Photo, above:  See Hour 1, Block C: Edward Lazear, Hoover & Stanford B School, Government Forecasters Might as Well Use a Ouija Board

JOHN BATCHELOR SHOW

Co-host: Larry Kudlow, CNBC senior advisor; & Cumulus Media radio

Hour One

Tuesday  28 October  2014 / Hour 1, Block A: Sudeep Reddy, WSJ economics editor, in re: "How Will the Economy Affect the Midterms?"  The mixed economic numbers showing steady but slow growth in the U.S. economy may affect different elections this fall in different ways. "Something called the Keystone Pipeline"- first article of Mr McConnell's Congressional business in 2015. Bill will contain a mandate to open fed lands to drilling & and an end to gas export restrictions.  Staggeringly low unemployment rate in the Dakotas; also in Colorado (4.7%).  Florida (6.1% _ Charlie Crist might be worried, Rick Scott trying to hold on to office . . .  One-third of states have <5% unemployment (one-eighth of US population).  Beauprez vs Hickenlooper in Colorado: a dead heat.   Georgia (7.9%) has highest unemployment in the nation.  Income hasn’t done as well as the UE rate – incomes have fallen for several years.  Wage increases are pitiful. A lot of people have dropped out.  Economies of both New York an Connecticut are poor.  In the latter, formerly a very prosperous state, the electoral race is a dead heat.

Tuesday  28 October  2014 / Hour 1, Block B:    Gene Epstein,  Barron's, in re:  The dropping rice of a barrel of oil functions as a tax cut for Americans.  Goldman: $85Bbl average for the coming [months?]. Only a few countries and companies produce or sell the stuff, esp good news for poor people of the world, who spend a higher proportion of their income on energy than do the rich. Oil; natgas, other kinds of energy will dethrone oil.   Supply is outstripping demand. Trucks – 18-wheelers – are converting to gas-based fuels, esp as diesel is [under fed attack]. It'd cost little to convert all cares to gas-based methanol fuel, but for the EPA.  [That would be an environmental nightmare.]. The powerhouse is NAFTA. between here and $50 or 60, we all benefit.  North American independence will come – the three countries together no longer on a net basis will import oil. 

"A Return Visit to Earlier Stories: Sorry, Mr. Putin: $75 Oil Is Coming" - Russian President Vladimir Putin has become the world's most unlikely environmentalist. According to the NATO head, Anders Fogh Rasmussen, Putin has been "actively" supporting environmental groups in Europe that oppose hydraulic fracturing, or fracking, that would tap Europe's supplies of oil and natural gas. These supplies would threaten the cash earned by the Russian economy from oil and gas exports.

Putin, however, seems unable to stop the U.S. fracking revolution. The recent plunge in the price of oil, resulting from increased supply, has done more to undermine Russia's aggressive stance in the world than all the economic sanctions combined. According to Amy Jaffe, executive director of energy and sustainability at the University of California, Davis, "No one knows better that this is bad news for Russia than the Saudis."

That is one key reason, says Jaffe, why the Saudis have apparently decided to sell into the energy bear market, rather than trying to fight it by cutting supply. For Saudi Arabia, the world's largest oil-exporting nation, an economically weakened Russia is welcome news, given Russian support of Iran and Syria.  Oil rebounded late last week to $83 a barrel from $80, but geopolitical developments could push it to $75, as a Barron's cover story predicted earlier this year ("Here Comes $75 Oil," March 31).

Our story focused on the gradual shift of demand and supply that could weigh on the oil price long-term. As the chart shows, the price trended upward in the months immediately following publication, reflecting a widening of the "terror premium" as global turmoil stoked fears that supplies might be cut off from parts of the world. While that is always a risk, the current bear market seems likely to persist. Much of the recent plunge in oil coincided with a selloff in the stock market, causing a tendency to confuse the lower oil price with fears of an economic slowdown. But while declining demand in Europe might have helped trigger the oil-price decline, the main drivers still are the underlying fundamentals that specifically apply to oil. Far from signaling a weakening U.S. economy, lower oil prices can only contribute to the domestic expansion.

Will a $75 oil price hurt frackers' profits enough to curtail production, as Putin hopes? In a detailed analysis released late last week, Citigroup's global head of commodity research, Edward Morse, estimates that "to take out enough new production to flatten production growth might require prices in the $50 range." A $75 price "may only be a soft floor."

Based on the updated Commitments of Traders report released Friday afternoon, Steve Briese, publisher and writer of the Bullish Review of Commodity Insiders newsletter, finds that trend-following hedge funds have been "a prime factor in the oil-price plunge." These funds have been liquidating their huge long position, and if they keep liquidating the position they still hold, the selling pressure could be "enough to push the price below $70."

According to Jaffe, the Saudis at one point tried to get cooperation from the Russians to back off in the Middle East in return for support of the oil price. But, she says, "the Russians believed their own nonsense about peak oil" -- the myth exposed in the Barron's story that global oil production has permanently leveled off -- and snubbed the offer. Putin might regret that decision, especially if oil falls even further.

From Nick Timiraos, WSJ:  As long as oil prices remain at or above $80 a barrel, production is profitable for all but 4% of U.S. wells, according to the International Energy Agency. Analysts generally agree that production would slow only if prices fell below $75 a barrel.

“Right now, it’s full steam ahead,” said Martin Craighead, chief executive of Baker Hughes Inc., an oil-field-services company, in an earnings call earlier this month. “If we are sitting at $75 come the holiday season…then certainly I think the conversations with the customers will be different.”

In Midland, Texas, developers scrapped plans last month to build a 53-story tower downtown after signing a purchase deal with the major oil town for the land in March 2013. Firms like Ford Steel, a maker of drilling parts for the oil industry in Porter, Texas, are also anxiously watching prices. The company, which employs 75, added 15 new positions this summer, but plans to add a second shift early next year are now on hold. “We’re going to hold off on that until we figure out what’s going to happen” to customer demand, said Katherine Jeffries, a management representative.

Meanwhile, transportation companies, farmers and manufacturers enjoy better profit margins as their costs fall. Fuel price reductions are “a huge opportunity going forward,” Delta Air Lines Inc. Chief Executive Richard Anderson told investors earlier this month. The drop in prices has resulted in $1 billion in lower costs for the airline over the past few weeks, he said. Of course, the biggest beneficiaries of lower prices are American consumers. A rule of thumb holds that every one-cent drop in energy prices is worth $1 billion in annual household consumption nationwide.

Tuesday  28 October  2014 / Hour 1, Block C: Edward Lazear, Hoover & Stanford B School, in re: Government Forecasters Might as Well Use a Ouija Board   (LK:  Keynesian and monetarist models both haven’t worked.  . . .   Consensus of blue-chip forecasters also not a predictor; only the S&P500 works a bit better.)(Supplemental Nutritional Assistance – SNAP – claimed it'd cost $40 mil;  in fact, was over $80 mil. That's a 100% discrepancy. Imagine the same level of error on Obamacare.  The CBO is one of the better agencies in doing work that tries to be pretty much down the middle, but all Federal agencies are inherently political.  Look at CBO forecasts relative to the Administration's forecast: the latter tend to be higher by .7% - off by one-fourth; in the Obama Adm, even more.)   If you always assume that GDP growth will be 3.1%, you’ll be more accurate than federal number-crunchers. Government economic forecasts receive a great deal of attention and are used to make a case for or against legislation or public policies. How good are the forecasts? The answer: not very. Forecasting is an inexact science at best, and the trust that Congress and the public invest in these estimates is not warranted.

The Congressional Budget Office and a group simply known as “Troika”—the administration’s Council of Economic Advisers, Office of Management and Budget and Treasury Department—put out annual economic forecasts. As chairman of the Council of Economic Advisers from 2006-09, I headed Troika. The agencies are staffed by capable and cautious career economists who do not claim that their forecasts are accurate, only that they are unbiased. Unfortunately, these caveats often fall on deaf ears.

The CBO and administration (through Troika) put out annual forecasts on economic variables including the gross domestic product, unemployment rates, inflation and interest rates. Real GDP growth is perhaps most important for a variety of reasons, not the least of which is estimating how economic growth will affect government revenues and program costs. Yet the forecasting error by CBO and the administration is very large.

My analysis of 1999-2013 reveals that the CBO’s real GDP growth forecasts for the next year were off, on average, by 1.7 percentage points, either too high or low. Administration forecasts were similarly off by a slightly larger 1.8 percentage points on average, also to high or too low. Given that the average growth rate during this period was only 2.1%, errors of this magnitude are substantial.

Perhaps most damning: History is a better predictor of annual growth than government forecasts. Simply assuming that GDP growth will be 3.1% in each year—the average annual rate for the 30 years that precede the study period—results in an average forecast error of 1.5 percentage points.

Troika is associated with a presidential administration while the CBO is generally regarded as a nonpartisan agency that serves Congress. The CBO estimates might be the least political; and although the CBO and Troika do not differ much in their average forecast error, administration forecasts over the entire period studied tend to be higher by 0.7 percentage points than those of the CBO.

The CBO is also charged with estimating the costs of proposed legislation. As with GDP, and despite its professionalism, . . . [more]  . . . Forecasting is inherently difficult and almost always inaccurate. When basing decisions on forecasts, even those issued by government agencies, it is important to remember that there may be less than meets the eye.

Mr. Lazear, who was chairman of the President’s Council of Economic Advisers from 2006-09, is a professor at Stanford University’s Graduate School of Business and a Hoover Institution fellow.

Tuesday  28 October  2014 / Hour 1, Block D: Gregory Zuckerman, WSJ & author, The Greatest Trade Ever, & The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters, in re: Thanks to shale, US net petroleum imports fell below 28% this year (Jan-Sept) for the first time since 1985.  . . .  North Dakota, South Dakota, Nebraska, Colorado:  the low price of oil puts some pressure on frackers,  - US produces 9 mil Bbl per day, up from 5 mil a few years ago.  Harold Hamm is always bullish. If prices go to $60 Bbl, North Dakota will be hurt [first? most?] – but we'll all benefit at the pump.  About Mitchell: the whole scene of the boo is stubborn, hardworking American entrepreneurs/wildcatters: set out to prove Exxon, BP, all the big guys, wrong.  Technology and energy are booming in the US, but technology doesn’t creat very many jobs, Energy could bring in 2 million jobs.  Unless you bet that China is in a slowdown mode, we probably won't get below $60 Bbl. 

Hour Two

Tuesday  28 October  2014 / Hour 2, Block A:  Stephen F. Cohen, NYU & Princeton professor Emeritus; author: Soviet Fates and Lost Alternatives: From Stalinism to the New Cold War, & The Victims Return: Survivors of the Gulag after Stalin; in re: West’s speculations about victory of pro-West forces in Ukraine are dangerous — diplomat.

Tuesday  28 October  2014 / Hour 2, Block B: Stephen F. Cohen, NYU & Princeton professor Emeritus (2 of 4): Poroshenko, Barroso, discuss prospects for providing financial assistance to Ukraine . The Ukrainian president, Petro Poroshenko, on Tuesday discussed prospects for providing macro-financial assistance to Ukraine in his talk with European Commission President Jose Manuel Barroso.

“The EC president said once again that till the yearend the EU is ready to render €760 million from the first and second packages of macro-financial assistance and continue support for Ukraine in its dialogue with international financial organizations,” the presidential press service said.

“He [European Commission president] stressed the importance of financial transparency. He also called for adopting a law on an audit chamber,” the press service said. During the talks, Poroshenko and Barroso discussed cooperation in the energy sector ahead of the regular round of tripartite gas talks due to be held in Brussels on October 29. Barroso expressed hope that a new coalition in Ukraine’s Verkhovna Rada (parliament) would be pro-European and start reforms at once.  Poroshenko invited Barroso to visit Ukraine.

Tuesday  28 October  2014 / Hour 2, Block C: Stephen F. Cohen, NYU & Princeton professor Emeritus (3 of 4): Yevgeny Primakov: the aim of anti-Russian economic sanctions is to weaken Russia  The former head of government is convinced that the US’ goal is a color revolution in Russia

Tuesday  28 October  2014 / Hour 2, Block D: Stephen F. Cohen, NYU & Princeton professor Emeritus (4 of 4): Russia denies allegations that U.S. embassy staff in Moscow is harassed  The Russian Foreign Ministry said it believed the allegations could have been cooked up at the suggestion of the U.S. State Department

Hour Three

Tuesday  28 October  2014 / Hour 3, Block A: Andrew C. McCarthy National Review Online ..., in re: The Lone-Wolf Canard

Tuesday  28 October  2014 / Hour 3, Block B: John Avlon, CNN, The Daily Beast,  and Newsweek International, in re:  The Secret GOP Swing State Election Romp  Forget about the battle for control of the Senate and ugly congressional fights—the real story this cycle is a handful of moderate Republican governors cruising to reelection.

Tuesday  28 October  2014 / Hour 3, Block C:   Anna Nemtsova, Daily Beast, in re: Ukraine’s Battle of the Billionaires
 
Oligarchs aren’t the only candidates as Ukraine votes Sunday for a new parliament, but they do set the tone. An exclusive interview with one of the most controversial. Also:
 Ukraine Rebels Love Russia, Hate Gays
 
There’s a lot the rebel parliament of Luhansk can’t decide, like their form of government. But jailing gays? That passes with a show of hands.
  . . . Should Luhansk aim to be a Western democracy? A Communist republic? A monarchy?

Failing to decide such key questions, the council opted for a law everyone in the smoking room seemed to agree on: punishment of homosexuals. They voted to imprison people convicted of being gay for two years and six months. And they voted the death penalty, no question about that, for the rape of a minor whether of the same or opposite sex. The law did not stipulate execution for homosexuals, as some media reported. But the question of how it will be interpreted, like so much else in Luhansk, remains an open question.

Tuesday  28 October  2014 / Hour 3, Block D: Anna Nemtsova, Daily Beast, in re: Ukraine’s Wild and Wooly Elections

The vote on Sunday could take Ukraine toward a modern functioning democracy or plunge it back into a cesspool of corruption. Right now it’s anybody’s call.
  Ukraine Forgets About Its Soldiers
 
As elections approach on Sunday, so do protests about the government’s neglect of soldiers on the front line.

Hour Four

Tuesday  28 October  2014 / Hour 4, Block A:  Carson Bruno, Hoover, in re: The California Conundrum  Jerry Brown is going to win on November 4, that we know. Based on the Hoover Institution’s recently released October 2014 Golden State Poll (see here for more details), Brown has a 17 point advantage over his Republican challenger, Businessman Neel Kashkari, among self-reported registered voters, just a few points better than the margin by which Brown beat Republican Meg Whitman in 2010 (using the two-party vote share). This should come as no surprise to anyone. Brown’s campaign war-chest is over 23 times the size of Neel Kashkari’s and Brown has enjoyed approval ratings above 50% since the winter of 2013. Moreover, while turnout will likely be down, the partisan breakdown of the November electorate will likely be in line with 2010.

But Brown can’t credit a so-called “California comeback” for his pending victory. Indeed, any sort of true economic comeback remains elusive. As of September 2014, California’s unemployment rate is 1.4 points above the national rate and has the distinction of being . . .

Tuesday  28 October  2014 / Hour 4, Block B: John Cloud, Bloomberg Businessweek, in re: THE BULLETTPROOF CLASSROOM  A businessman and father, George Tunis III, read about Sandy Hook with horror. He vowed to help prevent future schoolhouse tragedies like it.  Tunis’s company, Hardwire, was one of the principal contractors armoring vehicles and friendly buildings during the Iraq and Afghanistan wars. Tunis came up with the idea of handheld, 4 lb. white boards strong enough to stop a shotgun blast from a foot away . According to the Department of Education, the U.S. now has a pool of more than $95 million in grants intended to help states develop emergency-operation plans. The money has helped spur the emergence of a range of new products that purport to help schools defend themselves against mass shootings. John Cloud examines the era of the armored school.

Tuesday  28 October  2014 / Hour 4, Block C: Matthew Kaminski
, in re:  A Millennium of Jews in Poland  Capturing a ‘desperately complicated’ history in a new museum, one that is also a warning to Europe. The translucent green building lights up the working-class neighborhood of Muranów. Its glass exterior reflects the trees from a park and shabby Communist-era apartment blocks nearby. A memorial to the 1943 Warsaw Ghetto Uprising stands outside. The architectural boldness of the Museum of the History of Polish Jews is matched by its intentions.  The opening of the museum’s core exhibition on Tuesday, coming 10 days ahead of the 25th anniversary of the fall of the Berlin Wall, is a fitting tribute to the possibilities of freedom in Europe.

What is most remarkable is that this institution ever came to be. To utter the phrase “Polish-Jewish relations” is a provocation. Poland is the world’s largest Jewish graveyard. Before Hitler perpetrated the Holocaust mostly on its soil, for half a millennium Poland was Europe’s largest Jewish sanctuary. Four in five American Jews and nine in 14 world-wide trace their roots back to Poland. Everything else is debatable, and these debates inevitably bring out the passions and misunderstandings of the worst family quarrels.  This past is intimate, hard and long. After the war, Catholic Poles stood accused of collective racism, passively standing by to Hitler’s genocide—“every Pole sucked anti-Semitism with his mother’s milk,” as former Israeli Prime Minister Yitzhak Shamir put it. Poles, in their turn, were defensive about the reality of anti-Semitism in their country and clumsy or ill-informed about the other reality of centuries of coexistence with Jews. It was the Poles alone who armed the Jewish underground during the war and did more than any other nation in Europe to try to save European Jewry. Historian Marci Shore calls it all “desperately complicated.”  The Cold War made an honest conversation impossible. Its end opened the gates.  . . .

Tuesday  28 October  2014 / Hour 4, Block D:   Robert Zimmerman, behindtheblack.com, in re: Antares launch failure  Immediately after lifting off from the launchpad this evening, Orbital Sciences’ Antares rocket exploded, falling back onto the launchpad.

We will have to wait for more details, but regardless this is bad news for Orbital Sciences. The bidding for the second round of cargo contracts to ISS is about to begin, and they will have competition from Sierra Nevada’s Dream Chaser. This accident will hurt them.  Third launch for China in a week  The competition heats up: China today launched its third spacecraft in a week with the launch Monday of a military satellite.

Monday’s mission was the third Chinese space launch in a week, coming after the Oct. 20 liftoff of the Chinese military’s Yaogan 22 reconnaissance satellite and the Oct. 23 launch of a demonstrator probe on a looping flight around the moon and back to Earth to verify technologies for use on a planned mission to retrieve and return lunar samples. Overall, the launch of Shijian 11-08 marked the ninth Chinese space launch of 2014.