Week in Review

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Week in Review

01/03/2015

For the week 12/29-1/2

Edition 821

Wall Street and Washington

2014 Returns

Dow Jones +7.5%
S&P 500 +11.4%
Nasdaq +13.4%

Frankfurt +2.7%
London -2.7%
Moscow -42.4%
Stoxx 600 +4.4% [pan-Euro index]

Tokyo +7.1%
Shanghai +52.9%

If I told you the Dow Jones hit a new all-time high 38 times in 2014, and the S&P 500 did it 53 times, you’d probably think the returns for the year were better than they turned out to be. Sure, especially on a total return basis (including dividends), the S&P’s 13.7% gain is nothing to sneeze at, but it was a far cry from the stupendous performance of 2013.

That said, the Dow Jones is now up six straight years, and the S&P registered its third year of double-digit gains for the first time since the 1990s. 

Stocks largely shrugged off a slew of depressing items, from Ebola, to the rise of ISIS, to Russia’s annexation of Crimea, to the Pakistan school massacre, to Boko Haram’s ongoing terror, to economic stagnation in Europe, renewed recession in Japan, racial divisions in the United States...I mean the year really sucked. But Wall Street wasn’t fazed.

Oh, it helped the Federal Reserve continued to cooperate, with Treasuries also supported by record-low yields in Europe and elsewhere, a slowing China, and continued heavy foreign buying. At least in the beginning of 2015, these trends should continue.

It also helped Washington calmed down, though watch out this coming spring, as the fight over the debt ceiling promises to be a good one as it’s the issue where Republicans have the most leverage with their newfound power.

But the last quarter of 2014, aside from rewarding Republicans, was all about the price of black gold....oil.

We started 2014 with oil at $98.50 (West Texas Intermediate), it meandered up to $107 in June, and then it collapsed, though not in a big way until the start of the fourth quarter as crude was still $93.50 on Sept. 26. From $93.50 all the way to $53.27 in three months, while the price at the pump was dropping a record 97 consecutive days to a national average of $2.26 a gallon* on Dec. 31, the lowest since May 12, 2009, according to AAA. [Both WTI and Brent crude, which finished the year at $57.33, are at their lowest respective levels since May 2009 as well.]

*The avg. price at the pump finished up the week at $2.23, with WTI at $52.69, the lowest since 4/30/09.

So oil fell 46% on the year and the price at the pump declined $1.06 on average. AAA says the American consumer saved a total of $14 billion on fuel for 2014 ($115 per household). If prices remain low in 2015, AAA estimates the savings would be in the $50-$75 billion range, or $550 on average.

True, should oil remain low, the economies of North Dakota and Texas, in particular, will suffer, as I’ve been saying job losses in the oil and gas sector, let alone those industries servicing the group, will be far greater than analysts are talking about today. But for now, the positives outweigh the negatives.

“Gasoline prices are on the verge of crashing down to below $2 a gallon. The price of oil may dip below $50 a barrel. Even with renewed demand from a global economic resurgence, energy prices continue to fall. The U.S. suddenly has become the world’s largest combined producer of oil and natural gas....

“Under President Barack Obama, gasoline prices had soared. When he entered office in January 2009, gas prices averaged around $1.60 per gallon. Four years later, by spring 2013, gas prices had climbed beyond $3.50 a gallon.

“The Obama administration never much worried about high energy costs. During the 2008 campaign, Obama promised that, ‘Under my plan...electricity rates would necessarily skyrocket.’ Shutting down coal plants and using higher-priced but cleaner natural gas would pave the way for even pricier mandated wind and solar generation.

“In the vice presidential debates of 2008, Joe Biden mocked Sarah Palin for the supposedly mindless campaign mantra of ‘Drill, baby, drill.’ Biden intoned that, ‘It will take 10 years for one drop of oil to come out of any of the wells that are going to be drilled.’

“The energy secretary-designate, the professorial Steven Chu, in 2008 had unwisely voiced a widely held but wisely unspoken progressive belief that, ‘Somehow we have to figure out how to boost the price of gasoline to the levels in Europe’ – or about $9 a gallon.

“Just two years ago, when up for re-election, Obama reminded Americans, ‘We can’t just drill our way to lower gas prices.’ Obama ridiculed the Republican idea of lowering gas to $2 a gallon through new oil-recovery techniques.

“ ‘They’re already dusting off their three-point plans for $2 gas,’ Obama mocked. ‘I’ll save you the suspense: Step one is drill, step two is drill, and step three is keep drilling.’....

“Then, finally, oil and gas prices plunged due to the ‘drill, baby, drill,’ can-do attitude of the private sector. Americans should thank the U.S. oilman – from the drillers in the field to the engineers behind the scenes – who did the impossible. They vastly increased the supply of what was supposedly a permanently declining resource, and thereby helped to crash prices. 

“Oilmen, not the government, returned hundreds of billions of dollars to American consumers. They, not Ivy League experts and Wall Street grandees, kick-started the economy where federal subsidies had failed to. They, not the policies of the Obama administration or the rhetoric of Secretary of State John Kerry, weakened our enemies.

“Almost everything Obama tried for six years in an effort to rev the economy – from near-zero interest rates and $1 trillion annual budget deficits to ObamaCare and vast increases in entitlements – has failed. His foreign-policy stances of resets and leading from behind led to chaos and emboldened enemies.

“Yet the economy is slowly recovering with cheap energy. Consumers have more money. Industries are returning to U.S. soil. Abroad, spendthrift oil producers such as hostile Iran, Russia and Venezuela are nearly broke. Friendly rivals such as Japan and the European Union can’t compete with the U.S. energy edge.

“What Obama once ridiculed is now saving him from himself – after he had championed policies that nearly destroyed him. The Greeks had a word for it: irony.”

As for whether the low oil prices can last, Mohamed El-Erian in an op-ed for Bloomberg.

“Having seen numerous fluctuations in the energy markets over the years, many analysts and policy makers have a natural tendency to ‘look through’ the latest drop in oil prices – that is, to treat the impact as transient rather than as signaling long-term changes.

“I suspect that view would be a mistake this time around. The world is experiencing much more than a temporary dip in oil prices....

“Through the years, markets have been conditioned to expect OPEC members to cut their production in response to a sharp drop in prices. Saudi Arabia played the role of the ‘swing producer.’ As the biggest producer, it was willing and able to absorb a disproportionately large part of the output cut in order to stabilize prices and provide the basis for a rebound....

“Yet in serving as the swing producer through the years, Saudi Arabia learned an important lesson: It isn’t easy to regain market share. This difficulty is greatly amplified now that significant non-traditional energy supplies, including shale, are hitting the market.

“That simple calculation is behind Saudi Arabia’s insistence on not reducing production this time. Without such action by the No. 1 producer, and with no one else either able or willing to be the swing producer, OPEC is no longer in a position to lower its production even though oil prices have collapsed by about 50 percent since June....

“The likelihood of longer-lasting changes is intensified when we include the geopolitical ripple effects. In addition to creating huge domestic problems for some producers such as Russia and Venezuela, the lower prices reduce these nations’ real and perceived influence on other countries.   Some believe Cuba, for example, agreed to the recent deal with the U.S. because its leaders worried they would be getting less support from Russia and Venezuela. And for countries such as Iraq and Nigeria, low oil prices can fuel more unrest and fragmentation, and increase the domestic and regional disruptive impact of extremist groups.

“Few expected oil prices to fall so far, especially in such a short time. The surprises won’t stop here. A prolonged period of low oil prices is also likely to result in durable economic, political and geopolitical changes that, not so long ago, would have been considered remote, if not unthinkable.”

Europe and Asia

Markit released its final eurozone manufacturing PMI data for December, 50.6 vs. November’s 50.1.

France was at just 47.5, a 4-month low, while Italy’s 48.4 was a 19-month low. Greece came in at 49.4.

With 50 being the dividing line between growth and contraction, 50.6 is hardly something to get excited over.

“Eurozone factory activity more or less stagnated again in December, rounding off a year which saw an initial, promising-looking upturn fade away and stall in the second half of the year. The weakness of factory output, combined with the subdued service sector growth signaled by the flash PMI suggests the eurozone economy grew by just 0.1% in the fourth quarter.

“The crisis in Ukraine and a renewed lack of confidence in the ability of euro area policymakers to revive the region’s economy appear to have been the main catalysts to fuel increased economic uncertainty, causing companies to grow more risk averse and pull back on expansion plans.”

On the other hand...“Lower costs, linked to falling oil prices, are helping manufacturers to reduce their selling prices, and the drop in fuel prices should also boost consumer spending.” [markit.com]

But there are two key dates to keep in mind when it comes to Europe and the eurozone in January. The European Central Bank meets on Jan. 22, at which time the Governing Council is expected to approve a large-scale quantitative easing program that will include the controversial buying of sovereign debt. ECB President Mario Draghi said in an interview with a German newspaper this week:

“The risk that we don’t fulfill our mandate of price stability is higher than it was six months ago,” referring to the risk of deflation. [Prices in Spain declined 1.1%, year over year, in December, for example, the sixth month in a row with falling prices there.] “We are in technical preparations to alter the size, speed and composition of our measures at the beginning of 2015, should this become necessary, to react to a too-long period of low inflation. There’s unanimity in the ECB council on that.”

With comments like these, hinting of large-scale government bond purchases, yields on sovereign debt in euroland continued to plummet. Following are some 12/31/14 closing 10-year figures.

Germany 0.54%
France 0.78%
Spain 1.54%
Italy 1.82%
Portugal 2.62%

Then on Friday, upon release of Draghi’s latest remarks, yields in some fell even more.

Germany 0.50%
Spain 1.48%
Italy 1.74%
Portugal 2.39%

Only Greece, 9.09% (12/31...8.99%, Friday), bucked the trend, but this was for a different reason. Jan. 25 is the other big date to remember this month, the day Greek voters go to the polls in a snap election mandated by the Constitution once Prime Minister Samaras’ gamble for electing a new president backfired; Samaras failing to get the 180 votes in the 300-seat parliament Dec. 29 in the third and final try.

The reason why the yield on Greece’s 10-year soared to nearly 10% in the initial moments following Monday’s vote was now there is a chance that Alexis Tsipras’ left-wing Syriza party could win on Jan. 25, though recent polls have its lead over the governing New Democracy party at just three points.

No single party is going to gain a majority, but the leading vote-getter gains a 50-seat bonus and then the remaining 250 are distributed proportionally among all parties reaching at least a three percent threshold.

Tsipras said on Monday, “This is the beginning of the end of a regime that plunged Greece into poverty, unemployment, misery and despair,” promising a “real negotiation” on the bailout terms.

Syriza’s party daily said a leftist government would give “hope to the peoples of Europe and nightmares to the elites oppressing them.”

Syriza has long been anti-austerity, anti-EU, and within hours of the election call Monday, the International Monetary Fund said it was suspending further bailout payments to Greece until a new government was formed.

Syriza wants to raise salaries and pensions, halt layoffs and freeze the privatization of state assets – all of which are demanded by Greece’s EU-IMF creditors.

The European Union has called on Greeks to stick by their reforms. German Finance Minister Wolfgang Schaeuble has warned “they have no alternative.”

But Tsipras has moderated some of his positions and is now abandoning his pledge to “tear up” the bailout agreement. The Greek people want change, but Tsipras knows he has to be pragmatic enough to form a coalition even if he ekes out a win and the bonus that goes along with it.

There’s the rub, sports fans. Syriza can win but if they can’t form a government, then the second place finisher, assumed to be New Democracy, gets a shot at forming one. So the uncertainty in the country could last a lot longer than just the next few weeks.

One other factor. Former prime minister George Papandreou is preparing to form a “wild card” party that could take maybe 4 or 5 percent of the vote, at the expense of Syriza, which could hand the victory to the center-right and keep Samaras in power.

Finally, I have been writing of the rise of the far-right in Europe for years now and it was interesting how a number of politicians across Europe took a stance this week.

In Sweden, in order to block the growing influence of the anti-immigration Sweden Democrats, the three-month-old minority center-left government announced a deal with the opposition that extends through the next parliament of 2018-22, eight years, with the aim of making sure that more centrist parties hold onto power and shut out the far right. 

The Sweden Democrats had threatened to bring down any government that did not curb rising immigration, and to turn a snap election into a referendum on the government’s refugee policies.

The Sweden Democrats won 13% of the vote in September’s election, making it Sweden’s third largest. A poll in December put its support at 16%.

Needless to say this new arrangement between the Social Democrat-Green coalition and the four-party Alliance is complicated. You can imagine the talk show chatter there these days.

In his end of year address, Italy’s President Giorgio Napolitano  decried the rise of anti-political movements and demands to pull Italy from the euro as “nothing more unrealistic or dangerous,” with the latest Italian polls showing a surge in popularity for parties with an anti-immigration, anti-euro bent. [Napolitano also went after the prevalence of organized crime throughout Italian social and political life, as the country reels from recent revelations the mafia has infiltrated local government in Rome. Napolitano, 89, is stepping down soon.]

French President Francois Hollande pledged to fight entrenched conservatism and “dangerous” populist stances in his country, referring, of course, to the National Front and its leader Marine Le Pen.

In her New Year’s address, Chancellor Angela Merkel said of the ongoing protests in Dresden by Pegida (“Patriotic Europeans against the Islamization of the West”), a movement that has been gathering strength; Don’t go to these marches, because the organizers have “prejudice, coldness and even hatred in their hearts.”

Immigration, Merkel noted, was “a gain for everybody” – and she appealed to the German people to accept refugees at a time when there were more displaced people in the world than since the second world war, as reported by Stefan Wagstyl of the Financial Times. In a recent poll for Stern magazine, 29% of Germans believe that Islam was having such an influence on life in the country the marches were justified.

“The rise of anti-system parties threatens the survival of the euro because the single currency depends on the maintenance of a pro-euro consensus among the 18 countries that have adopted the currency. [Ed. now 19, Lithuania being the newest member of the bloc as of Jan. 1.] As long as the leaders gathered around the table at yet another ‘emergency summit’ in Brussels are all basically committed to the project, experience suggests that they will find a way to keep it together.

“In theory, Syriza would not break that consensus. The Greek radicals say that they intend to keep their country inside the eurozone. The trouble is that they also want to write off about half of Greece’s foreign debt – a demand that is likely to prove unacceptable to the other eurozone members, above all, Germany.

“Syriza may be right that Greece’s debt is essentially unpayable. But the policy of ‘extend and pretend’ (extending the payback period, but pretending that all debts will eventually be paid) was essential to allow Angela Merkel, the German chancellor, to persuade her voters to agree to successive bailouts. If German voters are now told that all those loans to Greece will not, in fact, be repaid, they may also drift to the extremes. The rising force in German politics is on the right, not the left, in the form of the anti-euro Alternative for Germany (AfD) party. There are also external reasons for Germany to be very wary of giving ground to Syriza. A debt write-off for Greece may be affordable – but it would clearly open the door for similar demands from Italy, Portugal, Ireland, Spain and even France.

“It is very easy to see how a train-wreck could happen in the eurozone. But how might it be avoided? There are two main ways. First, Greek voters may take fright... Second, even if Syriza takes power, it is possible that the party will moderate its demands once it looks into the abyss of debt default. There is nothing like empty Treasury coffers to concentrate the mind. The Germans, too, may make further compromises when they consider the potential anarchy unleashed by a Greek exit from the euro.

“A messy compromise seems to be the outcome that the markets are betting on. That is what recent history suggests will happen. But the story of the euro is still unfolding. And a happy ending is far from guaranteed.”

Turning to Asia, HSBC’s final manufacturing PMI for December in China came in at 49.6, while the official PMI, as released by the government, was 50.1 vs. 50.3 in November. The service sector PMI, encouragingly, rose to 54.1 last month vs. 53.9 the prior one.

In Japan, there was more dire demographic news. The birth rate slumped to a record low in 2014, dropping to 1,001,000 newborns in 2014, the fourth consecutive year this has declined, while the number of deaths continued to rise, at just under 1.3 million last year. Some estimates now have the Japanese population declining to 97 million by 2050, or 30 million fewer than today. [BBC News]

Needless to say such a trend limits future growth, while doing a number on the pension system, among other things.

As for the here and now, Prime Minister Shinzo Abe unleashed his new stimulus program last weekend, about $29 billion worth, pledging to get growth back on track.

We also learned this week that foreign investors have become rather disillusioned when it comes to the success of Abenomics, or lack thereof. As reported by Bloomberg, inflows into Japan’s stock market by this group were down 94% in 2014 vs. 2013.

“I’m big-time focused on the European Union parliamentary elections in May and the impact the far right will have...There is a chance the far right, collectively, is the leading party when the votes are tallied....Sentiment, and the rhetoric, could be extreme come the spring; potentially impacting the euro recovery if it gets out of hand.”

Not bad. Didn’t have any violence, but the far-right, particularly Marine Le Pen’s National Front, did score big gains.

“In the Middle East, the Iraqi military will be put to the test to regain control of Anbar province after al-Qaeda’s recent inroads. The U.S. will become increasingly under pressure to help in some way, become re-engaged in more than just giving military aid. Some of our Special Ops Forces will go back.”

“Lebanon will see a surge of car bombings...and the Lebanese Army at some point will confront Hizbullah in pitched battles. Hizbullah will begin withdrawing its troops from Syria to deal with the issues back home. Al-Qaeda and its minions will gain a strong foothold in Syria, while trying to do the same in Iraq.”

Well I didn’t know that the name “ISIS” would be applied to the al-Qaeda moves, but it is indeed an al-Qaeda spin-off and for the most part I nailed this one, though only half-right in terms of Hizbullah.

I blew it on the Sochi Olympics, expecting it to become terror central, and I thought Moscow would receive at least one large-scale terror attack of its own, killing at least 50, which didn’t occur.

“Ukraine will continue to be roiled, but it’s not a market-moving event. Tymoshenko will be released from prison.”

Not bad. Except for a day or two, Ukraine itself did not move the markets, and Tymoshenko was released. Of course I did not forecast Vladimir Putin’s moves, nor did anyone else for that matter, at least to the extent we witnessed.

“As for China and Japan, they will again skate by and avoid a direct military confrontation, though there will be a few close calls.”

“The pollution issue in China will continue to be front and center...Growth will come in less than expected.”

“Nicolas Maduro in Venezuela will be removed in a coup.”

Predictions for 2015

Vladimir Putin is not in a position to expand operations in Ukraine these days, nor to make a move on Moldova, Georgia, or one of the Baltic republics, but he will place nuclear weapons in Crimea as a way of riling up the West.

Should oil stay below $70 a barrel (on Brent), Putin will be forced out of office by end of the year by a shadowy group led by Igor Sechin. [I’ll say this until I’m finally right.]

Mosul will be retaken from ISIS by a combination of Iraqi Army, Kurds and U.S. Special Ops forces that will target airstrikes with devastating success. ISIS will regroup in its Syrian strongholds.

China’s relationship with Taiwan could be critical as the pro-independence opposition could win the next national election in Taiwan, thus ending an era for the pro-China governing party, an era during which relations between Taiwan and the mainland improved greatly. It was in 2005 that China passed a law approving the use of force should Taipei formally declare its independence. With presidential and legislative elections slated for 2016, I’m guessing tensions between China and Taiwan will soar by year end, with the Obama administration forced to take a stand.

Kim Jong-un’s agents will carry out a major assassination. [I don’t want to say who, but it’s in Asia.] China will immediately cut off relations with Pyongyang and President Xi (so it’s not him) and President Obama will hold an emergency summit. [Haven’t worked out what happens then.]

British Prime Minister David Cameron will eke out a win in May’s parliamentary elections. He will then stick to his promise to hold a vote in 2017 on staying in the EU.

The July deadline for the Iranian nuclear talks will come and go. President Obama desperately wants an agreement, but he knows he won’t be able to get it through Congress. Ayatollah Khamenei will direct that future talks be scuttled. Protests over the economic plight of the Iranian people will turn violent, with the Revolutionary Guard crushing them in the end. Israel will be on edge even more than they normally are, but no military action until early 2016.

Israel will have another brief, but devastating war with Hamas.

Europe’s economy will barely grow and movements like Pegida will continue to gain traction.

Yes, there will be a major cyberattack on a U.S. utility, a test run for something bigger, but the impact will be minimal.

Pope Francis will draw enormous crowds on his trip to the U.S. in September and it will be a nice shot in the arm for far more than just American Catholics.

The New York Knicks will win just two more games the balance of the season, finishing 7-75.

As for the U.S. stock market, last year I said the Dow and S&P would finish down 2%, Nasdaq down 5%. 

Actually, as of Oct. 15, this was looking pretty good, but then the market took off. 

As for the 10-year Treasury, I was with the consensus in believing it would hit 3.50%, but then I said we could see 4.00%. Wrong! I did say “the Fed will continue to slowly taper its bond-buying program down to zero by end of summer,” which was good, as I was optimistic about the economy (though I got the first-quarter wrong).

For 2015, I stick with my theory that wage growth will pick up and the Fed is going to be caught with its pants down. Corporate earnings will continue to be solid (the official forecast is for 7-8% growth), but revenues will remain rather punk.

I’ll say the 10-year finishes the year at 2.68%, though hits 3.00% at some point. [Admittedly, the consensus is we finish the year between 2.70% and 3.00%.]

Street Bytes

--Stocks finished 2014 on a down note, with the S&P 500 losing 1.5% the last three trading days of the year to pare its gains and send it to its first December loss (0.4%) since 2007.

The Dow lost 1.2% to 17832, including Friday’s action, while Nasdaq declined 1.7% on the week.

--Some high-profile stock performances for 2014; 12/31/14 close and 52-week range.

Apple 110.53 [70.50-119.75]
Amazon 310 [284-408]
Facebook 78.02 [51.85-82.17]
Google 526 [489-604]
Intel 36.30 [23.50-37.90]
Microsoft 46.45 [34.63-50.05]
Tesla 222.40 [136-291]
Twitter 35.97 [29.50-70.43]
Yahoo 50.51 [32.15-52.62]

12/31/13

6-mo. 0.09% 2-yr. 0.38% 10-yr. 3.03% 30-yr. 3.97%

12/31/14

There was some economic news for the week. The December Chicago manufacturing PMI was 58.3, less than expected, as was the national ISM survey for the month, 55.5. November construction spending was down 0.3%, when a gain had been forecast.

We also had the S&P/Case-Shiller index for home prices in October, up 4.5% year over year, which is actually good since even with record-low mortgage rates, 3.87% on a 30-year fixed to close the year, as reported by Freddie Mac, affordability has been an issue and price gains have been moderating.

By the way, here’s a little tidbit on mortgage rates. As reported by Scott Reckard of the Los Angeles Times, Freddie Mac has mortgage data going back to 1971 and the record high on a 30-year was back in 1981...16.63%!

--Investors continue to pull large sums out of the PIMCO Total Return Fund, formerly managed by Bill Gross, with another $19.4 billion yanked in December, after the pace of withdrawals had slowed in November to $9.5 billion. This was after outflows of $51 billion combined for September and October.

Total assets for the fund are down to $143.4 billion from a peak of $293 billion in April 2013.

It doesn’t help the fund gained 4.7% for 2014, compared with 6% for what is commonly thought to be its benchmark.

--On the Ebola front, the World Health Organization said on Wednesday that the death toll in West Africa stood at 7,905 and that new cases continue to be reported, though the pace of new ones in Liberia has mostly declined in the past six weeks.

But the western part of Sierra Leone “is now experiencing the most intense transmission of all the affected countries.”

From day one of the crisis, I said this was an economic story as much as a human tragedy and it took a while for others to catch on. [It took months for the White House to acknowledge it was even a human tragedy.]

So this week the New York Times had a story headlined “Ebola Ravages Economies in West Africa.”

As reported by Jeffrey Gettleman: “Tourism, agriculture, road construction, arts and crafts, diesel sales, tax collections, and just about every other slice of the economy, legal or not, are significantly down, costing billions of dollars in lost business and spelling years of increased hardship for an already impoverished region.”

Gettleman notes that Ebola’s nasty reputation “has managed to dent tourism across the entire continent.”

Many in the impacted areas describe it as “lawless,” with teenagers just milling around in vast numbers as schools have been closed.

Meanwhile, while bats have always been suspected as being the origin of the Ebola crisis, on Tuesday, scientists from a team out of Berlin concluded a toddler in Guinea was the carrier of the first case, catching the virus from bats in a tree near his village.

The specific tree was burned once bats were suspected and cases were growing in the village, but the scientists said there was still enough evidence from the charred trunk and fecal DNA to identify it as a possible target.

Large fruit bats have long been suspected for many Ebola outbreaks, the fruit bat also being hunted for its meat, which is used in a soup, as the New York Times reported.

--There is all kinds of uncertainty as to the culpability of North Korea in the Sony cyberattack. The FBI insists Pyongyang is behind it, but many cybersecurity experts are unconvinced, as has been the case since day one.

The skeptics maintain the evidence presented by the FBI thus far is purely circumstantial, while they argue the level of the breach indicates a sophistication and intimate knowledge of Sony’s computer system that point to it coming from someone on the inside.

One cybersecurity firm, Norse Corp., whose clients include government agencies, briefed law enforcement on evidence it has of an inside job.

“We can’t find any indication that North Korea either ordered, masterminded or funded this attack,” Kurt Stammberger, a senior vice president at Norse, said in an interview with the Los Angeles Times.

Stammberger said his team found that leads suggesting North Korea as the culprit turned out be dead ends.

“Instead, the data pointed to a former employee who may have collaborated with outside hackers. The employee, who left the studio in a May restructuring, had the qualifications and access necessary to carry out the crime,” Stammberger said.

On the other hand, the Feds point to the kinds of malware used that have previously been used by those working on behalf of North Korea. And even skeptics point out the FBI may have more convincing evidence it has yet to reveal.

“The administration stands by the FBI assessment,” said National Security Council spokesman Mark Stroh. [Wall Street Journal]

I initially pointed to the imperfect English used by the hackers as a clue it was from North Korea (at least in part), though some experts now say the texts more closely resemble those typical of native Russian speakers.

Regardless, on Friday the administration announced it was levying new sanctions on ten individuals and three state agencies, the actions a direct response to the Sony attack.

--The film at the center of the hack attack, “The Interview,” took in a rather staggering $15 million in its first four days of online sales and rentals, more than five times its box-office take over the holiday weekend.

“The old chestnut was that you needed a theatrical release to establish legitimacy,” said consultant and former Columbia Pictures executive Peter Sealey. “That old chestnut is dead now. They [Sony] have stumbled into the future.” 

Incidentally, “Movie studios keep 70% to 80% of the VOD (video-on-demand) revenue, whereas theater companies get roughly half of the money generated from ticket sales.” [Ryan Faughnder / Los Angeles Times]

Meanwhile, “The Hobbit: The Battle of the Five Armies” continues to clean up at the box office, taking in $170 million in the U.S. and Canada through last weekend.

And this just in...the total 2014 box office was an estimated $10.3 billion, down about 5.2% from 2013’s record $10.9 billion.

There were fewer big hits, with the top-grossing film of the year being “Guardians of the Galaxy” at $333 million.

But at least over the four-day holiday weekend, the gross was up 6.6% from the same time last year.

--What a disastrous year for airlines registered in Malaysia. First came the disappearance of Malaysia Airlines Flight 370. No trace of the plane, with 239 people onboard, has ever been found. 

On July 17, another Malaysia Airlines flight was shot down over rebel-held territory in Ukraine, killing all 298 on board.

And then an Indonesian subsidiary of AirAsia, a company based in Malaysia, saw one of its planes disappear on Sunday with 162 passengers and crew, with weather a seeming cause, or at least contributing factor. By week’s end, 30 bodies had been recovered, with at least one wearing a life jacket, raising questions about how much time there was before passengers realized it was too late. [Or maybe there was time once the plane hit the water. Some analysts now theorize the pilot may have successfully landed in the Java Sea, but that high waves sank the aircraft before passengers could escape.]

AirAsia, a budget airline, had never had a fatal crash. Yes, the circumstances of all three disasters are totally different, but the Malaysian connection is unreal. Neither carrier is among the top 25 in the world in terms of passengers carried, according to Flightglobal and the New York Times.

--Sales at stores on the Saturday after Christmas, “Super Saturday,” declined 1.7% from 2013’s final holiday weekend, according to Applied Predictive Technologies. That’s following a 3.5% drop at stores during the Black Friday weekend, but the latter was chalked up to the increase in pre-Black Friday sales this year.

Super Saturday was undoubtedly a victim of the continued shift to online shopping.

--China totally severed the Google Gmail service for four days, but then it was operating by midweek. China’s “Great Firewall” currently blocks access to many foreign Internet services, such as Facebook and Twitter.

Back in June in the run-up to the 25th anniversary of the Tiananmen Square massacre, all of Google’s services were blocked, with most remaining so.

Chinese Foreign Ministry spokeswoman Hua Chunying said she did not know anything about Gmail being blocked, adding her government was committed to providing a good business environment for foreign investors. [cough cough]

--Meanwhile, China’s anticorruption crusade did a real number on Macau’s gambling revenues last year, down a whopping 30% in December (after declines of 20% in November and 23% in October, year over year). For all of 2014, revenues were down 2.6% vs. 2013, as the crackdown on graft took hold seven months ago. The prior five years, there wasn’t a single down month.

--Singapore’s economy rose an annualized 1.6% in the fourth quarter, down from a 3.1% pace in the third. Slowing growth in China hasn’t helped recently.

--Linn Energy said it was cutting its oil and natural-gas budget by 53% in 2015, the latest energy company to announce it was reducing its drilling operations with the slide in the price of crude.

--Manhattan apartment prices soared to record levels in 2014. As reported by the Wall Street Journal’s Josh Barbanel, “The average price of a Manhattan cooperative or condominium topped $1.68 million in 2014 for the first time, an increase of more than 16% from 2013, and 10% above peak prices in 2008 during the last real-estate boom.” [The Journal did their own analysis.]

The median price for an apartment was $911,000, also a record.

It’s all about a surging stock market and a continued inflow of foreign buyers looking for “safe havens.”

One potential buyer, Len Blavatnik, a Ukrainian-born American businessman and investor, may soon set a record for a co-op purchase at 834 Fifth Ave. for about $80 million (the sale not having closed yet, according to brokers).

--New York Gov. Andrew Cuomo’s recent announcement he was banning fracking in New York State for environmental reasons continues to generate controversy, and opinion pieces.

“No one doubts Governor Andrew Cuomo’s concern for the well-being of New Yorkers. It’s just not clear that a ban on hydraulic fracturing protects it – or how the can help make this method of extracting natural gas safer and less destructive in states where it’s practiced....

“New York is essentially recusing itself from the national policy debate over the process, which is allowed in at least 32 states. Yes, the practice has costs – to public health as well as to the environment. But it also has benefits – to local economies, to state coffers, and to the environment.

“Fracking isn’t going away, nor should it, given that it makes accessible vast reserves of U.S. natural gas, which emits less carbon than coal when burned to generate electricity. And fracking is far less lethal than coal-fired plants, the emissions of which are responsible for more than 7,500 deaths each year.

“None of this is to say that fracking is without risks. But such problems can be addressed with stronger safety regulations and better enforcement. That’s what Maryland has done. In November the state proposed some of the country’s strongest rules on fracking, including requiring zero leakage of methane, a potent greenhouse gas. Critics say the rules will make drilling impossible, but they may underestimate the ingenuity of drillers....

“If Cuomo believes that current best practices in other states aren’t sufficient to protect public health, he would do more good by issuing rules that are – and then challenging drillers to meet them.”

“Gov. Andrew Cuomo claimed an ignoble distinction this month: He became the first governor of a state with large deposits of natural gas to ban ‘fracking,’ or hydraulic fracturing, the controversial but highly productive drilling technique that has reshaped the energy business in the United States. Vocal activists in the Democratic base disagree, but fracking should be well-regulated and legal, not permanently off-limits....

“(Natural gas) produces far more of New York’s electricity than any other source. The gas that runs the state comes from domestic drilling sites, including from fracked wells in next-door Pennsylvania. In other words, whether New Yorkers want it to be so or not, the state is implicated in the fracking business. The benefits of burning the fuel are just too attractive. Tapping massive U.S. natural gas supplies has pushed down prices. Cheap natural gas lowers energy bills. And, compared with the range of serious health and environmental harms that come from burning coal, natural gas’s most immediate substitute, a sensible environmentalist would choose fracked gas any day.

“The country can’t burn natural gas indefinitely. It is still a fossil fuel that impacts global carbon dioxide levels. But it can be an important part of a transition to more sustainable fuels.”

--Copper prices hit a 4 ½-year low, $2.82 a pound, the lowest closing price since June 2010, in another sign of concerns over China’s economy.

Overall, commodities had their biggest annual loss since 2008 and broad-based indexes in the sector are down four years in a row.

--Oil billionaire Harold Hamm is contesting his divorce settlement that has him paying his ex-wife nearly $1 billion. When the judge’s decree came down six weeks ago, Hamm called it “fair.”

The former Mrs. Hamm, Sue Ann Arnall, who had been an attorney with Hamm’s Continental Resources Inc., when they married in 1988, is also appealing, saying the $1 billion isn’t large enough.

So why the sudden change in sentiment by Harold Hamm? Try the huge drop in oil prices in just the past few months, with Continental’s stock value dropping by about a third in that time, Hamm’s fortune tied up in the share price.

--Sales of downloaded albums and songs plunged in the U.S. last year, according to Nielsen SoundScan.

Paid downloads of albums and songs declined 9% and 12%, respectively.

However, vinyl record sales came in at 9.2 million, the highest level since SoundScan started tracking sales in 1991, and a 52% increase from 2013.

Digital song sales fell to 1.1 billion, from 1.26 billion in 2013, but streaming usage surged 54% to 164 billion songs.

But the industry standard for conversions means that 1,500 song streams or 10 individual song downloads equates to an album sale.

The biggest album of the year in the U.S. was Taylor Swift’s “1989,” which sold more than 3.66 million copies.

Pharrell Williams’ “Happy” was the best-selling song of the year in the U.S., with more than 6.4 million sold. [Ethan Smith / Wall Street Journal]

--Broadway had a successful Christmas week (ending Dec. 28), with attendance up 9% over the same week in 2013. Grosses were up 5% to $40.8 million, according to Crain’s New York Business. The Elephant Man grossed $1.06 million, with its producers announcing the show recouped its $3.1 million production costs after only 6.5 weeks.

--Shake Shack Inc., a now international burger chain, filed for an initial public offering in the U.S., which has many of us drooling, not over the potential for the stock, but just the thought of one of its burgers. The chain has 63 outlets and founder Danny Meyer deserves to be rewarded.

It all started in Manhattan’s Madison Square Park with a hot-dog cart that later became a permanent kiosk. Shake Shack plans to open 10 new company-operated stores each year starting in 2015.

--Congratulations to Art Cashin Jr. of UBS who celebrated 50 years as a member of the New York Stock Exchange. Everyone loves Art.

--This I find hard to believe. A survey conducted by Switchfly, a tech company that powers travel booking and loyalty redemption systems, found that 4% of Americans said they have had sex on a plane. An additional 25% said they are willing but haven’t had the opportunity.

OK, so we’re talking the “mile-high club.” As reported by the Los Angeles Times’ Hugo Martin:

“Of those who don’t want to join, 25% say it’s because airplane bathrooms are too small; 25% say the bathrooms are too gross.”

Anyway, this is kind of interesting. “Women ages 45 to 54 are more likely than any other female age bracket to be members. Men ages 35 to 44 are more likely than any other male age bracket to be members.”

Foreign Affairs

Iraq / Syria / ISIS: According to the U.K.-based Syrian Observatory for Human Rights, 2014 was the deadliest year yet in Syria’s four-year war, with over 76,000 killed. 17,790 of the dead were civilians, including 3,500 children. [In 2013, 73,447 were killed in Syria, with the total now over 200,000.]

More than 15,000 died in conflicts in Iraq last year, making it that country’s deadliest since 2007.

Much of the violence is a result of advances by ISIS, with U.S.-led air strikes against IS accounting for many of the deaths.

Of the 2014 deaths in Syria, the Observatory said at least 22,627 were government soldiers or members of pro-government militias. 17,000 were militants from groups including IS and al-Nusra Front.

An estimated 10.8 million people are in need inside Syria. 10 million have been displaced. And there are 3.2 million refugees in neighboring countries. Also, half of the country’s children are not in school. [BBC News]

Speaking of refugees, the Wall Street Journal reported, “Turkey’s welcome to Syrian refugees is coming under strain, as international aid dries up and Turks grow weary of the burden to their country caused by the 1.7 million people who have spilled over the border to escape war next door.” [Ayla Albayrak / WSJ]

Turkey says it has spent more than $5 billion on the refugees and received only $265 million in international support.

On the battle front, according to various reports, Kurdish forces have regained control of 70% of the strategic Syrian town of Kobani near the Turkish border after pushing back ISIS fighters in a months-long campaign. This progress wouldn’t have been possible without U.S.-led air strikes, but needless to say, the town has been destroyed and one can’t envision the residents returning to it.

There are also reports the Syrian regime has been dropping more “barrel bombs” on residential areas near Aleppo, according to the Syrian Observatory, resulting in the deaths of at least 110 civilians, including children.

One thing is for sure as we begin the New Year...both Iraq and Syria are shattered and beyond repair.

Israel: Much to the consternation of Israel, the United States, and others, Palestinian Authority President Mahmoud Abbas plowed ahead with his quest to join the International Criminal Court, a highly provocative move that could lead to the prosecution of Israeli officials for war crimes.

Abbas has been warned by both Jerusalem and Washington that he risked severe sanctions if he proceeded, but he was under increasing pressure from the Palestinian people and other PA leaders to join the court. Abbas’ approval rating has been plummeting while polls show if elections were held today, his Fatah party would lose to Hamas.

Afghanistan: At least 20 civilians were killed in a mortar attack on a wedding in Helmand province, just as the U.S.-led coalition formally ended its combat mission there. It seems the mortar hit the home during a battle between the Taliban and Afghan National Army troops. Both sides use mortars.

In a nationally televised address Thursday, Afghan President Ashraf Ghani said, “After today, the decision to use force will belong solely to the authorized forces of Afghanistan.”

In noting his nation is on the front lines of the fight against terrorism, Ghani said:

“We are the first target, and if we don’t control these threats the life of every American, European and Japanese citizen is in danger. We sacrifice here for the good of the world.” [Wall Street Journal]

With the end of the formal combat mission, some 13,500 troops remain as part of the International Security Assistance Force, 11,000 of which are American, but these troops are to provide training and support for Afghanistan’s military. However, President Obama recently expanded the role of the U.S. forces to allow them to extend counterterrorism operations to the Taliban, as well as al-Qaeda, and to provide air and ground support for Afghan forces for at least two more years.

Over 2,200 U.S. soldiers have been killed in the 13-year war.

2014 was the deadliest for Afghan forces, with 5,400 soldiers and policemen killed as of mid-December.

Russia / Ukraine: So it’s been 15 years since Vladimir Putin first took office. How is he going to handle the economic crisis and Ukraine in 2015? Putin and his allies have been blaming what they call external factors, principally by the West, for the economic woes, but can Putin survive what is clearly the worst crisis since the Soviet Union collapsed?

Vladimir Milov, an ex-deputy minister, told Reuters, “Putin has demonstrated he has no plan. There is nothing in his pocket.”

Putin was named acting president by Boris Yeltsin on Dec. 31, 1999, and in a speech that day, Putin told the nation, as Reuters notes, “the state would protect the freedoms of speech, conscience, mass media and property rights – what he called the ‘fundamental rights of a civilized society.’”

This has hardly been the case. In an interview, Mikhail Kasyanov, Putin’s prime minister for much of his first four-year term, said, “Russia is going into decline. It means the model which Putin created – capitalism for friends – has already collapsed.”

It appears the business elite are still behind Putin, but as I’ve written for years now, this support can’t possibly hold. 

But that doesn’t mean there won’t be one last power play, and that’s why I think nukes in Crimea are the next move.

As for the opposition, which has been duly stifled since mass protests in 2011, opposition leader Alexei Navalny was granted a suspended sentence in his five-year ‘theft’ case, but his brother, Oleg, was handed a 3 1/2-year prison sentence for fraud and money-laundering, with a visibly shocked Alexei urging supporters to immediately “take to the streets.”

In court, Alexei shouted at the judge, “Why are you jailing him [Oleg]? Just to punish me even harder?” Many are describing the imprisoning of Oleg a hostage-taking.

Protesters, some 2-3,000 strong, gathered at a square in Moscow with Navalny breaking out of his house arrest, only to be rounded up a block from the action. About 170 of the demonstrators were arrested as police rolled it up. Navalny was then escorted back to his home.

But the small size of the crowd gives you an indication of the level of power Putin still possesses; the power to intimidate. 

It also needs to be pointed out that Navalny was to be sentenced on Jan. 15, 2015, so the Kremlin suddenly moved the date up to this week in order to throw the opposition off track, with many having left Moscow for the holidays, plus they had no time to organize.

Separately, the Eurasian Economic Union (EEA), comprised of Russia, Belarus and Kazakhstan, began on Jan. 1. It is Putin’s effort to set up an EU-like single market, but it is doomed to fail.

Actually, Kazakhstan’s autocratic leader Nazarbayev first came up with the idea, but Putin pushed it forward and now Nazarbayev is already saying his country could leave the union if it wanted.

Meanwhile, Belarus is totally dependent on Moscow and that’s not a good thing these days.

As for the Ukraine crisis, Putin used his New Year’s speech to hail his country’s annexation of the Crimea Peninsula as an achievement that will “forever remain a landmark in the national history.”

Putin sent a New Year’s message to President Obama, reminding him of the upcoming 70th anniversary of the allied victory in World War II, which Putin said should serve as a reminder of “the responsibility that Russia and the United States bear for maintaining peace and international stability,” which is rather laughable coming from Vlad.

Bernard-Henri Levy had the following in an op-ed for the Wall Street Journal:

“A year ago, Vladimir Putin was regarded in many quarters as a master strategist. Now? Yes, Crimea is still occupied, and the Donbas region [Ed. Luhansk and Donetsk] still bleeds, wounded by Moscow-backed separatists. But the would-be emperor is naked, his economy in ruins. Russians are beginning to doubt the calculations of the ex-KGB man. With the Ukrainian Parliament last week voicing its nearly unanimous desire to join NATO, and the presidents of Belarus and Kazakhstan – two pillars of Eurasianism dear to Mr. Putin’s heart – recently visiting Kiev, the death knell may be sounding for the Russian president’s imperial and anti-Western project. He finishes the year much worse off than he began it, in retreat and increasingly alone in his theater of shadows.”

Finally, last weekend Putin signed a new military doctrine, naming NATO expansion among key external risks, while also raising the possibility of a broader use of precision conventional weapons to deter foreign aggression.

The document, essentially the same as one put out in 2010, says Russia could use nuclear weapons in retaliation over the use of weapons of mass destruction against the country or its allies, which isn’t unusual, but what is different is the new doctrine says Russia could use nukes “as part of strategic deterrent measures,” without spelling out when and how Moscow could resort to this.

Pakistan: Following the school massacre in Peshawar, the government continues to step up its campaign against the Taliban. And with the end of a moratorium on executions, as many as 500 prisoners being held on terrorism charges face hanging in the coming months. 

What remains to be seen is how much cooperation there will be between the new Afghan government and Pakistan in sharing intelligence, for starters, on the Taliban’s movements across the border between the two.

[The supposed mastermind of the school attack was killed by Pakistani troops on Christmas Day in a remote tribal area near the Afghan border.]

North Korea: In his New Year message to the people, Kim Jong-un proposed the “highest-level” talks with South Korea, which should they take place would be the first top-level inter-Korean meeting since a 2007 summit in Pyongyang.

“Depending on the mood and circumstances to be created, we have no reason not to hold the highest-level talks,” said Kim.

South Korean media reported Kim is seeking a direct summit with South Korean President Park Geun-Hye.

As for the United States, Kim said, “the U.S. and its followers are holding on to a nasty ‘human rights’ racket as their schemes to destroy our self-defensive nuclear deterrent and stifle our republic by force become unrealizable.”

Kim described his nuclear arsenal as the guardian of his country and while Kim’s tone with the South was conciliatory, he made it clear South Korea should cease its joint military exercises with the U.S.

No word as yet on Pyongyang’s reaction to the new sanctions.

China: Local officials in Shanghai called off New Year’s events after a stampede New Year’s Eve in the historic Bund killed 36 and injured dozens; the city’s worst disaster since 2010. Tens of thousands were crowded into the riverside district and while it isn’t clear exactly what started it, some witnesses said it seemed to start after what appeared to be money began falling from above, coupons that looked like U.S. dollar bills.

Chinese President Xi Jinping ordered a full investigation, telling local governments they need to see this as a lesson in preparation for the mass celebrations that occur around the Lunar New Year holiday, which officially begins Feb. 18 and lasts a week.

On the issue of Hong Kong, that territory’s Chief Executive, Leung Chun-ying, was in Beijing for talks with President Xi and Premier Li Keqiang, both of whom impressed upon him that Beijing will take a sterner approach to the city’s political affairs following the Occupy Central protests.

Xi stressed any political reform in Hong Kong had to be in line with national sovereignty, security and development interests. In other words, Beijing will exercise its power to ensure the Basic Law and ‘one country, two systems’ will be properly implemented and he will not tolerate any challenges to Beijing’s authority. 

Lastly, Reuters reported that President Xi sought the blessing of his predecessor, Hu Jintao, before launching a corruption probe against one of Hu’s senior aides. Hu signed off on it. So Xi would not appear to be going after Hu in any way.

Saudi Arabia: 90-year-old monarch King Abdullah was taken to hospital on Wednesday, sparking a sharp fall in the country’s stock market, though shares rallied back later.

Abdullah is to be succeeded by Crown Prince Salman bin Abdulaziz, but he’s 79. Nonetheless, the transition, when it occurs, should be smooth. It’s the one after that could be dicey.

Cuba: Editorial / Washington Post

“A Cuban performance artist named Tania Bruguera planned a simple event for Tuesday: She would set up a microphone in Havana’s Revolution Square and invite anyone who wished to step up and talk about the country’s future. Dozens of dissidents planned to participate under the slogan ‘I also demand’ – which might be taken as an allusion to their exclusion from the secret normalization negotiations conducted by the Obama administration and the regime of Fidel and Raul Castro.

“That the deal announced Dec. 17 by President Obama did not include any protections for Cuba’s pro-democracy activists quickly became obvious. Security forces detained Ms. Bruguera as well as several dozen other activists. The free-speech performance never took place. ‘I spoke to Tania Bruguera and let her know part of her performance was done,’ tweeted Yoani Sanchez, an independent journalist whose husband, Reinaldo Escobar, was one of those detained. ‘Censorship was revealed.’

“The incident should have been an embarrassment to Mr. Obama, who said that he decided to restore normal relations with Cuba in order to ‘do more to support the Cuban people and promote our values.’ But the administration shrugged off the crackdown. On Wednesday, the State Department issued a statement saying it was ‘deeply concerned,’ the same words it uses to describe human rights violations in China, Vietnam and other countries where the United States has no leverage and plans no action. Talks on the opening of embassies will go forward....

“Cubans who seek basic freedoms continue to be arrested, harassed and silenced, while the regime celebrates what it portrays as ‘victory’ over the United States. If support for the Cuban people and American values is supposed to be the point of this process, then it is off to a very poor start.”

Random Musing

--It was a rough week for Republicans on Capitol Hill, but lucky for them the news hit during a holiday week where for most Americans, Congress was the furthest thing from their minds.

In back-to-back moves, House Speaker John Boehner forced out Rep. Michael Grimm (R-N.Y.) and then was forced to support Majority Whip Steve Scalise (R-La.) after Scalise acknowledged he once addressed a white-supremacist group, one founded by David Duke, a former Ku Klux Klan leader, when Scalise was a state legislator. Scalise said he spoke to many groups when he was in state government trying to build support for various legislation, but that he was unaware of the group’s ideology.

As Jennifer Rubin writes in the Washington Post: “Really, nothing about the name of the organization tipped him off?” The group’s name? The European-American Unity and Rights Organization.

But the Scalise incident will hang around a while and will be used for fodder in ’16 by the opposition. Just when Republicans are hoping to reach out to minority voters, let alone shape the early agenda in the new Republican controlled Congress, this comes up. Clearly, while Boehner gave Scalise his support, holding a leadership post is a stretch.

For his part, Scalise tried to reassure his colleagues he was oblivious to the racist and anti-Semitic views of the group he addressed in 2002, calling his appearance “a mistake I regret.”

“As a Catholic, these groups hold views that are vehemently opposed to my own personal faith, and I reject that kind of hateful bigotry. Those who know me best know I have always been passionate about helping, serving, and fighting for every family that I represent.”

Boehner said Scalise “made an error in judgment, and he was right to acknowledge it was wrong and inappropriate.”

One final thought on Scalise. The only black Louisiana Democrat in Congress, Rep. Cedric L. Richmond, said, “I don’t think Steve Scalise has a racist bone in his body.” [Ed O’Keefe and Robert Costa / Washington Post] The two are said to be close friends.

As to the issue of Grimm, who was convicted of tax evasion but had initially vowed to stay on, has a limited shelf life. Boehner called his resignation “the honorable decision.”

Gov. Andrew Cuomo is the one who decides whether to hold a special election to replace Grimm and it is far from a sure-thing for Republicans, Barack Obama carrying the Staten Island district with 52% in 2014.

--Meanwhile, Speaker Boehner and Senate Majority Leader Mitch McConnell are anxious to start the new year with a positive agenda, now that they control both chambers.

“As the calendar turns toward the final two years of the Obama Presidency, this is a moment to consider the world it has produced. There is no formal Obama Doctrine that serves as the 44th President’s blueprint for America’s engagement with the world. But it is fair to say that Barack Obama brought into office a set of ideas associated with the progressive, or left-leaning, wing of the Democratic foreign-policy establishment.

“ ‘Leading from behind’ was the phrase coined in 2011 by an Obama foreign-policy adviser to describe the President’s approach to the insurrection in Libya against Moammar Gaddafi....

“The Democratic left believes that for decades the U.S. national-security presence in the world – simply, the American military – has been too large. Instead, when trouble emerges in the world, the U.S. should act only after it has engaged its enemies in attempts at détente, and only if it first wins the support and participation of allies and global institutions, such as NATO, the United Nations, the International Monetary Fund and so on.

“In an interview this week with National Public Radio, Mr. Obama offered an apt description of the progressive foreign-policy vision. ‘When it comes to ISIL, us devoting another trillion dollars after having been involved in big occupations of countries that didn’t turn out all that well’ is something he is hesitant to do.

“Instead, he said, ‘We need to spend a trillion dollars rebuilding our schools, our roads, our basic science and research here in the United States; that is going to be a recipe for our long-term security and success.’

“That $1 trillion figure is one of the President’s famous straw-man arguments. But what is the recipe if an ISIL or other global rogue doesn’t get his memo?....

“In defense of his looming nuclear-weapons deal with Iran, Mr. Obama told his NPR interviewer: ‘I believe in diplomacy, I believe in dialogue, I believe in engagement.’ He said Iran could be ‘a very successful regional power’ that is ‘abiding by international norms and rules.’

“Short of a miraculous change in the revolutionary Iranian leadership, such a worldview is at best willfully hopeful or at worst hopelessly naïve. As former U.S. Secretary of State George Schultz has repeatedly pointed out, diplomacy and engagement are always good, but only if backed by a credible threat to deploy U.S. military resources. A fist inside a velvet glove. After five years of progressive foreign policy under Mr. Obama, the world sees the U.S. as an empty velvet glove.

“The final two years of the Obama Presidency will thus be the most dangerous since the end of the Cold War as the world’s rogues calculate how far they can go before a successor enters the White House in 2017. A bipartisan coalition in Congress may be able to limit some of the damage, but the first step toward serious repair is understanding how Mr. Obama’s progressive foreign policy has contributed to the growing world disorder.”

--Meanwhile, President Obama received more positive news on the polling front. Gallup’s latest survey has 48% of Americans approving of the president’s performance, and 48% disapproving, the first time since September 2013 that as many people approve of his job as disapprove of his performance.

--Chris Cillizza of the Washington Post had an interesting tidbit.

“It’s normal for a president’s party to lose seats in Congress over the course of his term. But Democrats’ losses during President Obama’s time in office have been especially large. Among presidents elected to two terms in the past 50 years, no other saw as much erosion of his party in the House through his second midterm election, and only one, Bill Clinton, suffered as many setbacks in the Senate.”

“The Bush comparison matters enormously. Remember that Obama was elected in large part on his promise to restore basic competence to governing in the wake of Bush’s missteps on issues from Iraq to Hurricane Katrina. (This was the president who made ‘Heckuva job, Brownie’ a slogan for federal ineptitude.)

“Every early move Obama made – from his campaign promise of ‘change’ to the ‘team of rivals’ idea for his Cabinet – was driven by the notion that this president, unlike the man he replaced, was all about turning the government into a pure meritocracy that would run things right.

“But that idea began to unravel with a rapid-fire series of scandals: the revelation that the IRS was targeting tea party groups for special scrutiny, the Edward Snowden leaks about NSA surveillance and the botched rollout of HealthCare.gov, to name three that happened in 2013.

“That unraveling sped up over the past 12 months – fueled, interestingly enough, by foreign policy stumbles by the president and his team.”

--In a new Washington Post-ABC News poll, only 1 in 10 African Americans says blacks and other minorities receive equal treatment with whites in the criminal justice system. Only about 2 in 10 say they are confident that the police treat whites and blacks equally, whether or not they have committed a crime.

But roughly half of all white Americans say the races are treated equally in the justice system and 6 in 10 have confidence that police treat both equally. [But this breaks down to 2 in 3 white Republicans say minorities and whites are treated equally in the criminal justice system, while only 3 in 10 Democrats feel this way.]

Here’s another difference among whites from the survey.

8 in 10 white Republicans say the killings of Michael Brown and Eric Garner were isolated incidents, while more than 6 in 10 white Democrats say they are part of a broader pattern. 

The poll was completed prior to the killing of NYPD officers Ramos and Liu. [Dan Balz and Scott Clement / Washington Post]

--Whites made up 88% of the electorate in 1980 when Ronald Reagan won his first term. According to a story by Mark Z. Barabak in the Los Angeles Times, if current trends remain in place, the share of white voters may be 70% or less in November 2016.

This is why Republicans need to broaden their tent, Charlie Brown; to blunt the longer-term forces that favor the Democrats.

--On the issue of closing the prison at Guantanamo Bay, one of President Obama’s key national security goals, the U.S. military has sent another five detainees overseas, this time to Kazakhstan, thus bringing the number moved out of Guantanamo in 2014 to 28. The Washington Post reports the administration is preparing to accelerate transfers in 2015.

Last year, detainees were also moved to Afghanistan, Uruguay, Slovakia, Georgia, Algeria, Kuwait and Saudi Arabia.

The most recent five are all Yemenis. 81 Yemenis remain, the largest single group of the 127 still there.

--In New York, it’s been all about Mayor Bill de Blasio. I watched the entire funeral for Officer Rafael Ramos (one of two NYPD officers assassinated while they were sitting in their patrol car, the other being Wenjian Liu) last Saturday and Vice President Joe Biden, Gov. Cuomo, and Police Commissioner William Bratton all gave terrific eulogies. De Blasio was flat and far from inspirational. As he spoke, many of an estimated 20,000 police officers watching on jumbotrons outside turned their backs on the mayor.

So on Tuesday, with tensions sky high, de Blasio met with the heads of the five police unions for two hours, with PBA President Pat Lynch, who earlier said the mayor had blood on his hands for his rhetoric prior to the police killings, emerging to say:

“There were a number of discussions, especially about the safety issues members face. There was no resolve. And our thought here today is that actions speak louder than words and time will tell.”

For his part, de Blasio didn’t talk to reporters after and in a statement said, “Today’s meeting focused on building a productive dialogue and identifying ways to move forward together.”

At least the meeting didn’t devolve into one of finger-pointing and shouting, with the tone being respectful, as sources told the Wall Street Journal.

On the other hand, sources told the New York Daily News the meeting was “sometimes tense” with one union chief giving “the mayor an earful about his remarks on the controversial Eric Garner case.”

By all accounts the mayor didn’t offer an apology for his past comments or actions, challenging the union leaders to read transcripts of his public statements as there is no antipolice commentary in them.

He also didn’t respond to criticisms from cops about his close ties to Rev. Al Sharpton.

De Blasio assured the union representatives he was sticking with the broken-window philosophy of policing; addressing small violations of the law in hopes of deterring more serious ones.

[But the New York Post reported this week that the NYPD, in protest, has been making fewer small arrests; a staggering 94% fewer when it comes to traffic tickets and summonses for minor offenses.]

One of the five union leaders sent an email to his members prior to the meeting urging them not to turn their backs against the mayor at Officer Liu’s upcoming funeral, saying that the more appropriate protest is “cold, steely silence.”

“Mayor de Blasio and the police unions are finally talking, and that’s a good thing. But it underscores the most terrible development New York City has seen over the past year: a police force that believes the mayor regards it as the enemy.

“Surely this is not where Bill de Blasio thought he would be when he entered office. Back then, he was promising an agenda that would rival Fiorello La Guardia: Universal pre-K! Affordable housing! A new tax slapped on the city’s millionaires! And a tale of two cities transformed into a united progressive paradise.

“It hasn’t turned out that way. Now he seems to be learning – the hard way – a fact of life that Ed Koch once told his successors: You can’t govern this city effectively without the support of New York’s Finest.

“Tuesday’s sit down with the police unions suggests he’s starting to appreciate the reality. But judging from the unions’ warning that ‘actions speak louder than words,’ clearly skepticism remains the order of the day....

“(The) distrust has its roots in de Blasio’s successful campaign for mayor. For one of de Blsio’s central planks in that campaign was that the NYPD was deliberately and unconstitutionally using stop-and-frisk to target black men.

“Then came the deaths of Eric Garner in State Island and Michael Brown in Ferguson, Mo. – both while trying to resist arrest.

“The mayor seemed to be going out of his way to side with those, like the Rev. Al Sharpton, quick to second-guess the juries and call for police to be indicted. He only added fuel to the fire when he spoke of how he’s raised his son, who is half black, to be wary of police.

“As Seton Hall Prof. Matthew Hale told the AP, ‘If he weren’t mayor, he’d be out on the picket lines.’....

“The way forward is clear. For de Blasio, it starts with ensuring his police officers feel safe. They now feel under siege.

“But it also includes demanding the NYPD does its job. The idea of a work stoppage is just plain wrong. The police have an obligation to enforce the law at the levels New Yorkers expect and deserve.

“It starts with dissociating himself from the falsehoods he has been peddling: that the NYPD has been racially profiling our black citizens, that people can resist police without consequences and – most malicious of all – that black lives do not matter to the men and women in blue, who every day put their own lives at risk to defend them.

“Right now, Mayor de Blasio appears to regard his troubles with the NYPD as an irritating distraction from his agenda.

“Let’s hope he’s finally realized that if he doesn’t find a way to bridge this divide soon, his ‘real’ agenda isn’t going to matter.”

Well, on Wednesday, de Blasio did it again. He reappointed a Brooklyn judge who freed without bail two total thugs who threatened cops just days after the double assassination. As the New York Post correctly put it, “The stunning decision came even as one of the suspects – a gang member charged with posting police death threats online – skipped out on a court date and had a warrant out for his arrest, sources said.”

Brooklyn Criminal Court Judge Laura Johnson had faced a midnight expiration of her term, so the reappointment has outraged police a day after the summit with the mayor.

Sergeants-union chief Ed Mullins said on Wednesday: “The mayor’s actions of reappointing this judge are completely hypocritical to his argument that he’s pro-police and counterproductive to what he claims to be an effort to open dialogue going forward.

“He had the opportunity to demonstrate good will and support for the police, and he once again has demonstrated the opposite.”

The head of the state court-officers’ union, Dennis Quirk, called de Blasio’s decision “a disgrace.”

Finally, there was some good news for all New Yorkers as 2014 ended. Homicides dropped to 328 in the year, the fewest since the NYPD started collecting statistics in 1963. Last year there were a then-record low 335. The high was 2,245 in 1990.

The number of people shot, however, rose 7% in 2014 over 2013.

--In the aftermath of Hurricane Sandy in January 2013, 48% of New Jersey voters in a Public Mind Poll said they “liked everything about” Gov. Chris Christie, while just 17% said they “disliked everything.” By October 2014, however, 32% liked everything about Christie, and 35% said they disliked everything. [Kate Zernike / New York Times]

Christie was supposed to use the holidays to discuss a presidential run with his family. What’s clear is he’s lost his own state to a great extent. His extensive travel out of state for both his own ambitions as well as his role as chairman of the Republican Governors Association hasn’t helped. In fact Ms. Zernike of The Times notes this year alone he’s been out of the state at least 137 days, or 40% of the time.

--New York Gov. Cuomo shut down an anticorruption panel created in 2013, the Moreland Commission, for which he has deservedly taken a lot of heat. Well now it’s come to light that State Assembly speaker, Sheldon Silver, a Manhattan Democrat, is under investigation for accepting substantial payments from a small firm seeking real estate tax breaks in New York City. This case grew out of the work of the Moreland Commission.

--Andrew Cuomo’s father, three-term New York governor Mario Cuomo, died at the age of 82 on New Year’s Day.

“He was the last lion of New York liberalism, bred to the bone in the tradition of Franklin Delano Roosevelt.

“He was a politician renowned for eloquence, remembered best for a captivating speech that thrust him toward the White House.

“He served three terms as New York governor, first reelected virtually by acclamation and finally turned from office by voters who had concluded their state, their standard of living, their hopes had dimmed on his watch.

“Yet there lives on deep respect and affection for Mario Matthew Cuomo, now dead at 82 on the day his oldest son Andrew delivered a second-term inaugural address brimming with grand ambitions for New Yorkers....

“There was never doubt that (Mario) would be on the little guy’s side.

“In his first inaugural address, Cuomo outlined a moderate-sounding, liberal governing philosophy: ‘Of course, we should have only the government we need, but we must have, and we will insist on, all the government we need.’

“But over the years, he produced more government than New York could afford, so much that, after endorsing him three times, the Daily News editorial page described Cuomo in 1994 as presiding ‘over Albany like a brontosaurus in a big government Jurassic Park.’”

Of course Mario Cuomo will also forever be known for his keynote address to the 1984 Democratic convention, where he challenged President Ronald Reagan’s vision of America as a “shining city on a hill.”

“There is despair, Mr. President, in the faces that you don’t see, in the places that you don’t visit in your shining city,” Cuomo declared.

But every time the Democratic Party sought to turn to him when it came to running for president, Cuomo hesitated, which earned him the unflattering label, “Hamlet on the Hudson.” And as the Daily News editorial concludes, the mystery “is why the gap between his words and his deeds was so vast.”

--In a new CNN/ORC poll, now that he’s announced he is “actively exploring” a presidential bid, Jeb Bush is the clear frontrunner among Republicans surveyed with 23%, 10 points ahead of his nearest challenger, Chris Christie, at 13%. Ben Carson is third at 7%.

Back in November, prior to his announcement, Bush had 14%, with Carson at 11% and Christie and Paul Ryan at 9%.

Hillary Clinton still has the support of 2/3s of Democratic voters, with Elizabeth Warren way back at 9%.

In a head-to-head matchup, Clinton leads Bush 54% to 41%. It’s early.

--According to researchers at Johns Hopkins University, as published in the journal Science, cancer is often caused by the “bad luck” of random mutations that arise when cells divide, not family history or environmental causes.

The study did not include breast or prostate cancer, but in the adult cancers measured, about two-thirds could be explained by random mutation in genes that encourage tumors to grow.

Professor Bert Vogelstein of the Johns Hopkins School of Medicine said, “This study shows that you can add to your risk of getting cancers by smoking or other poor lifestyle factors. However, many forms of cancer are due largely to the bad luck of acquiring a mutation in a cancer driver gene regardless of lifestyle and heredity factors.”

“Dirtball(s) of the Year”...ISIS

“Person of the Year”...Pope Francis...some may have a problem with this, like some Cuban-Americans. But show me another leader in the world effecting positive change, overall, as he is doing, while standing up to the Evil Ones like ISIS, and championing the little people.

--As a follow-up to my comments from last week on the Battle of the Bulge, Warren Kozak had the following in The Weekly Standard.

“Like the other men of that era, my father [Capt. Sidney P. Kozak] kept most of his stories to himself, but he shared one that still gives me chills. On that day when the skies cleared [Christmas Eve, 1944], he said the men around him heard and even felt the sound before they understood its source. Then, suddenly, the entire sky filled with planes from one end to the other. He actually waved his arm across some imaginary horizon to add emphasis. And they were all flying in one direction.

“ ‘I couldn’t believe one country could build that many airplanes,’ he told me years later, still in awe (and he had no concept of the massive numbers flying over the Pacific at the same time). Then he paused in his story and shared a very personal moment with a son who rarely, if ever, heard anything personal from this man.

“ ‘It was the most religious experience of my life,’ he said, looking far off and not at me.

“It is impossible to quantify the impact of a sight like that on an individual, especially given the situation. But watching wave after wave pushing across the sky, flying in strict, regimental formation, with their contrails streaming behind them for miles, electrified the men below and gave them courage. These young Americans were no less cold and hungry and miserable than their forebears at Valley Forge on another Christmas 167 years earlier.

That day, in the skies over Bastogne and other towns in the theatre, the U.S. flew 1,138 tactical sorties (fighters) and 2,442 heavy bomber sorties.

--Finally, Eric Metaxas had an op-ed in the Wall Street Journal on what has been a futile search for extraterrestrial life on another planet.

“The odds against life in the universe are simply astonishing.

“Yet here we are, not only existing, but talking about existing. What can account for it? ....

“The fine-tuning necessary for life to exist on a planet is nothing compared with the fine-tuning required for the universe to exist at all. For example, astrophysicists now know that the values of the four fundamental forces – gravity, the electromagnetic force, and the ‘strong’ and ‘weak’ nuclear forces – were determined less than one millionth of a second after the big bang. Alter any one value and the universe could not exist. For instance, if the ratio between the nuclear strong force and the electromagnetic force had been off by the tiniest fraction of the tiniest fraction – by even one part in 100,000,000,000,000,000 – then no stars could have ever formed at all. Feel free to gulp.

“Multiply that single parameter by all the other necessary conditions, and the odds against the universe existing are so heart-stoppingly astronomical that the notion that it all ‘just happened’ defies common sense. It would be like tossing a coin and having it come up heads 10 quintillion times in a row. Really?

“Fred Hoyle, the astronomer who coined the term ‘big bang,’ said that his atheism was ‘greatly shaken’ at these developments. He later wrote that ‘a common-sense interpretation of the facts suggests that a super-intellect has monkeyed with the physics, as well as with chemistry and biology....the numbers one calculates from the facts seem to me so overwhelming as to put this conclusion almost beyond question.’

“Theoretical physicist Paul Davies has said that ‘the appearance of design is overwhelming’ and Oxford professor Dr. John Lennox has said ‘the more we get to know about our universe, the more the hypothesis that there is a Creator...gains in credibility as the best explanation of why we are here.’

“The greatest miracle of all time, without any close seconds, is the universe. It is the miracle of all miracles, one that ineluctably points with the combined brightness of every star to something – or Someone – beyond itself.”

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

God bless America.

Gold closed at $1186 [12/31...$1184]
Oil $52.69 [12/31...$53.27] Oil is down 13 of last 14 weeks.

Returns for the week 12/29-1/2

Dow Jones -1.2% [17832]
S&P 500 -1.5% [2058]
S&P MidCap -1.1%
Russell 2000 -1.4%
Nasdaq -1.7%

Returns for 2014

Dow Jones +7.5%
S&P 500 +11.4%
S&P MidCap +8.2%
Russell 2000 +3.5%
Nasdaq +13.4%

Bulls 56.4
Bears 14.9 [Source: Investors Intelligence]

Here’s to a prosperous 2015 and good health to all. I appreciate your support.

Dr. Bortrum posted a new column.

Brian Trumbore

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