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12/10/2011

For the week ended 12/5-12/9

[Posted 6:00 AM ET…from Kiawah, South Carolina]

Europe, Washington and Wall Street

You’ll have to forgive me for being brief this week, even as the news out of Europe was rather important. Frankly, I spent a large chunk of Friday playing golf with a college buddy at the Ocean Course here on Kiawah, site of next summer’s PGA Championship. With each time that I play here, I appreciate how great, and hard, it is. Golf fans are in for a real treat come August.

Anyway, time is running out and I need to get a little sleep (Friday night) because I’m running in a half-marathon here right after I post this column. So I’ll catch up with the details of events in Europe next time.

For now, though, 23 of 27 nations reached an intragovernmental agreement at the EU Summit on Thursday and Friday, including all 17 euro nations, a “stability union” that will set new budget guidelines and automatic sanctions for those governments that violate same…details of which are yet to be worked out but we’ve been told will be by next March. Under this eventual full fiscal union, among other things, all draft budgets are to be submitted to the European Commission for approval and the EC is to have the power to make recommendations, or demand changes, which in turn means that, say, Italy, would be giving up their sovereignty, but then the Italians and others already have during this whole 19 months of fiscal crisis since the Euro folks first realized Greece was insolvent without immediate aid.

But while Hungary, Czech Republic and Sweden said they needed more time to decide on the Brussels agreement, Britain’s David Cameron was furious over a proposed financial transactions tax that most impacts London’s key financial district, with Cameron saying “we’re never going to join the euro” group, ‘never’ being a pretty strong word in diplomatic terms.

To which French President Nicolas Sarkozy countered: “David Cameron asked for what we thought was unacceptable: a protocol to exonerate the U.K. from financial services regulation. We could not accept this as at least part of the problem comes from this sector.”

So once again there are many questions. The agreement that was reached among the euro 17 gives Brussels control of fiscal budgets without treaty changes. How can this be so? More than a few parliaments are going to be up in arms over this.

How does all this build confidence as the EU tumbles into recession? It’s about perception, when it comes to global markets, and I don’t see how anything that happened the past few days changes the fact that contagion spread to Italy and Spain and the EU still doesn’t have the backstops in place to bail them out once the inevitable occurs…like another failed bank auction leading to another surge in interest rates. Recall, for example, that over the coming year, Italy has to roll over 300 billion euro in bonds. Between sovereign debt and European bank debt, it’s about 2 trillion euros worth of paper that has to be rolled over. Who is going to buy all of this? How are the European banks going to raise $153 billion in capital by next June as required by the European Banking Agency.

As for the European Financial Stability Facility (EFSF), the 440 billion euro fund designed to backstop Greece, Ireland and Portugal, it is not being levered up or combined with the 500 billion euro European Stability Mechanism (ESM), as once thought, though the ESM may get more money from contributing nations.

And what of the European Central Bank, which is holding firm in saying it is not just going to open the spigots and keep buying Italian and Spanish debt in what would be a futile attempt to keep interest rates low; though having said that, it’s also clear that the ECB’s recent purchases of sovereign debt have been larger than expected.

What did happen was the ECB is now offering unlimited liquidity to the banks to alleviate their funding crisis, while part of the stability union is an agreement for EU countries to hand over 200 billion to the IMF as a way of helping struggling countries and filling its coffers, which were down below 400 billion in assets.

Meanwhile, the Euro continent is plunging into recession this quarter. Germany can still throw out a good number or two but the trend is down with October exports falling 3.6%. In the U.K. manufacturing in October declined 0.7%. Italy’s industrial production fell 0.9%.

Greece’s parliament voted 258-41 to enact a 2012 budget but its contingent on a debt-swap plan still yet to be worked out.

Ireland adopted another round of austerity cuts, 1.4 billion euro worth.

Moody’s downgraded three big French banks, saying, “Liquidity and funding conditions have deteriorated significantly” for each, adding the problem is likely to get worse. [We’ll see if the ECB’s move in this regard helps.]

Standard & Poor’s placed the entire 27-nation EU on credit watch, hardly an unexpected move, and largely pooh-poohed by many, but nonetheless S&P expressed the truth, saying the decision was reached “in the context of what we view as deepening political, financial, and monetary problems within the eurozone,” little of which was really addressed by this week’s agreement in Brussels. In fact I would say as the people and politicians fully understand just how much sovereignty they are giving up, the problems are just getting started, and even with a quarter-point rate cut by the ECB, I still don’t see where the growth is going to come from.

The Financial Times editorialized:

“Repairing monetary union will take years of effort. But the alternative is worse. The economic consequences of a break-up would be staggering both for creditor and debtor nations. Huge uncertainty about the value of any outstanding euro-denominated contracts could paralyze commerce within Europe and beyond. Political relations would be poisoned for years….

“So badly have European governments undermined their own credibility that the only way to shock markets back to confidence is by putting hard money on the table. The straightforward way would be to use the EFSF to the hilt. The EFSF would raise a large war chest to support the prices of new bonds issued by any sovereign that is solvent, at the lowest rates it can afford to charge.

“The worry is that the EFSF may not now be able to raise enough money to stop the rot.”

But as the Financial Times opines, that leaves it up to the ECB, and the newspaper “remains very uncomfortable about the legality and political consequences of the ECB exposing as much of its balance sheet to the sovereign debt market as it takes to keep bond prices up for good.”

So the alternative would be to turn the EFSF or ESM into banks which the ECB would then help to finance, but this doesn’t appear to be in the cards, at least today.

As for Washington and Wall Street, economic news was light, with October factory orders coming in down 0.4%, while consumer confidence in November rose more than expected. Additionally, there was cause for optimism as the weekly jobless claims figure came in at 381,000, the lowest tally in five months.

But chipmaker Texas Instruments cut its fourth quarter guidance citing concerns on the global outlook for growth.

Meanwhile, China released a number of important data points. Consumer prices in November fell sharply to a 4.2% annual rate and an actual decline over October. Prices had peaked at 6.5% in July. So this is a positive as it enables the government to lower interest rates should it so choose. Additionally, November exports rose 13.8%, the slowest pace since 2009 but well above estimates. There remains significant concern that China faces a banking crisis down the road with the growing number of non-performing loans, though for all the hand-wringing, the numbers are still strong, witness November industrial production, up 12.4%

Nonetheless, the Asia Development Bank lowered its GDP outlook for 2012 to 7.2% (ex-Japan and India), though this could be worse depending on Europe.

Elsewhere around the globe, Australia reported stronger than expected growth for its third quarter, up 1%, while the second quarter was revised upward to 1.4%. The jobless rate for November ticked up to 5.3%. 

But Brazil suddenly saw its growth train stall out as third quarter GDP there went negative, by a fraction, over the second quarter as weakness in the industrial sector led to slower consumer spending.

Street Bytes

--Stocks rose again on Euro optimism, though it was touch and go all week as the Dow Jones gained 1.4% to close at 12184. The Dow is now up 5.2% for the year, but the S&P 500 and Nasdaq are still down, both 0.2%.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.22% 10-yr. 2.06% 30-yr. 3.11%

Yields rose and fell based on news out of Europe. Any optimism there led to rates rising on U.S. Treasuries. Pessimism led to the opposite. At week’s end there was more optimism than pessimism.

--Brits are concerned that Bank of England Gov. Sir Mervyn King is too gloomy, as in he is relentlessly downbeat; such as in his recent musings that these were “extraordinarily serious” times and “an exceptionally threatening environment.” In another speech, King said the banking system is in full blown “systemic crisis” and lenders should cut bonuses, slash dividends and bolster their defenses. He might be right, but as one banker told the London Times, he couldn’t imagine Ben Bernanke using such a tone.

--According to a poll in Sweden, less than 10 percent of the people there support a switch to the euro, a record low. Sweden once had a serious financial crisis of its own but has lowered its debt to GDP radio to just 36 percent and will post a budget surplus in 2011. Germany’s debt to GDP is going to be over 81 percent this year. Sweden’s 10- and 30- year bond deals are below those of Germany’s.

--According to ComScore, online sales surged 15 percent in November over year ago levels. I know I recently bought a lot of cookies online for the first time ever, but then you should have seen these pictures of the buttercream ones that I was drooling over.  

--Citigroup is eliminating 4,500 jobs and taking a $400 million charge in the fourth quarter as a result.

--McGraw Hill is cutting 550 jobs in its education division as resources are redirected from traditional textbook businesses to digital products and education services, according to the company.

--BP accused Halliburton of destroying damaging evidence relating to the 2010 Gulf of Mexico oil well blast and spill. BP is claiming oil-field services giant Halliburton “intentionally” destroyed test results of its cement product used at the Macondo well.

--Randy Babbitt was forced to resign from the FAA after being arrested for drunk driving in Fairfax, Virginia. Most of us are just wondering, how Babbitt could wait 36 hours to tell his boss, Transportation Secretary Ray LaHood, who learned of it through a police news release.

--The parent of Massey Energy, Alpha Natural Resources, agreed to pay $209 million in restitution and civil and criminal penalties for the roles of Massey in the mine explosion last year that claimed 29 lives in West Virginia. $46.5 million goes to the families of the victims and   those injured in the blast. But many family members are still incensed that criminal charges haven’t been filed as yet against Massey executives. 18 of them have refused to be interviewed by federal investigators. In this respect the case is similar to some of the Wall Street scandals.

--In what could be a significant development, for the first time the EPA linked chemicals used in hydraulic fracturing for natural gas to contaminated water supplies, in this case in a remote Wyoming valley. The EPA admits that the conditions in the “Pavillion” field were different from standard fracturing sites in that the gas wells were far shallower than in many other areas. 

--India’s government was all set to embrace opening up its retail market to global chains such as Wal-Mart and Tesco, but, just as in some U.S. locales, the government got an earful from critics and small businessmen, fearful they would be wiped out, and so India’s leadership has opted to suspend the plan.

--The U.S. Postal Service said it planned to eliminate next-day delivery for first-class mail as it shuts half of its 487 processing centers nationwide, which will also result in the elimination of 28,000 jobs. It will be the first reduction in delivery standards in 40 years. The USPS is looking to save $3 billion a year by 2015, having lost 27 percent of its first-class volume the last three years, according to postmaster general Patrick Donahoe.

Gee, did you know 60 percent of bills are paid online these days? I refuse to do so. 

--So remember how I’ve said from time to time this year that I was hearing how strong the corn and wheat harvests were in places like Russia and Ukraine (got this info largely confirmed by readers from the region)? This week corn futures hit their lowest levels of the year, “with Europe picking up key export business in Asia.” [Wall Street Journal]

“Japan typically buys U.S. corn, but Eastern and Central European countries have harvested a bumper crop and their prices for delivery to East Asia are currently cheaper than U.S. prices.”

Australia is also doing well as their drought was broken, another topic I addressed earlier in the year. It was all part of my CRB Index calculation that we’d finish down on the year after being way up early on. [And with three weeks to go, the CRB is at 306.43, after closing 12/31/10 at 332.80]

--Hedge fund king John Paulson has lost 46 percent this year on one of his largest funds through November.

--Friday’s USA TODAY has a huge cover story on how states have been expanding pensions once reserved for police and firemen to tens of thousands of other workers, such as dispatchers, park rangers, and even lifeguards; all of which will add heavily to the current $70 billion that taxpayers owe state retirement funds each year.

The pensions were designed for those putting their lives on the line, but in Illinois, for example, “where highway maintenance workers earn up to $148,000 a year with overtime, early enhanced retirement can pay a $75,000-a-year-pension at age 50 after 25 years on the job. That adds up to $2.2 million if the retiree lives to age 80 - $1.2 million more than if the person had been in the state’s regular retirement plan.”

--Thirteen local unions ratified a contract with the A&P supermarket chain, now in bankruptcy. I selfishly note this as I shop at a nice A&P in town. It seems the workers accepted a five-year wage freeze. Now that’s a sign of the times. All other costs keep rising, of course. But at least the new contract protects, for the time being, not only their jobs but their health and pension benefits.

--Hot times comin’ up in New Orleans. Over the next 18 months, the Big Easy is host to college football’s national championship game in January, the 2012 NCAA Final Four and SEC men’s basketball tournaments, the 2013 women’s Final Four and the 2013 Super Bowl. Plus, the Port of New Orleans is welcoming a fleet of tall ships and military vessels in April as part of the bicentennial celebration of the War of 1812. [You know, I’m embarrassed to say I know virtually nothing of this conflict. I hear they’ve opened a new museum at Ft. McHenry in Baltimore so gotta check it out and combine it with some Orioles baseball and Babe Ruth’s museum. And then some soft-shell crabs…and some beer…and…]

Anyway, where was I? Oh yes, New Orleans. The point being the city is going to be reaping lots and lots of tourist dollars. The January BCS football game plus the men’s Final Four alone are expected to generate $millions in needed tax revenues, for starters.

Actually, in the first half of 2011, tourism was up 7.7% over 2010, with visitors spending a total of $3.1 billion during those six months. [USA TODAY]

--Then there is Las Vegas. In an AP story, the average home price in Vegas fell to $118,213 last month, down from $329,720 just four years ago!

But passenger counts at McCarran International Airport were up 4.5 percent over year ago levels, and the unemployment rate is dropping. At CityCenter, an upscale retail, hotel and casino resort on the Strip, sales are up 27 percent at Crystal’s, the city’s largest upscale retail center.

Yet the casinos statewide took in $53.8 million less in September than a year ago. Talk about a mixed picture.

--All kinds of buzz about Ryan Seacrest replacing Matt Lauer on “Today” when Lauer’s contract ends late 2012, Lauer looking to depart. While Seacrest has no current news gravitas, I wouldn’t have a problem with him, though I thought CNBC’s Carl Quintanilla would have been a good choice.

--Boing! U.K. drugmaker Futura Medical Plc. has come up with a condom that contains a dose of Futura’s Zanifil gel inside the tip, or Viagra in a condom, as the story I read put it.

Now discuss amongst yourselves, unless you’re in Europe where the European Commission would have to clear your talking points before you start conversing with your friend or family member.

Foreign Affairs

Iran: The loss of a sophisticated RQ-170 drone to Iran may not be the strategic loss that some are saying, let alone a crisis, but it was a major embarrassment. Some claim that Iran will be able to reverse engineer the technology though this seems doubtful. As for Iran selling the technology to the seemingly intact spy plane to Russia and China, those two already have much of this knowledge. It’s just a huge propaganda victory for the Iranians at a most propitious time for them. [Though in viewing the video of the drone on display, it does appear that officials are looking for the ‘on’ switch.]

Meanwhile, the question remains, just who is attacking Iran’s nuclear and missile facilities, as well as assassinating key individuals involved in both the nuclear weapons and ballistic missile programs? Some of the incidents may not be part of any covert operation at all, but rather simply accidents as Iran claims, though this doesn’t explain the Stuxnet computer virus, nor the assassinations by ‘sticky bombs.’ [Reminder: If a mean-looking guy on a motorcycle pulls up alongside your car and attaches something to it…try to exit the car immediately from the other side.]

As for the potential debilitating impact on Iran’s nuclear and missile ambitions as a result of the chaos inflicted on them, only time will tell just how effective any covert operations have been. I’m of the camp that believes the missile program has no doubt been set back, but that the uranium enrichment operation proceeds largely without delay.

Separately, the Wall Street Journal had a piece titled “Iran Tries to Gain Sway in Latin America.” I told you that about eight years ago.

Douglas Farah, a security consultant who recently wrote a Defense Department study on Iran’s growing presence in the region, told the Journal, “Iran is looking to develop an ability to inflict damage on the U.S. in the event of an American or Israeli strike against its nuclear facilities or its military.”

As to a report that Iran is planning to base medium range Shahab 3 missiles in Venezuela, both Venezuela and the Obama administration deny this is true.

Syria: President Bashar al-Assad, in an interview with Barbara Walters, told her he would be “crazy” if he killed his own people. Assad then offered a point-by-point denial of allegations of human rights groups, the United Nations and neighboring countries that his troops had arrested and killed hundreds of children (among over 4,000 victims of the uprising). Assad claimed most of those killed were his own soldiers and supporters. Walters did what she could in presenting evidence to the contrary, which he beat down, adding, “I cannot feel guilty when you do your best. You feel sorry for the lives that have been lost. But you don’t feel guilty when you don’t kill people.”

As for the opposition, the problem is it is fractured. 

Picture, though, living on the border with Syria in Lebanon, where Syrian soldiers fire across into the villages without warning. It’s pure terrorism. Many have been wounded by stray bullets. Former U.S. Ambassador to Lebanon, Jeffrey Feltman, one of our better diplomats and now the key representative for Washington in the region, vowed the United States would support the Lebanese Army in its efforts to secure its borders.

What a difficult situation Lebanon presents. Last Tuesday, for the first time in ages, Hizbullah leader Sheikh Nasrallah appeared in public in Beirut (Nasrallah normally addressing his followers by video for fear of Israeli assassination) and said Hizbullah was continuing to arm itself and that he would stand by Syria’s Assad.

“Our power has increased and so have our arms day after day,” Nasrallah said. As the Daily Star reported:

“Thousands of men dressed in black applauded as Nasrallah yelled: ‘The resistance in Lebanon, with its weapons and mujahedeen, God willing, will continue to exist. We will hold onto our arms…our weapons do not rust. They are being renewed.’”

Nasrallah was actually in public view just a few minutes before reverting to a video address. Israel missed this opportunity to take him out.

Egypt: The Muslim Brotherhood accused the military regime of trying to circumvent the ongoing elections in vowing to have a say in the writing of a new constitution. On Wednesday, a member of the council told Western journalists, virtually all Americans, that the military planned to play a major role because the new Parliament wouldn’t represent the will of the broader Egyptian public.

“Do you think that the Egyptians elected someone to threaten his interest and economy and security and relations with the international community?” General Mukta al-Mulla asked. “Of course not.”

For its part, the Brotherhood, which had been part of the military council for the purpose of giving advice, has now opted to withdraw its participation, thus ensuring future clashes as Gen. Mulla insisted the new prime minister would report to the military council, which isn’t exactly the way it’s all supposed to go down, sports fans.

Daniel Byman, a professor at Georgetown University and an expert on the Middle East, had an op-ed in the Washington Post discussing the Arab Spring. Byman reminded us that just a few months ago, “President Obama optimistically declared that, across the Arab world, ‘those rights that we take for granted are being claimed with joy by those who are prying loose the grip of an iron fist.’”

Err, not quite, Mr. President. Egypt, Libya, Yemen, Syria…are not exactly lining up in the victory camp for the West just yet.

Iraq: Aside from a new wave of attacks that killed dozens, the Wall Street Journal reported that key officials and military leaders are being taken out, one by one, by militants linked to al-Qaeda, especially in Kirkuk in an attempt to divide the resource rich, and relatively peaceful, region.

Afghanistan: A Pakistan-based extremist group claimed responsibility for a coordinated series of bombings here that killed at least 63 Shiites on a holy day, Ashura, which marks the death of Shiite Islam’s holiest martyr. Heretofore, Afghanistan had been largely free of sectarian conflict. Or as President Hamid Karzai put it, “Never in our history have there been such cruel attacks on religious observances. The enemies of Afghanistan do not want us to live under one roof with peace and harmony.”

Russia: On November 26, eight days before Russia’s Duma elections, I wrote:

“(It) appears Putin and Medvedev’s United Russia party’s popularity is plunging…How badly will the vote be rigged? You just know the Kremlin is furiously prepping officials at the polling places. An outrageous outcome, one that is clearly suspect, could lead to sweeping demonstrations.”

And so the results were highly suspect and there were indeed large demonstrations in the two places that matter, St. Petersburg and Moscow. The protests were not violent, but hundreds were nonetheless arrested as thousands chanted, “We need new elections,” “Russia without Putin,” “Revolution” and “Shame.” It was an unprecedented display in the Putin era, with Vlad then proceeding to blame U.S. Secretary of State Hillary Clinton for “(setting) the tone for some opposition activists…(she) gave them a signal.”

Rights activists and opposition leaders said 20 to 25 percent of the vote was fabricated and there was solid evidence of youth groups stuffing the ballot boxes for United Russia. Former Soviet leader Mikhail Gorbachev called on the Russian Government to cancel the results, describing them as a “lie.” Gorbachev warned Putin and Medvedev that unrest would grow unless they admitted the election was fraudulent and agreed to hold a new one.

So what does this say about the March 4 presidential election? Putin is lucky as there is no viable opposition through which the people could channel their frustration. He needs 50 percent to avoid a run-off and as of today he’d still probably eke it out. But it’s a long way between now and March. A growing segment of the Russian population has had it with the daily grind and dealing with an incredibly corrupt system. Are we witnessing the beginning of a Russian awakening? Putin himself has to be shocked, given Russia’s solid economic growth (owing ostensibly to the energy sector), particularly the past eight years.

China: Among the government’s many issues is smog in Beijing, which on Sunday and Monday was so thick it led to the cancellation of hundreds of flights and shut highways. Coal burning remains the major cause of the pollution and the people have had enough.

On the military front, President Hu Jintao urged the navy to prepare for combat, amid growing tensions over the South China Sea and what Beijing sees as a campaign by the U.S. to reassert itself in the region.

The navy should “accelerate its transformation and modernization in a sturdy way, and make extended preparations for military combat in order to make greater contributions to safeguard national security,” he said.

Hu made his comments to the powerful Central Military Commission. [South China Morning Post]

North Korea: According to the Washington Times, Pyongyang is making a concerted effort to construct an ICBM that can strike the United States. It is also evidently capable of being transported on roadways, making it more difficult to track. The White House has discussed the development with a House Armed Services Subcommittee on Strategic Forces.

India: The nation is reeling from a hospital fire in Calcutta that killed at least 94 as six administrators fled rather than help patients. Plus, it took fire trucks an hour to arrive at the scene, partly due to congestion.

Belgium: After a world-record 541 days without a formal government, Belgium has one. The new leader is Elio Di Rupo…so we toast him with a Stella Artois. “Long live Di Rupo…and I’ll take another Stella while you’re up.”

Di Rupo has vowed to draw up a plan to close Belgium’s nuclear reactors as soon as possible. On the second thought, “Forget the Stella…I’ll have a Coors Light.”

Japan: According to an annual government poll, a record 82 percent of Japanese have friendly feelings toward the United States. Why thank you! We appreciate this. The same survey has 71 percent of respondents not feeling friendly towards China.

Random Musings

--Lots of polls…with Newt Gingrich kicking butt except in New Hampshire.

Iowa…NY Times / CBS

Gingrich 31%
Romney 17%
Paul 16%

Iowa…ABC / Washington Post

Gingrich 33%
Romney 18%
Paul 18%

[But in this one, six in 10 potential caucus-goers say they could change their minds.]

Iowa…Des Moines Register

Gingrich 25%
Paul 18%
Romney 16%

Iowa…NBC / Marist

Gingrich 26%
Romney 18%
Paul 17%

Iowa…CNN / Time

Gingrich 33%
Romney 20%
Paul 17%

New Hampshire…NBC / Marist

Romney 39%
Gingrich 23%
Paul 16%

New Hampshire…CNN / Time

Romney 35%
Gingrich 26%
Paul 17%

Gingrich has huge, 20-point plus leads in South Carolina and Florida, the other of the first four primary/caucus states.

National…Gallup Daily Tracking Poll

Gingrich 37%
Romney 22%

--Republican pollster Frank Luntz on Newt Gingrich: “He’s thought about everything, he’s considered everything, he has an opinion about everything…85% of the time that’s a good thing, 15% of the time it’s not.”

--New Jersey Gov. Chris Christie was stumping for Mitt Romney in Iowa and was met by about 20 protesters, who interrupted his speech for several minutes, chanting, among other things, “Make Wall Street pay!”

To which Christie responded:

“You’re so angry, aren’t you? Work it all out.” Christie then blasted Obama. “They represent an anger in our country that Barack Obama has caused. Because he is a typical, cynical Chicago ward politician who runs for office and promises everything and then comes to office and disappoints.”

And:

“For the last three years, we’ve had a president who doesn’t know how to lead, doesn’t know who he is, won’t fight for what he believes in and will not – will not – make America greater. In fact, he has made America smaller in the eyes of the rest of the world.”

Ah yes, Christie will be the Republican’s best attack dog. He’d be the perfect running mate for Romney.

--As for President Obama, he gave a long-planned speech in Osawatomie, Kansas, that outlined his populist theme for 2012, part of which is why I said long before everyone else that next year’s campaign is going to be comparable to 1860. Obama in part proclaimed:

“This is the defining issue of our time. This is a make-or-break moment for the middle class and all those who are fighting to get into the middle class. At stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home and secure their retirement….

“The free market has never been a license to take whatever you can from whomever you can….

“Their philosophy is simple. We are better off when everybody is left to fend for themselves and play by their own rules….

“Millions of working families in this country…are now forced to take their children to food banks for a decent meal.”

As the Wall Street Journal’s Daniel Henninger opined:

“Mr. Obama says everyone has to play by his new rules: ‘Unless you’re a financial institution whose business model is built on breaking the law, cheating consumers and making risky bets that could damage the entire economy, you should have nothing to fear from these new rules.’ Really? Citigroup on Thursday said it will eliminate 4,500 jobs. In the third quarter alone, 2,500 U.S. banks cut 20,332 jobs. Let ‘em go. In the coming Obama economy, they can ‘make wind turbines and…high-powered batteries.’”

But I would be intellectually dishonest myself if I didn’t acknowledge that income disparity is indeed an issue, as outlined in this space over the years; such as comparisons on CEO pay vs. the average worker today vs. 30 years ago. Yet, it’s also an issue throughout the developed world.

As the Washington Post editorialized, Obama’s policy prescriptions “don’t match the gravity of the problems he describes. In addition, to the extent he finds villains in American corporate greed or weak regulation, he misses the (Organization for Economic Cooperation and Development’s) point that the phenomenon, fueled in large measure by globalization and new technology, transcends borders and political systems.”

And then the Post nailed it:

“Of most concern is what the president omitted or played down. He made glancing reference to the need to ‘get our fiscal house in order’ and immediately pivoted to the imperative of extending the payroll tax holiday. The economic growth that will be essential cannot happen with the dampening overhang of ever-mounting debt. Nor can the spending Mr. Obama rightly prescribes for education, research and infrastructure.”

--I was watching CNBC and two business titans, Richard LeFrak and Wilbur Ross, were talking about how the “future is brighter than the past.” Oh, give me a break. Just look at the above paragraph, or the Europe discussion of the last 19 months.

--Donald Trump on Karl Rove: “Rove gave us George W. Bush, who crashed and burned, and because of Bush we have Barack Obama.” Advantage Trump.

--George Will on Herman Cain: “He had a fundamentally disrespectful approach to the presidency.” Other than that, good riddance, Herman Cain.

--New York lawmakers unanimously passed Democratic Gov. Andrew Cuomo’s tax package which would raise billions in additional revenues from wealthier residents, while aiding the middle-class, a bit.

So how did Cuomo get Republicans to go along? Jacob Gershman of the Wall Street Journal explains.

“(For) antitax Senate Republicans, all 32 of whom voted for the tax package, the measure represented a turnaround on tax policy that required some delicate explaining.

“On Wednesday, Senate Majority Leader Dean Skelos – a Long Island Republican who in May called an expiring personal income tax increase on the wealthy ‘dead’ – framed the action as a tax cut….

“ ‘We’re cutting taxes, in my opinion,’ Mr. Skelos said, alluding to the fact that even those earning $2 million or more will see their tax rate fall to 8.82% from 8.97%. That’s still nearly two percentage points more than the 6.85% they paid before the temporary tax increase, the so-called millionaire’s tax, passed in 2009….

“(Framing) the tax code changes as a tax break had Republicans sounding much like their political opponents who favor higher taxes for the rich.”

--Former Illinois Gov. Rod Blagojevich was sentenced to 14 years in prison for corruption, or basically the 15 to 20 years prosecutors sought. Plus under federal rules, he’ll have to serve at least 85 percent of the sentence. Heh heh.

--I glance at my site traffic just every 4-6 months, because, frankly, it doesn’t change, which isn’t great but since I’m doing zero advertising these days, isn’t all bad either. But I’m always curious as to traffic outside the U.S. (about 20% of the total) and the nation giving me the second most hits is India, followed by New Zealand, Canada and Pakistan. I love you, my Pakistani fans! [Assuming they aren’t with the ISI.]

--So now we know there is a planet out there, a new discovery called Kepler-22b, where the average temperature is said to be 72 degrees. Then again, scientists don’t know as yet whether the planet has a surface, so don’t go booking trips to Kepler through Expedia just yet. It could just be a big gas bag like Neptune. Plus its 600 light years away, or 600 Xs 6 trillion miles, which isn’t exactly convenient in terms of coordinating everyone’s vacation schedules.

--Uh oh…From Marthe Fourcade of Bloomberg:

“Marathon runners and others engaging in extreme endurance exercise may temporarily damage the right ventricle of their hearts, researchers found.

“The impact on the ventricle…was reversed after a week in most of the 40 athletes who took part in a study published in the European Heart Journal. Five of them showed more lasting damage.”

Good thing I’m just running a half today. It was here in Kiawah, two years ago, that I was witness to a death near the finish line, a 40-year-old seemingly in good shape.

--The Washington Post reported that “The Air Force dumped the incinerated partial remains of at least 274 American troops in a Virginia landfill, far more than the military had acknowledged [Ed. per a previous Post story], before halting the secretive practice three years ago, records show.

“The landfill dumping was concealed from families who had authorized the military to dispose of the remains in a dignified and respectful manner, Air Force officials said. There are no plans, they said, to alert those families now….

“Records show that the Air Force hired [private] contractors to dispose of medical waste and did not specify that cremated body parts were included.”

--Finally, Pearl Harbor Remembrance Day was a bit more touching, this 70th anniversary, than some others due to the fact that the Veterans organization for the survivors is being disbanded because so few are left.

But as the New York Post editorialized:

“This time, America understood and embraced its responsibilities. Despite occasional foot-dragging, it lived up to them – providing good example and necessary stability to the world in the process.

“Whether the nation retains the will to look after its interests properly is an open question. There is cause for concern.

“But on Dec. 7, 1941 – ‘a date which will live in infamy’ – all doubts were dispelled.

“History knocked. America answered.”

I also can’t help but muse that with so few survivors of World War II remaining, I wonder how many of them think of a certain song that was popular back in the day as they sit on the porch, staring at the horizon, thinking of times past, friends lost. That haunting Vera Lynn song from 1943 that I myself think of anytime I see a World War II remembrance.

We’ll meet again
Don’t know where, don’t know when
But I know we’ll meet again, some sunny day

---

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

God bless America.
---

Gold closed at $1716
Oil, $99.41

Returns for the week 12/5-12/9

Dow Jones +1.4% [12184]
S&P 500 +0.9% [1255]
S&P MidCap +0.5%
Russell 2000 +1.4%
Nasdaq +0.8% [2646]

Returns for the period 1/1/11-12/9/11

Dow Jones +5.2%
S&P 500 -0.2%
S&P MidCap -2.4%
Russell 2000 -4.9%
Nasdaq -0.2%

Bulls 47.4
Bears 29.5 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

*Don’t forget the StocksandNews iPad app. Recommended by Moms!

 



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Week in Review

12/10/2011

For the week ended 12/5-12/9

[Posted 6:00 AM ET…from Kiawah, South Carolina]

Europe, Washington and Wall Street

You’ll have to forgive me for being brief this week, even as the news out of Europe was rather important. Frankly, I spent a large chunk of Friday playing golf with a college buddy at the Ocean Course here on Kiawah, site of next summer’s PGA Championship. With each time that I play here, I appreciate how great, and hard, it is. Golf fans are in for a real treat come August.

Anyway, time is running out and I need to get a little sleep (Friday night) because I’m running in a half-marathon here right after I post this column. So I’ll catch up with the details of events in Europe next time.

For now, though, 23 of 27 nations reached an intragovernmental agreement at the EU Summit on Thursday and Friday, including all 17 euro nations, a “stability union” that will set new budget guidelines and automatic sanctions for those governments that violate same…details of which are yet to be worked out but we’ve been told will be by next March. Under this eventual full fiscal union, among other things, all draft budgets are to be submitted to the European Commission for approval and the EC is to have the power to make recommendations, or demand changes, which in turn means that, say, Italy, would be giving up their sovereignty, but then the Italians and others already have during this whole 19 months of fiscal crisis since the Euro folks first realized Greece was insolvent without immediate aid.

But while Hungary, Czech Republic and Sweden said they needed more time to decide on the Brussels agreement, Britain’s David Cameron was furious over a proposed financial transactions tax that most impacts London’s key financial district, with Cameron saying “we’re never going to join the euro” group, ‘never’ being a pretty strong word in diplomatic terms.

To which French President Nicolas Sarkozy countered: “David Cameron asked for what we thought was unacceptable: a protocol to exonerate the U.K. from financial services regulation. We could not accept this as at least part of the problem comes from this sector.”

So once again there are many questions. The agreement that was reached among the euro 17 gives Brussels control of fiscal budgets without treaty changes. How can this be so? More than a few parliaments are going to be up in arms over this.

How does all this build confidence as the EU tumbles into recession? It’s about perception, when it comes to global markets, and I don’t see how anything that happened the past few days changes the fact that contagion spread to Italy and Spain and the EU still doesn’t have the backstops in place to bail them out once the inevitable occurs…like another failed bank auction leading to another surge in interest rates. Recall, for example, that over the coming year, Italy has to roll over 300 billion euro in bonds. Between sovereign debt and European bank debt, it’s about 2 trillion euros worth of paper that has to be rolled over. Who is going to buy all of this? How are the European banks going to raise $153 billion in capital by next June as required by the European Banking Agency.

As for the European Financial Stability Facility (EFSF), the 440 billion euro fund designed to backstop Greece, Ireland and Portugal, it is not being levered up or combined with the 500 billion euro European Stability Mechanism (ESM), as once thought, though the ESM may get more money from contributing nations.

And what of the European Central Bank, which is holding firm in saying it is not just going to open the spigots and keep buying Italian and Spanish debt in what would be a futile attempt to keep interest rates low; though having said that, it’s also clear that the ECB’s recent purchases of sovereign debt have been larger than expected.

What did happen was the ECB is now offering unlimited liquidity to the banks to alleviate their funding crisis, while part of the stability union is an agreement for EU countries to hand over 200 billion to the IMF as a way of helping struggling countries and filling its coffers, which were down below 400 billion in assets.

Meanwhile, the Euro continent is plunging into recession this quarter. Germany can still throw out a good number or two but the trend is down with October exports falling 3.6%. In the U.K. manufacturing in October declined 0.7%. Italy’s industrial production fell 0.9%.

Greece’s parliament voted 258-41 to enact a 2012 budget but its contingent on a debt-swap plan still yet to be worked out.

Ireland adopted another round of austerity cuts, 1.4 billion euro worth.

Moody’s downgraded three big French banks, saying, “Liquidity and funding conditions have deteriorated significantly” for each, adding the problem is likely to get worse. [We’ll see if the ECB’s move in this regard helps.]

Standard & Poor’s placed the entire 27-nation EU on credit watch, hardly an unexpected move, and largely pooh-poohed by many, but nonetheless S&P expressed the truth, saying the decision was reached “in the context of what we view as deepening political, financial, and monetary problems within the eurozone,” little of which was really addressed by this week’s agreement in Brussels. In fact I would say as the people and politicians fully understand just how much sovereignty they are giving up, the problems are just getting started, and even with a quarter-point rate cut by the ECB, I still don’t see where the growth is going to come from.

The Financial Times editorialized:

“Repairing monetary union will take years of effort. But the alternative is worse. The economic consequences of a break-up would be staggering both for creditor and debtor nations. Huge uncertainty about the value of any outstanding euro-denominated contracts could paralyze commerce within Europe and beyond. Political relations would be poisoned for years….

“So badly have European governments undermined their own credibility that the only way to shock markets back to confidence is by putting hard money on the table. The straightforward way would be to use the EFSF to the hilt. The EFSF would raise a large war chest to support the prices of new bonds issued by any sovereign that is solvent, at the lowest rates it can afford to charge.

“The worry is that the EFSF may not now be able to raise enough money to stop the rot.”

But as the Financial Times opines, that leaves it up to the ECB, and the newspaper “remains very uncomfortable about the legality and political consequences of the ECB exposing as much of its balance sheet to the sovereign debt market as it takes to keep bond prices up for good.”

So the alternative would be to turn the EFSF or ESM into banks which the ECB would then help to finance, but this doesn’t appear to be in the cards, at least today.

As for Washington and Wall Street, economic news was light, with October factory orders coming in down 0.4%, while consumer confidence in November rose more than expected. Additionally, there was cause for optimism as the weekly jobless claims figure came in at 381,000, the lowest tally in five months.

But chipmaker Texas Instruments cut its fourth quarter guidance citing concerns on the global outlook for growth.

Meanwhile, China released a number of important data points. Consumer prices in November fell sharply to a 4.2% annual rate and an actual decline over October. Prices had peaked at 6.5% in July. So this is a positive as it enables the government to lower interest rates should it so choose. Additionally, November exports rose 13.8%, the slowest pace since 2009 but well above estimates. There remains significant concern that China faces a banking crisis down the road with the growing number of non-performing loans, though for all the hand-wringing, the numbers are still strong, witness November industrial production, up 12.4%

Nonetheless, the Asia Development Bank lowered its GDP outlook for 2012 to 7.2% (ex-Japan and India), though this could be worse depending on Europe.

Elsewhere around the globe, Australia reported stronger than expected growth for its third quarter, up 1%, while the second quarter was revised upward to 1.4%. The jobless rate for November ticked up to 5.3%. 

But Brazil suddenly saw its growth train stall out as third quarter GDP there went negative, by a fraction, over the second quarter as weakness in the industrial sector led to slower consumer spending.

Street Bytes

--Stocks rose again on Euro optimism, though it was touch and go all week as the Dow Jones gained 1.4% to close at 12184. The Dow is now up 5.2% for the year, but the S&P 500 and Nasdaq are still down, both 0.2%.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.22% 10-yr. 2.06% 30-yr. 3.11%

Yields rose and fell based on news out of Europe. Any optimism there led to rates rising on U.S. Treasuries. Pessimism led to the opposite. At week’s end there was more optimism than pessimism.

--Brits are concerned that Bank of England Gov. Sir Mervyn King is too gloomy, as in he is relentlessly downbeat; such as in his recent musings that these were “extraordinarily serious” times and “an exceptionally threatening environment.” In another speech, King said the banking system is in full blown “systemic crisis” and lenders should cut bonuses, slash dividends and bolster their defenses. He might be right, but as one banker told the London Times, he couldn’t imagine Ben Bernanke using such a tone.

--According to a poll in Sweden, less than 10 percent of the people there support a switch to the euro, a record low. Sweden once had a serious financial crisis of its own but has lowered its debt to GDP radio to just 36 percent and will post a budget surplus in 2011. Germany’s debt to GDP is going to be over 81 percent this year. Sweden’s 10- and 30- year bond deals are below those of Germany’s.

--According to ComScore, online sales surged 15 percent in November over year ago levels. I know I recently bought a lot of cookies online for the first time ever, but then you should have seen these pictures of the buttercream ones that I was drooling over.  

--Citigroup is eliminating 4,500 jobs and taking a $400 million charge in the fourth quarter as a result.

--McGraw Hill is cutting 550 jobs in its education division as resources are redirected from traditional textbook businesses to digital products and education services, according to the company.

--BP accused Halliburton of destroying damaging evidence relating to the 2010 Gulf of Mexico oil well blast and spill. BP is claiming oil-field services giant Halliburton “intentionally” destroyed test results of its cement product used at the Macondo well.

--Randy Babbitt was forced to resign from the FAA after being arrested for drunk driving in Fairfax, Virginia. Most of us are just wondering, how Babbitt could wait 36 hours to tell his boss, Transportation Secretary Ray LaHood, who learned of it through a police news release.

--The parent of Massey Energy, Alpha Natural Resources, agreed to pay $209 million in restitution and civil and criminal penalties for the roles of Massey in the mine explosion last year that claimed 29 lives in West Virginia. $46.5 million goes to the families of the victims and   those injured in the blast. But many family members are still incensed that criminal charges haven’t been filed as yet against Massey executives. 18 of them have refused to be interviewed by federal investigators. In this respect the case is similar to some of the Wall Street scandals.

--In what could be a significant development, for the first time the EPA linked chemicals used in hydraulic fracturing for natural gas to contaminated water supplies, in this case in a remote Wyoming valley. The EPA admits that the conditions in the “Pavillion” field were different from standard fracturing sites in that the gas wells were far shallower than in many other areas. 

--India’s government was all set to embrace opening up its retail market to global chains such as Wal-Mart and Tesco, but, just as in some U.S. locales, the government got an earful from critics and small businessmen, fearful they would be wiped out, and so India’s leadership has opted to suspend the plan.

--The U.S. Postal Service said it planned to eliminate next-day delivery for first-class mail as it shuts half of its 487 processing centers nationwide, which will also result in the elimination of 28,000 jobs. It will be the first reduction in delivery standards in 40 years. The USPS is looking to save $3 billion a year by 2015, having lost 27 percent of its first-class volume the last three years, according to postmaster general Patrick Donahoe.

Gee, did you know 60 percent of bills are paid online these days? I refuse to do so. 

--So remember how I’ve said from time to time this year that I was hearing how strong the corn and wheat harvests were in places like Russia and Ukraine (got this info largely confirmed by readers from the region)? This week corn futures hit their lowest levels of the year, “with Europe picking up key export business in Asia.” [Wall Street Journal]

“Japan typically buys U.S. corn, but Eastern and Central European countries have harvested a bumper crop and their prices for delivery to East Asia are currently cheaper than U.S. prices.”

Australia is also doing well as their drought was broken, another topic I addressed earlier in the year. It was all part of my CRB Index calculation that we’d finish down on the year after being way up early on. [And with three weeks to go, the CRB is at 306.43, after closing 12/31/10 at 332.80]

--Hedge fund king John Paulson has lost 46 percent this year on one of his largest funds through November.

--Friday’s USA TODAY has a huge cover story on how states have been expanding pensions once reserved for police and firemen to tens of thousands of other workers, such as dispatchers, park rangers, and even lifeguards; all of which will add heavily to the current $70 billion that taxpayers owe state retirement funds each year.

The pensions were designed for those putting their lives on the line, but in Illinois, for example, “where highway maintenance workers earn up to $148,000 a year with overtime, early enhanced retirement can pay a $75,000-a-year-pension at age 50 after 25 years on the job. That adds up to $2.2 million if the retiree lives to age 80 - $1.2 million more than if the person had been in the state’s regular retirement plan.”

--Thirteen local unions ratified a contract with the A&P supermarket chain, now in bankruptcy. I selfishly note this as I shop at a nice A&P in town. It seems the workers accepted a five-year wage freeze. Now that’s a sign of the times. All other costs keep rising, of course. But at least the new contract protects, for the time being, not only their jobs but their health and pension benefits.

--Hot times comin’ up in New Orleans. Over the next 18 months, the Big Easy is host to college football’s national championship game in January, the 2012 NCAA Final Four and SEC men’s basketball tournaments, the 2013 women’s Final Four and the 2013 Super Bowl. Plus, the Port of New Orleans is welcoming a fleet of tall ships and military vessels in April as part of the bicentennial celebration of the War of 1812. [You know, I’m embarrassed to say I know virtually nothing of this conflict. I hear they’ve opened a new museum at Ft. McHenry in Baltimore so gotta check it out and combine it with some Orioles baseball and Babe Ruth’s museum. And then some soft-shell crabs…and some beer…and…]

Anyway, where was I? Oh yes, New Orleans. The point being the city is going to be reaping lots and lots of tourist dollars. The January BCS football game plus the men’s Final Four alone are expected to generate $millions in needed tax revenues, for starters.

Actually, in the first half of 2011, tourism was up 7.7% over 2010, with visitors spending a total of $3.1 billion during those six months. [USA TODAY]

--Then there is Las Vegas. In an AP story, the average home price in Vegas fell to $118,213 last month, down from $329,720 just four years ago!

But passenger counts at McCarran International Airport were up 4.5 percent over year ago levels, and the unemployment rate is dropping. At CityCenter, an upscale retail, hotel and casino resort on the Strip, sales are up 27 percent at Crystal’s, the city’s largest upscale retail center.

Yet the casinos statewide took in $53.8 million less in September than a year ago. Talk about a mixed picture.

--All kinds of buzz about Ryan Seacrest replacing Matt Lauer on “Today” when Lauer’s contract ends late 2012, Lauer looking to depart. While Seacrest has no current news gravitas, I wouldn’t have a problem with him, though I thought CNBC’s Carl Quintanilla would have been a good choice.

--Boing! U.K. drugmaker Futura Medical Plc. has come up with a condom that contains a dose of Futura’s Zanifil gel inside the tip, or Viagra in a condom, as the story I read put it.

Now discuss amongst yourselves, unless you’re in Europe where the European Commission would have to clear your talking points before you start conversing with your friend or family member.

Foreign Affairs

Iran: The loss of a sophisticated RQ-170 drone to Iran may not be the strategic loss that some are saying, let alone a crisis, but it was a major embarrassment. Some claim that Iran will be able to reverse engineer the technology though this seems doubtful. As for Iran selling the technology to the seemingly intact spy plane to Russia and China, those two already have much of this knowledge. It’s just a huge propaganda victory for the Iranians at a most propitious time for them. [Though in viewing the video of the drone on display, it does appear that officials are looking for the ‘on’ switch.]

Meanwhile, the question remains, just who is attacking Iran’s nuclear and missile facilities, as well as assassinating key individuals involved in both the nuclear weapons and ballistic missile programs? Some of the incidents may not be part of any covert operation at all, but rather simply accidents as Iran claims, though this doesn’t explain the Stuxnet computer virus, nor the assassinations by ‘sticky bombs.’ [Reminder: If a mean-looking guy on a motorcycle pulls up alongside your car and attaches something to it…try to exit the car immediately from the other side.]

As for the potential debilitating impact on Iran’s nuclear and missile ambitions as a result of the chaos inflicted on them, only time will tell just how effective any covert operations have been. I’m of the camp that believes the missile program has no doubt been set back, but that the uranium enrichment operation proceeds largely without delay.

Separately, the Wall Street Journal had a piece titled “Iran Tries to Gain Sway in Latin America.” I told you that about eight years ago.

Douglas Farah, a security consultant who recently wrote a Defense Department study on Iran’s growing presence in the region, told the Journal, “Iran is looking to develop an ability to inflict damage on the U.S. in the event of an American or Israeli strike against its nuclear facilities or its military.”

As to a report that Iran is planning to base medium range Shahab 3 missiles in Venezuela, both Venezuela and the Obama administration deny this is true.

Syria: President Bashar al-Assad, in an interview with Barbara Walters, told her he would be “crazy” if he killed his own people. Assad then offered a point-by-point denial of allegations of human rights groups, the United Nations and neighboring countries that his troops had arrested and killed hundreds of children (among over 4,000 victims of the uprising). Assad claimed most of those killed were his own soldiers and supporters. Walters did what she could in presenting evidence to the contrary, which he beat down, adding, “I cannot feel guilty when you do your best. You feel sorry for the lives that have been lost. But you don’t feel guilty when you don’t kill people.”

As for the opposition, the problem is it is fractured. 

Picture, though, living on the border with Syria in Lebanon, where Syrian soldiers fire across into the villages without warning. It’s pure terrorism. Many have been wounded by stray bullets. Former U.S. Ambassador to Lebanon, Jeffrey Feltman, one of our better diplomats and now the key representative for Washington in the region, vowed the United States would support the Lebanese Army in its efforts to secure its borders.

What a difficult situation Lebanon presents. Last Tuesday, for the first time in ages, Hizbullah leader Sheikh Nasrallah appeared in public in Beirut (Nasrallah normally addressing his followers by video for fear of Israeli assassination) and said Hizbullah was continuing to arm itself and that he would stand by Syria’s Assad.

“Our power has increased and so have our arms day after day,” Nasrallah said. As the Daily Star reported:

“Thousands of men dressed in black applauded as Nasrallah yelled: ‘The resistance in Lebanon, with its weapons and mujahedeen, God willing, will continue to exist. We will hold onto our arms…our weapons do not rust. They are being renewed.’”

Nasrallah was actually in public view just a few minutes before reverting to a video address. Israel missed this opportunity to take him out.

Egypt: The Muslim Brotherhood accused the military regime of trying to circumvent the ongoing elections in vowing to have a say in the writing of a new constitution. On Wednesday, a member of the council told Western journalists, virtually all Americans, that the military planned to play a major role because the new Parliament wouldn’t represent the will of the broader Egyptian public.

“Do you think that the Egyptians elected someone to threaten his interest and economy and security and relations with the international community?” General Mukta al-Mulla asked. “Of course not.”

For its part, the Brotherhood, which had been part of the military council for the purpose of giving advice, has now opted to withdraw its participation, thus ensuring future clashes as Gen. Mulla insisted the new prime minister would report to the military council, which isn’t exactly the way it’s all supposed to go down, sports fans.

Daniel Byman, a professor at Georgetown University and an expert on the Middle East, had an op-ed in the Washington Post discussing the Arab Spring. Byman reminded us that just a few months ago, “President Obama optimistically declared that, across the Arab world, ‘those rights that we take for granted are being claimed with joy by those who are prying loose the grip of an iron fist.’”

Err, not quite, Mr. President. Egypt, Libya, Yemen, Syria…are not exactly lining up in the victory camp for the West just yet.

Iraq: Aside from a new wave of attacks that killed dozens, the Wall Street Journal reported that key officials and military leaders are being taken out, one by one, by militants linked to al-Qaeda, especially in Kirkuk in an attempt to divide the resource rich, and relatively peaceful, region.

Afghanistan: A Pakistan-based extremist group claimed responsibility for a coordinated series of bombings here that killed at least 63 Shiites on a holy day, Ashura, which marks the death of Shiite Islam’s holiest martyr. Heretofore, Afghanistan had been largely free of sectarian conflict. Or as President Hamid Karzai put it, “Never in our history have there been such cruel attacks on religious observances. The enemies of Afghanistan do not want us to live under one roof with peace and harmony.”

Russia: On November 26, eight days before Russia’s Duma elections, I wrote:

“(It) appears Putin and Medvedev’s United Russia party’s popularity is plunging…How badly will the vote be rigged? You just know the Kremlin is furiously prepping officials at the polling places. An outrageous outcome, one that is clearly suspect, could lead to sweeping demonstrations.”

And so the results were highly suspect and there were indeed large demonstrations in the two places that matter, St. Petersburg and Moscow. The protests were not violent, but hundreds were nonetheless arrested as thousands chanted, “We need new elections,” “Russia without Putin,” “Revolution” and “Shame.” It was an unprecedented display in the Putin era, with Vlad then proceeding to blame U.S. Secretary of State Hillary Clinton for “(setting) the tone for some opposition activists…(she) gave them a signal.”

Rights activists and opposition leaders said 20 to 25 percent of the vote was fabricated and there was solid evidence of youth groups stuffing the ballot boxes for United Russia. Former Soviet leader Mikhail Gorbachev called on the Russian Government to cancel the results, describing them as a “lie.” Gorbachev warned Putin and Medvedev that unrest would grow unless they admitted the election was fraudulent and agreed to hold a new one.

So what does this say about the March 4 presidential election? Putin is lucky as there is no viable opposition through which the people could channel their frustration. He needs 50 percent to avoid a run-off and as of today he’d still probably eke it out. But it’s a long way between now and March. A growing segment of the Russian population has had it with the daily grind and dealing with an incredibly corrupt system. Are we witnessing the beginning of a Russian awakening? Putin himself has to be shocked, given Russia’s solid economic growth (owing ostensibly to the energy sector), particularly the past eight years.

China: Among the government’s many issues is smog in Beijing, which on Sunday and Monday was so thick it led to the cancellation of hundreds of flights and shut highways. Coal burning remains the major cause of the pollution and the people have had enough.

On the military front, President Hu Jintao urged the navy to prepare for combat, amid growing tensions over the South China Sea and what Beijing sees as a campaign by the U.S. to reassert itself in the region.

The navy should “accelerate its transformation and modernization in a sturdy way, and make extended preparations for military combat in order to make greater contributions to safeguard national security,” he said.

Hu made his comments to the powerful Central Military Commission. [South China Morning Post]

North Korea: According to the Washington Times, Pyongyang is making a concerted effort to construct an ICBM that can strike the United States. It is also evidently capable of being transported on roadways, making it more difficult to track. The White House has discussed the development with a House Armed Services Subcommittee on Strategic Forces.

India: The nation is reeling from a hospital fire in Calcutta that killed at least 94 as six administrators fled rather than help patients. Plus, it took fire trucks an hour to arrive at the scene, partly due to congestion.

Belgium: After a world-record 541 days without a formal government, Belgium has one. The new leader is Elio Di Rupo…so we toast him with a Stella Artois. “Long live Di Rupo…and I’ll take another Stella while you’re up.”

Di Rupo has vowed to draw up a plan to close Belgium’s nuclear reactors as soon as possible. On the second thought, “Forget the Stella…I’ll have a Coors Light.”

Japan: According to an annual government poll, a record 82 percent of Japanese have friendly feelings toward the United States. Why thank you! We appreciate this. The same survey has 71 percent of respondents not feeling friendly towards China.

Random Musings

--Lots of polls…with Newt Gingrich kicking butt except in New Hampshire.

Iowa…NY Times / CBS

Gingrich 31%
Romney 17%
Paul 16%

Iowa…ABC / Washington Post

Gingrich 33%
Romney 18%
Paul 18%

[But in this one, six in 10 potential caucus-goers say they could change their minds.]

Iowa…Des Moines Register

Gingrich 25%
Paul 18%
Romney 16%

Iowa…NBC / Marist

Gingrich 26%
Romney 18%
Paul 17%

Iowa…CNN / Time

Gingrich 33%
Romney 20%
Paul 17%

New Hampshire…NBC / Marist

Romney 39%
Gingrich 23%
Paul 16%

New Hampshire…CNN / Time

Romney 35%
Gingrich 26%
Paul 17%

Gingrich has huge, 20-point plus leads in South Carolina and Florida, the other of the first four primary/caucus states.

National…Gallup Daily Tracking Poll

Gingrich 37%
Romney 22%

--Republican pollster Frank Luntz on Newt Gingrich: “He’s thought about everything, he’s considered everything, he has an opinion about everything…85% of the time that’s a good thing, 15% of the time it’s not.”

--New Jersey Gov. Chris Christie was stumping for Mitt Romney in Iowa and was met by about 20 protesters, who interrupted his speech for several minutes, chanting, among other things, “Make Wall Street pay!”

To which Christie responded:

“You’re so angry, aren’t you? Work it all out.” Christie then blasted Obama. “They represent an anger in our country that Barack Obama has caused. Because he is a typical, cynical Chicago ward politician who runs for office and promises everything and then comes to office and disappoints.”

And:

“For the last three years, we’ve had a president who doesn’t know how to lead, doesn’t know who he is, won’t fight for what he believes in and will not – will not – make America greater. In fact, he has made America smaller in the eyes of the rest of the world.”

Ah yes, Christie will be the Republican’s best attack dog. He’d be the perfect running mate for Romney.

--As for President Obama, he gave a long-planned speech in Osawatomie, Kansas, that outlined his populist theme for 2012, part of which is why I said long before everyone else that next year’s campaign is going to be comparable to 1860. Obama in part proclaimed:

“This is the defining issue of our time. This is a make-or-break moment for the middle class and all those who are fighting to get into the middle class. At stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home and secure their retirement….

“The free market has never been a license to take whatever you can from whomever you can….

“Their philosophy is simple. We are better off when everybody is left to fend for themselves and play by their own rules….

“Millions of working families in this country…are now forced to take their children to food banks for a decent meal.”

As the Wall Street Journal’s Daniel Henninger opined:

“Mr. Obama says everyone has to play by his new rules: ‘Unless you’re a financial institution whose business model is built on breaking the law, cheating consumers and making risky bets that could damage the entire economy, you should have nothing to fear from these new rules.’ Really? Citigroup on Thursday said it will eliminate 4,500 jobs. In the third quarter alone, 2,500 U.S. banks cut 20,332 jobs. Let ‘em go. In the coming Obama economy, they can ‘make wind turbines and…high-powered batteries.’”

But I would be intellectually dishonest myself if I didn’t acknowledge that income disparity is indeed an issue, as outlined in this space over the years; such as comparisons on CEO pay vs. the average worker today vs. 30 years ago. Yet, it’s also an issue throughout the developed world.

As the Washington Post editorialized, Obama’s policy prescriptions “don’t match the gravity of the problems he describes. In addition, to the extent he finds villains in American corporate greed or weak regulation, he misses the (Organization for Economic Cooperation and Development’s) point that the phenomenon, fueled in large measure by globalization and new technology, transcends borders and political systems.”

And then the Post nailed it:

“Of most concern is what the president omitted or played down. He made glancing reference to the need to ‘get our fiscal house in order’ and immediately pivoted to the imperative of extending the payroll tax holiday. The economic growth that will be essential cannot happen with the dampening overhang of ever-mounting debt. Nor can the spending Mr. Obama rightly prescribes for education, research and infrastructure.”

--I was watching CNBC and two business titans, Richard LeFrak and Wilbur Ross, were talking about how the “future is brighter than the past.” Oh, give me a break. Just look at the above paragraph, or the Europe discussion of the last 19 months.

--Donald Trump on Karl Rove: “Rove gave us George W. Bush, who crashed and burned, and because of Bush we have Barack Obama.” Advantage Trump.

--George Will on Herman Cain: “He had a fundamentally disrespectful approach to the presidency.” Other than that, good riddance, Herman Cain.

--New York lawmakers unanimously passed Democratic Gov. Andrew Cuomo’s tax package which would raise billions in additional revenues from wealthier residents, while aiding the middle-class, a bit.

So how did Cuomo get Republicans to go along? Jacob Gershman of the Wall Street Journal explains.

“(For) antitax Senate Republicans, all 32 of whom voted for the tax package, the measure represented a turnaround on tax policy that required some delicate explaining.

“On Wednesday, Senate Majority Leader Dean Skelos – a Long Island Republican who in May called an expiring personal income tax increase on the wealthy ‘dead’ – framed the action as a tax cut….

“ ‘We’re cutting taxes, in my opinion,’ Mr. Skelos said, alluding to the fact that even those earning $2 million or more will see their tax rate fall to 8.82% from 8.97%. That’s still nearly two percentage points more than the 6.85% they paid before the temporary tax increase, the so-called millionaire’s tax, passed in 2009….

“(Framing) the tax code changes as a tax break had Republicans sounding much like their political opponents who favor higher taxes for the rich.”

--Former Illinois Gov. Rod Blagojevich was sentenced to 14 years in prison for corruption, or basically the 15 to 20 years prosecutors sought. Plus under federal rules, he’ll have to serve at least 85 percent of the sentence. Heh heh.

--I glance at my site traffic just every 4-6 months, because, frankly, it doesn’t change, which isn’t great but since I’m doing zero advertising these days, isn’t all bad either. But I’m always curious as to traffic outside the U.S. (about 20% of the total) and the nation giving me the second most hits is India, followed by New Zealand, Canada and Pakistan. I love you, my Pakistani fans! [Assuming they aren’t with the ISI.]

--So now we know there is a planet out there, a new discovery called Kepler-22b, where the average temperature is said to be 72 degrees. Then again, scientists don’t know as yet whether the planet has a surface, so don’t go booking trips to Kepler through Expedia just yet. It could just be a big gas bag like Neptune. Plus its 600 light years away, or 600 Xs 6 trillion miles, which isn’t exactly convenient in terms of coordinating everyone’s vacation schedules.

--Uh oh…From Marthe Fourcade of Bloomberg:

“Marathon runners and others engaging in extreme endurance exercise may temporarily damage the right ventricle of their hearts, researchers found.

“The impact on the ventricle…was reversed after a week in most of the 40 athletes who took part in a study published in the European Heart Journal. Five of them showed more lasting damage.”

Good thing I’m just running a half today. It was here in Kiawah, two years ago, that I was witness to a death near the finish line, a 40-year-old seemingly in good shape.

--The Washington Post reported that “The Air Force dumped the incinerated partial remains of at least 274 American troops in a Virginia landfill, far more than the military had acknowledged [Ed. per a previous Post story], before halting the secretive practice three years ago, records show.

“The landfill dumping was concealed from families who had authorized the military to dispose of the remains in a dignified and respectful manner, Air Force officials said. There are no plans, they said, to alert those families now….

“Records show that the Air Force hired [private] contractors to dispose of medical waste and did not specify that cremated body parts were included.”

--Finally, Pearl Harbor Remembrance Day was a bit more touching, this 70th anniversary, than some others due to the fact that the Veterans organization for the survivors is being disbanded because so few are left.

But as the New York Post editorialized:

“This time, America understood and embraced its responsibilities. Despite occasional foot-dragging, it lived up to them – providing good example and necessary stability to the world in the process.

“Whether the nation retains the will to look after its interests properly is an open question. There is cause for concern.

“But on Dec. 7, 1941 – ‘a date which will live in infamy’ – all doubts were dispelled.

“History knocked. America answered.”

I also can’t help but muse that with so few survivors of World War II remaining, I wonder how many of them think of a certain song that was popular back in the day as they sit on the porch, staring at the horizon, thinking of times past, friends lost. That haunting Vera Lynn song from 1943 that I myself think of anytime I see a World War II remembrance.

We’ll meet again
Don’t know where, don’t know when
But I know we’ll meet again, some sunny day

---

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

God bless America.
---

Gold closed at $1716
Oil, $99.41

Returns for the week 12/5-12/9

Dow Jones +1.4% [12184]
S&P 500 +0.9% [1255]
S&P MidCap +0.5%
Russell 2000 +1.4%
Nasdaq +0.8% [2646]

Returns for the period 1/1/11-12/9/11

Dow Jones +5.2%
S&P 500 -0.2%
S&P MidCap -2.4%
Russell 2000 -4.9%
Nasdaq -0.2%

Bulls 47.4
Bears 29.5 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

*Don’t forget the StocksandNews iPad app. Recommended by Moms!