Week in Review

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Week in Review

03/08/2014

For the week 3/3-3/7

As I wrote last time, to say the least events are fluid. But before reviewing the past week on the Ukraine front, a reminder that in 2008, Russia’s Georgia playbook involved Moscow instigating a “provocation” in Georgia’s separatist regions of South Ossetia and Abkhazia, filled with ethnic-Russians. Then pro-West President Saakashvili ordered troops to retake South Ossetia, which gave Russia a pretext to mobilize in full and in a short, but deadly war, Russia annexed both South Ossetia and Abkhazia and remains there to this day.

So since my last review...rough chronological order...and with some personal opinion mixed in...

Putin secured Russian Parliament support for moving troops into Crimea, and further into Ukraine, even though the Kremlin denies Russian troops are involved currently. A lie.

Russian natural gas behemoth Gazprom threatened to end its nat gas discounts for Ukraine in April because the latter owes it at least $1.5 billion.

Canada pulled its ambassador to Moscow – Canadian Prime Minister Stephen Harper showing guts in acting quickly once it was clear Russian forces were overtaking Ukraine.

Ukraine mobilized its reserves and the United States called on Russia to withdraw its forces to bases in Crimea and conduct direct discussions with the new government.

Russia claimed its people were under threat in Crimea and Eastern Ukraine. These were lies.

Late Saturday night (3/1), Putin told Obama in a 90-minute telephone conversation that use of force on Russia’s part would be a response to provocations from Ukraine.

“In case there is continuing spread of violence to eastern regions of Ukraine and to the Crimea, Russia reserves the right to defend its interests and the Russian-speaking population that lives there,” a Kremlin press statement cited Putin as telling Obama.

Russia is concerned that should Ukraine turn West, it would lose its Black Sea Fleet base at Sevastopol...that the existing lease would be broken by Kiev.

Russia will never allow Ukraine to turn to the European Union and away from its Customs Union that includes Belarus.

Vladimir Putin is out to Balkanize Ukraine, provoke a regional crisis, which would provide a pretext to move in and help ‘its people.’

Europe doesn’t have a unified armed force and command structure to combat Russia even if it wanted to.

Euro nations, including Germany and France, have extensive commercial ties with Russia, while London is home to many of its biggest oligarchs, who are critical to London’s financial sector. An analyst told the Washington Post, “The European position is a mess...there is no unanimity.”

On Monday, the Russian stock market lost 12%, but recouped about a 1/3rd of those losses the balance of the week.

At a press conference on Tuesday, Putin said: “There can be only one assessment of what happened in Kiev, in Ukraine in general. This was an unconstitutional coup and the armed seizure of power. No one argues with this. Who can argue with it? This is the last resort.  We believe, have believed and will believe, that Ukraine is not only our closest neighbor but a brotherly republic.”

Putin again denied Russian troops seized Crimea. He then renewed the threat that if “lawlessness” spreads to the country’s industrial east, Russia would be within its rights to act because it had a signed request to do so from former President Yanukovych.

“Even if I take a decision to use armed force, it will be legitimate, fully corresponding to the norms of international law,” Putin said. “And, in this case, it would also correspond to our interest in protecting the people who are closely tied to us historically, culturally, economically.”

The Kremlin’s propaganda machine was in full force, citing, among other things, 143,000 Ukrainian citizens fleeing to Russia within two weeks to seek asylum. There was zero evidence a single citizen did this.

Thursday, the Crimean parliament, dominated by ethnic Russians, voted to join Russia, with the region’s government setting a referendum for March 16.

European leaders and Obama denounced the referendum as illegitimate, saying it would violate Ukraine’s constitution.

It was the 1994 Budapest Memorandum, following the collapse of the Soviet Union, in which the United States, Britain, and Russia guaranteed Ukraine’s territorial integrity in exchange for Ukraine’s giving up its nuclear weapons (Ukraine briefly being the third biggest nuclear power in the world).

Moscow was reminded of its obligations under the agreement, with the U.S., U.K. and Ukrainian foreign policy heads saying “the three governments treat these assurances with utmost seriousness, and expect Russia to as well,” according to a trilateral statement.

But after an hour-long telephone call Thursday between Putin and Obama, Putin said the new government in Kiev had taken “absolutely illegitimate decisions on the eastern, southeastern and Crimea regions. Russia cannot ignore calls for help and it acts accordingly, in full compliance with international law.”

Putin reiterated Viktor Yanukovych had been overthrown in an “anti-constitutional coup” last month.

Prior to the call, Obama announced the first sanctions against Russia, ordering visa bans and asset freezes against so far unidentified persons deemed a threat to Ukraine’s sovereignty.

At the EU’s emergency summit, Ukrainian Prime Minister Yatseniuk, invited despite Kiev’s not being a member, said, “No one will give up Crimea to anyone,” while acting president, Oleksander Turchynov, called the planned referendum “a farce, a fake, a crime,” adding the national government would invalidate the decision to hold the vote and dissolve the Crimean Parliament.

The European Commission said Ukraine could receive up to $15 billion in aid the next few years if it reached agreement with the International Monetary Fund on economic reforms.

Then on Friday, the speaker of the Russian Parliament said Russia would embrace Crimea’s decision to break away and become part of the Russian Federation.

Meanwhile, two rounds of talks between John Kerry and Sergei Lavrov went nowhere. Lavrov refused to meet with Ukraine’s acting foreign minister, Andrii Deshchytsia, who flew to Paris with Kerry for such a purpose. Asked at a news conference about the Ukrainian minister, Lavrov replied: “Who is it?”

On Friday, former Ukrainian prime minister Yulia Tymoshenko said: “If we allow Russia to hold a referendum at gunpoint in Crimea on March 16, Ukraine will be lost, stability will be lost.”

Late Friday, Putin was threatening to cut off the gas supply to Ukraine.

--The U.S. augmented its four-fighter jet mission to the Baltics with six additional F-15 jets, while Defense Secretary Chuck Hagel announced the military would conduct extra training drills with the Polish air force.

U.S. Chairman of the Joint Chiefs of Staff Gen. Martin Dempsey said at a Wednesday Senate hearing, “Obviously we want to provide NATO’s leaders with options that stabilize and not escalate tensions in the Ukraine.”

“Understandably, they are concerned,” said Dempsey, referring to NATO’s newest members from Eastern Europe.

--By week’s end, Poland and the Baltic States were looking to boost their military capabilities in the face of the Russian aggression.

--Ukraine’s Ambassador to the International Atomic Energy Agency expressed concern over the security of his nation’s 15 atomic reactors.

“Potential consequences of a military invasion would be a threat of radiation contamination on the territory of Ukraine and the territory of neighboring states. In addition, a significant amount of spent nuclear fuel, which is stored on the territory of the nuclear power plants, would pose potential high risks.”

Russia’s delegate to the IAEA called Kiev’s statements a “malicious slander.”

“In retrospect, historians will not find it difficult to piece together why and how this happened: Putin is indeed a brutal Great Russian nationalist who understands that Russia without a belt of subservient client states is not merely a very weak power but also vulnerable to the kind of upheaval that toppled Yanukovych’s corrupt and oppressive regime. Ukraine’s chaos and Crimea’s anomalous history gave the opening; Russian adeptness at the dark arts of provocation and covert operations provided the means; President Obama’s history of issuing warnings and, when they are ignored, moving on smartly to the next topic gave a kind of permission....

“Georgia was a tiny, remote country that had foolishly provoked the Russians and that did not stand a chance when they invaded in 2008. The fighting was over in days. There was no such provocation here, and Ukraine is a big country on the border of the European Union. If Russia can rip off a limb with impunity, why can’t China do the same with the Senkaku Islands?

“Putin is not Hitler, and the 2010s are not the 1930s. But the world is a darkening place, and the precedents being set are ones that will haunt us for decades to come unless the U.S. administration can act decisively and persistently against Russia. Otherwise, Churchill’s words after a not-dissimilar episode, in which a powerful state seized borderlands inhabited by its ethnic compatriots, will ring true again: ‘And do not suppose this is the end. This is only the beginning of the reckoning.’”

[Saakashvili being former president of Georgia when it was invaded by Russia in 2008, Russia still occupying one-fifth of Georgian territory.]

“In the 1930s, Nazi Germany occupied part of neighboring Czechoslovakia under the pretext of protecting ethnic Germans. Today, Russia is claiming to protect ethnic Russians – or people with hastily distributed Russian passports – in Crimea or Georgian territories. In September 1938, when Germany annexed the Sudetenland, British Prime Minister Neville Chamberlain called the situation ‘a quarrel in a far-away country, between people of whom we know nothing.’ Similarly, some today question whether the West should bother about Ukraine, saying Russia has more at stake than the West. Many in the West are talking about the need to reach some kind of compromise with Russia, an option that smacks of Munich 80 years ago. They claim to be motivated by such common strategic interests as nonproliferation and the fight against terrorism; by the same token, under the guise of needing to contain the Soviet Union and stop the spread of communism, Chamberlain reached a deal with Hitler. Now, of course, we know that all attempts to appease the Nazis led the big European powers to feed one country after another to Hitler and, ultimately, led to World War II.

“Such global catastrophes are what happens when the established international order collapses and rules no longer apply. Ukraine is just the most vivid recent demonstration. Imagine if Ukraine hadn’t given up its considerable nuclear arsenal in the 1990s. To persuade the Ukrainians to do so, the United States and Britain, together with Russia, signed agreements guaranteeing Ukraine’s territorial integrity in exchange for Ukraine giving its weapons to Russia. And yet, here we are.

“But then, the European Union and Russia signed an agreement providing for the withdrawal of Russian forces from Georgia in 2008. Russia never complied – something our European guarantors seldom mention.

“Putin’s motivations are similar to those of prewar Germany: He wants to rectify what he sees as unjust treatment and humiliation by Western powers after the Cold War. He is trying to reconquer lost lands and grab natural resources. Little has been said about the offshore oil resources in Abkhazia that the Russian state monopoly Rosneft confiscated in 2009. U.S. companies have invested considerably in shale gas fields off Crimea. But Ukraine’s emergence as self-sufficient in energy, and even a major gas exporter to Europe, would be Putin’s ultimate nightmare.

“Putin destabilizes his neighbors in an effort to kill any NATO and E.U. appetite for further expansion.... There is a logic to his perception of ideological threats: If Ukraine ceased to be a corrupt oligarchy and became a real European democracy, Putin’s opponents would see the contrast – and potential benefit to fighting their own reality.”

“(Given) Putin’s belief that the break-up of the USSR was ‘the greatest geopolitical catastrophe’ of the last century, his possible desire to control all of Ukraine cannot be easily dismissed....

“Russia’s actions constitute a dangerous threat to regional security and global order. The unprovoked invasion of one country by another, in which there are neither territorial nor political disputes between them, calls into question the very basis of international order....

“All NATO governments should stand united in making clear that they will defend their members from any armed attack or intimidation, and military planning and possible reinforcements should be considered to underscore the seriousness and urgency of those solemn commitments.

“Of course, NATO has no obligation to come to the defense of Ukraine, but it has made its support for that country’s independence and sovereignty clear, including as recently as last Wednesday when NATO defense ministers met in Brussels. At this point, an armed response would risk dangerous escalation. But underscoring that NATO is closely monitoring the situation and has asked its military authorities to review and consider all contingencies could help to de-escalate the crisis.”

“Vladimir Putin is a lucky man. And he’s got three more years of luck to come.

“He takes Crimea, and President Obama says it’s not in Russia’s interest, not even strategically clever. Indeed, it’s a sign of weakness.

“Really? Crimea belonged to Moscow for 200 years. Russia annexed it 20 years before Jefferson acquired Louisiana. Lost it in the humiliation of the 1990s. But got it back in about three days without firing a shot.

“Now Russia looms over the rest of eastern and southern Ukraine. Putin can take that anytime he wants – if he wants. He has already destabilized the nationalist government in Kiev. Ukraine is now truncated and on the life support of U.S. and European money (much of which – cash for gas – will end up in Putin’s treasury anyway).”

“Putin has long believed that Russia is being purposely encircled and dismembered. One of his primary foreign policy goals is to re-litigate the end of the Cold War. His intervention in Ukraine will press toward that objective until serious resistance is met. Like international aggressors before him, Putin would prefer the fruits of war without its costs.

“Does he have reason to believe the resulting isolation of Russia will be sustained? The history of the ‘reset’ says no. The weariness of Congress and the American public with conflict – which Obama emphasizes and encourages in his own rhetoric – says no. America’s humiliating dependence on Russian influence in the Syrian crisis says no. The desire for Russian help in the Iranian nuclear negotiations says no. The dependence of Europe on Russian natural gas says no. European Union vacillation and disunity say no.

“It is, perhaps, this confidence that has led Putin not only to intimidate but also to humiliate. To sponsor Edward Snowden. To follow a 90-minute telephone conversation with Obama with troop movements. Many Russian goals in Crimea might have been achieved by intelligence assets and paramilitary forces. The use of Russian troops was intended as a broader message to Eastern Europe, Central Asia and the Middle East: Don’t waste your hopes on the West....

“In the 20th century, the United States was both unique and irreplaceable because it exercised great power without the blood-and-soil nationalism of Russia, Germany or Japan. It stood for universal, liberal, democratic ideals. We should not expect those humane ideals to thrive in the vacuum left by a retreating America.”

“As I have said for years, it is a waste of time to attempt to discern deep strategy in Mr. Putin’s actions. There are no complex national interests in a dictator’s calculations. There are only personal interests, the interests of those close to him who keep him in power, and how best to consolidate that power. Without real elections or a free media, the only way a dictator can communicate with his subjects is through propaganda, and the only way he can validate his power is with regular shows of force.

“Inside Russia, that force comes with repression against dissidents and civil rights that only accelerated during the distraction of the Sochi Olympics. Abroad, force in the form of military action, trade sanctions or natural-gas extortion is applied wherever Mr. Putin thinks he can get away with it....

“For those who ask what the consequences will be of inaction by the free world over Ukraine, I say you are looking at it. This is the price for inaction in Georgia, for inaction in Syria. It means the same thing happening again and again until finally it cannot be ignored. The price of inaction against a dictator’s aggression is always having a next time. And in this market, the longer you wait, the higher that price gets.”

Russian opposition leader Boris Nemtsov, in response to some, even in Russia’s opposition, who approve of the Crimean takeover:

“The imperial euphoria of the annexation of Crimea by Putin’s Russia is like a strong narcotic intoxication. None of the intoxicated wants to hear any arguments. They are unwilling to think rationally.” [Wall Street Journal]

“As the crisis in Crimea has unfolded, we’ve been hearing from some of our liberal friends that there isn’t much we can do about Mr. Putin’s aggression, and also that we needn’t worry since Russia is weak and time is on our side. But a Russia that can invade Georgia, and now Ukraine, with impunity will not stop there. And a West that allows itself to be treated with contempt by one aggressive regime will be treated with contempt by others.”

“Here is my notion of an outcome compatible with the values and security interests of all sides:

“ 1. Ukraine should have the right to choose freely its economic and political associations, including with Europe.

“ 2. Ukraine should not join NATO, a position I took seven years ago, when it last came up.

“ 3. Ukraine should be free to create any government compatible with the expressed will of its people. Wise Ukrainian leaders would then opt for a policy of reconciliation between the various parts of their country. Internationally, they should pursue a posture comparable to that of Finland. That nation leaves no doubt about its fierce independence and cooperates with the West in most fields but carefully avoids institutional hostility toward Russia.

“ 4. It is incompatible with the rules of the existing world order for Russia to annex Crimea. But it should be possible to put Crimea’s relationship to Ukraine on a less fraught basis. To that end, Russia would recognize Ukraine’s sovereignty over Crimea. Ukraine should reinforce Crimea’s autonomy in elections held in the presence of international observers. The process would include removing any ambiguities about the status of the Black Sea Fleet at Sevastopol.

“These are principles, not prescriptions. People familiar with the region will know that not all of them will be palatable to all parties. The test is not absolute satisfaction but balanced dissatisfaction. If some solution based on these or comparable elements is not achieved, the drift toward confrontation will accelerate. The time for that will come soon enough.”

“The urge to pull back – to concentrate on what Mr. Obama calls ‘nation-building at home’ – is nothing new, as former ambassador Stephen Sestanovich recounts in his illuminating history of U.S. foreign policy, 'Maximalist.' There were similar retrenchments after the Korea and Vietnam wars and when the Soviet Union crumbled. But the United States discovered each time that the world became a more dangerous place without its leadership and that disorder in the world could threaten U.S. prosperity. Each period of retrenchment was followed by more active (though not always wiser) policy. Today Mr. Obama has plenty of company in his impulse, within both parties and as reflected by public opinion. But he’s also in part responsible for the national mood: If a president doesn’t make the case for global engagement, no one else effectively can.

“The White House often responds by accusing critics of being warmongers who want American ‘boots on the ground’ all over the world and have yet to learn the lessons of Iraq. So let’s stipulate: we don’t want U.S. troops in Syria, and we don’t want U.S. troops in Crimea. A great power can become overextended, and if its economy falters, so will its ability to lead. None of this is simple.

“But it’s also true that, as long as some leaders play by what Mr. Kerry dismisses as 19th-century rules, the United States can’t pretend that the only game is in another arena altogether. Military strength, trustworthiness as an ally, staying power in difficult corners of the world such as Afghanistan – these still matter, much as we might wish they did not. While the United States has been retrenching, the tide of democracy in the world, which once seemed inexorable, has been receding. In the long run, that’s harmful to U.S. national security, too.

“As Mr. Putin ponders whether to advance further – into eastern Ukraine, say – he will measure the seriousness of U.S. and allied actions, not their statements. China, pondering its next steps in the East China Sea, will do the same. Sadly, that’s the nature of the century we’re living in.”

“Kiev is ablaze. Syria is a killing field. The Iranian mullahs aren’t giving up their nuclear weapons capability, and other regimes in the Middle East are preparing to acquire their own. Al Qaeda is making gains and is probably stronger than ever. China and Russia throw their weight around, while our allies shudder and squabble.

“Why is this happening? Because the United States is in retreat. What is the Obama administration’s response to these events? Further retreat....

“It’s Russia ‘reset’ is a joke, and its ‘pivot to Asia’ an empty slogan. Secretary of State John Kerry huffed and puffed when Bashar al-Assad used chemical weapons last year, and asserted it was a Munich moment. How right he was! Kerry came back brandishing a piece of paper, and Assad remains in power.”

“In the short term – and with no need to show a human face for the Sochi Olympics any more – (Putin) will crack down hard on the domestic opposition. Indeed, the anti-corruption blogger Alexei Navalany, freed in court and allowed to run for Moscow mayor last year, has already been placed under house arrest... And Gleb Fetisov, another billionaire dissident in the mold of Mikhail Khodorkovsky, has been arrested for backing the opposition.

“But more and more Russians – especially the young, well-travelled and internet-savvy – are starting to tire of the Putin regime and, if they were ever to rise up, any clashes in Moscow would dwarf the unrest in the Ukrainian capital.

“To seasoned observers of Eastern Europe, the shootings in Kiev, followed by the discoveries of ousted Ukrainian president Viktor Yanukovych’s obscene wealth, are reminiscent of the overthrow of Romanian dictator Nicolae Ceausescu in 1989. It is a page of history that Putin should perhaps consider re-reading.”

Friends, go to YouTube and look up Ceausescu’s execution, Dec. 25, 1989. There is a chilling video you can easily find. This is the fate that does indeed await Vladimir Putin. Only we should hope it is not as a result of an internal job as I’ve suggested will be the case in the past. That would only, conceivably, make things worse.

Washington and Wall Street

As I predicted on Jan. 4 in this column, Ukraine would continue to be in the news throughout 2014 but it wouldn’t roil the markets. Monday, I imagine many of you were saying, ‘Boy, the Editor got that one wrong.’ But I’m the ‘wait 24 hours guy,’ sports fans, and by week’s end the major averages in the U.S. were up... while Europe was down some and Tokyo registered gains. Oh, Ukraine will still provide some major volatility but barring Putin moving into Poland or the Baltics, I’m more concerned from a geopolitical standpoint with Iran and its ability to convulse the markets in a lasting way.

For now, the focus among traders is back on the U.S. economy and this week the indicators were mixed. Personal income and consumption for January were up better than expected, 0.3% and 0.4%, respectively, but when you combined them with revised December data, [0.0% and 0.1%] the two-month period is so-so. January factory orders were down 0.7% and construction spending for the month was up 0.1%.

More importantly in terms of moving markets, the February ISM figure on manufacturing came in at 53.2, better than expected and ahead of January’s 51.3, though well off December’s 56.5, while the reading on the service sector fell to 51.6, the lowest since Feb. 2010. Not good at all.

And then on Friday, we had February’s jobs report which showed a better than expected gain of 175,000, with the unemployment rate ticking up to 6.7% (more people joining the workforce), and average hourly earnings rising a decent 0.4%. January’s figure was revised up to 129,000. [The broader measure of unemployment, U6, which includes those working part time who want full-time jobs, fell to 12.6%, the lowest since November 2008.]

So what does it all mean? I still say we need to wait another month to see how the March numbers pan out, with a presumed return to normal weather, before we can look with certainty at the trends. Retail sales for February, for example, according to Thomson Reuters, were clearly weather-impacted, and worse than expected, up just 1.8% and only up 0.3% ex-drugstores, the worst monthly reading since Aug. 2009. How much of a catch-up will there be? Ditto auto sales, which I detail below.

What we do know when it comes to the Federal Reserve is that there is nothing in the numbers thus far, as bad as some of them may be, for one to get the idea they will pause in the current tapering of their bond-buying program when the Open Market Committee next meets in two weeks, March 18-19, and by Friday the yield on the 10-year Treasury was back near 2.80% after breaking out of a recent range of 2.57% to 2.76%. This obviously bears watching, first and foremost for its potential to impact the housing recovery.

As for the federal budget issue and President Obama unveiling his version this week, I have zero to say on the topic. It’s a waste of time. Another that is dead on arrival. So from my standpoint, I’ll just let the two sides hash out the details over the coming months and report on them as they become available.

But there was a recent frustrating development on the tax reform front....

“The Republican Party demonstrated last week that it is no longer ‘the party of no,’ as President Barack Obama derisively describes it. Now it is ‘the party of duck and cover.’ Republicans are shying away from any proposal that might cause public controversy, even one that builds solidly on the GOP’s bedrock principle of tax reform. This is evidence of an inferiority complex that is justifiable. The Republican Party’s election machinery is a relic of the analog age. Obama’s digital get-out-the-vote machine is state of the art, and embodies what young, swing voters perceive as cool. As a consequence, the midterm election could deviate from the historical norm that sees the president’s party losing congressional seats and turn out to be closer than predicted.

“Hence, we watched the GOP’s leadership distance itself from House Ways & Means Committee Chairman Dave Camp’s tax-overhaul blueprint – a document squarely in the tradition of Ronald Reagan, the party’s patron saint. Camp’s thoughtful proposal, coming when it did, underscores the frivolity of Obama’s tax-and-spend budget...Yet Senate minority Leader Mitch McConnell downplayed the relevancy of Camp’s plan the day before its debut. When Camp eventually trotted out his proposal, House Speaker John Boehner spoke of it as a possible opening gambit, rather than a thoroughly thought-out plan worthy of serious debate....

“Camp’s proposal might not be Steve Forbes flat – the magazine publisher, vying for the GOP nomination in 1996 and 2000, suggested a single rate of 17% - but it’s significantly simpler than the current tax code, and is aggressively pro-growth. The Michigan Republican wants a 25% corporate tax rate – down from the current top of 35%. And he’d collapse today’s seven brackets for individuals to three: 10% for joint incomes below $71,200, 25% for joint incomes starting at $71,201, and 35% for some joint incomes exceeding $450,000.

“The Joint Committee on Taxation estimates that Camp’s plan, between 2014 and 2023, would boost gross domestic product by $3.4 trillion, engender 1.8 million new jobs, and hike federal tax receipts by $700 billion. About 95% of us no longer would need an accountant....

“Camp’s plan eliminates tax preferences enjoyed by each party’s political patrons. These are the basis of a morally reprehensible – but legal – system of kickbacks. Congressmen protect the tax advantages of specific interests with the tacit understanding that they will share in some of the savings through political donations....

“Camp’s plan isn’t perfect....but it’s detailed, comprehensive, and worthy of an immediate seat at the table. In shelving it, the GOP also is shelving its backbone.”

Finally, in his annual Berkshire Hathaway shareholder newsletter, Warren Buffett wrote in part, “Though we invest abroad as well, the mother lode of opportunity resides in America.” The “dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.”

Well, I agree with the dynamism aspect, but hardly agree our best days lie ahead.

Buffett did sound an alarm on public pension plans and the fact many promised pensions they couldn’t afford.

“Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. During the next decade, you will read a lot of news – bad news – about public pension plans.”

Europe and Asia

Final February readings on the manufacturing and service sector PMIs for the eurozone were released, with the former at 53.2 vs. 54.0 in January, and the latter at 52.6 vs. the prior month’s 51.6. The ongoing tale of two countries was best exhibited in the service readings for Germany and France...55.9, a 32-month high for Germany, and 47.2 for France, down from 48.9 in January.

Eurozone producer prices (factory gate) were down in January from December, 0.3%, and down 1.4% for the 12 months from January 2013. Previously, the CPI had been reported as up 0.8%.

But the European Central Bank held the line again on interest rates, with ECB President Mario Draghi not giving any signs he was worried about potential deflation in adding the eurozone is an “island of stability.”

The European Commission, ECB and IMF finance ministers (the “troika”) will be meeting on March 10 to unlock another tranche of bailout funding for Greece, assuming they are satisfied Greece remains on track with its mandated reform efforts (it’s not), with Athens having $12.8 billion in bonds maturing in May.

Italy’s government lowered its final GDP figure for 2013 to down 1.9% (down 2.4% in 2012). Consumer spending last year fell 2.6%. Exports were up a whopping 0.1%. The EC says GDP in Italy will rise 0.6% in 2014. The jobless rate remains at a record 12.9% here.

Meanwhile, the yield on the Spanish 10-year bond hit 3.35% this week, the lowest since Jan. 2006, while Greece’s 10-year crapola hit just 6.62%, and Ireland’s 10-year traded at its lowest yield since 2005, 3.04%. This is nuts. Be my guest on any of these, though hats off to those like billionaire David Tepper who made a killing on some of these instruments. [Not sure where he stands now, particularly with regards to Spain.]

Turning to China, Premier Lie Keqiang said the government has set a target for growth in 2014 of 7.5%, stating at the opening session of the National People’s Congress, a rubber-stamp for the Communist Party with 3,000 legislators in attendance in Beijing, that “we must keep economic development as the central task and maintain a proper economic growth rate.” Li also said “stable growth ensures employment.”

Meanwhile, China’s non-manufacturing PMI for February came in at 55.0, a 3-month high. The official reading on manufacturing was previously reported at just 50.2.

Late Friday (Saturday China time), the government released very disappointing trade data, with exports in February unexpectedly falling 18.1% from a year earlier, while imports rose 10.1%.

But one of my favorite economic indicators, Macau’s casino revenues, soared 40% in February, though remember the figures for both January and February are distorted by the Lunar New Year holiday, Jan. 31, with the main traveling/vacation period straddling the two months. If you combine January and February, Macau’s revenues rose 24% from a year ago, which is very strong. In February, revenue hit a record $4.8 billion as 770,000 mainland visitors traveled there in the week 1/31-2/6, 23% better than a year ago. Ergo, China’s middle class continues to grow.

This week also saw the first Chinese corporate bond default, solar panel maker Shanghai Chaori Solar Energy Science & Technology, which defaulted on an interest payment.

In the past, it was assumed the government would bailout a firm like this, but Beijing in this instance is opting not to, with the feeling being it is time to let the public know not everything is backstopped.

But a significant portion of some $1.5 trillion in Chinese corporate bonds is due to mature this year and there have been growing concerns the problems in China’s corporate sector, and related shadow-banking, could grow, with Barclays’ calling the Chaori default “China’s Bear Stearns moment... In the U.S., it took about a year to reach the Lehman stage when the market panicked and the shadow banking sector froze,” Barclays wrote. “We assess that it may take less time in China, as the market here is less transparent.” You got that right. 

Street Bytes

--March 9 represents the five-year anniversary of the market bottom, 3/9/09, when the S&P 500 hit its closing low of 676. After rising 1% this week, the S&P sits at a record 1878, or a gain of 178% in the five-year span. The Dow Jones, which rose 0.8% to 16452, is up 151% during this period. Nasdaq, up 0.7% to 4336, is now up a whopping 242% since the ’09 bottom.

I will be taking a look back at the investment scene five years ago in my next “Wall Street History” piece, posted by Tuesday.

--U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.37% 10-yr. 2.79% 30-yr. 3.72%

--Companies are rushing to go public at a furious pace. As reported by Telis Demos of the Wall Street Journal, “In the first two months of this year, 42 companies went public in the U.S., raising $8.3 billion and tying 2007 for the busiest start to a year for initial public offerings since 2000, when there were 77 in the period, according to Dealogic.”

As long as share prices remain high, investor demand will be there.

--U.S. household net worth hit its highest level ever last year, up 14% to $80.7 trillion, according to the Federal Reserve, though the increase is increasingly leaving behind middle- and lower-income Americans. As in “there are big wealth gains but little follow-through on consumer spending,” according to Fed economist William Emmons.

Driving most of the past year’s gains were the 30% rally in U.S. stocks, plus the ongoing recovery in home prices.

But the average young family – led by someone under 40 – has recovered only about a third of the wealth it lost during the financial crisis and recession, the St. Louis Fed study said.

Conversely, middle-aged and older families have basically recouped their losses.

--Auto sales were flat in February, hurt by the severe weather across much of the country, though sales of some trucks and SUVs remained strong. The overall pace was at an annualized rate of 15.34 million vehicles, below the 16 million the industry expects to sell this year.

Sales fell 1% at General Motors and 6% at Ford, but rose 11% at the Chrysler Group, its best February performance in seven years, owing to strength in its Jeep brand. Chrysler also reported strong gains in its Ram pickup, while Ford’s sales of its F-Series, the country’s best-selling vehicle, advanced a fraction.

Toyota’s sales fell 4% and Honda’s declined 7%, while Volkswagen’s tumbled 14%.

Nissan’s rose 16% and Subaru, the fastest-growing major car brand in the U.S., saw its February sales rise 24%. About 60% of Subaru’s buyers are new to the nameplate. [New York Times, Los Angeles Times]

--A new Washington Post/ABC News poll said 65% of Americans support the idea of constructing the Keystone XL oil pipeline between Canada and the United States. 22% oppose. 85% say the pipeline would create a significant number of jobs. But 47% say they think Keystone will pose a significant threat to the environment.

--Newsweek claimed to have identified the creator of Bitcoin, but there is great confusion at week’s end. The developer went by the name Satoshi Nakamoto, but Newsweek claims the man is Dorian Satoshi Nakamoto, a model-train fanatic living with his mother in Southern California.

On Thursday, this Nakamoto denied he was involved in Bitcoin, telling the Associated Press he had not heard of the virtual currency until his son told him three weeks ago.

Thursday evening, an online Bitcoin forum said the man identified as the founder was not the creator.

Whichever “Nakamoto” is proved to be the founder is said to own hundreds of millions of dollars’ worth of the digital money, thus he’s a major target of criminals looking for the hard drives where he would be storing it.

It was another tumultuous week for Bitcoin in general following the collapse of Mt. Gox, the largest Bitcoin exchange that was forced to file for bankruptcy in Japan, with losses nearing $500 million.

Flexcoin, the Canada-based Bitcoin bank, closed after losing $600,000 in a hacker attack, while in Singapore, the American CEO of the exchange there, First Meta, jumped to her death from an apartment building.

“Whenever I read a story about bitcoin, the virtual currency that has been so much in the news these days, I think about a man named Dee Hock. In the early 1970s, Hock created the credit card system that we now know as Visa. Hock was a man who liked to think grandiose thoughts. When it came to Visa, and credit cards in general, Hock used to describe them not just as a way to get a short-term loan but as a new kind of payment system, an exchange of value that was on par with, and that competed with, cash.

“As it turns out – and the bitcoin experience is helping to illustrate this – Hock’s description of credit cards was more than a little hyperbolic. Yes, you could now use a small plastic card instead of cash to buy something, but that card had value because it connected both the buyer and the seller to a fiat currency. People trusted it because they believed in their country’s currency and financial institutions. The exchange of value was never the credit card itself; it was still the dollar, the pound, the yen.

“Bitcoin, on the other hand, is truly a new form of payment system, unconnected to any currency or any government. Its libertarian proponents in Silicon Valley love that about it; they talk about it as a potential disrupter of traditional financial institutions. It has value not because a government has decreed and backed its value – the classic definition of a fiat currency – but because a community of users has decided to give it value. Its current travails, however, suggest that may also be its inherent flaw: that however much we say we mistrust governments and banks, when it comes to our money, we trust them a lot more than we trust some clever lines of computer code....

“For bitcoin to succeed, it will have to embrace the one thing it was most intended to avoid: government.”

“Anybody referring to bitcoin as a currency is either slimy or just plain stupid.

“A bona fide currency has a homeland, and it is that country’s specific approved form of money, with a seal and a traceable serial number, backed up by gross domestic product, taxes and oversight.

“Even commodities like gold, diamonds, silver and oil have measurable, underlying values that can be precisely weighed.

“Bitcoin is closer to the Dutch Tulipmania of the 1630s, only you can’t put a bunch of bitcoins on your Sunday dinner table.”

--In a significant move, China’s agriculture minister said there is no reason to fear genetically modified food and that he regularly eats it himself.

Han Chanfu said, “I eat food processed from GM crops, soya bean oil to be specific,” he said at a press conference tied to the National People’s Congress. He spent over 20 minutes explaining the rigorous testing and safety inspections involved in GM foods.

And the minister also said the outbreak of bird flu should not deter people from eating chicken. [South China Morning Post] YUM Brands, with its KFC chicken division, had to be very pleased with this last statement.

--New York City’s jobless rate in January fell to 7.8%, the lowest in four years, though it is expected to rise in February.

--In a 106-count indictment, four former leaders of the bankrupt law firm Dewey & LeBoeuf were charged by New York prosecutors with orchestrating a nearly four-year scheme to manipulate the firm’s books during the financial crisis, but as the New York Times’ Matthew Goldstein reported, they stupidly put incriminating details in their emails, talking openly about “fake income,” “accounting tricks” and their ability to fool the firm’s “clueless auditor.”

The four include the former chairman and chief financial officer. The firm collapsed in May 2012

At its peak, Dewey Leboeuf (created by the 2007 merger of Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae) had 26 offices around the globe and employed more than 1,300.

--A report by Credit Suisse concludes that a generation of Australians is being priced out of the housing market and is facing a “lifetime of renting.” The main cause is Chinese buyers, who are pouring into the country, to the tune of $4.5 billion a year in residential property, which is pushing up prices. In Sydney, for example, the median home price has risen 45% in the past five years. [By at least a third in Melbourne, the two cities being most popular for Chinese buyers...including, rumor has it, the CEO of my main China holding, which is part of the problem, I’m assuming, though the stock stirred this week.]

The upside of the Chinese invasion for Australia, one hopes, is a surge in local businesses that should benefit, aside from the traditional businesses taking advantage of any development in China itself, such as mining.

--Meanwhile, Australia’s economy expanded faster than forecast in the fourth quarter, up 0.8% from Q3. Compared with a year earlier, the economy grew 2.8%.

--Staples Inc., the nation’s largest office supplies retailer, forecast a fall in current-quarter sales and announced it would close up to 225 stores in North America by 2015. Seeing as I’m my local Staples’ best individual customer, and I like this Madison, N.J. location, I hope it survives.

Staples and Office Depot have been losing out to the likes of Wal-Mart and Amazon.

--I also like RadioShack, which is shuttering as many as 1,100 of its stores, more than a fifth of its locations nationwide, after reporting a full-year loss of $400 million. Revenue dropped a sickening 20% in the fourth quarter.

RadioShack, like Staples, is being hit hard by the likes of Amazon.

--Global shipments of personal computers fell 9.8% last year, with further declines expected in 2014 and following years, according to market research firm International Data Corp. IDC is projecting shipments will decline by 6% this year. [Tess Synes / Wall Street Journal]

--Disney Interactive, the video game and digital media subsidiary of Walt Disney Co., is cutting 700 jobs worldwide, 26% of the division’s workforce.

--Ben Bernanke is already cashing in from leaving the Federal Reserve, being paid at least $250,000 for his first public speaking engagement, in Abu Dhabi, on Tuesday. His 2013 paycheck was $199,700, as reported by the New York Post. Actually, Bernanke was to make three appearances this past week.

--February was Singapore’s driest month since 1869, with about a tenth of an inch of rain. Officials in Malaysia have begun rationing water; Singapore relying on it for 60% of its water imports. Singapore, for good reason, has been stepping up its efforts in desalination and water recycling technology.

Separately, Singapore overtook Tokyo as the world’s costliest city, according to the Economist Intelligence Unit, beating out Paris, Oslo, Zurich and Sydney, with Tokyo dropping to sixth. Singapore’s government has been cracking down on cheap foreign labor, which has helped hold the unemployment rate at 1.8%, but this has raised business costs.

--Bill Gates is back on top of the Forbes ranking of the world’s billionaires. Gates, who led the list 15 of the past 20 years, regained the No. 1 slot from Mexican telecom kingpin Carlos Slim Helu. Gates net worth is estimated at $76 billion. 

Spanish clothing magnate Amancio Ortega, known for the Zara retail chain, maintained his third-ranked spot, ahead of Warren Buffett, while Oracle’s Larry Ellison came in fifth.

Forbes says that of 1,645 billionaires on the list, 1,080 were self-made, 207 inherited their wealth and 352 inherited a portion but are still growing it.

Facebook’s Mark Zuckerberg, at $28.5 billion, is 21st.

16 billionaires on last year’s list passed away. Each day I look in my mailbox to see if any of them remembered me. Kind of like Charlie Brown looking for Valentines. “Hello in there...drat!”

--Last Sunday’s Oscars telecast was the most-watched television program in the U.S. since the Friends finale in 2004, with an estimated 43 million tuning in. I just hope Lupita Nyong’o, winner of the Best Supporting Actress award, has eaten some meat in celebration. I worry about her. 

Foreign Affairs

Syria: As part of the action in Ukraine, NATO suspended plans to coordinate with Russia in guarding Syria’s deadliest chemical weapons as they are destroyed, specifically protection of the U.S. vessel MV Cape Ray, which has chemical-destruction equipment onboard. Russia was supposed to help guard the vessel.

Wednesday, Washington accused the regime of Bashar Assad of avoiding discussions on eliminating several former chemical-arms production sites.

The U.N.-sponsored Organization for the Prohibition of Chemical Weapons, the group overseeing the weapons disposal, said Syria will have removed 23% of its most dangerous chemicals by end of the week, a significant improvement from two weeks ago, though the government in Damascus had promised to remove them all by end of April and it has been seeking an extension of this date. Syria has missed one deadline after another.

On a different matter, Michael Young, an editor at the Daily Star in Beirut, has labeled Hizbullah’s involvement in Syria as “an open-ended mini-Vietnam for the party,” which “is now a prisoner of this and it’s a prisoner of its alliance with Bashar.” [Bloomberg]

And in an interview with Bloomberg’s Jeffrey Goldberg, President Obama said with regards to his reluctance to get involved in the Syrian civil war:

“There was the possibility that we would have made the situation worse rather than better on the ground, precisely because of U.S. involvement, which would have meant that we could have had the third, or, if you count Libya, the fourth war in a Muslim country in the span of a decade.”

Israel: Prime Minister Benjamin Netanyahu was in the States this week, meeting with President Obama and giving an address before the America Israel Policy Affairs Committee confab in Washington. While his meeting with Obama was overshadowed by the situation in Ukraine, Netanyahu gave a generally dovish speech before AIPAC, focusing on a potential peace deal with the Palestinians.

Netanyahu said an historic agreement would open up the rest of the Arab world to establishing relations with Israel. “Peace with the Palestinians would turn these into open and thriving relationships,” he said, adding that the combination of Israeli innovation and Gulf entrepreneurship would “catapult the entire region forward.”

But, attaining such a peace deal depends on Palestinian Authority President Mahmoud Abbas, said Netanyahu, calling on Abbas to “stop denying history” and recognize Israel as the nation state of the Jewish people.

“President Abbas recognize the Jewish state, and in doing so you would be telling your people that – while we might have a territorial dispute the right of the Jewish people to a state of their own is beyond dispute.”

As to the Iranian issue, the prime minister reiterated that the world must not only prevent Iran from having nuclear weapons, but must also prevent Tehran from having the capacity to make them.

“That means we must dismantle their heavy water reactor, underground enrichment facilities, get rid of stockpiles of enriched uranium and their centrifuges.”

“I’ve come here to draw a clear line,” Netanyahu declared. “The line between life and death, right and wrong, between the blessings of a brilliant future and the curses of a dark past.”

Referring to Israel’s treatment of Syrians wounded in the civil war, Netanyahu said, “Israel is humane, Israel is compassionate, Israel is a force for good. On the other side of the moral divide stand the forces of terror, Iran, Assad, Hizbullah, al-Qaeda and others.”

Netanyahu also reminded his listeners not to fall for Iran’s charm offensive. “Iran’s radical regime has tried to blur this moral divide. It wheels out its smiling president and smooth talking foreign minister, but they don’t square with Iran’s aggressive actions,” he stated, rejecting Iran’s claims that it seeks a peaceful nuclear program. [Jerusalem Post]

But regarding AIPAC itself, Benny Avni had the following as part of an op-ed in the New York Post:

“(When) Obama publicly warns that the sanctions that are supposed to stop Iran’s nuclear program remain intact, companies around the globe ignore him. The mullahs are laughing all the way to the bomb while cutting world-wide deals to revive their economy.

“Iran can ignore his threats because AIPAC didn’t: That is, the America Israel Public Affairs Committee pulled its support from Sen. Bob Menendez’s bill that would’ve reinforced sanctions in the event that the administration’s ‘interim’ deal with Tehran didn’t stick.

“Yes, Menendez (D-NJ) told AIPAC’s annual gathering yesterday that he’s still committed to hitting Iran with sanctions as needed. But he’s not the issue.

“The fact is that AIPAC stopped pushing the bill because too many Jewish Democrats – led by party chair Rep. Debbie Wasserman Schultz – were siding with Obama against it, and AIPAC feared losing its longstanding bipartisan status.

“The fight clearly weakened AIPAC, Israel’s most prominent advocate in America – and many believe the president was happy to see its much-ballyhooed influence reined in.

“Fresh from his victory over AIPAC on the sanctions bill, Obama set his sights on Israeli Prime Minister Benjamin Netanyahu.

“As Bibi headed to DC for the AIPAC gathering, Obama used an interview with Bloomberg’s Jeffrey Goldberg to warn that if negotiations with the Palestinians fail, Israel would take the blame – and that it would be harder for him to then protect Israel against the sure-to-come diplomatic assault, as America always has before.

“Obama even introduced a new term, ‘aggressive settlement construction,’ to denounce what he seems to consider the biggest impediment to the U.S.-drafted ‘framework agreement’ that’s supposed to lead to an Israeli-Palestinian peace deal.

“Which is strange – Netanyahu strongly indicates he’ll embrace the framework (maybe with qualifications); it’s the Palestinian Authority president, Mahmoud Abbas, who hints that he’ll refuse – not least because the framework requires him to recognize Israel as a Jewish state....

“Bottom line: Even implicit U.S. pressures figure much higher in Netanyahu’s calculations than in Putin or Assad’s. And Obama knows it.

“Perhaps the president believes he can still rescue his foreign policy ‘legacy’ by striking a Mideast peace deal, and that pressuring Israel is the way to get there.

“Then again, he also once believed in a Russian ‘reset.’”

[On the issue of settlement building, housing starts in “Judea and Samaria” (i.e., the West Bank) did rise to 2,527 from 1,089 in 2013 vs. 2012, according to Israel’s statistics bureau.]

Iran: The International Atomic Energy Agency’s Director General Yukiya Amano said a six-month atomic accord between the P5+1 and Iran is so far “being implemented as planned.”

Iran’s “dilution of a proportion” of its 20 percent-enriched uranium has “reached the halfway mark.”

On a totally different topic, Las Vegas Sands CEO Sheldon Adelson is a well-known major supporter of Israel and he has often made comments about preventing Iran from using nuclear weapons, some of them rather harsh.

So computer hackers, no doubt from Iran, stole Las Vegas Sands customers’ Social Security and driver’s license numbers during a data breach at its Bethlehem, Pa., hotel-casino in a Feb. 10 attack. That’s just a small example of the reach of Iran’s cyber unit.

China: Premier Li Keqiang, speaking at the opening session of the National People’s Congress in Beijing, said the central government was declaring a “war on pollution” and would fight it with the same determination it mustered over the past three decades in battling poverty.

“[Pollution is] nature’s red-light warning against the model of inefficient and blind development,” Li said. “Efforts to protect the environment matter to people’s lives and the future of the Chinese nation.”

The country would seek to limit coal use, increase its reliance on hydropower, start constructing new nuclear plants and develop deposits of natural gas, coal-bed methane and shale gas, Li told delegates.

The government also announced it would set a target of reducing emissions that pollute the air 5% this year, as well as launch a comprehensive clean-water plan and program to clean up the soil.

As part of a 32-page report on key aspects of the budget, defense spending was scheduled to rise 12.2%, up from a 10% stated average of recent years. [Jane Cai / South China Morning Post]

Premier Li, as part of his wide-ranging opening address, warned Japan that China would not allow any country to “reverse the course of history.”

“We will safeguard the victory of World War II and the postwar international order, and will not allow anyone to reverse the course of history.”

Previously, Japanese Prime Minister Shinzo Abe has blamed growing tensions between the two on China, saying its surging spending on defense helped create instability in the region.

Separately, in what should be another worrisome sign for the government, more than 1,000 workers at an IBM factory in southern China went on strike to object to the terms of a buyout by China’s Lenovo of IBM’s x86 server business, which is injecting an element of risk into cross-border mergers and acquisitions.

IBM said, “Employees currently involved in x86 operations in Shenzhen have a personal choice of going to Lenovo under terms and conditions comparable...to what they currently are receiving, or they can voluntarily choose what we believe is an equitable severance package. While it is entirely an individual’s choice, we are hoping employees will decide to go to Lenovo.”

The factory’s workers are demanding higher wages for those who stay, and higher severance payments for those opting to leave.

Lastly, China was rocked by a horrific domestic terror massacre as at least 29 civilians were killed and over 140 wounded by a group of knife-wielding attackers dressed in black who went on a rampage in a Kunming railway station, hacking and stabbing passengers and passers-by indiscriminately. Four attackers were killed, one arrested.

Local officials said the initial investigation suggested the attack was “planned and organized by separatist forces from Xinjiang,” Xinjiang being the restive western autonomous region that has seen scores of similar attacks against civilians and police in recent years. What is even more worrisome for officials is that Kunming is the capital of Yunnan Province, and not in Xinjiang, over a thousand miles away.

The knives were more like swords. The pictures I saw were absolutely horrific.

President Xi Jinping called for “an all-out effort to punish the terrorists.”

Many in China were upset at the official Washington reaction, with the U.S. embassy in China condemning the attack but refraining from calling it a terrorist incident. C’mon, of course it was, and I’m well aware of the Chinese penchant for settling disputes with local officials in such a fashion. This was, clearly, not a local dispute. It was a terror attack. So I support those in China dubbing it their 9/11.

North Korea: In its 2014 Quadrennial Defense Review, the U.S. Defense Department stated that “North Korea’s long-range missile and weapons of mass destruction programs – particularly its pursuit of nuclear weapons...is a growing, direct threat to the United States,” the Yonhap News Agency reported. The QDR is a congressionally ordered four-year assessment of the U.S. defense strategy, force structure and programs.

Pentagon officials are monitoring Pyongyang’s work on a new road-mobile ICBM, though there have been no test flights of the weapon. Defense officials are also concerned about the North’s expansion of its nuclear-weapon material production complex.

This week, North Korea fired a number of short-range missile in response to ongoing U.S.-South Korea military exercises. South Korea’s defense ministry expects further provocations, including the possibility of a long-range missile launch or even a nuclear test.

Speaking of the short-range missile tests, a South Korean official said a China Southern Airlines aircraft carrying 220 passengers passed through the trajectory of one of the rockets. North Korea had not given any warning and an analysis of the flight path showed “the rocket could have hit the plane on its way down, according to a defense ministry spokesman. [China later confirmed this as well.]

Russia: According to a report in the Bulletin of the Atomic Scientists, Russia has achieved “important steps” over the last year in modernizing submarines, aircraft and missile forces critical to its nuclear deterrent. The authors, Hans Kristensen and Robert Norris, said Moscow’s progress has added “to growing concern in other countries about Russian intentions and help justify nuclear modernization programs and political opposition to reductions in other nuclear-weapons states.

Moscow has finished fielding a more modern force of intercontinental ballistic missiles, the Topol-M, while deploying newer road-mobile RS-24 Yars ballistic missiles.

The analysts added they see Russia’s overall missile count decreasing in favor of placing more nuclear warheads on fewer delivery systems.

The danger here is that Russia, with far fewer missiles, could be more inclined to pre-emptively launch its ground-based nukes in a crisis...use them or lose them. [Diane Barnes / Global Security Newswire]

Separately, opposition leader Alexei Navalny was placed under house arrest for the next two months and is forbidden from leaving his residence – an apartment in a Moscow suburb – and from using the Internet or any other means of communication with the outside world. He had spent a week in detention for taking part in an unsanctioned street protest.

Afghanistan: The U.S. military offered its condolences Thursday after an airstrike mistakenly targeted an Afghan army outpost, killing five Afghan soldiers. The timing couldn’t have been worse, given President Hamid Karzai’s failure to sign a security agreement that would keep American troops in Afghanistan beyond 2014, though, strangely, this time he didn’t immediately condemn U.S. forces for the incident. The strike was carried out by a drone.

Karzai’s brother bowed out of the presidential race and endorsed the candidacy of former Afghan Foreign Minister Zalmai Rassoul, which appeals to ethnic Pashtun voters, the country’s largest community.

Nigeria: Two explosions in a busy market in northeast Nigeria killed at least 50 people on Saturday, with Islamist group Boko Haram believed to be responsible yet again. Around the same time, Islamists streamed into a village 30 miles away and killed 39, eventually burning the entire town down.

The government has been launching air strikes against suspected Boko Haram targets, but overall its efforts to combat the insurgency have failed.

By my count, at least 400 innocents have died in Boko Haram attacks just since Feb. 17.

Venezuela: President Nicolas Maduro broke diplomatic relations and froze economic ties with Panama, claiming the country is part of a U.S.-led conspiracy towards an eventual “intervention in our country,” as Maduro put it.

Random Musings

--I missed this in time for last review. From Nikki Schwab of U.S. News & World Report Weekly, concerning President Obama’s recent meeting with Republican governors, “which was billed as a summit to grease the wheels for partnerships with states to address issues that have stalled in Washington due to gridlock in Congress. But after the talks, some Republicans lamented the president’s icy reception and expressed deep skepticism about progress on many fronts. And Obama rejected requests from GOP state leaders for increased flexibility on a variety of issues, signaling a more confrontational approach as election season approaches.

“At one point during the morning meeting at the White House, the commander in chief even warned Republicans he would strike back if they complained about potential cuts to the National Guard. ‘I don’t mind telling you I was a bit troubled today by the tone of the president,’ recalled Texas Gov. Rick Perry during a news conference at the U.S. Chamber of Commerce following the meeting. ‘He said, ‘If I hear any of you pushing back, making statements about Washington spends too much money, you will hear from me.’’ South Carolina Gov. Nikki Haley added, ‘He basically said, ‘Many people in this room have asked for cuts.   Now you’re getting them.’ He said, ‘If somebody questions it, I’m going to have to say something about it.’ It chilled the room quite a bit.’”

--If you can understand all the changes that have been made to the Affordable Care Act you’re a better man than me. For what was to be ‘settled law,’ ObamaCare is the most unsettled piece of legislation in memory. On Wednesday, federal officials said insurance companies “could continue selling plans that don’t meet the law’s more rigorous standards until 2016 in some instances. It was the second time the administration delayed that requirement after the law’s tougher standards prompted insurers to cancel millions of people’s health plans last year. The latest delay averts another raft of cancellations before this year’s midterm elections.” [Louise Radnofsky / Wall Street Journal]

No doubt, however, many aspects of ObamaCare are now solidly in place, it’s just that it’s increasingly clear that years from now, there will still be tens of millions without healthcare insurance, which I think most of us thought was the guiding principle behind the ACA in the first place, whether you agreed with it or not.

In fact a report on Thursday showed that only one in 10 uninsured who qualify for private plans have enrolled as of last month, though according to another survey, half have at least looked for information. [Amy Goldstein / Washington Post] [Another survey out there says 27% who enrolled as of mid-February were previously uninsured... so I’ll try to keep track of all the different interpretations of the data.]

And regarding this week’s latest development, I couldn’t agree more with South Dakota Republican Senator John Thune: “If ObamaCare is as great as Democrats say it is, why are they constantly having to delay parts of it? Each and every delay of ObamaCare is an admission that the Democrats’ signature law is hurting Americans and an obvious attempt to try to save the jobs of vulnerable congressional Democrats come November.”

--In a new Washington Post/ABC News poll, three in 10 of all Republicans say they would not vote for New Jersey Gov. Chris Christie, the highest of any Republican. 18%, by comparison, say they would definitely not vote for Jeb Bush.

Mitt Romney has the most definite support among Republicans, at 34 percent, followed by Bush and Mike Huckabee at 15 percent. Just 9 percent of Republicans say they would definitely vote for Christie.

Regarding Hillary Clinton, 25% of all Americans say they “definitely would” vote for her, while 41% say they would consider doing so. 32% say they definitely would not.

Meanwhile, in a Rutgers-Eagleton poll, 54% of New Jersey voters approve of how Christie has handled Hurricane Sandy recovery efforts, a 26-point decline from November, owing to Bridgegate, though there has also been increasing coverage of the recovery story and growing questions over the disbursement of relief funds.

And in a hypothetical race between Hillary and the governor, New Jersey voters tab Clinton 51 to 41 percent, though this is an improvement from January’s survey that had Clinton with a 55 to 34 percent lead. [Star-Ledger] [A Fox News poll has the hypothetical Clinton-Christie race at 49-38.]

Lastly, Christie appeared at the Conservative Political Action Conference (CPAC) on Thursday and received a warm reception as he promoted his conservative street cred while urging, “Let us come out here resolved to not only stand for our principles, but let’s come out of this conference resolved to win elections again.”

This last point was in contrast to Texas Rep. Sen. Ted Cruz, who stayed with his own message at CPAC. “You want to lose elections? Stand for nothing.” [Cruz also dissed Bob Dole, John McCain and Mitt Romney.]

--New York Democratic Gov. Andrew Cuomo saw his job approval crater to 42% among voters statewide, from 52% in the fall, according to a new Wall Street Journal/NBC 4 New York/Marist College poll. I almost don’t believe the numbers because his approval among registered Latino voters fell from 62% in November to 41% today. Among African-American voters, from 57% to 42%.

Now those are his job approval ratings. But kind of like President Obama, however, Cuomo’s  “favorability” remains high, 63%.

Cuomo is up for re-election and despite the drop in his numbers, he would defeat his new, official, Republican challenger, Westchester County Executive Rob Astorino, 65-25, who I’m guessing is the eventual Republican nominee.

--New York Mayor Bill de Blasio faced an uproar over cancelling space in city school buildings for three charter schools approved last year by the Bloomberg administration, but in total, he has approved 36 of 45 co-locations involving public schools, including 14 other charter schools.

So now he has ticked off the City Council speaker and public advocate for approving so many space sharing arrangements.

De Blasio is also opposed by Gov. Cuomo, who has vowed to support the charter school movement. Speaking at a rally in Albany, Cuomo said:

“I am committed to ensuring charter schools have the financial capacity, the physical space and the government support to thrive and to grow.”

At the same time, also in Albany, the mayor was speaking at an (empty) arena talking up his plan to pay for an expansion of pre-K by raising income taxes on high earners – which Cuomo also opposes (because it’s an election year, first and foremost).

Cuomo is in the exact same position Chris Christie was in last fall. They both were/are seeking big wins, 60%+, to buttress any presidential hopes. If Hillary stumbles, which is very possible, Cuomo would love to fill the breach.

Back to the mayor...Peggy Noonan / Wall Street Journal

“What a small and politically vicious man New York’s new mayor is. Bill de Blasio doesn’t like charter schools. They are too successful to be tolerated. Last week he announced he will drop the ax on three planned Success Academy schools. (You know Success Academy: It was chronicled in the film ‘Waiting for Superman.’ It’s one of the charter schools the disadvantaged kids are desperate to get into.) Mr. de Blasio has also cut and redirected the entire allotment for charter facility funding from the city’s capital budget. An official associated with a small, independent charter school in the South Bronx told me the decision will siphon money from his school’s operations. He summed up his feelings with two words: ‘It’s dispiriting.’

“Some 70,000 of the city’s one million students, most black or Hispanic, attend charter schools, mostly in poorer neighborhoods.... Their students usually outscore their counterparts at conventional public schools on state tests. Success Academy does particularly well. Last year 82% of its students passed citywide math exams. Citywide the figure was 30%.

“These are schools that work. They are something to be proud of and encourage....

“On Thursday Mr. de Blasio went on a sympathetic radio station and couldn’t have been clearer about what is driving his actions. Charter schools may help the poor and those just starting out in America, they may give options to kids who’ve floundered elsewhere, but a lot of them are supported by rich people. There is a ‘strong private-sector element’ in their funding, he said. The mayor agreed with host Ebro Darden that ‘a lot’ of charter schools are funded by big business: ‘Oh yeah, a lot of them are funded by very wealthy Wall Street folks and others.’ When Mr. Darden and co-host Peter Rosenberg suggested that a ‘campaign’ to portray the mayor as anti-charter school was also funded by big business, Mr. de Blasio, as the New York Post noted, didn’t disagree. ‘I think you’re providing a keen political analysis there.’

“Clever people usually try to hide their animus. This one doesn’t care if you know how he feels about that ‘element.’

“It is true that wealthy and public-spirited New Yorkers, out of loyalty to the city and its future generations, give a lot of money, care and time – the last, time, doesn’t get noted enough – to create and help run many of the city’s charter schools. They should be thanked for this, every day. Again, they do it because they care about children who would otherwise be locked into a public-school system that doesn’t work.

“But the people who run the public-school system that doesn’t work – the one where you can’t fire teachers who sexually prey on students and principals who don’t even show up for work, which is to say the public schools run by the city’s huge and powerful teachers union – don’t like the charter schools. And they are the mayor’s supporters, a significant part of his base....

“In this move more than any so far, Mr. de Blasio shows signs he is what his critics warned he would be – a destructive force in the city of New York. When a man says he will raise taxes to achieve a program like pre-K education, and is quickly informed that that program can be achieved without raising taxes, and his answer is that he wants to raise taxes anyway, that man is an ideologue.

“And ideologues will sacrifice anything to their ideology. Even children.”

[Late Friday, NBC 4 New York reported de Blasio was backing off his decision to close the three Success Academy schools, though as of my posting there are no details.]

--Crain’s New York Business conducted an online poll.

A Wall Street Journal/NBC 4 New York/Marist poll showed de Blasio with just a 39% approval rating among Gotham’s registered voters, which is staggering after his landslide win just months ago. After his first two months in office, back in 2002, Michael Bloomberg’s approval rating was 50%.

--According to a Pew Research Center poll of American Catholics, when Pope Benedict stepped down last February, 70 percent identified “addressing the sex abuse scandal” as the priority for the new pope. One year later, 54 percent said Pope Francis was doing a good or excellent job on that problem. 81 percent said Francis was doing well on spreading the Catholic faith; 62 percent on overhauling the Vatican bureaucracy. 71 percent said Francis represented “major change in direction.”

But for all the renewed enthusiasm, this has not as yet translated into more attendance at Mass, after an initial surge. 22% of Americans are Catholic.

--The above-referenced Washington Post/ABC News poll has a record-high 59 percent of all Americans saying they support same-sex marriage, while 34 percent are opposed. In the 33 states that prohibit same-sex marriage, 53 percent of those polled support allowing it, while 40 percent oppose doing so.

Support for such unions carries 70 percent of Democrats and 61 percent of Independents, though 54 percent of Republicans still oppose same-sex marriage (40 percent approve of it).

--Update: The Federal Communications Commission pulled the plug on a study I referred to last time that sought information on how local radio and television stations covered news. The survey was to include questions regarding the editorial process of media, which was seen by critics as way over the line for a government agency.

--Update, part II: As I noted a few weeks ago, Martin Luther King Jr.’s estate is run by his two sons, Martin Luther King III and Dexter King, and on Thursday, Bernice King said she would turn over her father’s personal Bible and Nobel Peace Prize per a court order, but implored her brothers not to sell them, which is their intent.

“I appeal to you to reconsider your position,” Bernice said. “These two artifacts are too sacred to be sold or be bought under any circumstance.”

--Sign of the Apocalypse: The two-year-old, $60 million high school football stadium for Allen, Texas, seating 18,000, has been shut down and may not reopen in time for next football season, due to extensive cracking and “other potential problems in the structure” that were found along the concourse.

The stadium features free Wi-Fi and a high-definition video screen, according to the Dallas Morning News.

Actually, perhaps a crack of a more serious nature was found in a Columbia River dam in central Washington, a 65-foot-long crack that has forced officials to lower the water level so inspectors can figure out how serious it is.

--Mississippi topped West Virginia as the most obese state in the nation, according to a Gallup analysis. 35.4% of Mississippians were obese in 2013, compared to 34.4% of West Virginians.

Montana is the state with the lowest obesity rate – 19.6%, besting Colorado.

--A report by the Centers for Disease Control and Prevention noted the overuse of antibiotics in U.S. hospitals is way out of control, with 36% of patients studied at 323 hospitals in 2010 and 11,282 patients at 183 hospitals in 2011 having been given the powerful antibiotic vancomycin, and 40% of patients treated for urinary-tract infections being given antibiotics.

Of course with the overuse they are less effective and, these days, increasingly deadly. Patients often become more vulnerable to other types of infections. About 250,000 hospitalized patients a year develop a specific bacterial infection, (C. difficile) which can lead to sepsis and death.

As reported by the Wall Street Journal’s Betsy McKay and Valerie Bauerlein:

“The government set a goal of cutting the rate of C. difficile infection in half in five years, which the CDC said would save 20,000 lives, prevent 150,000 hospitalizations and trim $2 billion in health-care costs.”

The large academic hospitals, for the most part, have programs in place to drastically reduce antibiotic use (“antibiotic stewardship”), but it’s the community hospitals, where most people are treated, that see the most problems.

--Another scary public health story in the Journal by Cameron McWhirter concerns the potential spread to the U.S. of the debilitating mosquito-borne virus, chikungunya, which has made its way to the Caribbean from Africa. The CDC has issued warnings to clinicians across the U.S. to be on the lookout for patients showing symptoms, which include fever and intense muscle and joint pain that can, in some cases, last years.

Durland Fish, a professor of epidemiology at Yale University, predicts widespread epidemics that will overwhelm medical services.

The Journal notes that one of the worst outbreaks of chikungunya was on the French island of Reunion in 2005-06, when an estimated “250,000 people out of a population of about 840,000 contracted the illness.” Yikes. More than half reported suffering symptoms years later.

Yup, the mosquito is public-enemy number one, boys and girls.

I mean consider how West Nile virus, which has its origin in Africa, first arrived in New York in 1999 and, today, has spread across the U.S., up to Canada and down to Venezuela.

--Finally, did you see that farmer in Gilman, Minnesota who built a 50-foot snowman? It’s very cool. I know I have lots of readers in that great state. I’d love to know if it’s still around, say, late April.

The record, by the way, was said to be built in Bethel, Maine, in 2008...122-feet.

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

God bless America.

Gold closed at $1338
Oil $102.58

Returns for the week 3/3-3/7

Dow Jones +0.8% [16452]
S&P 500 +1.0% [1878]
S&P MidCap +1.0%
Russell 2000 +1.7%
Nasdaq +0.7% [4336]

Returns for the period 1/1/14-3/7/14

Dow Jones -0.8%
S&P 500 +1.6%
S&P MidCap +3.5%
Russell 2000 +3.4%
Nasdaq +3.8%

Bulls 54.6
Bears 15.1 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Catch me on Twitter @stocksandnews

Brian Trumbore

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