Blame,Tingle,Misplaced Optimism and Looming War!

Sent to me by a friend, fellow memo reader who said when he read this the only person he thought of was me. (See 1 below.)

This was also sent to me by another friend, memo reader and tennis partner. This relates to one 'bar' Brit's view of our president. (See 2 below.)

Ineptness? You decide. (See 2a below.)

3 Below supports 2 below. Retreating from the world will come with costs beyond any potential or theoretical savings. (See 3 below.)

Obama's strategy according to this writer - "blame the other guys." (See 3a below.)

Meanwhile, Maureen Dowd is juiced up by Obama's performance with the Republicans. Did she too get a tingle up her leg?

Might have been more interesting if Republicans had been allowed to respond to Obama's answers so that a real exchange could take place and he, in turn, given the opportunity for a second rebuttal.(See 4 below.)

Hezballah arming for war? (See 5 below.)

Losing any friend is a tragedy but the question first is are you a true friend. (See 6 below.)


Volcker on reforming our financial system. (See 7 below.)

Ralph Peters reviews the Middle East and does not like what he sees. Viewed through his prism neither should anyone else unless they are hopeless optimists. (See 8 below.)

Does January portend the year?

Broad issues facing the market are:
a) Can earnings comparisons continue to improve? yes, because comparisons get easier.

b) Will the Fed's withdrawal send the economy down or can the consumer take over. Yes it could because there is nothing to suggest the consumer is ready to run with the baton.

c) Is inflation on the horizon should interest rates rise? Arguable, because without strong demand hard for corporations to pass along price increases into an abyss in demand.(

d) Will exploding debt sink the dollar and cause a flight to gold? Certainly a logical expectation.

e) Is the political gridlock likely to break and will that provide a psychological boost for the market. Investors actually prefer political gridlock because they have a natural distrust of political solutions but when the problems are momentous some positive development is important.

This president has lost the confidence of many of his former supports and his credibility has become suspect. Not a healthy political backdrop for positive market action.

f) In order to employ new entries we need something akin to 3% growth and to re-employ the current unemployed we need another 1 to 2% for at least 5 years on top of natural growth. Not likely to happen without inflationary consequences or debt explosion.

g) My guess: Thee market has more near term downside and if enough might then have room to move higher later in the year. That said our nation's problems will take years to solve and I am not confident we can or will. Not a confidence building outlook for substantially higher markets.

Conclusion: Market trades in narrow band for most of the decade.(See 9 below.)


Dick




1) Subject: State of the Union fact check
Fact check: Obama and the ‘hatchet’ job

Look at some of the president’s claims and how they compare with the facts
The Associated Press

WASHINGTON - President Barack Obama, who once considered government spending freezes a hatchet job, told Americans on Wednesday it's now part of his solution to the exploding deficit. He didn't explain what had changed.

His State of the Union speech skipped over a variety of complex realities in laying out a "commonsense" call to action.

A look at some of his claims and how they compare with the facts:

OBAMA: "Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don't."

THE FACTS: The anticipated savings from this proposal would amount to less than 1 percent of the deficit — and that's if the president can persuade Congress to go along.

Obama is a convert to the cause of broad spending freezes. In the presidential campaign, he criticized Republican opponent John McCain for suggesting one. "The problem with a spending freeze is you're using a hatchet where you need a scalpel," he said a month before the election. Now, Obama wants domestic spending held steady in most areas where the government can control year to year costs. The proposal is similar to McCain's.

___

OBAMA: "I've called for a bipartisan fiscal commission, modeled on a proposal by Republican Judd Gregg and Democrat Kent Conrad. This can't be one of those Washington gimmicks that lets us pretend we solved a problem. The commission will have to provide a specific set of solutions by a certain deadline. Yesterday, the Senate blocked a bill that would have created this commission. So I will issue an executive order that will allow us to go forward, because I refuse to pass this problem on to another generation of Americans."

THE FACTS: Any commission that Obama creates would be a weak substitute for what he really wanted — a commission created by Congress that could force lawmakers to consider unpopular remedies to reduce the debt, including curbing politically sensitive entitlements like Social Security and Medicare. That idea crashed in the Senate this week, defeated by equal numbers of Democrats and Republicans. Any commission set up by Obama alone would lack authority to force its recommendations before Congress, and would stand almost no chance of success.

___

OBAMA: The president issued a populist broadside against lobbyists, saying they have "outsized influence" over the government. He said his administration has "excluded lobbyists from policymaking jobs." He also said it's time to "require lobbyists to disclose each contact they make on behalf of a client with my administration or Congress" and "to put strict limits on the contributions that lobbyists give to candidates for federal office."

THE FACTS: Obama has limited the hiring of lobbyists for administration jobs, but the ban isn't absolute; seven waivers from the ban have been granted to White House officials alone. Getting lobbyists to report every contact they make with the federal government would be difficult at best; Congress would have to change the law, and that's unlikely to happen. And lobbyists already are subject to strict limits on political giving. Just like every other American, they're limited to giving $2,400 per election to federal candidates, with an overall ceiling of $115,500 every two years.

___

OBAMA: He called for action by the White House and Congress "to do our work openly, and to give our people the government they deserve."

THE FACTS: Obama skipped past a broken promise from his campaign — to have the negotiations for health care legislation broadcast on C-SPAN "so that people can see who is making arguments on behalf of their constituents, and who are making arguments on behalf of the drug companies or the insurance companies." Instead, Democrats in the White House and Congress have conducted the usual private negotiations, making multibillion-dollar deals with hospitals, pharmaceutical companies and other stakeholders behind closed doors. Nor has Obama lived up consistently to his pledge to ensure that legislation is posted online for five days before it's acted upon.


OBAMA: "We will continue to go through the budget line by line to eliminate programs that we can't afford and don't work. We've already identified $20 billion in savings for next year."

THE FACTS: Identifying savings is far from achieving them. If the past is any guide, little will result from this exercise because Congress routinely rejects the White House's suggested spending cuts.

___

OBAMA: "The United States and Russia are completing negotiations on the farthest-reaching arms control treaty in nearly two decades."

THE FACTS: Despite insisting early last year that they would complete the negotiations in time to avoid expiration of the 1991 Strategic Arms Reduction Treaty in early December, the U.S. and Russia failed to do so. And while officials say they think a deal on a new treaty is within reach, there has been no breakthrough. A new round of talks is set to start Monday. One important sticking point: disagreement over including missile defense issues in a new accord. If completed, the new deal may arguably be the farthest-reaching arms control treaty since the original 1991 agreement. An interim deal reached in 2002 did not include its own rules on verifying nuclear reductions.

___

OBAMA: Drawing on classified information, he claimed more success than his predecessor at killing terrorists: "And in the last year, hundreds of al-Qaida's fighters and affiliates, including many senior leaders, have been captured or killed — far more than in 2008."

THE FACTS: It is an impossible claim to verify. Neither the Bush nor the Obama administration has published enemy body counts, particularly those targeted by armed drones in the Pakistan-Afghan border region. The pace of drone attacks has increased dramatically in the last 18 months, according to congressional officials briefed on the secret program.


Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

2)A view of Obama from across the pond
By Rovin Dawson

As American Thinker's self-appointed "correspondent" in the outpost that is the United Kingdom, I am filing a report on what the man in the street here really thinks of your President.

The description most often used by those of us when gathered in the local pub is: "a dangerous wanker." For my American cousins, the definition of that most English of insults is: "a highly offensive term for somebody considered unpleasant, self indulgent, pretentious or arrogant"

Admittedly many of us Brits fell for the same "hope and change" mantra that ensnared so many of you. God knows we have ample need of "hope and change" in the United Kingdom. We are, and continue to be, your most faithful of allies -- as both countries slide into an economic abyss.

We turned the other cheek when President Obama unceremoniously returned the bust of Winston Churchill given to your government. The continued mistreatment of our Prime Minister has been dismissed as the mistake of someone new to the job. Your Leader and his wife slap our Queen on the back and he bows from the waist in subservience to the King of Saudi Arabia and the Emperor of Japan. None of your previous Presidents did the same.

As for those naive Poles and Czechs that believed the United States was a nation of its word, the withdrawal of the missile shield was simply a re-thinking of strategy in America's relationship with Russia. The fact that the withdrawal was announced on the 70th anniversary of the Russian invasion of Poland was just a coincidence. By the way, how is the new "reset" policy toward Russia working out for America and Europe?

We British are astounded as we watch President Obama go around the globe constantly denigrating and apologizing for the United States. Many of us still remember, or were taught, how twice in the 20th century the people of your country literally saved Europe from itself and freed untold millions from oppression throughout the world ever the past 90 years. The United States has been the greatest force for good in the history of mankind.

Despite the absolute disaster that is our economy, our pound is up 23% in value to your dollar since Obama was inaugurated. Even the most uneducated of us anchored to a bar stool hoisting our pints understands that Americans cannot keep spending enormous sums of money you don't have in the hope that the rest of the world will continue to give the United States a blank cheque in perpetuity -- or that the Obama administration can continue to print dollars.

We in Europe are finally getting the message that your President just isn't that into us. But the question I have is: how much is he into your country?

On the 5th of October last, in an excellent article on the American Thinker website by Steve McCann entitled, "Half A President," it was suggested that Mr. Obama was more interested in being head of state for the world rather than just President of the United States. It does appear on the surface that he has delegated much of his responsibilities to others and, as in the case of Afghanistan for example, he loathes the prospect of actually making a decision.

I might also suggest that he is captive to a left wing ideology more radical than most of the Socialist parties in Europe.

There appears to be an awakening among the citizens of United States, similar to what is happening here. Hopefully that will continue and expand and in your mid-term election in 2010. Perhaps a brake can be applied to the destructive polices of your President. A word of warning my American friends -- and this is not an overstatement: the future of the western world may well hang in the balance

2a)President’s ineptness quite clear after a year
By E. THOMAS McCLANAHAN: The Kansas City Star

President’s ineptness quite clear after a year Events confirm: Obama needs to move to the center Fannie, Freddie lit match for our conflagration Taxing land would benefit KC More steep challenges face the nation in 2010 Financial system reform still seems far away Climategate: Who are the 'deniers' now? Lack of subcontracting ties bus system’s hands Inspiring ideas missing in Palin’s book A health care plan so flawed even some Democrats have doubts Obama's overreaching haunts Afghanistan decision Focus on execs’ pay won’t solve our problems More voters are souring on health ‘reform’ Inner city shouldn't be picky about investors Dry land still sprouts plenty of history, memories Obama’s gift to the Russians and Iranians Obama still at odds with facts on health care It’s decision time for Obama on Afghanistan True private options a must on health care Moore’s quandary shows health plan’s troubles A president grossly overplaying his hand Markets key to health care cost containment Obama curiously rigid at all the wrong times Kill cap and trade before it kills growth UAW can play role in automakers’ revival, or demise High-speed rail won't arrive fast � if ever Will we know if Afghan mission succeeds? Downtown's delights and disappointments GOP needs optimistic spark, better focus Too many priorites clutter Obama's 100 days What happened to the bright dreams, the hope and change? A year ago, fate handed President Obama one of the most tantalizing political opportunities in history.

His party enjoyed a blowout election. The Republicans were leaderless and devoid of ideas. The Democrats had hefty majorities in both houses of Congress. Obama had stratospheric approval ratings and the support of a nation profoundly fearful of the future.

And then he threw it all away. He outsourced chunks of his job to a left-wing congressional leadership that has learned nothing and forgotten nothing for the past 35 years.

What came next was one appalling legislative blob after another: the stimulus package that hasn’t stimulated, the cap-and-trade monster, the health care power-grab.

When Obama assumed office, he was still something of an enigma. Many asked: Who is this guy?

Well, now we know a lot more. The bottom line: He isn’t a good politician. Politics is an art, and Obama’s basic competence is highly suspect. He lacks the personal radar an effective politician must have — the instinct to know when you’re on solid ground and when you’re tilting at windmills. Obama has spent a year tilting at windmills.

The “art of the possible” isn’t static. With steady accomplishments, an effective leader can expand the zone of the possible. A winner draws new adherents, builds coalitions, acquires new strength for the next challenge.

For a weak leader, the opposite applies: His credibility shrinks, and so do the ranks of his followers. His ability to accomplish anything becomes doubtful.

This is the vicious circle that now ensnares Obama. He has succeeded mainly in uniting his opposition and dividing his own camp. House and Senate Democrats are openly sniping at one another. The hard left — Obama’s base — is writing him off as inept.

The sense of disarray was only reinforced by his State of the Union speech.

Let’s give a cheer or two for the proposed cut in the capital gains tax for small businesses and the spending freeze plan — while noting that the latter applies to only a small part of the budget, doesn’t begin until next year and comes only after spending was recklessly accelerated. Obama wants to “freeze” outlays at stratospheric, stimulus-package levels.

If Obama is serious about two of his main points — a second stimulus package and his renewed call for Congress to pass health care reform — then he has learned nothing from the last year and the political earthquake in Massachusetts.

Despite its enormous cost, last year’s stimulus package has failed to live up to expectations. So, his response is: Do it again?

On health care, he offered no suggestions to deadlocked Democrats as to how they should pass a bill disliked by most Americans. The House can’t pass the Senate bill and the Senate couldn’t pass the House bill. Obama’s advice: Keep trying what isn’t working.

Like Jimmy Carter, Obama squandered much of his political capital in his first year. Before last week’s speech, it was possible to argue that it wasn’t too late for him to adopt a new approach and move toward the center. Now it’s clear he has no such intention.

A big clue to Obama appeared long before his election, when he was still a senator.

He’s stubborn. With the tide indisputably turning in Iraq, he remained opposed to the troop surge and claimed it was bound to fail. When he took office, the economic landscape was completely transformed. But he refused to put off health care and cap-and-trade, even though voters thought the economy was a much higher priority.

He has another problem, most evident in his handling of foreign policy.

He sold out the Czechs and Poles on missile defense to appease Russia — and got nothing in return. He stuck with “engagement” on Iran, missing an opportunity to voice full-throated support for the Iranian opposition. In dealing with China, he shrank from the topic of human rights.

The question raised by French President Nicolas Sarkozy — “Is he weak?” — must be answered in the affirmative.

The media portrait of Obama during the campaign made much of his cool, unflappable temperament. But that ignored his most telling qualities. Stubborn and weak is not what you want in a president. No wonder he’s already talking about the prospect of a single term.

3)Obama Talks, Ahmadinejad Laughs
By Joel J. Sprayregen

Iranian President Ahmadinejad must have had a good laugh when he read the scant foreign policy section of President Obama's State of the Union speech. How did Obama face Iranian efforts to produce nuclear weapons? Referring to negotiations seeking to reduce American and Russian nuclear arsenals, Obama said:


These diplomatic efforts have strengthened our hand in dealing with those nations that insist on violating international agreements in pursuit of nuclear weapons. ... That's why the international community is more united, and the Islamic Republic is more isolated. And as Iran's leaders continue to ignore their obligations, there should be no doubt. They, too, will face growing consequences. That is a promise.


When measured against reality, Obama's remarks are delusional. He campaigned on a promise to "engage" Iran into giving up its nuclear pursuit. Iran consistently rebuffed "engagement" with grim contempt and was revealed to have established hidden enrichment facilities. Obama set shifting deadlines for Iranian compliance with Security Council resolutions. With the advent of a new year, all these deadlines have expired. And Obama is reduced to threatening "growing consequences." These words are guaranteed to be received contemptuously by a regime which murders its own citizens and supplies weapons to terrorists to kill American soldiers. Nor did Obama utter a word in support of Iranian protesters who are being tortured, raped, and killed.


Obama mocked by reality


Is it true, as Obama contended, that "the international community is more united, and the Islamic Republic is more isolated"? Obama knows that the Russians and Chinese would veto any meaningful sanctions in the Security Council. This is egregious in the case of Russia because Obama rewarded Moscow -- without obtaining anything in return -- when he reneged on America's commitment to establish missile defenses in Poland and the Czech Republic. While Obama has dithered in the face of Iranian defiance, Turkey -- formerly but no longer an American ally -- announced that it has no problem with Iran going nuclear. This blow to American policy is partly attributable to the Islamism of Turkey's AKP regime, which seeks to reverse the secular nature of the country. But it also flows from the reality that in the harsh world of the Middle East, you are judged by what you do rather than by your apologies. The Turks, who are members of the Security Council, see Obama as a loser and Ahmadinejad as a winner.


Obama's assertion that the "the international community is more united" is mocked by reality. Obama delayed congressional action on Iran sanctions until France next month takes over from China the rotating Security Council presidency. But French President Sarkozy was livid when Obama used his unprecedented chairing of a Security Council session last September to pass a non-binding, pie-in-the-sky resolution about eventual universal nuclear disarmament. Sarkozy, concluding that Obama squandered an opportunity for effective action against Iran, said, "We live in the real world, not the virtual world. The real world expects us to make decisions. President Obama dreams of a world without weapons. But right in front of us, two countries are doing the exact opposite. Iran since 2005 has flouted five Security Council resolutions and threatened to wipe a U.N. member state off the map." Ironically, Obama now seeks help from France.


Retreat as a goal


In discussing two wars which our military is fighting, Obama emphasized that in Afghanistan, "in July of 2011 our troops can begin to come home," and in Iraq, "all of our troops are coming home." To this president, retreat is not only a strategy, but it appears to be our goal. There was neither mention of victory nor of building democracy. Obama is advertising to the terrorists: Content yourself with hit-and-run attacks because the Americans will soon be gone. Obama did not tell us how he will protect Americans from accelerating homefront terrorism, a subject he preferred to avoid after the blunder of Mirandizing the Christmas bomber before effective interrogation. Obama should be made to pay for his myopia about Islamic terrorism by the Senate's denying him the funds to bring the Guantánamo prisoners to our mainland and to try Khalid Sheikh Mohamed in New York. (NOTE: This was written before the announcement that Obama is reconsidering trying KSM in New York; is Obama accessing our columns before they are published?)


Another dysfunction in Obama's world view is that he harbors contempt for leaders of two democracies which are vitally engaged in defense against terrorism. One is Britain, whose forces have sustained substantial casualties in Iraq and Afghanistan while facing domestic terrorism from native-born Muslims. The other is Israel, which Obama could not mention because his missteps made him the only president who prevented Israelis and Palestinians from talking to each other. Thus, Obama gives us the novelty of a foreign policy address which mentions neither of these two allies.


The world takes a second look at Obama


Make no mistake. A world which greeted the Obama presidency with hope is waking up to the reality that what passes for his foreign policy is scandalous. A salient example is the peroration in the London Telegraph column of Nile Gardiner, a Washington-based foreign policy analyst who appears on CNN, BBC and NPR:


For the hundreds of millions of people across the world, from Burma to Sudan to Zimbabwe, clamoring to be free of oppression, there was not a shred of hope offered in Barack Obama's address. Obama's world leadership in his first year in office has been weak-kneed and little short of disastrous. He has sacrificed the projection of American power upon the altar of political vanity, with empty speeches and groveling apologies across the world, from Strasbourg to Cairo. He has appeased some of America's worst enemies, and extended the hand of friendship to many of the most odious regimes on the face of the earth. Judging by the State of the Union address, we can expect more of the same from an American president who seems determined to lead the world's greatest power along a path of decline.


We should be grateful that Obama kept this part of his speech brief and thus did not inflict greater damage on hope for coherent American foreign policy, which leads the world by aligning with like-minded countries to build democracy and combat terrorism.

3a)Obama's strategy: Blame the other guys:Frustrated by the GOP's ability to block his initiatives, the president plans to make sure voters know who's really to blame.
By Doyle McManus


President Obama made a brief effort to sound bipartisan last week, saying he still hoped to find some ideas that both parties can embrace.

But the affability was mostly tactical, and so were the professions of hope. The reigning emotion at the White House has been frustration -- frustration that Obama's mandate for change has eroded and that Republicans have been so successful in mounting an effective opposition.

The message from Obama's aides, who don't labor under their boss' obligation to sound charitable,

has been blunt and bitter: no more

Mr. Nice Guy.

When Obama met with House Republicans at their retreat in Baltimore on Friday, the change was apparent. Though he made a polite bow toward what he called "the value of a loyal opposition," he quickly moved on to accusing his hosts, on camera, of indulging in "the politics of no."

Obama's proclaimed goal of bi-partisanship was always a long shot.

It never meant meeting the GOP all the way in the middle; he hoped his popularity could detach a few moderate Republicans and help him enact big changes. Instead, sharpening partisanship on both sides has eliminated the middle.

By last week, bipartisanship was no longer an aspiration; it was a cudgel.

"I want the Republicans off of the sidelines," the president said in Florida on Thursday. "I want them working with us to solve problems facing working families, not to score points. . . . I don't want gridlock."

The Republicans don't think they've been on the sidelines, of course. They've been in the middle of the scrum, bringing Obama's offensive game to a halt.

House Republican Whip Eric Cantor (R-Va.) says the matter goes beyond mere partisanship. "People in this country are very dissatisfied with the direction that this administration is taking this country," he said. "We're not voting no for political expediency. We've got our principles, and we're going to stand up and defend those."

In a conversation with journalists, Obama's chief political strategist, David Axelrod, was blunt about what Republicans can expect if they don't find a way to compromise.

"We are going to very visibly seek their support moving forward, and we will shine a bright light on them when they don't," he said. "If they want to block everything . . . they will be held to account."

Axelrod accused the GOP of "rooting for failure."

"They made a decision they were going to sit it out and hope that we failed -- that the country failed," he said.

Until now, he suggested, Obama has been too gentle. "They didn't pay enough of a price for what was a determined strategy not to work with us," he said.

Now, "they either work with us or they have to pay the price for working against us."

But is there a real price Obama can exact?

Republicans in Congress say the politics of confrontation have worked out pretty well for them. And even Obama noted that they may have gone too far to turn back. How can they start making deals with a president they've been saying will destroy America?

Both sides are in campaign mode. And when Obama updated his agenda in the State of the Union address on Wednesday, it was a campaign platform, stripped down to job creation, deficit reduction and healthcare.

On jobs, he sought to entice Republican votes by proposing tax breaks for small businesses, a measure conservatives embrace. But the GOP has already declared its opposition to big-ticket jobs bills like the $154-billion package the House passed last month. And small-bore jobs bills won't solve the Democrats' biggest problem: the fact that the giant $787-billion stimulus they passed in February didn't stop unemployment from rising beyond 10%.

On deficit reduction, the two parties have battled to a messy draw, with an odd coalition of Republicans and Democrats blocking a bill that would have set up a powerful bipartisan budget commission. Obama proposed a freeze on most domestic programs beginning next year, mostly to show that he's serious about controlling spending someday. The Democrats' main aim is to get swing voters to stop worrying about deficits for a while -- because it's an issue on which Republicans normally have an advantage.

That leaves healthcare, which Obama expected to be the historic achievement of his first year but is now being treated by both parties as a troublesome stepchild.

House Speaker Nancy Pelosi (D-San Francisco) says she can still get a bill through the House if the Senate agrees to a list of changes, centering mostly on how the new program would be paid for. And it could be done through a budget reconciliation measure that only needs 51 votes in the Senate, not the 60-vote threshold that has bedeviled Majority Leader Harry Reid.

But the differences between the two versions of the bill are not trivial. Reid hasn't yet corralled the 51 votes he needs, and it won't help that polls show him likely to lose his own seat in November.

To bring this patient back to life, Reid is going to need more hands-on help from Obama than he's had so far -- and even then, the bill may die.

At the White House last week, Axelrod sounded as if he were preparing talking points for a defeat.

"The country needs to know that we tried to do it, that we reached out, that we tried that opportunity," he said. If the effort fails, he said, he wants to make sure the blame falls on Republicans, not on the failures of disorderly Democrats. "It has to be on them; it's not going to be on us."

Obama hopes to win his popular mandate back by running against the congressional minority, putting their flaws in the spotlight instead of his own.

It won't be transformational. It won't change the way Washington works. It won't be pretty. But it's a strategy.




4)Camus Fired Up
By Maureen Dowd

It began as a bit of partisan gamesmanship and ended, surprisingly, as illuminating political theater.

White House advisers thought that if they asked that cameras and reporters be allowed in for the usually closed Q. and A. with the president at the annual retreat of House Republicans, the Republicans might say no and look obstructionist.

But the Republicans realized what the White House was up to, got irritated and opened up the exchange in Baltimore to show they weren’t scared of the smart, facile and newly warmblooded Barack Obama.

And during the next hour and a half, our government did not look quite so lame.

Obama is always at his best when his back is against the wall, and he is perversely content when he has the challenge of the lion’s den.

He may lapse back into his Camus coma at any moment. But on Friday he dropped the diffident debutante act and offered, as he did at the State of the Union, some welcome gumption.

“You know,” he said, halfway through his sparring session with Republicans, “I’m having fun.”

When he was running for president, John McCain said that if he won, he would regularly take questions in the peppering style of the British prime minister in the House of Commons.

But it was Obama who ended up doing just such a Ping-Pong session, standing in a hotel ballroom and giving as good he got, to-ing and fro-ing in a far more vivid way than in the presidential debates.

The president chided his audience for casting his health care plan as a “Bolshevik plot” and for telling folks back home that he’s “doing all kinds of crazy stuff that’s going to destroy America.” But Obama also acknowledged that the Republicans have some good ideas, and that, as it turned out, was what they yearned to hear.

In the end, the Republicans may well go back to being inflexibly inflexible with this president, but for a moment in time, each side realized that the other side had something to say. It was, as The Times’s reporters Peter Baker and Carl Hulse called it, a televised marriage-therapy session “as each side vented grievances pent up after a year of partisan gridlock.”

The Utah Republican Jason Chaffetz picked up on the president’s line in the State of the Union about “a deficit of trust.”

“We didn’t create this mess, but we are here to help clean it up,” the freshman member said, before ticking off a litany of things that have soured many Americans on the president who came in trailing fairy dust.

“When you stood up before the American people multiple times and said you would broadcast the health care debates on C-Span, you didn’t,” he said.

And another good one: “You said you weren’t going to allow lobbyists in the senior-most positions within your administration, and yet you did.”

And another: “You said you’d go line by line through the health care bill. And there were six of us, including Dr. Phil Roe, who sent you a letter and said we would like to take you up on that offer. ... We never got a call.”

And this rousing finale: “And when you said in the House of Representatives that you were going to tackle earmarks and in fact you didn’t want to have any earmarks in any of your bills, I jumped out of my seat and applauded you.”

But that was another disappointment.

Obama hedged on a technicality on the health care question, noting that “overwhelmingly the majority of it actually was on C-Span because it was taking place in Congressional hearings in which you guys were participating.”

When Peter Roskam of Illinois complained that they’d been “stiff-armed” by Speaker Nancy Pelosi, the president promised to bring the Republican and Democratic House leadership together for more play dates.

In a way, it was the sort of civic affairs master class that this college-bowl president had wanted from the beginning, before it began to look like W., Cheney and Rove had truly smashed bipartisanship.

But he didn’t hesitate to give Jeb Hensarling a smack-down when the rabid ideologue from Texas asked if the president’s new budget, “like your old budget,” would “triple the national debt.”

Obama crisply told “Jim,” inadvertently (perhaps) mixing up Jeb’s name, “It’s very hard to have the kind of bipartisan work that we’re going to do, because the whole question was structured as a talking point for running a campaign.” Then the president offered a quick math lesson on what Republicans never admit: that it was W. and the Republican Congress who ran up much of our $12 trillion debt and left us pawning our family jewels to the Chinese.

Obama’s advisers must wish they could do this every week for the cameras. It was a lot more elucidating than Joe Wilson shouting, “You lie!”


5)U.S. official: Hezbollah arms flow may signal plans for war with Israel
By Avi Issacharoff


The U.S. is concerned that the continued flow of arms to the Hezbollah militant organization could prompt a war between Israel and Lebanon, State Department official Jeff Feltman said in remarks published Sunday by the London-based Al-Hayat daily.

Feltman, who serves as Assistant Secretary of U.S. State Department's Bureau of Near Eastern Affairs, told the daily that the U.S. had no evidence of any Israeli plan to attack its northern neighbor.

Nevertheless, Feltman said he was growing increasingly worried by reports describing the quantity and types of weapons being smuggled to the terrorist organization in clear violation of United Nations Resolution 1701, which put an end to the 2006 war.

The UN resolution clearly demanded a weapons-free south Lebanon, said Feltman, but the world had yet to see that put into play.

With regard to the possibility of a future peace deal between Lebanon and Israel, Feltman said that he believed Lebanon preferred to see a Palestinian-Israeli agreement reached first.

When asked about negotiations between Syria and Israel, Feltman said U.S. special Mideast envoy George Mitchell had passed on to Jerusalem a message from Damascus on the matter, but that progress was slow.

Feltman also said that the U.S. wanted to see the Palestinian Authority resume negotiations with Israel in order to resolve the issue of West Bank settlements. Once borders were determined, said Feltman, the issue of settlements would be easier to solve.

6) Erdogan: Losing a friend like Turkey would hurt Israel


In interview with Euronews, Turkish PM criticizes Israel's conduct in Gaza yet again, saying 'we cannot close our eyes when innocent civilians are ruthlessly killed, struck by phosphorus bombs, infrastructure is demolished in bombing and people are forced to live in an open-air prison'

"Israel should give some thought to what it would be like to lose a friend like Turkey in the future. The way they recently treated our ambassador has no place in international politics," Turkish Prime Minister Recep Tayyip Erdoğan said in the aftermath of the diplomatic crisis between Ankara and Jerusalem.

In an interview with Euronews, published Sunday, Erdogan spoke of Turkey's role in the stalled indirect negotiations between Israel and Syria and Prime Minister Benjamin Netanyahu's recent statement according to which he prefers France as a mediator.

"We have done our best for Israel-Syria relations. But now we see Benjamin Netanyahu saying ‘I do not trust Erdogan, but I trust (French President Nicolas) Sarkozy’. Do you have to give a name? This is diplomatic inexperience, too. Because when you say this… How can I trust you if you say you don’t trust me?

"We have important ongoing agreements between us. How can these agreements be kept going in this climate of mistrust? I think Israel had better take another look at its relations with its neighbors if it believes it is a world power," said the Turkish leader.

Addressing the Israeli Foreign Ministry's accusations that he had sparked the row by leveling harsh criticism at the IDF over its conduct during the war against Hamas in Gaza, Erdogan told Euronews, "I am telling the truth…And I will keep telling the truth. Turkey has an age-old history as a state. When you talk to such a state you must be careful.


"When innocent civilians are ruthlessly killed, struck by phosphorus bombs, infrastructure is demolished in bombing and people are forced to live in an open-air prison… we can not see this as compatible with the Universal Declaration of Human Rights, simply human rights, and we can not close our eyes to all this happening," he said.

7)How to Reform Our Financial System
By PAUL VOLCKER

PRESIDENT OBAMA 10 days ago set out one important element in the needed structural reform of the financial system. No one can reasonably contest the need for such reform, in the United States and in other countries as well. We have after all a system that broke down in the most serious crisis in 75 years. The cost has been enormous in terms of unemployment and lost production. The repercussions have been international.


Aggressive action by governments and central banks — really unprecedented in both magnitude and scope — has been necessary to revive and maintain market functions. Some of that support has continued to this day. Here in the United States as elsewhere, some of the largest and proudest financial institutions — including both investment and commercial banks — have been rescued or merged with the help of massive official funds. Those actions were taken out of well-justified concern that their outright failure would irreparably impair market functioning and further damage the real economy already in recession.

Now the economy is recovering, if at a still modest pace. Funds are flowing more readily in financial markets, but still far from normally. Discussion is underway here and abroad about specific reforms, many of which have been set out by the United States administration: appropriate capital and liquidity requirements for banks; better official supervision on the one hand and on the other improved risk management and board oversight for private institutions; a review of accounting approaches toward financial institutions; and others.

As President Obama has emphasized, some central structural issues have not yet been satisfactorily addressed.

A large concern is the residue of moral hazard from the extensive and successful efforts of central banks and governments to rescue large failing and potentially failing financial institutions. The long-established “safety net” undergirding the stability of commercial banks — deposit insurance and lender of last resort facilities — has been both reinforced and extended in a series of ad hoc decisions to support investment banks, mortgage providers and the world’s largest insurance company. In the process, managements, creditors and to some extent stockholders of these non-banks have been protected.

The phrase “too big to fail” has entered into our everyday vocabulary. It carries the implication that really large, complex and highly interconnected financial institutions can count on public support at critical times. The sense of public outrage over seemingly unfair treatment is palpable. Beyond the emotion, the result is to provide those institutions with a competitive advantage in their financing, in their size and in their ability to take and absorb risks.

As things stand, the consequence will be to enhance incentives to risk-taking and leverage, with the implication of an even more fragile financial system. We need to find more effective fail-safe arrangements.

In approaching that challenge, we need to recognize that the basic operations of commercial banks are integral to a well-functioning private financial system. It is those institutions, after all, that manage and protect the basic payments systems upon which we all depend. More broadly, they provide the essential intermediating function of matching the need for safe and readily available depositories for liquid funds with the need for reliable sources of credit for businesses, individuals and governments.

Combining those essential functions unavoidably entails risk, sometimes substantial risk. That is why Adam Smith more than 200 years ago advocated keeping banks small. Then an individual failure would not be so destructive for the economy. That approach does not really seem feasible in today’s world, not given the size of businesses, the substantial investment required in technology and the national and international reach required.

Instead, governments have long provided commercial banks with the public “safety net.” The implied moral hazard has been balanced by close regulation and supervision. Improved capital requirements and leverage restrictions are now also under consideration in international forums as a key element of reform.

The further proposal set out by the president recently to limit the proprietary activities of banks approaches the problem from a complementary direction. The point of departure is that adding further layers of risk to the inherent risks of essential commercial bank functions doesn’t make sense, not when those risks arise from more speculative activities far better suited for other areas of the financial markets.

The specific points at issue are ownership or sponsorship of hedge funds and private equity funds, and proprietary trading — that is, placing bank capital at risk in the search of speculative profit rather than in response to customer needs. Those activities are actively engaged in by only a handful of American mega-commercial banks, perhaps four or five. Only 25 or 30 may be significant internationally.

Apart from the risks inherent in these activities, they also present virtually insolvable conflicts of interest with customer relationships, conflicts that simply cannot be escaped by an elaboration of so-called Chinese walls between different divisions of an institution. The further point is that the three activities at issue — which in themselves are legitimate and useful parts of our capital markets — are in no way dependent on commercial banks’ ownership. These days there are literally thousands of independent hedge funds and equity funds of widely varying size perfectly capable of maintaining innovative competitive markets. Individually, such independent capital market institutions, typically financed privately, are heavily dependent like other businesses upon commercial bank services, including in their case prime brokerage. Commercial bank ownership only tilts a “level playing field” without clear value added.

Very few of those capital market institutions, both because of their typically more limited size and more stable sources of finance, could present a credible claim to be “too big” or “too interconnected” to fail. In fact, sizable numbers of such institutions fail or voluntarily cease business in troubled times with no adverse consequences for the viability of markets.

What we do need is protection against the outliers. There are a limited number of investment banks (or perhaps insurance companies or other firms) the failure of which would be so disturbing as to raise concern about a broader market disruption. In such cases, authority by a relevant supervisory agency to limit their capital and leverage would be important, as the president has proposed.

To meet the possibility that failure of such institutions may nonetheless threaten the system, the reform proposals of the Obama administration and other governments point to the need for a new “resolution authority.” Specifically, the appropriately designated agency should be authorized to intervene in the event that a systemically critical capital market institution is on the brink of failure. The agency would assume control for the sole purpose of arranging an orderly liquidation or merger. Limited funds would be made available to maintain continuity of operations while preparing for the demise of the organization.

To help facilitate that process, the concept of a “living will” has been set forth by a number of governments. Stockholders and management would not be protected. Creditors would be at risk, and would suffer to the extent that the ultimate liquidation value of the firm would fall short of its debts.

To put it simply, in no sense would these capital market institutions be deemed “too big to fail.” What they would be free to do is to innovate, to trade, to speculate, to manage private pools of capital — and as ordinary businesses in a capitalist economy, to fail.

I do not deal here with other key issues of structural reform. Surely, effective arrangements for clearing and settlement and other restrictions in the now enormous market for derivatives should be agreed to as part of the present reform program. So should the need for a designated agency — preferably the Federal Reserve — charged with reviewing and appraising market developments, identifying sources of weakness and recommending action to deal with the emerging problems. Those and other matters are part of the administration’s program and now under international consideration.

In this country, I believe regulation of large insurance companies operating over many states needs to be reviewed. We also face a large challenge in rebuilding an efficient, competitive private mortgage market, an area in which commercial bank participation is needed. Those are matters for another day.

What is essential now is that we work with other nations hosting large financial markets to reach a broad consensus on an outline for the needed structural reforms, certainly including those that the president has recently set out. My clear sense is that relevant international and foreign authorities are prepared to engage in that effort. In the process, significant points of operational detail will need to be resolved, including clarifying the range of trading activity appropriate for commercial banks in support of customer relationships.

I am well aware that there are interested parties that long to return to “business as usual,” even while retaining the comfort of remaining within the confines of the official safety net. They will argue that they themselves and intelligent regulators and supervisors, armed with recent experience, can maintain the needed surveillance, foresee the dangers and manage the risks.

In contrast, I tell you that is no substitute for structural change, the point the president himself has set out so strongly.

I’ve been there — as regulator, as central banker, as commercial bank official and director — for almost 60 years. I have observed how memories dim. Individuals change. Institutional and political pressures to “lay off” tough regulation will remain — most notably in the fair weather that inevitably precedes the storm.

The implication is clear. We need to face up to needed structural changes, and place them into law. To do less will simply mean ultimate failure — failure to accept responsibility for learning from the lessons of the past and anticipating the needs of the future.

8)Nightmare in the Middle East
By RALPH PETERS

Whatever planet Earth may find in short supply in 2010, violence and misrule will remain abundant, from the most-recent round of Muslim-vs.-Christian massacres in Nigeria to Venezuelan strongman Hugo Chavez's delight in unleashing his thugs on students marching for freedom.

But no region — not even sub-Saharan Africa — competes with the greater Middle East when it comes to wanton savagery, thwarted opportunities and the danger posed to innocent populations around the world. With fanatical terrorists of unprecedented brutality, Islamist extremists pursuing nuclear weapons, rogue regimes, disintegrating states and threats of genocide against Israel, the lands of heat and dust between the Nile and the Indus form a realm of deadly failure that will haunt the civilized world throughout our lifetimes.

A survey of the region's key countries — and problems — doesn't offer much good news for the Obama Administration's naive foreign policy efforts:

Look at a map:

LEBANON: This isn't a country — it's a temporary stand-off. Recently, Prime Minister Saad Hariri, whose father, Rafik, was assassinated by Syria, had to make a humbling visit to Damascus. Syria's decades-long penetration of the government in Beirut and various Lebanese factions (not least, its backing of the Hezbollah terror organization) has kept Beirut dependent on Damascus to break the political gridlock in parliament. Meanwhile, Hezbollah has been rearming mightily in the wake of its 2006 war with Israel. A new war would devastate much of Lebanon — if internal strife doesn’t do it first.

EGYPT: A US client long counted among the most stable states in the Middle East, Egypt faces a potential succession crisis as octogenarian president Hosni Mubarak, who's ruled the country for almost three decades, grooms his singularly unimpressive son, Gamal, to take over upon his death. The government and armed forces are more factionalized than they seem to outsiders, Islamist movements have proven ineradicable, and violence against Egypt's minority Christians is on the rise again.

Unlike many other Arab populations, Egyptians have a strong national identity. There's no danger of Egypt breaking into pieces. But no one knows for certain which way this crucial state may tilt when the elder Mubarak makes his exit. Will there be a smooth, corporatist transition from one authoritarian regime to another? Will contenders for power play the populist anti-Israeli card? Will the Muslim Brotherhood emerge as a power broker? Will pogroms and unrest rock the country, leading to a military coup? We don't know — because the Egyptians don't know.

TURKEY: Long in NATO, but denied membership in the European Union, Turkey has grappled with an identity crisis. Increasingly, its political bosses back an Islamic identity. The ruling AKP (Justice and Development Party) soft-peddles its religious agenda when dealing with the West, but has been methodically dismantling the secular constitution left behind by Kemal Ataturk — who rescued Turkey from oblivion 90 years ago. Despite the military's hobbling by clever AKP tactics in Ankara, the collective of generals remains a wild card. With the AKP drawing its strength from urban slums and the countryside, more cosmopolitan Turkish voters can't reverse the Islamic tide. Will the military move to preserve the legacy of Ataturk? Unlikely. But if the generals did move, the Obama administration would back the Islamists.

Meanwhile, Turkey's current leaders are dragging the country toward the Middle East and away from the West.

SYRIA: The neighborhood's in such awful shape that this police state's beginning to look like a success story. It's internally tranquil, with a budding economy and even a growing tourist trade. On the other hand, the Assad family's government backs terrorism, harbors remnants of Saddam Hussein's regime, still hopes for Israel's destruction — and wouldn't mind having nukes, if it could figure out how to get them. When Damascus looks like a beacon, it's getting awfully dark in the Middle East.

ISRAEL: Civilization's last hope in the region, Israel remains the target of international leftists dreaming of another, more-thorough Holocaust. The "peace process" will continue to fail. Arabs need Israel to blame for their failures. And President Obama empowered the worst Arab elements with his Cairo speech, which convinced the dead-enders there’s no need to compromise with Israel — that the US would shift its support to the Arab cause. That Cairo speech may prove to have been the most-destructive address in the history of American foreign policy.

IRAQ: Can't say we didn't try. After years of serious progress toward a national compromise, Shia political agents close to Iran recently banned over 500 influential Sunni candidates from standing in Iraq's upcoming elections. Reconciliation has come to a screeching halt. The Shia are smug, the Sunnis feel betrayed, and the Kurds are still denied title to the traditionally Kurdish city of Kirkuk. Every faction's fighting for a greater share of oil revenues. And the Obama administration's AWOL (this was Bush's war — we wouldn't want a positive outcome).

This will be a crucial year. If upcoming elections fail to satisfy significant portions of the population, Iraq's gears could go into reverse. There's still hope that the Baghdad government will come to its senses — but the old blood feuds and thirst for vengeance go deeper than we thought.

Oh, and who's behind the Iranian move to ban the Sunni candidates? Ahmed Chalabi, the man who convinced the Bush administration that we'd be welcomed with rose petals.

SAUDI ARABIA: Its two main exports are oil and fanaticism. Saudi funding supports a global effort to drive Muslims into the fold of its severe Wahhabi cult — and to prevent Muslims (including those in the US) from integrating into local societies. The Saudis care nothing for the fate or suffering of fellow Muslims (check out the Palestinians). They care only for their repressive version of Islam. The birthplace of Bin Laden, Saudi Arabia's differences with his terror organization are over strategy and tactics, not over their mutual goal of forcing extremist Islam on all of humanity.

IRAN: Racing to acquire nuclear weapons, delighting in the prospect of a cataclysmic war that would lead to the "return of the hidden imam," beating the hell out of its own people in the streets, murdering members of the intelligentsia, and explicit in its vows to destroy Israel, the government of Iran continues to be protected by China and Russia. There will be no meaningful sanctions. Over the next few years, we'll see a nuclear test in the southeastern desert region of Baluchistan.

Will Israel strike first? Perhaps. Would the US? Not under this administration. The best hope is for a miracle that leads to a popular overthrow of the current maddened regime. But strategy can't be based upon the expectation of miracles.

YEMEN: It's Saudi Arabia without oil, running water or literacy. Perhaps the most-backward country in this stubbornly backward region, Yemen has harbored terrorists for years (we really didn't want to know). Its government cannot control its territory, its tribes are so fanatical they alarm the Saudis (who have had to fight them), and Iran backs the Shiite minority in its revolt against the state. Throw in Yemen’s strategic position astride the world's most-sensitive oil-shipping routes, and this pretense of a country looks far more important than Afghanistan.

DUBAI: The late Michael Jackson's flirtation with this high-rise bazaar apparently couldn't rescue an economy built on sand. Hyped as the model city of the future and a surefire investment, Dubai's broke and surviving — barely — on handouts from Abu Dhabi. The bookkeeping's suspect, but this tiny city-state's at least $70 billion in the red — probably much more. It's got the world's tallest building and the world's highest per capita debt. This is the Arab world's "success story."

AFGHANISTAN: We're there, and we don't know why. We know why we went in 2001, but al Qaeda's long gone. Initially, we were welcomed. Now, the more troops we send, the stronger the Taliban becomes. We're tied to a corrupt, inept government despised by the people. Afghans wo'’t fight for that government, but they'll give their lives for the Taliban. And we're determined to turn the place into Disney World.

Should we just leave? No. Afghanistan provides a crucial base for striking the terrorists across the border in Pakistan. But a reduced presence and a willingness to back sympathetic Afghan tribes offers far more return on our investment of blood and treasure than trying to turn Islamist fanatics into third-rate Americans. In a war-torn tribal society, you have to pick your tribes.

Afghanistan is worthless in itself. Instead of concentrating on killing our enemies, we’re buying worthless real estate with American blood.

PAKISTAN: 180 million anti-American Muslims, thanks to generations of politicians who took American aid while playing the anti-American card with their constituents. The government won't crack down on the Taliban factions it's preserving for a reconquest of Afghanistan after we exit. It sponsors terror attacks against India, then leaves it to us to calm India down. Promised another $7.5 billion in aid, Pakistan's response has been not only to bite the hand that feeds it, but to gnaw it to a bloody pulp. And, in an act of strategic folly, we've left our troops in Afghanistan dependent upon a single supply line that runs for over a thousand miles through Pakistan.

And the Pakistani media, with the government's blessing, blames us when the Taliban bomb a marketplace. Isn't it about time we got a grip? Around Pakistan's throat?

But what about those nukes? What if they get mad at us and hand them over to terrorists? They won't. But if we're worried about the nukes, plan to destroy them — or leave that job up to India. Leaving the greatest power in history at the mercy of the impossibly corrupt regime in Pakistan guarantees that our troops lives are wasted next door in Afghanistan.

Afghanistan isn't our problem. Pakistan's the problem. And India's the future.

Ralph Peters' latest book is "The War After Armageddon."

9)Are U.S. stocks set for a down year?
By Edward Krudy

NEW YORK (Reuters) - The adage 'as January goes, so goes the year' bodes ill for equity investors after the S&P 500 closed out its worst month in almost a year. In the coming week, they will have to contend with fears of sovereign defaults and the potential for unpleasant surprises in the U.S. labor market.

U.S. corporations have so far handily beat analysts' earnings forecasts. With heavyweights like Exxon Mobil Corp and United Parcel Service Inc set to report next week, investors will be looking for that to continue, going some way to offset the perception that political risk is on the rise.

The Standard & Poor's 500 Index fell 3.7 percent in January and is off nearly 7 percent from its high this month. Investors are worried that Greece's debt troubles may herald a wave of sovereign defaults in the euro zone that could derail an economic recovery.

"There's a lot of concerns going on as far as the sovereign debt is concerned in a lot of the nations, specifically in the euro zone," said David Lutz, managing director of trading at Stifel Nicolaus Capital Markets in Baltimore.

A heavy week for economic data will culminate in Friday's non-farm payrolls report. Analysts believe the economy added 5,000 jobs in January, according to a Reuters poll. Another negative surprise after the previous month's unexpected surge in job losses could roil markets.

"The next headline is going to be this unemployment data that is coming out, and there is no indication it is going to be moving in the direction in which we want it to move," said Jonathan Corpina, senior managing partner of Meridian Equity Partners in New York.

Friday's jobs number will be presaged by the ADP private- sector jobs report on Wednesday.

WILL MORE EARNINGS BEATS HELP?

Around 500 U.S. companies have reported quarterly earnings so far and of those, 73 percent have beaten earnings estimates, exceeding the 68 percent that beat in the last two quarters, according to data from Bespoke Investment Group.

But that positive earnings picture has not translated into gains for the stock market this time around.

Bespoke Investment Group's data shows the average stock of a company whose earnings beat estimates gained only 0.8 percent, compared with a 2.9 percent drop in those that missed.

"The companies beating aren't being rewarded by nearly as much as the companies that miss are being punished," Bespoke Investment said in its research note.

After consecutive quarters when better-than-expected earnings helped drive stocks up more than 66 percent from last year's lows, fourth-quarter numbers may have already been factored into the market.

Highlights in the second full week of earnings will include Exxon Mobil on Monday, which is the first of a number of energy companies reporting, as well as delivery service UPS on Tuesday. UPS, viewed as a window on the economy's health, raised its profit forecast earlier this month.

Exxon is expected to post earnings per share of $1.19, while UPS is seen reporting 73cents per share.

EYES ON THE ECONOMY

The U.S. economy grew at its fastest pace in more than six years in the fourth quarter of 2009, expanding at an annual pace of 5.7 percent -- much more than most economists had expected.

There will be an early indication of the sustainability of growth when the Institute for Supply Management releases its manufacturing report for January. Economists in a Reuters poll are expecting a reading of 55.2, showing an expanding sector for the sixth straight month.

That will be followed by the ISM's service sector survey on Wednesday, expected to edge into growth mode after the largest segment of the U.S. economy struggled to find its footing in the fourth quarter of last year.

"The economy is showing no signs of a self-sustaining recovery," said David Wright, portfolio manager at Sierra Core Retirement Fund in Santa Monica.

"Essentially the fuel was used in sustaining the rally as far as it did, and we are now beginning a down cycle that I expect to be prolonged and severe."

For the final week of January, the S&P 500 slid 1.7 percent, while the Dow Jones industrial average declined 1.1 percent and the Nasdaq Composite Index fell 2.6 percent.

For the month of January, the blue-chip Dow average dropped 3.5 percent -- close to the S&P 500's 3.7 percent decline -- and the Nasdaq lost 5.4 percent.

If this January is anything to go by -- and the Stock Trader's Almanac shows only six major occasions since 1950 when January's performance has not been an indicator for the rest of the year -- Wright's prediction may come true.

(Reporting by Edward Krudy; Additional reporting by Chuck Mikolajczak and Ellis Mnyandu; Editing by Jan Paschal)