Week in Review

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Week in Review

01/18/2014

For the week 1/13-1/17

The Global Outlook

The World Bank issued its annual report on the global economy this week and raised its growth outlook for 2014 to 3.2%, vs. an estimated 2.4% in 2013, saying the global economy is at a “turning point.” There is concern, however, that as the U.S. Federal Reserve continues to wind down its bond-buying program that it could push up global interest rates, which has a disproportionate impact on money flows in and out of developing countries, so the World Bank lowered its growth estimate for them from 5.6% to 5.3%, though still up from 4.8% last year.

The World Bank’s “baseline” scenario is for a smooth adjustment to the Fed’s tapering, but warns the unprecedented nature of central banks’ policies could mean long-term interest rates in some of the biggest economies are prone to a sudden rise of as much as 200 basis points (2%).

“In a disorderly adjustment scenario, financial inflows to developing countries could decline by as much as 80% for several months,” the report says.

It adds: “Nearly a quarter of developing countries could experience a sudden stop in their access to global capital, substantially increasing the probability of economic and financial instability... For some countries, the effects of a rapid adjustment in global interest rates and a pullback in capital flows could trigger a balance of payments or domestic financial crisis.” [Ralph Atkins / Financial Times]

“Growth appears to be strengthening in both high-income and developing countries, but downside risks continue to threaten the global economic recovery,” said WB group president Jim Yong Kim. [BBC News]

Addressing a different topic, IMF head Christine Lagarde warned of deflation.

“With inflation running below many central banks’ targets, we see rising risks of deflation, which could prove disastrous for the recovery,” she said in a speech in Washington. “If inflation is the genie, then deflation is the ogre that must be fought decisively.”

While the U.S. reported slightly higher inflation this week, up 1.5% in December, year over year, this is still below the Fed’s 2% target and Lagarde is particularly concerned about the eurozone, where inflation was just 0.8% in December. No one wants to experience the kind of deflation that hobbled Japan’s economy for decades.

But Lagarde was also optimistic as to the overall economic picture. “This crisis still lingers. Yet, optimism is in the air: the deep freeze is behind, and the horizon is brighter.

“My great hope is that 2014 will prove momentous...the year in which the ‘seven weak years,’ economically speaking, slide into ‘seven strong years.’”

The eurozone, Lagarde added, “is turning the corner from recession to recovery” but that “unemployment is still worryingly high.” [Robin Harding / Financial Times]

Washington and Wall Street

On Thursday I went to The Mall at Short Hills to cash in a Williams-Sonoma coupon. It was a good excuse to check out the post-holiday atmosphere and while it was 10:30 in the morning and obviously not a Saturday, the Mall was empty and I’d say 80% of the stores weren’t just advertising post-Christmas sales, but many had the signage “Take an additional 25% to 50% off.” This mall is over-the-top in terms of the kinds of high-end retailers there and I can guarantee when I check the complex out in a few months, there will be some stores that have closed.

I know you all have had similar experiences in your towns. The National Retail Federation said holiday sales, November and December, rose 3.8% vs. their initial estimate of 3.9% (previously ShopperTrak pegged it at 2.7%), which isn’t a disaster but the results, as you saw with Best Buy this week, vary wildly.

So on Friday, the Wall Street Journal’s Shelly Banjo and Drew Fitzgerald had a front-page piece titled “Stores Confront New World of Reduced Shopper Traffic.”

I mentioned some of the figures before, from ShopperTrak, but what I didn’t know is that “Retailers got only about half the holiday traffic in 2013 as they did just three years earlier... The data firm tracked declines of 28.2% in 2011, 16.3% in 2012 and 14.6% in 2013.

“Online sales increased by more than double the rate of brick-and-mortar sales this holiday season. Shoppers don’t seem to be using physical stores to browse as much, either. Instead, they seem to be figuring out what they want online then making targeted trips to pick it up from retailers that offer the best price. While shoppers visited an average five stores per mall trip in 2007, today they only visit three, ShopperTrak’s data shows.”

Yes, our attitudes and habits are changing rapidly. It’s also a sign the recovery is still a bit tepid and that the declining official jobless rate, 6.7%, is more than a bit deceiving and that the broader measure, U-6, which is more about ‘underemployment,’ is still at 13.1%. The gap between the two is the biggest since the Bureau of Labor Statistics came up with U-6 in 1994. It’s the structural unemployment theme.

Meanwhile, the Federal Reserve’s beige book, a look at regional economic activity, did show some regions with developing labor shortages in construction and high-skill fields, with a firming labor market overall so this is encouraging, and I emphasize I am pretty bullish on the economy this year.

You did have a number of Fed governors, though, talk about further cuts in the bond-buying program, like $10 billion or so at each of the next few meetings (my guess) and while the bond market has taken this in stride, I still believe the trend is going to be up in terms of rates for 2014 and the equity market won’t always be so sanguine. We will have an inflation scare at some point, too, even as we could use a little...like in wages.

Then you have the budget picture. Someone needs to tell Bill O’Reilly there is a difference between the national debt and the budget deficit. Yes, the national debt continues to rise and is a huge long-term problem as we put off doing something about entitlements. [Plus there’s ObamaCare.]

However, the budget deficit is coming down, and fast. For the first three months of the 2014 fiscal year, which commenced Oct. 1, the deficit was $173.6 billion vs. $293 billion for Oct.-Dec. 2012. In December, there was a surplus of $53.2 billion vs. a deficit of $1.2 billion in Dec. ’12. For the month, revenue was $283 billion vs. $269 billion Dec. over Dec., while spending was just $230 billion vs. $271 billion.

This is good! Republicans can take credit for the reductions in discretionary spending to levels last seen in the Bush budget.

But it’s all a bit deceiving. Fannie Mae and Freddie Mac, who took a combined $187.5 billion in aid when they went into receivership as the government took 80% ownership, have now returned $185.2 billion, including $34 billion in December. So while it’s great they have essentially paid us taxpayers back, the positive impact on the budget picture is running its course.

That said the deficit for Fiscal 2013 declined to $680 billion from $1.089 trillion in Fiscal 2012, and for F2014 we’re headed lower still. And lower in F2015, barring another military crisis and/or recession.

This is why I think President Obama’s approval numbers have bottomed, but this is potentially the worst thing for America’s future. Why?

Because Congress can afford to be complacent, let alone the election cycles of 2014 and 2016 will lead to stasis. The Congressional Budget Office projections that I referred to all last year show the deficit back on the upswing by 2016 or so due to our aging population and the entitlement issue, let alone a normalization of interest rates.

Remember, we are catching a huge break in financing our $17 trillion in debt with these absurdly low rates, but when rates normalize, interest expense will rise from about $220 billion to $800 billion by 2022. Of course these long-term projections are always way off. Could be less, but could be more.

So every few months I feel obligated to bring this topic up. When I saw O’Reilly the other day he was railing about the “budget deficit” and confusing the topic with the national debt and he did his viewers a tremendous disservice. You have the facts. But we need to act now...and of course neither Congress nor the president will.

Enjoy the better news today on the budget deficit front, but picture your favorite government program being cut to the bone when interest expense alone rises nearly $600 billion in the next 7-9 years.

Granted, it was nice to see both Houses of Congress pass the budget compromise act this week. That was a positive and can impact business confidence in a positive way, first and foremost.

Just a few other tidbits. December retail sales (the broad measure, not limited to retailers at Christmas) rose 0.2% as expected and were up a respectable 4.2% for all of 2013. And December housing starts were 999,000, a little better than forecast, while industrial production for the month was in line, up 0.3%. I have the inflation data below.

As for ObamaCare, the latest Gallup poll had 54% disapproving, 38% approving as we learned more than 2.1 million Americans ‘supposedly’ signed up for health insurance in the last three months of 2013, far below the administration’s goal of 3.3 million. Plus, only 24% of the enrollees were between the ages of 18 and 34, when most experts say we need 40% from this category for the whole deal to work without us older folks being whacked with far larger premium increases than are already filtering through the system.

So the next few months, until the end of March when the enrollment period ends, Republicans and Democrats will spin the numbers and we’ll see how things shake out. But if Republicans want to change ObamaCare, they need to win the Senate and then focus on 2016.

A lot of us today, however, hear about the 2.1 million figure and wonder how many were counted more than once, which officials acknowledge has been the case, and how many actually paid their first premium. No payment, no coverage, sports fans.

Europe and Asia

Industrial production in the eurozone was up a strong 1.8% in November over October, up 3% over a year earlier, while car registrations (sales) for the EU-28 rose 13% in December, though for all of 2013 came in at 11.9 million vehicles, the smallest yearly total since 1995 and down 1.7%, 2013 vs. 2012. General Motors’ sales in Europe were down 4.3% last year, Ford’s down 3.2%.

Regarding the above discussion on inflation, it’s still not clear what weapons the European Central Bank has left if prices drop, aside from a last cut in the key lending rate from 0.25% to zero.

I’ve been talking about the lack of a true banking union in the eurozone, with the ECB set to begin monitoring the bigger euro-area lenders later this year, around the same time it will be conducting bank stress tests. Two euro-area officials with knowledge of the tests told Bloomberg that banks will have to show their capital won’t fall below 6% of their assets given a simulated recession, which would be tougher than the 5% used in 2011 by the European Banking Authority, when models failed to reveal shortcomings at banks that later collapsed.

As ECB President Mario Draghi knows, he has to show investors the health of the major financial institutions is solid and the stress tests must be credible. If you fall below the 6% target, then you’ll have to raise capital in a yet to be determined timeframe. As the co-CEO of Deutsche Bank AG put it, “This has to work as otherwise Europe will suffer and growth won’t develop as we want.”

In country specific news, Spain’s government said GDP rose 0.3% in the fourth quarter (unofficially), which would be better than the 0.1% gain in the third.

According to the first official estimate of growth in Germany, GDP was up just 0.4% in 2013, down from 2012’s 0.7% pace. But for 2014, the government is forecasting a rise of 1.7%.

UK retail sales for the holiday period, ostensibly the month of December, rose a far better than expected 2.8%, ex-fuel, and up 6.1% over a year earlier, the best since 2004. Despite all the warnings from Britain’s larger department stores, the category, which includes smaller stores, was up 8.7%. Many of our retailers would kill for that pace.

Three more members of the Greek parliament attached to far-right Golden Dawn were arrested, making it 9 now in jail or out on bail awaiting trial for alleged criminal activity.

But back to Britain, there were two headlines in the Financial Times that caught my eye.

“Romanians despair that wealthy Britain is taking all their doctors”

Regarding the first one, as reported by James Fontanella-Khan: “The anti-immigration rhetoric that has dominated British media and political discourse in recent months appears to have made waves in Romania. The small group of first-year law students puffing cigarettes outside the University of Bucharest’s law facility...swear they will never go to work in the UK.

“ ‘Not after all the nasty things the English media and politicians said about us,’ says Monica Andreea. ‘I’d like to stay here but if I ever decide to leave I’d rather go to Germany; their economy is stronger and they are not as racist as in England.”

Nigel Farage, leader of the anti-immigration UK Independence party, is warning that now that work restrictions were lifted on January 1, a million Romanians and Bulgarians would come to Britain. Actually, in 2012, 170,186 emigrated from Romania, the lowest in nearly a decade, while a record 167,266 decided to return home. Economic prospects look pretty good compared to elsewhere in the EU.

But not for doctors, thus the other headline. Also as reported by Mr. Fontanella-Khan, over the past two years 30% of resident doctors have left Romania, “reducing the overall number of physicians from 20,000 in 2011 to 14,000 last year.” It’s all about extra cash. The net starting salary for a doctor in Bucharest was just raised to 350 euro per month ($475) while in the UK and Germany they earn as much as 3,000 euro or about $4,000, a rather significant difference.

So now you have a situation where in many of the smaller towns there are zero doctors. A true disaster.

Turning to Asia, in China the Shanghai Composite hit a 5 1/2-month low and this coming Monday is a big day as the government reports fourth-quarter data on GDP, as well as industrial production and retail sales.

We did learn the other day that China holds a record $1.317 trillion in U.S. Treasuries, as its foreign currency reserves soared, while foreign direct investment rose a modest 5.3% in 2013 over 2012, up 7.1% from the United States.

In Japan, the Nikkei equity index had a volatile week, including a 3% downdraft on Tuesday as trade data showed exports are not surging as much as hoped, though machinery orders hit a 5-year high.

I am heading to Hong Kong this week and, god willing, Fujian province. This is not a fun-filled vacation. Wednesday is the key day as I attempt to see an old investment of mine. I’m not optimistic and it’s a bit risky. Hopefully I don’t end up face first in a duck pond.

Street Bytes

--Stocks finished mixed with the Dow Jones adding 21 points, 0.1%, to 16458, while the S&P 500 lost 0.2% and Nasdaq gained 0.5%. The first three weeks of 2014 have been Dullsville. Goldman Sachs said the S&P was “lofty by almost any measure.”

As for earnings, the story was the banks and I detail some of the results below but they were generally better than expected. General Electric and Intel disappointed. Huge week coming up on this front.

--U.S. Treasury Yields

6-mo. 0.06% 2-yr. 0.37% 10-yr. 2.82% 30-yr. 3.75%

The long end of the curve continued to rally some. Producer prices for December rose 0.4%, in line, and up 0.3% ex-food and energy. For 2013, the PPI was up 1.2%, 1.4% on core.

As for the CPI, it was also in line, up 0.3%, ex-food and energy up 0.1%, and for the year was up 1.5%, 1.7% on core.

--According to a report prepared by federal and private investigators that was passed on to retailers and financial-services firms, the cyberattack on Target Corp. was part of a highly sophisticated international hacking campaign involving malware with origins, at least in part, in Russia.

The report was put together by the Department of Homeland Security, the Secret Service and online security firm iSIGHT.

“The use of malware to compromise payment information storage systems is not new. However, it is the first time we have seen this attack at this scale and sophistication.

“This software contains a new kind of attack method that is able to covertly subvert network controls and common forensic tactics, concealing all data transfers and executions that may have been run, rendering it harder to detect. Many retail organizations may not know that they have been infected, or that they have already lost data.” [USA TODAY]

Meanwhile, Neiman Marcus disclosed it was penetrated by hackers as far back as July, but didn’t bring it up until late last week, saying it learned of the attack in mid-December. The company claims it didn’t notify the public earlier because it was collecting the evidence. This is bogus. Neiman did concede in a call with credit card companies that the intrusion was not fully contained until this week.

--Shares in Best Buy collapsed on Thursday, about 30% (35% Thurs.-Fri.), after the retailer said same-store sales in the holiday season fell 0.9% when an increase had been expected. Heavy discounts led to lower-than-expected operating profit. Total revenue declined 2.6% for the holiday period. The shares had more than tripled in 2013.

Best Buy had said it would match Internet competitors’ prices but it expected to lure more shoppers than ended up being the case. The company was attempting to end the practice of “showrooming,” when shoppers use Best Buy stores to scout products they would later buy online.

But as analyst Brian Yarbrough of E.D. Jones told Bloomberg, “It’s a commodity business. The worst part is that the commodity is being wrecked by a big competitor called Amazon.”

--Goldman Sachs Group Inc. reported fourth-quarter net income dropped 19% to $2.33 billion as revenue fell 5%, though earnings per share, $4.60, and the top line figure, $8.78 billion, exceeded expectations. Fixed income trading was down 15%.

The shares finished the week at $176 and while they were up 39% in 2013, they are still below their pre-crisis peak of $247 on Oct. 31, 2007.

--Citigroup reported net income of $2.7 billion in the fourth quarter, more than double last year’s results, but the bank missed analyst estimates and shares slumped. Revenue fell 1% to $17.8 billion in the quarter from the same period a year ago, with revenue from fixed income trading falling the same 15% as Goldman. But equity underwriting more than doubled for the quarter.

--Bank of America saw its fourth-quarter profit surge, up to $3.44 billion vs. $732 million for the period in 2012. BofA beat analysts’ expectations on both the top and bottom line.

--JPMorgan Chase & Co. reported net income of $5.28 billion, down 7% for the fourth quarter, though better than expected. Equity underwriting soared 65%, but debt underwriting declined 19%

--Wells Fargo & Co. beat all of the banks with profit of $5.37 billion in the quarter, $1.00 per share, beating expectations, even as the firm’s mortgage business dropped by nearly a third from $35 billion at the end of the third quarter to $25 billion in the fourth, with Wells accounting for more than one out of every five U.S. home loans in the first half of 2013. Total revenue fell about 6%.

For 2013, Wells had a profit of $21.8 billion to JPMorgan’s $17.9 billion, the latter’s results weighed down by all the legal issues it has faced.

--Morgan Stanley shares rallied despite legal expenses of $1.2 billion basically wiping out earnings.  Revenues rose from $7 billion to $7.8 billion as its wealth management division performed well.

--Intel said it expects no revenue growth in 2014, this after sales in the division which makes chips for desktop computers fell 4% in 2013 from a year ago. The company did say it saw signs the PC sector was "stabilizing." Revenues and net income in the fourth quarter were up slightly from year ago levels. Net profit, though, was down 13% for the year.

Then on Friday, Intel announced it was reducing its headcount by about 5% this year, or 5,000-5,500 workers.

--General Electric disappointed the Street with its earnings release as profit margins weren’t what CEO Jeffrey Immelt said they’d be only a month earlier. Earnings were in line with expectations, while revenues, up 3.1%, beat slightly.

--IBM said it would invest more than $1.2 billion to build 15 new data centers across five continents to reach new markets and expand its cloud services. IBM will then have 40 data centers as it attempts to take advantage of its acquisition for SoftLayer, which leases online storage space to companies. IBM said the global cloud market is estimated to grow to $200 billion by 2020.

--JC Penney said it plans to cut 2,000 jobs and close 33 stores as part of its ongoing restructuring effort. At the same time Sears announced it was cutting 1,600 jobs, or 7% of its workforce, with many of the layoffs taking place in customer call centers.

--Yahoo Inc. CEO Marissa Mayer fired her chief operating officer, Henrique de Castro, who Mayer had poached from Google in 2012. Talk about an expensive mistake, it’s reported de Castro leaves after just a year with a severance package worth at least $42 million (some reports say as much as $60 million). 

While Yahoo stock has more than doubled in the past 12 months, much of the gain is tied to the growth in their stake in Alibaba Group Holdings, the Chinese e-commerce company that is expected to go public in the next few months. Yahoo’s actual results continue to disappoint and it’s losing market share in metrics such as digital-ad revenue, where it has 5.8% vs. Google’s 39.9% in 2013. Facebook is at 7.4%, according to research firm eMarketer Inc.

--Apple CEO Tim Cook said he was “incredibly optimistic” about the potential for its joint venture with China Mobile Ltd., which will offer iPhones, with millions having already been ordered to satisfy strong demand.

--Southern California home prices jumped in December after stagnating since June. The median sale price in the six-county region, $395,000, was up 2.6% from November and 22.3% over 12 months earlier.

--I’ll do my best to pray for rain for California, suffering through its worst drought in a century. Governor Jerry Brown finally declared a water emergency, though for now consumption cuts are voluntary. The critical snowpack is just 20% of normal for this time of year, setting up a disaster for the state’s farmers.

--Foreclosure activity fell last year to its lowest level in six years, down 26% from 2012 and down 53% from the peak foreclosure year of 2010.

--New York’s four major airports, including Stewart International, set an all-time passenger record of 111.6 million last year. JFK had approximately 50 million, LaGuardia 27 million, Newark 34 million and Stewart 320,000.

--According to Aviation Safety Network, a research group out of the Netherlands, there were 29 commercial airline accidents out of 31 million commercial flights worldwide in 2013, resulting in a record-low 265 fatalities. The 10-year average is 720.

The deadliest accident of 2013 involved a crash in Russia, killing 50.

Qantas, the Australian airline, was recently rated as the world’s safest by AirlineRatings.com and hasn’t had a fatal accident since 1951.

--Meanwhile, Airbus announced it landed orders for 1,619 planes in 2013, setting a new industry record, toping Boeing’s reported gross orders of 1,531 commercial jets for last year.

Actually, including canceled orders, Boeing had 1,355 net orders compared with Airbus’ 1,503.

--Ratings for the season premiere of “American Idol” were the worst in the history of the show on Wednesday, down 16% from last season’s premiere.

--Revenue from online gambling in New Jersey was just $8.4 million for the five weeks since its launch in November, well off the pace for a forecasted $1.2 billion by the end of June. Some major banks have yet to allow their customers to use their credit cards to play. Besides New Jersey, only Nevada and Delaware allow online gambling in the U.S.

--Japan’s Suntory Holdings Ltd., a whiskey and beer maker, is acquiring Beam Inc., makers of Jim Beam, Canadian Club and Maker’s Mark. Beam shareholders were pleased as the price paid was 25% above Beam’s closing price prior to the announcement.

Foreign Affairs

Iran: Under terms of the interim nuclear deal, Iran is to begin diluting half of its uranium stockpile already enriched to 20 percent on Monday, January 20.  Iran can continue centrifuge production to replace damaged machines at Natanz and Fordow, where limited uranium enrichment will continue at low levels.

Iran is also allowed to continue research into advanced centrifuge technology, though the U.S. says Tehran cannot widen its research scope “beyond its current enrichment R&D practices.”

How the heck you police this stuff I’ll never know. The International Atomic Energy Agency is to be allowed to inspect Natanz and Fordow daily, but just how much will the IAEA be able to detect on the research front, and what is taking place at Iran’s other sites?

So in exchange for doing little, the P5+1 – the U.S., U.K., France, Russia, China and Germany – will release eight installments of $450-550 million in restricted Iranian funds over the six-month period, with Iran having access to remaining funds on the last day of the agreement, the total sanctions relief said to be $6-7 billion.

President Obama said, “Now is the time for us to allow the diplomats and technical experts to do their work.”

Republican senators Lindsey Graham (S.C.) and John McCain (Ariz.) said they are “deeply concerned by recent reports that the Obama administration has negotiated what some are calling a ‘secret side deal’ with Iran....

“We call on the Obama administration to clarify this situation immediately and ensure that members of Congress are fully and promptly informed about its nuclear diplomacy with Iran,” they said in a joint statement.

“After Tehran agreed to implement November’s interim nuclear deal, President Hasan Rohani on Tuesday turned to Twitter: ‘Our relationship w/ the world is based on Iranian nation’s interests. In #Geneva agreement world powers surrendered to Iranian nation’s will.’

“Back in Washington, President Obama hailed ‘this important step forward’ and had some tough words of his own – for the U.S. Congress. He repeated his threat to veto a new Iran sanctions bill at last count co-sponsored by 59 Senators, all but accusing them of pushing America into another Middle Eastern war. We hope Senate Democrats keep Mr. Rohani’s tweet in mind and don’t blink.

“The interim agreement keeps open Iran’s path to a bomb. In exchange for immediate sanctions relief, Tehran promises to dilute its stockpile of higher levels of enriched uranium, stop installing new centrifuges, and halt most work on a heavy-water reactor that could lead to a plutonium bomb.

“As for the fine print of this First Step Agreement, you’ll have to take the Administration’s word for it.... but on Monday Iran’s chief negotiator talked about the existence of a secret informal 30-page addendum that, among other matters, covers Iran’s right to nuclear enrichment.”

As I’ve argued for years now, the only thing you need to know when it comes to Iran is that it continues to refuse to allow inspectors into its Parchin military complex and nothing changes with the interim agreement. Parchin is where it is suspected Iran has been working on triggers and delivery vehicles for a bomb. Reuters reported the interim accord “falls short of what [the IAEA] says it needs to investigate suspicions that Tehran may have worked on designing an atomic bomb.”

“All of which underscores the case for the Senate to vote on the ‘Nuclear Weapon Free Iran Act of 2013.’ The bipartisan bill tees up stronger sanctions on Iran’s oil and financial industries, but only if Tehran walks away from negotiations. The Administration should welcome this as leverage....

“(Americans) are supposed to believe that the only choice is between war and whatever Mr. Obama negotiates. But the far more likely path to war is a bad deal that induces Israel to strike and drives the Saudis and Turks to get their own bomb. Mr. Obama’s opposition to the Senate sanctions bill shows how much it is needed.”

The sanctions bill is led by New Jersey Democratic Sen. Robert Menendez and Illinois Republican Mark Kirk. Kirk says he expects close to 70 votes – enough to override a veto. It is expected to come up for action by the end of the first week of February, assuming Senate Majority Leader Harry Reid allows it to.

But Kirk says that if the bill is pushed into next month, “the American people will have committed a grievous foreign policy error similar to Neville Chamberlain giving away Czechoslovakia at the beginning of World War II. The path of appeasement always leads directly to war. If you give billions of dollars to the Iranians, you are leading directly to conflict.”

Those in opposition say it plays into the extremist elements in Iran.

“The White House’s strident opposition to the bill continues a distasteful practice – also seen in the debate over Syria – of accusing all who disagree with its strategy of favoring war. That’s an insult to serious legislators such as Sens. Benjamin Cardin (D-Md.) and Mark Warner (D-Va.), both of whom reasonably seek to hedge against failed negotiations.

“Nevertheless, the senators already may have accomplished the maximum good by proposing the bill, thereby raising the pressure on the administration and Iran....

“This diplomacy has been President Obama’s initiative, and he should be allowed to carry it through to success or failure. Congress then would have a mandate to act, either in lifting sanctions or in redoubling them.”

Late in the week, the White House did allow some lawmakers and staffers to review the addendum, though the Wall Street Journal described it as the rumored 30-page text, while one lawmaker told the New York Times it was just nine pages.

Bottom line, as Sen. Graham said after, “I’m more disturbed than ever after the briefing.”

The side agreement apparently is vague in the extreme, with a Senate aide telling the Journal, “there is no clear compliance mechanism in place.”

Meanwhile, Iran and Russia are negotiating an oil-for-goods swap worth $1.5 billion a month. Russia would buy up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods.

Yes, the sanctions, ever since the Nov. 24 interim deal was reached, have been breaking down.

Ray Takeyh, senior fellow at the Council on Foreign Relations / Washington Post

“The U.S. task remains imposing stringent limits on Iran’s nuclear program through negotiations while restraining Tehran’s regional ambitions through pressure. This latter goal will require mending the United States’ battered alliances in the Middle East. Strategic dialogues and arms sales can go only so far. The United States cannot reclaim its allies’ confidence without being an active player in the Syria saga. To be sure, Syria’s opposition is fragmented and the rise of Islamist radicals is a troubling sign, but many are still committed to displacing Assad and taming Islamist militancy – and they are worthy of Western embrace and support. As long as the United States exempts itself from this conflict, its other pledges ring hollow to a skeptical Arab audience.

“Too often tensions between the United States and Iran have been attributed to technical disagreements over the scope of Tehran’s nuclear program. For decades, diplomats have struggled to define just the right balance between centrifuges and sanctions relief. Those negotiations have taken place while Iran’s presidency has changed hands from reformers to hard-liners and now, finally, to pragmatists. At the core this conflict is ideological: Iran does not want us to succeed, and we should not want Tehran to prevail. Iran’s assault on the Arab order will define the parameters of Middle East politics for some time to come. The first step toward a sensible Iran policy is to dispense with the illusion of détente that too often accompanies arms control diplomacy.”

Syria: Peace talks are slated to begin next week in Switzerland, what Secretary of State Kerry is saying represents “the best opportunity for the opposition to achieve the goals of the Syrian people and the revolution....

“It is the only way to bring about an end to the civil war that has triggered one of the planet’s most severe humanitarian disasters, and which has created the seeding grounds for extremism.”

But as I go to post, it’s not known if the main opposition group, the Syrian National Coalition, will participate.

As for Iran, it has not been invited, but Foreign Minister Javad Zarif has been lobbying Middle Eastern heads of state to accept Tehran’s stance: The war must end through negotiations, not fighting; Syrians should determine their future through the ballot box; and foreign nations should act only as advisers.

Speaking in Damascus during a meeting with Zarif, President Bashar Assad warned that Saudi Arabia’s political and religious ideology is “a threat to the world,’ state television reported; referring to Wahhabism, the ultra-conservative Sunni Muslim tradition that is predominant in the country.

“The Syrian people and some peoples in the region know how serious the threat posed by Wahhabism is, and everyone must contribute to the confrontation against it and to eradicating it from the root.” [AFP]

Well you can imagine the Saudis weren’t too happy to be lectured to by Assad.

In the field, fighting between jihadists and rival rebel groups killed at least 700 in more than a week while hundreds more are missing, according to the Syrian Observatory for Human Rights. There were 16 suicide bombings staged by the Islamic State of Iraq and the Levant (ISIL) in Aleppo, Idlib and Homs. It’s staggering how many are willing to die in such a fashion.

On Friday, though, with an eye to the Geneva talks, the Assad regime proposed a ceasefire and prisoner exchange in Aleppo, while there are reports the Russians have stepped up the supply of military hardware to Assad’s forces.

In an interview with the Wall Street Journal, former Defense Secretary Robert Gates said it was a “serious mistake” for the Obama administration to declare a red line on chemical weapons use in Syria.

“I always used to say to presidents, ‘If you cock the pistol, you gotta be willing to fire it....’

“The American people are frankly sick of war,” he added, but “could we have done more in terms of both overt and covert assistance earlier to the opposition? I think the answer is, almost certainly, yes.”

Meanwhile, the U.N. body responsible for removing and destroying Syria’s chemical weapons said the process had been slowed by security concerns.

A U.N. fundraising conference generated at least $2.4 billion in pledges from international donors to alleviate the suffering of Syrians. The U.N. is asking for $6.5 billion. Secretary-General Ban Ki-moon said at the event in Kuwait, “The fighting has set Syria back by years, even decades.” Secretary of State Kerry said the U.S. pledged $380 million more, bringing America’s humanitarian aid contribution to Syrian victims to $1.7 billion since the war began. Much of this supposedly goes to neighboring nations such as Jordan and Lebanon that are being crushed by an estimated 2.3 million refugees.

But I’d love to see “60 Minutes” do an audit of our supposed donations.

Israel: Prime Minister Benjamin Netanyahu has increased the amount of territory he wants Israel to keep after any peace deal with the Palestinians, leaving a full 13% of the West Bank in Israeli hands. The Palestinians want the West Bank for a future state.

Earlier, Israeli Defense Minister Moshe Yaalon was quote in an Israeli newspaper as rejecting a U.S.-proposed security plan and calling Sec. of State Kerry “messianic” in his quest for a peace deal. Yaalon later apologized.

But hawkish Foreign Minister Avigdor Lieberman embraced Kerry’s efforts thus far, surprising many across the region. His move to the center is also being read in Israel as a bid to succeed Netanyahu.

And last weekend, Israel lost Ariel Sharon, who had been in a coma since suffering a massive stroke in 2006.

“Arik Sharon started as a warrior. He ended his career on the way to being a peacemaker. On that journey from fighting in every one of Israel’s wars to lying comatose for eight years in a Jerusalem hospital, he symbolized the anguish and dilemmas of Israel. A people who had come to their historic homeland had established themselves, surrounded by a culture that never acquiesced in ceding what it considered Islamic patrimony. Even before the proclamation of the Jewish state, Israel found itself in a state of war that has never ended. It has always lacked the essential prerequisite for peaceful coexistence with its neighbors: their recognition of its existence, which everywhere else is the precondition of diplomacy, not its outcome.

“This state of affairs produced two aspects of the Israeli psyche: a hair-trigger response to security threats and an attitude toward the peace process both grudging and nostalgic. Israel’s margin of survival has been so narrow that its leaders felt they could not run risks about emerging military capabilities of countries that refused to accept and daily castigated the Jewish state. When threatened, preemption became its style of warfare. And it viewed the peace process both with reluctance to give up territory in an environment so rife with denunciation and with a definition of peace so sweeping as to be very difficult to achieve in a single negotiation.

“When he was struck down by a stroke in 2006, Sharon as prime minister was in the process of putting before his people a vision of coexistence with the Palestinians....

“Sharon had to undertake the longest journey to reach this insight. A daring commander, he conducted the battle that reversed the tide of the 1973 war; he was the principal advocate of the operations in Lebanon. For many years, he deplored America’s decision in 1973 to bring about a negotiated end of the war....

“As prime minister, Sharon unexpectedly broadened his definition of security. He sought to bridge the gap between physical and political security with the same courage and decisiveness that had brought him victory in battle. He volunteered the largest withdrawal in Israel’s history. He ended the Israeli occupation of Gaza and returned it to Arab self-rule as a unilateral act without reciprocity, abandoning even the Jewish settlements that had been established there. In a similar spirit, he withdrew troops from southern Lebanon. These gestures were conceived as a test case for a negotiation about the future of the West Bank, which Sharon once had viewed as a a permanent Israeli outpost. The man who had identified security with the acquisition of territory became willing to cede territory for an outcome to fulfil the hopes for peace.

“It cannot be said that the result justified this act of faith. Israel was threatened by missile attacks from non-state actors: Hizbullah in Lebanon, Hamas in Gaza. Politically, Sharon’s vision was under attack from all sides.... Still, Sharon’s vision reflected an essential first step; it was a sacrifice on behalf of raising prospects for a lasting peace – to which both sides must make a contribution by taking concrete steps and not by largely symbolic acts alone.

“With another peace process underway, one needs to respect the courage of those who are willing to brave it in light of so many disappointments.... The vision of peace must be coupled with a determination not to permit the peace process to be turned into another form of warfare. An outcome must not only draw lines of territorial divisions but also bring a meaningful acceptance of the Jewish state by its negotiating partner as well as by key Arab states.”

Ariel Sharon was my 2005 “Person of the Year.” I’ve struggled the past few years, as you’ve seen, to find someone worthy of the title. Oh, Sharon had many enemies, both inside and outside his beloved Israel. But there was never any doubt whatsoever he was the very definition of a  leader.

Lebanon: Four Hizbullah members have gone on trial for their alleged involvement in the assassination of former prime minister Rafik Hariri in 2005; the first trial of the Special Tribunal for Lebanon five years after the body was formed. The four suspects are being tried in absentia. Hizbullah denies any involvement.

But as he attends the trial for his father’s killers, Saad Hariri struck an upbeat note on the formation of a new Cabinet, saying he was willing to share power with Hizbullah if it would lead to stability in his country. Only in Lebanon.

Iraq: At least 73 were killed in yet another wave of bombings on Monday, with 37 dying in nine separate car bombs in Baghdad.

Militants also appear to be in control of Fallujah, while after being ousted in Ramadi, al-Qaeda’s affiliated Islamic State in Iraq and the Levant seems to be moving back in. [Admittedly, it is very hard to keep up on these two spots. The Iraqi army doesn’t want to launch full-scale assaults on the towns, preferring the locals eject ISIS.]

Danielle Pletka of the American Enterprise Institute said: “Iraq is not yet lost, but the victory that the United States, our allies and our Iraqi friends achieved at such high cost is now at risk.”

It’s lost, though we’ll see what happens in parliamentary elections slated for April and whether Prime Minister Nouri al-Maliki is willing to share power with Sunnis who are set to gain a fair share of seats.

Egypt: Results of the referendum on a new constitution have yet to be released. Preliminary figures had 95% approving it as the Muslim Brotherhood boycotted the vote. Nine died in violence surrounding the two-day event. 

Elections are supposed to follow later in the year with General Abdel Fattah al-Sisi said to be gunning for the presidency.

Afghanistan: The Taliban launched a vicious attack on a restaurant in Kabul frequented by Westerners on Friday, with a suicide bomber clearing the way for two gunmen. 13 of the 16 killed were said to be expatriates. The United Nations said four of its civilian personnel were unaccounted for and presumed dead.

Libya: The Senate Intelligence Committee released a scathing report on the Sept. 11, 2012 assault on the diplomatic compound in Benghazi, laying blame on the State Department, the intelligence community and even the late Amb. Chris Stevens for failing to heed warnings of terrorist activity in the area.

The report found the U.S. military was not prepared to aid the Americans and that in the aftermath, U.S. analysts confused policymakers by blaming the violence on protests.

The document contains only one mention of then-Secretary of State Hillary Rodham Clinton, whom the panel’s Republicans say is ultimately responsible for the failures.

China: Pollution levels soared in Beijing this week, with the level of one pollutant reaching 26 times the safe level recommended by the World Health Organization.

Residents were warned to wear masks as the density of PM2.5 fine particles – considered most hazardous – reached astronomical levels.

Visibility was so poor some of the major highways were shut down, making it even worse with traffic grinding to a standstill.

North Korea: Pyongyang proposed to Seoul that they stop the cross-border invective and tone down the rhetoric, while at the same time saying it would take steps to ease military tensions along the disputed western sea border, though it gave no details.

But, the North said South Korea must cancel its joint military exercises with the United States in return for the North’s concessions. Not gonna happen.

[If you didn’t see it, catch the documentary on North Korea that aired on PBS’ Frontline program last Tuesday. pbs.org/frontline.]

France: President Francois Hollande acknowledged difficulties in his relationship with Valerie Trierwiler, his first lady, but at a news conference focusing on the economy, refused to answer questions about a secret liaison with actress Julie Gayet.

A Left-leaning magazine claimed that Hollande wanted to break up with Trierweiler, hoping she would sign a separation agreement, when she ended up in the hospital after having taken “one pill too many” the night Hollande confirmed the affair in a “cold and implacable” manner. According to another magazine, Trierweiler did not try to commit suicide. She is said to be devastated she would not be accompanying Hollande on a visit to Washington in February.

For her part, Julie Gayet sued the magazine Closer for publishing photos of their alleged affair. Hollande opted not to sue after initially threatening to.

Running against Nicolas Sarkozy in 2012, Hollande pledged that “at every moment as president my conduct will be exemplary.”

Sarkozy is savoring the scandal and plotting a comeback.

Ukraine: President Yanukovych and his supporters rammed through a series of bills designed to curb anti-government protests. The opposition is outraged. Among the new measures is punishment of one year of forced labor for slandering government officials. Opposition leader and former heavyweight champion Vitali Klitschko condemned Yanukovych’s moves as a “coup d’etat.”

Thailand: Prime Minister Yingluck Shinawatra has declared she will not resign as anti-government protests continued, threatening to lay siege to her home and take her into custody. A blast on Friday at an anti-government rally injured more than 30.

Elections are set for February 2 but could be delayed. The opposition said it would boycott them.

India: There were two high-profile rapes of female tourists this week, further cementing the country’s reputation as being a dangerous destination for women. One incident took place on a train, the other in Delhi, where a Danish tourist was gang-raped by six homeless men.

Nigeria: President Goodluck Jonathan signed a new law that is virulently anti-gay, the Same Sex Marriage Prohibition Act, which was immediately condemned by the U.S., Britain and Canada. The law, passed by parliament last year but not enacted until now, provides penalties of up to 14 years imprisonment for membership or encouragement of gay clubs, societies and organizations, including even groups formed to combat AIDS among gays. Nigeria has the second-largest HIV epidemic globally.

Australia: As you’ve seen from the broadcasts of the Australian Open in Melbourne, the nation suffered through an historic heat wave, four days of 40C (104F)+ temps in many parts of the country before the weather broke on Friday.

Random Musings

--A look at the trove of documents that have been released related to the closure of local access lanes to the George Washington Bridge in September 2013 shows an extensive cover-up by some of New Jersey Gov. Chris Christie’s political appointees.

“The appointees instructed subordinates to stonewall reporters and produced a traffic study examining whether closing the lanes permanently might improve traffic flow. The study’s conclusion: ‘TBD,’ shorthand for ‘to be determined.’....

“The e-mails also reveal the extent to which Christie’s appointees kept their Port Authority colleagues and Fort Lee officials in the dark about their plans....

“Early on Sept. 13 – after four straight days of lane closures – Patrick Foye, the (Port Authority’s) executive director and a Cuomo appointee, e-mailed (Bill) Baroni (a Christie appointee) and other senior Port Authority officials to say he was ‘appalled’ by the ‘dangers created to the public interest.’ Foye said he believed that the ‘hasty and ill-advised decision’ may have violated federal and state law, and he ordered the lanes reopened immediately.

“Twenty minutes later, at 8:04 a.m., traffic was restored to all three lanes, and Fort Lee’s gridlock nightmare was over.

“Foye asked other officials how they would ‘get word out’ to the public. ‘We are going to fix this fiasco,’ Foye wrote.

“That’s when Baroni balked. ‘There can be no public discourse,’ Baroni wrote to Foye.” [Philip Rucker and Aaron Blake / Washington Post]

Christie opened his State of the State speech Tuesday by saying:

“The last week has certainly tested this administration. Mistakes were clearly made. And as a result, we let down the people we are entrusted to serve. I know our citizens deserve better. Much better.”

“Yes, it is hard to believe the governor ordered the lane closures himself, as he says. But it’s also hard to believe it goes no closer than his deputy chief of staff, Bridget Kelly. It will take months for this to unwind, piece by painful piece.

“That will hurt him as governor, and bleed away some of his appeal as a presidential candidate. He is supposed to be the guy who gets things done by working effectively with Democrats, and now he has a war on his hands.

“And while voters love his blunt talk when it comes to fighting against tax hikes, Bridgegate gave them a crash course in the dark side of that style.

“It is not surprising that these guys were nasty and petty enough to do something like this... It is Christie’s style.

“The surprise is that they were so stupid about it this time, that they caused hardship for thousands of people as if that would not blow back at them, and then put it all in writing for investigators to find.

“Note to all those who compare Christie to Tony Soprano: Tony’s crew would have been smart enough to use code words.”

Aside from various probes on Bridgegate, with the New Jersey Assembly issuing 20 subpoenas on Thursday, Christie also faces a federal review of the state’s use of Hurricane Sandy aid for TV commercials starring the governor, a $25 million contract trumpeting New Jersey’s recovery. For a time, “Stronger Than the Storm” was all that was in New Jerseyites’ brains, playing on an endless loop. It was also blatant that these were campaign spots.

But our governors have always featured themselves in ads touting Jersey tourism, so as Tony would say, “Whaddya gonna do?”

I do have to say I was at a local Republican political event on Wednesday that drew a great crowd (campaign kickoff for a friend running for mayor of the town next door), and there were some state assembly dignitaries, one of whom was featured on all the national newscasts this week. But the only comments I heard regarding the governor were negative.

Former Republican Gov. Tom Kean, in an interview with the Washington Post, questioned how Christie would behave in the Oval Office.

“On the one hand, I think he’s got a lot to offer. I think he’s the most able politician since Bill Clinton. On the other hand, you look at these other qualities and ask, do you really want that in our president?”

--In a Quinnipiac University poll of New Jersey voters, 55% approve of Christie’s job performance, down from 74% in February 2013, four months after Sandy. A Monmouth University Asbury Park Press survey had Christie’s approval rating falling to 59% from 65% a month earlier.

--In an NBC News/Marist poll, 69% say Bridgegate hasn’t changed their opinion of Christie, with 44% believing he is telling the truth and 33% saying he isn’t.

But he now trails Hillary Clinton in a hypothetical 2016 match up, 50-37. In the same poll a month ago, Clinton led just 48-45.

--The New York Times’ David Sanger and Thom Shanker broke the story “The National Security Agency has implanted software in nearly 100,000 computers around the world that allows the United States to conduct surveillance on those machines and can also create a digital highway for launching cyberattacks....

“The NSA calls its efforts more an act of ‘active defense’ against foreign cyberattacks than a tool to go on the offensive. But when Chinese attackers place similar software on the computer systems of American companies or government agencies, American officials have protested, often at the presidential level.”

So much for the moral high ground. On Friday, President Obama ordered curbs on the use of metadata, including plans for it to be held by a third party, with the NSA requiring legal permission to access it, while a panel of independent privacy advocates would sit on the secret Foreign Intelligence Surveillance Court that has responsibility for granting permission for mass surveillance operations.

But the president said he would not apologize for the effectiveness of U.S. intelligence operations, and insisted he had seen nothing showing him the NSA was seeking to break the law.

Obama did say from now on the U.S. “will not monitor the communications of heads of state and government of our close friends and allies.”

As to Edward Snowden, Obama said the details that were released had potentially jeopardized U.S. operations “for years to come.”

--As reported by Bloomberg’s Chris Strohm, the nonprofit New America Foundation analyzed cases involving 225 people recruited by al-Qaeda or other terrorist groups and charged in the U.S. since the Sept. 11, 2001 attacks. “The majority of cases started with traditional techniques, such as use of ‘informants, tips from local communities, and targeted intelligence operations’ according to a report from the group, which has been critical of the NSA spy programs.

Peter Bergen, director of the foundation’s national security program, said in a statement:

“Our investigation found that bulk collection of American phone metadata has had no discernible impact on preventing acts of terrorism and only the most marginal of impacts on preventing terrorist-related activity, such as fundraising for a terrorist group.”

--Separately, documents leaked by Edward Snowden claim the NSA has collected and stored almost 200 million text messages a day from around the world, extracting information such as location, contact networks and credit card information.

--Former Defense Secretary Robert Gates commented to USA TODAY on Snowden.

“The disclosures have been very damaging, and I worry a lot when I read that there’s still a lot that has not been disclosed yet.” But he is “totally opposed” to a plea bargain for him. “He should be put on trial.”

As for the bitching by the likes of German Chancellor Angela Merkel, Gates said:

“Frankly, I feel like we’re swimming in an ocean of hypocrisy here. It mean, it’s not for nothing that the president carries an electro-magnetically protected tent with him everywhere he travels in the world – everywhere he travels in the world,” including to such allies as England, France and Germany. The tent providing security from surveillance. [Susan Page / USA TODAY]

Cass Sunsteain, a member of President Obama’s Review Group on Intelligence and Communications Technologies whose wife is Samantha Power, U.S. ambassador to the U.N., writes in an op-ed in Bloomberg that Robert Gates, in disclosing numerous confidential conversations while he served under various presidents, breached the trust of his former colleagues, and thus “committed a dishonorable act.” I don’t disagree.

--I’m not bothered in the least that Hillary and Bill Clinton kept a detailed “hit list” of everyone who has crossed them during more than 20 years in the forefront of American politics, according to a new book, “HRC: State Secrets and the Rebirth of Hillary Clinton.” Heck, John Kerry and Ted Kennedy endorsed Obama. What are the Clintons supposed to think of them?

No, I have far bigger axes to grind when it comes to HRC.

But, as a former staffer in the Clinton White House told London’s The Daily Telegraph: “(It) is typical of the way the Clinton operation has functioned in the post-presidency period. They have been vindictive and difficult.

“It’s the thing about the Clinton world that is the most dispiriting. It has always been baffling and troubling that they have operated with such a level of animus toward people that they should remain friends with.” [Peter Foster / The Telegraph]

--Oklahoma Republican Sen. Tom Coburn announced he is stepping down two years before his term is scheduled to end. Coburn recently was diagnosed with a recurrence of prostate cancer, but the 65-year-old said in a statement his health wasn’t the reason for his move.

Coburn had already vowed not to serve more than two terms but now he’ll be stepping down in January 2015. He is one of the few I truly respect in Washington.

“Robert Nozick, the late U.S. libertarian, smoked pot while he was writing Anarchy, State and Utopia. He would applaud the growth of libertarianism among today’s young Americans. Whether it is their enthusiasm for legalized marijuana and gay marriage – both spreading across the U.S. at remarkable speed – or their skepticism of government, U.S. millennials no longer follow President Barack Obama’s cue. Most of America’s youth revile the Tea Party, particularly its south-dominated nativist core. But they are not big-government activists either. If there is a new spirit in America’s rising climate of anti-politics, it is libertarian.

“On the face of it this ought to pose a bigger challenge to the Republican party – at least for its social conservative wing. Mr. Obama may have disappointed America’s young, particularly the millions of graduates who have failed to find good jobs during his presidency. But he is no dinosaur. In contrast, Republicans such as Rick Santorum, the former presidential hopeful, who once likened gay sex to ‘man on dog,’ elicit pure derision. Even moderate Republicans, such as Chris Christie, who until last week was the early frontrunner for the party’s 2016 nomination, are considered irrelevant.... Mr. Christie’s Sopranos brand of New Jersey politics is not tailored to the Apple generation....

“(And) far from being big spenders, millennials are more concerned about U.S. debt than other generations, according to polls. They are also strongly in favor of free trade. More than a third of the Republican party now identifies as libertarian, according to the Cato Institute. Just under a quarter of Americans do so too, says Gallup.

“All of which looks ominous for Ted Cruz, the Texas Republican whose lengthy filibuster against ObamaCare last year lit the fuse for the U.S. government shutdown. Mr. Cruz...leads the pugilistic wing of the Republican party that is prepared to burn the house down in order to save the ranch. Although also a Tea Partier, (Sen. Rand) Paul is cultivating a sunnier Reaganesque optimism that draws on the deep roots of U.S. libertarianism. His brand of politics strikes a chord with those who fear the growth of the U.S. surveillance state – the types who view Edward Snowden (another millennial) as a hero rather than a traitor....

“On the minus side, libertarians have no real answer to many of America’s biggest problems – not least the challenges posed to U.S. middle-class incomes by globalization and technology. Nor are they coherent as a force. Libertarianism is an attitude, rather than an organization. It is also potentially fickle. Young Americans disdain foreign entanglements. That could change overnight with a big terrorist attack on the homeland. They feel let down by Democrats and hostile to mainstream Republicans. Yet they could flock to an exciting new figure in either party. Theirs is a restless generation that disdains authority. Establishment figures should take note. Tomorrow belongs to them.”

--A Quinnipiac University poll released Friday found that 64% of New York City voters say Michael Bloomberg’s tenure was a success, with just 24% judging it a failure.

--Should Arctic shipping lanes open up as forecast in the coming years, tied to a big thaw, Admiral Jonathan Greenert, chief of U.S. naval operations, notes the costs to the Pentagon would be huge to protect them. For example, any warships or submarines sent there would “need reinforced hulls to cope with the risk of hitting ice, which would add at least $250 million to the normal cost of about $1 billion for a guided missile destroyer.” [Michael Evans / London Times]

Five nations border the Arctic and have the right to 230-mile exclusion zones – the U.S., Russia, Canada, Norway and Denmark. Russia has 25 ice-breaking ships. The U.S. has only one.

--A new report from the surgeon general concludes the dangers from smoking are even greater than previously estimated, killing 480,000 Americans a year from diseases that include diabetes, colorectal cancer and liver cancer.

Thomas Frieden, director of the Centers for Disease Control and Prevention, said, “Amazingly, smoking is even worse than we knew. Even after 50 years, we’re still finding new ways that smoking maims and kills people.”

--Data released by the CDC shows just one-quarter (24.8%) of American youth between the ages of 12 and 15 participate in moderate to vigorous physical activity for at least 60 minutes each day. A previous study found 29% of high-schoolers met those physical activity guidelines.

I wonder what the percentage was when I was a youth in the ‘60s and ‘70s? I’m guessing 50%. We went home after school, changed, and were outside for 90 minutes, weekends far more. Recess and phys ed were also pretty aggressive. Not the case today. Very sad, and very costly to society.

---

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

Gold closed at $1251...up $50 thus far in 2014
Oil $94.37

Returns for the week 1/13-1/17

Dow Jones +0.1% [16458]
S&P 500 -0.2% [1838]
S&P MidCap -0.1%
Russell 2000 +0.3%
Nasdaq +0.5% [4197]

Returns for the period 1/1/14-1/17/14

Dow Jones -0.7%
S&P 500 -0.5%
S&P MidCap +0.4%
Russell 2000 +0.4%
Nasdaq +0.5%

Bulls 56.1
Bears 15.3 [Source: Investors Intelligence]

Have a great week. Next time from Hong Kong.

Brian Trumbore

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