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10/20/2012

For the week 10/15-10/19

[Posted 12:00 AM ET]

Crisis in Euroland, continued…

European leaders held their 22nd summit since the start of the financial crisis and the good news was they agreed to a timetable for the establishment of a single eurozone-wide banking supervisor out of the European Central Bank; with the goal of having the system in place by the beginning of 2014. This was seen as a victory for French President Francois Hollande and his allies in the euro group that sought a quick resolution on the issue. Mario Draghi, ECB chief, told leaders it would take 6-12 months to get the supervisor up and running.

But then leaders failed to agree on the second step: just when can the new European Stability Mechanism’s (ESM) rescue fund be tapped for injecting cash directly into failing banks?

Such recapitalizations are critical to Spain, which needs a minimum of 60 billion euro to shore up its banking sector. It doesn’t want to have to borrow or self-finance the amount needed.

So the legislation for the supervisor should be in place by yearend, and then a year to get it going (the supervisor is going to oversee 6,000 eurozone banks, after all), but German Chancellor Angela Merkel doesn’t want any actual cash injections to take place until at least the second half of next year, which is around when national elections are held in Deutschland, any further bailout funds coming from German taxpayers for the likes of Spain not being real popular politically, you see, and Merkel faces a stiff challenge for re-election.

Meanwhile, non-eurozone nations, such as in eastern and central Europe, are saying, hey, what about us? We’re struggling big time (as I’ve written all year). What about our banks? They aren’t part of the proposal.

I’m tellin’ ya, aside from Greece, Spain and Portugal, this is where the next shoes will drop… real, authentic bank runs, sports fans.

But on the topic of Spain, Prime Minister Mariano Rajoy persists in not asking for a bailout, especially prior to Sunday’s regional elections, with another round Nov. 25 (including the beginning of the process for a referendum on independence for Catalonia), and for a week at least he actually has a case.

Yes, the Bank of Spain raised the percentage of bad bank loans in the country to 10.5%, and yes, GDP is estimated to fall 1.6% in 2012 and 1.4% next year, but Spain’s financing rates have been plummeting and were ‘only’ 5.30% on the 10-year by Friday morning.

However, the rates are down and recent bond auctions have been successful because the market is assuming Spain will request a bailout, at which point the ECB would step in and buy Spanish paper to help drive down rates further. It’s why Moody’s retained the lowest possible investment grade rating for Spain this week.

But without the bailout, and the various conditions the ECB et al would demand in return, there is no bond-buying and Spain is but a hairsbreadth from a new crisis of confidence in the market.

As for Greece, the good news was the government announced it was making progress with the troika (ECB, EC and IMF) on fulfilling the requirements for the next installment of aid, 31.5 billion euro, Greece not having received any funds since June, as Prime Minister Samaras believes he is close to delivering another 13.5 billion euros in austerity measures for 2013 and 2014. A final decision won’t be made, though, until as late as mid-November and Greece supposedly runs out of money a week or two after. Nonetheless, all parties are saying the right things.

Unfortunately, this was a very ugly week in the streets of Athens with violent protests as 70,000 took part in two separate demonstrations in the capital on Thursday.

And you had more stories on one of my favorite topics, the rise of the far-right in Greece, specifically Golden Dawn. The Financial Times had an extensive interview with Greece’s new minister of public order and civil protection, Nikos Dendias, and the vast problems he faces with his severely undermanned, underpaid police force. To wit:

“Last week dozens of members of Golden Dawn – among them two MPs – and religious groups tried to storm a theater and stop the Athens premiere of Terrence McNally’s play Corpus Christi, in which Jesus and the Apostles are depicted as gay men living in Texas. Police used teargas to disperse the demonstrators, but made no objection when Christos Papas, a Golden Dawn lawmaker, removed a detainee from a police bus.”

Unbelievable. Rule of law? Why the heck would you go to Greece now? And back to the real issue at hand, last weekend Swedish Finance Minister Anders Borg said it’s “most probable” that Greece will still quit the eurozone over the next six months.

Meanwhile, Portugal’s government is facing rising unrest over its ongoing austerity program, with Finance Minister Vitor Gaspar revealing another round of tax increases as part of the terms of its bailout aid. Gaspar said meeting budget targets was the only way to avoid “a dictatorship of debt and failure.”

But this means aside from higher taxes there will be further job cuts and a general strike has been called for Nov. 14.

Separately, Lithuania is a member of the EU (but does not employ the euro currency) and last weekend the people voted out the conservative government that had implemented that country’s severe austerity program. Prime Minister Kubilius enforced the draconian measures to stave off bankruptcy. GDP fell a stupendous 15%, but the plan worked and GDP is now strongly positive. The revival just came too late to maintain political support. I see something similar in the U.K., where the economic numbers have been nowhere near as bad as some of Britain’s neighbors, and by some measures, such as September retail sales, up 0.6% over August, and with the unemployment rate at 7.9%, not Armageddon, you’d think the government of David Cameron would be able to stay the course on its austerity plans. But that’s not likely as opposition to them mounts.

It also bears noting that the German government slashed its GDP forecast for 2013 to just 1.0%, and up a mere 0.8% this year.

I mean did you see Euro car sales? For the month of September, the 12th month in a row of down sales across the 27 nations of the EU, registrations, as they like to say, were down 10.8% over last year; down 10.9% in Germany, 17.9% in France, 25.7% in Italy and 36.8% in Spain.

Lastly, as reported by Ambrose Evans-Pritchard of the Daily Telegraph, the focus may be on Spain and Greece but when it comes to France, “The situation is very serious. Some business leaders are in a state of quasi-panic,” said Laurence Parisot, head of employers’ group MEDEF.

“The pace of bankruptcies has accelerated over the summer. We are seeing a general loss of confidence by investors. Large foreign investors are shunning France altogether. It’s becoming really dramatic,” Parisot added.

President Hollande’s confiscatory tax policies threaten lasting damage. Parisot says they border on economic illiteracy: “The idea of aligning taxes on capital with those on wages is a profound economic error. It is scandalous that the French have been left in such economic ignorance for years.”

French business has been calling for tax cuts to stay competitive with the likes of Germany, but instead it faces an extra $13 billion in higher costs from Hollande’s recent budget. The public sector doesn’t suffer at all. The private sector is being destroyed. And should Spain tumble anew, the contagion will definitely spread to Paris.

China

There was a slew of news on China’s economy this week, both good and bad.

The good…

GDP for the third quarter came in at 7.4% vs. a 7.6% pace for the second quarter. Yes, the figures are manipulated but you deal with what you’re given and as far as the government’s releases, this is nonetheless the seventh straight quarter of slowing growth, but it at least shows signs of stabilization around the 7.5% figure China’s leaders have sought. [Understand growth in China has averaged 10% for three decades.] Other figures for the month of September were encouraging.

Exports rose 9.9% over a year earlier, much better than expected (despite them being down 10.7% to Europe). 

The September consumer price index was 1.9% with food price gains just 2.5% and the important pork price falling. [Producer prices were down 3.6% for the month.]

Industrial production was up a solid 9.2%, while retail sales rose 14.2% for September.

China’s home prices continue to stabilize, also good.

But foreign direct investment fell 6.8% in September, the 10th monthly decline in the last eleven, and electricity production declined 11% in September over August, and up only 1.5% from year ago levels. That’s certainly none too encouraging.

Non-financial company profits for the first nine months of the year are also projected to have declined 17%, according to one analyst on the scene.

And there are the simmering trade issues with the United States. Xiang Wenbo, one of China’s richest men and a founding member of the Sany Group, the ninth-largest construction machinery maker by sales in the world, branded Barack Obama and U.S. regulators as “petty scoundrels” in the latest exchange over restrictions on Chinese companies’ access to the U.S. market.

“The U.S. treats China like a hostile country. Whatever we do is deemed as endangering American national security.” [Leslie Hook / Financial Times]

But while you have the high-profile disagreements over companies like telecom equipment giant Huawei and how much access they should be granted to the U.S. market for reasons of national security, the fact is hundreds of Chinese companies are successfully acquiring U.S. operations (in non-threatening sectors) and this is good. And I do have to note that after Huawei was singled out by the House Intelligence Committee the other day (WIR 10/13/12) over national security concerns, it’s come to light that a separate government security review has cleared Huawei, according to a report released to Reuters.

What seems certain, though, is that China bashing will be front and center during Monday’s third and last presidential debate focusing on foreign policy.

Washington and Wall Street

What started out as a promising week owing to a stronger than expected figure on retail sales for September, up 1.1% (following a revised 1.2% increase in August…and it wasn’t all gasoline), as well as a solid report on September industrial production, up a better than expected 0.4%, and Citigroup’s strong earnings for the quarter, stocks rallied sharply Monday and Tuesday.

But after the close on Tuesday, we had disappointments out of two of tech’s Big Four, Intel and IBM, only to be followed later in the week by poor reports out of the other two, Microsoft and Google; the latter’s being an outright disaster as spelled out below. The big issue in the case of someone like IBM, where sales declined in each of its major segments, is what kind of message does this send about corporate spending in general, including in emerging markets, where IBM’s results were less than exciting, in fact up just 4% in Brazil, Russia, India and China, adjusting for currency (otherwise down 1%).

The bottom line is there is zero revenue growth, not just in tech but other sectors as well. Earnings can be manipulated. The top line can’t. A company like General Electric saw its revenues rise just 2.8% while it forecast minimal growth on this front for the rest of the year, lowering a previous forecast of 5% for 2012 to 3% (though the company blamed its ongoing efforts to shrink financing arm GE Capital).

McDonald’s also saw putrid sales growth of just 1.9% globally in the third quarter (up 1.2% in the U.S., 1.8% in Europe) and CEO Don Thompson said sales thus far in October are down vs. the same time last year, hardly a good sign (and as a result the share price suffered, down $4 following Friday’s announcement).

On the housing front, the news was better. September starts were at their best level since July 2008 at 872,000, while existing home sales came in at an annual rate of 4.75 million units for the month, down 1.7% from August but up 11% from one year ago. There have now been 15 straight months in which sales posted year-over-year gains. The median home price of $183,900 is also 11% higher than last September.

But switching topics, economist Robert Samuelson of the Washington Post summed up the second presidential debate and the failure of either candidate to address the two most important issues facing our nation’s financial future, health-care spending and the “fiscal cliff” – the looming spending cuts and tax increases that will “almost certainly plunge the economy back into recession” if allowed to take effect.

“Obama said that Romney’s budget math didn’t add up and that he had proposed spending cuts for only two programs, Big Bird (presumably public broadcasting) and Planned Parenthood. True. Romney promises to balance the budget, raise defense spending and cut taxes for some unidentified part of the middle class. All of this can’t be done without massive as-yet-unspecified – and probably politically impossible – spending cuts.

“But wait. The two programs that Romney offered for cuts were actually two more than Obama suggested. And Obama’s budget never balances.

“The administration’s latest projections foresee $6.4 trillion worth of deficits between 2013 and 2022; in 2022, the expected deficit is $652 billion, 2.6 percent of the economy. Even these forecasts rest on fairly optimistic economic assumptions. From 2014 to 2017, GDP is projected to grow about 4 percent a year, roughly double the current rate of expansion. The forecast assumes no recession between now and 2022.

“Romney did mention, almost in passing, that he would reform Social Security and Medicare. Changes could yield huge savings, because these programs cost $1.2 trillion in fiscal 2012, a third of all federal spending. But Romney didn’t specify how he would alter Social Security, and his controversial Medicare proposal wouldn’t start until 2022 – after a two-term President Romney would already have left office.

“Still, Obama didn’t even mention these programs. The president has been content to imply that raising taxes on the ‘rich,’ defined as couples with incomes exceeding $250,000, would cure most of the deficit problem. That’s not true.

“Obama and Romney can evade these unpleasant and unpopular subjects now, but the victor won’t be able to avoid them after the election. How the fiscal cliff is handled (or mishandled) almost certainly represents the single most important federal policy affecting the economy’s near-term prospects. Nor will large deficits miraculously vanish even if the recovery continues and strengthens.

“Americans face a rude awakening: a future that hasn’t been acknowledged and debated in the campaign.”

The Washington Post’s Zachary A. Goldfarb succinctly summed up another immediate dilemma.

“Even if Washington somehow finds a way to avoid the fiscal cliff…the economy could suffer a stiff blow next year from other looming changes in public policy.

“A payroll tax cut benefiting 160 million workers is scheduled to expire at the end of the year, as are unemployment benefits for millions of people. Also on tap are new taxes on the wealthy and cuts in tens of billions of dollars in domestic and defense spending that will occur regardless of the fiscal cliff….

“While economists and politicians have been warning about the dangers of the fiscal cliff, far less has been said about the more modest, yet serious, toll that these other government actions would take.

“Of these, the biggest impact would come from the expiration of the temporary payroll tax cut, enacted in December 2010. Since then, the payroll tax that funds Social Security has been 4.2 percent, down from 6.2 percent, giving the average family an extra $1,000 to spend.

“The disappearance of unemployment benefits would also hamper economic activity, especially because recipients usually spend most of the cash on food and other goods rather than saving the money.”

One also can’t help but think that as these programs are unwound, it’s not dissimilar to what the Federal Reserve eventually faces when it finally unwinds its positions…and Treasurys lose their support.

But not to worry. Last weekend in Tokyo at the International Monetary Fund’s annual meeting, Bernanke launched a vigorous defense of his policies, particularly as it pertains to critics who say he has launched a global “currency war” through his aggressive easing policy.

The Fed’s effort “not only helps strengthen the U.S. economic recovery, but by boosting U.S. spending and growth it has the effect of helping support the global economy as well…It is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies,” he added.

Bernanke, while expressing sympathy for the likes of Brazil, whose finance minister labeled the Fed’s monetary policy as “selfish,” said the costs for emerging economies must be weighed against the “very real benefits.” [Claire Jones and Ben McLannahan / Financial Times]

To totally switch gears, with Monday’s final presidential debate focusing on foreign policy, some thoughts.

Editorial / Wall Street Journal

“Moving to the President’s record, he likes to boast about responsibly ending the war in Iraq. Yet the war had already been won when Mr. Obama became President thanks to a surge that he opposed as a Senator – even as he later tried to emulate it in Afghanistan under the same military commander. Mr. Obama also tried to negotiate a Status of Forces Agreement with Iraq that would have maintained a residual U.S. military presence in the country, and Joe Biden even offered to ‘bet you my Vice Presidency’ on the negotiations succeeding. But they pursued it too half-heartedly to entice the Iraqis to a deal.

“The result is that American soldiers won a victory in Iraq at great cost only so Mr. Obama could squander the strategic fruits of their victory: a viable alliance with Baghdad and a bulwark against Tehran. Mr. Obama may think that he’s come out of this as a political winner, but nobody is happier about his Iraq policy than the mullahs in Iran….

“Mr. Obama is also courting war in the Middle East by his ambivalent posture on Iran’s nuclear designs. Mr. Romney can applaud Mr. Obama for insisting that ‘all options are on the table’ when it comes to thwarting those designs, and for publicly opposing a containment strategy for a nuclear Iran.

“Yet the Obama administration has consistently undermined its own message by advertising that it believes a military option would be ineffectual, by failing to provide Israel with reassurances that it needn’t consider its own military options, and by first resisting sanctions until Congress passed them and then handing out waivers to those same sanctions. The result is that Iran has not been remotely deterred despite sanctions, and it is now only months away from being able to produce weapons-grade uranium….

“More broadly, Mr. Romney can promise to restore America’s credibility as a guarantor of peace and stability – not simply for the sake of far-flung peoples and countries, but for our own.

“America has been the chief underwriter of global order for nearly seven decades, which has required large defense budgets and difficult military commitments. But we have also been a major beneficiary: no world wars; open sea lanes; expanding trade and freedom; and the human and economic possibilities of a world that, until Mr. Obama came to office, was freer than it had ever previously been.

“In his farewell interviews, Mr. Obama’s first Defense Secretary, Robert Gates, made a point of quoting Reagan’s line that he had lived through many wars but not one of them began because the U.S. was too strong. Mr. Obama’s first term has been marked by economic decline at home and less respect and influence abroad. Four more years of the same will tempt the world’s rogues to become even more assertive.”

And on what is going to be a big topic in Monday’s debate, Libya, the Washington Post’s Charles Krauthammer, following Tuesday’s tussle between Obama and Romney.

“The one thing Obama’s performance did do is re-energize his demoralized base – the media, in particular. But at a price.

“The rub for Obama comes, ironically enough, out of Romney’s biggest flub in the debate, the Libya question. That flub kept Romney from winning the evening outright. But Obama’s answer has left him a hostage to fortune. Missed by Romney, missed by the audience, missed by most of the commentariat, it was the biggest gaffe of the entire debate cycle: Substituting unctuousness for argument, Obama declared himself offended by the suggestion that anyone in his administration, including the U.N. ambassador, would ‘mislead’ the country on Libya.

“This bluster – unchallenged by Romney – helped Obama slither out of the Libya question unscathed. Unfortunately for Obama, there is one more debate – next week, entirely on foreign policy. The burning issue will be Libya and the scandalous parade of fictions told by this administration to explain away the debacle.

“No one misled? His U.N. ambassador went on not one but five morning shows to spin a confection that the sacking of the consulate and the murder of four Americans came from a video-motivated demonstration turned ugly: ‘People gathered outside the embassy and then it grew very violent and those with extremist ties joined that fray and came with heavy weapons.’

“But there was no gathering. There were no people. There was no fray. It was totally quiet outside the facility until the terrorists stormed the compound and killed our ambassador and three others.”

--Thomas Joscelyn / The Weekly Standard…excerpts from his extensive timeline.

September 11, Benghazi, attack begins around 3:40 p.m. EDT

September 12, Washington, 10:43 a.m. EDT… “In the White House Rose Garden, President Obama addresses the nation concerning the attack in Benghazi. ‘We reject all efforts to denigrate the religious beliefs of others,’ he says. ‘But there is absolutely no justification to this type of senseless violence.’ The president adds, ‘No acts of terror will ever shake the resolve of this great nation, alter that character, or eclipse the light of the values that we stand for.’”

September 13, Washington (evening)… “Secretary Clinton honors the end of Ramadan alongside Libyan ambassador Ali Aujali, who denounces the ‘terrorist attack’ in Libya. Clinton refers to the attack as ‘the actions of a small and savage group’ and again denounces the anti-Islam video. ‘Unfortunately, however, over the last 24 hours, we have also seen violence spread elsewhere,’ Clinton says. ‘Some seek to justify this behavior as a response to inflammatory, despicable material posted on the Internet. As I said earlier today, the United States rejects both the content and the message of that video. The United States deplores any intentional effort to denigrate the religious beliefs of others.’”

September 16 (Sunday morning)… “U.S. ambassador to the United Nations Susan Rice goes on five Sunday talk shows to explain what happened in Benghazi. Her narrative is wrong in almost every detail. On CBS News’ Face the Nation, for example, Rice says the attack was ‘sparked by this hateful video.’ She says that ‘spontaneous protests began outside of our consulate in Benghazi…extremist elements, individuals, joined in that – in that effort with heavy weapons of the sort that are, unfortunately, readily now available in Libya post-revolution. And that it spun from there into something much, much more violent.’ Rice adds, ‘We do not…have information at present that leads us to conclude that this was premeditated or preplanned.’ Rice makes similar comments on the other four shows.”

September 18 (evening)… “President Obama appears on The Late Show with David Letterman. ‘The ambassador to Libya killed in an attack on the consulate in Benghazi, is this an act of war, are we at war now? What happens here?’ Letterman asks. President Obama responds: ‘No. Here’s what happened. You had a video that was released by somebody who lives here, sort of a shadowy character who is extremely offensive [sic] video directed at Muhammad and Islam…So this caused great offense in much of the Muslim world. But what also happened was extremists and terrorists used this as an excuse to attack a variety of our embassies, including the one, the consulate in Libya.’”

September 25, New York… “Before the United Nations General Assembly, President Obama gives an impassioned defense of fair speech, while denouncing The Innocence of Muslims. He attributes the events of ‘the last two weeks’ to ‘a crude and disgusting video that sparked outrage throughout the Muslim world.’ The president continues: ‘Now, I have made it clear that the United States government had nothing to do with this video, and I believe its message must be rejected by all who respect our common humanity.’ The president mentions terrorism only in passing: ‘Al Qaeda has been weakened, and Osama bin Laden is no more.’ The president does not mention al Qaeda or affiliated groups or terrorism in the context of the attack in Benghazi.”

The problem for Mitt Romney on Monday is that since the start of his campaign, he never laid out a coherent foreign policy of his own and has been flailing ever since. I frankly think Monday is going to be a mess…for both gentlemen….verging on embarrassment for America.

Street Bytes

--After the strong start to the week, stocks finished mixed as a result of Friday’s debacle, a 205-point decline in the Dow Jones to 13343. For the week the Dow was still up 0.1%, the S&P 500 added 0.3%, but Nasdaq declined 1.3% after all the poor news from the tech titans.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.29% 10-yr. 1.76% 30-yr. 2.93%

The consumer price index for September rose 0.6%, 0.1% ex-food and energy. Year over year, both figures are up 2.0%.

--China’s holdings of U.S. Treasurys rose $4.3 billion to $1.154 trillion for August (as just released), but Japan’s holdings are up to $1.122 trillion. China’s have fallen by $124.9 billion over the past 12 months, while Japan’s have increased $214.5 billion over the same period.

--Shares in Google fell 8% on Thursday, down $60, as, first, the earnings report was accidentally released about 3 ½ hours too soon from the financial printer, around 12:30 p.m. instead of after the market close at 4:00 p.m., and, second, Google reported a 20% plunge in net income, earning $9.03 a share vs. the $10.60 analysts had expected. The amount advertisers paid per ad click-through, the critical barometer for Google, fell 15% over a year ago as it is beginning to lose market share to the Bing/Yahoo alliance.

Google is also suffering from its $12.5 billion acquisition of Motorola Mobility, which lost $527 million in the quarter. 

Google shares then lost another $15 on Friday to close at $680, off Thursday’s intraday high of $759. Or to put it a different way, it went from $76 to $68, which may seem a little better. Heck, for all the fussing the company is still making gobs of money and is reasonably valued.

--Citigroup CEO Vikram Pandit resigned just one day after the bank released its earnings, which were solid, and hours after a conference call with analysts in which Citi said nothing about the change, which included the simultaneous resignation of Chief Operating Officer and President John Havens. So the disclosure that Pandit was being replaced by Mike Corbat was handled pathetically, though the share price ended up on the week from the time of the announcement. Pandit was reportedly forced out following a clash with the board over strategy and performance.

Under Pandit’s reign, since December 2007, Citigroup shares fell 89 percent, about twice as bad as the U.S. banking sector in general. Could anyone else have done better, given the financial crisis that hit? We’ll never know.

As for Corbat, who previously headed Citi’s “bad bank” division charged with disposing unwanted assets following the financial crisis and was most recently in charge of business in Europe, the Middle East and Africa, he is expected to continue downsizing the institution, something Pandit was against. The Wall Street Journal reported the moves, including the Havens resignation, had been in the works for months owing to the increasingly disenchanted board.

--Morgan Stanley beat expectations on both revenue and earnings as bond sales, trading and traditional investment banking came through. It was also a quarter in which it agreed to buy the rest of the Smith Barney retail brokerage from Citigroup, settling on a figure that was much lower than Citi had valued the business, but viewed as favorable to MS. The Smith Barney situation no doubt played a key role in how the Citi board viewed Pandit.

--Bank of America Corp.’s third-quarter profit dropped 95% as revenue declined 28%. There were all kinds of charges and adjustments that weighed down the bottom line, some related to its 2009 acquisition of Merrill Lynch, but it’s the revenue number that is most disturbing, plus BofA has exited certain parts of the mortgage business that Wells Fargo and JPMorgan Chase now have a combined 44% share in. BofA has also shed more than 16,000 employees since the third quarter of 2011.

[Regarding the mortgage situation, Bill Dudley, president of the New York Fed, said this week that “concentration of mortgage origination volumes at a few key financial institutions” meant that banks were not passing on low interest rates to borrowers.]

--According to Richard Fisher, president of the Federal Reserve Bank of Dallas, “half of the entire banking industry’s assets” are concentrated in five institutions whose combined assets amount to almost 60% of the gross domestic product. And “the top 10 banks now account for 61% of commercial banking assets, substantially more than the 26% of only 20 years ago.” As George Will noted in his Washington Post column, Fisher’s simple proposition is: “Systemically important financial institutions, meaning too-big-to-fail banks, are ‘too dangerous to permit.’”

Will opines:

“It is inexplicable politics and regrettable policy that (Mitt) Romney has, so far, flinched from a forthright endorsement of breaking up the biggest banks. This stance would be credible because of his background and would be intelligible to voters because of its clarity.”

I agree.

--Goldman Sachs reported third-quarter results that handily beat expectations, including on the revenue front, but while its return on equity was 8.6%, better than the 5.4% of a year ago, it was still far from pre-crisis levels of 30%.

--A123 Systems Inc., the lithium-ion battery maker that was helped along by the Obama administration as part of its goal of revolutionizing the auto industry, filed for Chapter 11 bankruptcy. In the past five years, despite rising revenues, A123 lost $877.7 million. The announcement came the same day as Tuesday’s presidential debate and Mitt Romney missed an opportunity to exploit it as he should have coupled A123’s act with Solyndra, Ener1 and other failed examples of the Obama administration’s clean-energy policy; A123 having been awarded a $249 million federal grant. A123 is keeping its doors open and sold car battery factories in Michigan and China to Johnson Controls, but shareholders were wiped out.

--Japan’s SoftBank finalized its acquisition of Sprint Nextel Corp. in announcing it would spend about $20 billion to acquire 70% of the No. 3 wireless carrier in the United States. The issue now is will SoftBank go after No. 4 T-Mobile, which is acquiring No. 5 MetroPCS. SoftBank currently operates the third-largest wireless provider in Japan.

--Apple is introducing its iPad Mini on October 23, priced at $199 to $299, and it’s expected to go on sale by early November.

Apple stock has plunged from a high of $705 on 9/21/12 to $609 as of Friday’s close.

--Microsoft is praying sales of Windows 8, which formally launches next week, will make up for its lousy fiscal first-quarter.

--Advanced Micro Devices, the second-largest chipmaker for personal computers, plans to cut about 1,700 jobs, or 15% of its workforce. AMD has warned its sales in the third quarter will decline 10% from the prior period amid sagging demand for PCs. [As tablet computers, such as the iPad, rock and roll.]

--Shares in Chipotle Mexican Grill fell about 15% on Friday after the restaurant chain revealed same-store sales growth (restaurants open at least 13 months) of just 4.8% for the quarter, less than expected, and hardly the kind of pace needed to support this high-flyer’s stock price.

--Social Security benefits will rise just 1.7% next year, the increase tied to the consumer price index, specifically the average for July, August and September vs. the same three months in the previous year.

--A study by Visa Inc. estimates U.S. businesses will spend a total of $257 billion on travel this year, a 2.6% increase over last year, which compares with a 5.1% increase in 2010 and 7.2% in 2011. The number of trips will actually decline. It’s the rise in travel costs that boosts the $dollar number. [Hugo Martin / Los Angeles Times]

--Sales of Australian wine to China were up 16.3% for September vs. year ago levels. Sales of Jacob’s Creek are up 32% to the mainland.

--You want a good example of how tough things are in Spain? Its national team’s World Cup qualifying match in Belarus (won by Spain 4-0) was not televised back home because no broadcaster agreed to pay the price set by rights holders Sportfive. [Reuters] 

--The Nobel Prize for economics was awarded to Americans Alvin Roth and Lloyd Shapley “for their independent work into how best to bring different parties together for mutual benefit – work that formed the theoretical underpinning to speed dating evenings and the allocation of secondary school places.” [Chris Giles / Financial Times] Whatever.

--Advertisers began to dump Lance Armstrong in droves, with Nike and Anheuser-Busch InBev leading the way following the final report from the U.S. Anti-Doping Agency that appears to have irrefutable evidence of Armstrong’s cheating while he was winning his seven Tour de France titles. Armstrong also resigned as chairman of his Livestrong cancer charity, even as he continues to deny the allegations.

--HSBC was the victim of a serious denial-of-service attack on Friday, leaving customers in several countries unable to use the bank’s online services for hours. Customer data wasn’t breached, but they were unable to do internet banking. Iran is once again being fingered.

--I’m sorry to see Newsweek announce it is going digital-only at the end of December. It was a staple in my house growing up, helped cultivate my interest in the world, and I’ve been a long-time subscriber, though I didn’t like some of the changes they made the last few years, especially after Tina Brown took over as editor when Newsweek merged with her website, The Daily Beast. 

I agree with Samir Husni, a Univ. of Mississippi School of Journalism professor, who told the AP: “Tina Brown took Newsweek in the wrong direction. Newsweek did not die, Newsweek committed suicide.”

Newsweek’s circulation has dropped by 50% since 2005. More importantly, ad pages were down about 80% over that period. It’s also about production costs for a weekly newsmagazine when the other two metrics are plummeting as they are. 270 are expected to lose their jobs as a result of the move.

--25 years ago, Oct. 19, 1987, was Black Monday, the day the Dow Jones fell 508 points, 22.6%, while the S&P 500 declined 20%. A day I’ll never forget as I was a regional sales manager with Thomson McKinnon Securities Inc., working out of Philadelphia, when I was informed that morning I was being assigned to the New York region and I was to meet with my new branch managers that evening in Rockland County, New York. Needless to say, the reception I received was a cold one as the managers had far more important things on their mind than getting to know moi and I’ll never forget one, a legend at TMSI, yell at everyone, “What the hell are we doing here?! We should be in our offices holding our clients’ hands!”

I have a good friend, David P., who had a different experience. Black Monday was his very first day of training to be a broker on Wall Street, a career change for him. It proved to be perfect timing because virtually everything he recommended from then on rose in price over a multi-year period.

Foreign Affairs

Turkey/Syria/Lebanon: Turkey now has 100,000 refugees, with another 15,000 waiting on the Syrian side but choosing not to cross over because they’ve heard the camps are full. Human Rights Watch is blaming the Turks for not letting them in. A Turkish official told the Financial Times: “No one can guarantee that the Syrian regime won’t do something to the people on the other side of the border – that’s the point that we have been trying to underline from the beginning of this crisis.”

Turkey is providing aid, such as tents, to the Syrians on the other side. But Turkey wants a U.N.-backed safe zone within Syria and that’s what the international community, including obviously the Obama administration, fails to support. It’s astounding.

Various rights groups also now say that 28,000 people have disappeared after being abducted by Syrian soldiers or militia. The rights groups have collected the names of 18,000 missing since the protests began and know of another 10,000 cases.

Meanwhile, after Turkey forced a Syrian domestic airliner heading from Moscow to Damascus to land in Ankara, claiming it had illegal military cargo while the Russians said it was simply legal radar equipment, both sides are now banning all aircraft from each other’s airspace.

But that doesn’t prevent Syrian aircraft from killing their own and in one airstrike against the rebel-held town of Maaret al-Numan on Thursday, fighter jets killed at least 44. 

Turkey is trying to avoid war, and there is strong anti-war sentiment in the country, but it may be unavoidable.

The biggest immediate concern is control over Syria’s vast chemical weapons stockpile, as well as the shoulder-fired missiles that are falling into the hands of Islamist groups that are pouring into the theater, while clashes along the Syrian-Lebanese border continue to escalate with wounded Syrian soldiers being treated in a hospital in Baalbek, which is under the control of Hizbullah. The sectarian rifts between the Shiite supporters of Bashar Assad and the Sunnis, who are pro-rebel, are growing.

And then on Friday we had what I’ve long feared, and told you for some time now was coming. A massive car bomb in Beirut, in a neighborhood I’m familiar with and where my friend lives. I sent Michael a note immediately and found out he was safe in Paris. No telling what he’ll return to as he lived just a few blocks from the carnage and the damage extended far out from the blast point.

At last report eight were killed and over 100 wounded. Among the victims was the apparent target, Maj. General Wissam al-Hasan, the head of the police’s Information Branch “which recently uncovered a bomb plot allegedly involving a former Lebanese minister close to (Syrian President) Assad and a top Syrian official. He was also close to former Prime Minister Saad Hariri and played a key role in the probe of the assassination of Hariri’s father, former Prime Minister Rafik Hariri.” [Daily Star]

The war has officially spilled over into Lebanon, though with the ongoing unrest in Tripoli you could build a case it already had. Nonetheless, everyone in the world relates to Beirut and the powder keg I’ve long described there was lit.

It’s also official…Syria is back in Lebanon. To a large extent this is on President Obama. Anyone who is a regular reader of mine knows this. Before him, President Bush was also worthless when it came to this theater.

Israel: The other day I commented how it cracks me up when I hear “experts” talk about the capabilities of the American and Israeli intelligence apparatus when it comes to estimating Iran’s nuclear weapons progress. So after posting my column last week, we learned that the Hizbullah drone that Israel shot down the week before was not only an Iranian one, but it beamed back live images of secret Israeli military bases for three hours before being intercepted by an Israeli F-16. The Times of London reported the drone transmitted pictures of Israel’s biggest joint military exercise with the U.S. army, as well as ballistic missile sites and possibly the nuclear reactor at Dimona. Trying to explain why the drone was not detected, an Israeli defense source blamed “unfamiliar stealth elements.” [Uzi Mahnaimi / London Times]

And as The Times’ Mahnaimi added, “Even the interception was botched. A first missile fired by the F-16 jet missed. The drone was brought down at a second attempt.”

As to the Hizbullah military buildup in Lebanon, Israel’s ambassador to the U.N., Ron Prosor, warned the Security Council that “some countries around this table continue to define Hizbullah as a charitable and political group, not a terrorist organization. This is no less ridiculous than describing the Mafia as a gentleman’s social club….

“How much longer must this absurdity continue? How many more innocents must fall victim to Hizbullah terror before Europe acts? It is time for all responsible nations to call Hizbullah exactly what it is: a global terrorist organization.” [Jerusalem Post]

As Prosor charged, Hizbullah today has more missiles than many NATO members.

Separately, there is an ongoing crisis in the West Bank and Gaza as donors refuse to honor their aid pledges and the Palestinian Authority runs out of money, meaning government workers are only receiving partial salaries and hunger is becoming a real issue. The PA has a $1.3 billion budget deficit and many are calling for a third “intifada” (uprising), only this time the violence would be directed not just at Israel, but also the PA and Mahmoud Abbas’ government.

Meanwhile, the date for elections in Israel has been set for January 22, 2013.

Iran: For years and years I have mentioned that the United States should have been negotiating through backdoor channels with former Iranian leader Akbar Hashemi Rafsanjani. This was one of my chief complaints with the Bush administration and its totally unimaginative foreign policy. But Donald Rumsfeld did get one thing right and that was when he said in the immediate aftermath of 9/11 that the U.S. would be fighting a “dirty war.” Rafsanjani of course has a terrorist past. He also became a $billionaire businessman and as much of a pragmatist as you’ll find in Iran and my point has always been that we could have negotiated with him, trading commercial interests for peace and no nuclear weapons program.

Alas, we didn’t, but guess who is reemerging, at age 78? The same Rafsanjani. His 52-year-old daughter Fatemeh is speaking out and challenging the country’s institutions as her sister and brother have been incarcerated. Fatemeh told the Financial Times that the country was in “the worst situation” since the 1979 revolution – even when compared with the deadly war with Iraq. Speaking from Tehran, Fatemeh directed her anger at Mahmoud Ahmadinejad, arguing early presidential elections may be an option. “Sanctions have created problems for us, but mismanagement has fuelled these problems.”

As for her father, he was sidelined by Ayatollah Khamenei when Rafsanjani sided with the Green Movement during their protests in 2009, which was a result of the fraudulent re-election of Ahmadinejad. [Another time when Obama stood on the sidelines.]

But Rafsanjani has become more visible lately and was reinstated to run the Expediency Council which drafts policies. He has also been side by side with Khamenei in some settings. This bears watching. Rafsanjani is too old to run for president again, but he wants to be kingmaker.

Egypt: President Mohamed Morsi backed off his decision to replace the prosecutor general after protests over the move.    Prosecutor General Mahmoud is a holdover from the Mubarak regime but Egyptian law prevents the president from firing the PG.

Pakistan: Malala Yousafzai, the heroic 14-year-old girl who has thus far survived an assassination attempt by the Taliban after she blogged about the right of girls to an education in her country, is recovering in a London hospital. Some say Malala “has liberated Pakistan” as Pakistanis express their anger at the Taliban in calling for the forces of peace to reclaim their nation’s destiny.

But as much as I expressed my hope the other day that Girl Power could take down the Taliban one day, you have the reality, as expressed in the Oct. 20 issue of The Economist.

“(Stung) by the opprobrium, the Taliban is lashing out. Pakistani journalists are under serious threat, while international news organizations are lying low or scaling back their operations in Islamabad, the capital. A smear campaign by religious conservatives has begun against Malala, painting her as some kind of ‘American agent.’ And on October 15th over 100 Taliban attacked a police station near the north-western city of Peshawar. After killing the local police chief and five of his men, they sliced off his head and took it away as a trophy.”

Afghanistan: In another green-on-blue incident, two American soldiers were among six killed in a suicide attack, only what made this one different is it was a member of Afghan intelligence who carried it out, not an Afghan soldier (or Taliban dressed as a soldier).

China: The crisis in the East China Sea continues…at a slow boil…with China dispatching naval vessels, aircraft and helicopters in an unnecessary show of force. State-run television showed images of several warships carrying out maneuvers near the islands claimed by both Japan and China (and Taiwan).

As the leadership change approaches next month, a Pew Research Center poll of the Chinese people found 70% said their finances are better than they were five years ago. But four in five say the rich get richer while the poor get poorer. Half say corruption is a grave issue. 41% also believe contaminated food is “a very big problem.”

Corruption, tainted food, growing inequality…from such themes popular uprisings are spawned. That’s what scares the heck out of the leadership in Beijing.

Russia:  In the first widespread elections since Vladimir Putin returned to the presidency, the ruling United Russia party won all five governor races in landslides and virtually all of the other 5,000 regional elections that took place, sending the opposition back to the drawing board.

Opposition leader Sergei Udaltsov staged a rally in Moscow on Thursday over the arrest of one of his key aides, charged with preparing to organize mass riots. Earlier, Udaltsov had been hauled in and questioned. Udaltsov will be arrested shortly as well, I’m guessing.

[By the way, for the record the only Russian opposition figure I like is Boris Nemtsov. Garry Kasparov isn’t a true political leader to me. The other figures like Udaltsov and Navalny are dangerous in their own right.]

Meanwhile, in an attempt to stay relevant, Prime Minister Dmitry Medvedev proposed a ban on public smoking by 2015, as well as banning advertising for cigarettes and increasing the sales tax on them to a “substantial level.” Medvedev says smoking claims 400,000 lives in Russia annually. This is about the only kind of issue he can influence these days, with President Putin calling all the shots otherwise.

In a Levada Center poll, almost 70% of Russians believe the United States often tries to pressure Russia, while only 17% think the U.S. treats Russia with respect. The percentage of Russians with a positive attitude toward the United States fell from 67% to 46% over the past 12 months.

Britain: Prime Minister David Cameron and Scottish First Minister Alex Salmond finalized an accord that would allow Scotland to vote no later than the end of 2014 on whether to secede from the United Kingdom. This is huge. 

One offshoot from a security standpoint is that if Salmond, head of the locally governing Scottish National Party, gains a vote in favor of independence, he can order the expulsion of Britain’s nuclear warheads, which are based in Scotland. London opposes independence and argues that when it comes to the nukes, there are no comparable sites in the U.K. that could take over the mission.

The vote for independence is going to be a straight up or down affair. Current polls show that when faced with a choice, straight up or down vs. having a third option of just accepting more powers, the people will vote to remain in the U.K.

Random Musings

--Various polls…both prior to and after Tuesday’s second presidential debate:

CNN poll of polls…Romney 48 Obama 47

Same survey, in Florida, Romney 49-46. In Ohio, Obama is ahead 50-47 and 48-47 in Virginia.

A Gallup seven-day national tracking poll has Romney up 52-45 among likely voters.

A USA TODAY/Gallup Poll of likely women voters in 12 battleground states had Romney trailing Obama by one point, while leading among men by 8 points. Overall in the 12, Romney leads 50-46.

A Washington Post/ABC News survey of likely voters in nine battleground states had Obama over Romney 51-46. In the states rated as strong for Obama it’s 56-39. In those seen as strong for Romney it’s 55-39.

42 percent in the above say the country is headed in the right direction, up 13 percentage points since late August.

A Quinnipiac University survey of likely voters in Pennsylvania had Obama leading just 50-46.

A CNN/ORC poll in Florida has it Romney 49-48.

A Wall Street Journal/NBC News/Marist Poll has Obama leading Romney in both Wisconsin 51-45 and 51-43 in Iowa.

--Jennifer Rubin / Washington Post

“Going into the second of three presidential debates, President Obama was looking to reverse his opponent’s momentum and take him down with enough force to change the trajectory of the race. Mitt Romney had to prove that the first debate was no fluke. Although the president was no longer catatonic and managed to make some eye contact this time, he wasn’t able to take down his challenger. In fact, he wasn’t able to win the debate.

“For a town hall-style debate, it was quite competitive. On energy, the candidates went toe to toe, Romney arguing that energy permits on federal land have declined and bashing Obama for his stance on coal and the Keystone XL Pipeline. Obama said his stats were right, but back came Romney, citing higher oil prices. At one point, Romney talked Obama back from an interruption and back to his seat.

“On taxes, the candidates argued again about Romney’s plan. Romney twice patiently explained how he would lower tax rates but also take away deductions while keeping the tax code’s progressivity. Obama attacked, calling it a ‘sketchy’ deal.

“On a question set up for Obama to hit out of the ballpark, Romney on rebuttal touted his own record of hiring women and recounted how hard women have been affected in the Obama economy.”

So let’s stop right here. As you can see, Ms. Rubin took no offense, nor thought it necessary to mention Romney’s “binders of women” comment, which of course was pretty stupid but hardly the kind of remark worth changing a vote over, I hope most of my female readers agree.

Ms. Rubin continued….

“In one of his best moments of the night, Romney explained the differences between him and President George W. Bush, citing differences in the budget and tax code. He went a little populist, criticizing the GOP for being too pro-big business, but he turned a liability into a positive retort. It was perhaps his best answer of the night, dispensing with a DNC talking point….

“On an immigration question, Romney went through his proposals, including ‘stapling green cards’ to the diplomas of students from abroad studying in the United States. He said he would oppose ‘amnesty.’ He castigated Obama for not living up to his promise to pass comprehensive immigration reform. Obama defended his enforcement record and his move to allow children brought here illegally to be able to stay. Obama said he did ‘everything’ he could do, but of course he never submitted a bill, saying that was the House Republicans’ fault.”

--Andrew Rosenthal / New York Times…on the Benghazi question…a Democrat’s stance…

“Mr. Romney clearly thought he had a big opening and he moved in for the kill when Mr. Obama said he had called the attack a terrorist act the very next day, in a Rose Garden speech.

“ ‘I think it’s interesting the president just said something which is that on the day after the attack, he went in the Rose Garden and said that this was an act of terror.’

“ ‘That’s what I said,’ Mr. Obama replied.

“Mr. Romney: ‘I want to make sure we get that for the record, because it took the president 14 days before he called the attack in Benghazi an act of terror.’

“At that point, Candy Crowley, the debate moderator, stepped in. ‘He did in fact, sir,’ she said.

“ ‘Can you say that a little louder, Candy?’ asked Mr. Obama.

“Whoever coached Mr. Romney on that question did the candidate no favors. Here’s what the president said in the Rose Garden: ‘No acts of terror will ever shake the resolve of this great nation, alter that character, or eclipse the light of the values that we stand for.’ A little purple – and the administration’s subsequent line on what happened was confusing – but he undeniably used the word ‘terror.’

“The exchange left voters in the uncomfortable position of assuming that Mr. Romney either believes his own propaganda or doesn’t care whether what he says is true, which fits into the narrative that he’s willing to twist the truth for political gain.”

Peggy Noonan / Wall Street Journal

“Mr. Obama won the second debate Tuesday night with a vigorous, pointed performance. He showed up, fought, landed some blows. It was close and he was joyless, a bit of a toothache, but he emerged in marginally better shape than he entered.  But he doesn’t seem to be winning the post-debate. No one is talking about his excellence or his stunningly good performance – no one is talking about that. Instead the national conversation has been about the terrorist attacks in Benghazi. Did the president tell the truth at the time? Was he telling it now? Did Mr. Romney fail to unmask his dishonesty? People are asking what is the truth of the economy, as opposed to the factoids deployed. Have drilling permits on federal lands been cut or not? These issues are not good for the president, and they’ll be the subject of discussion up until the next debate.

“In the post-debate, the president’s win is starting to look like a draw.”

--Daniel Henninger / Wall Street Journal

“Conventional wisdom holds that Barack Obama ‘lost’ in Denver because he lacked intensity. He brought his A-game to Hofstra this week. There’s still a problem….

“Barack Obama isn’t going to win or lose his presidency because he lacks intensity. What we learned on Long Island is that Mr. Obama lacks something more damaging to an incumbent – a sense of presidential responsibility.

“One of the most familiar Obama positions – repeated at every campaign stop – is that he ‘inherited’ a bad economy from George W. Bush. Set aside that whatever the cause, everyone concedes he took over a tough situation. More to the point is Mr. Obama’s compulsive insistence that anything awry in the economy during his first term is ‘not my fault.’

“The Bush-did-it narrative was a banality by the time of the debates. Then came Benghazi. Within days, the political question at the center of the incident was: What did the White House know and when did it know it? No matter one’s politics, it became impossible not to see that the White House was intent on putting ‘distance’ between the president and responsibility for the security breaches….

“So came the moment late in the Hofstra debate when moderator Candy Crowley looked at Mr. Obama and asked: ‘Does the buck stop with your secretary of state as far as what went on here?’

“Staring back, the president clutched for a second. He looked like a fourth-grader being confronted in front of the whole class by Miss Crowley of all our childhood nightmares. That moment revealed the problem: At the core of Barack Obama’s persona and his presidency is a constant instinct to deniability.

It’s not my fault. He comes across as one of those smart kids who always had some elaborate excuse to disperse responsibility for anything bad in his vicinity. And so it was in his answer to Miss Crowley: ‘Secretary Clinton has done an extraordinary job. But she works for me. I’m the president. And I’m always responsible. And that’s why nobody is more interested in…’ By the end, he said it was Mitt Romney’s fault for bringing it up! In contrast, the bin Laden takedown was accompanied by a Lady Gaga-like White House P.R. blitz in the media….

“For much of the American electorate, this began as an ideal presidency. But there is an institutional flaw at the center of Mr. Obama’s understanding of the presidency. He accepts the best of it but not responsibility for the inevitable worst of it. It is making his incumbency smaller than he thinks it is. His misfortune is that in the election’s last lap, the public has begun to notice.”

John Podhoretz / New York Post

“Mitt Romney was more halting and overprepared last night than he’d been in the first debate, but he did get said everything he needed to say on jobs and the economy and the president’s faulty record.

“And while Romney’s confused mishandling of the sole question on the administration’s bizarre conduct after the slaughter in Benghazi almost seemed to turn a certain liability for the president into an asset, that was largely due to a rather shocking intervention from the moderator, Candy Crowley – an intervention that will only serve to keep a painful issue for the president alive and kicking at him.

“She flatly told Mitt Romney he was wrong for challenging the president’s contention that he had called Benghazi a terrorist act in his first remarks on the matter. Crowley not only behaved inappropriately by inserting herself, but even more appalling, she was incorrect.

“The president’s remarks that next morning specifically referred to the killings as an ‘attack’ twice, as an ‘act’ twice and as a ‘senseless act of violence’ once. This was a clear signal at the time that a deliberate choice had been made not to label it as an act of terrorism.

“The speech’s reference to ‘acts of terror,’ by contrast, followed a paragraph about 9/11 and clearly referred back to that.

“Crowley herself, in a moment that should live in journalism infamy, conceded later that Romney ‘was right in the main.’ This wretched moment, which will be rightly argued over, ensures the discussion of Obama’s handling of Libya will still remain at the center of the news for the next few days….

“(The) atmospherics swamped the specifics. Even as I write this, an hour after the debate’s conclusion, I’m struggling to remember what they talked about, but I remember the body language and the glaring and the real feeling you got that these two men absolutely detest each other.

“So Obama may have bested Romney, but not by much, and nobody really wins a fake wrestling match anyway.”

Editorial / Wall Street Journal

“The question we kept asking as the evening wore on, however, is what does he want to do for the next four years?

“At least two questioners put the point directly, yet Mr. Obama never provided much of an answer. Sure, he wants to hire 100,000 more teachers, as if there is the money to hire them or it would make much difference to student outcomes.

“He wants to invest in ‘solar and wind and biofuels, energy-efficient cars,’ which probably means more Solyndras and A123s. He wants to raise taxes on the rich – that’s one thing he’s really passionate about. Oh, and he does want to pass the immigration reform he said he’d propose four years ago but never did propose in his first two years when his party controlled Congress and he might have passed it.

“But otherwise, what’s his case for four more years? Judging by Tuesday’s debate, the President’s argument for re-election is basically this: He’s not as awful as Mitt Romney. Mr. Obama spent most of his time attacking either Mr. Romney himself (he invests in Chinese companies), his tax plan as a favor for the rich (‘that’s been his history’) or this or that statement he has made over the last year (‘the 47%,’ which Mr. Obama saved for the closing word of the entire debate).

“The paucity of this promise, the difference between now and four years ago, was never clearer than in the President’s response to the young man who said he’d voted for Mr. Obama in 2008 but is less optimistic now. Mr. Obama responded by reciting his achievements – ending the Iraq war, ‘health-care reform to make sure insurance companies can’t jerk you around,’ more Wall Street regulation, the auto bailout and more jobs.

“As for the next four years: He said he has a plan ‘for manufacturing and education and reducing our deficit in a sensible way, using the savings from ending wars to rebuild America’ and pursuing ‘the energy of the future.’ Then he attacked Mr. Romney again.

“The Republican followed by reciting the economic failure of the last four years, piling up fact after depressing fact. ‘I can tell you that if you were to elect President Obama, you know what you’re going to get. You’re going to get a repeat of the last four years. We just can’t afford four more years like the last four years,’ Mr. Romney said.

“It was his most effective argument of a generally good but not great night. It is also the fundamental choice that Americans face in this campaign.”

--Editorial / New York Post

“Media bias is more often sensed than seen, but America got its face rubbed in it Tuesday night – by debate ‘moderator’ Candy Crowley.

“CNN’s Crowley selected both questions and questioners – both of which largely skewed left. She let President Obama dominate, giving him 4 minutes and 18 seconds more speaking time.

“She interrupted Obama nine times, but she squelched Mitt Romney fully 28 times – repeatedly cutting him off just as he was scoring points. Once she told him to shut up, telling him: ‘See all these people? They’ve been waiting for you. Make it short.’

“She never did that to Obama.

“She flat-out ordered: ‘If I could have you sit down, Gov. Romney’ – but never asked the equally aggressive Obama to sit.

“When Romney tried to respond at several points, she cut him off, saying ‘it doesn’t quite work like that’ and promising to ‘give you a chance’ later on.

“Needless to say, she never did.

“But the most blatant evidence of bias was her instant ‘fact checking’ of Romney’s quite correct insistence that Obama took weeks to call the Benghazi debacle a terrorist attack.  She jumped to Obama’s defense, saying ‘he did call it an act of terror.’

“But she was flat-out wrong.

“Which is why a grinning Obama urged: ‘Can you say that a little louder, Candy?’

“But Obama’s reference was to generic ‘acts of terror’ and framed in the context of the 9/11 attacks of 2001 – and not the Sept. 11, 2012, Benghazi atrocity….

“Yesterday, Crowley belatedly acknowledged, ‘The president did not say it was…an act of terror.’ But the damage was done….

“And to the media.

“It has long had its thumb on the scale – but rarely so publicly, nor so shamelessly.

“Way to go, Ms. Crowley.”

--Two flash polls conducted immediately after Tuesday’s debate revealed the following.

CBS News…37-30 Obama. After the first debate the split was 46-22 Romney.

CNN…46-39 Obama. After the first debate, 67-25 Romney.

--The FBI arrested a 21-year-old Bangladeshi who had come to America with the hopes of launching a terrorist attack against U.S. interests; as it turned out the Federal Reserve Bank of New York. Quazi Mohammad Rezwanul Ahsan Nafis was taken down in a sting operation after he allegedly tried to detonate a bomb that had been made inert by the FBI.

--So, should authorities in Kennebunk, Maine have released the names of those “engaged in prostitution” with the 29-year-old zumba teacher? Here’s the thing. The names were released with no other information, such as the men’s ages or addresses, so many innocents found themselves being falsely accused of involvement in a scandal they had nothing to do with.

A story in the Daily Telegraph by Mark Hughes notes the tale of “Paul Main, 65, who works for the sheriff department in York County, which encompasses Kennebunk. After the names were published, he was suddenly inundated with calls about the case. The law enforcement officer had the misfortune to have the same name as one of those on the list.

“He spent Monday night and Tuesday trying to clear his name. ‘I don’t have a problem with releasing names,’ he said. ‘I think it’s a wonderful thing, but I’ll be darned if it’s right to do it in a shoddy manner.’ Stephen Schwartz, an attorney for two of those on the list, argued in court against releasing the names. He said: ‘The mere releasing of their names will have devastating consequences in a case in which the government, we believe, will have great difficulty proving.’”

Now discuss amongst yourselves.

--As alluded to above, some complained about Mitt Romney’s “binders of women” comment, but I saw nothing about the following. In reading Sec. of Defense Leon Panetta’s recent speech on cybersecurity, excerpts of which are on my “Hot Spots” link, this little ditty was in his opening remarks.

“I also want to thank Fran Townsend. She’s a great friend and, obviously a tremendous Master of Ceremonies this evening. And the reason I – the reason I asked Fran to serve on the board is because she is bright. She is capable. She’s dedicated. She’s a straight talker, she knows what she’s talking about. She’s dedicated to this country and in a room of a lot of ugly old guys, she’s not bad to look at.” [Source: defense.gov]

This is 2012, right? If I said that in a speech 15 years ago when I was on Wall Street I would have been fired…and/or sued. 

--I’m giving you a homework assignment. To mark the 50th anniversary of the Cuban Missile Crisis, go to Cubanmissilecrisisat50.org and listen to JFK’s key speech, Oct. 22, 1962. It’s a tremendous history lesson and a scary reminder of those times.

--Finally, the site is undergoing a big change on Monday (technology willing). I’m launching a project I should have done at least five years ago…a nightly newscast; initially, the first few months, Monday thru Thursday as I still need all day Friday to write this column.

The video will be taped around 4:30 p.m. and posted, as currently planned, around 5:30. You know how disciplined I am so if I say I’m doing it I will by that time, but we’ll see how the first week goes.

It’s an extension of what I already do all day and I’m thinking it’s about ten minutes in length; most days starting with a Wall Street review, then international, and maybe some Bar Chat. [The problem is it’s an hour or so project owing to download/digitizing/posting time for Youtube.]

It’s going to be no frills. I have had major issues with the camera set-up I paid big money for and there are still some missing pieces, such as a working remote that I can use to shut the camera off without physically getting up to do so.  

In other words, while I know this will work, it’s going to take me a month or so to truly get my act together.

So don’t abandon ship when the first few are less than Emmy quality. A year from now I expect it to be big. 

The newscast will be accessible on the home page, which will change slightly later Monday, as well as my iPad app. Apple needs some lead time to approve the change so iPad users may not have access the first week.

---

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

God bless America.
---

Gold closed at $1724…down $55
Oil, $90.05

Returns for the week 10/15-10/19

Dow Jones +0.1% [13343]
S&P 500 +0.3% [1433]
S&P MidCap +1.2%
Russell 2000 -0.2%
Nasdaq -1.3% [3005]

Returns for the period 1/1/12-10/19/12

Dow Jones +9.2%
S&P 500 +14.0%
S&P MidCap +12.3%
Russell 2000 +10.8%
Nasdaq +15.4%

Bulls 42.6
Bears 26.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore



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-10/20/2012-      
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Week in Review

10/20/2012

For the week 10/15-10/19

[Posted 12:00 AM ET]

Crisis in Euroland, continued…

European leaders held their 22nd summit since the start of the financial crisis and the good news was they agreed to a timetable for the establishment of a single eurozone-wide banking supervisor out of the European Central Bank; with the goal of having the system in place by the beginning of 2014. This was seen as a victory for French President Francois Hollande and his allies in the euro group that sought a quick resolution on the issue. Mario Draghi, ECB chief, told leaders it would take 6-12 months to get the supervisor up and running.

But then leaders failed to agree on the second step: just when can the new European Stability Mechanism’s (ESM) rescue fund be tapped for injecting cash directly into failing banks?

Such recapitalizations are critical to Spain, which needs a minimum of 60 billion euro to shore up its banking sector. It doesn’t want to have to borrow or self-finance the amount needed.

So the legislation for the supervisor should be in place by yearend, and then a year to get it going (the supervisor is going to oversee 6,000 eurozone banks, after all), but German Chancellor Angela Merkel doesn’t want any actual cash injections to take place until at least the second half of next year, which is around when national elections are held in Deutschland, any further bailout funds coming from German taxpayers for the likes of Spain not being real popular politically, you see, and Merkel faces a stiff challenge for re-election.

Meanwhile, non-eurozone nations, such as in eastern and central Europe, are saying, hey, what about us? We’re struggling big time (as I’ve written all year). What about our banks? They aren’t part of the proposal.

I’m tellin’ ya, aside from Greece, Spain and Portugal, this is where the next shoes will drop… real, authentic bank runs, sports fans.

But on the topic of Spain, Prime Minister Mariano Rajoy persists in not asking for a bailout, especially prior to Sunday’s regional elections, with another round Nov. 25 (including the beginning of the process for a referendum on independence for Catalonia), and for a week at least he actually has a case.

Yes, the Bank of Spain raised the percentage of bad bank loans in the country to 10.5%, and yes, GDP is estimated to fall 1.6% in 2012 and 1.4% next year, but Spain’s financing rates have been plummeting and were ‘only’ 5.30% on the 10-year by Friday morning.

However, the rates are down and recent bond auctions have been successful because the market is assuming Spain will request a bailout, at which point the ECB would step in and buy Spanish paper to help drive down rates further. It’s why Moody’s retained the lowest possible investment grade rating for Spain this week.

But without the bailout, and the various conditions the ECB et al would demand in return, there is no bond-buying and Spain is but a hairsbreadth from a new crisis of confidence in the market.

As for Greece, the good news was the government announced it was making progress with the troika (ECB, EC and IMF) on fulfilling the requirements for the next installment of aid, 31.5 billion euro, Greece not having received any funds since June, as Prime Minister Samaras believes he is close to delivering another 13.5 billion euros in austerity measures for 2013 and 2014. A final decision won’t be made, though, until as late as mid-November and Greece supposedly runs out of money a week or two after. Nonetheless, all parties are saying the right things.

Unfortunately, this was a very ugly week in the streets of Athens with violent protests as 70,000 took part in two separate demonstrations in the capital on Thursday.

And you had more stories on one of my favorite topics, the rise of the far-right in Greece, specifically Golden Dawn. The Financial Times had an extensive interview with Greece’s new minister of public order and civil protection, Nikos Dendias, and the vast problems he faces with his severely undermanned, underpaid police force. To wit:

“Last week dozens of members of Golden Dawn – among them two MPs – and religious groups tried to storm a theater and stop the Athens premiere of Terrence McNally’s play Corpus Christi, in which Jesus and the Apostles are depicted as gay men living in Texas. Police used teargas to disperse the demonstrators, but made no objection when Christos Papas, a Golden Dawn lawmaker, removed a detainee from a police bus.”

Unbelievable. Rule of law? Why the heck would you go to Greece now? And back to the real issue at hand, last weekend Swedish Finance Minister Anders Borg said it’s “most probable” that Greece will still quit the eurozone over the next six months.

Meanwhile, Portugal’s government is facing rising unrest over its ongoing austerity program, with Finance Minister Vitor Gaspar revealing another round of tax increases as part of the terms of its bailout aid. Gaspar said meeting budget targets was the only way to avoid “a dictatorship of debt and failure.”

But this means aside from higher taxes there will be further job cuts and a general strike has been called for Nov. 14.

Separately, Lithuania is a member of the EU (but does not employ the euro currency) and last weekend the people voted out the conservative government that had implemented that country’s severe austerity program. Prime Minister Kubilius enforced the draconian measures to stave off bankruptcy. GDP fell a stupendous 15%, but the plan worked and GDP is now strongly positive. The revival just came too late to maintain political support. I see something similar in the U.K., where the economic numbers have been nowhere near as bad as some of Britain’s neighbors, and by some measures, such as September retail sales, up 0.6% over August, and with the unemployment rate at 7.9%, not Armageddon, you’d think the government of David Cameron would be able to stay the course on its austerity plans. But that’s not likely as opposition to them mounts.

It also bears noting that the German government slashed its GDP forecast for 2013 to just 1.0%, and up a mere 0.8% this year.

I mean did you see Euro car sales? For the month of September, the 12th month in a row of down sales across the 27 nations of the EU, registrations, as they like to say, were down 10.8% over last year; down 10.9% in Germany, 17.9% in France, 25.7% in Italy and 36.8% in Spain.

Lastly, as reported by Ambrose Evans-Pritchard of the Daily Telegraph, the focus may be on Spain and Greece but when it comes to France, “The situation is very serious. Some business leaders are in a state of quasi-panic,” said Laurence Parisot, head of employers’ group MEDEF.

“The pace of bankruptcies has accelerated over the summer. We are seeing a general loss of confidence by investors. Large foreign investors are shunning France altogether. It’s becoming really dramatic,” Parisot added.

President Hollande’s confiscatory tax policies threaten lasting damage. Parisot says they border on economic illiteracy: “The idea of aligning taxes on capital with those on wages is a profound economic error. It is scandalous that the French have been left in such economic ignorance for years.”

French business has been calling for tax cuts to stay competitive with the likes of Germany, but instead it faces an extra $13 billion in higher costs from Hollande’s recent budget. The public sector doesn’t suffer at all. The private sector is being destroyed. And should Spain tumble anew, the contagion will definitely spread to Paris.

China

There was a slew of news on China’s economy this week, both good and bad.

The good…

GDP for the third quarter came in at 7.4% vs. a 7.6% pace for the second quarter. Yes, the figures are manipulated but you deal with what you’re given and as far as the government’s releases, this is nonetheless the seventh straight quarter of slowing growth, but it at least shows signs of stabilization around the 7.5% figure China’s leaders have sought. [Understand growth in China has averaged 10% for three decades.] Other figures for the month of September were encouraging.

Exports rose 9.9% over a year earlier, much better than expected (despite them being down 10.7% to Europe). 

The September consumer price index was 1.9% with food price gains just 2.5% and the important pork price falling. [Producer prices were down 3.6% for the month.]

Industrial production was up a solid 9.2%, while retail sales rose 14.2% for September.

China’s home prices continue to stabilize, also good.

But foreign direct investment fell 6.8% in September, the 10th monthly decline in the last eleven, and electricity production declined 11% in September over August, and up only 1.5% from year ago levels. That’s certainly none too encouraging.

Non-financial company profits for the first nine months of the year are also projected to have declined 17%, according to one analyst on the scene.

And there are the simmering trade issues with the United States. Xiang Wenbo, one of China’s richest men and a founding member of the Sany Group, the ninth-largest construction machinery maker by sales in the world, branded Barack Obama and U.S. regulators as “petty scoundrels” in the latest exchange over restrictions on Chinese companies’ access to the U.S. market.

“The U.S. treats China like a hostile country. Whatever we do is deemed as endangering American national security.” [Leslie Hook / Financial Times]

But while you have the high-profile disagreements over companies like telecom equipment giant Huawei and how much access they should be granted to the U.S. market for reasons of national security, the fact is hundreds of Chinese companies are successfully acquiring U.S. operations (in non-threatening sectors) and this is good. And I do have to note that after Huawei was singled out by the House Intelligence Committee the other day (WIR 10/13/12) over national security concerns, it’s come to light that a separate government security review has cleared Huawei, according to a report released to Reuters.

What seems certain, though, is that China bashing will be front and center during Monday’s third and last presidential debate focusing on foreign policy.

Washington and Wall Street

What started out as a promising week owing to a stronger than expected figure on retail sales for September, up 1.1% (following a revised 1.2% increase in August…and it wasn’t all gasoline), as well as a solid report on September industrial production, up a better than expected 0.4%, and Citigroup’s strong earnings for the quarter, stocks rallied sharply Monday and Tuesday.

But after the close on Tuesday, we had disappointments out of two of tech’s Big Four, Intel and IBM, only to be followed later in the week by poor reports out of the other two, Microsoft and Google; the latter’s being an outright disaster as spelled out below. The big issue in the case of someone like IBM, where sales declined in each of its major segments, is what kind of message does this send about corporate spending in general, including in emerging markets, where IBM’s results were less than exciting, in fact up just 4% in Brazil, Russia, India and China, adjusting for currency (otherwise down 1%).

The bottom line is there is zero revenue growth, not just in tech but other sectors as well. Earnings can be manipulated. The top line can’t. A company like General Electric saw its revenues rise just 2.8% while it forecast minimal growth on this front for the rest of the year, lowering a previous forecast of 5% for 2012 to 3% (though the company blamed its ongoing efforts to shrink financing arm GE Capital).

McDonald’s also saw putrid sales growth of just 1.9% globally in the third quarter (up 1.2% in the U.S., 1.8% in Europe) and CEO Don Thompson said sales thus far in October are down vs. the same time last year, hardly a good sign (and as a result the share price suffered, down $4 following Friday’s announcement).

On the housing front, the news was better. September starts were at their best level since July 2008 at 872,000, while existing home sales came in at an annual rate of 4.75 million units for the month, down 1.7% from August but up 11% from one year ago. There have now been 15 straight months in which sales posted year-over-year gains. The median home price of $183,900 is also 11% higher than last September.

But switching topics, economist Robert Samuelson of the Washington Post summed up the second presidential debate and the failure of either candidate to address the two most important issues facing our nation’s financial future, health-care spending and the “fiscal cliff” – the looming spending cuts and tax increases that will “almost certainly plunge the economy back into recession” if allowed to take effect.

“Obama said that Romney’s budget math didn’t add up and that he had proposed spending cuts for only two programs, Big Bird (presumably public broadcasting) and Planned Parenthood. True. Romney promises to balance the budget, raise defense spending and cut taxes for some unidentified part of the middle class. All of this can’t be done without massive as-yet-unspecified – and probably politically impossible – spending cuts.

“But wait. The two programs that Romney offered for cuts were actually two more than Obama suggested. And Obama’s budget never balances.

“The administration’s latest projections foresee $6.4 trillion worth of deficits between 2013 and 2022; in 2022, the expected deficit is $652 billion, 2.6 percent of the economy. Even these forecasts rest on fairly optimistic economic assumptions. From 2014 to 2017, GDP is projected to grow about 4 percent a year, roughly double the current rate of expansion. The forecast assumes no recession between now and 2022.

“Romney did mention, almost in passing, that he would reform Social Security and Medicare. Changes could yield huge savings, because these programs cost $1.2 trillion in fiscal 2012, a third of all federal spending. But Romney didn’t specify how he would alter Social Security, and his controversial Medicare proposal wouldn’t start until 2022 – after a two-term President Romney would already have left office.

“Still, Obama didn’t even mention these programs. The president has been content to imply that raising taxes on the ‘rich,’ defined as couples with incomes exceeding $250,000, would cure most of the deficit problem. That’s not true.

“Obama and Romney can evade these unpleasant and unpopular subjects now, but the victor won’t be able to avoid them after the election. How the fiscal cliff is handled (or mishandled) almost certainly represents the single most important federal policy affecting the economy’s near-term prospects. Nor will large deficits miraculously vanish even if the recovery continues and strengthens.

“Americans face a rude awakening: a future that hasn’t been acknowledged and debated in the campaign.”

The Washington Post’s Zachary A. Goldfarb succinctly summed up another immediate dilemma.

“Even if Washington somehow finds a way to avoid the fiscal cliff…the economy could suffer a stiff blow next year from other looming changes in public policy.

“A payroll tax cut benefiting 160 million workers is scheduled to expire at the end of the year, as are unemployment benefits for millions of people. Also on tap are new taxes on the wealthy and cuts in tens of billions of dollars in domestic and defense spending that will occur regardless of the fiscal cliff….

“While economists and politicians have been warning about the dangers of the fiscal cliff, far less has been said about the more modest, yet serious, toll that these other government actions would take.

“Of these, the biggest impact would come from the expiration of the temporary payroll tax cut, enacted in December 2010. Since then, the payroll tax that funds Social Security has been 4.2 percent, down from 6.2 percent, giving the average family an extra $1,000 to spend.

“The disappearance of unemployment benefits would also hamper economic activity, especially because recipients usually spend most of the cash on food and other goods rather than saving the money.”

One also can’t help but think that as these programs are unwound, it’s not dissimilar to what the Federal Reserve eventually faces when it finally unwinds its positions…and Treasurys lose their support.

But not to worry. Last weekend in Tokyo at the International Monetary Fund’s annual meeting, Bernanke launched a vigorous defense of his policies, particularly as it pertains to critics who say he has launched a global “currency war” through his aggressive easing policy.

The Fed’s effort “not only helps strengthen the U.S. economic recovery, but by boosting U.S. spending and growth it has the effect of helping support the global economy as well…It is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies,” he added.

Bernanke, while expressing sympathy for the likes of Brazil, whose finance minister labeled the Fed’s monetary policy as “selfish,” said the costs for emerging economies must be weighed against the “very real benefits.” [Claire Jones and Ben McLannahan / Financial Times]

To totally switch gears, with Monday’s final presidential debate focusing on foreign policy, some thoughts.

Editorial / Wall Street Journal

“Moving to the President’s record, he likes to boast about responsibly ending the war in Iraq. Yet the war had already been won when Mr. Obama became President thanks to a surge that he opposed as a Senator – even as he later tried to emulate it in Afghanistan under the same military commander. Mr. Obama also tried to negotiate a Status of Forces Agreement with Iraq that would have maintained a residual U.S. military presence in the country, and Joe Biden even offered to ‘bet you my Vice Presidency’ on the negotiations succeeding. But they pursued it too half-heartedly to entice the Iraqis to a deal.

“The result is that American soldiers won a victory in Iraq at great cost only so Mr. Obama could squander the strategic fruits of their victory: a viable alliance with Baghdad and a bulwark against Tehran. Mr. Obama may think that he’s come out of this as a political winner, but nobody is happier about his Iraq policy than the mullahs in Iran….

“Mr. Obama is also courting war in the Middle East by his ambivalent posture on Iran’s nuclear designs. Mr. Romney can applaud Mr. Obama for insisting that ‘all options are on the table’ when it comes to thwarting those designs, and for publicly opposing a containment strategy for a nuclear Iran.

“Yet the Obama administration has consistently undermined its own message by advertising that it believes a military option would be ineffectual, by failing to provide Israel with reassurances that it needn’t consider its own military options, and by first resisting sanctions until Congress passed them and then handing out waivers to those same sanctions. The result is that Iran has not been remotely deterred despite sanctions, and it is now only months away from being able to produce weapons-grade uranium….

“More broadly, Mr. Romney can promise to restore America’s credibility as a guarantor of peace and stability – not simply for the sake of far-flung peoples and countries, but for our own.

“America has been the chief underwriter of global order for nearly seven decades, which has required large defense budgets and difficult military commitments. But we have also been a major beneficiary: no world wars; open sea lanes; expanding trade and freedom; and the human and economic possibilities of a world that, until Mr. Obama came to office, was freer than it had ever previously been.

“In his farewell interviews, Mr. Obama’s first Defense Secretary, Robert Gates, made a point of quoting Reagan’s line that he had lived through many wars but not one of them began because the U.S. was too strong. Mr. Obama’s first term has been marked by economic decline at home and less respect and influence abroad. Four more years of the same will tempt the world’s rogues to become even more assertive.”

And on what is going to be a big topic in Monday’s debate, Libya, the Washington Post’s Charles Krauthammer, following Tuesday’s tussle between Obama and Romney.

“The one thing Obama’s performance did do is re-energize his demoralized base – the media, in particular. But at a price.

“The rub for Obama comes, ironically enough, out of Romney’s biggest flub in the debate, the Libya question. That flub kept Romney from winning the evening outright. But Obama’s answer has left him a hostage to fortune. Missed by Romney, missed by the audience, missed by most of the commentariat, it was the biggest gaffe of the entire debate cycle: Substituting unctuousness for argument, Obama declared himself offended by the suggestion that anyone in his administration, including the U.N. ambassador, would ‘mislead’ the country on Libya.

“This bluster – unchallenged by Romney – helped Obama slither out of the Libya question unscathed. Unfortunately for Obama, there is one more debate – next week, entirely on foreign policy. The burning issue will be Libya and the scandalous parade of fictions told by this administration to explain away the debacle.

“No one misled? His U.N. ambassador went on not one but five morning shows to spin a confection that the sacking of the consulate and the murder of four Americans came from a video-motivated demonstration turned ugly: ‘People gathered outside the embassy and then it grew very violent and those with extremist ties joined that fray and came with heavy weapons.’

“But there was no gathering. There were no people. There was no fray. It was totally quiet outside the facility until the terrorists stormed the compound and killed our ambassador and three others.”

--Thomas Joscelyn / The Weekly Standard…excerpts from his extensive timeline.

September 11, Benghazi, attack begins around 3:40 p.m. EDT

September 12, Washington, 10:43 a.m. EDT… “In the White House Rose Garden, President Obama addresses the nation concerning the attack in Benghazi. ‘We reject all efforts to denigrate the religious beliefs of others,’ he says. ‘But there is absolutely no justification to this type of senseless violence.’ The president adds, ‘No acts of terror will ever shake the resolve of this great nation, alter that character, or eclipse the light of the values that we stand for.’”

September 13, Washington (evening)… “Secretary Clinton honors the end of Ramadan alongside Libyan ambassador Ali Aujali, who denounces the ‘terrorist attack’ in Libya. Clinton refers to the attack as ‘the actions of a small and savage group’ and again denounces the anti-Islam video. ‘Unfortunately, however, over the last 24 hours, we have also seen violence spread elsewhere,’ Clinton says. ‘Some seek to justify this behavior as a response to inflammatory, despicable material posted on the Internet. As I said earlier today, the United States rejects both the content and the message of that video. The United States deplores any intentional effort to denigrate the religious beliefs of others.’”

September 16 (Sunday morning)… “U.S. ambassador to the United Nations Susan Rice goes on five Sunday talk shows to explain what happened in Benghazi. Her narrative is wrong in almost every detail. On CBS News’ Face the Nation, for example, Rice says the attack was ‘sparked by this hateful video.’ She says that ‘spontaneous protests began outside of our consulate in Benghazi…extremist elements, individuals, joined in that – in that effort with heavy weapons of the sort that are, unfortunately, readily now available in Libya post-revolution. And that it spun from there into something much, much more violent.’ Rice adds, ‘We do not…have information at present that leads us to conclude that this was premeditated or preplanned.’ Rice makes similar comments on the other four shows.”

September 18 (evening)… “President Obama appears on The Late Show with David Letterman. ‘The ambassador to Libya killed in an attack on the consulate in Benghazi, is this an act of war, are we at war now? What happens here?’ Letterman asks. President Obama responds: ‘No. Here’s what happened. You had a video that was released by somebody who lives here, sort of a shadowy character who is extremely offensive [sic] video directed at Muhammad and Islam…So this caused great offense in much of the Muslim world. But what also happened was extremists and terrorists used this as an excuse to attack a variety of our embassies, including the one, the consulate in Libya.’”

September 25, New York… “Before the United Nations General Assembly, President Obama gives an impassioned defense of fair speech, while denouncing The Innocence of Muslims. He attributes the events of ‘the last two weeks’ to ‘a crude and disgusting video that sparked outrage throughout the Muslim world.’ The president continues: ‘Now, I have made it clear that the United States government had nothing to do with this video, and I believe its message must be rejected by all who respect our common humanity.’ The president mentions terrorism only in passing: ‘Al Qaeda has been weakened, and Osama bin Laden is no more.’ The president does not mention al Qaeda or affiliated groups or terrorism in the context of the attack in Benghazi.”

The problem for Mitt Romney on Monday is that since the start of his campaign, he never laid out a coherent foreign policy of his own and has been flailing ever since. I frankly think Monday is going to be a mess…for both gentlemen….verging on embarrassment for America.

Street Bytes

--After the strong start to the week, stocks finished mixed as a result of Friday’s debacle, a 205-point decline in the Dow Jones to 13343. For the week the Dow was still up 0.1%, the S&P 500 added 0.3%, but Nasdaq declined 1.3% after all the poor news from the tech titans.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.29% 10-yr. 1.76% 30-yr. 2.93%

The consumer price index for September rose 0.6%, 0.1% ex-food and energy. Year over year, both figures are up 2.0%.

--China’s holdings of U.S. Treasurys rose $4.3 billion to $1.154 trillion for August (as just released), but Japan’s holdings are up to $1.122 trillion. China’s have fallen by $124.9 billion over the past 12 months, while Japan’s have increased $214.5 billion over the same period.

--Shares in Google fell 8% on Thursday, down $60, as, first, the earnings report was accidentally released about 3 ½ hours too soon from the financial printer, around 12:30 p.m. instead of after the market close at 4:00 p.m., and, second, Google reported a 20% plunge in net income, earning $9.03 a share vs. the $10.60 analysts had expected. The amount advertisers paid per ad click-through, the critical barometer for Google, fell 15% over a year ago as it is beginning to lose market share to the Bing/Yahoo alliance.

Google is also suffering from its $12.5 billion acquisition of Motorola Mobility, which lost $527 million in the quarter. 

Google shares then lost another $15 on Friday to close at $680, off Thursday’s intraday high of $759. Or to put it a different way, it went from $76 to $68, which may seem a little better. Heck, for all the fussing the company is still making gobs of money and is reasonably valued.

--Citigroup CEO Vikram Pandit resigned just one day after the bank released its earnings, which were solid, and hours after a conference call with analysts in which Citi said nothing about the change, which included the simultaneous resignation of Chief Operating Officer and President John Havens. So the disclosure that Pandit was being replaced by Mike Corbat was handled pathetically, though the share price ended up on the week from the time of the announcement. Pandit was reportedly forced out following a clash with the board over strategy and performance.

Under Pandit’s reign, since December 2007, Citigroup shares fell 89 percent, about twice as bad as the U.S. banking sector in general. Could anyone else have done better, given the financial crisis that hit? We’ll never know.

As for Corbat, who previously headed Citi’s “bad bank” division charged with disposing unwanted assets following the financial crisis and was most recently in charge of business in Europe, the Middle East and Africa, he is expected to continue downsizing the institution, something Pandit was against. The Wall Street Journal reported the moves, including the Havens resignation, had been in the works for months owing to the increasingly disenchanted board.

--Morgan Stanley beat expectations on both revenue and earnings as bond sales, trading and traditional investment banking came through. It was also a quarter in which it agreed to buy the rest of the Smith Barney retail brokerage from Citigroup, settling on a figure that was much lower than Citi had valued the business, but viewed as favorable to MS. The Smith Barney situation no doubt played a key role in how the Citi board viewed Pandit.

--Bank of America Corp.’s third-quarter profit dropped 95% as revenue declined 28%. There were all kinds of charges and adjustments that weighed down the bottom line, some related to its 2009 acquisition of Merrill Lynch, but it’s the revenue number that is most disturbing, plus BofA has exited certain parts of the mortgage business that Wells Fargo and JPMorgan Chase now have a combined 44% share in. BofA has also shed more than 16,000 employees since the third quarter of 2011.

[Regarding the mortgage situation, Bill Dudley, president of the New York Fed, said this week that “concentration of mortgage origination volumes at a few key financial institutions” meant that banks were not passing on low interest rates to borrowers.]

--According to Richard Fisher, president of the Federal Reserve Bank of Dallas, “half of the entire banking industry’s assets” are concentrated in five institutions whose combined assets amount to almost 60% of the gross domestic product. And “the top 10 banks now account for 61% of commercial banking assets, substantially more than the 26% of only 20 years ago.” As George Will noted in his Washington Post column, Fisher’s simple proposition is: “Systemically important financial institutions, meaning too-big-to-fail banks, are ‘too dangerous to permit.’”

Will opines:

“It is inexplicable politics and regrettable policy that (Mitt) Romney has, so far, flinched from a forthright endorsement of breaking up the biggest banks. This stance would be credible because of his background and would be intelligible to voters because of its clarity.”

I agree.

--Goldman Sachs reported third-quarter results that handily beat expectations, including on the revenue front, but while its return on equity was 8.6%, better than the 5.4% of a year ago, it was still far from pre-crisis levels of 30%.

--A123 Systems Inc., the lithium-ion battery maker that was helped along by the Obama administration as part of its goal of revolutionizing the auto industry, filed for Chapter 11 bankruptcy. In the past five years, despite rising revenues, A123 lost $877.7 million. The announcement came the same day as Tuesday’s presidential debate and Mitt Romney missed an opportunity to exploit it as he should have coupled A123’s act with Solyndra, Ener1 and other failed examples of the Obama administration’s clean-energy policy; A123 having been awarded a $249 million federal grant. A123 is keeping its doors open and sold car battery factories in Michigan and China to Johnson Controls, but shareholders were wiped out.

--Japan’s SoftBank finalized its acquisition of Sprint Nextel Corp. in announcing it would spend about $20 billion to acquire 70% of the No. 3 wireless carrier in the United States. The issue now is will SoftBank go after No. 4 T-Mobile, which is acquiring No. 5 MetroPCS. SoftBank currently operates the third-largest wireless provider in Japan.

--Apple is introducing its iPad Mini on October 23, priced at $199 to $299, and it’s expected to go on sale by early November.

Apple stock has plunged from a high of $705 on 9/21/12 to $609 as of Friday’s close.

--Microsoft is praying sales of Windows 8, which formally launches next week, will make up for its lousy fiscal first-quarter.

--Advanced Micro Devices, the second-largest chipmaker for personal computers, plans to cut about 1,700 jobs, or 15% of its workforce. AMD has warned its sales in the third quarter will decline 10% from the prior period amid sagging demand for PCs. [As tablet computers, such as the iPad, rock and roll.]

--Shares in Chipotle Mexican Grill fell about 15% on Friday after the restaurant chain revealed same-store sales growth (restaurants open at least 13 months) of just 4.8% for the quarter, less than expected, and hardly the kind of pace needed to support this high-flyer’s stock price.

--Social Security benefits will rise just 1.7% next year, the increase tied to the consumer price index, specifically the average for July, August and September vs. the same three months in the previous year.

--A study by Visa Inc. estimates U.S. businesses will spend a total of $257 billion on travel this year, a 2.6% increase over last year, which compares with a 5.1% increase in 2010 and 7.2% in 2011. The number of trips will actually decline. It’s the rise in travel costs that boosts the $dollar number. [Hugo Martin / Los Angeles Times]

--Sales of Australian wine to China were up 16.3% for September vs. year ago levels. Sales of Jacob’s Creek are up 32% to the mainland.

--You want a good example of how tough things are in Spain? Its national team’s World Cup qualifying match in Belarus (won by Spain 4-0) was not televised back home because no broadcaster agreed to pay the price set by rights holders Sportfive. [Reuters] 

--The Nobel Prize for economics was awarded to Americans Alvin Roth and Lloyd Shapley “for their independent work into how best to bring different parties together for mutual benefit – work that formed the theoretical underpinning to speed dating evenings and the allocation of secondary school places.” [Chris Giles / Financial Times] Whatever.

--Advertisers began to dump Lance Armstrong in droves, with Nike and Anheuser-Busch InBev leading the way following the final report from the U.S. Anti-Doping Agency that appears to have irrefutable evidence of Armstrong’s cheating while he was winning his seven Tour de France titles. Armstrong also resigned as chairman of his Livestrong cancer charity, even as he continues to deny the allegations.

--HSBC was the victim of a serious denial-of-service attack on Friday, leaving customers in several countries unable to use the bank’s online services for hours. Customer data wasn’t breached, but they were unable to do internet banking. Iran is once again being fingered.

--I’m sorry to see Newsweek announce it is going digital-only at the end of December. It was a staple in my house growing up, helped cultivate my interest in the world, and I’ve been a long-time subscriber, though I didn’t like some of the changes they made the last few years, especially after Tina Brown took over as editor when Newsweek merged with her website, The Daily Beast. 

I agree with Samir Husni, a Univ. of Mississippi School of Journalism professor, who told the AP: “Tina Brown took Newsweek in the wrong direction. Newsweek did not die, Newsweek committed suicide.”

Newsweek’s circulation has dropped by 50% since 2005. More importantly, ad pages were down about 80% over that period. It’s also about production costs for a weekly newsmagazine when the other two metrics are plummeting as they are. 270 are expected to lose their jobs as a result of the move.

--25 years ago, Oct. 19, 1987, was Black Monday, the day the Dow Jones fell 508 points, 22.6%, while the S&P 500 declined 20%. A day I’ll never forget as I was a regional sales manager with Thomson McKinnon Securities Inc., working out of Philadelphia, when I was informed that morning I was being assigned to the New York region and I was to meet with my new branch managers that evening in Rockland County, New York. Needless to say, the reception I received was a cold one as the managers had far more important things on their mind than getting to know moi and I’ll never forget one, a legend at TMSI, yell at everyone, “What the hell are we doing here?! We should be in our offices holding our clients’ hands!”

I have a good friend, David P., who had a different experience. Black Monday was his very first day of training to be a broker on Wall Street, a career change for him. It proved to be perfect timing because virtually everything he recommended from then on rose in price over a multi-year period.

Foreign Affairs

Turkey/Syria/Lebanon: Turkey now has 100,000 refugees, with another 15,000 waiting on the Syrian side but choosing not to cross over because they’ve heard the camps are full. Human Rights Watch is blaming the Turks for not letting them in. A Turkish official told the Financial Times: “No one can guarantee that the Syrian regime won’t do something to the people on the other side of the border – that’s the point that we have been trying to underline from the beginning of this crisis.”

Turkey is providing aid, such as tents, to the Syrians on the other side. But Turkey wants a U.N.-backed safe zone within Syria and that’s what the international community, including obviously the Obama administration, fails to support. It’s astounding.

Various rights groups also now say that 28,000 people have disappeared after being abducted by Syrian soldiers or militia. The rights groups have collected the names of 18,000 missing since the protests began and know of another 10,000 cases.

Meanwhile, after Turkey forced a Syrian domestic airliner heading from Moscow to Damascus to land in Ankara, claiming it had illegal military cargo while the Russians said it was simply legal radar equipment, both sides are now banning all aircraft from each other’s airspace.

But that doesn’t prevent Syrian aircraft from killing their own and in one airstrike against the rebel-held town of Maaret al-Numan on Thursday, fighter jets killed at least 44. 

Turkey is trying to avoid war, and there is strong anti-war sentiment in the country, but it may be unavoidable.

The biggest immediate concern is control over Syria’s vast chemical weapons stockpile, as well as the shoulder-fired missiles that are falling into the hands of Islamist groups that are pouring into the theater, while clashes along the Syrian-Lebanese border continue to escalate with wounded Syrian soldiers being treated in a hospital in Baalbek, which is under the control of Hizbullah. The sectarian rifts between the Shiite supporters of Bashar Assad and the Sunnis, who are pro-rebel, are growing.

And then on Friday we had what I’ve long feared, and told you for some time now was coming. A massive car bomb in Beirut, in a neighborhood I’m familiar with and where my friend lives. I sent Michael a note immediately and found out he was safe in Paris. No telling what he’ll return to as he lived just a few blocks from the carnage and the damage extended far out from the blast point.

At last report eight were killed and over 100 wounded. Among the victims was the apparent target, Maj. General Wissam al-Hasan, the head of the police’s Information Branch “which recently uncovered a bomb plot allegedly involving a former Lebanese minister close to (Syrian President) Assad and a top Syrian official. He was also close to former Prime Minister Saad Hariri and played a key role in the probe of the assassination of Hariri’s father, former Prime Minister Rafik Hariri.” [Daily Star]

The war has officially spilled over into Lebanon, though with the ongoing unrest in Tripoli you could build a case it already had. Nonetheless, everyone in the world relates to Beirut and the powder keg I’ve long described there was lit.

It’s also official…Syria is back in Lebanon. To a large extent this is on President Obama. Anyone who is a regular reader of mine knows this. Before him, President Bush was also worthless when it came to this theater.

Israel: The other day I commented how it cracks me up when I hear “experts” talk about the capabilities of the American and Israeli intelligence apparatus when it comes to estimating Iran’s nuclear weapons progress. So after posting my column last week, we learned that the Hizbullah drone that Israel shot down the week before was not only an Iranian one, but it beamed back live images of secret Israeli military bases for three hours before being intercepted by an Israeli F-16. The Times of London reported the drone transmitted pictures of Israel’s biggest joint military exercise with the U.S. army, as well as ballistic missile sites and possibly the nuclear reactor at Dimona. Trying to explain why the drone was not detected, an Israeli defense source blamed “unfamiliar stealth elements.” [Uzi Mahnaimi / London Times]

And as The Times’ Mahnaimi added, “Even the interception was botched. A first missile fired by the F-16 jet missed. The drone was brought down at a second attempt.”

As to the Hizbullah military buildup in Lebanon, Israel’s ambassador to the U.N., Ron Prosor, warned the Security Council that “some countries around this table continue to define Hizbullah as a charitable and political group, not a terrorist organization. This is no less ridiculous than describing the Mafia as a gentleman’s social club….

“How much longer must this absurdity continue? How many more innocents must fall victim to Hizbullah terror before Europe acts? It is time for all responsible nations to call Hizbullah exactly what it is: a global terrorist organization.” [Jerusalem Post]

As Prosor charged, Hizbullah today has more missiles than many NATO members.

Separately, there is an ongoing crisis in the West Bank and Gaza as donors refuse to honor their aid pledges and the Palestinian Authority runs out of money, meaning government workers are only receiving partial salaries and hunger is becoming a real issue. The PA has a $1.3 billion budget deficit and many are calling for a third “intifada” (uprising), only this time the violence would be directed not just at Israel, but also the PA and Mahmoud Abbas’ government.

Meanwhile, the date for elections in Israel has been set for January 22, 2013.

Iran: For years and years I have mentioned that the United States should have been negotiating through backdoor channels with former Iranian leader Akbar Hashemi Rafsanjani. This was one of my chief complaints with the Bush administration and its totally unimaginative foreign policy. But Donald Rumsfeld did get one thing right and that was when he said in the immediate aftermath of 9/11 that the U.S. would be fighting a “dirty war.” Rafsanjani of course has a terrorist past. He also became a $billionaire businessman and as much of a pragmatist as you’ll find in Iran and my point has always been that we could have negotiated with him, trading commercial interests for peace and no nuclear weapons program.

Alas, we didn’t, but guess who is reemerging, at age 78? The same Rafsanjani. His 52-year-old daughter Fatemeh is speaking out and challenging the country’s institutions as her sister and brother have been incarcerated. Fatemeh told the Financial Times that the country was in “the worst situation” since the 1979 revolution – even when compared with the deadly war with Iraq. Speaking from Tehran, Fatemeh directed her anger at Mahmoud Ahmadinejad, arguing early presidential elections may be an option. “Sanctions have created problems for us, but mismanagement has fuelled these problems.”

As for her father, he was sidelined by Ayatollah Khamenei when Rafsanjani sided with the Green Movement during their protests in 2009, which was a result of the fraudulent re-election of Ahmadinejad. [Another time when Obama stood on the sidelines.]

But Rafsanjani has become more visible lately and was reinstated to run the Expediency Council which drafts policies. He has also been side by side with Khamenei in some settings. This bears watching. Rafsanjani is too old to run for president again, but he wants to be kingmaker.

Egypt: President Mohamed Morsi backed off his decision to replace the prosecutor general after protests over the move.    Prosecutor General Mahmoud is a holdover from the Mubarak regime but Egyptian law prevents the president from firing the PG.

Pakistan: Malala Yousafzai, the heroic 14-year-old girl who has thus far survived an assassination attempt by the Taliban after she blogged about the right of girls to an education in her country, is recovering in a London hospital. Some say Malala “has liberated Pakistan” as Pakistanis express their anger at the Taliban in calling for the forces of peace to reclaim their nation’s destiny.

But as much as I expressed my hope the other day that Girl Power could take down the Taliban one day, you have the reality, as expressed in the Oct. 20 issue of The Economist.

“(Stung) by the opprobrium, the Taliban is lashing out. Pakistani journalists are under serious threat, while international news organizations are lying low or scaling back their operations in Islamabad, the capital. A smear campaign by religious conservatives has begun against Malala, painting her as some kind of ‘American agent.’ And on October 15th over 100 Taliban attacked a police station near the north-western city of Peshawar. After killing the local police chief and five of his men, they sliced off his head and took it away as a trophy.”

Afghanistan: In another green-on-blue incident, two American soldiers were among six killed in a suicide attack, only what made this one different is it was a member of Afghan intelligence who carried it out, not an Afghan soldier (or Taliban dressed as a soldier).

China: The crisis in the East China Sea continues…at a slow boil…with China dispatching naval vessels, aircraft and helicopters in an unnecessary show of force. State-run television showed images of several warships carrying out maneuvers near the islands claimed by both Japan and China (and Taiwan).

As the leadership change approaches next month, a Pew Research Center poll of the Chinese people found 70% said their finances are better than they were five years ago. But four in five say the rich get richer while the poor get poorer. Half say corruption is a grave issue. 41% also believe contaminated food is “a very big problem.”

Corruption, tainted food, growing inequality…from such themes popular uprisings are spawned. That’s what scares the heck out of the leadership in Beijing.

Russia:  In the first widespread elections since Vladimir Putin returned to the presidency, the ruling United Russia party won all five governor races in landslides and virtually all of the other 5,000 regional elections that took place, sending the opposition back to the drawing board.

Opposition leader Sergei Udaltsov staged a rally in Moscow on Thursday over the arrest of one of his key aides, charged with preparing to organize mass riots. Earlier, Udaltsov had been hauled in and questioned. Udaltsov will be arrested shortly as well, I’m guessing.

[By the way, for the record the only Russian opposition figure I like is Boris Nemtsov. Garry Kasparov isn’t a true political leader to me. The other figures like Udaltsov and Navalny are dangerous in their own right.]

Meanwhile, in an attempt to stay relevant, Prime Minister Dmitry Medvedev proposed a ban on public smoking by 2015, as well as banning advertising for cigarettes and increasing the sales tax on them to a “substantial level.” Medvedev says smoking claims 400,000 lives in Russia annually. This is about the only kind of issue he can influence these days, with President Putin calling all the shots otherwise.

In a Levada Center poll, almost 70% of Russians believe the United States often tries to pressure Russia, while only 17% think the U.S. treats Russia with respect. The percentage of Russians with a positive attitude toward the United States fell from 67% to 46% over the past 12 months.

Britain: Prime Minister David Cameron and Scottish First Minister Alex Salmond finalized an accord that would allow Scotland to vote no later than the end of 2014 on whether to secede from the United Kingdom. This is huge. 

One offshoot from a security standpoint is that if Salmond, head of the locally governing Scottish National Party, gains a vote in favor of independence, he can order the expulsion of Britain’s nuclear warheads, which are based in Scotland. London opposes independence and argues that when it comes to the nukes, there are no comparable sites in the U.K. that could take over the mission.

The vote for independence is going to be a straight up or down affair. Current polls show that when faced with a choice, straight up or down vs. having a third option of just accepting more powers, the people will vote to remain in the U.K.

Random Musings

--Various polls…both prior to and after Tuesday’s second presidential debate:

CNN poll of polls…Romney 48 Obama 47

Same survey, in Florida, Romney 49-46. In Ohio, Obama is ahead 50-47 and 48-47 in Virginia.

A Gallup seven-day national tracking poll has Romney up 52-45 among likely voters.

A USA TODAY/Gallup Poll of likely women voters in 12 battleground states had Romney trailing Obama by one point, while leading among men by 8 points. Overall in the 12, Romney leads 50-46.

A Washington Post/ABC News survey of likely voters in nine battleground states had Obama over Romney 51-46. In the states rated as strong for Obama it’s 56-39. In those seen as strong for Romney it’s 55-39.

42 percent in the above say the country is headed in the right direction, up 13 percentage points since late August.

A Quinnipiac University survey of likely voters in Pennsylvania had Obama leading just 50-46.

A CNN/ORC poll in Florida has it Romney 49-48.

A Wall Street Journal/NBC News/Marist Poll has Obama leading Romney in both Wisconsin 51-45 and 51-43 in Iowa.

--Jennifer Rubin / Washington Post

“Going into the second of three presidential debates, President Obama was looking to reverse his opponent’s momentum and take him down with enough force to change the trajectory of the race. Mitt Romney had to prove that the first debate was no fluke. Although the president was no longer catatonic and managed to make some eye contact this time, he wasn’t able to take down his challenger. In fact, he wasn’t able to win the debate.

“For a town hall-style debate, it was quite competitive. On energy, the candidates went toe to toe, Romney arguing that energy permits on federal land have declined and bashing Obama for his stance on coal and the Keystone XL Pipeline. Obama said his stats were right, but back came Romney, citing higher oil prices. At one point, Romney talked Obama back from an interruption and back to his seat.

“On taxes, the candidates argued again about Romney’s plan. Romney twice patiently explained how he would lower tax rates but also take away deductions while keeping the tax code’s progressivity. Obama attacked, calling it a ‘sketchy’ deal.

“On a question set up for Obama to hit out of the ballpark, Romney on rebuttal touted his own record of hiring women and recounted how hard women have been affected in the Obama economy.”

So let’s stop right here. As you can see, Ms. Rubin took no offense, nor thought it necessary to mention Romney’s “binders of women” comment, which of course was pretty stupid but hardly the kind of remark worth changing a vote over, I hope most of my female readers agree.

Ms. Rubin continued….

“In one of his best moments of the night, Romney explained the differences between him and President George W. Bush, citing differences in the budget and tax code. He went a little populist, criticizing the GOP for being too pro-big business, but he turned a liability into a positive retort. It was perhaps his best answer of the night, dispensing with a DNC talking point….

“On an immigration question, Romney went through his proposals, including ‘stapling green cards’ to the diplomas of students from abroad studying in the United States. He said he would oppose ‘amnesty.’ He castigated Obama for not living up to his promise to pass comprehensive immigration reform. Obama defended his enforcement record and his move to allow children brought here illegally to be able to stay. Obama said he did ‘everything’ he could do, but of course he never submitted a bill, saying that was the House Republicans’ fault.”

--Andrew Rosenthal / New York Times…on the Benghazi question…a Democrat’s stance…

“Mr. Romney clearly thought he had a big opening and he moved in for the kill when Mr. Obama said he had called the attack a terrorist act the very next day, in a Rose Garden speech.

“ ‘I think it’s interesting the president just said something which is that on the day after the attack, he went in the Rose Garden and said that this was an act of terror.’

“ ‘That’s what I said,’ Mr. Obama replied.

“Mr. Romney: ‘I want to make sure we get that for the record, because it took the president 14 days before he called the attack in Benghazi an act of terror.’

“At that point, Candy Crowley, the debate moderator, stepped in. ‘He did in fact, sir,’ she said.

“ ‘Can you say that a little louder, Candy?’ asked Mr. Obama.

“Whoever coached Mr. Romney on that question did the candidate no favors. Here’s what the president said in the Rose Garden: ‘No acts of terror will ever shake the resolve of this great nation, alter that character, or eclipse the light of the values that we stand for.’ A little purple – and the administration’s subsequent line on what happened was confusing – but he undeniably used the word ‘terror.’

“The exchange left voters in the uncomfortable position of assuming that Mr. Romney either believes his own propaganda or doesn’t care whether what he says is true, which fits into the narrative that he’s willing to twist the truth for political gain.”

Peggy Noonan / Wall Street Journal

“Mr. Obama won the second debate Tuesday night with a vigorous, pointed performance. He showed up, fought, landed some blows. It was close and he was joyless, a bit of a toothache, but he emerged in marginally better shape than he entered.  But he doesn’t seem to be winning the post-debate. No one is talking about his excellence or his stunningly good performance – no one is talking about that. Instead the national conversation has been about the terrorist attacks in Benghazi. Did the president tell the truth at the time? Was he telling it now? Did Mr. Romney fail to unmask his dishonesty? People are asking what is the truth of the economy, as opposed to the factoids deployed. Have drilling permits on federal lands been cut or not? These issues are not good for the president, and they’ll be the subject of discussion up until the next debate.

“In the post-debate, the president’s win is starting to look like a draw.”

--Daniel Henninger / Wall Street Journal

“Conventional wisdom holds that Barack Obama ‘lost’ in Denver because he lacked intensity. He brought his A-game to Hofstra this week. There’s still a problem….

“Barack Obama isn’t going to win or lose his presidency because he lacks intensity. What we learned on Long Island is that Mr. Obama lacks something more damaging to an incumbent – a sense of presidential responsibility.

“One of the most familiar Obama positions – repeated at every campaign stop – is that he ‘inherited’ a bad economy from George W. Bush. Set aside that whatever the cause, everyone concedes he took over a tough situation. More to the point is Mr. Obama’s compulsive insistence that anything awry in the economy during his first term is ‘not my fault.’

“The Bush-did-it narrative was a banality by the time of the debates. Then came Benghazi. Within days, the political question at the center of the incident was: What did the White House know and when did it know it? No matter one’s politics, it became impossible not to see that the White House was intent on putting ‘distance’ between the president and responsibility for the security breaches….

“So came the moment late in the Hofstra debate when moderator Candy Crowley looked at Mr. Obama and asked: ‘Does the buck stop with your secretary of state as far as what went on here?’

“Staring back, the president clutched for a second. He looked like a fourth-grader being confronted in front of the whole class by Miss Crowley of all our childhood nightmares. That moment revealed the problem: At the core of Barack Obama’s persona and his presidency is a constant instinct to deniability.

It’s not my fault. He comes across as one of those smart kids who always had some elaborate excuse to disperse responsibility for anything bad in his vicinity. And so it was in his answer to Miss Crowley: ‘Secretary Clinton has done an extraordinary job. But she works for me. I’m the president. And I’m always responsible. And that’s why nobody is more interested in…’ By the end, he said it was Mitt Romney’s fault for bringing it up! In contrast, the bin Laden takedown was accompanied by a Lady Gaga-like White House P.R. blitz in the media….

“For much of the American electorate, this began as an ideal presidency. But there is an institutional flaw at the center of Mr. Obama’s understanding of the presidency. He accepts the best of it but not responsibility for the inevitable worst of it. It is making his incumbency smaller than he thinks it is. His misfortune is that in the election’s last lap, the public has begun to notice.”

John Podhoretz / New York Post

“Mitt Romney was more halting and overprepared last night than he’d been in the first debate, but he did get said everything he needed to say on jobs and the economy and the president’s faulty record.

“And while Romney’s confused mishandling of the sole question on the administration’s bizarre conduct after the slaughter in Benghazi almost seemed to turn a certain liability for the president into an asset, that was largely due to a rather shocking intervention from the moderator, Candy Crowley – an intervention that will only serve to keep a painful issue for the president alive and kicking at him.

“She flatly told Mitt Romney he was wrong for challenging the president’s contention that he had called Benghazi a terrorist act in his first remarks on the matter. Crowley not only behaved inappropriately by inserting herself, but even more appalling, she was incorrect.

“The president’s remarks that next morning specifically referred to the killings as an ‘attack’ twice, as an ‘act’ twice and as a ‘senseless act of violence’ once. This was a clear signal at the time that a deliberate choice had been made not to label it as an act of terrorism.

“The speech’s reference to ‘acts of terror,’ by contrast, followed a paragraph about 9/11 and clearly referred back to that.

“Crowley herself, in a moment that should live in journalism infamy, conceded later that Romney ‘was right in the main.’ This wretched moment, which will be rightly argued over, ensures the discussion of Obama’s handling of Libya will still remain at the center of the news for the next few days….

“(The) atmospherics swamped the specifics. Even as I write this, an hour after the debate’s conclusion, I’m struggling to remember what they talked about, but I remember the body language and the glaring and the real feeling you got that these two men absolutely detest each other.

“So Obama may have bested Romney, but not by much, and nobody really wins a fake wrestling match anyway.”

Editorial / Wall Street Journal

“The question we kept asking as the evening wore on, however, is what does he want to do for the next four years?

“At least two questioners put the point directly, yet Mr. Obama never provided much of an answer. Sure, he wants to hire 100,000 more teachers, as if there is the money to hire them or it would make much difference to student outcomes.

“He wants to invest in ‘solar and wind and biofuels, energy-efficient cars,’ which probably means more Solyndras and A123s. He wants to raise taxes on the rich – that’s one thing he’s really passionate about. Oh, and he does want to pass the immigration reform he said he’d propose four years ago but never did propose in his first two years when his party controlled Congress and he might have passed it.

“But otherwise, what’s his case for four more years? Judging by Tuesday’s debate, the President’s argument for re-election is basically this: He’s not as awful as Mitt Romney. Mr. Obama spent most of his time attacking either Mr. Romney himself (he invests in Chinese companies), his tax plan as a favor for the rich (‘that’s been his history’) or this or that statement he has made over the last year (‘the 47%,’ which Mr. Obama saved for the closing word of the entire debate).

“The paucity of this promise, the difference between now and four years ago, was never clearer than in the President’s response to the young man who said he’d voted for Mr. Obama in 2008 but is less optimistic now. Mr. Obama responded by reciting his achievements – ending the Iraq war, ‘health-care reform to make sure insurance companies can’t jerk you around,’ more Wall Street regulation, the auto bailout and more jobs.

“As for the next four years: He said he has a plan ‘for manufacturing and education and reducing our deficit in a sensible way, using the savings from ending wars to rebuild America’ and pursuing ‘the energy of the future.’ Then he attacked Mr. Romney again.

“The Republican followed by reciting the economic failure of the last four years, piling up fact after depressing fact. ‘I can tell you that if you were to elect President Obama, you know what you’re going to get. You’re going to get a repeat of the last four years. We just can’t afford four more years like the last four years,’ Mr. Romney said.

“It was his most effective argument of a generally good but not great night. It is also the fundamental choice that Americans face in this campaign.”

--Editorial / New York Post

“Media bias is more often sensed than seen, but America got its face rubbed in it Tuesday night – by debate ‘moderator’ Candy Crowley.

“CNN’s Crowley selected both questions and questioners – both of which largely skewed left. She let President Obama dominate, giving him 4 minutes and 18 seconds more speaking time.

“She interrupted Obama nine times, but she squelched Mitt Romney fully 28 times – repeatedly cutting him off just as he was scoring points. Once she told him to shut up, telling him: ‘See all these people? They’ve been waiting for you. Make it short.’

“She never did that to Obama.

“She flat-out ordered: ‘If I could have you sit down, Gov. Romney’ – but never asked the equally aggressive Obama to sit.

“When Romney tried to respond at several points, she cut him off, saying ‘it doesn’t quite work like that’ and promising to ‘give you a chance’ later on.

“Needless to say, she never did.

“But the most blatant evidence of bias was her instant ‘fact checking’ of Romney’s quite correct insistence that Obama took weeks to call the Benghazi debacle a terrorist attack.  She jumped to Obama’s defense, saying ‘he did call it an act of terror.’

“But she was flat-out wrong.

“Which is why a grinning Obama urged: ‘Can you say that a little louder, Candy?’

“But Obama’s reference was to generic ‘acts of terror’ and framed in the context of the 9/11 attacks of 2001 – and not the Sept. 11, 2012, Benghazi atrocity….

“Yesterday, Crowley belatedly acknowledged, ‘The president did not say it was…an act of terror.’ But the damage was done….

“And to the media.

“It has long had its thumb on the scale – but rarely so publicly, nor so shamelessly.

“Way to go, Ms. Crowley.”

--Two flash polls conducted immediately after Tuesday’s debate revealed the following.

CBS News…37-30 Obama. After the first debate the split was 46-22 Romney.

CNN…46-39 Obama. After the first debate, 67-25 Romney.

--The FBI arrested a 21-year-old Bangladeshi who had come to America with the hopes of launching a terrorist attack against U.S. interests; as it turned out the Federal Reserve Bank of New York. Quazi Mohammad Rezwanul Ahsan Nafis was taken down in a sting operation after he allegedly tried to detonate a bomb that had been made inert by the FBI.

--So, should authorities in Kennebunk, Maine have released the names of those “engaged in prostitution” with the 29-year-old zumba teacher? Here’s the thing. The names were released with no other information, such as the men’s ages or addresses, so many innocents found themselves being falsely accused of involvement in a scandal they had nothing to do with.

A story in the Daily Telegraph by Mark Hughes notes the tale of “Paul Main, 65, who works for the sheriff department in York County, which encompasses Kennebunk. After the names were published, he was suddenly inundated with calls about the case. The law enforcement officer had the misfortune to have the same name as one of those on the list.

“He spent Monday night and Tuesday trying to clear his name. ‘I don’t have a problem with releasing names,’ he said. ‘I think it’s a wonderful thing, but I’ll be darned if it’s right to do it in a shoddy manner.’ Stephen Schwartz, an attorney for two of those on the list, argued in court against releasing the names. He said: ‘The mere releasing of their names will have devastating consequences in a case in which the government, we believe, will have great difficulty proving.’”

Now discuss amongst yourselves.

--As alluded to above, some complained about Mitt Romney’s “binders of women” comment, but I saw nothing about the following. In reading Sec. of Defense Leon Panetta’s recent speech on cybersecurity, excerpts of which are on my “Hot Spots” link, this little ditty was in his opening remarks.

“I also want to thank Fran Townsend. She’s a great friend and, obviously a tremendous Master of Ceremonies this evening. And the reason I – the reason I asked Fran to serve on the board is because she is bright. She is capable. She’s dedicated. She’s a straight talker, she knows what she’s talking about. She’s dedicated to this country and in a room of a lot of ugly old guys, she’s not bad to look at.” [Source: defense.gov]

This is 2012, right? If I said that in a speech 15 years ago when I was on Wall Street I would have been fired…and/or sued. 

--I’m giving you a homework assignment. To mark the 50th anniversary of the Cuban Missile Crisis, go to Cubanmissilecrisisat50.org and listen to JFK’s key speech, Oct. 22, 1962. It’s a tremendous history lesson and a scary reminder of those times.

--Finally, the site is undergoing a big change on Monday (technology willing). I’m launching a project I should have done at least five years ago…a nightly newscast; initially, the first few months, Monday thru Thursday as I still need all day Friday to write this column.

The video will be taped around 4:30 p.m. and posted, as currently planned, around 5:30. You know how disciplined I am so if I say I’m doing it I will by that time, but we’ll see how the first week goes.

It’s an extension of what I already do all day and I’m thinking it’s about ten minutes in length; most days starting with a Wall Street review, then international, and maybe some Bar Chat. [The problem is it’s an hour or so project owing to download/digitizing/posting time for Youtube.]

It’s going to be no frills. I have had major issues with the camera set-up I paid big money for and there are still some missing pieces, such as a working remote that I can use to shut the camera off without physically getting up to do so.  

In other words, while I know this will work, it’s going to take me a month or so to truly get my act together.

So don’t abandon ship when the first few are less than Emmy quality. A year from now I expect it to be big. 

The newscast will be accessible on the home page, which will change slightly later Monday, as well as my iPad app. Apple needs some lead time to approve the change so iPad users may not have access the first week.

---

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

God bless America.
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Gold closed at $1724…down $55
Oil, $90.05

Returns for the week 10/15-10/19

Dow Jones +0.1% [13343]
S&P 500 +0.3% [1433]
S&P MidCap +1.2%
Russell 2000 -0.2%
Nasdaq -1.3% [3005]

Returns for the period 1/1/12-10/19/12

Dow Jones +9.2%
S&P 500 +14.0%
S&P MidCap +12.3%
Russell 2000 +10.8%
Nasdaq +15.4%

Bulls 42.6
Bears 26.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore