Week in Review

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Week in Review

10/26/2013

For the week 10/21-10/25

Washington and Wall Street

It was all about ObamaCare and the failed rollout this week. Representatives of the private contractors who built HealthCare.gov were summoned to testify before the House Energy and Commerce Committee and it was clear the administration went ahead with the Oct. 1 launch despite insufficient testing, as well as a last-minute request to add another few steps to collect personal information before allowing one to go shopping on the site.

“It was not our decision to go live,” said Cheryl Campbell, senior vice president of CGI Federal, which handled most of the project. The decision rather was made by the Centers for Medicare and Medicaid Services, an agency within the Department of Health and Human Services.

By week’s end nothing had changed, 25 days into what is President Obama’s signature legislation and the hallmark of his presidency. The system is riddled with errors, as some such as the Wall Street Journal’s Daniel Henninger so presciently warned, and we long learned not to believe anything the government, least of all our president, tells us.

I’m the ‘wait 24 hours’ guy so it’s not in my nature to just say chuck it all. Despite what some want to believe, ObamaCare is launched. Some facets of it are not going away, whether we like it or not, and on the issue of denial of coverage because of a pre-existing condition, of course no one wants to go back to that day.

But ObamaCare is in the ER, facts being gathered, anecdotes being collected. Stories of increased premiums, or existing policies being canceled. It’s like there was a giant chain-reaction crash on a fog-shrouded highway and the emergency services at the lone rural hospital are overwhelmed. 

This coming week, HHS Secretary Kathleen Sebelius is scheduled to testify before Congress about what she knew and when she knew it. Just when did she learn the Web site wasn’t ready for launch. Did the president know?

[And wasn’t it telling that in his infomercial for ObamaCare from the Rose Garden this week, President Obama didn’t acknowledge Sebelius sitting right there in the front row.]

We all have the same questions, while at the same time we should heed the advice of normally highly-cautious Consumer Reports, which stated this week: “Stay away from healthcare.gov for at least another month if you can.”

On Wednesday, the local NBC affiliate said not one applicant had been registered in full in New Jersey thru the website.

I myself continue to wait for the first big hacking story...though I imagine the hackers themselves are saying to one another, “Gee, there’s nothing to hack, people. These schmucks can’t even get on to give up the information that would make it worth our while to spend time stealing it!”

“We should not lose The Headline in the day-to-day headlines. This is a big story, not small. The ObamaCare rollout is a disaster for the White House, not a problem or a challenge or an embarrassment, not a gaffe or a bad few weeks. It is a political disaster, and the only question is whether it is partially recoverable, meaning the system can be made to work in a generally satisfactory way in the next few weeks. But – it has to be repeated – they had 3 ½ years after passage of the Affordable Care Act to make the program into something the American people could register for and feel they were benefiting from. Three and a half years! They had a long-declared start date: It would all go live Oct. 1, 2013, and everyone in the government, every contractor and consultant, knew it. The president put the meaning of his presidency into the program – it informally carries his name, it is his brand. It was unveiled with great fanfare, and it didn’t work. For almost anybody. Crashed systems, frozen screens, phone registration that prompted you back to the site that sent you to the 800 number, like a high-tech Mobius strip.

“All this from the world’s greatest, most technologically sophisticated nation, the one that invented the computer and the Internet. And from a government that is able to demand and channel a great deal of the people’s wealth.

“Jeanne Shaheen doesn’t sound like a Democrat who just won a government-shutdown ‘victory.’ Ms. Shaheen sounds like a Democrat who thinks she’s going to lose her job.

“The New Hampshire senator fundamentally altered the health-care fight on Tuesday with a letter to the White House demanding it both extend the ObamaCare enrollment deadline and waive tax penalties for those unable to enroll. Within nanoseconds, Arkansas Sen. Mark Pryor had endorsed her ‘common-sense idea.’ By Wednesday night, five Senate Democrats were on board, pushing for...what’s that dirty GOP word? Oh, right. ‘Delay.’

“After 16 long days of vowing to Republicans that they would not cave in any way, shape or form on ObamaCare, Democrats spent their first post-shutdown week caving in every way, shape and form. With the GOP’s antics now over, the only story now is the unrivaled disaster that is the president’s health-care law.

“Hundreds of thousands of health-insurance policies canceled. Companies dumping coverage and cutting employees’ hours. Premiums skyrocketing. And a website that reprises the experience of a Commodore 64. As recently as May, Democratic consultants were advising members of Congress that their best ObamaCare strategy for 2014 was to ‘own’ the law. Ms. Shaheen has now publicly advised the consultants where they can file that memo.”

“In an era where Google is making self-driving cars and Amazon offers next-day delivery for just about anything, the White House plunged ahead with a system it knew to be defective and is relying on the technology of the 19th century as the fallback. Five days before the exchanges launched, the Health and Human Services Department increased the Virginia information technology company Serco’s $114 million contract by $87 million – to help process paper applications. Are contingency plans in place to sign up via telegraph?”

“Mr. Obama said Monday that ‘the number of people who’ve visited the site has been overwhelming,’ with about 20 million site visits to date. Why is that so overwhelming? Commercial computer systems such as Google and Facebook manage to handle billions of visitors every month. The U.S. government runs supercomputers for national defense applications that are among the highest-performing in the world. Mr. Obama’s administration seems to have behaved as if this project were not a priority.”

“The collapse of ObamaCare is the tip of the iceberg for the magical Obama presidency.

“From the moment he emerged in the public eye with his 2004 speech at the Democratic Convention and through his astonishing defeat of the Clintons in 2008, Barack Obama’s calling card has been credibility. He speaks, and enough of the world believes to keep his presidency afloat. Or used to.

“All of a sudden, from Washington to Riyadh, Barack Obama’s credibility is melting.

“Amid the predictable collapse the past week of HealthCare.gov’s too-complex technology, not enough notice was given to Sen. Marco Rubio’s statement that the chances for success on immigration reform are about dead. Why? Because, said Sen. Rubio, there is ‘a lack of trust’ in the president’s commitments....

“When belief in the average politician’s word diminishes, the political world marks him down and moves away. With the president of the United States, especially one in his second term, the costs of the credibility markdown become immeasurably greater. Ask the Saudis.

“Last weekend the diplomatic world was agog at the refusal of Saudi Arabia’s King Abdullah to accept a seat on the U.N. Security Council. Global disbelief gave way fast to clear understanding: The Saudis have decided that the United States is no longer a reliable partner in Middle Eastern affairs....

“Bluntly, Mr. Obama’s partners are concluding that they cannot do business with him. They don’t trust him. Whether it’s the Saudis, the Syrian rebels, the French, the Iraqis, the unpivoted Asians or the congressional Republicans, they’ve all had their fill of coming up on the short end with so mercurial a U.S. president. And when that happens, the world’s important business doesn’t get done. It sits in a dangerous and volatile vacuum....

“Then there is Mr. Obama’s bond with the American people, which is diminishing with the failed rollout of the Affordable Care Act. ObamaCare is the central processing unit of the Obama presidency’s belief system. Now the believers are wondering why the administration suppressed knowledge of the huge program’s problems when hundreds of tech workers for the project had to know this mess would happen Oct. 1....

“Voters don’t normally accord politicians unworldly levels of belief, but it has been Barack Obama’s gift to transform mere support into victorious credulousness. Now that is crumbling, at great cost. If here and abroad, politicians, the public and the press conclude that Mr. Obama can’t play it straight, his second-term accomplishments will lie only in doing business with the world’s most cynical, untrustworthy partners. The American people are the ones who will end up on the short end of those deals.”

Turning to the economy and the Street, with the government shutdown having ended, the statistics folks are rushing to catch up on the data. Tuesday saw the release finally of September’s nonfarm payroll report and only 148,00 jobs were created, while the August figure was revised up from 169,000 to 193,000, and July was revised downwards from 104,000 to 89,000. The unemployment rate ticked down to 7.2%.

So here’s where we stand in terms of job creation during the recovery.

2011...average monthly gain of 175,000
2012...183,000
2013...178,000

That’s not impressive, sports fans. You should be seeing numbers like 250,000...300,000. It’s why the Federal Reserve will leave its bond-buying program in place when it meets this coming Tuesday and Wednesday, 10/29-30, and will undoubtedly not begin to taper in December, either. Beyond that, who knows. It will depend on the data, and whether we go through another government crisis come January and February. For now, there is just too much uncertainty for the Fed to act. 

In other economic releases, existing home sales for September were in line, though the median price was down 5% over the prior month, which is generally the trend this time of year. [More in my next “Wall Street History” piece.] And September durable goods came in better than expected, up 3.7%, but ex-transportation down 0.1%, worse than forecast.

As for the stock market, it was another up week as, again, there are no fears of the Fed tapering any time soon and corporate earnings have been good enough. There were some outstanding reports this week vs. expectations, such as with Microsoft, Amazon, Ford and Boeing, details below, while the likes of Caterpillar, McDonald’s, and all manner of chip, semiconductor and other tech-related outfits took it on the chin.

The story has been the same this quarter...2/3s of the companies in the S&P 500 are doing better than expected on the bottom line, earnings, which is about the historical average, while only about 50% thus far are beating on the top line, revenues, and that percentage is below the norm.

The failure to deliver on the top line has meant nothing when it comes to the broad-based equity averages that continue to rock and roll, but it also means those same companies aren’t exactly putting out the help-wanted sign either. Until revenues grow in a substantial way, the unemployment rate is not returning to where we all would like it to be.

But for stocks, slow growth, low inflation, historically low interest rates...that’s always been the perfect formula in the competition for the investment dollar.

As for the looming deadlines...Dec. 13 is the date the House and Senate budget conferees are to come up with a plan that is then presented to their respective chambers, with a Jan. 15 deadline for passing a budget or we face the potential for another government shutdown. Feb. 7 is the new debt ceiling deadline.

Last weekend, Senate Minority Leader Mitch McConnell said “There will not be another government shutdown. You can count on that.” I believe him.

But Texas Republican Sen. Ted Cruz said he “would do anything, and I will continue to do anything I can, to stop the train wreck that is ObamaCare.”

When it comes to the budget talks, led by Republican Rep. Paul Ryan and Democratic Sen. Patty Murray, not to beat a dead horse but the Democrats don’t want to agree to the chained CPI concept that would begin to rein in entitlements, while Republicans are willing to rollback sequester cuts, especially to defense, but they need entitlement reforms in return. Ergo, deadlock.

So already Ryan and Murray are talking about a small deal, no “grand bargain.” Taking the edge off the sequester appears to be the lone goal. Another missed opportunity, and undoubtedly the rhetoric will begin to get ugly again.

I do have to add something Oklahoma Republican Sen. Tom Coburn said on “Meet the Press.” Asked by moderator David Gregory if Coburn believed the fight against ObamaCare is over (hardly), Coburn answered thusly:

“Well, you know, I think focusing on ObamaCare takes you away from the larger picture. We have $128 trillion worth of unfunded liabilities, and the total net worth of our country is $94 trillion. And we have another $17 trillion worth of debt.

“What we ought to be doing is how do we secure the future? You know, I heard your panelists talk about the markets and growth and the decrease in GDP. Our problem with growth, in spite of what (Treasury Secretary) Jack Lew’s going to tell you, is there’s no confidence in the country about the future. And until you have leadership that brings our nation together, rather than advantages themselves by dividing us, we’re not going to solve these problems.”

Amen. But don’t hold your breath.

52% disapprove of Obama’s handling of the economy; 65% disapprove of Boehner regarding this issue; 55% disapprove of Harry Reid’s role.

31% approve of how Democrats are doing their job overall; 18% approve of the way Republicans are.

32% express a favorable view of Republicans, 63% view them unfavorably.

For Democrats the split is 46 (favorable) 49 (unfavorable).

77% disapprove of the way the GOP handled the budget crisis; 61% disapprove of the Democrats’ handling of it; 54% disapprove of Obama’s handling.

75% are dissatisfied with the way the political system is working.

Europe and Asia

Before I get to the economic developments in Euroland, the two-day European Union summit that was to focus on items like a banking union and further European integration instead was overshadowed by reports of widespread U.S. spying on its allies as part of the release of documents by former National Security Agency operative Edward Snowden. The Guardian said Thursday it obtained a confidential memo suggesting the NSA was able to monitor 35 world leaders’ communications in 2006. Supposedly the NSA encouraged senior officials at the White House, Pentagon and other agencies to share their contacts so the spy agency could add their phone numbers to their surveillance systems. The paper did say the payoff was meager: “Little reportable intelligence” was obtained, but of course the damage from such revelations has long been done.

And so it was that earlier in the week, French President Francois Hollande and German Chancellor Angela Merkel were among those expressing outrage at the stories the NSA swept up more than 70 million phone records in France and may have tapped Merkel’s own cellphone.

Both Merkel and Hollande had private conversations with President Obama and on Thursday, Merkel indicated she wasn’t placated by Obama’s personal assurances that the U.S. is not listening in on her calls now. The operative word being ‘now.’

Merkel told reporters in Brussels: “We need trust among allies and partners. Such trust now has to be built anew. This is what we have to think about.

“The United States of America and Europe face common challenges. We are allies. But such an alliance can only be built on trust. That’s why I repeat again: spying among friends, that cannot be.”

Swedish Prime Minster Fredrik Reinfeldt called it “completely unacceptable” for a country to eavesdrop on an allied leader.

Dutch Prime Minister Mark Rutte said that if Merkel’s cellphone had indeed been tapped, “it is exceptionally serious.”

Italian Prime Minister Enrico Letta said, “It is not in the least bit conceivable that activity of this type could be acceptable.”

Hans-Christian Strobele, a member of the German parliamentary oversight committee, said: “Nobody in Germany will be able to say any longer that NSA surveillance – which is apparently happening worldwide and millions of times – is serving solely intelligence-gathering or defense against Islamic terror or weapons proliferation.

“Because if you tap the cellphone or the phone connection of the presidents of France or Brazil, or the cellphone of the chancellor, then this is no longer about collecting intelligence about international terrorism, but then that is about competition, about getting advantages in this competition and winning. That’s why today is a watershed moment.” [John-Thor Dahlburg and Geir Moulson / AP]

Yes, it was damage control time for the White House, again, with the likes of Brazil still incredibly torqued off over revelations the NSA’s tapping there was rather extensive, and this week it was revealed a similar program was going on in Mexico, and on and on....

Director of National Intelligence James Clapper denied reports the U.S. recorded data from 70 million phone calls in France in a single 30-day period, saying the Le Monde newspaper story contained “misleading information.” 

Here’s the thing, as Clapper himself acknowledged, “The United States gathers intelligence of the type gathered by all nations.”

This is true. But what is different is for the details of the NSA’s activities to come out in such a public way, and worse for the other world leaders, for them to realize just how good the U.S. is at this game. So the likes of Merkel and in Brazil, President Dilma Rousseff, are humiliated before their countrymen. And all the White House can do is put on an aw-shucks expression and offer, “You mean you didn’t know we did this? I’m sorry. We won’t do it again.”

Of course where it hurts immediately is in negotiations such as with Iran and the P5+1, the ‘1’ being Germany, or in cooperation over Syria, or, obviously, cooperation in the war on terror. One missing link, one German agent who doesn’t want to cooperate with his American counterpart, for one reason or another, official government policy or not, could lead to the next big terror plot being missed.

And, as in the government shutdown and how it played overseas, an incompetent United States government, the supposed leader in the world, the cumulative impact of the NSA revelations just causes others to look at the United States in a new, unfavorable way. That’s a fact. And it will take time for this ill-will to wear off. In a word, it sucks.

Lastly, this is a time where personal relationships will be critical. French and U.S. intelligence officials apparently have a terrific partnership, and it was Le Monde that a few months ago reported on France’s own large-scale domestic intelligence operation. But other partnerships may not be as secure.

Turning to the economic front, like in the United States, it’s been a heckuva run for Euro stocks this year, up on average about 20%, even as the earnings performance has been highly lackluster. Many are crediting European Central Bank President Mario Draghi for his July 2012 pledge to protect the euro even as a recovery, ever so slight, takes hold in many of the beaten down nations such as Greece and Spain.

But we’re still talking about putrid growth of maybe 1% in 2014, which isn’t going to help the tragic unemployment situation one bit. And with this week’s summit consumed with privacy issues and snooping by friends, the European Union is doing virtually nothing on the formation of a banking union, while a potential negative is the ECB’s new stress tests on about 130 banks that account for 85% of the euro area banking system, as mandated by Draghi. It’s about providing the confidence that will eventually lead to the bank’s beginning to make loans again.

“We expect that this assessment will strengthen private sector confidence in the soundness of euro area banks and in the quality of their balance sheets,” said Draghi.

The exercise will take about 12 months. 24 of the banks will be in Germany, 16 in Spain, 15 in Italy, and 13 in France, among others. Banks will be required to hold a capital buffer of 8%. On-balance-sheet and off-balance-sheet exposures such as credit derivatives will be examined. If the ECB finds capital shortfalls, banks will be required to undertake “corrective measures” such as recapitalization, and capital shortfalls should be made up with private sources of capital, first and foremost, the ECB stated in its report.

But here’s where the lack of a true banking union comes in. Banks found wanting in capital don’t have any agreed upon public backstops.

So Germany, among others, remains against the idea that the EU would decide when banks should be wound down or restructured. The Germans are afraid the EU will spend their money to bail out banks in Spain or Italy, and it sees the European Commission (the EU’s executive arm) as being too soft on Southern Europe.

Meanwhile, the euro currency hit a 23-month high against the dollar this week on the weaker U.S. growth outlook that foretells the Federal Reserve standing pat, as well as the ECB’s aforementioned backstop for eurozone bond markets. But the stronger euro means exports are less attractive and this poses a rising threat to the recovery. Plus you still have big debt burdens in Europe and the sky-high unemployment situation.

A preliminary composite reading on service and manufacturing for October in the eurozone also came in at 51.5, down from September’s 52.2. Germany’s comp fell from 53.2 to 52.6, while France’s declined from 50.5 to 501 in October.

In Spain, there was some positive news as a preliminary report by the Bank of Spain said the economy grew 0.1% in the third quarter. Yippee! Even Bill Gates bought a 6% stake in a Spanish construction group, FCC, a sign of confidence. But unemployment officially still stands at 26.0% tonight vs. 26.3% in the second quarter.

In Germany, Chancellor Merkel is going to form a coalition with the Social Democrats, but the SDP, which was her coalition partner 2005-09, has minimum demands such as a statutory minimum wage that must be met before the alliance is wrapped up. The SDP will pull Merkel left, much to the detriment of British Prime Minister David Cameron, who thought he had Merkel’s support for Cameron’s attempt to gain more independence from the EU bureaucracy that doesn’t advantage Britain. Now it’s unlikely Merkel will be able to give it to him.

In Greece, the crackdown on Golden Dawn continues and the government is cutting off funding to the party branded by Prime Minister Samaras as a “gang of neo-Nazis.”

In Cyprus, the government said the banking sector is far from out of the woods as there is a continued rising exposure to non-performing loans, presenting further risks for 2014.

Slovenia was told by eurozone finance ministers that they will back the government but it must continue with its reform agenda. A bailout is still a certainty for 2014.

But in the U.K., growth for the third quarter was 0.8% compared with the second, or an annualized rate of 3.2%, the fastest pace in three years. But output remains 2.5% below its pre-crisis peak in the first quarter of 2008.

Lastly, according to a poll for the Financial Times, “Hostility to EU migrants seeking work and benefits is now entrenched in the bloc’s biggest economies, presaging a popular backlash against integration in next year’s European elections.” [What I was writing about last week regarding Marine Le Pen’s National Front party.]

National restrictions on EU migrants’ rights to benefits were backed by 83% of Britons, 73% of Germans and 72% of French respondents. “Around three out of five also disapproved of Romanian and Bulgarian citizens securing, from January, one of the main freedoms of the union: the right to work in any EU member state.”

In China, September housing prices rose in 70 major cities for a 9th straight month amid talk of panic buying on fears prices will keep rising. Property curbs set by the government haven’t been effective the past few years beyond the short term. Central bank tightening is looming.

On the positive side, HSBC’s flash PMI on manufacturing for October came in at 50.9, better than September’s 50.2 reading.

In Japan, inflation remained near its highest level in five years in September, with the core consumer price index, which excludes relatively volatile prices for fresh food, rising 0.7% compared with a year earlier, or slightly lower than August’s 0.8% pace. Generating inflation is a priority for the Abe government and the Bank of Japan.

But exports in September were at their weakest in three months, up just 11.5% when a 15.6% pace was the median forecast. Prime Minister Abe needs stronger momentum heading into next April’s sales tax increase.

Exports to Asia were up 8.2% (13.5% in August), China up 11.4% (15.8% in August), U.S. up 18.8% (vs. 20.6%) and to the EU up 14.3% (vs. August’s 18% rate).

Finally, South Korea’s economy grew at an annual rate of 3.3% in the third quarter, the fastest in nearly two years, but the Bank of Korea downgraded its 2014 outlook from 4.0% to 3.8%, warning of weaker than expected global trade growth and the Federal Reserve’s eventual scaling back of its quantitative easing program.

Street Bytes

--Stocks staged a mini-rally in generally lackluster trading, broadly speaking (individual issues, however, were far from lackluster), as the Dow Jones rose exactly 1.1% for a third straight week to 15570, while the S&P gained 0.9% to an all-time high of 1759, and Nasdaq added 0.7% to 3943.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.30% 10-yr. 2.51% 30-yr. 3.60%

Bonds continued to rally on the growing feeling the Federal Reserve may not taper until next March.

But on the issue of replacing Ben Bernanke with Janet Yellen, Kentucky Republican Senator Rand Paul is considering placing her nomination on hold, meaning 60 votes would be needed to move the nomination forward, which could lead to a few extra days of debate. Paul is doing this to advance legislation he has proposed to require regular public audits of the Fed’s finances.

--Microsoft reported far better than expected earnings and revenues for the quarter. Profits were up 17% from the same period last year. In a statement, soon-to-depart CEO Steve Ballmer said, “Our devices and services transformation is progressing,” and that the company would be launching a “wide range” of new products in the coming quarter. Microsoft also said it saw stabilization in the business PC market, even as global PC shipments fell 8.6% in the quarter, according to Gartner. Surface tablet sales also improved.

--Shares in Amazon soared anew to an all-time high as the company reported another loss, $41 million What you say? Shares soared after a loss? Of course. At the same time the company announced revenues rose 24% and it gave an optimistic view of the fourth quarter.

Long ago you should have stopped trying to figure out Amazon. It keeps investing in growth, the heavy spending helps drive sales, and eventually you just assume massive profits will be the end result, thus legitimizing the valuation for the company.

CEO Jeff Bezos did comment this time on Prime, the $79 per year program that gives customers unlimited free shipping once they sign up for it. One analyst estimates the company loses $1bn-$2bn a year on this. But sales in North America were up 31% for the quarter, year over year.

One thing to focus on is the fact that Amazon’s 24% overall growth in revenues exceeded the U.S. online sales pace of 16%, according to eMarketer.

--Samsung Electronics posted record quarterly profit of $9.6 billion for the third quarter. Sales of its low-cost smartphone models in emerging markets such as China and South America were particularly strong. I finally upgraded this week to a Samsung Galaxy product. Bye-bye Palm.

--Billionaire investor Carl Icahn announced he would consider a proxy fight for board seats if Apple doesn’t agree to his request for a $150 billion stock buyback. In a letter to CEO Tim Cook, Icahn said if Apple undertook the mega-buyback immediately, the share price could soar to about $1,260 from its current $525.

Apple declined to comment but Cook and Icahn are slated to get together after Apple’s next earnings release, slated for Monday.

--On top of a $13 billion settlement that JPMorgan Chase cut with the Department of Justice to resolve U.S. government claims the bank sold mortgage-backed securities riddled with bad loans in the run-up to the financial crisis, the bank is nearing a separate $6 billion settlement with institutional investors to resolve claims it mis-sold the MBS. 

“Not only would (the $13 billion) be the largest fine ever levied on a U.S. corporation, it comes without any waiver from prosecution. JPMorgan must both pay and run the risk of being damned by criminal indictment.

“The details of the settlement have yet to emerge, so it is unclear precisely what JPMorgan is alleged to have done and what admissions the bank may have made. But already Wall Street is up in arms about the scale of the fine and its apparent arbitrariness.

“The sense of outrage stems from JPMorgan’s role in the financial crisis. Although the bank was not immune from involvement in the market for mortgage-backed securities, many of the instruments that have drawn regulators’ ire came with its 2008 purchases of Bear Stearns and Washington Mutual. The bank bought these crippled institutions at the behest of the Bush administration.

“Not only does it seem ungrateful for Uncle Sam to punish JPMorgan for playing the role of good corporate citizen; it may be counter-productive. A future administration confronting a similar panic might find it even harder to recruit rescuers for failing banks than was the case in the financial crisis....

“The scale of the fines will need to be justified by something other than the desire to make a political point. Were the government to prosecute JPMorgan for the behavior of Bear Stearns or WaMu before the deals, it would risk sending a signal that potential rescuers of troubled banks should steer clear. One would hope that no bank will have to play the rescue role JPMorgan played in 2008. Alas we cannot be certain. In these circumstances, Washington should be wary of humiliating JPMorgan.”

“Then there’s the fact that $4 billion* of the ($13 billion) settlement is earmarked to settle charges against the bank by Fannie Mae and Freddie Mac. We are supposed to believe that the bank misled the two mortgage giants about the quality of the mortgage securities they were issuing. But everyone knows that Fan and Fred had as their explicit policy the purchase of securities for liar loans and subprime mortgages to further their affordable-housing goals. Those goals went far to create the crisis, but now these wards of the state are portraying themselves as victims....

“The real lesson of the Morgan settlement isn’t that justice has finally been done to the perpetrators of the crisis. That would require arresting Barney Frank and those in Congress who blocked the reform of Fannie and Freddie, plus the Federal Reserve governors who created so much easy credit.

“The lesson is how government has used the crisis to exert political control over even the most powerful private financial companies. The real lords of American finance are Attorney General Eric Holder, Treasury chief Jack Lew and their boss in the White House.”

*Friday night, JPMorgan reached a final settlement with Fannie and Freddie that hikes the $4 billion to $5.1 billion.

--Bank of America Corp. announced it slashed 1,200 jobs in its mortgage division this week and plans to cut about 3,000 more by the end of the year amid the slowdown in mortgage refinancing.

Earlier, Wells Fargo announced cuts of 6,200 in its mortgage unit, while Citigroup has slashed about 1,100 jobs.

--Ford raised its profit forecast for the year, saying it would exceed the $8 billion made in 2012. In the third quarter, Ford’s North American unit reported a profit of $2.3 billion, while losses in Europe narrowed to $228 million, an improvement on Q3 2012 when Ford lost $470 million there.

Ford’s business in North America has been helped by strong sales of its pick-up trucks, owing in no small part to the recovery in housing.

--Tesla shares had a wild ride as a Bank of America/Merrill Lynch analyst said the company was grossly overvalued and set a price target of $45, with the shares at the time sitting around $170. Then CEO Elon Musk said at an event in London, “I think we have quite a high valuation, and a higher valuation than we have any right to deserve.”

But the shares nonetheless finished at....$170...down just $13 on the week.

--An Oklahoma City jury found that electronic defects in a Toyota Camry caused it to accelerate out of control and crash, killing a passenger and seriously injuring the driver. The verdict requires Toyota to pay a total of $3 million in compensatory damages to the driver and the family of the deceased passenger. The jury will award punitive damages as well. This is the first time a jury was convinced faulty electronics caused the sudden acceleration.

Earlier, Toyota was cleared of responsibility in a California case.

--Volvo said it is cutting 2,000 jobs as Sweden’s largest private sector employer said earnings fell in the quarter. This is the truckmaker and European demand for commercial vehicles remains weak.

--Caterpillar, the world’s largest heavy machinery maker, slashed full-year forecasts for a third time in a row as it struggles to deal with the mining slump. 13,000 jobs have been axed over the past year as sales have dropped from $66 billion in 2012 to a forecast $55 billion this year, with 75% of the drop coming from the resources division, which is primarily mining equipment.

--Netflix CEO Reed Hastings said he was worried about investor euphoria over his company’s stock following release of its earnings report for the third quarter. The company added 1.3 million U.S. customers and ended the quarter with 29.93 million paid domestic users (over 40 million globally) compared with HBO’s 28.96 million U.S. subscribers, though that is as of June 30. It also guided higher for the fourth quarter, projecting it would add 1.6 million to 2.4 million new streaming subscribers for the period.

The thing is, Netflix reported net income of $32 million for the quarter, while HBO generated $1.6 billion in profit for Time Warner last year. [Wall Street Journal] Netflix’ revenue did grow 22% to $1.1 billion.

The stock finished the week at $328 after earlier hitting $387. Billionaire Carl Icahn sold about half his stake at around $340, with a cost basis on the shares of $58.

--Twitter will seek a valuation of about $11 billion when it goes public next month, lower than previously expected, after setting an initial public offering price range between $17 and $20 as it prepares to embark on its roadshow next week.  The company will list on the New York Stock Exchange using the symbol “TWTR” and is currently looking to price its shares around November 6.

--Interesting piece in the Journal by Julie Jargon on McDonald’s Corp.’s missteps. A decade ago it shed its “Super Size Me” image and has long since abandoned supersize portions, replacing them with oatmeal and adding apples to all its Happy Meals. Recently it also began offering a salad, fruit or vegetable in place of fries in its value meals.

But salads make up only 2% to 3% of U.S. sales. And rivals such as Wendy’s and Taco Bell have had huge hits with the likes of the Pretzel Bacon Cheeseburger and Doritos Locos Tacos – the latter with about 50 more milligrams of sodium that its regular tacos.

Yup, growth at McDonald’s has been lackluster for quite a while now and this week proved to be no exception as earnings and revenues were in line with expectations, with U.S. comp sales up only 0.7%, and up just 0.9% worldwide.

[Meanwhile, Mexico’s lower house of Congress approved new taxes on high-calorie foods and sugary drinks as part of President Enrique Pena Nieto’s package of fiscal changes aimed at generating more revenue for the national treasury. But at the same time it is seen as combating Mexico’s high rate of obesity, now above that of the U.S.]

--Tuition at the nation’s four-year public universities rose 2.9% this year, the smallest annual increase in more than three decades, following increases of 4.5% last year and 8.5% the year before.

--According to “The Guide to Sleeping in Airports” annual survey, the world’s best airports for travelers based on comfort, convenience, cleanliness and customer service were Singapore Changi, Seoul Incheon, Amsterdam Schipol, Hong Kong and Helsinki Vantaa. I’ve been in the first four. Totally agree.

I’ve also been in the worst, Manila’s Terminal 1, for the layover from hell about seven years ago, which resulted in the hangover from hell. Suffice it to say, there was no place to sit down outside of a little bar that was literally inside a glass bubble about 8 feet high, with everyone inside it smoking, except myself. The hangover that I carried onto my flight to Hong Kong was a result of the acrid air and $1 San Miguels. The life expectancy of those working inside the bubble was undoubtedly 26.

Now I haven’t been to the second-worst airport, Italy’s Bergamo, where it is said there are “people loafing around without T-shirts or without shoes as if they were in their homes and no one gives a hoot.”

Third-worst was Calcutta, edging out Islamabad. Can’t say I want to check any of these others out.

--Speaking of travel, it could be curbed some in Asia this winter due to bird flu, specifically H7N9.

You might be thinking, gee, haven’t heard much on this front lately, and it’s true. But, as I wrote months ago, the fear was the virus would reemerge and fresh human cases in eastern China have indeed cropped up.

45 of the 135 people in China that have been infected thus far died, but it did indeed peter out in the summer. Now it bears watching all over again. 

--Heineken reported sales growth of only 1% for the third quarter, not good for a company that has been targeting emerging markets. Ironically, sales grew 2% in Western Europe. 

--Girl Scouts of the USA has cut about 85 jobs, or a quarter of headquarters staff, due to falling membership and infighting at local offices.

Foreign Affairs

Iran: The Institute for Science and International Security analysis issued an independent study that said Iran might not need more than a month to produce enough atomic material for one weapon in a hypothetical “breakout,” as reported by USA TODAY.

“Shortening breakout times have implications for any negotiation with Iran,” the ISIS stated. “An essential finding is that [these breakouts, or indications of how long it would take to turn low-enriched uranium to weapons-grade fuel] are currently too short and shortening further.”

[Iran still has to weaponize it, but this is deeply troubling. The ISIS is a highly-reputable group.]

But a senior Iranian parliamentarian was quoted as saying Iran has stopped enriching uranium to 20 percent, a main demand of world powers in talks over Tehran’s nuclear program. The International Atomic Energy Agency, which is believed to visit Iran’s enrichment facilities about once a week, has not commented as yet. Follow-up talks between Iran and the P5+1 will be held in Geneva on Nov. 7-8.

This week, Israeli Intelligence Minister Yuval Steinitz said he was “cautiously optimistic” negotiations could lead to a peaceful diplomatic solution, but that it would take “several months” to produce tangible results. Steinitz met with Vice President Biden this week.

Separately, Prime Minister Benjamin Netanyahu met with Secretary of State John Kerry for seven hours in Rome (the status of Israeli-Palestinian negotiations also being on the agenda) and Netanyahu warned “a partial deal that leaves Iran (with the capacity to produce nuclear weapons) is a bad deal.”

The main Israeli concern remains the same. That the U.S. and other world powers would ease financial pressure against Iran in exchange for an agreement in which it would curb but not halt its program. Kerry has been trying to reassure the prime minister that the U.S. would not prematurely remove sanctions. Based on President Obama’s track record, there is zero reason to believe him.

Finally, a group of senators could introduce legislation to further tighten sanctions on Iran, which the White House does not want until after the current round of talks run their course. Republican Senator Marco Rubio said, “Iran is going into these negotiations with a very clear goal – to get these sanctions lifted without giving up anything substantial.”

Any bill is unlikely to be introduced to the floor until after the next round of talks in Geneva, though with the ISIS report, some are calling for new sanctions legislation immediately. There could be fireworks on the issue this coming week as the Senate reconvenes.

“Lamentations about what has become of U.S. foreign policy in the Middle East miss the point. The remarkable thing about President Obama’s diplomacy in the region is that it has come full circle – to the very beginning of his presidency. The promised ‘opening’ to Iran, the pass given to Bashar Assad’s tyranny in Syria, the abdication of the American gains in Iraq and a reflexive unease with Israel – these were hallmarks of the new president’s approach to foreign policy.

“Now we are simply witnessing the alarming consequences of such a misguided, naïve outlook.....

“In Iran, especially, Mr. Obama believed that he would work his unique diplomatic magic. If Tehran was hostile to U.S. interests, if Iran had done its best to frustrate the war in Iraq, to proclaim a fierce ideological war against Israel’s place in the region and its very legitimacy as a state, the fault lay, Mr. Obama seemed to believe, with the policies of his predecessors.

“When anti-regime protests roiled Iran in Mr. Obama’s first summer as president, he stood locked in the vacuum of his own ideas. He remained aloof as the Green Movement defied prohibitive odds to challenge the theocracy. The protesters had no friend in Mr. Obama. He was dismissive, vainly hoping that the cruel rulers would accept the olive branch he had extended to them.

“No one asked the fledgling American president to dispatch U.S. forces into the streets of Tehran, but the indifference he displayed to the cause of Iranian freedom was a strategic and moral failure. Iran’s theocrats gave nothing in return for that favor. They pushed on with their nuclear program, they kept up the proxy war against U.S. forces in Iraq, they pushed deeper into Arab affairs, positioning themselves, through their proxies, as a power of the Mediterranean. This should have been Mr. Obama’s Persian tutorial. Iran’s Supreme Leader Ali Khamenei had no interest in a thaw with the Great Satan.

“Yet last month at the United Nations Mr. Obama hailed Khamenei for issuing a ‘fatwa’ against his country’s development of nuclear weapons. Even though there is no evidence that any such fatwa exists, the notion that the Iranian regime is governed by religious edict is naïve in the extreme....

“The gullibility of Mr. Obama’s pursuit of an opening with Iran has unsettled America’s allies in the region. In Jordan, Saudi Arabia and the United Arab Emirates there is a powerful feeling of abandonment. In Israel, there is a bitter realization that America’s strongest ally in region is now made to look like the final holdout against a blissful era of compromise that will calm a turbulent region. A sound U.S. diplomatic course with Iran would never have run so far ahead of Israel’s interests and of the region’s moderate anti-Iranian Arab coalition....

“Those who run the Islamic Republic of Iran and its nuclear program, like most others in the region, have taken the full measure of this American president. They sense his desperate need for a victory – or anything that can be passed off as one.”

Syria: Denmark has joined Norway in offering its help in dismantling Syria’s chemical-warfare materials, which is to begin taking place next month, while efforts to cobble together a peace conference were dealt a blow when President Bashar al-Assad said factors are not in place for it to succeed. In an interview with a Lebanese television station, Assad said:

“Which forces are taking part? What relation do these forces have with the Syrian people? Do these forces represent the Syrian people, or do they represent the states that invented them?”

Assad also said he was willing to run for re-election next year.

“Personally, I don’t see any reason why I shouldn’t run,” he declared.

Syrian opposition leaders, meeting in London, have long maintained they would never agree to Assad staying in power. Secretary of State Kerry said, “(Assad) has bombed and gassed people in his country... How can that man claim to rule under any legitimacy in the future?”

Assad also accused Saudi Arabia of conducting the work of the United States in Syria.

So will there be a legitimate peace conference in Geneva later next month, as hoped for by the U.S.? Doubtful.

“Recently, I’ve been spending some time with a group of ex-Israeli generals (and American policy makers), talking about, among other things, the appropriate American response to the Iranian nuclear program. These ex-generals (most of them pragmatic to the point of cynicism) believe that U.S. President Barack Obama’s Hamlet-like behavior on Syria should force reasonable observers to recognize that he will never be willing to use military force against Iran’s nuclear facilities.

“In the view of these ex-military men, Obama’s promise to keep all options on the table is empty. The president, they believe, is bluffing.

“This is the view of many current Israeli policy makers, as well, and it is also the view of a large number of Arab officials, many of whom are in the throes of an extended conniption about what they see as Obama’s slow abandonment of his Middle East allies to the cruel fate of Iranian regional domination...

“There are only two issues in the Middle East that Obama considers to be profound national security challenges to the U.S.: The continued existence of al-Qaeda, and the threat of a nuclear Iran. He has made it clear that he never considered the Syrian civil war, and even the use of chemical weapons by the Bashar al-Assad regime, to rise to the level of those threats....

“So his behavior during the Syria crisis...does not necessarily teach us much about what Obama will do if he reaches the conclusion that Iran is uninterested in serious compromise on the nuclear issue....

“Obama’s unwillingness to engage militarily in Syria may ultimately make it more likely that he will one day strike Iran’s nuclear facilities, should sanctions and negotiations fail to push Iran off the nuclear path....

“(By) keeping America out of Syria, President Obama may have preserved his ability to intervene in Iran. I believe that he does not want Iran to gain possession of a nuclear weapon; whether he can actually prevent this from happening is another story. But he has a greater chance of escaping that fate if he avoids over-extension in other parts of the Middle East.”

Saudi Arabia: As alluded to above, the Kingdom in a surprise move (to some) renounced a rotating seat on the U.N. Security Council to protest the 15-nation body’s failure to end the war in Syria and act on other Middle East issues. The Arab Group at the U.N. urged Saudi Arabia to reconsider. Washington also wants the Saudis to keep the seat. They were to take it up on Jan. 1 for a two-year term ending on Dec. 31, 2015.

But whereas Saudi frustration in the past was directed often at Russia and China, this time it was Washington, its oldest international ally, who bore the brunt of the Kingdom’s criticism.

The Saudis are miffed at President Obama’s failure to push Israel to end settlement building on the West Bank and agree to a Palestinian state, but mostly it’s about Syria and Iran.

Regarding Syria, the Saudis see the chemical weapons agreement as Washington’s decision it might be better to let Assad stay in power, even as Saudi newscasts are filled with the carnage from Syria’s civil war and the Kingdom has backed the rebels with arms and money.

And when it comes to Iran, the Saudis are concerned the Obama administration may accept a “grand bargain” on Iran’s nuclear program that leaves Tehran with an advantage over the Saudis and other Gulf Arab states.

“President Obama likes to boast that he has repaired U.S. alliances supposedly frayed and battered by the Bush administration. He should try using that line with our former allies in Saudi Arabia....

“(The) Kingdom is no longer making any secret of its disgust with the administration’s policy drift in the Middle East. Last month, Prince Turki al Faisal, the former Saudi ambassador in Washington, offered his view on the deal Washington struck with Moscow over Syria’s chemical weapons.

“ ‘The current charade of international control over Bashar’s chemical arsenal,’ the Prince told a London audience, ‘would be funny if it were not so blatantly perfidious, and designed not only to give Mr. Obama an opportunity to back down, but also to help Assad butcher his people.’ It’s a rare occasion when a Saudi royal has the moral standing to lecture an American President, but this was one of them.”

And now we’ve learned Saudi intelligence chief Prince Bandar has decided to downgrade ties with the CIA in training Syrian rebels. Instead, Bandar chooses to work with the Jordanians and French. So now the Saudis will feel free to supply the rebels with any weapons they like, rather than feel compelled to listen to entreaties from the U.S.

“Then there is Iran. Even more than Israel, the Saudis have been pressing the administration to strike Iran’s nuclear targets while there’s still time. Now Riyadh is realizing that Mr. Obama’s diplomacy is a journey with no destination, that there are no real red lines, and that any foreign adversary can call his bluff. Nobody should be surprised if the Saudis conclude they need nukes of their own – probably purchased from Pakistan – as pre-emptive deterrence against the inevitability of a nuclear Tehran....

“The Syrian people have learned the hard way that Mr. Obama does not mean what he says about punishing the use of chemical weapons or supplying moderate rebel factions with promised military equipment. And the Israelis are gradually realizing that their self-advertised ‘best friend’ in the White House will jump into any diplomatic foxhole rather than act in time to stop an Iranian bomb.

“Now the Saudis have figured it out, too, and at least they’re not afraid to say it publicly."

Separately, the Kingdom warned it will take measures against activists who go ahead with a planned weekend campaign to defy a ban on women drivers. An interior ministry spokesman said on Thursday, “It is known that women in Saudi are banned from driving and laws will be applied against violators and those who demonstrate in support” of this cause.

Lebanon: A proxy war of sorts between supporters of Bashar Assad and those of the opposition reignited in Lebanon’s second city of Tripoli this week. At least six have been killed, over 50 wounded in intense fighting.

Iraq: The Wall Street Journal had a front page story Friday on how “A flurry of recent attacks by al-Qaeda-linked militants in Iraq...is threatening to undo years of U.S. efforts to crush the group, widening sectarian conflict in the Middle East.”

But the piece does have some figures I can update you on. Like over 5,700 civilian deaths in Iraq this year, vs. 3,200 in 2012.

It is true that at the end of 2011, al-Qaeda and its offshoots had been greatly weakened, but then President Obama failed to negotiate the status of forces agreement with the Iraqi government that would have kept a U.S. presence there. One worrisome sign the Journal article does point to is that in Anbar province, where al-Qaeda is re-establishing a base of operations, the weapons it uses “have become more sophisticated than those used by the police and military, reflecting a relatively new interchange in military hardware between Syria and western Iraq.”

Pakistan: President Obama met with Pakistani Prime Minister Nawaz Sharif at the White House and Obama, in a joint statement released following the meeting, “reiterated his confidence in Pakistan’s commitment and dedication to nuclear security and recognized that Pakistan is fully engaged with the international community on nuclear safety and security issues.”

It was in September that documents leaked by Edward Snowden revealed that keeping tabs on the security of Pakistan’s nukes, as well as chemical and biological facilities, was consuming a growing share of U.S. intelligence agencies’ “black budget.”

As the New York Times reported after, the statement also did not touch on concerns by the U.S. government that Pakistan’s recent focus on developing compact lower-yield nuclear weapons might make it easier for terrorist groups to snatch an entire warhead.

Earlier, Washington released some $1.6 billion in security and economic aid for Pakistan that had been previously appropriated but was frozen in summer 2011 in an attempt to convince Islamabad to do more to combat local extremist groups.

Afghanistan: Back on October 5, as I wrote at the time, four American soldiers lost their lives and 14 were wounded west of Kandahar. I just read an account of the attack in the Oct. 21 issue of Army Times and felt compelled to pass it on.

“(The soldiers) were on a Special Operations raid of a Taliban bomb-maker’s compound in the southern part of the country.

“An assault force of 40 soldiers with the 75th Ranger Regiment entered a compound in the Zharay district that one special operations official described as a ‘suicide vest and improvised explosive device factory.’

“But as Rangers approached, a man wearing a suicide vest emerged from a nearby building and detonated it.

“As other Rangers moved in to help the wounded, a series of buried improvised bombs – some pressure plate activated or daisy-chained – detonated, according to Lt. Col. Brian DeSantis, a spokesman for the 75th Ranger Regiment.

“ ‘They had clearly prepared it for a defense,’ DeSantis said. ‘There were multiple IEDs.’

“Exactly what happened is still under investigation.”

The story is very troubling on a number of levels but I’ll keep my own thoughts to myself.

Sgt. Patrick C. Hawkins, 25, of Carlisle, Pa.
Pfc. Cody J. Patterson, 24, of Philomath, Ore.
Sgt. Joseph M. Peters, 24, of Springfield, Mo.
Capt. Jennifer M. Moreno, 25, of San Diego, Calif., a nurse with a special ops cultural support team.

Russia: In a highly worrisome development as regards the upcoming Sochi Winter Olympics (February), a female suicide bomber attacked a bus in southern Russia, near the North Caucasus region (Sochi nearby), killing at least six people.

The bombing in Volgograd raised fears, as your editor long warned since the day Sochi was selected, of Islamist militant attacks before or during the Games.

It was in 2010 that so-called “black widows,” female suicide bombers, attacked the Moscow subway system, killing 40. Chechen women wearing black chadors and suicide belts also participated in a three-day Moscow theater siege that ended up with 130 dead. [After which I went to Moscow and told you of the incredibly lax security at the Bolshoi theater.]

On the issue of opposition figure Alexei Navalny, whose five-year prison sentence on bogus theft charges was just reduced to five years of probation, a bill submitted to the State Duma would prohibit Navalny from running for office for 15 years. That’s Putin’s way of silencing him, just as he did Mikhail Khodorkovsky, who just marked the tenth anniversary of his imprisonment. Khodorkovsky is slated to be released next summer, but Putin can easily concoct a new reason to keep him behind bars.

There was an awful tragedy at an airborne division training ground in western Russia. Six paratroopers were killed in an accidental explosion. 

We’ve had some awesome weather here in the New Jersey area for about five weeks now; many a day with brilliant blue sky. You know what I’ve said over the years, folks. Every time there is a super day, you should thank one person. [Warning....some of you newbies won’t like this.] Richard Nixon. The pragmatist under whose presidency the EPA was formed.

Yes, some of us have problems with the EPA from time to time, but as citizens on this Earth, we are entitled to clean air and clean water. Ask the Chinese about both these days. I still say it brings down their government at some point...and boy do the Commies know it. 

Anyway, I’ve also said that if I had the chance to do things over, I could see myself working for someone like Greenpeace. Yeah, really. I am more of an environmentalist than I’ve ever been.

So you’re getting this long-winded diatribe because I’m reading a piece in the Moscow Times on a rig that oil & gas giant Gazprom has in the Arctic these days...the Prirazlomnaya platform, “the advance guard of the coming expansion of Russia’s state energy corporations into the Arctic,” that according to the reporter, Yekaterina Kravtsova, “is a cobbled together bric-a-brac of second-hand parts, some of which date to 1984, environmentalists said.

“The very presence of the Prirazlomnaya rig in the icy Pechora Sea is the result of a rush to get there before tighter regulations, which demand higher standards of equipment, came into force in 2012, said the environmental group Bellona.”

Boy, you look at the pictures of this monstrosity and it’s a disaster in the making. It is the dangers of this rig that now has 30 Greenpeace activists in a Murmansk jail...a story I wrote of weeks ago. I didn’t realize until now exactly what they were protesting over.

Understand... “The effects of a spill could be catastrophic. The Arctic is an ecosystem in slow motion. Constant low temperatures deprive the region of any natural regenerative capacity.  Spilled oil will not disperse.”

[And overall, among the impacts of a melting permafrost, we all know about the release of huge quantities of methane. But how about malaria? Encephalitis? “Thawing bird carcasses could release Siberian plague virus, said Boris Revich...at the Russian Academy of Science.”]

To be clear, I have zero problem with the energy boom to date in North America. There are going to be issues, for sure, such as in Canada with some of the pollution associated with the development of the tar (oil) sands, but the Obama administration needs to clear the way for the XL Pipeline, for example.

But when you see something totally blatant like what Gazprom is doing, something has to be done.

And understand that Russia is the world’s biggest polluter when it comes to oil. They don’t give a s---, frankly. There’s no other way to put it. Greenpeace says Russia is responsible for at least 5 million tons of oil leak every year.

And the bottom line, Russia’s two big giants in the sector, Rosneft and Gazprom, have monopoly rights on the Arctic shelf and they are sorely lacking in the necessary experience for drilling in frozen seas.

Oh, and if you think we’ll learn of any inevitable disasters concerning the Prirazlomnaya rig, think again. The Russian Arctic is a closed territory. As Yelena Kobets, an expert with Bellona, told the Moscow Times, “the government would be able to conceal information about catastrophes or downplay their scale.”

Of course on a totally different matter, it was the Russian government that tried to downplay the Kursk submarine disaster in 2000, that killed all 118 on board...but now I digress....

Finally, there was a very ugly racism incident in a Champions League football match in Moscow between Manchester City and CSKA Moscow. The latter’s fans became enraged at Man City’s Ivorian star Yaya Toure, taunting him viciously. Man City is filing a complaint with the Union of European Football Associations, UEFA, who had declared this week “Football Against Racism in Europe Action Week.”

What’s particularly worrisome is Russia is hosting the World Cup in 2018. Man City won the game, 2-1.

China: Back to the environment, what a disaster this week in China as visibility in the northern city of Harbin shrank to less than half a football field “and small-particle pollution soared to a record 40 times higher than an international safety standard...as the region entered its high-smog season.”

In Beijing, singer Patti Austin had to cancel a concert because of an asthma attack linked to the pollution. Talk about pathetic.

Every winter you see this kind of situation, but it is early this year. Normally the cause of the heavy smog in a massive part of the country is due to little wind and an increase in the burning of coal for homes and municipal heating systems.

[Conversely, the U.S. government reported emissions of greenhouse gases were lower last year than at any time since 1994, and down 12% from the 2007 peak.]

In an unusual move, a Guangdong-based newspaper, New Express, ran a banner headline that read “Please Release Him,” referring to the detention of one of its journalists who was arrested for accusing a large domestic company of fraud. The company is Zoomlion, China’s second-biggest construction equipment manufacturer that is part-owned by the Hunan government.

The newspaper is fighting back as President Xi Jinping is in the midst of a massive media crackdown on what the government describes as people spreading rumors on social media. [Xi is also tackling official corruption, but with a Maoist bent.]

What’s interesting is that the reporter, Chen Yongzhou, actually received support from a government mouthpiece I read regularly, Global Times. The chief editor said he supported the “intervention of the Chinese Association of Journalists to protect journalists’ rights and interests in accordance with the law.” [Financial Times]

And Bo Xilai’s appeal of his life sentence for corruption and abuse of power was rejected by a Chinese court, which upheld the original verdict. It is the harshest penalty handed out to a former or sitting member of the Politburo in over three decades.

Italy: Former Prime Minister Silvio Berlusconi has been ordered to stand trial in February on charges of corruption related to the collapse of the Romano Prodi government in 2008. Berlusconi and a former political party newspaper editor are accused of making a payoff to a former legislator for defecting to Berlusconi’s center-right bloc, a switch that eventually led to the change in government.

Earlier this month, an appeals court in Milan handed Berlusconi a two-year political ban as part of his punishment for a tax fraud conviction. He is expected to be formally banned from parliament next month.

Nigeria: Pirates kidnapped two Americans working on a commercial ship near the coast of Nigeria. The captain and engineer were taken off an offshore supply vessel during an attack in international waters off the Gulf of Guinea. U.S. officials have no idea where they were taken. There has been a huge increase in piracy in these waters over the past year. U.S. Marines are in the area for scheduled training, however.

Brunei: If you were gathering the kids around the dinner table and announcing, “You know, this year we’re doing something special for Christmas, we’re going to Brunei!” think again.

The sultan of this little spit of land that has a bunch of oil announced that he is adopting Shariah law, which includes penalties like amputation for theft and stoning for adultery. 

Sultan Hassanal Bolkiah said the new penal code would apply only to Muslims, and should be regarded as a form of “special guidance” from God.

Mufti Awang Abdul-Aziz, the country’s top Islamic scholar, said: “It is not indiscriminate cutting or stoning or caning. There are conditions and there methods that are just and fair.”

Random Musings

--No one can skewer like Maureen Dowd of the New York Times. To wit:

“At his victory scold in the State Dining Room on Thursday (Oct. 17), the president who yearned to be transformational stood beneath an oil portrait of Abraham Lincoln and demanded...a farm bill. He also couldn’t resist taking a holier-than-thou tone toward his tail-between-their-legs Tea Party foes. He assumed his favorite role of the shining knight hectoring the benighted: Sir Lecturealot.

“ ‘All of us need to stop focusing on the lobbyists and the bloggers and the talking heads on radio and the professional activists who profit from conflict,’ he sermonized. (We have met the enemy and they are...bloggers?)....

“As Valerie Jarrett told David Remnick in ‘The Bridge,’ Obama’s ‘uncanny’ abilities need to be properly engaged, or he disengages. ‘He’s been bored to death his whole life,’ she said. ‘He’s just too talented to do what ordinary people do.’....

“When the president says ‘we’ve all got a lot of work to do,’ he means Harry Reid and Nancy Pelosi. ObamaCare should really be called Pelosicare, as the historian Niall Ferguson noted. And an unyielding Reid made sure Obama didn’t cave as in the past, which had emboldened Republicans to challenge the president this time. Obama is the anti-Lyndon Johnson. 

“He thinks he can come down from above, de haut en bas, and play the great reconciler, but you can’t reconcile in absentia. You have to be there. You’ve got to be all over these people.

“The paradox of Obama is that he believes in his own magical powers, but then he doesn’t turn up to use them.

“There’s nothing wrong with a president breaking a sweat somewhere beyond the basketball court.”

--Karen Tumulty / Washington Post, on the big reception Republican Senator Ted Cruz received back home in Texas.

“Cruz may be the most reviled man in the U.S. Senate at the moment....

“During the past week, Cruz has been greeted as a conquering hero....

“Even more extraordinary is the degree to which the freshman senator...has quickly remade the Texas Republican Party in his own image.

“Just about every GOP candidate with aspirations to statewide office in 2014 seems to be styling himself or herself after Cruz. In tight formation, they are moving hard to the right and looking for the next big populist rallying cry – secession, rolling back the state’s liberal immigration laws, impeaching President Obama, amending the Constitution to end the direct election of U.S. senators.”

“In addition to the damage done to the GOP by his penchant for right-wing antics, of which the shutdown fiasco was only the latest, Jim DeMint, the president of Heritage Foundation, has ushered in a new era in the once-proud conservative think tank’s history.

“Under DeMint, Heritage Foundation has been subsumed to the interests of its sister organization, Heritage Action. As a result, Heritage Foundation is suffering a grievous slide in intellectual integrity and influence. Sen. Orrin Hatch (R-Utah) is the latest of many conservatives to openly express concern about the think tank. He told MSNBC’s Chuck Todd this week, ‘Right now, I think it’s in danger of losing its clout and its power around Washington, D.C. There’s a real question in the minds of many Republicans now, and I’m not just speaking for myself, for a lot of people that [question is]: is Heritage going to go so political that it really doesn’t amount to anything anymore.’

“We saw this play out during the immigration reform fight when Heritage did an about face on prior research and analysis and put out an embarrassingly shoddy report by an author who previously claimed Hispanics were genetically less intelligent. Contrary to every other right-leaning think tank and years of free-market research, Heritage claimed that immigration is bad for the U.S. economy. Opponents of the Senate immigration reform effort tried to peddle the report. However, the author subsequently was forced to resign and wound up helping to discredit Heritage’s argument....

“The failure to separate intellectual inquiry from raw partisan politics troubles conservatives and has contributed to a number of scholars’ departures during the short DeMint regime. The lack of intellectual rigor and the primacy of partisan food fights under DeMint – who still talks and writes like a partisan attack dog and not the head of a scholarly institution – deeply worry conservatives, including this one, who remember the ‘old Heritage’ fondly.”

“(President Barack Obama’s) self-regard, the scale of which has a certain grandeur, reinforces progressivism’s celebration of untrammeled executive power and its consequent disparagement of legislative bargaining. This is why ObamaCare passed without a single vote from the opposition party – and why it remains, as analyst Michael Barone says, the most divisive legislation since the 1854 Kansas-Nebraska Act....

“Obama, who aspires to be Washington’s single actor, has said of his signature achievement: ‘I would have loved nothing better than to simply come up with some very elegant, academically approved approach to health care, and didn’t have any kinds of legislative fingerprints on it, and just go ahead and have that passed. But that’s not how it works in our democracy. Unfortunately, what we end up having to do is to do a lot of negotiations with a lot of different people.’

“Obama wanted something simple rather than a product of Madisonian complexity. He wanted something elegantly unblemished by ‘any’ messy legislative involvement, other than Congress’ tug of the forelock at final approval. It is, Obama thinks, unfortunate that he had to talk to many people.

“He and some of his tea party adversaries share an impatience with Madisonian politics, which requires patience. The tea party’s reaffirmation of Madison’s limited-government project is valuable. Now, it must decide if it wants to practice politics.”

On 2014...Republicans hope to hold the House and gain the Senate – Democrats intend to hold the Senate and recover the House....

“The House may be less problematic because many Republicans, thanks to gerrymandering, are secure in their conservative districts. The Senate poses greater challenges, but the National Republican Senatorial Committee has been busy recruiting and training candidates who can bridge the gap and win both primaries and general elections, especially focusing on states where Democrats either are vulnerable (Arkansas) or are retiring (South Dakota, Montana and West Virginia).

“This is where Cruz reenters the picture. Extreme voices may win primaries, but they do not win statewide elections, especially in a nation where a majority self-identify as centrist. This is a lesson Republicans have learned before, but stubborn factions, who would rather tether themselves to a flagpole than run the flag across a finish line, seem unable or unwilling to embrace it.

“Think back to 2010 and Delaware’s Christine ‘I’m Not a Witch’ O’Donnell and Nevada’s Sharron ‘Some [Latinos] Look More Asian to Me’ Angle. And then, who can forget 2012’s stars: Richard Mourdock, who explained that rape pregnancies are gifts from God, and Todd Akin, who explored the nuances of ‘legitimate rape.’

“Cruz comes off as smarter than all of the above combined. There’s a reason so many outside the Beltway admire him. To those who feel jilted by the system and insulted by critics, he is a vision of palm trees, dates and fountains. He articulates what they think and feel and, as a bonus, he’s got that Latino thing.

“But Cruz is a mirage, an idea conjured in a fantasy that can’t be realized in reality. Like many successful politicians (and narcissists), he reflects back to others their own projected needs and desires. But then reality sets in – the debt-crisis deadline looms, or the defunding ruse is exposed as theater – and only dust and dung remain among the shards of mirrored glass.”

--James Baker (who ran five presidential campaigns, 1976-1992) / Financial Times

“So what does the GOP need to do now? In the short term, remember that tactics and strategy both matter. It was a fool’s errand to tie the defunding of the ACA to a government shutdown and a debt-ceiling debate. Because Democrats control the White House and the Senate, the strategy was never going to work. To paraphrase Clayton Williams, a Republican who lost the 1990 Texas gubernatorial race after a series of gaffes: we shot ourselves in the foot and reloaded.

“That does not mean that Republicans should stop criticizing the ACA. It remains an example of big government at its worst: cumbersome, complicated and intrusive. The best – in fact, only – way to repeal the ACA is to control the White House, Senate and the House of Representatives. Democrats, after all, enacted the law when they controlled all three. So the focus should be on winning elections to control those levers of power....

“In the long term, there are several things Republicans should do. First and foremost, they should again become the party of hope, opportunity and optimism, and not anger and resentment. Americans responded when Ronald Reagan spoke about a shining city on the hill and when George HW Bush invoked ‘a thousand points of light.’ Party faithful and independent voters alike responded to such optimism. They will again.

“Republicans must also focus on smart, efficient and effective government. As appealing as ‘no government’ may sound, it lacks practicality. A limited government, one that develops intelligent, cost-effective solutions, is the best approach to meeting our challenges.

“Also, the GOP must recognize that the country’s demographics are changing. Ignoring that phenomenon – or worse, fighting it – could be catastrophic. The party should reach out to Hispanics, Asians and other minorities as many of them support the Republican ideals of economic conservatism, personal freedom, hard work, religion and family values.

“Republicans also need to go where the voters are. Deal with urban issues rather than ignore them. Support national security but do not be the ‘party of war.’ Promote economic conservatism but do not abandon social conservatives. We need a ‘big tent’ to win elections.”

--Meanwhile, donations to the Senate Conservatives Fund soared in September, the political action committee that is a mouthpiece for the conservative rebellion in Congress that was seeking to dismantle ObamaCare. The PAC raised more than $2.1 million last month, its best fundraising effort of the year. The fund was founded by Heritage Foundation President Jim DeMint when he was in the Senate. [Fredreka Schouten / USA TODAY]

“Vengeful Winfrey in O’Care snub”

“The story of why Oprah has changed her tune and gone AWOL on ObamaCare goes well beyond mere gossip. It speaks volumes about the convergence of celebrity and politics under Obama and about a president who thinks nothing of using and then discarding his most loyal supporters.

“Everyone remembers that Oprah went all out for Obama during the 2008 presidential election. What was not reported was that, in return, Oprah was promised unique access to the White House if Obama won. She’d get regular briefings on initiatives and a heads-up on programs to give her material for her fledgling cable network, OWN.

“ ‘Oprah intended to make her unique White House access a part of her new network,’ a source close to Oprah told me. ‘There were big plans, and a team was put together to come up with proposals that would have been mutually beneficial.

“ ‘But none of that ever happened. Oprah sent notes and a rep to talk to Valerie Jarrett, but nothing came of it. It slowly dawned on Oprah that the Obamas had absolutely no intention of keeping their word and bringing her into their confidence.’”

--Yet another case involving our nuclear weapons forces has come to light. The Associated Press’ Robert Burns reported that “Air Force officers entrusted with the launch keys to long-range nuclear missiles have been caught twice this year leaving open a blast door that is intended to help prevent a terrorist or other intruder from entering their underground command post, Air Force officials said.

“The blast doors are never to be left open if one of the crew members inside is asleep – as was the case in both these instances – out of concern for the trouble an intruder could cause, including the compromising of secret launch codes.”

I’ve been telling you of the other instances of bad behavior among those responsible for the nuclear arsenal and supposedly morale among the “missileers” couldn’t be lower.

It also needs to be noted there are many layers of security before you get to the underground launch center, the fail-safe last step. [Think rogue officer above ground letting terrorists in...something like that.] 

Bruce Blair, who served as an ICBM launch control officer in the 1970s and is now a research scholar at Princeton University, told the AP:

“This transgression might help enable outsiders to gain access to the launch center and to its super-secret codes.” That would increase the risk of unauthorized launch or of compromising codes that might consequently have to be invalidated in order to prevent unauthorized launches, he said.

“Such invalidation might effectively neutralize for an extended period of time the entire U.S. strategic nuclear arsenal and the president’s ability to launch strategic forces while the Pentagon scrambles to reissue new codes,” he added.

If you ever get a chance, go onto one of the deactivated sites scattered around the west. A few years back I went to one outside Tucson. Highly educational.

--And then there is this...from Craig Whitlock / Washington Post

“The U.S. Navy is being rocked by a bribery scandal that federal investigators say has reached high into the officer corps and exposed a massive overbilling scheme run by an Asian defense contractor that provided prostitutes and other kickbacks.

“Among those arrested on corruption charges are a senior agent for the Naval Criminal Investigative Service and a Navy commander who escaped Cambodia’s ‘killing fields’ as a child only to make a triumphant return to the country decades later as the skipper of a U.S. destroyer. The investigation has also ensnared a Navy captain who was relieved of his ship’s command this month in Japan.”

The scheme involves a Singapore-based defense contractor, Glenn Defense Marine Asia, which since 2011 has been awarded Navy contracts worth more than $200 million. The fraud that has been identified thus far easily involves over $10 million of work by Glenn Defense Marine, which targeted Navy personnel serving in Asia “and plied them with prostitutes, cash, luxury hotel rooms, plane tickets and, on one occasion last year, tickets to a Lady Gaga concert in Thailand,” as reported by Craig Whitlock.

Well, as I always say, if you’re going to see Lady Gaga in concert, might as well be in Thailand.

--New Jersey Republican Gov. Chris Christie decided to stop fighting the legality of New Jersey same-sex marriages, which paved the way for gays to wed in my home state this week. It’s another pragmatic step for “The Governor,” the tag line of his campaign commercials, but it is not setting himself up well with likely primary voters in Iowa.

While Republicans such as yours truly have evolved on issues such as this, big time, over the years, a vast majority of Iowa and South Carolina early Republican voters still oppose gay marriage.

So in both these states, today, you’d think Ted Cruz would roll. But would Christie finish a solid second and then be well-positioned for the more moderate primary states later on? 

Yup it’s early...but this race could be largely decided by 2015, I’m guessing, with only one or two other candidates making a bid for the nomination. [Perhaps Rand Paul and Jeb Bush. Maybe Marco Rubio decides not to give it a go.  Or some combination of these three. Just putting this down for the archives.]

A CNN-ORC poll found in June that 34% of Republicans supported legal recognition of same sex marriage, a number that had jumped more than 10 points in one year. [Steve Peoples and Thomas Beaumont / AP]

So Christie is betting it will jump at least another 10 points by January 2016 and Iowa, I’m guessing. I’d say it is a certainty it does.

One more word on Christie. I wrote a few weeks ago his record is incredibly overrated. But he’s obviously playing the political game like a master, and he is indeed pragmatic and willing to compromise. That’s what voters see first. It’s why he’ll roll on election day...and then it’s on to 2016.

--Republican New York City mayoral candidate Joe Lhota is finally getting tough on his Democratic challenger Bill de Blasio, but it’s too late, to say the least, Lhota being down about 40 points. Lhota is running a very effective commercial with stark pictures of New York’s past crime waves and how a vote for de Blasio guarantees a return to the bad old days, which seems likely.

De Blasio also went to the well too often in his latest campaign ad featuring his black daughter, after highlighting his son, Dante, and his afro in an earlier, effective spot. The daughter, Chiara, has a freakin’ earring through her eyebrow, for cryin’ out loud. [I’m venturing I may have one reader, worldwide, who features that look. A diamond in your nose? No problem, girls.]

Lhota is now saying de Blasio is hiding behind his family.

--A local woman who crashed into a pick-up on a highway two weeks ago, killing the truck’s driver, became the first person in Essex County to be charged with vehicular homicide allegedly caused by texting, reports the Star-Ledger.

“(Prosecutors) say witnesses saw (the woman) texting when her Volvo sedan veered from the southbound express lanes of Routes 1&9, near the Route 78 interchange, into the southbound local lanes, striking (the pickup)....

“Witnesses told police they saw (the woman’s) head down as she was driving and that she appeared to be texting.”

--Our changing attitudes on legalizing marijuana, as noted by the people at Gallup.

1969...12% of Americans approved
2003...34% approve
Now...58% approve, 39% oppose

--The violent crime rate in the U.S. rose 15% last year, the second year in a row there was an increase in the category. One year does not a trend make. Two years, though, and you start to get concerned. Crime rates had been declining since 1993, according to the FBI, with an uptick in 2006 the only exception. From 1993 to 2011, the rate of violent crime declined by 72%.

--If you have followed the Michael Skakel / Martha Moxley case over the years, it’s kind of interesting the mother, Dorothy, has been a long-time resident of my area and currently lives in town here. Dorothy, commenting on Skakel’s upcoming release, said she will continue to advocate for his incarceration and punishment. But it now appears Skakel will not face a new trial. A Connecticut judge ruled Wednesday he was inadequately represented by his lawyer at the 2002 trial.

--Pope Francis came down hard on the Bishop of Limburg (Germany), a cleric known in the media as the “bishop of bling” for spending about $40 million on his residence and community center, including $20,000 on his own bath tub and $650,000 on works of art.

The Pope suspended Franz-Peter Tebartz-van Elst from his diocese, with the Vatican issuing a statement that read in part, the bishop was “at this moment not in a position to carry out his episcopal ministry.” An audit looking into the costs will now be conducted before any further action is taken.

Pope Francis in his morning mass on Monday shortly before meeting the bishop said, “Money destroys. It is useful to carry out many good things, works to support humanity, but when your heart is attached to it, it destroys you.”

The Bishop of Limburg said the costs were high due to the historical nature of the buildings and local regulations.

--For you opera lovers, this is kind of cool. The Vienna State Opera is going to begin offering on Sunday what it describes as state-of-the-art live streaming, with viewers able to switch between a view of the stage and close-ups with moving cameras. By year’s end, other apps will include subtitles in English.

Now I’m not an opera lover, but what caught my eye is that the project starts off with Richard Strauss’ “Der Rosenkavalier,” which Dr. Bortrum and I consider to have some of the most beautiful music ever composed. A live stream performance will cost $20 (14 euros) while an on-demand stream will be just $7.

You know, for some cold winter night this is a decent entertainment option. [For now I’m glued to football on weekends, you understand.]

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

God bless America.

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Gold closed at $1352
Oil, $97.85

Returns for the week 10/21-10/25

Dow Jones +1.1% [15570]
S&P 500 +0.9% [1759]
S&P MidCap +0.3%
Russell 2000 +0.3%
Nasdaq +0.7% [3943]

Returns for the period 1/1/13-10/25/13

Dow Jones +18.8%
S&P 500 +23.4%
S&P MidCap +26.9%
Russell 2000 +31.7%
Nasdaq +30.6%

Bulls 49.5
Bears 18.5 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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