers and lists for $432.6 million. Airlines are worried they’ll struggle to fill the seats.

--Federal prosecutors have charged three Chinese citizens with trading on confidential corporate information that was obtained by hacking into the networks and servers of U.S. law firms, as announced by U.S. Attorney Preet Bharara in Manhattan (we love Preet!).

Two of the three are residents of Macau, the other from Changsha, China.  Prosecutors said that beginning in April 2014, the trio obtained inside information by hacking two U.S. law firms and targeting the email accounts of partners who worked on high-profile mergers and acquisitions.  They then bought shares of at least five publicly traded companies before announcements they would be acquired, netting them over $4 million in profits.

Bharara said this should “serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking.”

But only one of the three was arrested (in Hong Kong), while the other two are not in custody and there is zero guarantee any of them will be extradited.

Previously, the Wall Street Journal reported last spring that federal investigators were probing hacks of Cravath, Swaine & Moore LLP and Weil, Gotshal & Manges LLP, which represent Wall Street banks and many Fortune 500 companies.  These two not fit Bharara’s profile

--Brazil’s economy shed 75,000 jobs in November, far worse than expected as the country reels from a second straight year of recession.  GDP is expected to shrink more than 3% for a second straight year in 2016.

--Russia’s December manufacturing PMI came in at 53.7, according to Markit, the best in 69 months.

--Some analysts are wondering what the impact of a new film, “The Founder,” which looks at McDonald’s Ray Kroc, will have on the business.  It is not a pretty portrayal of a complicated, driven salesman-turned-self-proclaimed founder.

The film is set for release nationwide Jan. 20 and stars Michael Keaton as Kroc, with Keaton generating Oscar buzz for the role.

Kroc was a 52-year-old milkshake machine salesman when he first encountered McDonald’s, opened by two brothers, Richard and Maurice McDonald, in California.

Amazed by the efficiency of the operation and speed of service, Kroc secured a deal with the two to open a franchise in Des Plaines, Illinois in 1955.

The McDonald brothers and their descendants have long claimed Kroc swindled them, eventually squeezing them out of the business.

In 1961, Kroc paid the brothers $2.7 million for the rights to the McDonald’s name.

As reported by the Chicago Tribune’s Samantha Bomkamp, “The filmmakers characterize Kroc, who died in 1984, at times as a power-hungry, unscrupulous salesman desperate to expand the McDonald’s brand.”

--Shares in hunting and fishing retailer Cabela’s fell sharply on Friday amid doubts it’s proposed $5.5bn takeover by rival Bass Pro Shops will gain approval as the Federal Trade Commission asks for more information.  Part of the issue is Capital One Financial gaining approval for acquiring the company’s credit card business within the time frame allotted for closing the deal in October.

--Luxury real estate sales in Manhattan dropped 18% in 2016, according to realtor Donna Olshan’s year-end market report.

Olshan reports weekly on contracts over $4 million and notes, “The decline reflects classic price resistance.”  Properties are also languishing on the market for more than two months longer in 2016 as compared to 2015.

76% of all apartments that sold for $4 million or more in 2016 were condos, according to Olshan.  [Crain’s New York Business]

--While luxury Manhattan real estate may be falling, Wall Street’s top bond traders, after seeing their compensation fall sharply last year, are expected to see it triple in 2016, to $1 million or more for some senior traders, according to a study by headhunting firm Options Group, a copy of which was obtained by the New York Post.

Bond traders profited from the big rise in the yield on the 10-year, which sparked an increase in activity.

--Owing to the tumultuous election in 2016, the three major cable news networks had their largest audiences ever, with year-end numbers from Nielsen showing that Fox News Channel was the most-watched network in all of cable with an average of 2.43 million viewers in prime time, up 36% over last year.  Only the four major broadcast networks had a larger audience.

CNN averaged 1.29 million viewers, up 77%, while MSNBC saw an 88% gain with 1.1 million viewers.

Fox Business Network was also helped by the political coverage as it had its best year ever, with the audience up 83%, topping CNBC for the first time in the fourth quarter.  Wow!  [Mused the editor, who barring a major news item has CNBC on all day until the market closes and never watches FBN.]

But the growing online audience isn’t measured in the Nielsen ratings, which is supposed to be rectified soon, and we know online viewing is cutting into traditional TV viewing overall, with prime-time TV usage in the key 18-to-49 demographic down 5% in 2016. Cable TV usage among teenagers declined 13%.  [Stephen Battaglio / Los Angeles Times]

--NBC’s “Today” show eclipsed ABC’s “Good Morning America” in popularity for the first month that did not include the Olympics in four and a half years.

“Today” averaged 4.79 million viewers in December to 4.69 million for GMA, according to Nielsen.  CBS’ “CBS This Morning” has 3.77 million.

NBC has two stunts for January, with Katie Couric and Meredith Vieira returning to co-host one week each while Savannah Guthrie out on maternity leave.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: Thursday brought the announcement that the Syrian government and rebel groups had agreed to a ceasefire, effective midnight on Thursday. The deal was announced by Russia’s President Vladimir Putin and confirmed by Turkey.  The two nations will act as guarantors.

Syria’s main opposition body, the High Negotiations Committee (HNC) confirmed the deal, which was to exclude jihadist groups.  Under the HNC umbrella you have the Free Syrian Army (FSA), whose spokesman said there were 13 armed opposition factions in all who had signed up.

Not part of the agreement are Islamic State “and the groups affiliated to them.”  Additionally, Jabhat Fateh al-Sham (formerly the Nusra Front) was excluded.  But then some rebel officials told Reuters it was part of the deal, which is an example of the complications that lie ahead.  JFS is linked to Idlib province groups that have signed up to the truce, you see.

And late Thursday, one of the most powerful rebel groups, Ahrar al-Sham, said it rejected the deal after, earlier, Moscow said it was part of it.

Plus, the YPG, along with other Kurdish militias, is also not part of the ceasefire, but they control a large part of northern Syria along the Turkish border, and the YPG is regarded by Turkey as a terrorist organization.

If the truce holds, then peace talks would commence within the month in Kazakhstan, and as you’ve seen thus far, the United States is not as yet involved in the process.  What an embarrassment.

Announcing the deal in Moscow, Vladimir Putin said there were three key points:

--Ceasefire between the two sides.
--Measures for overseeing the truce.
--An agreement to start peace talks.

While the truce was immediately violated, within hours, it has a shot to last, relatively speaking, because the rebels have limited resources at this point.

Syrian Foreign Minister Walid Muallem said there was a “real chance of finding a political solution” but that the rebels must distance themselves from the likes of ISIS and former al-Qaeda fighters.

For his part, Turkish President Erdogan said a “window of opportunity” had been created that “should not be wasted.”

Eventually, the blueprint for talks includes a system of federal government within zones of influence; regional autonomy within a federal structure.  Turkey would have informal zone of influence in the north, Syria (Assad) would control the federal center with Assad remaining president for at least a few years.  Russia would maintain its strategic bases in the west, including on the Mediterranean.

But in public, Turkey remains strongly anti-Assad and Turkey’s foreign minister said on Wednesday that a political transition with Assad was impossible.

Ergo, I’m going to try not to waste my time, or yours, when it comes to any talks because a final solution, if ever achieved, is years away.

I do just have to add that what Iran has gained in this conflict is a secure land corridor that connects Tehran to Beirut, allowing it to send arms to Hizbullah in Lebanon (for the latter’s coming war with Israel).

Finally, one worrisome development.  Turkish President Erdogan said he has evidence that U.S.-led coalition forces give support to terrorist groups including ISIS and Kurdish militant groups.  “They were accusing us of supporting Daesh (Islamic State),” he told a press conference on Tuesday.  “Now they give support to terrorist groups.”

Yup, relations between Washington and Ankara are not good, as Erdogan moves rapidly towards Moscow.  [I’m not saying he is in anyway accurate with his description.]

Richard Cohen / Washington Post

“If Dec. 7, 1941, is the day that Franklin D. Roosevelt said ‘will live in infamy,’ then Dec. 20, 2016, has got to be a close second.  No Americans died that day as they did at Pearl Harbor, but the American Century, as TIME magazine founder Henry Luce called it, came to a crashing end.  Turkey, Iran and Russia met in Moscow to settle matters in the Middle East.  The United States wasn’t even asked to the meeting.

“Winston Churchill said in 1942 that he had not become Great Britain’s ‘First Minister in order to preside over the liquidation of the British Empire.’  Nonetheless, by the end of the 1940s, much of the empire was gone.  Churchill was an unapologetic colonialist, but he was up against liberation movements of all kinds, not to mention the antipathy of the United States to imperialist ambitions – in short, history itself.  Churchill had a marvelous way with words, and greatness accompanied him like a shadow, but in certain ways he was a 19th-century man wandering, confounded, in the 20th.

“Barack Obama is quite the reverse.  He is a 21stcentury man who never quite appreciated the lessons of the 20th.  He has been all too happy to preside over the loss of American influence. Aleppo, Syria, now a pile of rubble, is where countless died – as did American influence.  The Russians polished it off from the air, doing for the Syrian regime what the United States could not figure out how to do for the rebels. The city hemorrhaged civilian dead, and America, once the preeminent power in the region, did virtually nothing.

“It could be that Obama was right....

“ ‘Time will tell’ is the appropriate cliché.  But I, along with others, thought the United States could have limited the bloodletting, that it could have established no-fly zones where Syrian government helicopters could not have dropped barrel bombs.  It could also have established safe zones for refugees.  The Russians managed to do what they wanted to do. Why not the United States?

“The answer has always been clear to me – Obama did not care enough.  Not from him ever came a thundering demand that Russia and Iran get out and stay out.  Behind the arguably persuasive reasons to do little in Syria was an emotional coldness: This was not Obama’s fight.

“Say what you will about Donald Trump, he cares. He cares about things I don’t, and he has some awful ideas, and he is an amoral man in so many ways.  But, in contrast to Obama, his emotions are no mystery....

“Hillary Clinton lost the election for a host of reasons, not the least of them her shortcomings as a candidate....But Clinton had to defend an administration that was cold to the touch....(Obama) waved a droopy flag. He did not want to make America great again. It was great enough for him already.

“That coolness, that no-drama Obama, cost lives in Syria.  Instead of rallying the United States to a worthy cause – intervening to save lives and avoid a refugee crisis that is still destabilizing Europe – he threw in the towel. The banner he flew was one of American diminishment. One could agree.  One could not be proud.

“Since the end of World War II, American leadership has been essential to maintain world peace.  Whether we liked it or not, we were the world’s policeman.  There was no other cop on the beat.  Now that leadership is gone.  So, increasingly, will be peace.”

In Iraq, Iraqi forces launched the second phase of the Mosul offensive against ISIS, as the military tries to break the deadlock in the east of the city.

Basically, with the government restricting foreign media access to the front lines, it is difficult to know what the heck is going on there, aside from the fact that at least one million civilians are suffering immensely.  There have been reports, however, that government forces have suffered heavy casualties (numbers unknown) in ISIS counterattacks.  Coalition airstrikes also appear to have struck civilians in one or two instances.

Mosul is a hell-hole to fight in.  Remember, parts of the city date back two millennia and consist of narrow alleyways that are prime ground for ISIS fighters, who are also using car bombs.

Iraqi Prime Minister Haider al-Abadi said on Tuesday it would take three months to eliminate Islamic State.

Israel: By refusing to block a contentious UN Security Council resolution that demands the Jewish state cease all development in occupied territories last Friday, President Obama not only took a parting shot at Israeli Prime Minister Benjamin Netanyahu, it is believed the president stabbed Israel in the back.

The hostile measure passed 14-0, with U.S. Ambassador Samantha Power abstaining.  The U.S. had vetoed a similar resolution in 2011 and a “no” vote by the U.S. or any of the other four permanent members of the council – Russia, China, France or Great Britain – would have killed it.

The White House said last Friday that Obama made the final decision.

“Our position is that there is one president at a time,” said Ben Rhodes, the White House national security adviser.  “President Obama is the president until Jan. 20, and we are taking this action of course as U.S. policy.”

Rhodes then said he was “certain” President-elect Donald Trump will take a different tack when he becomes commander in chief.

Trump then tweeted after the vote, “As to the UN, things will be different after Jan. 20th,” Trump having sided with Israel a day before by opposing the resolution.

A vote had originally been planned for Thursday, Egypt having first introduced the resolution in cooperation with the Palestinians to consider settlement building in East Jerusalem and the occupied West Bank “a flagrant violation under international law.”

But Egypt backed off under pressure from Israel and a phone call from Trump.

Netanyahu, hearing that the White House may either abstain or not veto the measure, began a flurry of diplomatic maneuvering but to no avail.

Egypt did back giving Trump a chance to weigh in as president, but then four other members of the Security Council – New Zealand, Malaysia, Venezuela and Senegal – went ahead and reintroduced it.

Addressing the council afterward, Ambassador Power said the “Security Council reaffirmed its established consensus that settlements have no legal validity.”

“The United States has been sending the message that the settlements must stop – privately and publicly – for nearly five decades” she continued.  “So our vote today is fully in line with the bipartisan history of how American presidents have approached both the issue – and the role of this body.”

Power said the settlements have gotten out of hand and endanger the two-state solution.

“One has to make a choice between settlements and separation,” Power said.

But both Democrats and Republicans were united against the White House.

Incoming Democratic Senate Minority Leader Charles Schumer of New York slammed the abstention for letting Israel twist in the wind.

“Whatever one’s views are on settlements, the UN is the wrong forum to settle these issues. The UN has been a fervently anti-Israel body since the days of ‘Zionism is racism,’ and, unfortunately, that fervor has never diminished,” Schumer said in a statement.

“Knowing this, past administrations – both Democratic and Republican – have protected Israel from the vagaries of this biased institution.”

Benjamin Netanyahu blasted the vote.

“Israel rejects this shameful anti-Israel resolution at the UN and will not abide by its terms,” he said.

The Palestinian Authority called the anti-Israel action “a day of victory.”

Peter Baker / New York Times

“When President Obama and Prime Minister Benjamin Netanyahu of Israel met in September for the last time before Mr. Obama leaves office, the session was marked by forced smiles and strained jokes about playing golf in retirement, as if bygones were bygones after nearly eight years of clawing conflict.

“Of course it was never going to end that way.  How could it? The narrative of the tense and tetchy relationship between liberal president and conservative prime minister instead reached a climax in a hyper-politicized showdown over war, peace, justice, security, human rights and, at last, the very meaning of international friendship.

“Mr. Obama’s decision on Friday not to block a United Nations Security Council resolution condemning Israeli settlements laid bare all the grievances the two men have nursed since shortly after they took office in 2009.  For Mr. Netanyahu, it was the final betrayal by a president who was supposed to be an ally but never really was.  For Mr. Obama, it was the inevitable result of Mr. Netanyahu’s own stubborn defiance of international concerns with his policies....

“An Israeli official, insisting on anonymity to maintain the veneer of diplomatic protocol, gave a statement to multiple reporters on Friday blasting Mr. Obama and his secretary of state, John Kerry, by name.

“ ‘President Obama and Secretary Kerry are behind this shameful move against Israel at the UN,’ the official said.  ‘The U.S. administration secretly cooked up with the Palestinians an extreme anti-Israeli resolution behind Israel’s back which would be a tailwind for terror and boycotts and effectively make the Western Wall occupied Palestinian territory.’....

“ ‘We tried everything,’ Mr. Rhodes said.  In effect, he added just after Friday’s United Nations vote, Mr. Netanyahu had it coming.  ‘Prime Minister Netanyahu had the opportunity to pursue policies that would have led to a different outcome today,’ he said.  ‘Absent this acceleration of settlement activity, absent the type of rhetoric we’ve seen out of the current Israeli government, I think the United States likely would have taken a different view.’”

Elliott Abrams, Michael Singh / Washington Post

“Sizing up the Israeli-Palestinian conflict upon assuming office, President Obama decided Israeli settlements were the problem, and he insisted on a total freeze on construction.  What followed were eight years of deadlock, the deterioration of U.S. relations with Israelis and Palestinians alike, and widespread disillusionment with the two-state solution.

“Despite this track record, Obama is leaving off where he began: In a departure from Washington’s typical role as Israel’s defender at the United Nations, the United States refused to use its veto and allowed the adoption of a Security Council resolution condemning Israeli settlements.

“For his part, President-elect Donald Trump had urged that the United States veto the resolution.  Trump’s argument wasn’t merely that Obama should defer to his successor’s views or that the resolution was anti-Israel.  It was that the measure would impede rather than advance Israeli-Palestinian peace – and he was right.

“First, the resolution fails to distinguish between construction in the so-called blocs – that is, settlements west of Israel’s security barrier in which about 80 percent of settlers live – and construction east of the barrier.  Building in the major blocs is relatively uncontroversial in Israel and rarely the subject of Palestinian protests.

“President George W. Bush sought to move peace talks forward in 2004 by asserting what all sides had already tacitly acknowledged – that there could be no return to the 1967 lines in light of the blocs’ existence, and that any negotiated border would have to reflect this reality.  By refusing to confirm Bush’s position, Obama dragged the process backward and harmfully reopened old debates.

“This regression is enshrined in the resolution, which ‘underlines that it will not recognize any changes’ to the armistice lines, and demands the cessation of all settlement activities everywhere. This is unnecessary and unrealistic – Israelis will not bring life to a halt in towns that no one disputes they will keep – and is more likely to obstruct than facilitate the revival of peace talks.

“Second, the resolution rewards those who argue for ‘internationalization’ of the conflict – that is, for using international forums such as the UN, European Union or International Criminal Court to impose terms on Israel, rather than resorting to negotiations.

“For the resolution does indeed dictate terms to Israel, not merely condemn settlement activity.  It adopts, as noted above, the position that the 1967 lines, rather than today’s realities, should form the basis of talks – despite the fact that many Israeli communities east of those lines are decades old and that Jews have had a near-continuous presence in the West Bank for thousands of years....

“Finally, U.S. support for the resolution lends legitimacy and encouragement to the UN’s disproportionate and one-sided focus on Israel.  The United States has historically criticized this bias, which borders on the absurd: For example, Israel was the only country criticized by a special UN commission on the status of women, despite being the only state in its region where women enjoy equal rights....

“A U.S. veto of the resolution would not have been an endorsement of settlements. Rather, it would have been an affirmation that this is an issue that can only effectively be addressed through negotiations.  The best way to encourage those negotiations is not to prejudge their outcome or set timetables, but to create the right regional conditions for them by countering spoilers such as Iran and the Islamic State who oppose peaceful coexistence, as well as the right local conditions for them by reinvigorating programs aimed at building confidence through economic and security cooperation.”

Editorial / Washington Post

“President Obama’s decision to abstain on a UN Security Council resolution condemning Israeli settlements reverses decades of practice by both Democratic and Republican presidents.  The United States vetoed past resolutions on the grounds that they unreasonably singled out Jewish communities in occupied territories as an obstacle to Middle East peace, and that UN action was more likely to impede than advance negotiations between Israelis and Palestinians.

“The measure, approved 14 to 0 by the Security Council Friday, is subject to the same criticism: It will encourage Palestinians to pursue more international sanctions against Israel rather than seriously consider the concessions necessary for statehood, and it will give a boost to the international boycott and divestment movement against the Jewish state, which has become a rallying cause for anti-Zionists.  At the same time, it will almost certainly not stop Israeli construction in the West Bank, much less in East Jerusalem, where Jewish housing was also deemed by the resolution to be ‘a flagrant violation of international law.’

“By abstaining, the administration did not explicitly support that position, which has not been U.S. policy since the Carter administration. In explaining the vote, U.S. Ambassador Samantha Power points out that the council was sanctioning Israel even while failing to take action to stop a potential genocide in South Sudan or the slaughter in Aleppo, Syria.  Yet in failing to veto the measure, the Obama administration set itself apart both from previous administrations and from the incoming presidency of Donald Trump, who spoke out strongly against the resolution.

“A lame-duck White House may feel a radical change in policy is justified by Israel’s shift to the right under Prime Minister Benjamin Netanyahu; Israel’s governing coalition is supporting legislation that would legalize dozens of settlements that Israel itself defines as illegal, because they were constructed on private Palestinian property.  Mr. Netanyahu supported a partial settlement freeze for 10 months in 2009 and 2010 at Mr. Obama’s behest, but has since allowed construction, including in some areas deep in the West Bank.

“Nevertheless, settlements do not explain the administration’s repeated failures to broker an Israeli-Palestinian peace.  The Palestinian Authority under Mahmoud Abbas proved unwilling to negotiate seriously even during the settlement freeze, and it refused to accept a framework for negotiations painstakingly drawn up by Secretary of State John F. Kerry in 2014.  In past negotiations, both sides have acknowledged that any deal will involve the annexation by Israel of settlements near its borders, where most of the current construction takes place – something the UN resolution, which was pressed by the Palestinians, did not acknowledge or take into account.

“Israeli officials charged that the abstention represented a vindictive parting shot by Mr. Obama at Mr. Netanyahu, with whom he has feuded more bitterly than he did with most U.S. adversaries.  The vote could also be seen as an attempt to preempt Mr. Trump, who appears ready to shift U.S. policy to the opposite extreme after naming a militant advocate of the settlements as his ambassador to Israel.  Whatever the motivation, Mr. Obama’s gesture is likely to do more harm than good.”

Editorial / Wall Street Journal

“The decision by the United States to abstain from a United Nations Security Council resolution condemning Israel over the settlements on the West Bank is one of the most significant, defining moments of the Obama Presidency.

“It defines this President’s extraordinary ability to transform matters of public policy into personal pique at adversaries. And it defines the reality of the international left’s implacable opposition to the Israeli state....

“As was widely reported Friday after the UN vote, the White House decided to abstain – thereby allowing the pro-Palestinian resolution to pass – in retaliation against the intervention by Messrs. Netanyahu and Trump.

“Mr. Obama’s animus toward Prime Minister Netanyahu is well known.  Apparently Mr. Obama took it as an affront that the President-elect would express an opinion about this week’s UN resolution.

“It is important, though, to see this U.S. abstention as more significant than merely Mr. Obama’s petulance.  What it reveals clearly is the Obama Administration’s animus against the state of Israel itself.  No longer needing Jewish votes, Mr. Obama was free, finally, to punish the Jewish state in a way no previous President has done.

“No effort to rescind the resolution, which calls the settlements a violation of ‘international law,’ will succeed because of Russia’s and China’s vetoes.

“Instead, the resolution will live on as Barack Obama’s cat’s paw, offering support in every European capital, international institution and U.S. university campus to bully Israel with the Boycott, Divestment and Sanctions movement.

“Senate Minority Leader Chuck Schumer implored the Administration to veto the resolution, noting rightly that it represents nothing more than the ‘Zionism is racism’ bias at the UN.  Let Senator Schumer note the true nature of his party’s left wing.

“House Speaker Paul Ryan called the Administration’s action ‘shameful.’ Senator Lindsey Graham said he will form a bipartisan coalition to suspend or reduce U.S. financial support for the UN.  That should proceed.

“For Donald Trump, meet your State Department.  This is what State’s permanent bureaucrats believe, this is what they want, and Barack Obama delivered it to them.

“Tweets won’t change this now-inbred hostility to America’s oldest democratic ally in the Middle East.  Mr. Obama’s pique, however, has made it crystal clear to the new Administration where the lines in the sand are drawn.”

Prime Minister Netanyahu instructed his ministers to travel less in coming days to countries that backed the resolution, and he canceled a visit to Israel by Volodymyr Groysman, his Ukrainian counterpart, in what was to be Groysman’s first official visit to the Jewish state.

Israel is also suspending some of its funding to the UN, while Netanyahu in a speech on Saturday warned of further diplomatic and economic retaliation against countries that opposed Israel in international bodies.

“The resolution that was passed at the UN yesterday is part of the swan song of the old world that is biased against Israel but, my friends, we are entering a new era,” Netanyahu said at a Hanukkah candle-lighting ceremony.  “And just as President-elect Trump said yesterday, it will happen much sooner than you think.”

“I would like to tell you that the resolution that was adopted, not only doesn’t bring peace closer, it drives it further away.  It hurts justice; it hurts the truth. Think about this absurdity, half a million human beings are being slaughtered in Syria. Tens of thousands are being butchered in Sudan. The entire Middle East is going up in flames and the Obama administration and the Security Council choose to gang up on the only democracy in the Middle east – the State of Israel.  What a disgrace.”

Speaking ahead of a weekly cabinet meeting on Sunday, Netanyahu accused Obama of orchestrating the UN resolution.

“From the information that we have, we have no doubt that the Obama administration initiated it, stood behind it, coordinated on the wording and demanded that it be passed,” he said.

Netanyahu said: “And, as I told [Sec. of State] John Kerry on Thursday [12/22], friends don’t take friends to the Security Council.”

Back to Republican Sen. Lindsey Graham: “The United Nations will regret this vote and I hope the Obama administration will realize the massive mistake they made on their way out of the door....

“I anticipate this vote will create a backlash in Congress against the United Nations.  The organization is increasingly viewed as anti-Semitic and seems to have lost all sense of proportionality.  I will do everything in my power, working with the new administration and Congress, to leave no doubt about where America stands when it comes to the peace process and where we stand with the only true democracy in the Middle East, Israel.”

Senate Majority Leader Mitch McConnell called the abstention “a failure of leadership and judgment” and pledged to work with the incoming administration to reassure Israel.

Paul Ryan: “Today’s vote is a blow to peace that sets a dangerous precedent for further diplomatic efforts to isolate and demonize Israel.  Our unified Republican government will work to reverse the damage done by this administration, and rebuild our alliance with Israel.”

Democratic Sen. Ron Wyden also slammed the vote: “I am deeply disappointed that the administration set aside longstanding U.S. policy to allow such a one-sided resolution to pass,” Wyden said in a statement.  “Actions like this will only take us further from the peace we all want to see.”

Rights groups, however, which have long considered the settlements a violation of human rights, came to Obama’s defense.

Human Rights Watch: “The U.S. abstention is a welcome shift away from past practice of using its Security Council veto to shield Israel from criticism despite longstanding U.S. policy opposing settlements,” Louis Charbonneau, UN director at Human Rights Watch, said in a statement.  “Indications that President-elect Trump may change U.S. policy on settlements reinforces the need for a steadfast Security Council position.”

Aside from what should be a flurry of action when Congress convenes next week, on Jan. 15, days before President Obama leaves office, France is expected to host a Mideast conference where dozens of countries may endorse an international framework for peace between Israel and the Palestinians. Netanyahu vehemently opposes such activity, saying it undermines the negotiating process.

Netanyahu has repeatedly called on Mahmoud Abbas to meet for direct talks without preconditions. Abbas has refused unless Israel ends settlement construction first.

Wednesday, Secretary of State John Kerry gave a 70-minute speech on the peace process, warning that a two-state solution between Israel and the Palestinians was in grave jeopardy.  Most of the speech focused on Israel’s settlement activity in the West Bank and in East Jerusalem, which he characterized as creating an “irreversible one-state reality.”

Kerry said: “The Israeli prime minister publicly supports a two-state solution, but his current coalition is the most right-wing in Israeli history with an agenda driven by the most extreme elements.

“The result is that policies of this government, which the prime minister himself just described as more committed to settlements than any in Israel’s history, are leading in the opposite direction. They are leading towards one state.”

Prime Minister Netanyahu said he was disappointed with the speech, which he said was “unbalanced” and “obsessively focused” on settlements.

Kerry “paid lip service to the unremitting Palestinian campaign of terrorism,” the prime minister said.

Netanyahu added that the conflict centered on the Palestinians’ refusal to recognize Israel’s right to exist, but Mr. Kerry “does not see the simple truth.”

Democratic Sen. Chuck Schumer rebuked Kerry.

“While Secretary Kerry mentioned Gaza in his speech, he seems to have forgotten the history of the settlements in Gaza, where the Israeli government forced settlers to withdraw from all settlements and the Palestinians responded by sending rockets from Gaza into Israel,” Schumer said, mocking Kerry.  “This is something that people of all political stripes in Israel vividly remember.

“While he may not have intended it, I fear Secretary Kerry, in his speech and action at the UN, has emboldened extremists on both sides,” Schumer added.

Donald Trump tweeted: “They used to have a great friend in the U.S., but...not anymore. The beginning of the end was the horrible Iran deal, and now this (UN)!  Stay strong Israel, January 20th is fast approaching!”

Netanyahu replied on Twitter: “President-elect Trump, thank you for your warm friendship and your clear-cut support for Israel.”

Editorial / Washington Post

“The Obama administration is ending eight years of failed Middle East diplomacy exactly where it began in 2009 – with an exaggerated and misguided focus on Israeli settlement construction.  As he railed at the continuing growth of West Bank Jewish housing on Wednesday with a prolixity that Fidel Castro would have admired, Secretary of State John F. Kerry sounded a lot like President Obama during the early months of his first term, when he insisted that the Israeli government freeze all construction as a starting point for negotiations on a Palestinian state. The president’s demand had the effect of encouraging Palestinian leaders to resist all concessions while seeking to delegitimize Israel internationally; the peace talks went nowhere even when Prime Minister Benjamin Netanyahu imposed a temporary construction freeze.

“Mr. Kerry’s speech was, above all, a vivid demonstration of the administration’s inability to learn from its mistakes or adjust the ideological tenets that Mr. Obama brought to office.  If it has an effect, it will be to do more damage to the ‘two-state solution’ that Mr. Kerry claimed to be defending.  His histrionic rhetoric about ‘cementing an irreversible one-state reality’ will be welcomed by extremists among both Israelis and Palestinians, who are eager to declare the two-state option dead.  The one-staters include members of the incoming Trump administration, which appears headed toward flipping U.S. policy to the opposite extreme, of cheerleading for settlements – a position that would be no less blinkered and self-defeating than Mr. Obama’s....

“What blocks the two-state solution is not demography, but a failure of leadership among Israelis and Palestinians. Palestinian President Mahmoud Abbas walked away from a generous Israeli statehood offer eight years ago and in 2014 refused to accept the framework for a settlement that Mr. Kerry outlined on Wednesday.  Though he has endorsed two states, Mr. Netanyahu has been unwilling to stand up to nationalists to his right.

“It’s unlikely that Israeli and Palestinian leaders who are willing and able to reach agreement will emerge in the near future. That’s why the best U.S. policy would be to work to preserve the option of Palestinian statehood for the longer term, by combating Palestinian corruption and political dysfunction and by encouraging Israel to facilitate the growth of a viable West Bank economy.  A new U.S. administration could also work to strike a deal on settlements that restricted all growth to areas that would not be part of a Palestinian state. That would require the sort of pragmatic clear-headedness that for eight years eluded the Obama administration.”

Charles Krauthammer / Washington Post

When the chips are down, I have Israel’s back.”

- Barack Obama, AIPAC conference, March 4, 2012

“The audience – overwhelmingly Jewish, passionately pro-Israel and supremely gullible – applauded wildly.  Four years later – his last election behind him, with a month to go in office and with no need to fool Jew or Gentile again – Obama took the measure of Israel’s back and slid a knife into it.

“People don’t quite understand the damage done to Israel by the U.S. abstention that permitted passage of a U.N. Security Council resolution condemning Israel over settlements. The administration pretends this is nothing but a restatement of longstanding U.S. opposition to settlements.

“Nonsense.  For the past 35 years, every administration, including a reelection-seeking Obama himself in 2011, has protected Israel with the U.S. veto because such a Security Council resolution gives immense legal ammunition to every boycotter, anti-Semite and zealous European prosecutor to penalize and punish Israelis.

“An ordinary Israeli who lives or works in the Old City of Jerusalem becomes an international pariah, a potential outlaw.  To say nothing of the soldiers of Israel’s citizen army.  ‘Every pilot and every officer and every soldier,’ said a confidant of Palestinian leader Mahmoud Abbas, ‘we are waiting for him at The Hague,’ i.e. the International Criminal Court.

“Moreover, the resolution undermines the very foundation of a half-century of American Middle East policy.  What becomes of ‘land for peace’ if the territories that Israel was to have traded for peace are, in advance, declared to be Palestinian land to which Israel has no claim?

“The peace parameters enunciated so ostentatiously by Secretary of State John Kerry on Wednesday are nearly identical to the Clinton parameters that Yasser Arafat was offered and rejected in 2000 and that Abbas was offered by Prime Minister Ehud Olmert in 2008.  Abbas, too, walked away.

“Kerry mentioned none of this because it undermines his blame-Israel narrative.  Yet Palestinian rejectionism works.  The Security Council just declared the territories legally Palestinian – without the Palestinians having to concede anything, let alone peace.  What incentive do the Palestinians have to negotiate when they can get the terms – and territory – they seek handed to them for free if they hold out long enough?....

“It’s the third category of ‘settlement’ that is the most contentious and that Security Council Resolution 2334 explicitly condemns: East Jerusalem.  This is not just scandalous; it’s absurd.  America acquiesces to a declaration that, as a matter of international law, the Jewish state has no claim on the Western Wall, the Temple Mount, indeed the entire Jewish Quarter of Jerusalem.  They belong to Palestine.  The Temple Mount is the most sacred site in all of Judaism.  That it should be declared foreign to the Jewish people is as if the Security Council declared Mecca and Medina to be territory to which Islam has no claim.  Such is the Orwellian universe Israel inhabits.

“At the very least, Obama should have insisted that any reference to East Jerusalem be dropped from the resolution or face a U.S. veto.  Why did he not? It’s incomprehensible – except as a parting shot of personal revenge on Benjamin Netanyahu.  Or perhaps as a revelation of a deep-seated antipathy to Israel that simply awaited a safe political interval for public expression.

“Another legacy moment for Barack Obama.  And his most shameful.”

Bret Stephens / Wall Street Journal

“Barack Obama’s decision to abstain from, and therefore allow, last week’s vote to censure Israel at the UN Security Council is a fitting capstone for what’s left of his foreign policy.  Strategic half-measures, underhanded tactics and moralizing gestures have been the president’s style from the beginning.  Israelis aren’t the only people to feel betrayed by the results.

“Also betrayed: Iranians, whose 2009 Green Revolution in heroic protest of a stolen election Mr. Obama conspicuously failed to endorse for fear of offending the ruling theocracy.

“Iraqis, who were assured of a diplomatic surge to consolidate the gains of the military surge, but who ceased to be of any interest to Mr. Obama the moment U.S. troops were withdrawn, and only concerned him again when ISIS neared the gates of Baghdad.

“Syrians, whose initially peaceful uprising against anti-American dictator Bashar Assad Mr. Obama refused to embrace, and whose initially moderate-led uprising Mr. Obama failed to support, and whose sarin- and chlorine-gassed children Mr. Obama refused to rescue, his own red lines notwithstanding.

“Ukrainians, who gave up their nuclear weapons in 1994 with formal U.S. assurances that their ‘existing borders’ would be guaranteed, only to see Mr. Obama refuse to supply them with defensive weapons when Vladimir Putin invaded their territory 20 years later.

“Pro-American Arab leaders, who expected better than to be given ultimatums from Washington to step down, and who didn’t anticipate the administration’s tilt toward the Muslim Brotherhood as a legitimate political opposition, and toward Tehran as a responsible negotiating partner.

“Most betrayed: Americans.

“Mr. Obama promised a responsible end to the war in Iraq. We are again fighting in Iraq.  He promised victory in Afghanistan. The Taliban are winning.  He promised a reset with Russia. We are enemies again.  He promised the containment of Iran. We are witnessing its ascendancy in Iraq, Syria, Lebanon and Yemen. He  promised a world free of nuclear weapons.  We are stumbling into another age of nuclear proliferation. He promised al Qaeda on a path to defeat. Jihad has never been so rampant and deadly.

“These are the results.  They would be easier to forgive if they hadn’t so often been reached by disingenuous and dishonorable means....

“Now the administration is likely being deceptive about last week’s UN vote, claiming it did not promote, craft or orchestrate a resolution that treats the Jewish Quarter of Jerusalem’s Old City as a settlement in illegally occupied territory.  Yet in November, John Kerry had a long talk on the subject with the foreign minister of New Zealand, one of the resolution’s sponsors....

“After the Carter administration pulled a similar stunt against Israel at the Security Council in December 1980, the Washington Post published an editorial that does the paper honor today.

“ ‘It cannot be denied,’ the editors wrote, ‘that there is a pack and that it hounds Israel shamelessly and that this makes it very serious when the United States joins it.’  The editorial was titled ‘Joining the Jackals.’

“Unlike Mr. Carter, Mr. Obama hasn’t joined the jackals. He has merely opened the door wide to them, whether at the UN or in the skies over Syria or in the killing fields in Ukraine.  The United States abstains: What a fitting finish to this ruinous presidency.”

According to a story in Egyptian daily Al-Youn Al-Saba’a, Sec. Kerry met with a Palestinian delegation in early December in Washington to discuss the draft UN Security Council resolution.  According to transcripts of the meeting, Kerry, along with National Security Adviser Susan Rice, met with Secretary General of the PLO Executive Committee Saeb Erekat and Majed Faraj, head of the Palestinian Authority’s General Intelligence Service.

The reported transcripts reflect statements by numerous Israeli officials claiming that the resolution was orchestrated by the Obama administration, which it denies. Erekat denies the claims written in the documents as well, but not that a meeting took place.

Meanwhile, Israeli Attorney General Avichai Mandelblit ordered an investigation into charges of bribery and fraud on the part of Prime Minister Netanyahu, including campaign donations and a Defense Ministry deal to buy submarines from Germany.  Through a spokesman, Netanyahu denied the allegations.

China: Beijing at yearend is increasingly concerned about the fledgling independence movement in Hong Kong, and it’s deeply suspicious of Taiwan President Tsai Ing-wen, who China’s leaders believe is going to push for independence.

At a routine news conference by China’s policy-making Taiwan Affairs Office, spokesman An Fengshan said, “A small coterie of Taiwan independence forces are trying in vain to link up with Hong Kong independence [forces] to split the country, which cannot succeed,” he said.

“It’s just like that saying ‘On this tiny globe, a few flies dash themselves against the wall,’” An said, quoting a 1963 poem by Mao, the meaning being China does not fear its enemies.

“In the end they’ll find themselves broken and bleeding,” he added, without elaborating.  [South China Morning Post]

On Taiwan, officials there believe China is stepping up pressure on the democratic island because of actions taken by President-elect Donald Trump.  On Monday, the Chinese navy sailed its only aircraft carrier just 90 nautical miles from the coast of Taiwan, not long after the Chinese military flew a bomber capable of carrying nuclear weapons close to the edge of Taiwanese territory, plus you had the previous week’s snatching by the Chinese navy of the U.S. drone in the South China Sea.

Lo Chih-cheng, a legislator and foreign policy expert from Ms. Tsai’s Democratic Progressive party, told the Financial Times: “China is very angry about losing face, so it is picking on Taiwan as a scapegoat.”  [Ed. this should sound familiar to long-time readers of this space.]  “The lesson we learn is that U.S. policy toward Taiwan is a function of U.S.-China policy, so we have to be very careful, whether the U.S. takes a more confrontational or a more friendly approach to China.”

Friday, President Tsai’s office said she will transit through Houston and San Francisco during a January visit to allies in Latin America, prompting China to call for the United States to block any such stopover.  There is no word as yet whether she will be meeting with anyone from Trump’s transition team; Tsai arriving in Houston on Jan. 7, leaving the following day, and then arriving in San Francisco on Jan. 13.  This could be interesting.  [Taiwan is down to 21 diplomatic allies, mostly poorer nations in Latin America and the Pacific, and also including the Vatican.]

Separately, I’ve been meaning to pass on the thoughts of longtime editor and national correspondent for The Atlantic magazine, James Fallows, who in the December 2016 issue wrote of his recent experiences in China, having lived there for years and being a big time China ‘bull’ in the past.

Fallows:

“What if China is going bad? Since early last year I have been asking people inside and outside China versions of this question.  By ‘bad’ I don’t mean morally.  Moral and ethical factors obviously matter in foreign policy, but I’m talking about something different.

“Nor is the question mainly about economics....

“Instead the question is whether something basic has changed in the direction of China’s evolution, and whether the United States needs to reconsider its China policy.  For the more than 40 years since the historic Nixon-Mao meetings of the early 1970s, that policy has been surprisingly stable. From one administration to the next, it has been built on these same elements: ever greater engagement with China; steady encouragement of its modernization and growth; forthright disagreement where the two countries’ economic interests or political values clash; and a calculation that Cold War-style hostility would be far more damaging than the difficult, imperfect partnership the two countries have maintained....

“In both word and deed, U.S. presidents from Nixon onward have emphasized support for China’s continued economic emergence, on the theory that  a getting-richer China is better for all concerned than a staying-poor one, even if this means that the center of the world economy will move toward China....

“For a long period, the assumption held. Despite the ups and downs, the China of 2010 was undeniably richer and freer than the China of 2005, which was richer and freer than the China of 2000, and so on.

“But that’s no longer true.  Here are the areas that together indicate a turn:

Communications. China’s internet, always censored and firewalled, is now even more strictly separated from the rest of the world’s than ever before, and becoming more so.  China’s own internet companies (Baidu as a search engine rather than Google, WeChat for Twitter) are more heavily censored.  Virtual private networks and other work-arounds, tolerated a decade ago – the academic who invented China’s ‘Great Firewall’ system of censorship even bragged about the six VPNs he used to keep up on foreign developments – are now under governmental assault.  When you find a network that works, you dare not mention its name on social media or on a website that could alert the government to its existence.  ‘It’s an endless cat-and-mouse,’ the founder of a California-based VPN company, which I’m deliberately not identifying, recently told me.  ‘We figure out a new route or path, and then they notice that people are using us and they figure out how to block it.  Eventually they wear most users down.’  On a multiweek visit  to China early last year [2015], I switched among three VPNs and was able to reach most international sites using my hotel-room Wi-Fi.  On a several-day visit last December, the hassle of making connections was not worth it, and I just did without Western news sources.

“China’s print and broadcast media have always been state-controlled and pro-government. But a decade ago I heard from academics and party officials that ‘reasonable’ criticism from the press actually had an important safety-valve function, as did online commentary, in alerting the government to emerging problem spots.

“Those days are gone.  Every week or two the Chinese press carries warnings, more and more explicit, by President Xi Jinping and his colleagues that dissent is not permissible and the party’s interests come first.  Also this year, the government banned foreign-owned media – that is, all media beyond its direct control – from publishing anything in China without government approval.  It cracked down on several publications (notably the business magazine Caixin and the Guangzhou-based newspaper Southern Weekend) that for years had mastered the art of skirting government controls....

Repression of civil society.  Throughout the Communist era, the Chinese state has suppressed the growth of any form of organization other than the party itself.  Religious practice, for instance, is authorized for five officially approved faiths...but only state-authorized temples, mosques, and churches are allowed...

“In the past five years, the screws have been tightened further on all these and other groups.  Churches have been bulldozed across the country, allegedly as part of urban-development plans.  Many of the country’s public defenders and public-interest lawyers are now in jail. So are prominent feminists and environmental organizers. The April 21 cover of The New York Review of Books this year billed an article by the Asia Society’s Orville Schell, who has written about China since the 1960s, as ‘The New Terror in China.’  ‘In my lifetime I did not imagine I would see the day when China regressed back closer to its Maoist roots,’ Schell told me.  ‘I am fearing that now.’....

“Two years ago, the U.S. firm LinkedIn was found to have censored critical posts about China from its worldwide network, even when the posts were written and intended to be read only by people outside Chinese territory.  The agreement was a condition of LinkedIn’s operating in China.  Twitter is still banned there, but in April it hired an engineer who once worked for China’s military and security services as its managing director for China. In one of her first tweets, she wrote to CCTV, the carefully monitored state-run TV network, saying, ‘Let’s work together to tell great China story to the world!’”

I have been writing extensively of Xi’s crackdown for years now, and speaking of how scary he is, especially because I believe he is seriously lacking in intelligence.  He also knows little of the West and has traveled little (unlike KGB-grad Vladimir Putin, who knows us better than our leaders do), and Xi is a dolt.

So James Fallows has this:

“The more uncertain (Xi) feels about China’s diplomatic and economic position in the world, and the more grumbling he hears about his ongoing crackdown, the more ‘decisively’ he is likely to act.  ‘Xi is a weak man who wants to look strong,’ a foreign businessman who has worked in China for many years told me.  ‘He is the son of a famous father [Xi Zhongxun, who fought alongside Mao as a guerrilla and became an important Communist leader] and he wants to prove he is worthy of the name. As we’ve seen in other cultures, this can be a dangerous mix.’  Ten years ago, when I visited a defense-oriented think tank in Beijing, I was startled to see a gigantic wall map showing U.S.-affiliated encampments and weapons on every Chinese frontier except the one bordering Russia.  I came to understand that the graphic prominence of the U.S. military reflected a fairly widespread suspicion that the United States wishes China ill, is threatened by its rise, and does not want to see China succeed. Almost no one I spoke with recently, however, foresaw a realistic danger of a shooting war between China and the United States or any of its allies....

“(But) the concern about a more internationally aggressive China involves not a reprise of the Soviet Union during the tensest Cold War years but rather a much bigger version of today’s Russia. That is: an impediment rather than an asset in many of the economic and strategic projects the United States would like to advance....A power that sometimes seems to define its interests by leaning toward whatever will be troublesome for the United States. An actual adversary, not just a difficult partner. China is challenging in many ways now, and increasingly repressive, but things could get worse. And all of this is separate from the effect on China’s own people, and on the limits it is placing on its academic, scientific, commercial, and cultural achievements by cutting itself off from the world.”

Russia, cont’d: Officials have not totally ruled out a “terrorist act” in the tragic crash of a Russian aircraft that plunged into the Black Sea, killing 92, including dozens of Red Army Choir singers and dancers that were being sent to Syria to entertain Russian troops.  The wreckage of the Tu-154 was found, as well as the black box, and while there are no signs of an explosion, a Russian official said, “this isn’t the only type of terrorist act.... It could have been any type of mechanical impact, so we don’t rule out a terrorist act.”

The plane went from Moscow to Sochi for a refueling stop and one theory  is it could have received bad fuel there, as the aircraft plunged into the sea two minutes after take-off from Sochi.

Separately, Russian aviation authorities grounded the country’s fleet of its newest model of civilian airliner, the Sukhoi Superjet 100, after metal fatigue, normally associated with older aircraft, was discovered in the tail section of a new Sukhoi jet.

The new plane is a test of whether Russian prowess with its military aerospace programs can translate into a successful civilian product.

Aeroflot is Russia’s national flag carrier and its being pressured into buying domestic aircraft, but it wants to solidify its reputation with customers, both home and abroad, by flying mostly Boeing and Airbus planes.

So if you are flying Aeroflot the next few years, make sure you know what the actual aircraft is before buying a ticket.  [Tips for avoiding death on your flight...another free feature of StocksandNews.]

Japan: Prime Minister Shinzo Abe became the first Japanese leader to visit Pearl Harbor, but he did not apologize for the 1941 attack, conceding only that Japan “must never repeat the horrors of war again.”

“As the prime minister of Japan, I offer my sincere and everlasting condolences to the souls of those who lost their lives here, as well as to the spirits of all the brave men and women whose lives were taken by a war that commenced in this very place,” Abe said.

No one was expecting a full apology, which wouldn’t be met well back home in Japan, just as seven months earlier, President Obama didn’t apologize when he became America’s first sitting president to visit Hiroshima.

India: Prime Minister Narendra Modi defended his decision to withdraw high denomination bank notes from circulation, as a deadline to end severe cash shortages passed with Indians still trying to deposit savings and withdraw money.  Modi on Nov. 8 abolished the 500 and 1,000 rupee bills, taking out 86% of cash in circulation, in a bid to fight the black market, corruption, end terror financing and turn India into a cashless society.  But the move caused a major cash crunch as the government then struggled to produce new 500 and 2,000 rupee bills.

Today is supposed to be the last day for the old bills, to deposit them, or they become worthless. But banking officials say, for example, that ATM operations won’t be normal until the end of February.  [Some Indians living abroad have until March 31 2017, but the process is very complicated.  I’ve heard firsthand from an Indian friend, one of my “beer men,” just how much so.]

State elections are being held early next year and how this transition goes is critical to Modi’s expected bid for a second term in 2019, and it doesn’t look good that the government was clearly unprepared.  [“Beer Man” is more optimistic.]

Brazil: Police in Rio found a body inside a burnt-out car that had been rented by the Greek ambassador to Brazil, Kyriakos Amiridis.

Amiridis, a highly-experienced diplomat, went missing after traveling to Rio from Brasilia for traditional New Year’s celebrations on Copacabana beach.  He is married to a Brazilian woman, and details were not initially known as to when he was abducted and/or killed.

That is until a Rio police officer confessed to the murder today, possibly at the direction of Amiridis’ wife, who is also in custody, according to Globo TV.  It seems the wife and officer may have been romantically involved.

Congo: President Joseph Kabila will step down after elections held before the end of 2017, under a final deal struck on Friday, according to a lead mediator from the Catholic Church.  Kabila will be unable to change the constitution to extend his mandate and run for a third term.

Mongolia: The air pollution in China continues at awful levels, but consider this.  Levels of particulate matter (the fine dust that gets into your lungs and kills you) in Mongolia is almost 80 times the recommended safety level set by the World Health Organization – and five times worse than Beijing during its worst smog of the year.

In Mongolia, it’s about power plants working overtime in the winter, belching plumes of soot, while smoke from coal fires in the shantytowns of the capital, Ulaanbaatar, envelop the city in a brown fog, as described by Bloomberg.

So the people have been rising up and protesting, though the government has few resources to tackle this serious issue.

Random Musings

--President Obama wished Americans a Merry Christmas in his final holiday address while reminding them of all the gifts he has given the nation in the past eight years.

“Together, we fought our way back from the worst recession in 80 years, and got unemployment to a nine-year low. We secured health insurance for another twenty million Americans, and new protections for folks who already had insurance. We made America more respected around the world, took on the mantle of leadership in the fight to protect this planet for our kids, and much, much more.”

--In an exit interview with his former senior adviser David Axelrod for the latter’s “The Axe Files” podcast, produced by the University of Chicago Institute of Politics and CNN, President Obama asserted he could have succeeded in this year’s election if he was eligible to run.

“I am confident in this vision because I’m confident that if I had run again and articulated it, I think I could’ve mobilized a majority of the American people to rally behind it.

“I know that in conversations that I’ve had with people around the country, even some people who disagreed with me, they would say the vision, the direction that you point towards is the right one,” Obama said in the interview, which aired Monday.

“In the wake of the election and Trump winning, a lot of people have suggested that somehow, it really was a fantasy,” Obama said of the hope-and-change vision he heralded in 2008.  “What I would argue is, is that the culture actually did shift, that the majority does buy into the notion of a one America that is tolerant and diverse and open and full of energy and dynamism.”

Whatever you say, Professor.

But Obama also took a shot at Hillary Clinton, repeating his suggestion Democrats had ignored entire segments of the voting population, leading to Trump’s win.  He implied Clinton’s campaign hadn’t made a vocal enough argument directed toward Americans who haven’t felt the full benefits of the economic recovery.

“If you think you’re winning, then you have a tendency, just like in sports, maybe to play it safer,” adding later he believed Clinton “performed wonderfully under really tough circumstances” and was mistreated by the media.

Trump responded Monday afternoon to Obama’s assertion he could have won a third term.

“President Obama said that he thinks he would have won against me.  He can say that but I say NO WAY! – jobs leaving, ISIS, OCare, etc,” Trump tweeted.

--I noted some of the following in the immediate aftermath of the election, but Deroy Murdock summarized things well in a New York Post op-ed.

“As President Obama concludes his reign of error, his party is smaller, weaker and ricketier than it has been since at least the 1940s. Behold the tremendous power that Democrats have frittered away – from January 2009 through the aftermath of Election Day – thanks to Obama and his ideas:

“ – Democrats surrendered the White House to political neophyte Donald J. Trump.

“ – U.S. Senate seats slipped from 55 to 46, down 16 percent.

“ – U.S. House seats fell from 256 to 194, down 24 percent.

“ – Democrats ran the Senate and House in 2009.  Next year, they will control neither.

“ – Governorships slid from 28 to 16, down 43 percent.

“ – State legislatures (both chambers) plunged from 27 to 14, down 48 percent.

“ – Trifectas (states with Democrat governors and both legislative chambers) cratered from 17 to 6, down 65 percent.

“Since Franklin Delano Roosevelt, eight presidents have served at least two terms or bowed to their vice presidents due to death or resignation.  Among them, Obama ranks eighth in total state legislative seats that his party preserved during his tenure....

“In terms of boosting his party’s state-level strength, Obama is the worst president since World War II.  Reagan is the best.

“Democrats can chant the soothing lie that this wholesale, multi-level rejection of their party stems from ‘structural racism,’ the legacy of Jim Crow, the immortal tentacles of slavery, or whatever other analgesic excuse they can scrounge up.  The same nation that they claim cannot outgrow its bigotry somehow elected and then re-elected Obama, quite comfortably.

“This deep-rooted repudiation is not of Obama himself, but of Obamaism, today’s Democratic gospel.

“At home, Obamaism features economic stagnation, morbidly obese and equally dysfunctional government, racial and identity fetishism, and rampant political correctness.

“Overseas: Shame at American pre-eminence fuels flaccid ‘leadership from behind.’

“All told, 1,043 federal and state-level Democrats lost or were denied power under Obama, largely because Americans grew disgusted by such outrages as a non-stimulating $831 billion ‘stimulus,’ eight consecutive years of economic growth below 3 percent, an 88 percent increase in the national debt, the revocation of America’s triple-A bond rating and ObamaCare’s epic flop ($2.3 trillion to finance widespread insurance policy cancellations, 20 bankruptcies among 24 state co-ops, early retirements for experienced but exasperated doctors and more).  Also nauseating: federal non-management of everything from dishwashers to third-grade lunches to national school shower policy.

“Abroad Obamaism spawned the rise of ISIS, the fall of U.S. personnel in Benghazi, and Iran’s relentless humiliation – before, during and after Obama’s delivery of some $100 billion in unfrozen assets, including at least $1.7 billion in laundered cash, literally flown in on private jets.

“ ‘My legacy’s on the ballot,’ Obama said last September, just as he had said before the 2014 midterms.

“And Democrats have paid the ultimate price....

“Rather than enjoy a traditional, low-key post-presidency in Chicago, Obama plans to hunker down in Washington, D.C., comment on current events and counsel his party’s candidates and officeholders.  Democrats should find this as appetizing as dinner cooked by Typhoid Mary.”

--Donald Trump said he plans on shutting down his charitable foundation, which has been under intense scrutiny.  The President-elect gave no timetable, given an ongoing investigation of the foundation in New York.

Trump said in a statement: “The Foundation has done enormous good works over the years in contributing millions of dollars to countless worthy groups, including supporting veterans, law enforcement officers and children.   However, to avoid even the appearance of any conflict with my role as President I have decided to continue to pursue my strong interest in philanthropy.”

But the Donald J. Trump Foundation has come under intense scrutiny owing to a series of articles in the Washington Post detailing its practices, such as cases where Trump apparently used the Foundation’s money to settle lawsuits involving his for-profit businesses.

New York’s attorney general has been investigating the charity following some of the Post’s reports and according to that office, the foundation cannot officially shut down until the probe is complete.

The foundation largely collects and donates money from other people.  It only has $1.16 million in total assets at the end of 2015, according to the most recent tax filing available.  [Washington Post]

Earlier in the week, Trump’s eldest son, Eric, said he was suspending his charitable foundation after facing questions about whether donors could receive special access.

--Jason Miller was tabbed to be Donald Trump’s communications director, but two days later, Miller resigned, after a tweet from the account of A.J. Delgado, an adviser to Trump’s campaign and a member of the transition team, appeared with the message: “Congratulations to the baby-daddy on being named WH Comms Directors!”  Delgado also appeared to call Miller “The 2016 version of John Edwards,” a reference to the former senator and Democratic presidential candidate who had to admit to an extramarital affair with his campaign videographer.  After two other tweets called on Miller to resign – he did.

Delgado then deactivated her Twitter account and could not be reached for comment.

Miller said in a statement: “After spending this past week with my family, the most amount of time I have been able to spend with them since March 2015, it is clear they need to be my top priority right now and this is not the right time to start a new job as demanding as White House Communications Director.

“My wife and I are also excited about the arrival of our second daughter in January, and I need to put them in front of my career.”

Delgado was a fierce surrogate for Trump during the campaign.  And, yes, it is rumored she and Miller had an affair.  According to the New York Post, it was Delgado, Miller and another Trump aide who were seen at a Las Vegas strip club on the night before the final presidential debate in October with three employees from CNN, NBC and ABC.

--Charles Krauthammer on 2016’s ‘winner’ and ‘loser’; Trump and Clinton being too easy.

Winner: Vladimir Putin.  Loser: Chris Christie, who hitched his wagon to Trump, sought the brass ring, and didn’t get it.

--As of today, 64 police officers in the U.S. had been killed by gunfire this year vs. 41 in 2015.  21 died in ambushes.

In Chicago last weekend, 43 were shot, 11 killed.  The death toll with a week to go there was 767 vs. 492 in 2015.

---

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

God bless America.

---

Gold $1152...$1061, 12/31/15
Oil $53.89...$37.04, 12/31/15

Returns for the week 12/26-12/30

Dow Jones  -0.9%  [19762]
S&P 500  -1.1%  [2238]
S&P MidCap  -0.8%
Russell 2000  -1.1%
Nasdaq  -1.5%  [5383]

Returns for 2016

Dow Jones  +13.4%
S&P 500  +9.5%
S&P MidCap  +18.7%
Russell 2000  +19.5%
Nasdaq  +7.5%

Bulls 59.8
Bears  19.6  [Source: Investors Intelligence...there was no update this holiday week.]

Happy New Year...may your 2017 be prosperous and safe.

Brian Trumbore



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Week in Review

12/31/2016

For the week 12/26-12/30

[Posted 11:30 p.m. ET, Friday]

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

Edition 925

[This one is especially long as I cover the U.S./Israel/UN situation in great detail.]

Washington and Wall Street...2016/17

2016 Returns

Dow Jones  +13.4%
S&P 500  +9.5%
Nasdaq  +7.5%

Frankfurt  +6.9% (local currency)
London  +14.4%
Paris  +4.9%

Tokyo  +0.4%
Shanghai  -12.3%

The year started off with the worst decline in U.S. history, down 10.5% on the S&P by mid-February, but then the market rallied back 21% the rest of the way, the widest band since 2009.

The poor start was due to oil to a great extent, as it cratered to $26 a barrel, before staging a big rally of its own.

After nailing 2015 market returns, I failed badly in 2016, calling for minus 5% on the S&P and Dow, and minus 2% for Nasdaq, though I was a lot closer on Nov. 8.

Geopolitically, I wrote some of the following a year ago (over two WIRs, due to the timing then of the New Year’s holiday):

“On the migration front, German Chancellor Angela Merkel continued to tell her people that the country will benefit from the record influx of migrants.

“ ‘There is no doubt, the influx of so many people will demand a great deal from us. It will cost time, strength and money – particularly with regards to the important task of integrating those who will stay here permanently,’ she said in a New Year address televised (earlier).

“Merkel said anyone who wants to live in Germany must respect German values, traditions, law and language as preconditions for good cohabitation.”

Well they haven’t, pure and simple.

But I wrote: “Merkel is going to have a bad year in 2016 and may not make it into 2017.”  I was too pessimistic.

I also wrote last yearend:

“(Merkel’s) increasingly a lone voice in the wilderness as Europe turns on its migrants.  Even Sweden, which welcomed more refugees per capita than any other country, now feels overwhelmed.”  [Still true.]

I quoted historian Niall Ferguson and his take on Europe, writ large:

“The biggest problem is the fifth column within Europe – people who aren’t loyal to their European states even though they are citizens, second- and third-generation.  Potentially, there are thousands of jihadists or sympathizers.

“Europe’s problems are unsolvable.  Anybody who thinks this great wave of immigration solves Europe’s demographic deficit hasn’t been to the suburbs of Paris.”

Nothing has changed over the ensuing year.  You can make the same comment for the next few generations.

Among my other thoughts last year, I wrote:

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

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

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

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

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

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

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

[Just a few days after writing the above, North Korea conducted its fourth nuclear bomb test, catching U.S. intelligence with its pants down once again.]

I also wrote a year ago:

“I do want to re-emphasize, however, the upcoming election in Taiwan, Jan. 16.  While it’s a foregone conclusion who the victor will be [Tsai], the outcome won’t be to Xi Jinping’s liking.”

Thankfully, I was wrong on the refugee issue, for now, in Jordan and Lebanon, but I wouldn’t go out on a limb and say this will be the case, stability, for another year.

On Syria, I told you in 2012 the war was over...the West had lost, and that was one of my better calls ever for the almost 18 years of this column.

While I wasn’t very specific last year on other predictions, I missed the equity market impact of Brexit, which was swift for only a day, but the big move was in the global bond markets, with the yield on the German 10-year Bund declining from 0.09% the day of the Brexit vote (June 23) to -0.19% July 8.  The British 10-year saw its yield drop from 1.37% to 0.73% over the same essentially two weeks.  The U.S. 10-year fell from 1.74% to 1.37% (the cycle low).  Yields then spiked in the fall over questions on how long the ECB’s quantitative easing program would be maintained, while they took off in the U.S. after Trump’s election and assumptions for growth.

As for 2017...there isn’t a soul alive who can tell you how the year will pan out.  Starting with the fact that few, at least among my set, forecast a year ago that Donald Trump would emerge victorious come November 2016.  The first caucus was weeks away, after all.

But with his election, we enter 2017 with more uncertainty than just about any time in our history.  If you think that’s an exaggeration, you are sadly mistaken.

I’m 58 and have been politically aware since the mid-1960s.  [I would listen to my transistor radio on Sunday nights, lying in bed, and hear the weekly death counts in Vietnam...usually something like 200 U.S. dead and 2,000+ North Vietnamese/Viet Cong and wonder how we couldn’t be winning.]

Looking back, especially over the last 36 years, whenever we had a transition of power there was some certainty, especially domestically.  Even in the certainty that while policies would change, it would be a relatively smooth process. 

But this time, what is so different is foreign policy.  I have said a number of times over the past few months that I am not concerned, in the grand scheme of things, with domestic policy.  Certain segments of the population may have to fight harder, but the American Experiment will survive.  Sleepless nights from time to time, but the Sun will indeed come up the next morning.

That is not the case anymore in terms of foreign policy, and it is this front, in the era of terrorism, weapons of mass destruction, and rising despots that you know occupies my mind, 24/7. 

So you tell me what is going to happen on the Russia and China fronts the next four years (or 3-6 months)?  You tell me what Kim Jong-un is going to do?  You tell me when that inevitable WMD terror attack is coming...or that cyberattack that takes out the power grid for a third of the nation?

The thing is, what is really different is the man who takes over on Jan. 20, Donald Trump.

It’s not enough to say, well, I like his prime Cabinet selections in terms of national security, which I do...Tillerson (assuming he doesn’t have a secret pact of some kind with Russia’s Igor Sechin), Mattis, and Kelly.

I loved the Cabinet George W. Bush brought into the White House in Jan. 2001...Cheney, Rumsfeld, Powell and Rice. What a powerful, experienced lineup...and yet they still created a mess...then exacerbated ten-fold by Barack Obama.

We just don’t know what Donald Trump will do?  We all should hope that he’s a spectacular president, that four years from now he’s captured 58% of the popular vote in a real landslide, not the fake one he talks about.

That would be a sign that relations with Russia and China are on a stable footing; that there have been no major military conflicts in the South China Sea; the status of Taiwan is unchanged; Russia gets to keep Crimea but gives up on further designs for Eastern Ukraine; Putin doesn’t make a move on the Baltics; Syria is still a hellhole but the conflict is largely confined; Iraq, having finally routed ISIS, with major U.S. help, is stable; Turkey gets along well enough with the European Union and doesn’t open the spigot on the millions of refugees it has taken in following the first wave; the remnants of ISIS launch an occasional terror attack in Europe, but they are no worse than what we’ve already seen and Europe gradually grabs the worst of the group, leaving the dead-enders who don’t have the ability, smarts and financing to use WMDs; Kim Jong-un is killed by one of his generals (who then seeks reconciliation with Seoul and massive aid from the international community in return for giving up the nukes).

Now ask me if I believe any of this (especially my pipedream on North Korea...if Kim is killed by one of his generals, the guy is likely worse, not better, just because there is no way, with the security apparatus there, that one general could put together the leaders of all the major army divisions to participate in a coup like that).

But so much of the above falls back on Donald Trump and he alone.  I am not confident he has the temperament, and he will be tested time and time again.  He is, after all, the ultimate decision-maker, a man who 24/7 wants to dominate the news cycle, first and foremost, and a man who doesn’t understand that, around the world, words matter.

I just see these coming years as being nothing but “stress city.” Domestically, we’ll be fine.  The economy may even rock...it better because the deficits are otherwise going to explode, with the interest expense skyrocketing (exacerbating the problem in terms of choosing ‘winners’ and ‘losers’...see Thomas Donlan below).

I know on more than one occasion over the years I’ve talked of fastening your seatbelts... “It’s going to be a bumpy ride.”

But now, forget the seatbelt.  That’s not going to do you any good.  Just pray you don’t have a Takata airbag...which is my way of saying, these next few years are going to be like playing Russian Roulette....

....Speaking of Russia, the Obama administration struck back at the Kremlin for its efforts to influence the 2016 election, booting 35 Russian intelligence operatives (posing as diplomats) from the U.S., with two compounds on Long Island and in Maryland where intelligence activities were taking place being shut down, while imposing sanctions on Russia’s two leading intelligence services.

The administration also sanctioned four top officers from the Russian military intelligence unit known as the G.R.U., which the White House believes ordered the attacks on the Democratic National Committee and other political organizations.

The expulsion of the 35 spies was in response to the harassment of American diplomats in Russia.

In conjunction with this, the FBI and the Department of Homeland Security released a joint report detailing how investigators linked the Russian government to hacks on various Democratic political organizations, including samples of malware and other indicators of Russian cyberactivity, with network addresses of computers commonly used by the Russians to launch attacks.

President Obama is clearly trying to box-in President-elect Donald Trump, who has consistently cast doubt on the Russians being responsible for the hacking of the D.N.C. and other political institutions.

Trump responded to the sanctions by saying it was time to “move on,” but adding he would meet with intelligence officials next week to get an assessment of the situation.

But when he takes office Trump will have to decide whether to lift the sanctions on the Russians, while Republicans in Congress such as Senators John McCain and Lindsey Graham have been calling for a public investigation into Russia’s actions, with McCain announcing hearings for Jan. 5.

As for the Russian response, Dmitri Peskov, Vladimir Putin’s spokesman, told reporters: “We regret that this decision was made by the U.S. administration and President Obama personally.  As we have said before, we believe such decisions and such sanctions are ungrounded and illegal from the point of view of international law.”

Peskov added some manner of reciprocal answer can be expected.  “The response will be formulated in a direction determined by the president of Russia.”

This was all Thursday.

Friday, Russian Foreign Minister Sergei Lavrov said 35 U.S. diplomats would be expelled in retaliation, while banning U.S. diplomatic staff from two facilities in Moscow that they’ve been using, but Lavrov said this was his proposal to Vladimir Putin, and then Putin said no one would be kicked out.

In a statement on the Kremlin website, Vlad said: “We will not create problems for U.S. diplomats.  We won’t be expelling anyone.  We won’t forbid families and children to use their usual recreation places during the New Year’s celebration.  Furthermore, I invite all children of American diplomats accredited in Russia to the New Year’s shows and Christmas Tree in the Kremlin.”

[Hey, kids.  Having been to the Kremlin myself, I’d take Putin up on this offer. The sweets would be unbelievable.]

Donald Trump then tweeted, because this is what he does: “Great move on delay (by V. Putin) – I always knew he was very smart!”

Oh, The Donald loves those exclamation points.

Speaking from Ukraine, Sen. John McCain said Russia must be made to pay the price for cyberattacks.

“When you attack a country, it’s an act of war,” McCain said in an interview with Ukraine TV, while on an official fact-finding trip with other senators, including Lindsey Graham.  “And so we have to make sure that there is a price to pay, so that we can perhaps persuade the Russians to stop these kinds of attacks on our very fundamentals of democracy.”

The White House has been undecided on what to do about the hacking issue, but it’s amazing to me that the president waited until well after the election to make a move when he clearly had the intelligence in the fall to do so and instead he just sat back; his point being he didn’t want to rock the boat during the election, and risk retaliation ahead of Election Day.  But then why do it now as he’s walking out the door?  [Other than to piss Trump off.]

House Speaker Paul Ryan said in a statement that despite the measures being overdue “it is an appropriate way to end eight years of failed policy with Russia,” adding “it serves as a prime example of this administration’s ineffective foreign policy that has left America weaker in the eyes of the world.”

Democratic Sen. Ben Cardin applauded the sanctions but said they weren’t enough, saying he would establish a committee “to further examine the attack and Russia’s efforts to interfere in our election.”

Editorial / Wall Street Journal

“President Obama promised retaliation against Russia’s cyber-meddling in this year’s U.S. elections ‘at a time and place of our choosing,’ and on Thursday he followed through with an order to expel Russian agents and sanction Russian intelligence agencies.  That’s a start, but the pity is that it comes at the end of a Presidency that held on to its Kremlin illusions for too long – and on the eve of another Presidency that risks making the same mistake.

“Mr. Obama ordered that 35 Russian operatives be expelled and Russian intelligence compounds in Maryland and New York shut down.  Nine Russian entities and individuals have been sanctioned, including four Russian military intelligence officers.

“More importantly, technical data on Russian hacking methods will be declassified to help network experts ‘identify, detect and disrupt Russia’s global campaign of malicious cyber activities.’  Mr. Obama also promised that he would take other steps, ‘some of which will not be publicized.’

“Let’s hope so, because efforts to sanction Russia’s powerful FSB and GRU intelligence agencies won’t carry much sting with the officials and hired hackers who carried out the cyberattacks....

“(But) Mr. Obama’s order amounts to a far too late signaling exercise to underscore U.S. displeasure, rather than a serious retaliatory strike that imposes real costs on responsible Russian officials.  House Speaker Paul Ryan was right to support Mr. Obama’s actions, but he was also right to add with no small irony that they are ‘an appropriate way to end eight years of failed policy with Russia.’....

“The Obama Administration has fretted that the U.S. must maintain ‘escalation dominance’ against Russia, which may explain why even Thursday’s steps were so modest.  But Mr. Obama’s timid responses so far to Moscow – and to attacks from China and North Korea – have emboldened its hackers to meddle in the U.S. political process.  The Russian regime is nothing if not a respecter of power, and only a U.S. president willing to exercise it will get the Kremlin to stop.

“Which brings us to Donald Trump, who told reporters who asked about Kremlin hacking on Wednesday that the U.S. should ‘get on with our lives’ and that ‘the whole age of the computer has made it where nobody knows exactly what’s going on.’  Lord knows what the President-elect means by that, but it seems to extend his strange and dangerous habit of making excuses for Mr. Putin and treating hacking as a nuisance, not a threat to U.S. national and economic security.”

[This was before Trump’s shocking tweet on Friday.]

Editorial / New York Post

“In his waning days in the White House, President Obama is desperately trying to make his policies as permanent as possibly by tying the hands of his successor – and far more than other presidents have done on their way out.

“From his dramatic and disastrous change of U.S. policy on Israel to his executive order restricting 1.65 million acres of land from development despite local objections, Obama is trying to make it impossible for Donald Trump and a GOP-controlled Congress to govern.

“Even Thursday’s announcement of wide-ranging sanctions against Russia presents Trump with a foreign-policy crisis immediately upon taking office.

“By contrast, many of Obama’s predecessors have stood back in their final days in office and refrained from any dramatic shifts, in deference to the agenda of the man voters sent to succeed them.

“But Obama won’t accept the election results.  As he suggested the other day, Trump’s election was a fluke – and he himself would have easily been re-elected if allowed to stand for a third term.

“He believes this not just because he’s an effective campaigner, but because he thinks his ‘vision’ and policies continue to be backed by ‘a majority of the American people.’

“But Obama, like many Democrats, fails to understand what happened in the election: Voters were calling for real change from the status quo – from his policies.  Indeed, before the vote, he himself said it was a referendum on him and his policies.

“Memo to the president: You lost....

“Obama’s failure to follow tradition and respect voters is par for the course. He spent much of his tenure pushing the bounds and overstepping his constitutional authority – through regulatory edicts and executive actions. So his latest power grab should come as no surprise.

“But it’s one thing for Obama to have delusions about the popularity of his agenda.  It’s quite another to try to preserve a discredited legacy by handcuffing America’s next democratically elected president.”

Leonid Bershidsky / Bloomberg

“One of President Barack Obama’s most important legacies is a sense that the U.S. is no longer the dominant global power: It can be ignored.  It’s a new reality that became apparent this year as various authoritarian regimes and populist movements have tested it out.

“President Vladimir Putin’s Russia has been at the forefront of the effort.  In the latest development...the foreign and defense ministers of Russia, Iran and Turkey met in Moscow to discuss a plan for Syria. The U.S. was not invited. Instead, the ministers adopted a statement saying the three countries were willing to serve as the guarantors of a deal between the Syrian government and opposition.  All other countries with ‘influence on the situation on the ground’ are welcome to join, the statement said.

“This is the kind of call the U.S. has grown accustomed to making during the post-Cold War decades of Pax Americana.  Now, three authoritarian regimes – one of them, Turkish President Recep Tayyip Erdogan’s, an increasingly nominal U.S. ally, and the other two open U.S. adversaries – feel empowered enough to assume their role in an area where perhaps the biggest threat to the West, the Islamic State, operates....

“Under Obama, the U.S. managed to project an image of a country focused entirely on its own interests, sometimes dressed up as values, but unwilling to stake much on defending them.  It managed to look passive-aggressive to both allies and foes.

“Proponents of a values-based U.S. foreign policy fear that Donald Trump will not pursue one, preferring a transactional approach.  That’s O.K. if the alternative is Obama’s insistence on values without strong action to back it up.  Perhaps the U.S. cannot afford to be more forceful: There is no electoral support for boots on the ground in the Middle East, much less for risking clashes with Russia or China. But that means the U.S. shouldn’t pretend to project liberal democratic principles internationally: It’ll just be an empty promise.

“Breaking the values mold and moving to transactional diplomacy isn’t an easy path, however.  It requires a clear understanding of U.S. business and military interests in every part of the world and of what the U.S. is willing to give up to secure these interests.  A transaction involves give and take – a concept that was ignored during the Pax Americana years.  Trump may be interested in working this way, but he’d need a different foreign policy community to play the new game:  To the existing one horse-trading is a foreign concept.”

Wall Street, part deux

The S&P/Case-Shiller home price index for October came in up 5.6%, (vs. 5.4% in September) with the 20-city index up 5.1% year-over-year.  Prices in Seattle lead the way the past 12 months, up 10.7%, with Portland up 10.3%.

But this data is before the sharp rise in mortgage rates for November and December so the next two months’ figures will be telling.  Thus far, home sales numbers, post-election, have been solid.

Friday, the Chicago Purchasing Managers Index for December came in at 54.6 (50 being the dividing line between growth and contraction), well below expectations, with slowing orders (worrisome).

We still await holiday-shopping figures for November and December, though we know brick-and-mortar traffic, by most estimates, was down about 10%, while comScore said online sales for the season were up 16-19%.  The National Retail Federation had forecast overall sales of +3.6%.

GDP in the fourth-quarter is still projected to be around 2%, which would be in line with the 2.1% average we have seen since the recession, the Obama economy, while the Commerce Department reports it was 2.8% from 2001 to 2007.

As for earnings, the current estimate is for a solid 2017, with better year-over-year comparisons.

As I alluded to above, one issue that is going to reemerge in 2017 is the federal deficit.  Back on Dec. 17, Thomas G. Donlan wrote the following in Barron’s on the topic.

“No matter who’s in the majority on Capitol Hill, the Congressional Budget Office always delivers the same Christmas card to all Washington insiders and outsiders. It’s titled, ‘Options for Reducing the Deficit.’  It ought to have a picture of a big lump of coal on the cover, for presidents and most of their congressional playmates have been naughty boys and girls.

“They are hyperenthusiastic consumers and unwilling savers.  The federal budget deficit reported for the fiscal year that ended on Sept. 30, 2016, was $587 billion, or 3.2% of gross domestic product.  It was the first increase in the deficit-to-GDP ratio since fiscal 2009.

“The national debt was reported to be 77% of GDP, up by three percentage points since 2015 and the highest ratio since 1950.  And that was merely what the government calls debt held by the public.  The debt held by the public’s trust funds, such as the Social Security trust fund, adds another $5 trillion, for true total debt of more than $19 trillion.

“This is a worsening problem, though some economists deny it. Even if the deficit cooperates and dips in this fiscal year and the next one, that’s the end of the beginning.  If nobody does anything for 10 years, the fiscal 2026 deficit will hit $1.2 trillion, and debt held by the public will reach $23 trillion, 86% of GDP. If nobody does anything for 30 years, debt held by the public will reach about 150% of GDP – if lenders are willing....

“How can we get away with this? The CBO isn’t sure.

“ ‘To put the federal budget on a sustainable long-term path, lawmakers would need to make significant policy changes – allowing revenues to rise more than they would under current law, reducing spending for large benefit programs to amounts below those currently projected, or adopting some combination of those approaches.’”

Spending is going to have to be cut in some areas and this will be big to many Americans, as Donlan concludes, “the losers won’t think (the cuts) are fair.”

Of course others say we can grow ourselves out of the deficit.

R. Glenn Hubbard, chairman of the Council of Economic Advisers under President George W. Bush, had some of the following in an op-ed for the New York Times on Tuesday.

“Resetting expectations for long-term growth requires policies that enhance productivity growth and support work. At the same time, a well-structured infrastructure program can augment aggregate demand in this transition, while bolstering productivity over time.

“Two building blocks to raise productivity are tax reform and regulatory reform.  Tax reform can raise investment and productivity by significantly reducing marginal tax rates on business income, while broadening the tax base.  There is no arrow in the policy quiver that dominates fundamental tax reform in raising incomes – economists estimate gains as large as a 0.5 percentage-point increase in economic growth annually for a decade.  These gains come principally from raising investment in the United States and reducing wasteful tax distortions of business planning.  Regulatory reform is a second building block for growth by weakening impediments to investment in energy and utilities, while overhauling financial regulation to improve credit availability for small and midsize firms.

“Work is vital for growth, incomes and social dignity.  Tax reform is a core element here, too – raising returns to work by reducing tax rates on incremental earnings.  But broader support for work is needed economically, and its absence figured in the understandable economic anxiety during the campaign.

“These additional building blocks provide the broader support for work. First, market-based health care reforms – widely analyzed before the Affordable Care Act’s more regulatory approach – can slow the rate of growth of health care costs. This slowing is important, as it permits compensation to workers to shift toward wages, raising incomes.

“Second, we should strengthen substantially the earned-income tax credit for childless workers to encourage and support entry-level work and the earnings-building skills that work provides.

“Third, current spending on unwieldy federal job training programs can be directed toward personal re-employment accounts for income support and enhanced personalized training for individuals who are most likely to experience long-lasting unemployment given economic dislocations from technological change or domestic or foreign competition....

“Early equity market gains after Mr. Trump’s election offer a vote of optimism in the potential impact of a different economic policy direction.

“Now, the right building blocks, action and communication can sustain that optimism and generate higher incomes and greater opportunity.”

Europe and Asia

There was literally zero sweeping economic news for the eurozone this week, but across the region, and the world, that will change in a big way early next week following the end of the fourth quarter and the year. 

Bigger picture, in a survey of business leaders in Germany by Reuters, all expressed fears about uncertainties, especially with elections in France and Germany and protectionist trends in some countries.  “Expect the unexpected,” the leader of the German Industry Association (BDI) told Reuters.  “The level of global uncertainty has increased as has the unpredictability.  Unfortunately I fear that won’t change very much in 2017.”

BDI President Ulrich Grillo said he fears political instability could increase due to a combination of growing self-doubt in the West, autocrats flexing their muscles elsewhere and the rise of populists. Anton Boerner, head of the German trade association (BGA), said all the external uncertainties were weighing on export firms.  “Nationalist trends are poison for society as a whole and Europe needs to be reminded of all that it has in common,” said Ingo Kramer, president of the Employers’ Association.  He said an increase in protectionism would be devastating for Germany, in particular, which relies on exports for about half of its economic output.  [Gernot Heller / Reuters]

Brexit, too, remains a major concern.

Eurobits

--Italy’s economy minister called the European Central Bank to task for nearly doubling its estimated capital shortfall for ailing Monte dei Paschi di Siena bank, which is being bailed out by the Italian government.

Pier Carlo Padoan said in a newspaper interview the ECB’s new capital target of nearly 9bn euro (8.8bn, $9.2bn), up from a 5bn gap previously indicated by the bank (which was based on the results of a 2015 stress test), was the result of a “very rigid stance” in its assessment of the bank’s risk profile.

The criticism is the ECB just suddenly came up with the new figure without warning (in a five-line letter to boot...on Christmas Day), while Italy has been working with Monte dei Paschi on a potential solution for months.  The higher capital requirement thus increases the cost of the bank’s rescue and now Italy has to pump 6.5bn euro to salvage the lender, this after creating a 20bn bank bailout fund for all of Italy’s struggling banks that are dealing with massive amounts of underperforming loans.

Recall, the rest of the money Monte dei Paschi needs will come from the forced conversion of its subordinated bonds into shares, in line with European rules on bank crises.

But the rescue, as I noted last week, also involves protecting Italy’s retail savers, who are heavily into Italian junior bank bonds (think CD-type instruments), by converting them to safe senior bonds, only this most likely runs afoul of EU rules, which you know the Germans won’t stand for, so there’s no guarantee the European Commission and the ECB will approve any final plan for Monte dei Paschi.  To be continued....

--Martin Schulz, the European Parliament president who is returning to German politics and was expected to run as the Social Democrats’ (SPD) candidate for chancellor next year, is not now doing so, according to Der Spiegel on Friday.

So this would clear the way for SPD chairman Sigmar Gabriel to be the party’s candidate to challenge Chancellor Angela Merkel and her bid for a fourth term.  The SPD is a junior partner in a grand coalition with Merkel’s conservatives.

A survey by pollster Forsa published on Dec. 28 put support for Merkel’s bloc at 38 percent, while the SPD is second at 20 percent.

Support for the anti-immigration Alternative for Germany (AfD) party is 12 percent.  [An Insa poll taken after the Berlin attack has AfD at 15.5%.]

Merkel is continuing to feel heat over the Christmas market catastrophe and one example of the issues she faces is contained in an article for the Wall Street Journal by Anton Troianovski.

The attacker, Anis Amri, was a 24-yeard old Tunisian who had been denied asylum in Germany, was supposed to be deported, but was allowed to travel around the country.

“As of Nov. 30, of the 32,714 Tunisian asylum seekers in the country, the government had determined that nearly 1,500 needed to be repatriated, but only 111 had been sent back to Tunisia, according to the German Interior Ministry.  The acceptance rate for Tunisian asylum requests was 0.8%, a ministry spokeswoman said.

“Ms. Merkel’s pledge to accelerate deportations may not be enough to quell the unease.  Germany’s failure to stop or deport Mr. Amri provides fodder for Merkel critics who claim that her government has lost control of law and order.”

A lawmaker for the AfD told the Journal: “The state has failed.  It’s almost as though the coordinated protection of the citizenry is politically undesirable.”

Germany is due to hold parliamentary elections in September.

--As the year ends and France gears up for its April 23/May 7 presidential election, Francois Fillon destroys the National Front’s Marine Le Pen in a run-off, 66-34, according to a Kantar Sofres poll.

In Asia, President Xi Jinping told a meeting of the Communist Party’s financial and economic leaders that China doesn’t need to meet the objective of 6.5% growth if doing so creates too much risk, according to a source at the meeting who then told Bloomberg.  Leaders instead said the economy would remain stable as long as employment stayed firm.

Most analysts have been talking about 6.5% growth next year, and that has been the word from official mouthpieces connected to the Economy Ministry.

But the alarm has definitely been sounded about unsustainable debt, with China’s debt-to-GDP ratio rising to about 270% this year, according to the source.  [Others place it closer to 250%, still awful.]

On a related note, the Chinese Academy of Social Sciences, a Communist Party think-tank, says the capital outflow from China shows no sign of abating, with Chinese foreign exchange reserves shrinking by about a quarter from $3.99 trillion in June 2014 to $3.05 trillion as of November.

China must “safeguard the foreign reserve pool” as this is a higher priority than propping up the yuan’s exchange rate, best left to market forces, said Yu Yongding of the CASS.

“The key issue is the foreign reserve,” Yu continued.  “If we keep guarding the currency rate, the reserve drops, and when it drops to an inadequate level, we will face even bigger depreciation pressure for the currency.”

Right on, Yu.  But it’s been a vicious circle.  Money is leaving as more citizens and companies rush to get their currency out before the yuan’s value deteriorates further.

One focus of the Chinese government in the coming years is an expansion of the railway system, to the tune of $500 billion by 2020, to bolster growth and improve connectivity across the country.

High-speed rail lines would expand by more than half over a five-year period, a boon to various Chinese suppliers.  China would also add 3,000 kilometers to its urban rail transit system.

In Japan, the core consumer price index for November came in -0.4% year-over-year, while it was -0.6% yoy in Tokyo, specifically, which is looked at closely, the worst deflation since Feb. 2013 there.  [Core in Japan doesn’t include fresh food.]

Household spending fell 1.5% in November, the ninth straight month of declines.

But the Bank of Japan remains upbeat on the economy overall.

Street Bytes

--On the week, the Dow Jones (and Japan’s Nikkei) both saw their seven-week winning streaks snapped as the Dow fell 0.9% to finish the year at 19762, while the S&P 500 lost 1.1% to 2238 and Nasdaq declined 1.5% to 5383.

The Dow failed to pierce 20000 at yearend after getting oh so close.

As for my 2017 prognostication, I’ll go with the Dow and S&P rising 10%, Nasdaq 7%.

--U.S. Treasury Yields

12/31/15

6-mo. 0.47%  2-yr. 1.05%  10-yr. 2.27%  30-yr. 3.02%

12/31/16

6-mo. 0.61%  2-yr. 1.19%  10-yr. 2.44%  30-yr. 3.07%

The above comparison masks the intra-year volatility as the 10-year bottomed at 1.37% (1.366%) in July and then shot up to 2.61% before rallying back some the past few weeks.

I’ll say the Federal Reserve raises interest rates four times in 2017.

--As of Monday, AAA reported that the national average for regular unleaded gasoline sat at $2.29 per gallon, 29 cents more year-over-year.

As for 2017, all eyes are on OPEC to see if it can stick to its six-month promise to cut 1.8 million b/d of crude.  OPIS, an oil information service, estimates compliance will be around 70%.

For the year, oil had its biggest annual percentage gain since 2009, with WTI closing at $53.89, up from $37.04 at the start of the year.

Crude prices have still basically halved since last topping $100 a barrel in July 2014.

--There were only 105 initial public offerings in 2016 – down from 275 in 2014, and the fewest since 2009.  The 105 took in just $18.9 billion, the smallest such haul since 2003, according to Renaissance Capital and Barron’s.  [Ernst & Young put it at 112 companies raising $21.3 billion this year, down more than 35% from the prior year.]

But Renaissance and Ernst & Young’s Global IPO Trends studies call for optimism in 2017, especially with the election behind us. 

Further, part of the issue this year was the sky-high valuations accorded high-profile firms, including Uber, Snapchat (aka Snap), Dropbox, Spotify and Airbnb.  There is a wide gap between what venture capitalists believe a company is worth and what IPO investors are willing to pay for it.

But for 2017, Snap has already filed for a $4-billion IPO that could value the company as high as $40 billion.

--Amazon.com Inc. said it shipped more than 1 billion items worldwide this holiday season, its best year ever, with the Amazon Echo home assistant and its smaller version, Echo Dot, topping the best-sellers list, according to Jeff Wilke, chief executive of Amazon’s worldwide consumer division.  Wilke said, “Despite our best efforts and ramped-up production, we still had trouble keeping (Echo and Echo Dot) in stock.”  The sales of the duo were nine times greater than last year, but the company didn’t give any specific numbers.

Another big seller for Amazon was the 72-pack Keurig K-Cups.

--President-elect Trump took credit on Wednesday for a decision by Sprint to add 5,000 jobs in the United States even though the company later said that the jobs were part of a previously announced commitment by Japan’s SoftBank, which owns a controlling stake in Sprint, to invest $50 billion in the United States and create 50,000 positions.

SoftBank is also a major investor in OneWeb, a satellite start-up that Trump said would create an additional 3,000 jobs in the United States.  But this too, like SoftBank’s $50 billion investment in the U.S., predates the election.

--Shares in Toshiba fell more than 40% this week after the Japanese titan announced it was facing a multibillion-dollar writedown at its U.S. nuclear division Westinghouse.  Shares in some of Japan’s biggest banks have also been sliding after the electronics-to-nuclear conglomerate raised the prospect of losses on its loans.

For example, Sumitomo Mitsui Trust has a particularly large exposure to Toshiba and its shares fell 4%.  Other banks fell similar amounts, all of which suggests some kind of restructuring at Toshiba seems inevitable.

The company’s banks have continually bailed it out after one business mishap after another, including accounting issues in recent years; like year’s biggie that led to top management being replaced after the company acknowledged it had improperly padded its results for years.

As reported by the Financial Times: “Toshiba’s goodwill issue relates to its U.S. nuclear business Westinghouse’s purchase last year of construction contractor Stone & Webster from Chicago Bridge & Iron (CB&I). It initially booked goodwill of $87m on the deal, but the rising cost of materials and goodwill to complete several nuclear plants in the U.S. mean the company’s assets are worth less than expected.

“Lower asset values would mean a higher figure for goodwill, which Toshiba would have to write off, hitting its net equity.”  And there are other issues.  Toshiba’s CEO blamed an inefficient labor force at Westinghouse amid the cost overruns in completing several reactors, including two for power utility Southern Co.

--Apple’s lead over Samsung in the holiday smartphone race shrunk this year – despite Samsung’s Galaxy Note 7 disaster, according to Yahoo’s Flurry Analytics.

The iPhone was still on top, claiming 44% of smartphone “activations” during the week leading up to Christmas, which is more than twice the 21% of total smartphone and tablet activations claimed by Samsung. 

But last year the ratio was 49-20, and in 2014, the year of the breakout iPhone 6 model – the iPhone’s market share surged to 51.3%.

On the other hand, both Apple and Samsung combined maintained their huge lead over competitors like LG, Huawei, Amazon, Xiaomi and Motorola.

--Airbus and Boeing have major issues with their four-engine long-haul planes.  The heyday for them is ending.  Airbus Group SE announced it was cutting production again for its A380 superjumbo and, as the Wall Street Journal reports, “faces the prospect of losing money on the plane again already next year.”

Boeing has had to cut production plans for its 747-8 jumbo jet due to slack demand.

Talk about a slide in demand, Airbus built 27 A380s last year and plans to produce just 12 a year starting in 2018.  The company was hoping to break-even on the 20 it is scheduled to deliver next year.

But now Airbus is delaying six of the A380s for next year to 2018 and another six from 2018 to 2019.

It doesn’t help that Emirates Airlines, which was to take delivery of the first Rolls-Royce-powered A380s, has issues due to concerns with the engine, though Airbus says they’ve been resolved.

The A380 seats on average 544 passengers and lists for $432.6 million. Airlines are worried they’ll struggle to fill the seats.

--Federal prosecutors have charged three Chinese citizens with trading on confidential corporate information that was obtained by hacking into the networks and servers of U.S. law firms, as announced by U.S. Attorney Preet Bharara in Manhattan (we love Preet!).

Two of the three are residents of Macau, the other from Changsha, China.  Prosecutors said that beginning in April 2014, the trio obtained inside information by hacking two U.S. law firms and targeting the email accounts of partners who worked on high-profile mergers and acquisitions.  They then bought shares of at least five publicly traded companies before announcements they would be acquired, netting them over $4 million in profits.

Bharara said this should “serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking.”

But only one of the three was arrested (in Hong Kong), while the other two are not in custody and there is zero guarantee any of them will be extradited.

Previously, the Wall Street Journal reported last spring that federal investigators were probing hacks of Cravath, Swaine & Moore LLP and Weil, Gotshal & Manges LLP, which represent Wall Street banks and many Fortune 500 companies.  These two not fit Bharara’s profile

--Brazil’s economy shed 75,000 jobs in November, far worse than expected as the country reels from a second straight year of recession.  GDP is expected to shrink more than 3% for a second straight year in 2016.

--Russia’s December manufacturing PMI came in at 53.7, according to Markit, the best in 69 months.

--Some analysts are wondering what the impact of a new film, “The Founder,” which looks at McDonald’s Ray Kroc, will have on the business.  It is not a pretty portrayal of a complicated, driven salesman-turned-self-proclaimed founder.

The film is set for release nationwide Jan. 20 and stars Michael Keaton as Kroc, with Keaton generating Oscar buzz for the role.

Kroc was a 52-year-old milkshake machine salesman when he first encountered McDonald’s, opened by two brothers, Richard and Maurice McDonald, in California.

Amazed by the efficiency of the operation and speed of service, Kroc secured a deal with the two to open a franchise in Des Plaines, Illinois in 1955.

The McDonald brothers and their descendants have long claimed Kroc swindled them, eventually squeezing them out of the business.

In 1961, Kroc paid the brothers $2.7 million for the rights to the McDonald’s name.

As reported by the Chicago Tribune’s Samantha Bomkamp, “The filmmakers characterize Kroc, who died in 1984, at times as a power-hungry, unscrupulous salesman desperate to expand the McDonald’s brand.”

--Shares in hunting and fishing retailer Cabela’s fell sharply on Friday amid doubts it’s proposed $5.5bn takeover by rival Bass Pro Shops will gain approval as the Federal Trade Commission asks for more information.  Part of the issue is Capital One Financial gaining approval for acquiring the company’s credit card business within the time frame allotted for closing the deal in October.

--Luxury real estate sales in Manhattan dropped 18% in 2016, according to realtor Donna Olshan’s year-end market report.

Olshan reports weekly on contracts over $4 million and notes, “The decline reflects classic price resistance.”  Properties are also languishing on the market for more than two months longer in 2016 as compared to 2015.

76% of all apartments that sold for $4 million or more in 2016 were condos, according to Olshan.  [Crain’s New York Business]

--While luxury Manhattan real estate may be falling, Wall Street’s top bond traders, after seeing their compensation fall sharply last year, are expected to see it triple in 2016, to $1 million or more for some senior traders, according to a study by headhunting firm Options Group, a copy of which was obtained by the New York Post.

Bond traders profited from the big rise in the yield on the 10-year, which sparked an increase in activity.

--Owing to the tumultuous election in 2016, the three major cable news networks had their largest audiences ever, with year-end numbers from Nielsen showing that Fox News Channel was the most-watched network in all of cable with an average of 2.43 million viewers in prime time, up 36% over last year.  Only the four major broadcast networks had a larger audience.

CNN averaged 1.29 million viewers, up 77%, while MSNBC saw an 88% gain with 1.1 million viewers.

Fox Business Network was also helped by the political coverage as it had its best year ever, with the audience up 83%, topping CNBC for the first time in the fourth quarter.  Wow!  [Mused the editor, who barring a major news item has CNBC on all day until the market closes and never watches FBN.]

But the growing online audience isn’t measured in the Nielsen ratings, which is supposed to be rectified soon, and we know online viewing is cutting into traditional TV viewing overall, with prime-time TV usage in the key 18-to-49 demographic down 5% in 2016. Cable TV usage among teenagers declined 13%.  [Stephen Battaglio / Los Angeles Times]

--NBC’s “Today” show eclipsed ABC’s “Good Morning America” in popularity for the first month that did not include the Olympics in four and a half years.

“Today” averaged 4.79 million viewers in December to 4.69 million for GMA, according to Nielsen.  CBS’ “CBS This Morning” has 3.77 million.

NBC has two stunts for January, with Katie Couric and Meredith Vieira returning to co-host one week each while Savannah Guthrie out on maternity leave.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: Thursday brought the announcement that the Syrian government and rebel groups had agreed to a ceasefire, effective midnight on Thursday. The deal was announced by Russia’s President Vladimir Putin and confirmed by Turkey.  The two nations will act as guarantors.

Syria’s main opposition body, the High Negotiations Committee (HNC) confirmed the deal, which was to exclude jihadist groups.  Under the HNC umbrella you have the Free Syrian Army (FSA), whose spokesman said there were 13 armed opposition factions in all who had signed up.

Not part of the agreement are Islamic State “and the groups affiliated to them.”  Additionally, Jabhat Fateh al-Sham (formerly the Nusra Front) was excluded.  But then some rebel officials told Reuters it was part of the deal, which is an example of the complications that lie ahead.  JFS is linked to Idlib province groups that have signed up to the truce, you see.

And late Thursday, one of the most powerful rebel groups, Ahrar al-Sham, said it rejected the deal after, earlier, Moscow said it was part of it.

Plus, the YPG, along with other Kurdish militias, is also not part of the ceasefire, but they control a large part of northern Syria along the Turkish border, and the YPG is regarded by Turkey as a terrorist organization.

If the truce holds, then peace talks would commence within the month in Kazakhstan, and as you’ve seen thus far, the United States is not as yet involved in the process.  What an embarrassment.

Announcing the deal in Moscow, Vladimir Putin said there were three key points:

--Ceasefire between the two sides.
--Measures for overseeing the truce.
--An agreement to start peace talks.

While the truce was immediately violated, within hours, it has a shot to last, relatively speaking, because the rebels have limited resources at this point.

Syrian Foreign Minister Walid Muallem said there was a “real chance of finding a political solution” but that the rebels must distance themselves from the likes of ISIS and former al-Qaeda fighters.

For his part, Turkish President Erdogan said a “window of opportunity” had been created that “should not be wasted.”

Eventually, the blueprint for talks includes a system of federal government within zones of influence; regional autonomy within a federal structure.  Turkey would have informal zone of influence in the north, Syria (Assad) would control the federal center with Assad remaining president for at least a few years.  Russia would maintain its strategic bases in the west, including on the Mediterranean.

But in public, Turkey remains strongly anti-Assad and Turkey’s foreign minister said on Wednesday that a political transition with Assad was impossible.

Ergo, I’m going to try not to waste my time, or yours, when it comes to any talks because a final solution, if ever achieved, is years away.

I do just have to add that what Iran has gained in this conflict is a secure land corridor that connects Tehran to Beirut, allowing it to send arms to Hizbullah in Lebanon (for the latter’s coming war with Israel).

Finally, one worrisome development.  Turkish President Erdogan said he has evidence that U.S.-led coalition forces give support to terrorist groups including ISIS and Kurdish militant groups.  “They were accusing us of supporting Daesh (Islamic State),” he told a press conference on Tuesday.  “Now they give support to terrorist groups.”

Yup, relations between Washington and Ankara are not good, as Erdogan moves rapidly towards Moscow.  [I’m not saying he is in anyway accurate with his description.]

Richard Cohen / Washington Post

“If Dec. 7, 1941, is the day that Franklin D. Roosevelt said ‘will live in infamy,’ then Dec. 20, 2016, has got to be a close second.  No Americans died that day as they did at Pearl Harbor, but the American Century, as TIME magazine founder Henry Luce called it, came to a crashing end.  Turkey, Iran and Russia met in Moscow to settle matters in the Middle East.  The United States wasn’t even asked to the meeting.

“Winston Churchill said in 1942 that he had not become Great Britain’s ‘First Minister in order to preside over the liquidation of the British Empire.’  Nonetheless, by the end of the 1940s, much of the empire was gone.  Churchill was an unapologetic colonialist, but he was up against liberation movements of all kinds, not to mention the antipathy of the United States to imperialist ambitions – in short, history itself.  Churchill had a marvelous way with words, and greatness accompanied him like a shadow, but in certain ways he was a 19th-century man wandering, confounded, in the 20th.

“Barack Obama is quite the reverse.  He is a 21stcentury man who never quite appreciated the lessons of the 20th.  He has been all too happy to preside over the loss of American influence. Aleppo, Syria, now a pile of rubble, is where countless died – as did American influence.  The Russians polished it off from the air, doing for the Syrian regime what the United States could not figure out how to do for the rebels. The city hemorrhaged civilian dead, and America, once the preeminent power in the region, did virtually nothing.

“It could be that Obama was right....

“ ‘Time will tell’ is the appropriate cliché.  But I, along with others, thought the United States could have limited the bloodletting, that it could have established no-fly zones where Syrian government helicopters could not have dropped barrel bombs.  It could also have established safe zones for refugees.  The Russians managed to do what they wanted to do. Why not the United States?

“The answer has always been clear to me – Obama did not care enough.  Not from him ever came a thundering demand that Russia and Iran get out and stay out.  Behind the arguably persuasive reasons to do little in Syria was an emotional coldness: This was not Obama’s fight.

“Say what you will about Donald Trump, he cares. He cares about things I don’t, and he has some awful ideas, and he is an amoral man in so many ways.  But, in contrast to Obama, his emotions are no mystery....

“Hillary Clinton lost the election for a host of reasons, not the least of them her shortcomings as a candidate....But Clinton had to defend an administration that was cold to the touch....(Obama) waved a droopy flag. He did not want to make America great again. It was great enough for him already.

“That coolness, that no-drama Obama, cost lives in Syria.  Instead of rallying the United States to a worthy cause – intervening to save lives and avoid a refugee crisis that is still destabilizing Europe – he threw in the towel. The banner he flew was one of American diminishment. One could agree.  One could not be proud.

“Since the end of World War II, American leadership has been essential to maintain world peace.  Whether we liked it or not, we were the world’s policeman.  There was no other cop on the beat.  Now that leadership is gone.  So, increasingly, will be peace.”

In Iraq, Iraqi forces launched the second phase of the Mosul offensive against ISIS, as the military tries to break the deadlock in the east of the city.

Basically, with the government restricting foreign media access to the front lines, it is difficult to know what the heck is going on there, aside from the fact that at least one million civilians are suffering immensely.  There have been reports, however, that government forces have suffered heavy casualties (numbers unknown) in ISIS counterattacks.  Coalition airstrikes also appear to have struck civilians in one or two instances.

Mosul is a hell-hole to fight in.  Remember, parts of the city date back two millennia and consist of narrow alleyways that are prime ground for ISIS fighters, who are also using car bombs.

Iraqi Prime Minister Haider al-Abadi said on Tuesday it would take three months to eliminate Islamic State.

Israel: By refusing to block a contentious UN Security Council resolution that demands the Jewish state cease all development in occupied territories last Friday, President Obama not only took a parting shot at Israeli Prime Minister Benjamin Netanyahu, it is believed the president stabbed Israel in the back.

The hostile measure passed 14-0, with U.S. Ambassador Samantha Power abstaining.  The U.S. had vetoed a similar resolution in 2011 and a “no” vote by the U.S. or any of the other four permanent members of the council – Russia, China, France or Great Britain – would have killed it.

The White House said last Friday that Obama made the final decision.

“Our position is that there is one president at a time,” said Ben Rhodes, the White House national security adviser.  “President Obama is the president until Jan. 20, and we are taking this action of course as U.S. policy.”

Rhodes then said he was “certain” President-elect Donald Trump will take a different tack when he becomes commander in chief.

Trump then tweeted after the vote, “As to the UN, things will be different after Jan. 20th,” Trump having sided with Israel a day before by opposing the resolution.

A vote had originally been planned for Thursday, Egypt having first introduced the resolution in cooperation with the Palestinians to consider settlement building in East Jerusalem and the occupied West Bank “a flagrant violation under international law.”

But Egypt backed off under pressure from Israel and a phone call from Trump.

Netanyahu, hearing that the White House may either abstain or not veto the measure, began a flurry of diplomatic maneuvering but to no avail.

Egypt did back giving Trump a chance to weigh in as president, but then four other members of the Security Council – New Zealand, Malaysia, Venezuela and Senegal – went ahead and reintroduced it.

Addressing the council afterward, Ambassador Power said the “Security Council reaffirmed its established consensus that settlements have no legal validity.”

“The United States has been sending the message that the settlements must stop – privately and publicly – for nearly five decades” she continued.  “So our vote today is fully in line with the bipartisan history of how American presidents have approached both the issue – and the role of this body.”

Power said the settlements have gotten out of hand and endanger the two-state solution.

“One has to make a choice between settlements and separation,” Power said.

But both Democrats and Republicans were united against the White House.

Incoming Democratic Senate Minority Leader Charles Schumer of New York slammed the abstention for letting Israel twist in the wind.

“Whatever one’s views are on settlements, the UN is the wrong forum to settle these issues. The UN has been a fervently anti-Israel body since the days of ‘Zionism is racism,’ and, unfortunately, that fervor has never diminished,” Schumer said in a statement.

“Knowing this, past administrations – both Democratic and Republican – have protected Israel from the vagaries of this biased institution.”

Benjamin Netanyahu blasted the vote.

“Israel rejects this shameful anti-Israel resolution at the UN and will not abide by its terms,” he said.

The Palestinian Authority called the anti-Israel action “a day of victory.”

Peter Baker / New York Times

“When President Obama and Prime Minister Benjamin Netanyahu of Israel met in September for the last time before Mr. Obama leaves office, the session was marked by forced smiles and strained jokes about playing golf in retirement, as if bygones were bygones after nearly eight years of clawing conflict.

“Of course it was never going to end that way.  How could it? The narrative of the tense and tetchy relationship between liberal president and conservative prime minister instead reached a climax in a hyper-politicized showdown over war, peace, justice, security, human rights and, at last, the very meaning of international friendship.

“Mr. Obama’s decision on Friday not to block a United Nations Security Council resolution condemning Israeli settlements laid bare all the grievances the two men have nursed since shortly after they took office in 2009.  For Mr. Netanyahu, it was the final betrayal by a president who was supposed to be an ally but never really was.  For Mr. Obama, it was the inevitable result of Mr. Netanyahu’s own stubborn defiance of international concerns with his policies....

“An Israeli official, insisting on anonymity to maintain the veneer of diplomatic protocol, gave a statement to multiple reporters on Friday blasting Mr. Obama and his secretary of state, John Kerry, by name.

“ ‘President Obama and Secretary Kerry are behind this shameful move against Israel at the UN,’ the official said.  ‘The U.S. administration secretly cooked up with the Palestinians an extreme anti-Israeli resolution behind Israel’s back which would be a tailwind for terror and boycotts and effectively make the Western Wall occupied Palestinian territory.’....

“ ‘We tried everything,’ Mr. Rhodes said.  In effect, he added just after Friday’s United Nations vote, Mr. Netanyahu had it coming.  ‘Prime Minister Netanyahu had the opportunity to pursue policies that would have led to a different outcome today,’ he said.  ‘Absent this acceleration of settlement activity, absent the type of rhetoric we’ve seen out of the current Israeli government, I think the United States likely would have taken a different view.’”

Elliott Abrams, Michael Singh / Washington Post

“Sizing up the Israeli-Palestinian conflict upon assuming office, President Obama decided Israeli settlements were the problem, and he insisted on a total freeze on construction.  What followed were eight years of deadlock, the deterioration of U.S. relations with Israelis and Palestinians alike, and widespread disillusionment with the two-state solution.

“Despite this track record, Obama is leaving off where he began: In a departure from Washington’s typical role as Israel’s defender at the United Nations, the United States refused to use its veto and allowed the adoption of a Security Council resolution condemning Israeli settlements.

“For his part, President-elect Donald Trump had urged that the United States veto the resolution.  Trump’s argument wasn’t merely that Obama should defer to his successor’s views or that the resolution was anti-Israel.  It was that the measure would impede rather than advance Israeli-Palestinian peace – and he was right.

“First, the resolution fails to distinguish between construction in the so-called blocs – that is, settlements west of Israel’s security barrier in which about 80 percent of settlers live – and construction east of the barrier.  Building in the major blocs is relatively uncontroversial in Israel and rarely the subject of Palestinian protests.

“President George W. Bush sought to move peace talks forward in 2004 by asserting what all sides had already tacitly acknowledged – that there could be no return to the 1967 lines in light of the blocs’ existence, and that any negotiated border would have to reflect this reality.  By refusing to confirm Bush’s position, Obama dragged the process backward and harmfully reopened old debates.

“This regression is enshrined in the resolution, which ‘underlines that it will not recognize any changes’ to the armistice lines, and demands the cessation of all settlement activities everywhere. This is unnecessary and unrealistic – Israelis will not bring life to a halt in towns that no one disputes they will keep – and is more likely to obstruct than facilitate the revival of peace talks.

“Second, the resolution rewards those who argue for ‘internationalization’ of the conflict – that is, for using international forums such as the UN, European Union or International Criminal Court to impose terms on Israel, rather than resorting to negotiations.

“For the resolution does indeed dictate terms to Israel, not merely condemn settlement activity.  It adopts, as noted above, the position that the 1967 lines, rather than today’s realities, should form the basis of talks – despite the fact that many Israeli communities east of those lines are decades old and that Jews have had a near-continuous presence in the West Bank for thousands of years....

“Finally, U.S. support for the resolution lends legitimacy and encouragement to the UN’s disproportionate and one-sided focus on Israel.  The United States has historically criticized this bias, which borders on the absurd: For example, Israel was the only country criticized by a special UN commission on the status of women, despite being the only state in its region where women enjoy equal rights....

“A U.S. veto of the resolution would not have been an endorsement of settlements. Rather, it would have been an affirmation that this is an issue that can only effectively be addressed through negotiations.  The best way to encourage those negotiations is not to prejudge their outcome or set timetables, but to create the right regional conditions for them by countering spoilers such as Iran and the Islamic State who oppose peaceful coexistence, as well as the right local conditions for them by reinvigorating programs aimed at building confidence through economic and security cooperation.”

Editorial / Washington Post

“President Obama’s decision to abstain on a UN Security Council resolution condemning Israeli settlements reverses decades of practice by both Democratic and Republican presidents.  The United States vetoed past resolutions on the grounds that they unreasonably singled out Jewish communities in occupied territories as an obstacle to Middle East peace, and that UN action was more likely to impede than advance negotiations between Israelis and Palestinians.

“The measure, approved 14 to 0 by the Security Council Friday, is subject to the same criticism: It will encourage Palestinians to pursue more international sanctions against Israel rather than seriously consider the concessions necessary for statehood, and it will give a boost to the international boycott and divestment movement against the Jewish state, which has become a rallying cause for anti-Zionists.  At the same time, it will almost certainly not stop Israeli construction in the West Bank, much less in East Jerusalem, where Jewish housing was also deemed by the resolution to be ‘a flagrant violation of international law.’

“By abstaining, the administration did not explicitly support that position, which has not been U.S. policy since the Carter administration. In explaining the vote, U.S. Ambassador Samantha Power points out that the council was sanctioning Israel even while failing to take action to stop a potential genocide in South Sudan or the slaughter in Aleppo, Syria.  Yet in failing to veto the measure, the Obama administration set itself apart both from previous administrations and from the incoming presidency of Donald Trump, who spoke out strongly against the resolution.

“A lame-duck White House may feel a radical change in policy is justified by Israel’s shift to the right under Prime Minister Benjamin Netanyahu; Israel’s governing coalition is supporting legislation that would legalize dozens of settlements that Israel itself defines as illegal, because they were constructed on private Palestinian property.  Mr. Netanyahu supported a partial settlement freeze for 10 months in 2009 and 2010 at Mr. Obama’s behest, but has since allowed construction, including in some areas deep in the West Bank.

“Nevertheless, settlements do not explain the administration’s repeated failures to broker an Israeli-Palestinian peace.  The Palestinian Authority under Mahmoud Abbas proved unwilling to negotiate seriously even during the settlement freeze, and it refused to accept a framework for negotiations painstakingly drawn up by Secretary of State John F. Kerry in 2014.  In past negotiations, both sides have acknowledged that any deal will involve the annexation by Israel of settlements near its borders, where most of the current construction takes place – something the UN resolution, which was pressed by the Palestinians, did not acknowledge or take into account.

“Israeli officials charged that the abstention represented a vindictive parting shot by Mr. Obama at Mr. Netanyahu, with whom he has feuded more bitterly than he did with most U.S. adversaries.  The vote could also be seen as an attempt to preempt Mr. Trump, who appears ready to shift U.S. policy to the opposite extreme after naming a militant advocate of the settlements as his ambassador to Israel.  Whatever the motivation, Mr. Obama’s gesture is likely to do more harm than good.”

Editorial / Wall Street Journal

“The decision by the United States to abstain from a United Nations Security Council resolution condemning Israel over the settlements on the West Bank is one of the most significant, defining moments of the Obama Presidency.

“It defines this President’s extraordinary ability to transform matters of public policy into personal pique at adversaries. And it defines the reality of the international left’s implacable opposition to the Israeli state....

“As was widely reported Friday after the UN vote, the White House decided to abstain – thereby allowing the pro-Palestinian resolution to pass – in retaliation against the intervention by Messrs. Netanyahu and Trump.

“Mr. Obama’s animus toward Prime Minister Netanyahu is well known.  Apparently Mr. Obama took it as an affront that the President-elect would express an opinion about this week’s UN resolution.

“It is important, though, to see this U.S. abstention as more significant than merely Mr. Obama’s petulance.  What it reveals clearly is the Obama Administration’s animus against the state of Israel itself.  No longer needing Jewish votes, Mr. Obama was free, finally, to punish the Jewish state in a way no previous President has done.

“No effort to rescind the resolution, which calls the settlements a violation of ‘international law,’ will succeed because of Russia’s and China’s vetoes.

“Instead, the resolution will live on as Barack Obama’s cat’s paw, offering support in every European capital, international institution and U.S. university campus to bully Israel with the Boycott, Divestment and Sanctions movement.

“Senate Minority Leader Chuck Schumer implored the Administration to veto the resolution, noting rightly that it represents nothing more than the ‘Zionism is racism’ bias at the UN.  Let Senator Schumer note the true nature of his party’s left wing.

“House Speaker Paul Ryan called the Administration’s action ‘shameful.’ Senator Lindsey Graham said he will form a bipartisan coalition to suspend or reduce U.S. financial support for the UN.  That should proceed.

“For Donald Trump, meet your State Department.  This is what State’s permanent bureaucrats believe, this is what they want, and Barack Obama delivered it to them.

“Tweets won’t change this now-inbred hostility to America’s oldest democratic ally in the Middle East.  Mr. Obama’s pique, however, has made it crystal clear to the new Administration where the lines in the sand are drawn.”

Prime Minister Netanyahu instructed his ministers to travel less in coming days to countries that backed the resolution, and he canceled a visit to Israel by Volodymyr Groysman, his Ukrainian counterpart, in what was to be Groysman’s first official visit to the Jewish state.

Israel is also suspending some of its funding to the UN, while Netanyahu in a speech on Saturday warned of further diplomatic and economic retaliation against countries that opposed Israel in international bodies.

“The resolution that was passed at the UN yesterday is part of the swan song of the old world that is biased against Israel but, my friends, we are entering a new era,” Netanyahu said at a Hanukkah candle-lighting ceremony.  “And just as President-elect Trump said yesterday, it will happen much sooner than you think.”

“I would like to tell you that the resolution that was adopted, not only doesn’t bring peace closer, it drives it further away.  It hurts justice; it hurts the truth. Think about this absurdity, half a million human beings are being slaughtered in Syria. Tens of thousands are being butchered in Sudan. The entire Middle East is going up in flames and the Obama administration and the Security Council choose to gang up on the only democracy in the Middle east – the State of Israel.  What a disgrace.”

Speaking ahead of a weekly cabinet meeting on Sunday, Netanyahu accused Obama of orchestrating the UN resolution.

“From the information that we have, we have no doubt that the Obama administration initiated it, stood behind it, coordinated on the wording and demanded that it be passed,” he said.

Netanyahu said: “And, as I told [Sec. of State] John Kerry on Thursday [12/22], friends don’t take friends to the Security Council.”

Back to Republican Sen. Lindsey Graham: “The United Nations will regret this vote and I hope the Obama administration will realize the massive mistake they made on their way out of the door....

“I anticipate this vote will create a backlash in Congress against the United Nations.  The organization is increasingly viewed as anti-Semitic and seems to have lost all sense of proportionality.  I will do everything in my power, working with the new administration and Congress, to leave no doubt about where America stands when it comes to the peace process and where we stand with the only true democracy in the Middle East, Israel.”

Senate Majority Leader Mitch McConnell called the abstention “a failure of leadership and judgment” and pledged to work with the incoming administration to reassure Israel.

Paul Ryan: “Today’s vote is a blow to peace that sets a dangerous precedent for further diplomatic efforts to isolate and demonize Israel.  Our unified Republican government will work to reverse the damage done by this administration, and rebuild our alliance with Israel.”

Democratic Sen. Ron Wyden also slammed the vote: “I am deeply disappointed that the administration set aside longstanding U.S. policy to allow such a one-sided resolution to pass,” Wyden said in a statement.  “Actions like this will only take us further from the peace we all want to see.”

Rights groups, however, which have long considered the settlements a violation of human rights, came to Obama’s defense.

Human Rights Watch: “The U.S. abstention is a welcome shift away from past practice of using its Security Council veto to shield Israel from criticism despite longstanding U.S. policy opposing settlements,” Louis Charbonneau, UN director at Human Rights Watch, said in a statement.  “Indications that President-elect Trump may change U.S. policy on settlements reinforces the need for a steadfast Security Council position.”

Aside from what should be a flurry of action when Congress convenes next week, on Jan. 15, days before President Obama leaves office, France is expected to host a Mideast conference where dozens of countries may endorse an international framework for peace between Israel and the Palestinians. Netanyahu vehemently opposes such activity, saying it undermines the negotiating process.

Netanyahu has repeatedly called on Mahmoud Abbas to meet for direct talks without preconditions. Abbas has refused unless Israel ends settlement construction first.

Wednesday, Secretary of State John Kerry gave a 70-minute speech on the peace process, warning that a two-state solution between Israel and the Palestinians was in grave jeopardy.  Most of the speech focused on Israel’s settlement activity in the West Bank and in East Jerusalem, which he characterized as creating an “irreversible one-state reality.”

Kerry said: “The Israeli prime minister publicly supports a two-state solution, but his current coalition is the most right-wing in Israeli history with an agenda driven by the most extreme elements.

“The result is that policies of this government, which the prime minister himself just described as more committed to settlements than any in Israel’s history, are leading in the opposite direction. They are leading towards one state.”

Prime Minister Netanyahu said he was disappointed with the speech, which he said was “unbalanced” and “obsessively focused” on settlements.

Kerry “paid lip service to the unremitting Palestinian campaign of terrorism,” the prime minister said.

Netanyahu added that the conflict centered on the Palestinians’ refusal to recognize Israel’s right to exist, but Mr. Kerry “does not see the simple truth.”

Democratic Sen. Chuck Schumer rebuked Kerry.

“While Secretary Kerry mentioned Gaza in his speech, he seems to have forgotten the history of the settlements in Gaza, where the Israeli government forced settlers to withdraw from all settlements and the Palestinians responded by sending rockets from Gaza into Israel,” Schumer said, mocking Kerry.  “This is something that people of all political stripes in Israel vividly remember.

“While he may not have intended it, I fear Secretary Kerry, in his speech and action at the UN, has emboldened extremists on both sides,” Schumer added.

Donald Trump tweeted: “They used to have a great friend in the U.S., but...not anymore. The beginning of the end was the horrible Iran deal, and now this (UN)!  Stay strong Israel, January 20th is fast approaching!”

Netanyahu replied on Twitter: “President-elect Trump, thank you for your warm friendship and your clear-cut support for Israel.”

Editorial / Washington Post

“The Obama administration is ending eight years of failed Middle East diplomacy exactly where it began in 2009 – with an exaggerated and misguided focus on Israeli settlement construction.  As he railed at the continuing growth of West Bank Jewish housing on Wednesday with a prolixity that Fidel Castro would have admired, Secretary of State John F. Kerry sounded a lot like President Obama during the early months of his first term, when he insisted that the Israeli government freeze all construction as a starting point for negotiations on a Palestinian state. The president’s demand had the effect of encouraging Palestinian leaders to resist all concessions while seeking to delegitimize Israel internationally; the peace talks went nowhere even when Prime Minister Benjamin Netanyahu imposed a temporary construction freeze.

“Mr. Kerry’s speech was, above all, a vivid demonstration of the administration’s inability to learn from its mistakes or adjust the ideological tenets that Mr. Obama brought to office.  If it has an effect, it will be to do more damage to the ‘two-state solution’ that Mr. Kerry claimed to be defending.  His histrionic rhetoric about ‘cementing an irreversible one-state reality’ will be welcomed by extremists among both Israelis and Palestinians, who are eager to declare the two-state option dead.  The one-staters include members of the incoming Trump administration, which appears headed toward flipping U.S. policy to the opposite extreme, of cheerleading for settlements – a position that would be no less blinkered and self-defeating than Mr. Obama’s....

“What blocks the two-state solution is not demography, but a failure of leadership among Israelis and Palestinians. Palestinian President Mahmoud Abbas walked away from a generous Israeli statehood offer eight years ago and in 2014 refused to accept the framework for a settlement that Mr. Kerry outlined on Wednesday.  Though he has endorsed two states, Mr. Netanyahu has been unwilling to stand up to nationalists to his right.

“It’s unlikely that Israeli and Palestinian leaders who are willing and able to reach agreement will emerge in the near future. That’s why the best U.S. policy would be to work to preserve the option of Palestinian statehood for the longer term, by combating Palestinian corruption and political dysfunction and by encouraging Israel to facilitate the growth of a viable West Bank economy.  A new U.S. administration could also work to strike a deal on settlements that restricted all growth to areas that would not be part of a Palestinian state. That would require the sort of pragmatic clear-headedness that for eight years eluded the Obama administration.”

Charles Krauthammer / Washington Post

When the chips are down, I have Israel’s back.”

- Barack Obama, AIPAC conference, March 4, 2012

“The audience – overwhelmingly Jewish, passionately pro-Israel and supremely gullible – applauded wildly.  Four years later – his last election behind him, with a month to go in office and with no need to fool Jew or Gentile again – Obama took the measure of Israel’s back and slid a knife into it.

“People don’t quite understand the damage done to Israel by the U.S. abstention that permitted passage of a U.N. Security Council resolution condemning Israel over settlements. The administration pretends this is nothing but a restatement of longstanding U.S. opposition to settlements.

“Nonsense.  For the past 35 years, every administration, including a reelection-seeking Obama himself in 2011, has protected Israel with the U.S. veto because such a Security Council resolution gives immense legal ammunition to every boycotter, anti-Semite and zealous European prosecutor to penalize and punish Israelis.

“An ordinary Israeli who lives or works in the Old City of Jerusalem becomes an international pariah, a potential outlaw.  To say nothing of the soldiers of Israel’s citizen army.  ‘Every pilot and every officer and every soldier,’ said a confidant of Palestinian leader Mahmoud Abbas, ‘we are waiting for him at The Hague,’ i.e. the International Criminal Court.

“Moreover, the resolution undermines the very foundation of a half-century of American Middle East policy.  What becomes of ‘land for peace’ if the territories that Israel was to have traded for peace are, in advance, declared to be Palestinian land to which Israel has no claim?

“The peace parameters enunciated so ostentatiously by Secretary of State John Kerry on Wednesday are nearly identical to the Clinton parameters that Yasser Arafat was offered and rejected in 2000 and that Abbas was offered by Prime Minister Ehud Olmert in 2008.  Abbas, too, walked away.

“Kerry mentioned none of this because it undermines his blame-Israel narrative.  Yet Palestinian rejectionism works.  The Security Council just declared the territories legally Palestinian – without the Palestinians having to concede anything, let alone peace.  What incentive do the Palestinians have to negotiate when they can get the terms – and territory – they seek handed to them for free if they hold out long enough?....

“It’s the third category of ‘settlement’ that is the most contentious and that Security Council Resolution 2334 explicitly condemns: East Jerusalem.  This is not just scandalous; it’s absurd.  America acquiesces to a declaration that, as a matter of international law, the Jewish state has no claim on the Western Wall, the Temple Mount, indeed the entire Jewish Quarter of Jerusalem.  They belong to Palestine.  The Temple Mount is the most sacred site in all of Judaism.  That it should be declared foreign to the Jewish people is as if the Security Council declared Mecca and Medina to be territory to which Islam has no claim.  Such is the Orwellian universe Israel inhabits.

“At the very least, Obama should have insisted that any reference to East Jerusalem be dropped from the resolution or face a U.S. veto.  Why did he not? It’s incomprehensible – except as a parting shot of personal revenge on Benjamin Netanyahu.  Or perhaps as a revelation of a deep-seated antipathy to Israel that simply awaited a safe political interval for public expression.

“Another legacy moment for Barack Obama.  And his most shameful.”

Bret Stephens / Wall Street Journal

“Barack Obama’s decision to abstain from, and therefore allow, last week’s vote to censure Israel at the UN Security Council is a fitting capstone for what’s left of his foreign policy.  Strategic half-measures, underhanded tactics and moralizing gestures have been the president’s style from the beginning.  Israelis aren’t the only people to feel betrayed by the results.

“Also betrayed: Iranians, whose 2009 Green Revolution in heroic protest of a stolen election Mr. Obama conspicuously failed to endorse for fear of offending the ruling theocracy.

“Iraqis, who were assured of a diplomatic surge to consolidate the gains of the military surge, but who ceased to be of any interest to Mr. Obama the moment U.S. troops were withdrawn, and only concerned him again when ISIS neared the gates of Baghdad.

“Syrians, whose initially peaceful uprising against anti-American dictator Bashar Assad Mr. Obama refused to embrace, and whose initially moderate-led uprising Mr. Obama failed to support, and whose sarin- and chlorine-gassed children Mr. Obama refused to rescue, his own red lines notwithstanding.

“Ukrainians, who gave up their nuclear weapons in 1994 with formal U.S. assurances that their ‘existing borders’ would be guaranteed, only to see Mr. Obama refuse to supply them with defensive weapons when Vladimir Putin invaded their territory 20 years later.

“Pro-American Arab leaders, who expected better than to be given ultimatums from Washington to step down, and who didn’t anticipate the administration’s tilt toward the Muslim Brotherhood as a legitimate political opposition, and toward Tehran as a responsible negotiating partner.

“Most betrayed: Americans.

“Mr. Obama promised a responsible end to the war in Iraq. We are again fighting in Iraq.  He promised victory in Afghanistan. The Taliban are winning.  He promised a reset with Russia. We are enemies again.  He promised the containment of Iran. We are witnessing its ascendancy in Iraq, Syria, Lebanon and Yemen. He  promised a world free of nuclear weapons.  We are stumbling into another age of nuclear proliferation. He promised al Qaeda on a path to defeat. Jihad has never been so rampant and deadly.

“These are the results.  They would be easier to forgive if they hadn’t so often been reached by disingenuous and dishonorable means....

“Now the administration is likely being deceptive about last week’s UN vote, claiming it did not promote, craft or orchestrate a resolution that treats the Jewish Quarter of Jerusalem’s Old City as a settlement in illegally occupied territory.  Yet in November, John Kerry had a long talk on the subject with the foreign minister of New Zealand, one of the resolution’s sponsors....

“After the Carter administration pulled a similar stunt against Israel at the Security Council in December 1980, the Washington Post published an editorial that does the paper honor today.

“ ‘It cannot be denied,’ the editors wrote, ‘that there is a pack and that it hounds Israel shamelessly and that this makes it very serious when the United States joins it.’  The editorial was titled ‘Joining the Jackals.’

“Unlike Mr. Carter, Mr. Obama hasn’t joined the jackals. He has merely opened the door wide to them, whether at the UN or in the skies over Syria or in the killing fields in Ukraine.  The United States abstains: What a fitting finish to this ruinous presidency.”

According to a story in Egyptian daily Al-Youn Al-Saba’a, Sec. Kerry met with a Palestinian delegation in early December in Washington to discuss the draft UN Security Council resolution.  According to transcripts of the meeting, Kerry, along with National Security Adviser Susan Rice, met with Secretary General of the PLO Executive Committee Saeb Erekat and Majed Faraj, head of the Palestinian Authority’s General Intelligence Service.

The reported transcripts reflect statements by numerous Israeli officials claiming that the resolution was orchestrated by the Obama administration, which it denies. Erekat denies the claims written in the documents as well, but not that a meeting took place.

Meanwhile, Israeli Attorney General Avichai Mandelblit ordered an investigation into charges of bribery and fraud on the part of Prime Minister Netanyahu, including campaign donations and a Defense Ministry deal to buy submarines from Germany.  Through a spokesman, Netanyahu denied the allegations.

China: Beijing at yearend is increasingly concerned about the fledgling independence movement in Hong Kong, and it’s deeply suspicious of Taiwan President Tsai Ing-wen, who China’s leaders believe is going to push for independence.

At a routine news conference by China’s policy-making Taiwan Affairs Office, spokesman An Fengshan said, “A small coterie of Taiwan independence forces are trying in vain to link up with Hong Kong independence [forces] to split the country, which cannot succeed,” he said.

“It’s just like that saying ‘On this tiny globe, a few flies dash themselves against the wall,’” An said, quoting a 1963 poem by Mao, the meaning being China does not fear its enemies.

“In the end they’ll find themselves broken and bleeding,” he added, without elaborating.  [South China Morning Post]

On Taiwan, officials there believe China is stepping up pressure on the democratic island because of actions taken by President-elect Donald Trump.  On Monday, the Chinese navy sailed its only aircraft carrier just 90 nautical miles from the coast of Taiwan, not long after the Chinese military flew a bomber capable of carrying nuclear weapons close to the edge of Taiwanese territory, plus you had the previous week’s snatching by the Chinese navy of the U.S. drone in the South China Sea.

Lo Chih-cheng, a legislator and foreign policy expert from Ms. Tsai’s Democratic Progressive party, told the Financial Times: “China is very angry about losing face, so it is picking on Taiwan as a scapegoat.”  [Ed. this should sound familiar to long-time readers of this space.]  “The lesson we learn is that U.S. policy toward Taiwan is a function of U.S.-China policy, so we have to be very careful, whether the U.S. takes a more confrontational or a more friendly approach to China.”

Friday, President Tsai’s office said she will transit through Houston and San Francisco during a January visit to allies in Latin America, prompting China to call for the United States to block any such stopover.  There is no word as yet whether she will be meeting with anyone from Trump’s transition team; Tsai arriving in Houston on Jan. 7, leaving the following day, and then arriving in San Francisco on Jan. 13.  This could be interesting.  [Taiwan is down to 21 diplomatic allies, mostly poorer nations in Latin America and the Pacific, and also including the Vatican.]

Separately, I’ve been meaning to pass on the thoughts of longtime editor and national correspondent for The Atlantic magazine, James Fallows, who in the December 2016 issue wrote of his recent experiences in China, having lived there for years and being a big time China ‘bull’ in the past.

Fallows:

“What if China is going bad? Since early last year I have been asking people inside and outside China versions of this question.  By ‘bad’ I don’t mean morally.  Moral and ethical factors obviously matter in foreign policy, but I’m talking about something different.

“Nor is the question mainly about economics....

“Instead the question is whether something basic has changed in the direction of China’s evolution, and whether the United States needs to reconsider its China policy.  For the more than 40 years since the historic Nixon-Mao meetings of the early 1970s, that policy has been surprisingly stable. From one administration to the next, it has been built on these same elements: ever greater engagement with China; steady encouragement of its modernization and growth; forthright disagreement where the two countries’ economic interests or political values clash; and a calculation that Cold War-style hostility would be far more damaging than the difficult, imperfect partnership the two countries have maintained....

“In both word and deed, U.S. presidents from Nixon onward have emphasized support for China’s continued economic emergence, on the theory that  a getting-richer China is better for all concerned than a staying-poor one, even if this means that the center of the world economy will move toward China....

“For a long period, the assumption held. Despite the ups and downs, the China of 2010 was undeniably richer and freer than the China of 2005, which was richer and freer than the China of 2000, and so on.

“But that’s no longer true.  Here are the areas that together indicate a turn:

Communications. China’s internet, always censored and firewalled, is now even more strictly separated from the rest of the world’s than ever before, and becoming more so.  China’s own internet companies (Baidu as a search engine rather than Google, WeChat for Twitter) are more heavily censored.  Virtual private networks and other work-arounds, tolerated a decade ago – the academic who invented China’s ‘Great Firewall’ system of censorship even bragged about the six VPNs he used to keep up on foreign developments – are now under governmental assault.  When you find a network that works, you dare not mention its name on social media or on a website that could alert the government to its existence.  ‘It’s an endless cat-and-mouse,’ the founder of a California-based VPN company, which I’m deliberately not identifying, recently told me.  ‘We figure out a new route or path, and then they notice that people are using us and they figure out how to block it.  Eventually they wear most users down.’  On a multiweek visit  to China early last year [2015], I switched among three VPNs and was able to reach most international sites using my hotel-room Wi-Fi.  On a several-day visit last December, the hassle of making connections was not worth it, and I just did without Western news sources.

“China’s print and broadcast media have always been state-controlled and pro-government. But a decade ago I heard from academics and party officials that ‘reasonable’ criticism from the press actually had an important safety-valve function, as did online commentary, in alerting the government to emerging problem spots.

“Those days are gone.  Every week or two the Chinese press carries warnings, more and more explicit, by President Xi Jinping and his colleagues that dissent is not permissible and the party’s interests come first.  Also this year, the government banned foreign-owned media – that is, all media beyond its direct control – from publishing anything in China without government approval.  It cracked down on several publications (notably the business magazine Caixin and the Guangzhou-based newspaper Southern Weekend) that for years had mastered the art of skirting government controls....

Repression of civil society.  Throughout the Communist era, the Chinese state has suppressed the growth of any form of organization other than the party itself.  Religious practice, for instance, is authorized for five officially approved faiths...but only state-authorized temples, mosques, and churches are allowed...

“In the past five years, the screws have been tightened further on all these and other groups.  Churches have been bulldozed across the country, allegedly as part of urban-development plans.  Many of the country’s public defenders and public-interest lawyers are now in jail. So are prominent feminists and environmental organizers. The April 21 cover of The New York Review of Books this year billed an article by the Asia Society’s Orville Schell, who has written about China since the 1960s, as ‘The New Terror in China.’  ‘In my lifetime I did not imagine I would see the day when China regressed back closer to its Maoist roots,’ Schell told me.  ‘I am fearing that now.’....

“Two years ago, the U.S. firm LinkedIn was found to have censored critical posts about China from its worldwide network, even when the posts were written and intended to be read only by people outside Chinese territory.  The agreement was a condition of LinkedIn’s operating in China.  Twitter is still banned there, but in April it hired an engineer who once worked for China’s military and security services as its managing director for China. In one of her first tweets, she wrote to CCTV, the carefully monitored state-run TV network, saying, ‘Let’s work together to tell great China story to the world!’”

I have been writing extensively of Xi’s crackdown for years now, and speaking of how scary he is, especially because I believe he is seriously lacking in intelligence.  He also knows little of the West and has traveled little (unlike KGB-grad Vladimir Putin, who knows us better than our leaders do), and Xi is a dolt.

So James Fallows has this:

“The more uncertain (Xi) feels about China’s diplomatic and economic position in the world, and the more grumbling he hears about his ongoing crackdown, the more ‘decisively’ he is likely to act.  ‘Xi is a weak man who wants to look strong,’ a foreign businessman who has worked in China for many years told me.  ‘He is the son of a famous father [Xi Zhongxun, who fought alongside Mao as a guerrilla and became an important Communist leader] and he wants to prove he is worthy of the name. As we’ve seen in other cultures, this can be a dangerous mix.’  Ten years ago, when I visited a defense-oriented think tank in Beijing, I was startled to see a gigantic wall map showing U.S.-affiliated encampments and weapons on every Chinese frontier except the one bordering Russia.  I came to understand that the graphic prominence of the U.S. military reflected a fairly widespread suspicion that the United States wishes China ill, is threatened by its rise, and does not want to see China succeed. Almost no one I spoke with recently, however, foresaw a realistic danger of a shooting war between China and the United States or any of its allies....

“(But) the concern about a more internationally aggressive China involves not a reprise of the Soviet Union during the tensest Cold War years but rather a much bigger version of today’s Russia. That is: an impediment rather than an asset in many of the economic and strategic projects the United States would like to advance....A power that sometimes seems to define its interests by leaning toward whatever will be troublesome for the United States. An actual adversary, not just a difficult partner. China is challenging in many ways now, and increasingly repressive, but things could get worse. And all of this is separate from the effect on China’s own people, and on the limits it is placing on its academic, scientific, commercial, and cultural achievements by cutting itself off from the world.”

Russia, cont’d: Officials have not totally ruled out a “terrorist act” in the tragic crash of a Russian aircraft that plunged into the Black Sea, killing 92, including dozens of Red Army Choir singers and dancers that were being sent to Syria to entertain Russian troops.  The wreckage of the Tu-154 was found, as well as the black box, and while there are no signs of an explosion, a Russian official said, “this isn’t the only type of terrorist act.... It could have been any type of mechanical impact, so we don’t rule out a terrorist act.”

The plane went from Moscow to Sochi for a refueling stop and one theory  is it could have received bad fuel there, as the aircraft plunged into the sea two minutes after take-off from Sochi.

Separately, Russian aviation authorities grounded the country’s fleet of its newest model of civilian airliner, the Sukhoi Superjet 100, after metal fatigue, normally associated with older aircraft, was discovered in the tail section of a new Sukhoi jet.

The new plane is a test of whether Russian prowess with its military aerospace programs can translate into a successful civilian product.

Aeroflot is Russia’s national flag carrier and its being pressured into buying domestic aircraft, but it wants to solidify its reputation with customers, both home and abroad, by flying mostly Boeing and Airbus planes.

So if you are flying Aeroflot the next few years, make sure you know what the actual aircraft is before buying a ticket.  [Tips for avoiding death on your flight...another free feature of StocksandNews.]

Japan: Prime Minister Shinzo Abe became the first Japanese leader to visit Pearl Harbor, but he did not apologize for the 1941 attack, conceding only that Japan “must never repeat the horrors of war again.”

“As the prime minister of Japan, I offer my sincere and everlasting condolences to the souls of those who lost their lives here, as well as to the spirits of all the brave men and women whose lives were taken by a war that commenced in this very place,” Abe said.

No one was expecting a full apology, which wouldn’t be met well back home in Japan, just as seven months earlier, President Obama didn’t apologize when he became America’s first sitting president to visit Hiroshima.

India: Prime Minister Narendra Modi defended his decision to withdraw high denomination bank notes from circulation, as a deadline to end severe cash shortages passed with Indians still trying to deposit savings and withdraw money.  Modi on Nov. 8 abolished the 500 and 1,000 rupee bills, taking out 86% of cash in circulation, in a bid to fight the black market, corruption, end terror financing and turn India into a cashless society.  But the move caused a major cash crunch as the government then struggled to produce new 500 and 2,000 rupee bills.

Today is supposed to be the last day for the old bills, to deposit them, or they become worthless. But banking officials say, for example, that ATM operations won’t be normal until the end of February.  [Some Indians living abroad have until March 31 2017, but the process is very complicated.  I’ve heard firsthand from an Indian friend, one of my “beer men,” just how much so.]

State elections are being held early next year and how this transition goes is critical to Modi’s expected bid for a second term in 2019, and it doesn’t look good that the government was clearly unprepared.  [“Beer Man” is more optimistic.]

Brazil: Police in Rio found a body inside a burnt-out car that had been rented by the Greek ambassador to Brazil, Kyriakos Amiridis.

Amiridis, a highly-experienced diplomat, went missing after traveling to Rio from Brasilia for traditional New Year’s celebrations on Copacabana beach.  He is married to a Brazilian woman, and details were not initially known as to when he was abducted and/or killed.

That is until a Rio police officer confessed to the murder today, possibly at the direction of Amiridis’ wife, who is also in custody, according to Globo TV.  It seems the wife and officer may have been romantically involved.

Congo: President Joseph Kabila will step down after elections held before the end of 2017, under a final deal struck on Friday, according to a lead mediator from the Catholic Church.  Kabila will be unable to change the constitution to extend his mandate and run for a third term.

Mongolia: The air pollution in China continues at awful levels, but consider this.  Levels of particulate matter (the fine dust that gets into your lungs and kills you) in Mongolia is almost 80 times the recommended safety level set by the World Health Organization – and five times worse than Beijing during its worst smog of the year.

In Mongolia, it’s about power plants working overtime in the winter, belching plumes of soot, while smoke from coal fires in the shantytowns of the capital, Ulaanbaatar, envelop the city in a brown fog, as described by Bloomberg.

So the people have been rising up and protesting, though the government has few resources to tackle this serious issue.

Random Musings

--President Obama wished Americans a Merry Christmas in his final holiday address while reminding them of all the gifts he has given the nation in the past eight years.

“Together, we fought our way back from the worst recession in 80 years, and got unemployment to a nine-year low. We secured health insurance for another twenty million Americans, and new protections for folks who already had insurance. We made America more respected around the world, took on the mantle of leadership in the fight to protect this planet for our kids, and much, much more.”

--In an exit interview with his former senior adviser David Axelrod for the latter’s “The Axe Files” podcast, produced by the University of Chicago Institute of Politics and CNN, President Obama asserted he could have succeeded in this year’s election if he was eligible to run.

“I am confident in this vision because I’m confident that if I had run again and articulated it, I think I could’ve mobilized a majority of the American people to rally behind it.

“I know that in conversations that I’ve had with people around the country, even some people who disagreed with me, they would say the vision, the direction that you point towards is the right one,” Obama said in the interview, which aired Monday.

“In the wake of the election and Trump winning, a lot of people have suggested that somehow, it really was a fantasy,” Obama said of the hope-and-change vision he heralded in 2008.  “What I would argue is, is that the culture actually did shift, that the majority does buy into the notion of a one America that is tolerant and diverse and open and full of energy and dynamism.”

Whatever you say, Professor.

But Obama also took a shot at Hillary Clinton, repeating his suggestion Democrats had ignored entire segments of the voting population, leading to Trump’s win.  He implied Clinton’s campaign hadn’t made a vocal enough argument directed toward Americans who haven’t felt the full benefits of the economic recovery.

“If you think you’re winning, then you have a tendency, just like in sports, maybe to play it safer,” adding later he believed Clinton “performed wonderfully under really tough circumstances” and was mistreated by the media.

Trump responded Monday afternoon to Obama’s assertion he could have won a third term.

“President Obama said that he thinks he would have won against me.  He can say that but I say NO WAY! – jobs leaving, ISIS, OCare, etc,” Trump tweeted.

--I noted some of the following in the immediate aftermath of the election, but Deroy Murdock summarized things well in a New York Post op-ed.

“As President Obama concludes his reign of error, his party is smaller, weaker and ricketier than it has been since at least the 1940s. Behold the tremendous power that Democrats have frittered away – from January 2009 through the aftermath of Election Day – thanks to Obama and his ideas:

“ – Democrats surrendered the White House to political neophyte Donald J. Trump.

“ – U.S. Senate seats slipped from 55 to 46, down 16 percent.

“ – U.S. House seats fell from 256 to 194, down 24 percent.

“ – Democrats ran the Senate and House in 2009.  Next year, they will control neither.

“ – Governorships slid from 28 to 16, down 43 percent.

“ – State legislatures (both chambers) plunged from 27 to 14, down 48 percent.

“ – Trifectas (states with Democrat governors and both legislative chambers) cratered from 17 to 6, down 65 percent.

“Since Franklin Delano Roosevelt, eight presidents have served at least two terms or bowed to their vice presidents due to death or resignation.  Among them, Obama ranks eighth in total state legislative seats that his party preserved during his tenure....

“In terms of boosting his party’s state-level strength, Obama is the worst president since World War II.  Reagan is the best.

“Democrats can chant the soothing lie that this wholesale, multi-level rejection of their party stems from ‘structural racism,’ the legacy of Jim Crow, the immortal tentacles of slavery, or whatever other analgesic excuse they can scrounge up.  The same nation that they claim cannot outgrow its bigotry somehow elected and then re-elected Obama, quite comfortably.

“This deep-rooted repudiation is not of Obama himself, but of Obamaism, today’s Democratic gospel.

“At home, Obamaism features economic stagnation, morbidly obese and equally dysfunctional government, racial and identity fetishism, and rampant political correctness.

“Overseas: Shame at American pre-eminence fuels flaccid ‘leadership from behind.’

“All told, 1,043 federal and state-level Democrats lost or were denied power under Obama, largely because Americans grew disgusted by such outrages as a non-stimulating $831 billion ‘stimulus,’ eight consecutive years of economic growth below 3 percent, an 88 percent increase in the national debt, the revocation of America’s triple-A bond rating and ObamaCare’s epic flop ($2.3 trillion to finance widespread insurance policy cancellations, 20 bankruptcies among 24 state co-ops, early retirements for experienced but exasperated doctors and more).  Also nauseating: federal non-management of everything from dishwashers to third-grade lunches to national school shower policy.

“Abroad Obamaism spawned the rise of ISIS, the fall of U.S. personnel in Benghazi, and Iran’s relentless humiliation – before, during and after Obama’s delivery of some $100 billion in unfrozen assets, including at least $1.7 billion in laundered cash, literally flown in on private jets.

“ ‘My legacy’s on the ballot,’ Obama said last September, just as he had said before the 2014 midterms.

“And Democrats have paid the ultimate price....

“Rather than enjoy a traditional, low-key post-presidency in Chicago, Obama plans to hunker down in Washington, D.C., comment on current events and counsel his party’s candidates and officeholders.  Democrats should find this as appetizing as dinner cooked by Typhoid Mary.”

--Donald Trump said he plans on shutting down his charitable foundation, which has been under intense scrutiny.  The President-elect gave no timetable, given an ongoing investigation of the foundation in New York.

Trump said in a statement: “The Foundation has done enormous good works over the years in contributing millions of dollars to countless worthy groups, including supporting veterans, law enforcement officers and children.   However, to avoid even the appearance of any conflict with my role as President I have decided to continue to pursue my strong interest in philanthropy.”

But the Donald J. Trump Foundation has come under intense scrutiny owing to a series of articles in the Washington Post detailing its practices, such as cases where Trump apparently used the Foundation’s money to settle lawsuits involving his for-profit businesses.

New York’s attorney general has been investigating the charity following some of the Post’s reports and according to that office, the foundation cannot officially shut down until the probe is complete.

The foundation largely collects and donates money from other people.  It only has $1.16 million in total assets at the end of 2015, according to the most recent tax filing available.  [Washington Post]

Earlier in the week, Trump’s eldest son, Eric, said he was suspending his charitable foundation after facing questions about whether donors could receive special access.

--Jason Miller was tabbed to be Donald Trump’s communications director, but two days later, Miller resigned, after a tweet from the account of A.J. Delgado, an adviser to Trump’s campaign and a member of the transition team, appeared with the message: “Congratulations to the baby-daddy on being named WH Comms Directors!”  Delgado also appeared to call Miller “The 2016 version of John Edwards,” a reference to the former senator and Democratic presidential candidate who had to admit to an extramarital affair with his campaign videographer.  After two other tweets called on Miller to resign – he did.

Delgado then deactivated her Twitter account and could not be reached for comment.

Miller said in a statement: “After spending this past week with my family, the most amount of time I have been able to spend with them since March 2015, it is clear they need to be my top priority right now and this is not the right time to start a new job as demanding as White House Communications Director.

“My wife and I are also excited about the arrival of our second daughter in January, and I need to put them in front of my career.”

Delgado was a fierce surrogate for Trump during the campaign.  And, yes, it is rumored she and Miller had an affair.  According to the New York Post, it was Delgado, Miller and another Trump aide who were seen at a Las Vegas strip club on the night before the final presidential debate in October with three employees from CNN, NBC and ABC.

--Charles Krauthammer on 2016’s ‘winner’ and ‘loser’; Trump and Clinton being too easy.

Winner: Vladimir Putin.  Loser: Chris Christie, who hitched his wagon to Trump, sought the brass ring, and didn’t get it.

--As of today, 64 police officers in the U.S. had been killed by gunfire this year vs. 41 in 2015.  21 died in ambushes.

In Chicago last weekend, 43 were shot, 11 killed.  The death toll with a week to go there was 767 vs. 492 in 2015.

---

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

God bless America.

---

Gold $1152...$1061, 12/31/15
Oil $53.89...$37.04, 12/31/15

Returns for the week 12/26-12/30

Dow Jones  -0.9%  [19762]
S&P 500  -1.1%  [2238]
S&P MidCap  -0.8%
Russell 2000  -1.1%
Nasdaq  -1.5%  [5383]

Returns for 2016

Dow Jones  +13.4%
S&P 500  +9.5%
S&P MidCap  +18.7%
Russell 2000  +19.5%
Nasdaq  +7.5%

Bulls 59.8
Bears  19.6  [Source: Investors Intelligence...there was no update this holiday week.]

Happy New Year...may your 2017 be prosperous and safe.

Brian Trumbore