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12/17/2011

For the week 12/12-12/16

[Posted 6:00 AM ET]

Europe, Washington and Wall Street

When we last left off, European leaders, sans Britain, were busily putting the final touches on the fiscal “compact” designed to enshrine tough budget rules and penalties for profligate spenders. The full details are to be worked out over the coming weeks and months in time for a summit in March, with ratification by all members of the EU, or at least the euro-17, by June but, already, there are growing questions in various capitals, such as what happens to each nation’s tax policies, or the financial transactions tax that upset Britain so much?

Given whatever the details are, the Irish, for example, may be under pressure to hold a referendum that the government would struggle to win. Parliaments in Slovakia (which has the euro) and the Czech Republic (which doesn’t) may turn the compact down. Finland is balking again over bailouts of other EU members and use of the European Stability Mechanism (ESM). France’s leading presidential contender insists on Eurobonds. And as The Economist editorializes, “there are murmurs that Germany, which has benefited so handsomely from the euro, is asking too much of everybody else.”

All this while the bank funding crisis continues, despite the European Central Bank’s maneuvering and offer of cheap money for three years. The stresses on the financial system haven’t gone away and in some cases, such as with small business, have only gotten worse as banks pull back from lending even further.

And I hate to beat a dead horse, but here’s the bottom line. We’re still in a situation where we seem to be living auction to auction and, again, the eurozone’s banks and sovereigns need to roll over some 2 trillion euro in debt next year, 590 billion between Italy and Spain (925 billion over 2012-2013) and, thus far, ECB efforts to hold down rates have been largely ineffective. True, Spain’s 10-year yielded around 5.35% by week’s end, which isn’t a disaster, but Italy’s was back over 7.00% at one point and finished at 6.55%, hardly sustainable.

Plus, the new treaty being worked on does absolutely nothing in terms of increasing the size of the bailout pools, or firewalls, either through the ESM or European Financial Stability Facility, EFSF. All the compact did was raise 200 billion euro for the IMF which is peanuts given the potential exposures.

So we’ll just continue to lurch from crisis to crisis, good weeks followed by not so good ones, with the U.S. and Asian economies, broadly speaking, held hostage. Is this any way to run a planet? 

It’s also rather important that there’s no growth in Europe. Standard Chartered Bank forecasts the eurozone GDP will fall 1.2% in 2012. The eurozone’s manufacturing index for December came in at 46.9, a fourth straight month of contraction. Leading companies like Volkswagen AG said they’ve turned “more cautious” on 2012. Ireland, in reporting its economy shrunk in the third quarter by 1.9%, is heading back into recession. The new technocrat Italian government of Mario Monti may have received a vote of confidence for its austerity moves, but there is no actual reform. And when it comes to the nation where this whole mess all started, Greece, their contraction this year is going to be worse than expected, down 5.5%.

Then there are the Brits, who with Prime Minister Cameron’s pullout at the EU summit now find themselves isolated, with the rest of the EU having zero incentive to help the City of London and its key financial district that comprises such a large portion of Britain’s economy. At least for now the British people agree with their prime minister, 62-19, according to the last poll I saw.

On Monday, Cameron defended his use of the British veto as being in the “national interest,” but the strain in his coalition is such that his deputy, Nick Clegg, refused to sit alongside him in the House of Commons; Clegg claiming the veto was bad for British business even as Cameron’s fellow Tory MPs applauded the prime minister’s “bulldog spirit.”

Or as opposition leader David Miliband put it, “This is the first veto in history not to stop something. The (EU’s) plans are going right ahead,” adding that it was “a very dangerous moment” for Britain with far-reaching consequences.

“Fifty-six years ago Anthony Eden walked away from the founding of the European Union and we paid the price for 20 years. This has been an Anthony Eden moment for David Cameron.

“If you look back to what the Prime Minister was warning of just two months ago – namely the danger of a caucus of 17 countries bossing the rest of the European Union – he has engineered a situation where it is 26 countries together and Britain on its own without a say for the first time since we joined the European Union.” [London Times]

Then again, just how united will the 26 be?

IMF Managing Director Christine Lagarde, given all the above, rightly concluded :

“It’s not a crisis that will be resolved by one group of countries taking action. It’s going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action.”

If the issues are not dealt with decisively, the global economy could confront the same threats that pushed the world into the Great Depression of the 1930s.

“(The) risk is that of retraction, rising protectionism, isolation. This is exactly what happened in the Thirties and what followed was not something that we all are looking forward to.”

“It’s a question of actually facing the issues, not being in denial, accepting the truth, accepting the reality, then dealing with it.”

It doesn’t help the euro region is unraveling to the extent the Northern nations are abandoning the periphery, or as PIMCO’s head of European portfolio management Andrew Balls told the Wall Street Journal, “We are seeing this deglobalization, a ‘de-Euroization,’ of the euro zone. Investors are going back to their own markets. They may still hold bonds, but they won’t have them spread across the euro zone as they had before.”

Not good for the likes of Italy, and increasing the chances for a deep recession.

And now you have situations such as France and Britain squaring off. Both French Prime Minister Francois Fillon and the French central bank chief broke protocol in saying the ratings agencies should target Britain’s triple-A credit rating before they do France’s. 

Christian Noyer, governor of the Banque de France, said that he did not regard the threat of a downgrade on Paris “as justified, based on economic fundamentals,” adding, “Or if it is, they should start by downgrading the UK, which has a bigger deficit, as much debt, more inflation, weaker growth and where bank lending is collapsing.”

Prime Minister Fillon, on a visit to Brazil, said: “Our British friends have a higher deficit and more debt, and I would say that the ratings agencies have not yet noted that.”

This as France’s own AAA is under imminent threat of being knocked down a peg.

At first, David Cameron’s office in London said nothing, but then Deputy Prime Minister Clegg told Fillon to “calm the rhetoric” on the UK economy, and that remarks from members of the French government “were simply unacceptable.”

Of course this stems from Prime Minister Cameron’s veto of the EU-wide compact involving all 27 Euro states. At least Britain was then given an out of sorts and invited to participate in negotiations on governing the regions’ national economies.

Going back to the Dec. 8-9 summit and Cameron’s intransigence, an official described the scene to Reuters:

“(Cameron) was effectively asking for a softening of regulation on Britain’s financial sector at a time when many voters and politicians believe banks are largely to blame for the crisis Europe is suffering and want tighter regulation on the sector.”

It was as if the French had been waiting for this for years, never believing Britain belonged in the European Union in the first place. The official said, “The French were using all this as a really perfect alibi to get rid of the British. Sarkozy used the proposals of the British to justify an intergovernmental treaty,” with Cameron playing right into Sarkozy’s hands.

In just 10-20 minutes, even Britain’s allies in the EU agreed that Britain didn’t deserve an opt out or exceptional treatment for their financial services and it didn’t fly at all. The non-eurozone member states decided they wanted to be in and left Cameron completely isolated.

Various opinion…on all topics.

Editorial / Washington Post

“Two years ago, on Dec. 14, 2009, Greek Prime Minister George Papandreou pledged that his debt-ridden country would ‘address and resolve, once and for all, deep-rooted problems that are holding the nation back.’ As if to mark the anniversary, the International Monetary Fund brought out a report this week, whose main conclusion is that Greece is not only not reforming fast enough but ‘falling behind across a range of policies.’

“Instead of shrinking, the Greek budget deficit is growing. And instead of growing next year, as the IMF once predicted, the Greek economy will contract again. In short, while Europe’s leaders turn their attention to ratification of a long-term plan for fiscal discipline across the 17 nations that use the euro, they still don’t have a solution for the situation that plunged the continent into crisis in the first place – and could yet trigger a meltdown.”

So what’s the problem in Greece? Revenue collection, i.e., further tax evasion.

Martin Feldstein / Wall Street Journal

“The recent eurozone summit was a double failure. It failed to achieve the increased European political integration that was the primary goal of German Chancellor Angela Merkel and the other European political leaders. And it failed to improve the outlook for eurozone sovereign bonds because those politicians continued to insist that only a fiscal union and political integration could limit the interest rates on sovereign debt….

“Yet Britain’s unwillingness to modify the existing treaty without additional safeguards for the British economy means that the new rules would apply only to the 17 eurozone countries and others that wish to join them, but that they don’t constitute an official EU treaty and therefore cannot be enforced by the commission and other EU institutions.

“So there really is no enforcement mechanism for the new budget rules, even if all of the eurozone governments agree to sign a new accord.”

Robert Samuelson / Washington Post

“By now, it’s obvious that adopting the euro was a colossal blunder. It may rank as Europe’s worst policy mistake since World War II. The virtues of the common currency – it reduced transaction costs and the uncertainty of fluctuating exchange rates among national monies – were temporary. Its vices seem permanent or, at least, semi-permanent: the mounting economic costs of saving the euro; the growing nationalism from arguing over who’s to blame.

“Do not expect some magical ‘solution.’ Europe has entered an economic and political purgatory from which there is no early escape. On paper, the crisis countries (so far: Greece, Portugal, Ireland, Italy and Spain) might benefit from abandoning the euro and resurrecting national currencies. They could then devalue these currencies, spurring exports and tourism. But in practice, this choice is dangerous and maybe impossible.

“Any hint that a country might dump the euro would trigger runs on banks, as depositors would seek to withdraw their euros. Banks would collapse. Deprived of buyers for their debt, countries would default. This would impose further losses on banks inside and outside the defaulting country. Without viable bans, borrowers would be starved for credit. There would be capital controls restricting the shift of funds abroad. If one country (say, Greece) left the euro, it might precipitate runs and capital flights elsewhere. Writing in the Financial Times, Citigroup chief economist Willem Buiter sketched this grim outlook:

“ ‘Disorderly sovereign defaults and eurozone exits…would drag down not just the European banking system but also the North Atlantic financial system…The resulting financial crisis would trigger a global depression that would last for years, with GDP likely falling by more than 10% and unemployment in the West reaching 20% or more. Emerging markets would be dragged down too.’”

Wolfgang Munchau / Financial Times

“To solve the crisis, the eurozone requires, in the long run, a fiscal union with a prospect of a eurozone bond and, in the short run, unlimited sovereign bond market support by the European Central Bank. What we now have is no treaty change, no eurozone bond and no increase either in the rescue fund or in ECB support.”

Of course what’s so stupid about this whole freakin’ mess that threatens to take the entire world down is all Europe had to do was stick to the ceilings they adopted with the Maastricht Treaty 20 years ago when the euro was created, starting with limiting deficits to 3% of GDP.

Anatole Kaletsky / London Times

“And the winner was – David Cameron. With European markets collapsing after last Friday’s ‘historic’ summit meeting, with France about to lose its credit rating and with the German parliament seething at Angela Merkel’s failure to deliver on her promise of automatic sanctions for breaches of the budgetary ceilings, it looks like the new eurozone treaty may not even be written, much less signed or ratified. Far from isolating or weakening Britain’s position, the Prime Minister has protected the fundamental EU treaties from ridicule and disrepute.

“As details of the Franco-German ‘fiscal compact’ emerged over the weekend, it became clear that this ‘comprehensive’ and ‘final’ response to the eurozone crisis was no more comprehensive or final than all the previous failed summit deals. The only truly firm decision taken last week was to hold another meeting in three months’ time. At that point, all the impossibly contentious issues dividing France and Germany would somehow be miraculously resolved. Until then, eurozone citizens and global investors will be right to remain skeptical. The reasons for skepticism can be grouped under three headings: finance, politics and economics.

“Starting with finance, the summit deal completely failed to satisfy the two conditions necessary to restore confidence among the creditors to eurozone governments and depositors in the Greek, Italian and Spanish banks. First, the eurozone must be converted into a genuine fiscal union. Second, the European Central Bank needs to provide potentially unlimited financing to the weaker euro governments to bridge the gap between the political timetable for creating a fiscal union, which will take several years, and a market timetable that is measured in weeks or months. The summit deal failed utterly on both these counts….

“To make matters worse, the process of fiscal union has not been backed as expected by the ECB. Far from increasing support for Greece, Italy and others, the ECB reduced its purchases of their bonds to just 635 million euro last week (from as much as 20 billion previously). Instead of offering Italy and Spain bridging loans, the ECB produced a bizarre plan to lend money covertly through a cockeyed scheme that in another context might be described as money laundering.

“The ECB announced last week that it will offer all banks in the eurozone loans for three years in unlimited amounts, at an interest rate of just 1%. The banks will then be able to use this money to buy bonds issued by their own governments, in most cases yielding 6% or more, thus picking up five percentage points of profit by hoovering up whatever debts their governments might choose to issue in the months ahead….

“If the Greek or Italian governments default on their debts the Greek and Italian banks will go spectacularly bust – but these banks will go bust anyway if their governments ever default. Thus all the incentives for bank managements are to go for broke, risking their entire capital in the government debt markets and making maximum use of the new ECB credit lines.”

Insane. And I couldn’t agree more with this conclusion from The Economist regarding the summit.

“Although the compact was greeted as the acme of European solidarity, it is more likely to provoke strife. The summit poured cold water on the idea of Eurobonds, in which all members would share some or all of the troubled economies’ burden of debt. Instead the adjustment is being imposed almost entirely on deficit countries, guaranteeing that it will be long and painful. If in the coming years elected governments that impose austerity stir up civil unrest, outside enforcers in the EU will before long become a target for popular rage.”

Washington and Wall Street

As I noted above, the U.S. is held hostage to the daily news flow out of Europe. None of us need to remind the others anymore that Europe matters. But the funny thing is no one can also deny that the economic news out of Washington and various regions continues to show signs of improvement, including a weekly jobless claims figure of 366,000 that, shockingly, was the lowest since May 2008. The Federal Reserve’s Open Market Committee, in keeping interest rate policy where it is, offered that it expects moderate growth over the coming quarters, though unemployment will decline only gradually as strains in global markets pose significant downside risks. If we didn’t have these strains, we’d no doubt be in the midst of a big time yearend rally in the stock market.

Oh, sure, the Business Roundtable, comprised of CEOs, said 2/3s of them will freeze or cut employment the next six months but these guys are always behind the times, as much as we’re supposed to respect their opinion. 

I know of one location where the mood should be improving, and that’s the White House as President Obama’s re-election hopes rise with every good piece of economic data, even if Europe can still send staffers cowering under their desks at a moment’s notice. [In the old days this would be because of a terror threat. Now it’s a bad bond auction.]

True, as noted in various surveys, recent NBC/Wall Street Journal and CBS/New York Times polling data being most prominent, the negative feeling in the country has never been worse, with 70 to 75 percent of the people believing we’re headed in the wrong direction, while Congress’ ratings remain at all time lows.

But even here there was some good news at week’s end as Congress is on the verge (as I go to post) of wrapping up a spending bill that averts a U.S. government shutdown and appears to offer at least a temporary extension of the payroll-tax cut, while actually reducing spending in some areas. I’ll comment more on this next time once the full details emerge but for now, there’s a little ray of sunshine peeking through the clouds. There’s still a storm on the horizon, but there’s always a chance a front will come through that keeps it offshore.

Street Bytes

--Stocks finished lower after two strong weeks with the Dow Jones losing 2.6% to close at 11866 and the S&P 500 and Nasdaq losing 2.8% and 3.5%, respectively. Despite the good news, including the National Retail Federation hiking its estimate of sales for the holiday season from 2.8% to 3.8%, and solid earnings news out of a key bellwether, FedEx, it was more about Europe. Just two weeks to go in the year. For selfish reasons I’m kind of on pins and needles as I try to nail some predictions.

--U.S. Treasury Yields

6-mo. 0.03% 2-yr. 0.22% 10-yr. 1.85% 30-yr. 2.85%

Treasuries staged a huge rally with the yield on the 10-year declining 21 basis points owing to the ongoing problems across the pond, including Fitch Ratings lowering its outlook for France while putting the grades of nations including Spain and Italy on review for a downgrade.

The U.S. inflation data for November also helped the bond market as producer prices, ex-food and energy, rose just 0.1%, and the core consumer price index rose 0.2%, bringing them, year over year, to 2.9% and 2.1%, respectively.

--The risks of a slowdown in China continue to increase as housing slows rapidly (or so it seems) and the banking sector is beset by problem loans, though remember what I said a few months ago. The Chinese government has no problem letting weaker lenders fail. They want to be there to support the biggest institutions, if necessary, so as to prevent systemic risk. Beijing is also content to maintain property market restrictions in 2012 to bring housing prices down to a “reasonable level,” according to the Central Economic Work Meeting, an annual gathering of Chinese leaders who determine economic policy for the next year. This group “guarantees steady growth,” according to Xinhua news agency, and issued a statement that read in part:

“China will ensure that macroeconomic regulation policies and overall consumer prices remain basically stable and will guarantee the steady growth of the economy and maintain social stability.”

What we did see this week was the release of data on foreign direct investment in November, down 9.8% from a year earlier, a sudden deterioration compared with all the positive readings we are used to on this front, while HSBC’s preliminary reading on December manufacturing came in at 49, a second straight month of contraction though, should this be the official figure at month’s end, at least better than the 47.7 for November.

And then China imposed retaliatory duties on U.S. car imports in response to what it sees as damage to the Chinese car industry from U.S. “dumping and subsidies.” The duties would fall on popular vehicles such as BMW’s and Mercedes-Benz brands made at U.S. plants, as well as any GM, Ford, Chrysler and Honda U.S.-made vehicles. The U.S., in turn, has been fighting China in the World Trade Organization in the areas of poultry and steel.

--India’s industrial production fell 5.1% in October from year ago levels, the first year over year decline in 28 months.

--Japan’s key reading on business sentiment, the Tankan survey, turned negative.

--Former MF Global Holdings Ltd. CEO Jon Corzine has said in three congressional hearings that he “never directed anyone at MF Global to misuse customer funds,” but in his last testimony on Thursday, he said he knew of an overseas transfer to a JPMorgan Chase account in London but was told everything was approved by MF’s back office.

Otherwise, Corzine has said, “I simply do not know where the money is” and “I didn’t intend to break the rules” when it comes to the missing $1.2 billion in customer funds.

But CME Group CEO, Terry Duffy, claims, “Mr. Corzine was aware of the loans being made from segregated accounts,” saying this information came from a CME auditor who heard the comment during a conference call involving senior MF Global employees. Corzine denied the allegation.

--The SEC filed suit against former Fannie Mae CEO Daniel Mudd, Richard Syron, ex-CEO of Freddie Mac, and other executives of both for understating hundreds of billions of dollars in subprime loans held by the firms. According to one SEC complaint, Freddie Mac executives “said the company’s exposure (to subprime) was between $2 billion and $6 billion when it was actually as high as $244 billion.” [Bloomberg]

The SEC filed “non-prosecution” agreements that require Freddie Mac and Fannie Mae to “accept responsibility” for their conduct and to cooperate with the SEC probe of the former executives.

Mudd, now CEO of Fortress Investment Group LLC, said in a statement:

“The government reviewed and approved the company’s disclosures during my tenure, and through the present. Now it appears that the government has negotiated a deal to hold the government, and government-appointed executives who have signed the same disclosures since my departure, blameless – so that it can sue individuals it fired years ago.”

The problem is both Mudd and Syron, in congressional testimony in April 2007, tremendously downplayed their firms’ exposure to subprime loans; Mudd saying it was less than 2.5% of Fannie’s book, while Syron said Freddie hadn’t “been heavily involved in subprime all along.”

--Morgan Stanley plans to cut about 1,600 jobs due to a drop in revenue from investment banking and trading, with the cuts coming in the first quarter at all levels of the firm.

--Noted bank analyst Mike Mayo said revenue growth for U.S. banks this year would be the worst since the Great Depression and is not likely to improve in 2012. Remember the huge expansion in bank branches in your own neighborhood in the years prior to the financial crisis? You will see a ton of them disappear.

--Research in Motion, the Canadian manufacturer of the BlackBerry, once again delivered bad news to shareholders (and users) as it warned its next generation of smartphones running its new operating system will not be available until late 2012, way beyond what was first thought given prior company guidance. RIM’s stock has fallen over 75% this year. The co-CEOs cut their salaries to $1 a year while they attempt to right the ship but investors want them gone. RIM is on the verge of irrelevance, a startling fall, as the company expects sales to decline in the current quarter, the first such decline in years for this historically strong period.

--According to new information from the Census Bureau, nearly 1 in 2 Americans are either in poverty or scraping by on earnings that classify them as low income. The new measure of poverty takes into account medical, commuting and other living costs.

--Republican Congressman Paul Ryan (Wis.) and Democratic Sen. Ron Wyden (Ore.) have reached broad agreement on a sweeping Medicare proposal that would address Ryan’s original Medicare proposal’s flaw, that being its inability to keep pace with the rate of inflation. The new plan, which I’m not even going to begin to explain in detail now, would give future seniors a choice of staying in the traditional federal plan or purchasing private insurance coverage. All I know is that the Republican presidential candidates in Thursday’s debate broadly praised the compromise; yet another reason why Paul Ryan, in particular, has an exceptional future.

--The above notwithstanding, last time I didn’t have a chance to quote economist Robert Samuelson from his Dec. 4 op-ed in the Washington Post:

“We Americans fool ourselves if we ignore the parallels between Europe’s problems and our own. It’s reassuring to think them separate, and the fixation on the euro – Europe’s common currency – buttresses that mind-set. But Europe’s turmoil is more than a currency crisis and was inevitable, in some form, even if the euro had never been created. It’s ultimately a crisis of the welfare state, which has grown too large to be easily supported economically. People can’t live with it – and can’t live without it. The American predicament is little different….

“The numbers – to those who don’t know them – are astonishing. In 1870, all government spending was 7.3% of national income in the United States, 9.4% in Britain, 10% in Germany and 12.6% in France. By 2007, the figures were 36.6% for the United States, 44.6% for Britain, 43.9% for Germany and 52.6% for France. Military costs once dominated budgets; now, social spending does….

“The modern welfare state has reached a historic reckoning. As a political institution, it hasn’t adapted to change. Politics and economics are at loggerheads. Vast populations in Europe and America expect promised benefits and, understandably, resent any hint that they will be cut. Elected politicians respond accordingly. But the resulting inertia poses an economic threat, one already realized in Europe. As deficits or taxes rise, the risk is that economic instability will increase, growth will decline, or both. Paying promised benefits becomes harder. Or austerity becomes unavoidable.

“The paradox is that the welfare state, designed to improve security and dampen social conflict, now looms as an engine for insecurity, conflict and disappointment. Facing the hard questions of finding a sustainable balance between individual protections and better economic growth, the Europeans have spent years dawdling. The parallel with our situation is all too obvious.”

At least Ron Wyden and Paul Ryan have acted, while President Obama leads from behind.

--The worst drought in Texas history, which has caused an estimated $5.2 billion in losses to farmers and livestock producers, has led to the largest-ever one-year decline in the cow herd, 600,000, or a 12% decline from the 5 million cows estimated at the beginning of the year. But while most folks talk about the impact this drop in the herd will have on beef prices, I say, boy, that’s a lot of methane removed from the atmosphere. Texas’ air quality has never been better.

--Speaking of climate change, Canada formally withdrew from the Kyoto Protocol, the first such nation to pull out, which led to criticism from the rest of the world. 

But, said Peter Kent, Canada’s minister of the environment, “Kyoto…is in the past, and as such we are invoking our legal right to withdraw.” Kent added that Kyoto would cost his country $13.6 billion, or “$1,600 from every Canadian family…that was the legacy of an incompetent Liberal government.”

Meanwhile, the recently concluded Durban Conference was deemed “absurd” by Globe and Mail opinion columnist Margaret Wente, who says climate change conferences are more about power and money and the opportunity for growing economies to “extract billions” from rich countries, as reported by the BBC.

Comedian/commentator Dennis Miller says the Durban forum was primarily an event used by male delegates to pick up women.

[Aside from chasing the opposite sex, delegates reached agreement that a new climate change deal would be in place by 2015 and in force from 2020, plus it is to include top emitters China, the U.S. and India. If I were a cow, I’d begin to change my diet. Or take Beano.]

--Good news…California’s unemployment rate dropped to 11.3% in November, the lowest since June 2009.

--Swiss Re AG estimates that natural disasters such as earthquakes in New Zealand and Japan, and floods in Thailand, let alone the severe storms in the U.S., resulted in the highest-ever catastrophic economic losses in a single year. Total losses in 2011, including insured and uninsured losses, are estimated at $350 billion, up from $226 billion in 2010.

The loss for the insurance industry itself, however, is projected at $108 billion, primarily because Japan hadn’t been fully insured, so on this basis it’s the second-most expensive year for the industry after 2005, which had massive loss-generating storms like Katrina, Wilma and Rita. [Anita Greil / Wall Street Journal]

--Commodities continued to take it on the chin this week. The story is really simple, irrespective of currency fluctuations, such as in a stronger dollar. As China goes, so goes the sector. China consumes 37% of the world’s copper, for example, and accounts for 60% of growth in global oil demand. So in looking at 2012, if you were playing the CRB Index, it’s about whether China will muddle through, have a hard landing, or see renewed growth. Today, I’d be in the muddle through camp (7.5-8.0% growth).

--China’s Shanghai Composite Index hit a new 33-month low before rallying 2% on Friday.

--The Economist had a piece on Macau and the excessive amount of money laundering taking place there, with wealthy Chinese evading China’s strict limits on the amount of yuan that can be taken out of the country by laundering it through the gambling Mecca. When the wealthy cash out, they are paid in Hong Kong dollars, which they can then stash in Hong Kong or take elsewhere. Many point to this as a big reason for Macau’s success, as 72% of its revenues come from high-rollers.

--Atlantic City could use more money-laundering. November revenues at its 11 casinos fell 6.3% from a year ago. [The Borgata Hotel Casino and Spa remains far and away the biggest in A.C. in terms of revenue, by the way.]

--McDonald’s said November same-store sales rose a strong 7.4%, with the company citing breakfast items such as the seasonal addition of the peppermint mocha to the coffee menu. Sales at stores open at least 13 months rose 6.5% in both the U.S. and Europe, and 8.1% in Asia Pacific, the Middle East and Africa.

This is nothing short of spectacular and McDonald’s shares hit another all-time high.

--One of the world’s worst CEOs, Andrea Jung of Avon, was relieved of her command, though for some reason allowed to remain as chairman of the board.

--A USA TODAY analysis shows that electric bills have skyrocketed the last five years, “a sharp reversal from a quarter-century ago when Americans enjoyed stable power bills even as they used more electricity.” [Another hit for the middle class as wages continue to stagnate.]

--When I was golfing the other day with Dr. W., we were talking about the situation in the U.S. and two things that will help kill us; rising healthcare costs and tuition.

So while you all know about both, I did see a telling piece in the Los Angeles Times by George Skelton, talking about tuition hikes at the University of California, up 18% this year over last, which was 14% higher than 2009, which was 23% steeper than ’08. Again, with wages stagnant over the same stretch. Plus, back in 1984, there were no academic fees. Today, it’s $864, annually, assuming a full course load.

Plus, the average textbook now costs $104 (2010), a 24% increase from five years before. “Between 1986 and 2004, textbook prices rose 186%, double the inflation rate. Students can expect to spend more than $1,100 a year on books.”

--I can’t say I’ve purchased any Michael Kors apparel for significant others, or been in one of its outlets, but the IPO did well this week, up 21% in its debut on Thursday.

--The NFL reached agreement with its broadcast and cable networks that will see CBS, Fox and NBC pay a cumulative $3 billion a year, over nine years, starting in 2014, or more than 50% higher than their current deals. [Fox will pony up $1.1 billion, CBS $1 billion, and NBC $950 million a year. Three months ago, ESPN agreed to pay $1.9 billion annually for eight years.]

Add in DirecTV, which pays $1 billion a year for its Sunday Ticket satellite package, and you’ve got a lot of money to divvy up. The players, under the new collective bargaining agreement, get 55% of the TV haul.

--The late Liz Taylor’s jewelry collection fetched a record-setting $115 million at auction, including more than $8.8 million for a diamond ring given to her by Richard Burton, purchased by a private buyer from Asia.

--The U.S. Mint is curtailing production of the $1 golden coin. The government has 1.4 billion of them in its vaults, demand is so low. Dollar coins have never caught on.

--Speaking of pocket change, ever notice how only women insist on searching for the exact change at checkout lines? [Mused the editor, who has coffee cans full of change, probably about $1500 worth, in storage. This is what I’ll cash in when I’m homeless and riding the rails.]

--Lastly, gotta love Barclays CEO Bob Diamond, who has imposed a “no jerks” policy for his U.K. bank. Diamond said the rule applies to bankers considered to be prima donnas, too greedy, too ostentatious or failures as team players. Supposedly, he has encouraged 30 to 40 Barclays employees to find work elsewhere for violating the standard. Diamond cited an infamous 2002 episode, during which six Barclays bankers ran up a $68,940 alcohol tab at a London restaurant, as embarrassing and “the no-jerk rule personified.” [The Post and Courier…Charleston, S.C.]

Foreign Affairs

Iraq: By next week, only about 200 U.S. military personnel will remain in Baghdad as part of the U.S. diplomatic mission to administer arms sales. After almost nine years, nearly 4,500 U.S. dead, at least $800 billion spent, and an estimated 100,000+ Iraqi civilian fatalities, Defense Secretary Leon Pannetta ‘furled’ the flag in a low-key ceremony marking the end to the Iraq War.

As I noted a year ago at this time, when Iraqi Christians can’t openly celebrate Christmas, there is only one conclusion to make. The United States lost. Our soldiers performed heroically, but with few exceptions, our civilian and military leadership did not. Saddam Hussein was toppled, and, importantly, his sons disposed of, but the U.S. is now abandoning the Iraqi people and during the course of the 2012 campaign, President Obama will increasingly find he cannot tout his Iraq policy as a success.

We all know Iran will gradually take over, as its puppet, the immensely corrupt Shia Prime Minister Nouri al-Maliki, does Tehran’s bidding. Civil War will re-erupt as the Sunni minority, a critical component of the United States’ surge, futilely holds onto their last strongholds, while the Kurds try to maintain their isolation and independence.

As for the 1,500 to 2,000 State Department staffers manning the world’s biggest embassy (with another 14,000 security contractors), they will be targets. Not one of them feels safe these days leaving the Green Zone. 

Editorial / Washington Post

“In the opening statement of his press conference Monday with Iraqi Prime Minister Nouri al-Maliki [Ed. the first time Obama has been face-to-face with Maliki since Oct. 2009], President Obama managed to assert no fewer than five times that the war in Iraq is ending. No doubt the president’s reelection campaign hopes that Americans will absorb that message; but we wonder about the thoughts of Iraqis who were listening. The conflict in their country, after all, is greatly reduced but not over: Al-Qaeda continues to carry out terrorist attacks, Iranian-sponsored militias still operate, and a power struggle between Kurdish-ruled northern Iraq and Mr. Maliki’s government goes on. Many Iraqis worry that, after the last U.S. troops depart this month, the sectarian bloodletting that ravaged the country between 2004 and 2007 will resume….

“(Mr. Maliki’s) government increasingly appears headed in a troubling direction. Rather than remaining ‘inclusive,’ Mr. Maliki has been concentrating power, especially over the security forces, in his own hands and excluding minority Sunnis, with whom he promised to share authority. He recently ordered the arrest of hundreds of people he accused of being tied to Saddam Hussein’s former Baath Party. Though he may have, as Mr. Obama said, domestic reasons for doing so, he has set himself apart from the rest of the Arab League by refusing to break with the Syrian government of Bashar al-Assad, a key Iranian ally.

“Mr. Obama’s virtually unqualified support for Mr. Maliki consequently was unsettling.”

Meanwhile, to my fellow Christians in Iraq (the few still remaining), Merry Christmas.

Iran: If you watched the Republican debate on Thursday, it was rather humorous how the candidates attacked President Obama for asking the Iranians to return our spy drone. Talk about pathetic. The Iranians had some fun with that one. Tehran then warned the Afghan government to order a halt to surveillance flights from its territory, with Iranian Foreign Minister Salehi saying any further flights would be viewed as a hostile act. Defense Secretary Panetta said the flights will continue despite the loss of the drone.

 On the nuclear program front, the White House is increasingly concerned Iran is on the verge of being able to enrich uranium at the underground facility near the holy city of Qom (Fordo), and that Israel may see commencement of such operations as a justification for a strike, as reported by Indira A.R. Lakshmanan of Bloomberg.

Strategist Ray Takeyh notes in a Washington Post op-ed that Iranian parliament Speaker Ali Larijani has mused that “If Iran becomes atomic Iran, no longer will anyone dare to challenge it because they would have to pay too high of a price,” in case anyone still doubts its intentions.

On a different matter, Al Arabiya reported that Supreme Leader Ayatollah Khamenei “ordered the arrest of a number of senior members of the Revolutionary Guard he suspects of planning to assassinate him,” as passed along by the Jerusalem Post.

And regarding a so-called blast at an Iranian uranium processing plant near the city of Isfahan on Nov. 28, the Washington-based Institute for Science and International Security says its analysis of satellite imagery do not indicate a blast occurred there. The organization said, “It is still unclear where the reported blast occurred in Isfahan and whether it occurred anywhere near the nuclear facility.”

Strangely, “Buildings that could be seen at that facility in satellite images from August are no longer present in pictures taken on Dec. 5, according to the analysis. There are signs that bulldozers have been at work in the area, and large pieces of equipment could be detected.” [Global Security Newswire]

The ISIS says, “It is unclear how and why the buildings are no longer present at the site. It is also unclear whether this transformation is related to the Nov. 28, 2011, blast reported to have been heard throughout Isfahan.”

The plot thickens.

Meanwhile, the Iranian people are increasingly in an uproar over the impact of sanctions on the economy as commodity prices soar. Authorities feared a run on the banks and on Wednesday were forced to beat back crowds attempting to buy gold coins at a discount. Only high oil prices have prevented a full-blown collapse of the Iranian economy. Non-performing loans, which were estimated at $42 billion in 2010, are said to have risen significantly higher this year. Public confidence is shot.

As for why the banks would supposedly sell gold at a discount, it’s because they need the cash.

Syria: The United Nations raised its estimate of the death toll from the Assad government’s crackdown to 5,000. In the 10-day period ending Dec. 12, 200 died, according to the UN high commissioner for human rights. With international media access virtually non-existent, it’s impossible to know for sure exactly what is taking place, except that it is civil war. A report on Dec. 15 said Syrian army defectors had killed 27 Syrian soldiers and security forces. Also, Syrian troops continue to infiltrate Lebanon, firing on civilians as a means of terror. In one attack, two shepherds were wounded by the gunfire. 

But as my friend in Beirut, Michael Young, writes for the Daily Star, imagine if Syria’s army and intelligence services were still in Lebanon, the Independence Intifada of 2005 having driven them out?

“The question is not academic. Lebanon 2005 has been denied its due as a precursor of Arab uprisings this year, even though the popular demands at the time were very similar to what we are witnessing today. A reason for this is that the aftermath of the Lebanese Intifada against Syria was, to put it kindly, uncertain. Rather than emerge into a new morning of emancipation, the Lebanese grew apart, within a year were caught up in a war with Israel, and within three found themselves on the cusp of civil war.

“And yet judging emancipator moments by their outcomes can sometimes play surprising tricks, because the unintended consequences are invariably good and bad. It’s best to evaluate such moments on their own merits, and few acts are more laudatory than seeking the replacement of an authoritarian leader and the criminal enterprises with which such individuals surround themselves.”

But if Syria were still in Lebanon today, Young concludes the country “would have become a Syrian battering ram in its dealings with the Arabs and the West. Domestic animosities would have been exacerbated, with one group of Lebanese employed by Syria to intimidate the other. As is their way, the Assads would have ensured that if they were destroyed, Lebanon would be as well.”

As an aside, Syria was blamed by the French for an attack on a UN peacekeeping force on patrol in southern Lebanon on Friday (Dec. 9) that seriously injured five soldiers; Hizbullah, that is, acting on behalf of Syria.

Egypt: As I go to post, renewed clashes in Cairo have killed at least eight today.

Israel: The Palestinians continue to refuse to resume peace talks with Israel until Israel freezes settlement construction and accepts the pre-1967 lines. This as Israeli Prime Minister Netanyahu once again has his hands full with Jewish extremists, with Netanyahu vowing these same folks would not be allowed to spark a religious war; after far-right activists targeted a West Bank mosque near Ramallah in retribution for IDF actions to demolish a home close to an unauthorized outpost near Nablus. Earlier, Jewish activists vandalized an army base, assaulted two IDF commanders and breached a security fence with Jordan.

Pakistan: The government continues to impose a blockade on a U.S. lifeline into Afghanistan following the November 26 NATO airstrike that killed 24 Pakistani soldiers, and this week gunmen attacked the oil tankers stranded all this time, destroying seven of them in one instance. In a separate incident in Quetta, gunmen destroyed at least 34 trucks in a temporary NATO trucking terminal there.

As to the health of President Zardari, who is being treated for an unknown ailment in Dubai, rumors of a coup persist, though Prime Minister Gilani said Zardari has the backing and support of parliament. Zardari should stay in Dubai and enjoy himself.

Russia: Nothing should surprise readers of this space when it comes to the Kremlin and intrigue. Having told you exactly what would happen in the Dec. 4 Duma vote, including mass demonstrations after, what’s next? I’ve long said there will be a coup, though I’ll try and refine things when I give my outlook for 2012 on Dec. 31. For now, March 4 is the date of the presidential election and Prime Minister Vladimir Putin, who thought he would just skate back to his old position for two, six-year terms, is now back on his heels.

After last Saturday’s protests, with tens of thousands gathering in Moscow, an equal number in St. Petersburg, and protests across the rest of the country, Moscow officials have granted approval for a demonstration on Christmas Eve. The approval is for a crowd of 50,000. We’ll see what happens.

Meanwhile, Putin, in his annual live TV call-in show, this one lasting 4 ½ hours, refused to acknowledge election violations but said he would install live Web cameras at every polling station in Russia to prevent fraud in March. Putin also said he would gradually move to return the election of regional governors and senators to the people. It was years ago that he dismantled that system, though he still wants the president to have a hand in picking candidates.

Earlier, a top Putin advisor, Boris Gryzlov, speaker of the Duma for 8 years and leader of United Russia, resigned; he being the scapegoat, it would seem, for United Russia’s support falling from 64% to 49.5% in the Dec. 4 vote (with many saying were it not for ballot stuffing, it would have been closer to 33%, max).

Putin’s approval rating, as well as that of current President Medvedev, has tumbled to 51% following the scam election. Only 42% said they would vote for Putin next March, which would necessitate a second round.

So you’d think Putin would be somewhat conciliatory, but despite a few small steps, as noted above, he still derided last weekend’s protesters for “allowing yourselves to be humiliated.” He also reiterated a longstanding warning that protesters shouldn’t attempt regime change a la Ukraine in 2004. “Color revolutions are special schemes to destabilize society,” he said during the call-in show.

And he repeated an earlier assertion that unidentified Russians were working for foreign interests. “There are people who have Russian passports but work for the interests of a foreign state, for foreign money.” Of course the prior week he blamed U.S. Secretary of State Clinton.

Putin also dismissed fears of censorship, this after two people were fired in connection with the publication of a magazine photo of a ballot carrying a handwritten crude insult about him. Vlad then called Sen. John McCain “nuts” after McCain wrote to Putin on Twitter amid the Duma protests that “the Arab Spring is coming to a neighborhood near you.” [McCain replied back immediately to the ‘nuts’ comment, “Dear Vlad, is it something I said?”]

By the way, President Obama…nice “reset.”

Meanwhile, New Jersey Nets owner Mikhail Prokhorov, the 3rd-richest man in Russia, announced he would run for president, citing support from the business community. Though just as in earlier this year, when Prokhorov said he was starting a new political party (Right Cause…only to be ousted in an internal coup), there are conspiracy theories that the Kremlin is encouraging a Prokhorov run to both show Putin is for free elections, and to have Prokhorov help split the opposition vote. Prokhorov did vow that if elected president, his first step would be to release former Yukos oil tycoon, Mikhail Khodorkovsky. [There is actually little sign that Prokhorov has any level of support whatsoever.]

Lastly, we make note of a new member of the Duma…Maria Kozhevnikova, Russian Playboy’s cover girl in 2009. Just before being elected, she was voted the country’s sexiest woman by Maxim magazine. You go, girl! [As in, go ahead, be my coup leader.]

[Regarding the story that broke on Friday that an Iranian citizen was caught trying to smuggle radioactive material on board a flight from Moscow to Tehran, from my reading of the details it’s much ado about nothing. For starters, our news services made it sound like an arrest was made that day. Like on Saturday morning, Drudge still has this as one of its leads and the story is grossly incomplete. The incident actually occurred a while ago but Russian authorities just made it public, and, second, the passenger was allowed to board the flight and not detained.]

China: A South Korean Coast Guard officer was stabbed and killed by Chinese fishermen when officers tried to stop them from fishing in South Korean waters. A second officer was wounded. This is yet another in a series of attacks by the Chinese. In September 2008, a South Korean officer was killed in a similar clash. As bad as the incidents are, they are not expected to significantly impair China-South Korea relations.

On a different matter, cyberespionage, the Wall Street Journal reports that the National Security Agency has determined the identities of individuals connected to China’s People’s Liberation Army “and a half-dozen nonmilitary groups connected to organizations like universities.” The U.S. hasn’t decided yet whether to confront China directly with the information or to launch a counterattack.

A Chinese Foreign Ministry spokesman said, “Accusations that China participates in such hacking, or that the Chinese government is behind it, are totally ungrounded.” Cough cough.

France: Former prime minister and conservative politician Dominique de Villepin announced he will run for president in the 2012 election. Mr. de Villepin is a long-time rival of President Sarkozy, who has yet to formally declare but is expected to do so. De Villepin would have little chance of winning but could draw votes away from Sarkozy in the first round of balloting, assuming he can get the signatures of at least 500 mayors that are required to get his name on the ballot in the first place.

A poll published last Sunday, incidentally, has Sarkozy winning just 26% of the vote if the first round, slated for April 22, were held today. Marine Le Pen, the National Front candidate, captures 13.5%, Francois Bayrou, a centrist who finished third in 2007, comes in at 13%, while Francois Hollande, the Socialist, would garner 31.5%. De Villepin picks up just 1%.

Separately, former President Jacques Chirac was found guilty of diverting public funds, specifically paying members of his party for municipal jobs that did not exist. Chirac was president from 1995 to 2007, but the charges actually go back to his time as mayor of Paris, 1977 to 1995, and he is the first former French head of state to be convicted since Marshal Philippe Petain, the leader of the wartime Vichy regime and Nazi collaborator.

To many in France, the verdict against Chirac was shocking as corruption is so entrenched, and seemingly accepted, among the political elite. The presiding judge wrote:

“Jacques Chirac breached the duty of trust that weighs on public officials charged with caring for public funds or property, in contempt of the general interest of Parisians.”

Of further significance, the verdict threatens Sarkozy, who has long faced allegations of similar behavior.

[By the way, before Petain, the only other French head of state to face trial was King Louis XVI, who was guillotined in 1793.]

India: Two weeks ago, a hospital fire killed over 90 in New Delhi as fire trucks struggled to get there amidst the congestion. This week, the death toll is 168 and rising from a toxic alcohol brew in West Bengal state. While such deaths are a regular occurrence here, the scale is unprecedented (107 died in a similar incident in 2009). The illegal breweries appear to have used ammonium nitrate to “add flavor.”  The majority of consumers of the moonshine are poor, daily-wage workers.

Belgium: A man with a history of weapons and drug offenses was summoned for questioning by Belgian police; so on his way to the station, he threw three hand grenades into a crowd of holiday shoppers in the city of Liege and then sprayed them with gunfire, killing four and wounding 122, before he killed himself. [Another victim of the attacker’s was later found at his home.] In Italy, a man opened fire in an outdoor market in Florence, killing two vendors from Senegal and wounding three other Senegalese before killing himself. The attacker was a known right-wing extremist.

Random Musings

From time to time I feel compelled to remind readers, especially new ones, that what I’ve been doing these almost 13 years is developing material for the best possible book on our times; the main thing I will leave behind when I’m long gone. I’ve just dragged you along for the ride. At this point I refuse to take a week off because I’m afraid I’ll miss a little nugget that could be a spark for later on. 

So the preceding is preamble for the fact that I recognize the following polls could be dated (albeit by just a few days), assuming the daily tracking data is correct and that Newt Gingrich has peaked. Again, this is a snapshot of a point in time, not necessarily six hours ago. You can imagine that I have the greatest polling info for the 2000, 2004 and 2008 races, which will all be part of the story I eventually write. Thanks for indulging me.

--American Research Council...Iowa

Gingrich 22 percent
Romney 17
Paul 17
Perry 13

--Public Policy Polling…Iowa

Gingrich   22
Paul 21
Romney 16
Bachmann 11
Perry 9

--NBC / Marist

South Carolina

Gingrich over Romney, 42-23

Florida

Gingrich over Romney, 41-28 [likely Republican primary voters in both states]

NBC / Wall Street Journal…Republican primary voters nationwide

Gingrich over Romney, 40-23

[Gingrich negatives very high, however]

Hypothetical matchups

Obama over Romney, 47-45
Obama over Gingrich, 51-40

Obama’s approval rating in NBC/WSJ survey is at 46%, up 2 points.

--Regarding Thursday’s debate in Sioux City, Iowa, John Podhoretz / New York Post:

“As for Romney, who was terrible in Saturday’s debate in Iowa, he found something new last night that might carry him all the way to the nomination: A tone of humility.

“He found a strong way to address the idea that his actions as a private-equity manager of businesses cost jobs by explaining that capitalism involves failures and successes. He knew both and had learned from both….

“The most amazing performance last night, however, was by Michele Bachmann, who showed herself (as she did in the early going) to be a remarkably substantive and tough-minded debater who is able to engage with what is going on in front of her and go on the attack when her rivals say things spontaneously that she wishes to take issue with.”

--I’m anxious to get to New Hampshire after New Year’s and track down Ron Paul for one of his appearances. Will he run as a third party, which everyone knows would throw the election to Barack Obama?

A new USA TODAY/Gallup Swing States Poll finds 54% of Americans nationwide and 52% in the nation’s top battlegrounds agree that the two major parties “do such a poor job that a third major party is needed.”

“In the dozen most competitive states, the political group most likely to back the idea of a third party are moderate and liberal Republicans – perhaps because they feel disenfranchised by the clout of a conservative Tea Party movement. Nearly two-thirds back the idea of a third party. Moderates and liberals make up nearly four in 10 Republicans.

“Among Democrats, too, moderates and conservatives seem somewhat disaffected from the liberal activists who often define their party. Just over a third of moderate/conservative Democrats and moderate/liberal Republicans say they’re enthusiastic about voting for president in 2012, among the lowest of any groups.”

George Will had the following on a potential Paul third party bid in his Washington Post column:

“It would enable Obama to carry two states he lost in 2008: Missouri (10 electoral votes), which he lost by 0.13 points, and Arizona (11), which he lost by 8.52 points to native son John McCain. It would enable Obama to again win four states he captured in 2008 and that the Republican nominee probably must win in 2012: Florida (29), Indiana (11), North Carolina (15) and Virginia (13).

“It would secure Obama’s hold on the following states he won in 2008 but that Republicans hope to take back next year: New Mexico (5), Colorado (9), Nevada (6), Michigan (16), Ohio (18), Pennsylvania (20) and New Hampshire (4).

“At a minimum, a Paul candidacy would force the Republican nominee to spend time and money in places he otherwise might be able to economize both. And a Paul candidacy would make 2012 much easier for Obama than 2008 was.”

Even without a Paul third party bid, I have little confidence the Republican nominee will defeat the president, as of today, I hasten to add. Everyone keeps pointing to his approval numbers being below the key 50 mark, but it wouldn’t take much to get them back above that level, like a gradually improving unemployment rate.

Wait for my yearend review and 2012 outlook, however. 

--Independent Sen. Joe Lieberman told U.S. News’ Paul Bedard it might take a “catastrophe” to change Washington, and that in the meantime, a third party is probably appropriate, reasoning that voters might just give up on the Democrats and Republicans if the gridlock continues.

“If Walmart spent its entire advertising budget attacking Target, and Target spent its entire budget attacking Walmart,” Lieberman argues, “the net effect would be that a lot of people who are shopping at both stores now would shop somewhere else.”

--After watching a bunch of debates, you know who I really don’t like? Jon Huntsman. He couldn’t come off more poorly, or as Jennifer Rubin of the Washington Post puts it, haughty.

--No doubt, I don’t agree with Ron Paul’s foreign policy, but when he talks about bringing all the troops home, he’s right in one regard. What the heck do we have 52,000 of our men and women in Germany for? Keep Ramstein Air Base for tactical reasons and 10,000 troops and airmen, but that’s it. Get the Europeans to start paying for their own defense, though, yes, in this time of austerity that is the furthest thing from EU governments’ minds. Well that’s their problem.

--Kathleen Parker / Washington Post

“You don’t get more un-Romney than Gingrich. Imperfect and untidy, he’s the serial husband with whom anyone could feel comfortable sharing a beer. Or a keg. A sinner like the rest of us, he’s as familiar and comfortable as an old sofa.

“But no one other than Callista Gingrich thinks her husband can prevail in a general election. No. One. The consensus on Gingrich is so overwhelming that conventional wisdom has taken a holiday. That is, no one in Washington thinks he can win, and Washington is where Gingrich is known best. Instead of rallying to support him, former colleagues are going out of their way to politely say, ‘He can’t lead.’”

--Peggy Noonan / Wall Street Journal

“I had a friend once who amused herself thinking up bumper stickers for states. The one she made up for California was brilliant. ‘California: It’s All True.’ It is so vast and sprawling a place, so rich and various, that whatever you’ve heard about its wildness, weirdness and wonders, it’s true.

“That’s the problem with Newt Gingrich: It’s all true. It’s part of the reason so many of those who know him are anxious about the thought of his becoming president. It’s also why people are looking at him, thinking about him, considering him as president.

“Ethically dubious? True. Intelligent and accomplished? True. Has he known breathtaking success and contributed to real reforms in government? Yes. Presided over disasters? Absolutely. Can he lead? Yes. Is he erratic and unreliable as a leader? Yes. Egomaniacal? True. Original and focused, harebrained and impulsive – all true….

“What is striking is the extraordinary divide in opinion between those who know Gingrich and those who don’t. Those who do are mostly not for him, and they were burning up the phone lines this week in Washington.

“Those who’ve known and worked with Mitt Romney mostly seem to support him, but when they don’t they don’t say the reason is that his character and emotional soundness are off. Those who know Ron Paul and oppose him do so on the basis of his stands, they don’t say his temperament forecloses the possibility of his presidency. But that’s pretty much what a lot of those who’ve worked with Newt say.”

--Poor Rick Perry. In Iowa last weekend, he thought there were 8 U.S. Supreme Court justices, not 9, and then he fumbled for the name of Justice Sonia Sotomayor, eventually calling her “Montemayor,” which sounds better, but isn’t exactly what the questioner was looking for. [A Des Moines Register editorial board member eventually helped Perry out. I concede I might have come up with former pitcher, John “The Count” Montefusco.]

--Charles Krauthammer / Washington Post

“In (Osawatomie,) Kansas, Obama lamented that millions ‘are now forced to take their children to food banks.’ You have to admire the audacity. That’s the kind of damning observation the opposition brings up when you’ve been in office three years. Yet Obama summoned it to make the case for his re-election!

“Why? Because, you see, he bears no responsibility for the current economic distress. It’s the rich.  And, like Horatius at the bridge, Obama stands with the American masses against the soulless plutocrats.

“This is populism so crude that it channels not Teddy Roosevelt so much as Hugo Chavez. But with high unemployment, economic stagnation and unprecedented deficits, what else can Obama say?

“He can’t run on stewardship. He can’t run on policy. His signature initiatives – the stimulus, Obamacare and the failed cap-and-trade – will go unmentioned in his campaign ads. Indeed, they will be the stuff of Republican ads.

“What’s left? Class resentment. Got a better idea?”

--The National Transportation Safety Board unanimously recommended that all texting, emailing or chatting on a cellphone while driving be banned. The NTSB cannot itself issue such a ban, but this should lead more states to crack down on one if not all of the practices.

NTSB chairman (far more accounts say chairman rather than chairwoman) Deborah Hersman, while noting the move wouldn’t be popular, said, “We’re not here to win a popularity contest. No email, no text, no update, no call is worth a human life.”

Of course after all I’ve written on this topic, you shouldn’t be surprised I totally support the NTSB’s recommendation.

--Kobe Bryant’s wife filed for divorce! [Oops, sorry…just got the headline on one of my services.] 

--Bob S. was first to tell me the joyous news that buried in the 1,200-page spending bill that funds the government through September is a provision “which prevents the Obama administration from carrying through a 2007 law that would have set energy efficiency standards that effectively made the traditional light bulb obsolete.”

Yessss! The premiums’ on me this weekend, though I’m still going to keep filling a spare bath tub (behind a shower curtain, lest you get too concerned) with bulbs until I’m 100% sure this is going to be the case.

It turns out the House Republicans stuck to their guns and made it one of the last major sticking-points in the negotiations on the bill to fund the government.

I’m as giddy as a school boy…might even buy the biggest goose in the window at Barth’s butcher shop. Actually, I live on the third floor. Today, I’ll just call out to the young boy below taking his family’s trash out.

“Say, young lad. You know how to get to Barth’s?”

“I think. Is that the place with the huge goose in the window?”

“Here…here’s a gold dollar coin. If you bring the goose back, there’s more where that came from.”

“What do I say?”

“Tell ‘em to charge it to the Editor.”

“I’m not doing this for less than $50.”

Kids.

--Time magazine named “The Protester” “Person of the Year” for 2011. That’s so stupid. Everyone knows it should be “Mother Nature.” 

[I’ll have my own pick on Dec. 31, as well as our proprietary “Dirtball of the Year.” Tons of candidates for the latter. Virtually zero for the former, given my strict guidelines.]

--A Pew Research Center analysis found that only 51% of all adults 18 and older are married. Back in 1960, the figure was 72%. So by 2111, it will be around 10%, which will really mess with the reality television programming schedule.

--Speaking of television, I watched Chelsea Clinton’s debut on NBC News, Monday night, and she was horrid.

Or, as the Sydney Morning Herald put it, “The reviews are scathing.”

“The Washington Post’s Hank Stuever said it was no surprise Clinton’s debut wasn’t a triumph of TV journalism, considering she has no experience in it.

“ ‘Rather, what was surprising to see on Monday night’s show is how someone can be on TV in such a prominent way and, in her big moment, display so very little charisma – none at all,’ he wrote.

“ ‘Either we’re spoiled by TV’s unlimited population of giant personalities or this woman is one of the most boring people of her era.’” Heh heh.

--Uh oh…remember that Russian Mars probe that never got into its proper orbit? It’s going to fall back to Earth next month. You may want to sleep with one eye open, just as we do each night at StocksandNews.

--Ah yes, Christmastime…childhood memories of licking the bowl containing the cookie dough from which Mom was making delicious sugar cookies.

But now the Centers for Disease Control and Prevention say eating raw cookie dough is outright dangerous. Raw, ready-to-bake cookie dough can contain pathogens like E. coli! 

However, fear not, kids. If your mother has made the cookie dough from scratch, as mine had, eat the whole freakin’ bowl if you want…just be prepared to face Mom’s wrath. [And be near a bathroom.]

Cookie dough ice cream is safe, by the way. 

--From Lebanon’s Daily Star:

“Riyadh: A Saudi woman was beheaded Monday after being convicted of practicing sorcery, which is banned in the ultra-conservative kingdom, the Interior Ministry said.”

Poor Saudi women…can’t drive, can’t be witches…

--Miriam Jordan of the Wall Street Journal (as I turn serious again):

“Arrests of people trying to sneak into the U.S. from Mexico have plunged to the lowest level in four decades, the latest sign that illegal immigration is on the retreat even as legislatures, Congress and presidential candidates hotly debate the issue.

“Behind the historic drop is a steep decline in the birthrate in Mexico and greater opportunities there relative to the weak U.S. economy*. Stepped-up U.S. patrols along the border make it both riskier and more expensive for Mexicans to attempt to enter the country.

“Government crackdowns on U.S. employers who hire illegal workers also have discouraged immigrants.”

*Thousands of illegal immigrants have lost their jobs in sectors such as construction and hospitality.

--Here in the New York area, it was sickening to see a NYPD officer, Peter Figoski, gunned down by a guy who should have been locked up weeks ago for shooting a man in Greensboro, N.C….only when the man was busted for drugs in New York on Nov. 3, the judge, Evelyn LaPorte, released him on his own recognizance, even after being shown the warrant from down south. 

The problem was the warrant didn’t call for extradition, and despite it showing the shooter was armed and dangerous, the judge had her out. Five days later, North Carolina amended the warrant to allow for extradition from New York but by then the bastard “was in the wind,” as one officer put it. He struck about a month later.

[The Brooklyn DA’s office also deserves to be blasted because the prosecutor at the killer’s hearing on the drug charge only asked for $2,500 bail… “stunningly low,” as the New York Post editorialized.]

--We note the passing of commentator and author, Christopher Hitchens, who died way too early of esophageal cancer at the age of 62. He was as entertaining, infuriating, and thought-provoking as they come. As his Vanity Fair editor Graydon Carter best summed up, Hitchens was “a man of ferocious intellect, who was as vibrant on the page as he was at the bar.”

--In a disturbing, highly detailed report by a reporter for McClatchy Newspapers who was embedded with recent Medal of Honor recipient, Marine Dakota Meyer, the reporter, and the paper, after examining voluminous military documents, shows the record of the action that earned Meyer the highest honor is deeply flawed.

“McClatchy found that the claim that Meyer saved the lives of 13 U.S. Marines and soldiers couldn’t be true. Twelve Americans were ambushed – including this correspondent – and of those, four were killed. (One wounded American would die a month later.) Moreover, multiple sworn statements affirm McClatchy’s firsthand reporting that it was the long-delayed arrival of U.S. helicopters that saved the American survivors.

“There are no statements attesting to Meyer killing eight Taliban as recounted on the Marine Corps website. The driver of Meyer’s vehicle, Staff Sgt. Juan Rodriguez-Chavez, reported seeing Meyer kill one insurgent.

“No sworn statements – including one Meyer gave to military investigators five days after the battle –refer to him leaping from the Humvee’s turret to rescue 24 wounded Afghan soldiers on his first two runs into the valley. Rodriguez-Chavez attested to nine Afghan soldiers getting into the Humvee by themselves while Meyer remained in the turret.”

To be clear, Dakota Meyer did indeed act heroically in the battle. At least seven witnesses attested to him performing heroic deeds “in the face of almost certain death.”

But the official record has clearly been embellished. Perhaps, greatly so. Why?

Ironically, for the reason I gave recently in this very space. The dearth of Medal of Honor recipients in the Afghan-Iraq wars vs. historical precedent, such as World War II and Vietnam.

Plus, the Marines felt like they were being dissed after serving in the toughest parts of Afghanistan and Iraq.

Personally, as a subscriber to Army Times, I have read a series of reports over the months concerning Army Capt. William Swenson, who some feel also deserved the Medal of Honor if Dakota Meyer was receiving it; Swenson having also served heroically on Sept. 8, 2009, in the Ganjgal Valley. I didn’t feel it was worth bringing up either in this space or another column I write wherein I recount tales of the wars. In hindsight that was a mistake on my part.

As McClatchy reports:

“A Medal of Honor nomination for Swenson, who’s since left the Army, was submitted in December 2009 – months before Meyer’s – but it remains under review after being lost for 19 months, according to the Army. The account of the battle in Swenson’s nomination is sharply at odds with the Marines’ account of Meyer’s deeds, McClatchy learned.”

Swenson declined to be interviewed. I’m disgusted by the ongoing lack of professionalism on the part of higher ups in the U.S. military, including the debacle at Arlington National Cemetery and the treatment of remains at Dover.

Let me repeat a theme of mine since the beginning of the wars in Afghanistan and Iraq. My prayer at the end of this column is for the grunts, almost solely.

I’ve studied too much, including American history, to know that when it comes to the actual leadership, rare is the U.S. Grant, Stonewall Jackson, Mark Clark, Omar Bradley, Dwight Eisenhower, Norman Schwarzkopf and David Petraeus.

More often than not it’s George McClellan, Rick Sanchez and Tommy Franks.

---

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

God bless America.

---

Gold closed at $1597…lowest level since July, still above 12/31’s $1421
Oil, $93.53

Returns for the week 12/12-12/16

Dow Jones -2.6% [11866]
S&P 500 -2.8% [1219]
S&P MidCap -3.4%
Russell 2000 -3.1%
Nasdaq -3.5% [2555]

Returns for the period 1/1/11-12/16/11

Dow Jones +2.5%
S&P 500 -3.0%
S&P MidCap -5.7%
Russell 2000 -3.7%
Nasdaq -7.9%

Bulls 45.3
Bears 30.5 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Don’t forget the StocksandNews iPad app! Recommended by beer distributors the world over.

Brian Trumbore



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-12/17/2011-      
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Week in Review

12/17/2011

For the week 12/12-12/16

[Posted 6:00 AM ET]

Europe, Washington and Wall Street

When we last left off, European leaders, sans Britain, were busily putting the final touches on the fiscal “compact” designed to enshrine tough budget rules and penalties for profligate spenders. The full details are to be worked out over the coming weeks and months in time for a summit in March, with ratification by all members of the EU, or at least the euro-17, by June but, already, there are growing questions in various capitals, such as what happens to each nation’s tax policies, or the financial transactions tax that upset Britain so much?

Given whatever the details are, the Irish, for example, may be under pressure to hold a referendum that the government would struggle to win. Parliaments in Slovakia (which has the euro) and the Czech Republic (which doesn’t) may turn the compact down. Finland is balking again over bailouts of other EU members and use of the European Stability Mechanism (ESM). France’s leading presidential contender insists on Eurobonds. And as The Economist editorializes, “there are murmurs that Germany, which has benefited so handsomely from the euro, is asking too much of everybody else.”

All this while the bank funding crisis continues, despite the European Central Bank’s maneuvering and offer of cheap money for three years. The stresses on the financial system haven’t gone away and in some cases, such as with small business, have only gotten worse as banks pull back from lending even further.

And I hate to beat a dead horse, but here’s the bottom line. We’re still in a situation where we seem to be living auction to auction and, again, the eurozone’s banks and sovereigns need to roll over some 2 trillion euro in debt next year, 590 billion between Italy and Spain (925 billion over 2012-2013) and, thus far, ECB efforts to hold down rates have been largely ineffective. True, Spain’s 10-year yielded around 5.35% by week’s end, which isn’t a disaster, but Italy’s was back over 7.00% at one point and finished at 6.55%, hardly sustainable.

Plus, the new treaty being worked on does absolutely nothing in terms of increasing the size of the bailout pools, or firewalls, either through the ESM or European Financial Stability Facility, EFSF. All the compact did was raise 200 billion euro for the IMF which is peanuts given the potential exposures.

So we’ll just continue to lurch from crisis to crisis, good weeks followed by not so good ones, with the U.S. and Asian economies, broadly speaking, held hostage. Is this any way to run a planet? 

It’s also rather important that there’s no growth in Europe. Standard Chartered Bank forecasts the eurozone GDP will fall 1.2% in 2012. The eurozone’s manufacturing index for December came in at 46.9, a fourth straight month of contraction. Leading companies like Volkswagen AG said they’ve turned “more cautious” on 2012. Ireland, in reporting its economy shrunk in the third quarter by 1.9%, is heading back into recession. The new technocrat Italian government of Mario Monti may have received a vote of confidence for its austerity moves, but there is no actual reform. And when it comes to the nation where this whole mess all started, Greece, their contraction this year is going to be worse than expected, down 5.5%.

Then there are the Brits, who with Prime Minister Cameron’s pullout at the EU summit now find themselves isolated, with the rest of the EU having zero incentive to help the City of London and its key financial district that comprises such a large portion of Britain’s economy. At least for now the British people agree with their prime minister, 62-19, according to the last poll I saw.

On Monday, Cameron defended his use of the British veto as being in the “national interest,” but the strain in his coalition is such that his deputy, Nick Clegg, refused to sit alongside him in the House of Commons; Clegg claiming the veto was bad for British business even as Cameron’s fellow Tory MPs applauded the prime minister’s “bulldog spirit.”

Or as opposition leader David Miliband put it, “This is the first veto in history not to stop something. The (EU’s) plans are going right ahead,” adding that it was “a very dangerous moment” for Britain with far-reaching consequences.

“Fifty-six years ago Anthony Eden walked away from the founding of the European Union and we paid the price for 20 years. This has been an Anthony Eden moment for David Cameron.

“If you look back to what the Prime Minister was warning of just two months ago – namely the danger of a caucus of 17 countries bossing the rest of the European Union – he has engineered a situation where it is 26 countries together and Britain on its own without a say for the first time since we joined the European Union.” [London Times]

Then again, just how united will the 26 be?

IMF Managing Director Christine Lagarde, given all the above, rightly concluded :

“It’s not a crisis that will be resolved by one group of countries taking action. It’s going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action.”

If the issues are not dealt with decisively, the global economy could confront the same threats that pushed the world into the Great Depression of the 1930s.

“(The) risk is that of retraction, rising protectionism, isolation. This is exactly what happened in the Thirties and what followed was not something that we all are looking forward to.”

“It’s a question of actually facing the issues, not being in denial, accepting the truth, accepting the reality, then dealing with it.”

It doesn’t help the euro region is unraveling to the extent the Northern nations are abandoning the periphery, or as PIMCO’s head of European portfolio management Andrew Balls told the Wall Street Journal, “We are seeing this deglobalization, a ‘de-Euroization,’ of the euro zone. Investors are going back to their own markets. They may still hold bonds, but they won’t have them spread across the euro zone as they had before.”

Not good for the likes of Italy, and increasing the chances for a deep recession.

And now you have situations such as France and Britain squaring off. Both French Prime Minister Francois Fillon and the French central bank chief broke protocol in saying the ratings agencies should target Britain’s triple-A credit rating before they do France’s. 

Christian Noyer, governor of the Banque de France, said that he did not regard the threat of a downgrade on Paris “as justified, based on economic fundamentals,” adding, “Or if it is, they should start by downgrading the UK, which has a bigger deficit, as much debt, more inflation, weaker growth and where bank lending is collapsing.”

Prime Minister Fillon, on a visit to Brazil, said: “Our British friends have a higher deficit and more debt, and I would say that the ratings agencies have not yet noted that.”

This as France’s own AAA is under imminent threat of being knocked down a peg.

At first, David Cameron’s office in London said nothing, but then Deputy Prime Minister Clegg told Fillon to “calm the rhetoric” on the UK economy, and that remarks from members of the French government “were simply unacceptable.”

Of course this stems from Prime Minister Cameron’s veto of the EU-wide compact involving all 27 Euro states. At least Britain was then given an out of sorts and invited to participate in negotiations on governing the regions’ national economies.

Going back to the Dec. 8-9 summit and Cameron’s intransigence, an official described the scene to Reuters:

“(Cameron) was effectively asking for a softening of regulation on Britain’s financial sector at a time when many voters and politicians believe banks are largely to blame for the crisis Europe is suffering and want tighter regulation on the sector.”

It was as if the French had been waiting for this for years, never believing Britain belonged in the European Union in the first place. The official said, “The French were using all this as a really perfect alibi to get rid of the British. Sarkozy used the proposals of the British to justify an intergovernmental treaty,” with Cameron playing right into Sarkozy’s hands.

In just 10-20 minutes, even Britain’s allies in the EU agreed that Britain didn’t deserve an opt out or exceptional treatment for their financial services and it didn’t fly at all. The non-eurozone member states decided they wanted to be in and left Cameron completely isolated.

Various opinion…on all topics.

Editorial / Washington Post

“Two years ago, on Dec. 14, 2009, Greek Prime Minister George Papandreou pledged that his debt-ridden country would ‘address and resolve, once and for all, deep-rooted problems that are holding the nation back.’ As if to mark the anniversary, the International Monetary Fund brought out a report this week, whose main conclusion is that Greece is not only not reforming fast enough but ‘falling behind across a range of policies.’

“Instead of shrinking, the Greek budget deficit is growing. And instead of growing next year, as the IMF once predicted, the Greek economy will contract again. In short, while Europe’s leaders turn their attention to ratification of a long-term plan for fiscal discipline across the 17 nations that use the euro, they still don’t have a solution for the situation that plunged the continent into crisis in the first place – and could yet trigger a meltdown.”

So what’s the problem in Greece? Revenue collection, i.e., further tax evasion.

Martin Feldstein / Wall Street Journal

“The recent eurozone summit was a double failure. It failed to achieve the increased European political integration that was the primary goal of German Chancellor Angela Merkel and the other European political leaders. And it failed to improve the outlook for eurozone sovereign bonds because those politicians continued to insist that only a fiscal union and political integration could limit the interest rates on sovereign debt….

“Yet Britain’s unwillingness to modify the existing treaty without additional safeguards for the British economy means that the new rules would apply only to the 17 eurozone countries and others that wish to join them, but that they don’t constitute an official EU treaty and therefore cannot be enforced by the commission and other EU institutions.

“So there really is no enforcement mechanism for the new budget rules, even if all of the eurozone governments agree to sign a new accord.”

Robert Samuelson / Washington Post

“By now, it’s obvious that adopting the euro was a colossal blunder. It may rank as Europe’s worst policy mistake since World War II. The virtues of the common currency – it reduced transaction costs and the uncertainty of fluctuating exchange rates among national monies – were temporary. Its vices seem permanent or, at least, semi-permanent: the mounting economic costs of saving the euro; the growing nationalism from arguing over who’s to blame.

“Do not expect some magical ‘solution.’ Europe has entered an economic and political purgatory from which there is no early escape. On paper, the crisis countries (so far: Greece, Portugal, Ireland, Italy and Spain) might benefit from abandoning the euro and resurrecting national currencies. They could then devalue these currencies, spurring exports and tourism. But in practice, this choice is dangerous and maybe impossible.

“Any hint that a country might dump the euro would trigger runs on banks, as depositors would seek to withdraw their euros. Banks would collapse. Deprived of buyers for their debt, countries would default. This would impose further losses on banks inside and outside the defaulting country. Without viable bans, borrowers would be starved for credit. There would be capital controls restricting the shift of funds abroad. If one country (say, Greece) left the euro, it might precipitate runs and capital flights elsewhere. Writing in the Financial Times, Citigroup chief economist Willem Buiter sketched this grim outlook:

“ ‘Disorderly sovereign defaults and eurozone exits…would drag down not just the European banking system but also the North Atlantic financial system…The resulting financial crisis would trigger a global depression that would last for years, with GDP likely falling by more than 10% and unemployment in the West reaching 20% or more. Emerging markets would be dragged down too.’”

Wolfgang Munchau / Financial Times

“To solve the crisis, the eurozone requires, in the long run, a fiscal union with a prospect of a eurozone bond and, in the short run, unlimited sovereign bond market support by the European Central Bank. What we now have is no treaty change, no eurozone bond and no increase either in the rescue fund or in ECB support.”

Of course what’s so stupid about this whole freakin’ mess that threatens to take the entire world down is all Europe had to do was stick to the ceilings they adopted with the Maastricht Treaty 20 years ago when the euro was created, starting with limiting deficits to 3% of GDP.

Anatole Kaletsky / London Times

“And the winner was – David Cameron. With European markets collapsing after last Friday’s ‘historic’ summit meeting, with France about to lose its credit rating and with the German parliament seething at Angela Merkel’s failure to deliver on her promise of automatic sanctions for breaches of the budgetary ceilings, it looks like the new eurozone treaty may not even be written, much less signed or ratified. Far from isolating or weakening Britain’s position, the Prime Minister has protected the fundamental EU treaties from ridicule and disrepute.

“As details of the Franco-German ‘fiscal compact’ emerged over the weekend, it became clear that this ‘comprehensive’ and ‘final’ response to the eurozone crisis was no more comprehensive or final than all the previous failed summit deals. The only truly firm decision taken last week was to hold another meeting in three months’ time. At that point, all the impossibly contentious issues dividing France and Germany would somehow be miraculously resolved. Until then, eurozone citizens and global investors will be right to remain skeptical. The reasons for skepticism can be grouped under three headings: finance, politics and economics.

“Starting with finance, the summit deal completely failed to satisfy the two conditions necessary to restore confidence among the creditors to eurozone governments and depositors in the Greek, Italian and Spanish banks. First, the eurozone must be converted into a genuine fiscal union. Second, the European Central Bank needs to provide potentially unlimited financing to the weaker euro governments to bridge the gap between the political timetable for creating a fiscal union, which will take several years, and a market timetable that is measured in weeks or months. The summit deal failed utterly on both these counts….

“To make matters worse, the process of fiscal union has not been backed as expected by the ECB. Far from increasing support for Greece, Italy and others, the ECB reduced its purchases of their bonds to just 635 million euro last week (from as much as 20 billion previously). Instead of offering Italy and Spain bridging loans, the ECB produced a bizarre plan to lend money covertly through a cockeyed scheme that in another context might be described as money laundering.

“The ECB announced last week that it will offer all banks in the eurozone loans for three years in unlimited amounts, at an interest rate of just 1%. The banks will then be able to use this money to buy bonds issued by their own governments, in most cases yielding 6% or more, thus picking up five percentage points of profit by hoovering up whatever debts their governments might choose to issue in the months ahead….

“If the Greek or Italian governments default on their debts the Greek and Italian banks will go spectacularly bust – but these banks will go bust anyway if their governments ever default. Thus all the incentives for bank managements are to go for broke, risking their entire capital in the government debt markets and making maximum use of the new ECB credit lines.”

Insane. And I couldn’t agree more with this conclusion from The Economist regarding the summit.

“Although the compact was greeted as the acme of European solidarity, it is more likely to provoke strife. The summit poured cold water on the idea of Eurobonds, in which all members would share some or all of the troubled economies’ burden of debt. Instead the adjustment is being imposed almost entirely on deficit countries, guaranteeing that it will be long and painful. If in the coming years elected governments that impose austerity stir up civil unrest, outside enforcers in the EU will before long become a target for popular rage.”

Washington and Wall Street

As I noted above, the U.S. is held hostage to the daily news flow out of Europe. None of us need to remind the others anymore that Europe matters. But the funny thing is no one can also deny that the economic news out of Washington and various regions continues to show signs of improvement, including a weekly jobless claims figure of 366,000 that, shockingly, was the lowest since May 2008. The Federal Reserve’s Open Market Committee, in keeping interest rate policy where it is, offered that it expects moderate growth over the coming quarters, though unemployment will decline only gradually as strains in global markets pose significant downside risks. If we didn’t have these strains, we’d no doubt be in the midst of a big time yearend rally in the stock market.

Oh, sure, the Business Roundtable, comprised of CEOs, said 2/3s of them will freeze or cut employment the next six months but these guys are always behind the times, as much as we’re supposed to respect their opinion. 

I know of one location where the mood should be improving, and that’s the White House as President Obama’s re-election hopes rise with every good piece of economic data, even if Europe can still send staffers cowering under their desks at a moment’s notice. [In the old days this would be because of a terror threat. Now it’s a bad bond auction.]

True, as noted in various surveys, recent NBC/Wall Street Journal and CBS/New York Times polling data being most prominent, the negative feeling in the country has never been worse, with 70 to 75 percent of the people believing we’re headed in the wrong direction, while Congress’ ratings remain at all time lows.

But even here there was some good news at week’s end as Congress is on the verge (as I go to post) of wrapping up a spending bill that averts a U.S. government shutdown and appears to offer at least a temporary extension of the payroll-tax cut, while actually reducing spending in some areas. I’ll comment more on this next time once the full details emerge but for now, there’s a little ray of sunshine peeking through the clouds. There’s still a storm on the horizon, but there’s always a chance a front will come through that keeps it offshore.

Street Bytes

--Stocks finished lower after two strong weeks with the Dow Jones losing 2.6% to close at 11866 and the S&P 500 and Nasdaq losing 2.8% and 3.5%, respectively. Despite the good news, including the National Retail Federation hiking its estimate of sales for the holiday season from 2.8% to 3.8%, and solid earnings news out of a key bellwether, FedEx, it was more about Europe. Just two weeks to go in the year. For selfish reasons I’m kind of on pins and needles as I try to nail some predictions.

--U.S. Treasury Yields

6-mo. 0.03% 2-yr. 0.22% 10-yr. 1.85% 30-yr. 2.85%

Treasuries staged a huge rally with the yield on the 10-year declining 21 basis points owing to the ongoing problems across the pond, including Fitch Ratings lowering its outlook for France while putting the grades of nations including Spain and Italy on review for a downgrade.

The U.S. inflation data for November also helped the bond market as producer prices, ex-food and energy, rose just 0.1%, and the core consumer price index rose 0.2%, bringing them, year over year, to 2.9% and 2.1%, respectively.

--The risks of a slowdown in China continue to increase as housing slows rapidly (or so it seems) and the banking sector is beset by problem loans, though remember what I said a few months ago. The Chinese government has no problem letting weaker lenders fail. They want to be there to support the biggest institutions, if necessary, so as to prevent systemic risk. Beijing is also content to maintain property market restrictions in 2012 to bring housing prices down to a “reasonable level,” according to the Central Economic Work Meeting, an annual gathering of Chinese leaders who determine economic policy for the next year. This group “guarantees steady growth,” according to Xinhua news agency, and issued a statement that read in part:

“China will ensure that macroeconomic regulation policies and overall consumer prices remain basically stable and will guarantee the steady growth of the economy and maintain social stability.”

What we did see this week was the release of data on foreign direct investment in November, down 9.8% from a year earlier, a sudden deterioration compared with all the positive readings we are used to on this front, while HSBC’s preliminary reading on December manufacturing came in at 49, a second straight month of contraction though, should this be the official figure at month’s end, at least better than the 47.7 for November.

And then China imposed retaliatory duties on U.S. car imports in response to what it sees as damage to the Chinese car industry from U.S. “dumping and subsidies.” The duties would fall on popular vehicles such as BMW’s and Mercedes-Benz brands made at U.S. plants, as well as any GM, Ford, Chrysler and Honda U.S.-made vehicles. The U.S., in turn, has been fighting China in the World Trade Organization in the areas of poultry and steel.

--India’s industrial production fell 5.1% in October from year ago levels, the first year over year decline in 28 months.

--Japan’s key reading on business sentiment, the Tankan survey, turned negative.

--Former MF Global Holdings Ltd. CEO Jon Corzine has said in three congressional hearings that he “never directed anyone at MF Global to misuse customer funds,” but in his last testimony on Thursday, he said he knew of an overseas transfer to a JPMorgan Chase account in London but was told everything was approved by MF’s back office.

Otherwise, Corzine has said, “I simply do not know where the money is” and “I didn’t intend to break the rules” when it comes to the missing $1.2 billion in customer funds.

But CME Group CEO, Terry Duffy, claims, “Mr. Corzine was aware of the loans being made from segregated accounts,” saying this information came from a CME auditor who heard the comment during a conference call involving senior MF Global employees. Corzine denied the allegation.

--The SEC filed suit against former Fannie Mae CEO Daniel Mudd, Richard Syron, ex-CEO of Freddie Mac, and other executives of both for understating hundreds of billions of dollars in subprime loans held by the firms. According to one SEC complaint, Freddie Mac executives “said the company’s exposure (to subprime) was between $2 billion and $6 billion when it was actually as high as $244 billion.” [Bloomberg]

The SEC filed “non-prosecution” agreements that require Freddie Mac and Fannie Mae to “accept responsibility” for their conduct and to cooperate with the SEC probe of the former executives.

Mudd, now CEO of Fortress Investment Group LLC, said in a statement:

“The government reviewed and approved the company’s disclosures during my tenure, and through the present. Now it appears that the government has negotiated a deal to hold the government, and government-appointed executives who have signed the same disclosures since my departure, blameless – so that it can sue individuals it fired years ago.”

The problem is both Mudd and Syron, in congressional testimony in April 2007, tremendously downplayed their firms’ exposure to subprime loans; Mudd saying it was less than 2.5% of Fannie’s book, while Syron said Freddie hadn’t “been heavily involved in subprime all along.”

--Morgan Stanley plans to cut about 1,600 jobs due to a drop in revenue from investment banking and trading, with the cuts coming in the first quarter at all levels of the firm.

--Noted bank analyst Mike Mayo said revenue growth for U.S. banks this year would be the worst since the Great Depression and is not likely to improve in 2012. Remember the huge expansion in bank branches in your own neighborhood in the years prior to the financial crisis? You will see a ton of them disappear.

--Research in Motion, the Canadian manufacturer of the BlackBerry, once again delivered bad news to shareholders (and users) as it warned its next generation of smartphones running its new operating system will not be available until late 2012, way beyond what was first thought given prior company guidance. RIM’s stock has fallen over 75% this year. The co-CEOs cut their salaries to $1 a year while they attempt to right the ship but investors want them gone. RIM is on the verge of irrelevance, a startling fall, as the company expects sales to decline in the current quarter, the first such decline in years for this historically strong period.

--According to new information from the Census Bureau, nearly 1 in 2 Americans are either in poverty or scraping by on earnings that classify them as low income. The new measure of poverty takes into account medical, commuting and other living costs.

--Republican Congressman Paul Ryan (Wis.) and Democratic Sen. Ron Wyden (Ore.) have reached broad agreement on a sweeping Medicare proposal that would address Ryan’s original Medicare proposal’s flaw, that being its inability to keep pace with the rate of inflation. The new plan, which I’m not even going to begin to explain in detail now, would give future seniors a choice of staying in the traditional federal plan or purchasing private insurance coverage. All I know is that the Republican presidential candidates in Thursday’s debate broadly praised the compromise; yet another reason why Paul Ryan, in particular, has an exceptional future.

--The above notwithstanding, last time I didn’t have a chance to quote economist Robert Samuelson from his Dec. 4 op-ed in the Washington Post:

“We Americans fool ourselves if we ignore the parallels between Europe’s problems and our own. It’s reassuring to think them separate, and the fixation on the euro – Europe’s common currency – buttresses that mind-set. But Europe’s turmoil is more than a currency crisis and was inevitable, in some form, even if the euro had never been created. It’s ultimately a crisis of the welfare state, which has grown too large to be easily supported economically. People can’t live with it – and can’t live without it. The American predicament is little different….

“The numbers – to those who don’t know them – are astonishing. In 1870, all government spending was 7.3% of national income in the United States, 9.4% in Britain, 10% in Germany and 12.6% in France. By 2007, the figures were 36.6% for the United States, 44.6% for Britain, 43.9% for Germany and 52.6% for France. Military costs once dominated budgets; now, social spending does….

“The modern welfare state has reached a historic reckoning. As a political institution, it hasn’t adapted to change. Politics and economics are at loggerheads. Vast populations in Europe and America expect promised benefits and, understandably, resent any hint that they will be cut. Elected politicians respond accordingly. But the resulting inertia poses an economic threat, one already realized in Europe. As deficits or taxes rise, the risk is that economic instability will increase, growth will decline, or both. Paying promised benefits becomes harder. Or austerity becomes unavoidable.

“The paradox is that the welfare state, designed to improve security and dampen social conflict, now looms as an engine for insecurity, conflict and disappointment. Facing the hard questions of finding a sustainable balance between individual protections and better economic growth, the Europeans have spent years dawdling. The parallel with our situation is all too obvious.”

At least Ron Wyden and Paul Ryan have acted, while President Obama leads from behind.

--The worst drought in Texas history, which has caused an estimated $5.2 billion in losses to farmers and livestock producers, has led to the largest-ever one-year decline in the cow herd, 600,000, or a 12% decline from the 5 million cows estimated at the beginning of the year. But while most folks talk about the impact this drop in the herd will have on beef prices, I say, boy, that’s a lot of methane removed from the atmosphere. Texas’ air quality has never been better.

--Speaking of climate change, Canada formally withdrew from the Kyoto Protocol, the first such nation to pull out, which led to criticism from the rest of the world. 

But, said Peter Kent, Canada’s minister of the environment, “Kyoto…is in the past, and as such we are invoking our legal right to withdraw.” Kent added that Kyoto would cost his country $13.6 billion, or “$1,600 from every Canadian family…that was the legacy of an incompetent Liberal government.”

Meanwhile, the recently concluded Durban Conference was deemed “absurd” by Globe and Mail opinion columnist Margaret Wente, who says climate change conferences are more about power and money and the opportunity for growing economies to “extract billions” from rich countries, as reported by the BBC.

Comedian/commentator Dennis Miller says the Durban forum was primarily an event used by male delegates to pick up women.

[Aside from chasing the opposite sex, delegates reached agreement that a new climate change deal would be in place by 2015 and in force from 2020, plus it is to include top emitters China, the U.S. and India. If I were a cow, I’d begin to change my diet. Or take Beano.]

--Good news…California’s unemployment rate dropped to 11.3% in November, the lowest since June 2009.

--Swiss Re AG estimates that natural disasters such as earthquakes in New Zealand and Japan, and floods in Thailand, let alone the severe storms in the U.S., resulted in the highest-ever catastrophic economic losses in a single year. Total losses in 2011, including insured and uninsured losses, are estimated at $350 billion, up from $226 billion in 2010.

The loss for the insurance industry itself, however, is projected at $108 billion, primarily because Japan hadn’t been fully insured, so on this basis it’s the second-most expensive year for the industry after 2005, which had massive loss-generating storms like Katrina, Wilma and Rita. [Anita Greil / Wall Street Journal]

--Commodities continued to take it on the chin this week. The story is really simple, irrespective of currency fluctuations, such as in a stronger dollar. As China goes, so goes the sector. China consumes 37% of the world’s copper, for example, and accounts for 60% of growth in global oil demand. So in looking at 2012, if you were playing the CRB Index, it’s about whether China will muddle through, have a hard landing, or see renewed growth. Today, I’d be in the muddle through camp (7.5-8.0% growth).

--China’s Shanghai Composite Index hit a new 33-month low before rallying 2% on Friday.

--The Economist had a piece on Macau and the excessive amount of money laundering taking place there, with wealthy Chinese evading China’s strict limits on the amount of yuan that can be taken out of the country by laundering it through the gambling Mecca. When the wealthy cash out, they are paid in Hong Kong dollars, which they can then stash in Hong Kong or take elsewhere. Many point to this as a big reason for Macau’s success, as 72% of its revenues come from high-rollers.

--Atlantic City could use more money-laundering. November revenues at its 11 casinos fell 6.3% from a year ago. [The Borgata Hotel Casino and Spa remains far and away the biggest in A.C. in terms of revenue, by the way.]

--McDonald’s said November same-store sales rose a strong 7.4%, with the company citing breakfast items such as the seasonal addition of the peppermint mocha to the coffee menu. Sales at stores open at least 13 months rose 6.5% in both the U.S. and Europe, and 8.1% in Asia Pacific, the Middle East and Africa.

This is nothing short of spectacular and McDonald’s shares hit another all-time high.

--One of the world’s worst CEOs, Andrea Jung of Avon, was relieved of her command, though for some reason allowed to remain as chairman of the board.

--A USA TODAY analysis shows that electric bills have skyrocketed the last five years, “a sharp reversal from a quarter-century ago when Americans enjoyed stable power bills even as they used more electricity.” [Another hit for the middle class as wages continue to stagnate.]

--When I was golfing the other day with Dr. W., we were talking about the situation in the U.S. and two things that will help kill us; rising healthcare costs and tuition.

So while you all know about both, I did see a telling piece in the Los Angeles Times by George Skelton, talking about tuition hikes at the University of California, up 18% this year over last, which was 14% higher than 2009, which was 23% steeper than ’08. Again, with wages stagnant over the same stretch. Plus, back in 1984, there were no academic fees. Today, it’s $864, annually, assuming a full course load.

Plus, the average textbook now costs $104 (2010), a 24% increase from five years before. “Between 1986 and 2004, textbook prices rose 186%, double the inflation rate. Students can expect to spend more than $1,100 a year on books.”

--I can’t say I’ve purchased any Michael Kors apparel for significant others, or been in one of its outlets, but the IPO did well this week, up 21% in its debut on Thursday.

--The NFL reached agreement with its broadcast and cable networks that will see CBS, Fox and NBC pay a cumulative $3 billion a year, over nine years, starting in 2014, or more than 50% higher than their current deals. [Fox will pony up $1.1 billion, CBS $1 billion, and NBC $950 million a year. Three months ago, ESPN agreed to pay $1.9 billion annually for eight years.]

Add in DirecTV, which pays $1 billion a year for its Sunday Ticket satellite package, and you’ve got a lot of money to divvy up. The players, under the new collective bargaining agreement, get 55% of the TV haul.

--The late Liz Taylor’s jewelry collection fetched a record-setting $115 million at auction, including more than $8.8 million for a diamond ring given to her by Richard Burton, purchased by a private buyer from Asia.

--The U.S. Mint is curtailing production of the $1 golden coin. The government has 1.4 billion of them in its vaults, demand is so low. Dollar coins have never caught on.

--Speaking of pocket change, ever notice how only women insist on searching for the exact change at checkout lines? [Mused the editor, who has coffee cans full of change, probably about $1500 worth, in storage. This is what I’ll cash in when I’m homeless and riding the rails.]

--Lastly, gotta love Barclays CEO Bob Diamond, who has imposed a “no jerks” policy for his U.K. bank. Diamond said the rule applies to bankers considered to be prima donnas, too greedy, too ostentatious or failures as team players. Supposedly, he has encouraged 30 to 40 Barclays employees to find work elsewhere for violating the standard. Diamond cited an infamous 2002 episode, during which six Barclays bankers ran up a $68,940 alcohol tab at a London restaurant, as embarrassing and “the no-jerk rule personified.” [The Post and Courier…Charleston, S.C.]

Foreign Affairs

Iraq: By next week, only about 200 U.S. military personnel will remain in Baghdad as part of the U.S. diplomatic mission to administer arms sales. After almost nine years, nearly 4,500 U.S. dead, at least $800 billion spent, and an estimated 100,000+ Iraqi civilian fatalities, Defense Secretary Leon Pannetta ‘furled’ the flag in a low-key ceremony marking the end to the Iraq War.

As I noted a year ago at this time, when Iraqi Christians can’t openly celebrate Christmas, there is only one conclusion to make. The United States lost. Our soldiers performed heroically, but with few exceptions, our civilian and military leadership did not. Saddam Hussein was toppled, and, importantly, his sons disposed of, but the U.S. is now abandoning the Iraqi people and during the course of the 2012 campaign, President Obama will increasingly find he cannot tout his Iraq policy as a success.

We all know Iran will gradually take over, as its puppet, the immensely corrupt Shia Prime Minister Nouri al-Maliki, does Tehran’s bidding. Civil War will re-erupt as the Sunni minority, a critical component of the United States’ surge, futilely holds onto their last strongholds, while the Kurds try to maintain their isolation and independence.

As for the 1,500 to 2,000 State Department staffers manning the world’s biggest embassy (with another 14,000 security contractors), they will be targets. Not one of them feels safe these days leaving the Green Zone. 

Editorial / Washington Post

“In the opening statement of his press conference Monday with Iraqi Prime Minister Nouri al-Maliki [Ed. the first time Obama has been face-to-face with Maliki since Oct. 2009], President Obama managed to assert no fewer than five times that the war in Iraq is ending. No doubt the president’s reelection campaign hopes that Americans will absorb that message; but we wonder about the thoughts of Iraqis who were listening. The conflict in their country, after all, is greatly reduced but not over: Al-Qaeda continues to carry out terrorist attacks, Iranian-sponsored militias still operate, and a power struggle between Kurdish-ruled northern Iraq and Mr. Maliki’s government goes on. Many Iraqis worry that, after the last U.S. troops depart this month, the sectarian bloodletting that ravaged the country between 2004 and 2007 will resume….

“(Mr. Maliki’s) government increasingly appears headed in a troubling direction. Rather than remaining ‘inclusive,’ Mr. Maliki has been concentrating power, especially over the security forces, in his own hands and excluding minority Sunnis, with whom he promised to share authority. He recently ordered the arrest of hundreds of people he accused of being tied to Saddam Hussein’s former Baath Party. Though he may have, as Mr. Obama said, domestic reasons for doing so, he has set himself apart from the rest of the Arab League by refusing to break with the Syrian government of Bashar al-Assad, a key Iranian ally.

“Mr. Obama’s virtually unqualified support for Mr. Maliki consequently was unsettling.”

Meanwhile, to my fellow Christians in Iraq (the few still remaining), Merry Christmas.

Iran: If you watched the Republican debate on Thursday, it was rather humorous how the candidates attacked President Obama for asking the Iranians to return our spy drone. Talk about pathetic. The Iranians had some fun with that one. Tehran then warned the Afghan government to order a halt to surveillance flights from its territory, with Iranian Foreign Minister Salehi saying any further flights would be viewed as a hostile act. Defense Secretary Panetta said the flights will continue despite the loss of the drone.

 On the nuclear program front, the White House is increasingly concerned Iran is on the verge of being able to enrich uranium at the underground facility near the holy city of Qom (Fordo), and that Israel may see commencement of such operations as a justification for a strike, as reported by Indira A.R. Lakshmanan of Bloomberg.

Strategist Ray Takeyh notes in a Washington Post op-ed that Iranian parliament Speaker Ali Larijani has mused that “If Iran becomes atomic Iran, no longer will anyone dare to challenge it because they would have to pay too high of a price,” in case anyone still doubts its intentions.

On a different matter, Al Arabiya reported that Supreme Leader Ayatollah Khamenei “ordered the arrest of a number of senior members of the Revolutionary Guard he suspects of planning to assassinate him,” as passed along by the Jerusalem Post.

And regarding a so-called blast at an Iranian uranium processing plant near the city of Isfahan on Nov. 28, the Washington-based Institute for Science and International Security says its analysis of satellite imagery do not indicate a blast occurred there. The organization said, “It is still unclear where the reported blast occurred in Isfahan and whether it occurred anywhere near the nuclear facility.”

Strangely, “Buildings that could be seen at that facility in satellite images from August are no longer present in pictures taken on Dec. 5, according to the analysis. There are signs that bulldozers have been at work in the area, and large pieces of equipment could be detected.” [Global Security Newswire]

The ISIS says, “It is unclear how and why the buildings are no longer present at the site. It is also unclear whether this transformation is related to the Nov. 28, 2011, blast reported to have been heard throughout Isfahan.”

The plot thickens.

Meanwhile, the Iranian people are increasingly in an uproar over the impact of sanctions on the economy as commodity prices soar. Authorities feared a run on the banks and on Wednesday were forced to beat back crowds attempting to buy gold coins at a discount. Only high oil prices have prevented a full-blown collapse of the Iranian economy. Non-performing loans, which were estimated at $42 billion in 2010, are said to have risen significantly higher this year. Public confidence is shot.

As for why the banks would supposedly sell gold at a discount, it’s because they need the cash.

Syria: The United Nations raised its estimate of the death toll from the Assad government’s crackdown to 5,000. In the 10-day period ending Dec. 12, 200 died, according to the UN high commissioner for human rights. With international media access virtually non-existent, it’s impossible to know for sure exactly what is taking place, except that it is civil war. A report on Dec. 15 said Syrian army defectors had killed 27 Syrian soldiers and security forces. Also, Syrian troops continue to infiltrate Lebanon, firing on civilians as a means of terror. In one attack, two shepherds were wounded by the gunfire. 

But as my friend in Beirut, Michael Young, writes for the Daily Star, imagine if Syria’s army and intelligence services were still in Lebanon, the Independence Intifada of 2005 having driven them out?

“The question is not academic. Lebanon 2005 has been denied its due as a precursor of Arab uprisings this year, even though the popular demands at the time were very similar to what we are witnessing today. A reason for this is that the aftermath of the Lebanese Intifada against Syria was, to put it kindly, uncertain. Rather than emerge into a new morning of emancipation, the Lebanese grew apart, within a year were caught up in a war with Israel, and within three found themselves on the cusp of civil war.

“And yet judging emancipator moments by their outcomes can sometimes play surprising tricks, because the unintended consequences are invariably good and bad. It’s best to evaluate such moments on their own merits, and few acts are more laudatory than seeking the replacement of an authoritarian leader and the criminal enterprises with which such individuals surround themselves.”

But if Syria were still in Lebanon today, Young concludes the country “would have become a Syrian battering ram in its dealings with the Arabs and the West. Domestic animosities would have been exacerbated, with one group of Lebanese employed by Syria to intimidate the other. As is their way, the Assads would have ensured that if they were destroyed, Lebanon would be as well.”

As an aside, Syria was blamed by the French for an attack on a UN peacekeeping force on patrol in southern Lebanon on Friday (Dec. 9) that seriously injured five soldiers; Hizbullah, that is, acting on behalf of Syria.

Egypt: As I go to post, renewed clashes in Cairo have killed at least eight today.

Israel: The Palestinians continue to refuse to resume peace talks with Israel until Israel freezes settlement construction and accepts the pre-1967 lines. This as Israeli Prime Minister Netanyahu once again has his hands full with Jewish extremists, with Netanyahu vowing these same folks would not be allowed to spark a religious war; after far-right activists targeted a West Bank mosque near Ramallah in retribution for IDF actions to demolish a home close to an unauthorized outpost near Nablus. Earlier, Jewish activists vandalized an army base, assaulted two IDF commanders and breached a security fence with Jordan.

Pakistan: The government continues to impose a blockade on a U.S. lifeline into Afghanistan following the November 26 NATO airstrike that killed 24 Pakistani soldiers, and this week gunmen attacked the oil tankers stranded all this time, destroying seven of them in one instance. In a separate incident in Quetta, gunmen destroyed at least 34 trucks in a temporary NATO trucking terminal there.

As to the health of President Zardari, who is being treated for an unknown ailment in Dubai, rumors of a coup persist, though Prime Minister Gilani said Zardari has the backing and support of parliament. Zardari should stay in Dubai and enjoy himself.

Russia: Nothing should surprise readers of this space when it comes to the Kremlin and intrigue. Having told you exactly what would happen in the Dec. 4 Duma vote, including mass demonstrations after, what’s next? I’ve long said there will be a coup, though I’ll try and refine things when I give my outlook for 2012 on Dec. 31. For now, March 4 is the date of the presidential election and Prime Minister Vladimir Putin, who thought he would just skate back to his old position for two, six-year terms, is now back on his heels.

After last Saturday’s protests, with tens of thousands gathering in Moscow, an equal number in St. Petersburg, and protests across the rest of the country, Moscow officials have granted approval for a demonstration on Christmas Eve. The approval is for a crowd of 50,000. We’ll see what happens.

Meanwhile, Putin, in his annual live TV call-in show, this one lasting 4 ½ hours, refused to acknowledge election violations but said he would install live Web cameras at every polling station in Russia to prevent fraud in March. Putin also said he would gradually move to return the election of regional governors and senators to the people. It was years ago that he dismantled that system, though he still wants the president to have a hand in picking candidates.

Earlier, a top Putin advisor, Boris Gryzlov, speaker of the Duma for 8 years and leader of United Russia, resigned; he being the scapegoat, it would seem, for United Russia’s support falling from 64% to 49.5% in the Dec. 4 vote (with many saying were it not for ballot stuffing, it would have been closer to 33%, max).

Putin’s approval rating, as well as that of current President Medvedev, has tumbled to 51% following the scam election. Only 42% said they would vote for Putin next March, which would necessitate a second round.

So you’d think Putin would be somewhat conciliatory, but despite a few small steps, as noted above, he still derided last weekend’s protesters for “allowing yourselves to be humiliated.” He also reiterated a longstanding warning that protesters shouldn’t attempt regime change a la Ukraine in 2004. “Color revolutions are special schemes to destabilize society,” he said during the call-in show.

And he repeated an earlier assertion that unidentified Russians were working for foreign interests. “There are people who have Russian passports but work for the interests of a foreign state, for foreign money.” Of course the prior week he blamed U.S. Secretary of State Clinton.

Putin also dismissed fears of censorship, this after two people were fired in connection with the publication of a magazine photo of a ballot carrying a handwritten crude insult about him. Vlad then called Sen. John McCain “nuts” after McCain wrote to Putin on Twitter amid the Duma protests that “the Arab Spring is coming to a neighborhood near you.” [McCain replied back immediately to the ‘nuts’ comment, “Dear Vlad, is it something I said?”]

By the way, President Obama…nice “reset.”

Meanwhile, New Jersey Nets owner Mikhail Prokhorov, the 3rd-richest man in Russia, announced he would run for president, citing support from the business community. Though just as in earlier this year, when Prokhorov said he was starting a new political party (Right Cause…only to be ousted in an internal coup), there are conspiracy theories that the Kremlin is encouraging a Prokhorov run to both show Putin is for free elections, and to have Prokhorov help split the opposition vote. Prokhorov did vow that if elected president, his first step would be to release former Yukos oil tycoon, Mikhail Khodorkovsky. [There is actually little sign that Prokhorov has any level of support whatsoever.]

Lastly, we make note of a new member of the Duma…Maria Kozhevnikova, Russian Playboy’s cover girl in 2009. Just before being elected, she was voted the country’s sexiest woman by Maxim magazine. You go, girl! [As in, go ahead, be my coup leader.]

[Regarding the story that broke on Friday that an Iranian citizen was caught trying to smuggle radioactive material on board a flight from Moscow to Tehran, from my reading of the details it’s much ado about nothing. For starters, our news services made it sound like an arrest was made that day. Like on Saturday morning, Drudge still has this as one of its leads and the story is grossly incomplete. The incident actually occurred a while ago but Russian authorities just made it public, and, second, the passenger was allowed to board the flight and not detained.]

China: A South Korean Coast Guard officer was stabbed and killed by Chinese fishermen when officers tried to stop them from fishing in South Korean waters. A second officer was wounded. This is yet another in a series of attacks by the Chinese. In September 2008, a South Korean officer was killed in a similar clash. As bad as the incidents are, they are not expected to significantly impair China-South Korea relations.

On a different matter, cyberespionage, the Wall Street Journal reports that the National Security Agency has determined the identities of individuals connected to China’s People’s Liberation Army “and a half-dozen nonmilitary groups connected to organizations like universities.” The U.S. hasn’t decided yet whether to confront China directly with the information or to launch a counterattack.

A Chinese Foreign Ministry spokesman said, “Accusations that China participates in such hacking, or that the Chinese government is behind it, are totally ungrounded.” Cough cough.

France: Former prime minister and conservative politician Dominique de Villepin announced he will run for president in the 2012 election. Mr. de Villepin is a long-time rival of President Sarkozy, who has yet to formally declare but is expected to do so. De Villepin would have little chance of winning but could draw votes away from Sarkozy in the first round of balloting, assuming he can get the signatures of at least 500 mayors that are required to get his name on the ballot in the first place.

A poll published last Sunday, incidentally, has Sarkozy winning just 26% of the vote if the first round, slated for April 22, were held today. Marine Le Pen, the National Front candidate, captures 13.5%, Francois Bayrou, a centrist who finished third in 2007, comes in at 13%, while Francois Hollande, the Socialist, would garner 31.5%. De Villepin picks up just 1%.

Separately, former President Jacques Chirac was found guilty of diverting public funds, specifically paying members of his party for municipal jobs that did not exist. Chirac was president from 1995 to 2007, but the charges actually go back to his time as mayor of Paris, 1977 to 1995, and he is the first former French head of state to be convicted since Marshal Philippe Petain, the leader of the wartime Vichy regime and Nazi collaborator.

To many in France, the verdict against Chirac was shocking as corruption is so entrenched, and seemingly accepted, among the political elite. The presiding judge wrote:

“Jacques Chirac breached the duty of trust that weighs on public officials charged with caring for public funds or property, in contempt of the general interest of Parisians.”

Of further significance, the verdict threatens Sarkozy, who has long faced allegations of similar behavior.

[By the way, before Petain, the only other French head of state to face trial was King Louis XVI, who was guillotined in 1793.]

India: Two weeks ago, a hospital fire killed over 90 in New Delhi as fire trucks struggled to get there amidst the congestion. This week, the death toll is 168 and rising from a toxic alcohol brew in West Bengal state. While such deaths are a regular occurrence here, the scale is unprecedented (107 died in a similar incident in 2009). The illegal breweries appear to have used ammonium nitrate to “add flavor.”  The majority of consumers of the moonshine are poor, daily-wage workers.

Belgium: A man with a history of weapons and drug offenses was summoned for questioning by Belgian police; so on his way to the station, he threw three hand grenades into a crowd of holiday shoppers in the city of Liege and then sprayed them with gunfire, killing four and wounding 122, before he killed himself. [Another victim of the attacker’s was later found at his home.] In Italy, a man opened fire in an outdoor market in Florence, killing two vendors from Senegal and wounding three other Senegalese before killing himself. The attacker was a known right-wing extremist.

Random Musings

From time to time I feel compelled to remind readers, especially new ones, that what I’ve been doing these almost 13 years is developing material for the best possible book on our times; the main thing I will leave behind when I’m long gone. I’ve just dragged you along for the ride. At this point I refuse to take a week off because I’m afraid I’ll miss a little nugget that could be a spark for later on. 

So the preceding is preamble for the fact that I recognize the following polls could be dated (albeit by just a few days), assuming the daily tracking data is correct and that Newt Gingrich has peaked. Again, this is a snapshot of a point in time, not necessarily six hours ago. You can imagine that I have the greatest polling info for the 2000, 2004 and 2008 races, which will all be part of the story I eventually write. Thanks for indulging me.

--American Research Council...Iowa

Gingrich 22 percent
Romney 17
Paul 17
Perry 13

--Public Policy Polling…Iowa

Gingrich   22
Paul 21
Romney 16
Bachmann 11
Perry 9

--NBC / Marist

South Carolina

Gingrich over Romney, 42-23

Florida

Gingrich over Romney, 41-28 [likely Republican primary voters in both states]

NBC / Wall Street Journal…Republican primary voters nationwide

Gingrich over Romney, 40-23

[Gingrich negatives very high, however]

Hypothetical matchups

Obama over Romney, 47-45
Obama over Gingrich, 51-40

Obama’s approval rating in NBC/WSJ survey is at 46%, up 2 points.

--Regarding Thursday’s debate in Sioux City, Iowa, John Podhoretz / New York Post:

“As for Romney, who was terrible in Saturday’s debate in Iowa, he found something new last night that might carry him all the way to the nomination: A tone of humility.

“He found a strong way to address the idea that his actions as a private-equity manager of businesses cost jobs by explaining that capitalism involves failures and successes. He knew both and had learned from both….

“The most amazing performance last night, however, was by Michele Bachmann, who showed herself (as she did in the early going) to be a remarkably substantive and tough-minded debater who is able to engage with what is going on in front of her and go on the attack when her rivals say things spontaneously that she wishes to take issue with.”

--I’m anxious to get to New Hampshire after New Year’s and track down Ron Paul for one of his appearances. Will he run as a third party, which everyone knows would throw the election to Barack Obama?

A new USA TODAY/Gallup Swing States Poll finds 54% of Americans nationwide and 52% in the nation’s top battlegrounds agree that the two major parties “do such a poor job that a third major party is needed.”

“In the dozen most competitive states, the political group most likely to back the idea of a third party are moderate and liberal Republicans – perhaps because they feel disenfranchised by the clout of a conservative Tea Party movement. Nearly two-thirds back the idea of a third party. Moderates and liberals make up nearly four in 10 Republicans.

“Among Democrats, too, moderates and conservatives seem somewhat disaffected from the liberal activists who often define their party. Just over a third of moderate/conservative Democrats and moderate/liberal Republicans say they’re enthusiastic about voting for president in 2012, among the lowest of any groups.”

George Will had the following on a potential Paul third party bid in his Washington Post column:

“It would enable Obama to carry two states he lost in 2008: Missouri (10 electoral votes), which he lost by 0.13 points, and Arizona (11), which he lost by 8.52 points to native son John McCain. It would enable Obama to again win four states he captured in 2008 and that the Republican nominee probably must win in 2012: Florida (29), Indiana (11), North Carolina (15) and Virginia (13).

“It would secure Obama’s hold on the following states he won in 2008 but that Republicans hope to take back next year: New Mexico (5), Colorado (9), Nevada (6), Michigan (16), Ohio (18), Pennsylvania (20) and New Hampshire (4).

“At a minimum, a Paul candidacy would force the Republican nominee to spend time and money in places he otherwise might be able to economize both. And a Paul candidacy would make 2012 much easier for Obama than 2008 was.”

Even without a Paul third party bid, I have little confidence the Republican nominee will defeat the president, as of today, I hasten to add. Everyone keeps pointing to his approval numbers being below the key 50 mark, but it wouldn’t take much to get them back above that level, like a gradually improving unemployment rate.

Wait for my yearend review and 2012 outlook, however. 

--Independent Sen. Joe Lieberman told U.S. News’ Paul Bedard it might take a “catastrophe” to change Washington, and that in the meantime, a third party is probably appropriate, reasoning that voters might just give up on the Democrats and Republicans if the gridlock continues.

“If Walmart spent its entire advertising budget attacking Target, and Target spent its entire budget attacking Walmart,” Lieberman argues, “the net effect would be that a lot of people who are shopping at both stores now would shop somewhere else.”

--After watching a bunch of debates, you know who I really don’t like? Jon Huntsman. He couldn’t come off more poorly, or as Jennifer Rubin of the Washington Post puts it, haughty.

--No doubt, I don’t agree with Ron Paul’s foreign policy, but when he talks about bringing all the troops home, he’s right in one regard. What the heck do we have 52,000 of our men and women in Germany for? Keep Ramstein Air Base for tactical reasons and 10,000 troops and airmen, but that’s it. Get the Europeans to start paying for their own defense, though, yes, in this time of austerity that is the furthest thing from EU governments’ minds. Well that’s their problem.

--Kathleen Parker / Washington Post

“You don’t get more un-Romney than Gingrich. Imperfect and untidy, he’s the serial husband with whom anyone could feel comfortable sharing a beer. Or a keg. A sinner like the rest of us, he’s as familiar and comfortable as an old sofa.

“But no one other than Callista Gingrich thinks her husband can prevail in a general election. No. One. The consensus on Gingrich is so overwhelming that conventional wisdom has taken a holiday. That is, no one in Washington thinks he can win, and Washington is where Gingrich is known best. Instead of rallying to support him, former colleagues are going out of their way to politely say, ‘He can’t lead.’”

--Peggy Noonan / Wall Street Journal

“I had a friend once who amused herself thinking up bumper stickers for states. The one she made up for California was brilliant. ‘California: It’s All True.’ It is so vast and sprawling a place, so rich and various, that whatever you’ve heard about its wildness, weirdness and wonders, it’s true.

“That’s the problem with Newt Gingrich: It’s all true. It’s part of the reason so many of those who know him are anxious about the thought of his becoming president. It’s also why people are looking at him, thinking about him, considering him as president.

“Ethically dubious? True. Intelligent and accomplished? True. Has he known breathtaking success and contributed to real reforms in government? Yes. Presided over disasters? Absolutely. Can he lead? Yes. Is he erratic and unreliable as a leader? Yes. Egomaniacal? True. Original and focused, harebrained and impulsive – all true….

“What is striking is the extraordinary divide in opinion between those who know Gingrich and those who don’t. Those who do are mostly not for him, and they were burning up the phone lines this week in Washington.

“Those who’ve known and worked with Mitt Romney mostly seem to support him, but when they don’t they don’t say the reason is that his character and emotional soundness are off. Those who know Ron Paul and oppose him do so on the basis of his stands, they don’t say his temperament forecloses the possibility of his presidency. But that’s pretty much what a lot of those who’ve worked with Newt say.”

--Poor Rick Perry. In Iowa last weekend, he thought there were 8 U.S. Supreme Court justices, not 9, and then he fumbled for the name of Justice Sonia Sotomayor, eventually calling her “Montemayor,” which sounds better, but isn’t exactly what the questioner was looking for. [A Des Moines Register editorial board member eventually helped Perry out. I concede I might have come up with former pitcher, John “The Count” Montefusco.]

--Charles Krauthammer / Washington Post

“In (Osawatomie,) Kansas, Obama lamented that millions ‘are now forced to take their children to food banks.’ You have to admire the audacity. That’s the kind of damning observation the opposition brings up when you’ve been in office three years. Yet Obama summoned it to make the case for his re-election!

“Why? Because, you see, he bears no responsibility for the current economic distress. It’s the rich.  And, like Horatius at the bridge, Obama stands with the American masses against the soulless plutocrats.

“This is populism so crude that it channels not Teddy Roosevelt so much as Hugo Chavez. But with high unemployment, economic stagnation and unprecedented deficits, what else can Obama say?

“He can’t run on stewardship. He can’t run on policy. His signature initiatives – the stimulus, Obamacare and the failed cap-and-trade – will go unmentioned in his campaign ads. Indeed, they will be the stuff of Republican ads.

“What’s left? Class resentment. Got a better idea?”

--The National Transportation Safety Board unanimously recommended that all texting, emailing or chatting on a cellphone while driving be banned. The NTSB cannot itself issue such a ban, but this should lead more states to crack down on one if not all of the practices.

NTSB chairman (far more accounts say chairman rather than chairwoman) Deborah Hersman, while noting the move wouldn’t be popular, said, “We’re not here to win a popularity contest. No email, no text, no update, no call is worth a human life.”

Of course after all I’ve written on this topic, you shouldn’t be surprised I totally support the NTSB’s recommendation.

--Kobe Bryant’s wife filed for divorce! [Oops, sorry…just got the headline on one of my services.] 

--Bob S. was first to tell me the joyous news that buried in the 1,200-page spending bill that funds the government through September is a provision “which prevents the Obama administration from carrying through a 2007 law that would have set energy efficiency standards that effectively made the traditional light bulb obsolete.”

Yessss! The premiums’ on me this weekend, though I’m still going to keep filling a spare bath tub (behind a shower curtain, lest you get too concerned) with bulbs until I’m 100% sure this is going to be the case.

It turns out the House Republicans stuck to their guns and made it one of the last major sticking-points in the negotiations on the bill to fund the government.

I’m as giddy as a school boy…might even buy the biggest goose in the window at Barth’s butcher shop. Actually, I live on the third floor. Today, I’ll just call out to the young boy below taking his family’s trash out.

“Say, young lad. You know how to get to Barth’s?”

“I think. Is that the place with the huge goose in the window?”

“Here…here’s a gold dollar coin. If you bring the goose back, there’s more where that came from.”

“What do I say?”

“Tell ‘em to charge it to the Editor.”

“I’m not doing this for less than $50.”

Kids.

--Time magazine named “The Protester” “Person of the Year” for 2011. That’s so stupid. Everyone knows it should be “Mother Nature.” 

[I’ll have my own pick on Dec. 31, as well as our proprietary “Dirtball of the Year.” Tons of candidates for the latter. Virtually zero for the former, given my strict guidelines.]

--A Pew Research Center analysis found that only 51% of all adults 18 and older are married. Back in 1960, the figure was 72%. So by 2111, it will be around 10%, which will really mess with the reality television programming schedule.

--Speaking of television, I watched Chelsea Clinton’s debut on NBC News, Monday night, and she was horrid.

Or, as the Sydney Morning Herald put it, “The reviews are scathing.”

“The Washington Post’s Hank Stuever said it was no surprise Clinton’s debut wasn’t a triumph of TV journalism, considering she has no experience in it.

“ ‘Rather, what was surprising to see on Monday night’s show is how someone can be on TV in such a prominent way and, in her big moment, display so very little charisma – none at all,’ he wrote.

“ ‘Either we’re spoiled by TV’s unlimited population of giant personalities or this woman is one of the most boring people of her era.’” Heh heh.

--Uh oh…remember that Russian Mars probe that never got into its proper orbit? It’s going to fall back to Earth next month. You may want to sleep with one eye open, just as we do each night at StocksandNews.

--Ah yes, Christmastime…childhood memories of licking the bowl containing the cookie dough from which Mom was making delicious sugar cookies.

But now the Centers for Disease Control and Prevention say eating raw cookie dough is outright dangerous. Raw, ready-to-bake cookie dough can contain pathogens like E. coli! 

However, fear not, kids. If your mother has made the cookie dough from scratch, as mine had, eat the whole freakin’ bowl if you want…just be prepared to face Mom’s wrath. [And be near a bathroom.]

Cookie dough ice cream is safe, by the way. 

--From Lebanon’s Daily Star:

“Riyadh: A Saudi woman was beheaded Monday after being convicted of practicing sorcery, which is banned in the ultra-conservative kingdom, the Interior Ministry said.”

Poor Saudi women…can’t drive, can’t be witches…

--Miriam Jordan of the Wall Street Journal (as I turn serious again):

“Arrests of people trying to sneak into the U.S. from Mexico have plunged to the lowest level in four decades, the latest sign that illegal immigration is on the retreat even as legislatures, Congress and presidential candidates hotly debate the issue.

“Behind the historic drop is a steep decline in the birthrate in Mexico and greater opportunities there relative to the weak U.S. economy*. Stepped-up U.S. patrols along the border make it both riskier and more expensive for Mexicans to attempt to enter the country.

“Government crackdowns on U.S. employers who hire illegal workers also have discouraged immigrants.”

*Thousands of illegal immigrants have lost their jobs in sectors such as construction and hospitality.

--Here in the New York area, it was sickening to see a NYPD officer, Peter Figoski, gunned down by a guy who should have been locked up weeks ago for shooting a man in Greensboro, N.C….only when the man was busted for drugs in New York on Nov. 3, the judge, Evelyn LaPorte, released him on his own recognizance, even after being shown the warrant from down south. 

The problem was the warrant didn’t call for extradition, and despite it showing the shooter was armed and dangerous, the judge had her out. Five days later, North Carolina amended the warrant to allow for extradition from New York but by then the bastard “was in the wind,” as one officer put it. He struck about a month later.

[The Brooklyn DA’s office also deserves to be blasted because the prosecutor at the killer’s hearing on the drug charge only asked for $2,500 bail… “stunningly low,” as the New York Post editorialized.]

--We note the passing of commentator and author, Christopher Hitchens, who died way too early of esophageal cancer at the age of 62. He was as entertaining, infuriating, and thought-provoking as they come. As his Vanity Fair editor Graydon Carter best summed up, Hitchens was “a man of ferocious intellect, who was as vibrant on the page as he was at the bar.”

--In a disturbing, highly detailed report by a reporter for McClatchy Newspapers who was embedded with recent Medal of Honor recipient, Marine Dakota Meyer, the reporter, and the paper, after examining voluminous military documents, shows the record of the action that earned Meyer the highest honor is deeply flawed.

“McClatchy found that the claim that Meyer saved the lives of 13 U.S. Marines and soldiers couldn’t be true. Twelve Americans were ambushed – including this correspondent – and of those, four were killed. (One wounded American would die a month later.) Moreover, multiple sworn statements affirm McClatchy’s firsthand reporting that it was the long-delayed arrival of U.S. helicopters that saved the American survivors.

“There are no statements attesting to Meyer killing eight Taliban as recounted on the Marine Corps website. The driver of Meyer’s vehicle, Staff Sgt. Juan Rodriguez-Chavez, reported seeing Meyer kill one insurgent.

“No sworn statements – including one Meyer gave to military investigators five days after the battle –refer to him leaping from the Humvee’s turret to rescue 24 wounded Afghan soldiers on his first two runs into the valley. Rodriguez-Chavez attested to nine Afghan soldiers getting into the Humvee by themselves while Meyer remained in the turret.”

To be clear, Dakota Meyer did indeed act heroically in the battle. At least seven witnesses attested to him performing heroic deeds “in the face of almost certain death.”

But the official record has clearly been embellished. Perhaps, greatly so. Why?

Ironically, for the reason I gave recently in this very space. The dearth of Medal of Honor recipients in the Afghan-Iraq wars vs. historical precedent, such as World War II and Vietnam.

Plus, the Marines felt like they were being dissed after serving in the toughest parts of Afghanistan and Iraq.

Personally, as a subscriber to Army Times, I have read a series of reports over the months concerning Army Capt. William Swenson, who some feel also deserved the Medal of Honor if Dakota Meyer was receiving it; Swenson having also served heroically on Sept. 8, 2009, in the Ganjgal Valley. I didn’t feel it was worth bringing up either in this space or another column I write wherein I recount tales of the wars. In hindsight that was a mistake on my part.

As McClatchy reports:

“A Medal of Honor nomination for Swenson, who’s since left the Army, was submitted in December 2009 – months before Meyer’s – but it remains under review after being lost for 19 months, according to the Army. The account of the battle in Swenson’s nomination is sharply at odds with the Marines’ account of Meyer’s deeds, McClatchy learned.”

Swenson declined to be interviewed. I’m disgusted by the ongoing lack of professionalism on the part of higher ups in the U.S. military, including the debacle at Arlington National Cemetery and the treatment of remains at Dover.

Let me repeat a theme of mine since the beginning of the wars in Afghanistan and Iraq. My prayer at the end of this column is for the grunts, almost solely.

I’ve studied too much, including American history, to know that when it comes to the actual leadership, rare is the U.S. Grant, Stonewall Jackson, Mark Clark, Omar Bradley, Dwight Eisenhower, Norman Schwarzkopf and David Petraeus.

More often than not it’s George McClellan, Rick Sanchez and Tommy Franks.

---

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

God bless America.

---

Gold closed at $1597…lowest level since July, still above 12/31’s $1421
Oil, $93.53

Returns for the week 12/12-12/16

Dow Jones -2.6% [11866]
S&P 500 -2.8% [1219]
S&P MidCap -3.4%
Russell 2000 -3.1%
Nasdaq -3.5% [2555]

Returns for the period 1/1/11-12/16/11

Dow Jones +2.5%
S&P 500 -3.0%
S&P MidCap -5.7%
Russell 2000 -3.7%
Nasdaq -7.9%

Bulls 45.3
Bears 30.5 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Don’t forget the StocksandNews iPad app! Recommended by beer distributors the world over.

Brian Trumbore