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For the week 1/20-1/24
[From Hong Kong...Saturday morning, local time]
This is my fifth trip to Hong Kong, easily one of the two or three most exciting places I’ve been to (there’s an unmatched energy level here), and it was the third time I’ve flown non-stop from Newark, a rather dreadful 15 ½ hours. This is one time when I don’t punch up the flight map on the video screen as it obviously would make the trip seem even longer.
But about an hour into the flight I was kind of mystified why it was already dark, having taken off from Newark at 3:30 p.m. The captain never said anything, literally the entire flight, and on my previous two trips we went over western Canada, the Arctic Circle and then down the coast, spectacularly past Kamchatka (that’s one wild looking place) on down to Hong Kong.
So I didn’t realize that when with two hours left in the flight I put the flight map on we had gone the opposite direction, up over Greenland, the Arctic and down through Siberia and Mongolia and were entering China as early evening fell. Beijing was on the west but my window seat was on the opposite side and due to the fact the visibility was surprisingly good, given all the pollution stories, it was a wonderland down below. Just as you’ve read, one little city (though with probably a million people crammed in) after another (plus Wuhan, a larger city, was on my side of the plane).
It was a good lesson on what is happening in China. At first I couldn’t figure out these strange flashing lights on the ground. They weren’t local aircraft. What was it? They seemed to be moving. Why it was the trains. Tons of them. Yes, that’s also part of the China story. Darkness for a stretch, then another city pops up on the horizon with a flashing light denoting a train taking people from one booming metropolis to another. It was very cool.
So of course I’ve followed China closely since Day One of StocksandNews. As in other big stories, such as Iraq, Iran, the tech and housing bubbles, the financial crisis, I defy you to find another source that has covered major events the past fifteen years as I have.
Back in 2006, though, I began investing in small amounts in a company in China called China Clean Energy Inc. after reading an extensive research report in a reputable newsletter specializing in small cap stocks. After a while, though, I thought if I’m going to put more into it I need to go see the company itself in Fuzhou, which is in Fujian province, equidistant between Hong Kong and Shanghai.
I contacted management (actually met the CFO in New York ahead of time) and they picked me up at the airport on my first trip there in 2007 and took me to what would be called the ‘old plant,’ where I met the CEO and other staff. The CEO treated me to the best cup of tea I’ve ever had…steeped through an old-fashioned wooden box (I know I’m not describing it correctly)…and then they took me to the conference room to show me the plans for their new plant, which would expand capacity by ten times and was the only reason one would invest in this company. That plant was to be built at a new economic development zone on the coast, not that close to the existing facility, connected to a new deepwater port.
China Clean Energy (CCGY on the pink sheets) manufactures specialty chemicals (literally stuff that goes into things like paint and different kinds of industrial acids) and biodiesel. As befits its name, the process is environmentally pure and the pipes, so to speak, can be used for either depending on what happens to be more profitable at the time.
So duly impressed, and having been writing about the growth prospects for China, I came home and began to invest more. There was another positive to their story, at least to a big picture geopolitics guy like myself, and that was that the new plant, and Fujian in general, is the shortest point between the mainland and Taipei, and you’ll recall this was when a more positive diplomatic tone between the two was really beginning to kick into gear. It seemed a natural that over time (and this was a long-term, multi-year play for me), Taiwanese investors would see this new port facility, the plant, maybe make an investment, or if nothing else CCGY could sell some of its product there, as they were doing in small amounts with countries like Indonesia. I seemed to appreciate this potential more than management did over the years, I do have to admit with a smile.
But now we head into late 2008, I have built up a sizable position, but with each conference call the progress appeared to be slow in building the new facility versus expectations so that November I went back to Fuzhou to make sure this thing really was being built! Once again I was picked up at the airport and this time taken to the new location in Jiangyin. I have pictures on my Facebook page (personal one) and there I was, climbing all over the pipes and walking up stairs without handrails (OSHA would have had a heart attack) and it was all quite impressive. A massive new plant was indeed being built. I could understand why there were delays due to bureaucratic roadblocks along the way, but I accomplished what I set out to. I could see the potential. I also saw that indeed it was near a new port that had huge potential of its own.
Fujian is also the least developed of the coastal provinces and that was good in my mind. Further internal growth potential. Of course with China’s rapid expansion came more and more stories of pollution and, heck, the CCGY story of clean chemicals and biodiesel was a layup.
I did realize, though, that this was going to be a cyclical story. It would have its ups and downs depending on the overall economy, as well as Fujian’s, and we all know what happened in 2008 and 2009, the financial crisis hit. CCGY wasn’t really impacted. It had cash, so they kept reassuring me, and the plant did eventually get completed and the results began flowing through in 2010.
At the same time I was meeting quarterly with the new CFO in New York City for lunch or dinner. William was a very bright young kid, going to school part-time in New York and splitting his time between there and Fuzhou. I trusted him. There was zero reason not to. We talked from time to time about putting me on the board. He reminded me that I’d then be subject to restrictions on when I could sell but I was a long-time investor and that wasn’t an issue with me. [The talks didn't result in anything.]
In the meantime, as global stock markets crashed, bottoming in the spring of 2009, literally the day after the bottom, which was March 9, I bought another huge slug at $0.10. I had been buying it from $3.00 all the way down. By November 2010, the share price had rebounded to $1.30. The new plant was running on all cylinders. I was in terrific shape (my ownership level being 2.5% of the entire company).
But in 2011, China stocks in general took a big hit with the revelation of one financial accounting scandal after another. The most prominent being Sino Forest, which took hedge-fund king John Paulson for a ride to the tune of $100s of millions ($450 million to be more precise). The forest holdings didn’t really exist, at least to the extent the company said they did. I can guarantee Paulson didn’t do the due diligence I had with CCGY (as it turned out nowhere close from reading court filings and Paulson’s own missives) so at first I slept well, then increasingly restlessly as CCGY was thrown out with the bathwater, though the shares were still at about $0.50 as of the fall of 2011. Based on the financials, it was ridiculously cheap, as were virtually all China stocks by then.
Around this same time, however, I was well aware of an acquisition the company needed to make for feedstock. You can only find so much cooking oil and grease from local restaurants when you are looking to ramp up production in a huge way and CCGY acquired a company that was not in Fujian but which supposedly would guarantee my boys an ample supply of the needed material to produce the product.
The problem was the new accountants, Friedman, looking to build their presence in China, disagreed with management on the valuation for the acquisition as they were preparing the 2011 annual report in the spring of 2012 and suddenly talks broke down (I heard later from reputable sources the two sides were oh so close in reaching a figure), and Friedman had to walk away. CCGY then announced my CFO friend, William, who I had continued to have my quarterly meeting with, was resigning and…poof…the company went “dark.” As in no further communication.
If you haven’t been following the China stock game, let alone investing in one of the companies there, you have to understand that the Sarbannes-Oxley requirements for small company listings are incredibly expensive and many of the legitimate Chinese listings in the U.S. were more than torqued off that their perceived share valuations also weren’t being recognized. Why were they listing here in the first place, many of them were asking themselves?
But for every reputable company we’ve learned there is a fraudulent one. Confused, like every other investor in the U.S. (as we commiserated initially on the Yahoo message board before the talk got rather ugly…some incredibly blaming me), CCGY shareholders had no recourse. [A group split off and tried to form a shadow board, using Delaware law, but I had neither the time or money for what I considered a fools errand.]
Legally, CCGY simply took advantage of a loophole in the rules whereby they aren’t obligated to release regular data (even if unaudited) if there are fewer than 300 shareholders. Shockingly, at the time the filings showed there were just 90 of us!
Long-time readers know one thing. I have never, ever touted a stock in my columns. I have commented on a potential ‘short’ from time to time, but I take too much pride in what I’m trying to accomplish with StocksandNews to become a stock tout. That obviously creates a whole new level of responsibility, including legal liabilities. [In fact, this is the first time I ever mentioned the company’s name in this space. If people were interested based on the clues in my columns, I did tell them, though never pounded the table for CCGY. It’s “Here is what I know. You’re on your own.”]
No, the only investment product I have recommended is Bill Gross’ PIMCO Total Return Fund and while I have not brought this fund up in years, I would have zero problem recommending it today, even after it had a rough year in 2013 (down 2%), for anyone looking for a core bond holding. [Though I would hasten to add I am far from sanguine on bonds in general these days because I see interest rates rising.]
So back to CCGY, in late August of 2012, out of nowhere the company announced results for 2011 (which with the resignation of Friedman had never been filed). But the release was hidden on what’s called the OTC Markets board (OTCmarkets.com). There was a new attorney listed, in California, and after waiting a month I left a voicemail with the fellow and one minute later he called me back. In that instant I thought, ‘This is a good sign.’ But, alas, he proceeded to tell me that since his help was sought with the statement of results, he hadn’t heard anything further from the company, nor had he been paid. Not good.
Nothing happened all through 2013, no announcements, no nothing. The stock seldom traded and there was no reason to be optimistic the company even existed at this point, though some on the message board used contacts at Federal Express to confirm they were still in operation. I then made plans a few months ago to come one last time. I needed closure. After all, at some point I might as well take the loss, right friends?
So now it’s Wednesday. Just hours after arriving in Hong Kong, duly armed with my Chinese visa (shockingly issued for a year this time, as opposed to the standard three months), I hopped on a Dragonair flight to Fuzhou. Oh, I had written the company a few days earlier but knew there was no chance I’d be greeted by a “Welcome Brian Trumbore” placard.
Nope, I perhaps naively thought I could find one driver… one…who spoke enough English to get me to Jiangyin and back, to get me to the industrial park to see if I could detect any activity at CCGY.
And then the trouble started. My plan was to ask airline ticket agents at the counters in Fuzhou (who obviously speak English, at least some of them would) to give me a recommendation. My return flight wasn’t until evening and I had arrived at about 10:30 a.m. Jiangyin was an hour away. I figured a 2 ½ hour trip, max. Having bored you enough already, I won’t bore you with this particular detail but suffice it to say, to find classic airline counter agents you needed to re-enter a certain area and I couldn’t do that. I was left with some airline employees of a different sort and only one spoke a little English.
Understand the airport was teeming. It had been expanded some since I was last there, remember, five years earlier, and we are now in the midst of what is informally known as the 40-day Lunar New Year holiday period. I was well aware of this but the actual New Year is Jan. 31 and thought for sure the plant would be open in some fashion.
Anyway, after debating what to do, I finally ventured out to the taxi area and was immediately mobbed by drivers, none of whom spoke English. At that moment I came very close to bagging the whole idea and sitting in the airport for nine hours until my flight back to Hong Kong. It just wasn’t going to work.
But after I showed the guys (there were about 12 of them surrounding me) a map of where I wanted to go, one said he could take me there. He pulled out a calculator and showed me 700 (yuan, about $120). This is exactly what I was planning on. I was only carrying $250 plus some leftover yuan (renminbi) from my last trip. I tried to explain, 700 there, 700 back. The guy then hands me his phone and I’m suddenly talking to his boss who spoke some English. What I gathered was this fellow would take me for the agreed upon price and I assumed he communicated with the driver exactly what I wanted to do.
So I hop in his car. He wasn’t a friendly sort and about one mile out of the airport we pull over to a rest stop where some other guys are milling around. A negotiation is taking place. I’m wondering who is going to kill me, this being part of my equation for the trip.
After five minutes my driver motions me to give him $120, which I do, and then he hands it to someone else and tells me to go with that guy. He doesn’t speak English either and clearly isn’t Shecky Greene (I think I just severely dated myself).
So off we go. After the first 30 minutes all seems OK because we are passing familiar landmarks from my two prior trips. [The first plant, after that distance, then was one way and the new plant was another.] I thought we made the right turn towards Jiangyin though I never saw any signs.
What I did notice was a ton of construction, new housing developments and apartment towers, just like everywhere else in China. Then I did recognize we were in Jiangyin and it was booming, both because of the construction and the holiday. It was rather impressive. [Though very dusty.]
We are now one hour into the trip, my driver had the sniffles, I offered him a tissue, he turned it down, and that was the extent of our communication, but he also didn’t seem unhappy or disgusted…until we hit a major traffic jam. Two trucks in opposite directions without room on a narrow street. We sat there for ten minutes. I was ticked. The driver less so.
When the traffic finally cleared, I guessed we were about five minutes from the Jiangyin Economic Development Zone, based on my lone trip, and I assumed he knew where it was because thus far he seemed to know where he was going. Alas, at this point he didn’t.
I was armed with maps I had printed off Google and pictures from a CCGY investment kit once the new facility had been completed. Remember, I only saw bare bones construction. I never saw the finished product in person.
Well, to make a very long story short, for the next 45 minutes we drove around and around, the driver, to his credit, stopping constantly to ask police, others, if they knew where the industrial park was. This is where I needed someone speaking English to give them the right questions to ask. Clearly, he wasn’t getting through. I had hopped in his car at noon. It was now 2:00. The driver’s attitude was surprisingly good. He was definitely trying to help me and frustrated he couldn’t.
Finally, I spotted in the distance some plants and figured that was the park. And boy, it wasn’t what I had remembered. CCGY was one of the first to build in the area. This place was now huge, and I could see the port in the background, as drawn up.
But there was little activity in the entire industrial area. I had made another gross miscalculation. The plants are clearly shut down for a week or two due to the holiday but I had guessed the closures would come the week before the New Year, not this week.
No activity meant few people to ask. But we did find three gleaming new hotels, incredibly, as I tried to figure out how the heck they could be profitable, even as big as the industrial park appeared to be, let alone booming Jiangyin. The driver went into two of them asking for advice and we resumed our search for CCGY, comparing my memories and the photos with the structures we were passing. Nothing matched. It was now 2:45. Throughout I hadn’t pressed him on anything, but at this point I was resigned to heading back, mission not accomplished. A freakin’ failure.
He then pointed one last time to a facility way off in the distance but to me it didn’t fit and it wasn’t clear how we would get there easily (some roads were under construction…a few essentially blocked off, probably because it was a good time to do this with everyone away) and it now being 3:00, after we drove around a little more, I said “That’s it…back to the airport.”
Now understand I thought this was going to be a 2 ½ hour trip, it was already 3 hours, and, if we took another way back, the toll road, which I knew about, we were still an hour from Fuzhou.
He became exasperated and pulled the car over. I was sitting in the back. He starts speaking to me in an irritated voice and I told him over and over, “I don’t understand you, you don’t understand me. Let’s go back,” motioning in the direction of the toll road.
He then motions to his wallet. Oh, he wants to be paid now for the return. Well at first I stupidly got upset myself, due to my own frustration on how the day had gone. He then started talking in a mean fashion and I heard one word, “polize,” and that’s when I thought, Editor, you just hit his hot button, he’s either dumping me in the street to fend for myself after taking my money, or handing me over to the police, claiming I stiffed him, and boy would that have been a barrel of monkeys.
So I kept telling him I’ll pay him when he gets me back as I’m giving him one $20 bill after another, stopping after each one to see if that was enough. He bitched and bitched and bitched. Finally at $100 he restarted the car and off we went.
The toll road was great, by the way, better than any New Jersey highway, and at the end the fare was $7.50 (45 yuan) and he didn’t ask me to pay for it. He wasn’t a bad guy after all. When he got me to the airport he smiled, I did not pay him anything further…only had $30 left anyway… and he wasn’t unhappy. I smiled and waved after shutting the door. But still an awful day.
Oh, and with four hours before my flight back to HK, I forgot to tell you about the weather. I had looked it up a few days before and Fuzhou was supposed to be sunny and in the 60s, so I dressed accordingly. It was in the 50s, and windy, and the airport authorities didn’t turn on the heat. As in I have never been close to freezing to death inside an airport terminal. It was so uncomfortable, I only had one beer in passing away all that time in misery. At least I had brought some reading material.
Well, when I got back to my room in Hong Kong, I tweeted my trip had been a failure and e-mailed family and some friends/investors the same.
But upon further review of what I saw, and looking at the pictures, I do think the last plant the driver pointed out to me was indeed the one. This will bother me a long time that we didn’t go back there, assuming we could get through in some way. I was too focused on what I had seen going up back in 2008 and not enough on some of the pictures. I probably blew it all over again.
I figure I’ve made about 8,200 mistakes in my life. [Some of you will recall way back that I bought the company that first put the StocksandNews site together. Oh yeah, that worked out real well.] Of the 8,200 mistakes, 6,500 are probably in the ‘major’ category. CCGY is obviously near the top of the list.
Bottom line, I don’t know what the hell is going on there, if anything. Strangely, about a week ago, the stock traded one million shares cumulatively over a four-day period, all at the same price. Who would buy it? There is zero reason to unless it’s an employee who knows something is up. [There are all kinds of theories…at some point the company goes private, if it hasn’t already…they eventually list on a Chinese exchange…there is a fight over ownership…] It’s true the Chinese do have much longer time frames than we do, like light-years longer. Those who decided to list their shares in the U.S. fell victim to the American trap. We seek instant gratification. In my case I wasn’t looking for that. Again, I did everything right. I did the due diligence. I didn’t rise to the level I did on Wall Street while being an idiot, though many say I was an idiot to leave the job I had at PIMCO and, of course, they are probably right!!! [That’s major mistake No. 6,342, by the way. Actually, I just needed to stay two years longer, think cash flooding into bond funds after the tech bubble.]
One final related thought. On the drive back to the airport we passed through a suburb of Fuzhou (which is a large city) and there were tons of gleaming new high-rise apartment towers along the highway. I could see straight through all of them. That’s part of the China conundrum, to be continued below and for years to come.
I need to take a pass on much of what happened on Wall Street and the world this week as I spent two full days, Tuesday and Wednesday, and part of Monday either in the air or in a situation where I couldn’t keep tabs on what turned out to be a tumultuous week. I’ll fill in the gaps next time.
Washington and Wall Street
I can dismiss the ‘Washington’ part easily because President Obama gives his State of the Union this coming Tuesday, while that day the Federal Reserve convenes what is now a critical two-day meeting after which we learn that with the renewed market turmoil, after a lackluster start to 2014, does the Fed continue paring back its bond-buying program or does it pause? [I’m staying out of this one. I pick my spots when it comes to the Fed judiciously.]
On the economic front we only had a figure on existing home sales for December and it came in less than expected, an annualized rate of 4.87 million vs. the 5.09 million pace for all of 2013, the most since 2006. The median home price, $198,000, was up 9.9% from Dec. 2012.
Due to the market slide, however, money cascaded back into Treasuries and the fact the yield on the key 10-year is back down to 2.72% is obviously helpful for those seeking a mortgage.
Ah yes, the market. Owing in no small part to a 318-point decline on Friday, the Dow Jones lost a whopping 3.5% on the week, its steepest decline since November 2011, while the S&P 500 had both its worst day since last June, as well as its worst week since June 2012, down 2.6%. Nasdaq lost 1.6%.
It’s all about China’s slowing economy (a large part of it), currency instability in the likes of Argentina, Turkey and Ukraine, which is feeding a rout in many emerging markets, so-so earnings guidance thus far, and uncertainty over Fed policy.
But it’s also about the simple fact the markets soared 30% last year and, heck, we haven’t had a correction (defined as 10%) since the Hoover administration, when we had a slew of them, or so it seems.
I mean it seems like the last time we had a correction, Jay Leno was replacing Johnny Carson.
Roger Clemens and Barry Bonds were actually eating Wheaties, the Breakfast of Champions, not taking injections in the butt.
So some perspective is probably in order. That said the developing emerging market crisis is not good. We’re all anxious to see how next week pans out.
What the market volatility is not good for is business confidence and a market data company, Factset, said capital spending, capex, will grow at the slowest pace in the U.S. in four years due to continuing caution over global demand. I disagree slightly and say spending on capex will be better than expected.
Ironically, on Tuesday the IMF reiterated its warning that central banks must be careful in withdrawing stimulus so as not to roil emerging markets, specifically pointing to the Fed’s move to begin tapering in December, and cause “complex capital movements across countries” with the evidence from last year being that emerging market economies with weak macro frameworks would be most affected.” And that’s exactly what we saw this week.
[At the same time the IMF said the rate of expansion in the U.S. would rise to 2.8% this year. It sees China growing at 7.5%.]
A few comments from Barron’s “Roundtable” on the 2014 outlook….
Felix Zulauf: “The world economy will disappoint. The U.S. will perform best. China is slowing dramatically, causing contraction in the emerging world. Europe has seen an improvement in bond yields, due to arbitrage opportunities, but has virtually no economic growth. The U.S. could be the exception in seeing 2.5% or 3% growth, largely because consumer prices will remain depressed. If I’m right, commodity prices will remain soft, and the U.S. dollar could be stronger.”
Marc Faber: “First, nobody could have a more negative view of the Federal Reserve than I. It is run by a disastrous group of academics, who have no clue about what is happening in the real world. They believe money-printing can create jobs. They are going to bankrupt the world. Mr. Bernanke said the intention of QE3 [the third round of quantitative easing], which then turned into QE4, was to lower long-term bond yields. As it happened, yields on Treasury notes and bonds bottomed on July 25, 2012, and have been rising since. The policy was a failure.
“After World War II, Hong Kong [Faber divides his time mostly between here and Singapore] was in a depression. But the economy developed rapidly thereafter under the leadership of John James Cowperthwaite, a British civil servant and financial secretary of Hong Kong from 1961 to 1971. Asked later what he did to achieve this economic miracle, he replied, ‘I didn’t do anything. I just prevented others from taking bad measures.’”
Faber also says of the Far East, “The tensions in Asia are real and rising, and could cause a market panic.”
Europe and Asia
Markit (sic) published its flash estimates for the manufacturing and service PMIs (purchasing managers indices) for the eurozone (with the flash readings also including specific estimates for Germany and France) and for January the manufacturing PMI was 53.9 vs. 52.7 in December for the region as a whole, a good sign, while the services PMI was 51.9 vs. 51.0, tepid growth.
Germany’s manufacturing PMI was up to 56.3 vs. 54.3, while France remained in contraction at 48.2 though up from the prior month’s 45.2.
As economists continue to note, and to which I concur, the recovery in the eurozone remains very fragile. After all, we’re still just talking a rise in GDP of 1% this year, though it could easily be a bit higher with a little luck.
Meanwhile, on the topic of Europe’s looming bank stress tests, speaking from Davos, Switzerland at the World Economic Forum, Axel Weber, UBS chairman, warned that the hurdle facing some of Europe’s weaker lenders was a big one.
“I expect some of the banks to not pass the stress tests. I don’t think that markets at this point will provide sufficient capital, at least not for the banks that are in doubt.”
One other thing is for sure. Europe is no closer to the needed true banking union.
Separately, the Bank of Spain said GDP grew 0.3% there in the fourth quarter over the third, an improvement, but the country still contracted 1.2% for all of 2013 and while the government touted an improvement in its official unemployment rate (which isn’t the same as the official Eurostats figure), it remains at 26%.
In the UK, all kinds of stuff. A report from an outfit called Sequence showed home prices in Britain rising 15% last year, which is not too shabby and makes up some for the fact the average Brit continues to fall further behind in other aspects as items like utility and transportation costs shoot through the roof while wages are stagnant, despite the improving overall economy.
Britain’s unemployment rate, after all, is down to 7.1%, or just above the 7.0% level that the Bank of England had touted as the threshold for beginning to raise interest rates. Now the BoE is saying, a la our own Federal Reserve, it won’t be hurried…for now the stimulus in record low rates continues.
In Greece, its highest legal authority is demanding a reversal in salary cuts for security services, which of course would lead to everyone else saying, ‘Hey, what about our union or group?’ If adopted this would wipe out the government’s hard fought primary budget surplus – before repayment of debt – let alone blow away plans for the ruling party to use some of the surplus to in essence buy the impoverished people’s votes by way of handouts ahead of the European Parliamentary elections I’ve written will be explosive. And it threatens future bailout funds.
Turning to Asia, in China, as noted above, HSBC’s flash estimate of the manufacturing PMI for January shocked the markets at 49.6, contraction and down from December’s 50.5. It was also announced GDP came in at 7.7% for the fourth quarter, a 14-year low, vs. 7.8% for the third quarter, though above the government’s target of 7.5%, which is the forecast for 2014.
Some say that GDP is actually much closer to 4% to 5% and they could be right. I know firsthand what is taking place here, still massive construction, much of it, such as in the infrastructure, badly needed, but what of the ghost towns? Who is funding these high-rises? If it’s not the banks, which is worrisome in terms of their levels of underperforming loans, it’s the local governments doing so through off-balance sheet vehicles (the shadow-banking system you are hearing more and more about) that the government is frantically trying to get a handle on. The banks have been told they must improve transparency.
The rising yuan is another issue as Chinese exports are more expensive, plus you have increasing labor costs, which is part of the equation for the hoped for boom in consumer spending that is to take some of the pressure off the declining export sector, but thus far there is little evidence Chinese consumers are consuming at needed levels.
And while I saw firsthand empty housing towers, there are some places, like Beijing and Shanghai, where demand still outpaces supply. That’s why you continue to see soaring housing prices despite the government’s best efforts (as in some areas demanding a 70% down payment for a second home).
The value of new homes in China rose 27% last year, up at an 18% annual rate in Shanghai in December, while existing home values rose 20% in Beijing for 2013.
So no wonder Premier Li Keqiang said the other day that the mainland economy faces a “severe” time this year and the central government is watching closely.
[A few other economic tidbits. Industrial production in December was up 9.7% vs. year ago levels, while retail sales rose 13.6%. Auto sales, up 14% in 2013, are expected to rise 8% to 10% this year.]
In Japan, the Bank of Japan issued an upbeat outlook despite the looming sales tax hike in April. Inflation, the BoJ offers, will rise to 1.3% for the fiscal year beginning in April and 1.9% the following year, or essentially the 2% goal.
--U.S. Treasury Yields
6-mo. 0.06% 2-yr. 0.34% 10-yr. 2.72% 30-yr. 3.63%
As noted above, Treasuries were the beneficiary of a flight to safety with the yield on the 10-year falling 10 basis points on the week, while the 30-year dropped 12 from 3.75%.
--PIMCO CEO and Co-CIO Mohamed El-Erian resigned amid reported tension between himself and PIMCO co-founder, Co-CIO Bill Gross, who now goes back to being sole chief investment officer. Gross then tweeted, “Batteries 110% charged.”
El-Erian has been with PIMCO on and off for 17 years and having had some experience with the bond shop I can say there is no doubt that, despite some snarky comments, El-Erian wants to scale back a bit and have a more normal lifestyle and work schedule.
PIMCO is stress city. True, the professionals out in Newport Beach, Calif., make tons of money, but many just burn out. It’s been a long-time since I worked on the retail side of the business for them, which meant I had limited direct contact with Newport, except for my sales duties with Bill Gross, but I knew some of the individuals who quit while I was there and it’s just a different culture. Gross has thrived in it, but not everyone can handle it decade after decade.
El-Erian will remain a member of Allianz’s International Executive Committee and will advise the board (Allianz owing 97 percent of PIMCO).
But for a firm the U.S. government has identified as being important to the overall financial system, as the Financial Times put it, PIMCO “should be more forthright about the unexpected departure of a figure they have done so much to promote.”
--As alluded to above, the Argentine peso suffered its worst one-day fall on Thursday since the 2002 crisis as capital flight seems a certainty despite the government’s best efforts to restrict it. The government of President Cristina Fernandez has been draining reserves to service its humongous debt and pay for rising energy imports. The unofficial inflation rate is 28%, double the ‘official’ one, and could spike much higher.
--Japan is seeing a thaw in its housing market, finally, after prices fell a sickening 65% between the peak of the bubble in 1991 and 2013. This is critical in reversing the country’s deflationary mindset.
--Toyota remained the world’s top-selling automaker for a second year in a row, beating General Motors by 270,000 vehicles in 2013, while setting a target of 10 million for this year, a level no automaker has ever achieved.
--South Korea’s economy grew 0.9% in the fourth quarter over the third. For all of 2013, GDP was up 2.8%. For the year exports rose 2% after a drop in 2012, with the trade ministry forecasting exports this year will rise 6.4%, particularly important as they comprise half of GDP.
--South Koreans, the biggest users of credit cards in the world, are dealing with their own Target-type issue, a breach resulting in the theft of information on 20 million users. Regulators said there will be harsh corporate penalties for data theft in the future. An individual with a personal credit ratings firm was arrested for stealing names, social security numbers, home addresses and personal credit ratings.
--Seven out of eight stocks that had their IPOs on the Shenzen Stock Exchange the other day closed more than 45% higher, prompting the exchange to warn investors against excessive and blind speculation. They were among the first to trade since China’s market regulators imposed a 14-month freeze on initial public offerings.
--Like I’ve written on countless occasions, it always cracks me up when President Obama takes credit, as I’m sure he will on Tuesday, for the energy success story in America. So you get a different voice this time, Thomas G. Donlan / Barron’s:
“Even the U.S. would never have developed fracking and horizontal drilling so fast and so effectively if all of the promising territory had been under federal or state government control or under leases already held by big oil companies. Risk-averse bureaucrats would have found reasons for delay, as they have in northern Alaska, California and the Florida side of the Gulf of Mexico. Big energy companies would have exploited their opportunities slowly and carefully, with due regard for keeping market prices high.
“Luckily for Americans, markets for fracking were themselves fractured among thousands of competing drillers and millions of owners of potential drilling sites. Lacking leverage against their neighbors, eager landowners in Pennsylvania, North Dakota, and Texas made the best deals they could get with equally eager drillers. Both sides counted themselves lucky to live in such a great country.
“Although President Barack Obama speaks with pride about his ‘all of the above’ energy strategy and brags about the rise in U.S. energy production, the credit belongs to liberty. According to the Congressional Research Service, oil production on federal land fell 6% and natural-gas production fell 21% from the beginning of 2009 to the end of 2012.
“The drillers and property owners should turn to the president and say back to him, ‘You didn’t build that.’”
--Natural gas prices soared at week’s end to their highest level since June 2010, $5.16, as the cold air keeps pouring down from the Arctic.
--Microsoft handily beat earnings on the top and bottom line and the stock rose, bucking the overall market trend. The company sold a ton of game consoles.
Meanwhile, Microsoft’s acquisition of Nokia’s handset business is off to a bumpy start as Nokia saw revenue from handsets, the Lumia Windows phone line, decline 29% compared with year ago levels. Nokia sold 8.2 million vs. 8.8 million in the prior quarter. For 2013, the company sold 30 million, which is far short of Microsoft’s break-even target of 50 million.
--Shares in Nextel soared over 15% after the company reported earnings and revenues that far exceeded expectations, with the company also reporting it gained 2.3 million more U.S. subscribers. Revenue for the quarter grew 24% year-over-year to $1.18 billion. Overall Netflix has 33.4 million subscribers, far ahead of HBO, which CEO Reid Hastings took particular joy in reminding investors of.
--IBM’s stock was hit hard as once again the company missed revenue expectations. China’s Lenovo did buy IBM’s low-end server unit for $2.3 billion. IBM is retaining the mainframe and storage businesses.
--Democratic Sen. Edward Markey (Mass.) called on regulators to launch an investigation into Herbalife, hedge-fund operator Bill Ackman long calling it a pyramid scheme. Shares in the company cratered 12% on Thursday following Markey’s request.
--Carl Icahn is calling for eBay to spin off its PayPal division, which eBay rejected but instead unveiled a $5 billion share buyback program.
--Coach shares fell 7% after the company announced North American sales declined 9% in its fiscal second quarter.
--JPMorgan Chase bowed out of a potentially lucrative Hong Kong listing of a Chinese chemicals company due to the investigation into the bank’s hiring practices, specifically the hiring of Chinese princelings – family members of influential figures in the Chinese government and elite. To hire such candidates in the hope of landing future business is in violation of the U.S. Foreign Corrupt Practices Act. JPM had hired the daughter of Tianhe Chemicals’ chairman, which is slated to go public at some point.
And for all his good work this past year, CEO Jamie Dimon’s compensation package totaled $20 million vs. $11.5 million the prior year. Now that makes you sick.
--On Sunday, as first reported days earlier by the Wall Street Journal, Deutsche Bank announced a surprise fourth-quarter loss of $1.62 billion on litigation costs as well as valuation adjustments in the credit, debt and funding areas. Germany’s largest bank has faced pressure from regulators over its capital adequacy.
--Following its return to the bond market after emerging from its bailout, Ireland’s debt now ranks as investment grade from all three of the main credit-rating firms, though at the beginning of this week the yield on its 10-year paper was only about 40 basis points (0.40%) over the U.S. 10-year which is absurd. Ireland still has huge debt service issues. If you tell me, though, that Europe’s economic recovery is fully in place for the next five years, I’ll concede the narrow spread is perhaps warranted. But now ask me if I think the eurozone’s troubles are finally history.
--According to a survey by the London Bullion Market Association, gold analysts are more bearish than at any time since 2002, expecting an average price of $1,219 this year. But this is the same group that was incredibly bullish last year, predicting, on average, a price of $1,700 for the year. Ergo, take the bearishness with a grain of salt. [And gold is up over $60 thus far in 2014.]
--Starbucks reported same-store sales comps rose 5% globally and announced it expects mid-single-digit growth in 2014, which would be solid.
--McDonald’s, on the other hand, which has a booming franchise in the airport (it’s where I’ve been getting breakfast, only this morning the line was way too long for moi), saw fourth-quarter global comp sales fall 0.1%, down 1.4% in the U.S. Time to remove the CEO, ol’ whatshisname.
--A Princeton University study concludes Facebook will lose 80% of its users by 2017. Researchers based their prediction largely on the number of times Facebook is typed into Google. Google Trends charts show Facebook searches peaked in December 2012 and have since begun to trail off.
“Ideas, like diseases, have been shown to spread infectiously between people before eventually dying out, and have been successfully described with epidemiological models,” the authors claim in their paper. “Idea manifesters ultimately lose interest with the idea and no longer manifest the idea, which can be thought of as the gain of ‘immunity’ to the idea.”
--Bird flu still needs to be on the radar in terms of global economic risks. Four more cases were reported in China on Wednesday, bringing the season’s total in that country to 221. 57 have died. Officials have been keeping a watchful eye with hundreds of millions traveling for the Lunar New Year holiday.
A doctor from Shanghai became the first health care worker to die of the H7N9 virus, raising fears it can spread from person to person. There was no evidence he had been in contact with poultry recently. He was just 31. Rather scary.
Meanwhile, a Vietnamese man died of a different bird flu strain, H5N1.
--As a result of China’s anti-corruption campaign and the new austerity when it comes to gifts and lavish dinners, many of China’s 5-star hotels are asking to be reduced to 4 stars. The Financial Times reported 50 made such an application last year in an attempt to regain business.
Even with the Lunar New Year approaching, banquets and parties are being canceled and you can imagine the number this is doing on many businesses, from watchmakers and spirits makers, to chocolatiers on up to sports car manufacturers.
Much of this is due to the corruption investigation of one-time Communist Party head Bo Xilai, when tales of his lavish spending and holdings emerged.
China is the world’s biggest alcohol market, making up 38% of global consumption. Remy Cointreau, for example, derives about 40% of its total profit from the sale of cognac in the country. Remy said sales of its flagship cognac fell 35% in the three months through December.
--Back to the topic of Chinese companies listing in the United States, the SEC and Chinese regulators are at war over the audits of the Chinese companies and financial transparency. The SEC just banned the Big Four accounting firms from having their Chinese affiliates audit the books of clients there, throwing those companies in a total state of turmoil, particularly as its year end. There are some 425 Chinese companies listed in the U.S. and who is getting hurt? Me…and other U.S. investors.
I am convinced the Chinese government was trying to do the right thing and crack down on their end. There was no need for the SEC to take such a punitive action. They could have extended a deadline for diplomatic reasons, first and foremost. Instead, and I mean this seriously, the Chinese will look at the move and turn around and build another aircraft carrier.
More on this next time, as I add a tidbit or two to my CCGY story. You will want to stay tuned. I go after Air Products Corp.
--Two Las Vegas casinos, both belonging to the same owner (The Golden Gate Hotel and Casino and The D Las Vegas Casino Hotel), will begin to accept bitcoin as payment for hotel rooms and related purchases, as well as in the gift shop and restaurants.
--NBC announced that following the ratings success of its live production of “The Sound of Music” in December, it’s bringing back “Peter Pan” for holiday viewing next Dec. 4. Yup, grew up on the Mary Martin version from back in the 1950s that the network aired a number of years in the 60s.
Iran: The International Atomic Energy Agency announced on Monday that Iran had begun scaling back its most dangerous nuclear activities, the first steps toward implementing the interim agreement on curbing such activity in exchange for sanctions relief.
As reported in the Wall Street Journal, in any final nuclear deal Iran must eliminate 15,000 uranium centrifuges, close the Qom uranium-enrichment facility and agree to two decades of stringent international surveillance, according to the Institute for Science and International Security, which had major input from officials inside the U.S. government. At least this is the supposed goal after the six-month interim agreement runs its course.
Speaking at the World Economic Forum in Davos, President Rohani said his government seeks “constructive engagement” with the world “in promoting global energy security by relying on its vast energy resources in a framework of mutual interest. We are prepared to engage in a serious process to establish reliable institutions for this long-term partnership.”
Rohani continued his charm offensive, meeting with Western oil executives in an effort to win them back, which shouldn’t be hard since said execs aren’t known for having much of a conscience. Rohani added that when it comes to developing nuclear weapons, this “has no place in Iran’s security strategy.” To which many in the audience muffled “b---s---.” At least I would have had I been there.
I say for the 112th time. All you need to know about Iran’s true intentions is their ongoing refusal to allow the IAEA’s inspectors onto the military base at Parchin, suspicious parts of which were long paved over anyway so there’s little chance there is any real evidence left of suspected testing on nuclear triggers at the complex.
Also from Davos, Israeli Prime Minister Benjamin Netanyahu said Rohani’s speech “just doesn’t have any connection to what is going on on the ground,” accusing him of lying to the international community about Iran’s nuclear program as well as the situation in Syria.
Israeli President Shimon Peres said, “The most important part of the remarks was the one that he didn’t announce. He didn’t express support for peace in the Middle East.”
Peres also noted that Rohani didn’t say he was about to recognize Israel. Plus, Peres added, “He didn’t announce that in order to reduce bloodshed in Syria, he is going to stop sending arms.”
“When talks begin in earnest in February, the U.S. will demand that Iran cut the number of its centrifuges from 19,000 to under 5,000. Iran says it wants to develop a vast civil nuclear program, requiring tens of thousands of centrifuges.
“Any suggestion that Mr. Rohani’s negotiators are willing to give up ‘industrial-scale’ enrichment will draw sharp domestic criticism in Iran. Iran, aware of the near impossibility of clinching a deal acceptable to Ayatollah Khamenei, could choose to simulate progress. Since the gulf between the two sides is so large, negotiations are destined to stretch over years. That time could be used to develop secret facilities. The interim accord would be renewed every six months, probably after some tinkering that would allow further abandonment of sanctions.
“The risk is that economic sanctions, the one lever that has proved effective in prompting reform in Iran, will be dismantled step by step for no significant gains. Diplomacy can only work if it is backed by verification and by a sense that cheating will be punished. It is for Iran, in breach of so many U.N. Security Council resolutions, to win back the world’s trust and it still has a long way to go.”
Syria: While President Rohani was flitting about Davos, in Montreux, Switzerland, the Syrian peace talks got off to a terrible start, with representatives of the Assad government and the rebels being described as “furiously’ divided right from the beginning, not that this is in the least bit a surprise.
Syrian Foreign Minister Moallem castigated U.N. Secretary General Ban Ki-moon, saying “You live in New York. I live in Syria. I have the right to give the Syrian version here in this forum. After three years of suffering this is my right.”
Ahmad Jarba, president of the Syrian National Coalition, said: “We must achieve quick and serious cooperation to reach a solution. This needs full conviction by all – not only giving all authority to a new transition body, but also the departure of Bashar al-Assad. I remind you that time is like a sword, and for Syrians time is now blood.”
Secretary of State John Kerry: “The right to lead a country does not come from torture, nor barrel bombs, nor scud missiles, it comes from the consent of the people. It is hard to imagine how that consent could be forthcoming at this point in time.”
Kerry added, “There is no way…that the man who led the brutal response to his own people could regain the legitimacy to govern.”
Foreign Minister Moallem responded to Kerry, “Those doing suicide attacks in New York are the same as those doing it in Syria,” in rejecting the aim of the conference to remove Assad.”
To say expectations are low for what is being called Geneva II (a follow-up to 2012 discussions) would be an understatement. For starters, Assad himself on Sunday was reported as telling visiting Russian lawmakers, “If we wanted to give up, we would have done so at the very beginning. We are on guard for our country. This issue is not up for discussion.”
That said, at last word the opposition and Syrian government officials are scheduled to meet face to face today, Saturday.
The death toll is now estimated at 130,000, nine million others displaced.
“An invitation to Iran nearly derailed the talks that started Wednesday on Syria’s civil war and perhaps that would have been better. The diplomatic fiasco is a sideshow that sums up the American-backed enterprise in Geneva.
“The tragicomedy began when U.N. Secretary General Ban Ki-moon on Sunday requested Iran’s presence at the inaugural gala. The former South Korean foreign minister said the Iranians had agreed ‘that the goal of the negotiations is to establish, by mutual consent, a transitional governing body with full executive powers’ to replace Syrian strongman Bashar Assad.
“The Syrian opposition then said it would boycott the talks. Officials from the U.S….pleaded their utter surprise to the Ban initiative and pressed him to rescind the invite. Less than 24 hours later, he did….
“The conflicting stories are largely beside the point. The Syrian opposition knows Iran is Assad’s chief supplier of weapons, funding and reinforcements. In a lucid moment last week, Mr. Kerry noted that, ‘Iran is currently a major actor with respect to adverse consequences in Syria… No other nation has its people on the ground fighting in the way that they are.’ Quite so. Yet the administration is banking on this same regime’s good faith in negotiations over its secret and illicit nuclear-weapons programs….
“The opposition, which had believed in Mr. Obama’s ‘red line’ on chemical weapons, is demoralized and divided, with its most radical forces killing the moderates. ‘I am haunted by what’s happened,’ President Obama said in an interview published by the New Yorker magazine this week. ‘I am not haunted by my decision not to engage in another Middle Eastern war.’
“As usual, he is offering a false dilemma. Doing nothing has prolonged the war; arming the rebels or providing air support might have given Assad an incentive to take negotiations seriously. With more than 100,000 dead and rising, millions displaced and war spreading to Lebanon and Iraq, the only peace in Syria is in graves.”
Yup, I said back in August 2012 it was already over when it came to this war. A loss for the U.S. and the West. We had our chance to help early in the conflict and President Obama failed to do anything to keep it from spreading. It’s a major part of his legacy. And nothing to be proud of.
Israel: Shin Bet, the Israeli intelligence arm, announced it had foiled an “advanced” al-Qaeda plot to carry out a suicide bombing on the U.S. embassy in Tel Aviv, as well as other attacks. Three Palestinians were arrested in the plot thus far which is being linked directly to al-Qaeda leader Zawahri. While the U.S. government didn’t confirm the report, if true it would be the first time al-Qaeda has targeted Israel inside the country.
Egypt: More than 98% of voters backed the new constitution in a referendum, authorities said on Saturday. The Muslim Brotherhood, designated a terror organization, boycotted the vote. Gen. Abdel Fattah al-Sisi is expected to announce his candidacy for the presidency soon.
But on Saturday, a series of bombings in Cairo killed at least six, with three others dying in protests around the country the same day. This will only solidify Sisi’s base of support, which is strong; most Egyptians seeing him as being the only man who can hold the country together.
Afghanistan: Editorial / Wall Street Journal
“The president can’t undo the Iraq mistake, but he can avoid repeating it in Afghanistan. While he’s at it he should throw out the Pentagon’s 2017 withdrawal date [Ed. Assuming a status of forces agreement is reached that would maintain 10,000 U.S. troops beyond this year.] The main flaw in his own 2009 Afghan troop surge was to set a deadline to draw down American troops two years later, signaling to the Taliban and their Pakistani backers that the U.S. could be waited out. Why give Mullah Omar another date to circle on his calendar?
“America has kept far more than 10,000 troops in Germany, Italy, Japan and South Korea for decades. No one considers them ‘another Vietnam.’ An open-minded military presence signals a commitment that will reassure Afghans, send a message of resolve to the Taliban, and avoid a terrorist comeback that wastes 12 years of sacrifice.”
Ukraine: As one reporter put it, this past week saw pitched battles straight out of the Middle Ages as anti-government protesters battled security forces. Depending on the report, 3 or 5 protesters died. Elsewhere in the country, demonstrations began to spread against the government of President Viktor Yanukovych, who is convening parliament on Tuesday to deal with the latest stage of the crisis. But there seems zero likelihood the president will meet the opposition’s main demand of early elections. Prime Minister Azaro labeled radical protesters “terrorists.”
Japan: The United States is urging Prime Minister Shinzo Abe not to go to the Yasukuni war shrine anymore and to reaffirm Tokyo’s previous formal apologies over World War II in a bid to ease tensions with China and South Korea. But at Davos, Abe compared tensions between China and Japan to the rivalry between Britain and Germany prior to World War I. A spokesman later denied Abe meant war between the two Asian powers was possible.
In his address, Abe said: “We must…restrain military expansion in Asia, which could otherwise go unchecked. Military budgets should be completely transparent and there should be public disclosure in a form that can be verified.”
“The possibility of war between China and Japan in the East China Sea is rapidly emerging as one of the biggest security risks facing the world. Unfortunately, the actions of the Chinese and Japanese governments are doing nothing to make conflict less likely….
“Last November Beijing wrongfooted Tokyo when it declared an 'air defense identification zone' covering the airspace over the islands. In the subsequent war of words between both sides, Shinzo Abe, Japan’s prime minister, poured more fuel on the flames by visiting a controversial shrine hated by the Chinese because it honors 14 convicted war criminals.
“A new reason for concern has now emerged with Mr. Abe’s appearance at the World Economic Forum… In a meeting with journalists, the prime minister not only defended his visit to the Yasukuni shrine. He also drew an explicit comparison between his nation’s rivalry with China and that which existed between Britain and Germany before the first world war. The extensive trade between the two European powers had not prevented them coming to blows, he said, adding that China and Japan were now in a ‘similar situation.’
“Mr. Abe may have intended simply to stress the seriousness of the current dispute… But for Japan’s prime minister to allow any comparison with 1914 in Europe is chilling and inflammatory. It can only boost the frantic efforts to find some way to pull both sides back from the brink….
“As a result the U.S. must make this gathering storm the focal point of its diplomacy. Washington has assured Japan that its security umbrella covers the disputed islands. The U.S. must certainly warn China that it will stand by its ally in the event of any incursion by Beijing. But the U.S. must also make clear to Mr. Abe that he needs to refrain from nationalist posturing. Both he and Mr. Xi should look for a route away from Armageddon before it is too late.”
On a separate issue, Japan responded to critics of its annual brutal dolphin hunt, accusing the likes of U.S. Ambassador to Japan Caroline Kennedy of being hypocrites for not lamenting the killing of cattle and chickens in their countries. In a Twitter message, Kennedy called the long-held tradition in the town of Taiji “inhumane.”
Of 250 dolphins trapped in a cove, 40 were killed for eating by severing their spines. 50 were kept alive for sale to aquariums and, according to Sea Shepherd, the rest were set free.
The Japanese government pointed out that dolphin hunting is not covered by the International Whaling Commission control. Needless to say, Kennedy probably should have kept her mouth shut until she had been in her office more than two months.
China: The government warned about slow progress in curbing pollution. A report by the Chinese Academy of Social Sciences said the mainland had the second-worst air pollution in the world after India in 2012. [Pollution levels in Fujian were low, as they normally are. A brisk air mass in Hong Kong has made it far more tolerable than it was just a week ago as well.]
Separately, President Xi Jinping, while on his anti-corruption campaign, is also cracking down on journalists who seek to expose same, or go even further. Human rights activist Xu Zhiyong faces a five-year sentence for what his lawyers call trumped-up charges for his expressed belief that China should establish a constitutional democracy. As part of a small group called the New Citizens’ Movement, Xu and his cohorts, who also face trial, demanded that government officials disclose their assets.
Along the same lines, Beijing is tightening controls on book publishers and ordered books from Hong Kong and Taiwan to go through a stricter approval process. And I read this week in the South China Morning Post that a Hong Kong publisher has been detained for three months in Shenzhen without charges after he was said to be in discussions with a U.S.-based author over the publication of a book on President Xi.
Taiwan: The government announced it would cut its armed forces personnel by up to 20% from 215,000 over the next five years, in the latest sign of warming ties with Beijing. Defense minister Yen Ming assured the people military capabilities will not be compromised. There was a time during the Cold War when Taiwan had an army of 600,000.
Thailand: A state of emergency was declared for 60 days in Bangkok and surrounding areas to tackle mass street protests aimed at overthrowing the government of Prime Minister Shinewatra. The main opposition party has vowed to boycott the Feb. 2 parliamentary elections.
On Friday, though, the Constitutional Court said polls could be legally postponed with the prime minister’s permission. She says the poll must be held 45-60 days following the dissolution of parliament. The Electoral Commission agrees with the Court that the vote can be delayed, the Electoral Commission recognizing that the situation is too volatile for elections.
The prime minister, though, knows her party would clean up in the vote. The final call is hers. The body count is bound to soar here.
North Korea: The head of U.S. Pacific Command, Navy Adm. Samuel Locklear, said in a Pentagon press briefing that Kim Jong-un’s “behavior,” or at least what has been reported, “would make me wonder whether he is always in the rational decision-making mode, and this is a problem.”
“The way ahead with the new leader is not clear to me,” and his actions have contributed to making the region a “very dangerous place.”
Vietnam: Don’t get caught smuggling heroin into Vietnam, sports fans. A court there just sentenced 30 convicted heroin smugglers to death.
Russia: Security officials announced they are looking for three potential suicide bombers, including Ruzanna Ibragimova, the 22-year-old widow of an Islamic militant, who is said to be at large in Sochi. Some intelligence officials believe the presumed presence of the “Black Widow” in Sochi presages a larger conspiracy. President Vladimir Putin continues to reassure his people Sochi will be secure with some 40,000 police and security agents aided by troops.
Turkey: About 470 police have been sacked or reassigned in the capital of Ankara alone amid the ongoing purge of both the police and judiciary as Prime Minister Erdogan tries to quell the corruption investigation that has hit too close to home, targeting top politicians and business leaders.
Pakistan: The Taliban killed three more aid workers administering the polio vaccine in Karachi. Pakistan abruptly suspended the program. Polio is still endemic in Pakistan, Nigeria and Afghanistan. According to Human Rights Watch, at least 22 polio vaccination workers have been killed in Pakistan over the past two years.
--President Obama gives his State of the Union speech on Tuesday. An AP-GfK Poll has 58% of Americans finding him very or somewhat likable, up 9 points from October and the government shutdown (as well as the ObamaCare launch). But his overall job approval rating remains little changed at 45%, 53% disapproving. Congress’ approval rating is 14%.
--A Rutgers-Eagleton poll has Governor Chris Christie with a 46% favorability mark, down from 65% in November during the last survey and his re-election. But he does maintain a 53% job approval rating, though this is down from last fall’s 68%.
--As for Bridgegate, New Jersey’s legislature is smartly going to have one joint investigative committee rather than an Assembly and Senate version, which is to be formed next week, 8 Democrats and 4 Republicans.
Separately, the latest key figure, Hoboken Mayor Dawn Zimmer (Dem.) saw members of her staff interviewed by the FBI over allegations N.J. Lt. Gov. Kim Guadagno shook Zimmer down last May in saying no funds for Hurricane Sandy relief would be released unless Zimmer approved a development project in town that had the governor’s blessing.
If Zimmer is telling the truth, it’s over for Christie, certainly at least his 2016 prospects.
--A five-member Privacy and Civil Liberties Oversight Board, created by Congress to protect privacy post 9/11, said the NSA is illegally collecting phone call records from millions of Americans and the program should be stopped as it is providing only “minimal” help.
The panel, though, has no authority to change anything but its nonetheless more bad news for the Obama administration as it faces heat from phone and internet companies, as well as foreign governments after the Snowden disclosures.
--The Pentagon denied it ever established a nuclear missile launch code of “00000000,” as previously reported in a piece for Foreign Policy. The story said this was the code from 1962 to 1977. I see zero reason to believe the Pentagon.
--Former Virginia governor Bob McDonnell and his wife were indicted Tuesday on charges of illegally accepting gifts and loans from a political donor; some $135,000 in gifts ranging from loans to trips to designer clothing. McDonnell had been out of office just a few days.
--NBC New York reports that New Jersey Dem. Sen. Robert Menendez is under federal investigation for allegedly helping a pair of Ecuadorian fugitives who are wanted in their home country for embezzling money from their failed bank. Sounds like a classic case of campaign contributions buying help in being able to stay in this country.
Menendez is frustrating. He’s one of the smartest men we have in the Senate and on Iran a major hawk who is spearheading the new sanctions drive.
--January will end up being the coldest month for the 48 continuous states this century thus far.
--Meanwhile, Beijing hasn’t seen any snow for 93 consecutive days, the third-longest winter dry spell since records began.
--According to the National Oceanic and Atmospheric Administration, the Earth had its fourth-warmest year on record in 2013, equaling the level set in 2003. It was also the 37th consecutive year (since 1976) that the annual temperature was above the long-term average.
--I see Mayor de Blasio had some trouble with Tuesday’s snowstorm. Heh heh. In keeping with his tale of two cities, he opted not to plow the Upper East Side as some sort of payback.
OK, I was in Hong Kong and of course he didn’t issue any directive to screw the rich folks, but the optics weren’t good, as they say.
Meanwhile, the New York Post reported de Blasio’s wife wants her own office inside City Hall – and to play a hands-on, policy setting role in her husband’s administration.
A Quinnipiac poll revealed just 27% of voters think the mayor’s wife should have a major part in shaping public policy.
--Hong Kong authorities reversed course and have decided to destroy 28 tons of ivory it had confiscated. It will be incinerated. The story I read, though, said the process would take up to two years…for reasons I don’t know.
--I’m staying at the Regal Airport Hotel, connected directly to the airport, which I saw the Global Gateway Alliance just awarded as being one of the six best in the world. It sure is. It’s Saturday morning and I’m about to go try and catch a movie here before spending the rest of the day in central Hong Kong. [“Gravity” is playing at an IMAX theater a five minute walk from my room.]
Newark Airport was appropriately rated one of the world’s worst. No argument here. It’s the very definition of blowdom.
Pray for the men and women of our armed forces...and all the fallen.
God bless America.
Gold closed at $1264
Returns for the week 1/20-1/24
Dow Jones -3.5% 
S&P 500 -2.6% 
S&P MidCap -2.5%
Russell 2000 -2.1%
Nasdaq -1.6% 
Returns for the period 1/1/14-1/24/14
Dow Jones -4.2%
S&P 500 -3.1%
S&P MidCap -2.1%
Russell 2000 -1.7%
Bears 15.1 [Source: Investors Intelligence]
Have a great week. I appreciate your support.