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Week in Review

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07/23/2016

For the week 7/18-7/22

[Posted 11:30 PM ET, Friday]

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Edition 902

*Another Friday night, and another excuse to pull out the adage ‘wait 24 hours.’  We don’t as yet know why the German-Iranian gunman in Munich killed nine and then himself.  We also should have learned by now that when police initially say they are looking for multiple shooters, it’s often just one.  [It’s not the police’ fault...it’s the witnesses.]

But as you’ll see below, the killer in Nice, who was thought to be a lone wolf, clearly wasn’t upon further review and had been radicalized over a year ago.

And so it was that last Friday, I was posting as the attempted coup in Turkey was underway, though we were hours from learning if it had been beaten back.  But I took a stab at what would happen next.

“As for this coup attempt, it is a symptom of far more serious problems as Turkey slides into what Erdogan would like to see, an Islamist theocracy, a dictatorship.  We’ve been seeing Turks’ freedoms consistently taken away the past few years and if the coup is crushed, it will only get worse.  I do not see him reforming.”

Not bad, in hindsight.  Erdogan is on a roll...as in he’s rolling everyone up.

But first, I start off with events in Cleveland.  Kudos to the Cleveland police and the men and women from forces around the country that heeded the call to lend assistance.  We now wish the authorities well in Philadelphia this coming week.

Just know as you read my comments and those of others that I will provide equal time to the Democrats next Week in Review after their shindig.

The Republican National Convention

I will be surprised if Donald Trump gets the traditional 5% bounce after this week’s festivities.  Let’s just say I was underwhelmed.  Yeah, I liked the Trump kids, but what does that say about the party? 

I thought Ted Cruz was a classless jerk, but then I’ve been writing that since day one.

And as for The Donald, what was he doing today going right back after Cruz?!  That was idiotic.

This is going to be an unreal 3 ½ months.  I just hope the two sides at least give us all some time off in August.

Dan Balz / Washington Post

“There were no echoes of Ronald Reagan’s ‘Morning in America,’ George H.W. Bush’s ‘kinder and gentler nation’ or even George W. Bush’s compassionate conservatism in Donald Trump’s speech accepting the Republican presidential nomination here Thursday night.  Instead, in both theme and target audience, Trump offered a powerful echo of Richard Nixon almost 50 years ago.

“Trump’s speech proved once again that he would continue to throw out the traditional campaign rulebook that might dictate softer language and broader appeals.  Instead, he offered his grim portrait of the country and a law-and-order message in the hope of summoning an army of disaffected and forgotten voters large enough to topple the political status quo in November....

“In Nixon’s time, it was a call for the ‘Silent Majority’ to rise up and take back the country.  Trump spoke to the ‘forgotten men and women’ who he said no longer have a voice in a rigged political system run by ‘censors’ and ‘cynics.’....

“Trump proved during the primaries that there is a sizable audience for his harsh critique of the status quo and receptivity to a candidate who pledges strength and firmness above all else.  That was enough to win the nomination.  His Thursday night speech significantly raised the volume on that message.

“From here there is no turning back.  He has set his course, controversial as it might be.”

Michael Goodwin / New York Post

“Donald Trump needed to give the speech of his life – he did that, and much more. He laid out an inspiring American Manifesto for our troubled times.

“And he did it his way.

“Not surprisingly, from start to finish, it is muscular and bold, leavened only by appeals to racial harmony and pledges of compassion for all.  It offers a prominent nod to Bernie Sanders’ supporters in a bid to get some to jump the Democratic ship.

“Most important, it keeps faith with his campaign themes of putting forgotten Americans first.  In contrasting his view with his opponent’s, the Republican nominee put it this way: ‘Americanism, not globalism, will be our credo.’

“And ‘I am your voice.’....

“The stirring speech saved what had been a mediocre convention, with sloppy mistakes leading to distracting controversies and fueling fears that Trump and his team still are not ready for prime time.  Delegates were not so much divided as dispirited over the prospect that the party would once again lose a very winnable race.

“Especially with the well-oiled and well-funded Clinton machine revving up its engines with attack ads and with her message amplified by the left-wing media echo chamber, Trumpsters suddenly faced an enthusiasm gap. Rows of empty seats in the Quicken Loans Arena seemed symbolic of sagging hopes.”

Editorial / Washington Post

“These are anxious times in America.  Despite a steadily, if slowly, growing economy and the absence of a major war, people remain troubled by a sense of national underperformance and myriad social ills, most recently the surge in racially tinged fatal shootings committed by law enforcement officers and against them.  A new Gallup poll reports that only 17 percent of Americans feel satisfied with the way things are going, the lowest percentage since October 2013 – and down 12 points in just the past month.

“For many, of course, a cause of concern is Donald Trump, who accepted the Republican presidential nomination Thursday evening.  Belligerent and erratic, Mr. Trump nevertheless has a serious chance to win in November.  In his acceptance speech, he sought to enhance his political prospects the only way he knows how: by inflaming public angst, so as to exploit it.

“Mr. Trump took real challenges and recast them in terms that were not only exaggerated but also apocalyptic.  ‘The attacks on our police, and the terrorism in our cities, threaten our very way of life,’ he claimed.  Though he addressed issues ranging from public safety, to immigration, to trade, Mr. Trump’s proposed solutions all shared a common premise: the way to overcome difficulty is through force.  To American companies that exercise their right to move production abroad, the Trump administration will administer unspecified ‘consequences.’....

“Mr. Trump began his speech by presenting himself as the bearer of painful but necessary truth.  And no doubt, for many of his listeners, his words expressed a deeply felt emotional reality. There is real fear in the land; real pain. But it will take real leadership, not the wishful, demagogic brand Mr. Trump embodied Thursday night, to address this.”

Editorial / New York Post

“Donald Trump had a big job to do Thursday night, but of course big jobs are what he does for a living – so it’s really no surprise that he got it done...beautifully.

“The Republican nominee needed to not just act presidential, but be presidential – while still being himself.

“He needed to keep every ounce of New York toughness and roughness he’d shown in the campaign to date, while also showing sensitivity and a sincere commitment to making life better for all Americans.

“He needed to show a coherent policy vision recognizably his, that spoke to ‘his’ voters, regular Republicans and all Americans.

“And he did it in a speech characteristically Trump – wandering and emphatic, hard-hitting and a little chatty; blending policy and principle, anecdote and attack line, while speaking from the heart.”

Edward Luce / Financial Times

“If elections are won on a message of hope, Donald Trump may have been ill-advised.  His acceptance speech was not only the longest on record for a U.S. presidential nominee.  It was by far the darkest.

“By comparison, Richard Nixon’s famously gloomy 1968 address, which apparently inspired Mr. Trump’s Cleveland speech, reads like a Disneyland brochure. The basis of Mr. Trump’s message was a choice between a dystopian future of ‘poverty and violence’ under Hillary Clinton, or a new age of ‘Americanism’ that would put an end to the destructive forces of ‘globalism.’  Only Mr. Trump could arrest America’s disintegration.  Only he could free it from the stranglehold of special interests.  ‘The system is rigged,’ said Mr. Trump.  ‘I alone can fix it.’

“Mr. Trump’s message is unlikely to send voters skipping to the polling booths.  Yet it may just stir enough fear to make up for its missing hope....

“Mr. Trump depicts Mrs. Clinton as a criminal.  It is clear that most of his party agrees.  ‘Hillary for prison 2016,’ was among the best-selling memorabilia in Cleveland.

“Mrs. Clinton views Mr. Trump as ‘temperamentally unfit to hold office.’  That is a mild description of what most Democrats think of him.  This will be a scorched earth election.  It is hard to see how either side could live with the other’s victory.  We will know Mrs. Clinton’s battle plan soon enough....

“Mr. Trump...has taken his party into uncharted territory....The party no longer has room for Reagan’s ‘morning in America.’  It has committed itself to the evening.”

Editorial / Wall Street Journal

“(Trump) is disrupting one political norm after another, which is the source of his appeal as an agent of change.  But the uncertainty he creates along the way is also the largest obstacle he must now overcome.

“Voters tend to prefer more self-discipline, policy knowledge and predictability in their potential Presidents, or at least a better idea of what they would do in office.  Could 2016 be the year they break with tradition and decide that Mr. Trump is a risk worth taking if he will topple the political and economic status quo? Aside from elegant and classy, as the candidate might describe it, what would a Trump Presidency be like?

“Mr. Trump has an opening because of poor, arrogant governance in Washington and a decade of slow economic growth.  Some 69% of Americans believe the country is on the wrong track in the Real Clear Politics average, and only 23% say the right track.  Such pessimism hasn’t been seen since the 1970s.

“This week the White House revised its growth projections down to 1.9% for this year and 2.5% in 2017.  GDP numbers can seem like abstractions, but in human terms the difference between a 3%-4% economy and the 1%-2% trend of the last decade is millions of citizens denied the opportunity to fulfill their potential.

“The optimistic interpretation of Mr. Trump’s rise is that Americans won’t accept decline as the new normal.  People who are satisfied with the status quo, and believe the Obama economy is the best this nation can do, have a champion in Hillary Clinton. But for those who want the next four years to be better than the past eight, ‘make America great again’ is a patriotic demand for change and U.S. revival.  A more traditional Republican would thus be offering a larger narrative of why Clinton-Obama policies aren’t working and how his agenda and vision would improve the future.

“But that’s not Trump’s M.O.  From his business pursuits to politics, he has always appealed to the brain’s right hemisphere that governs emotion and intuition, not analysis.  As he tells it, stagnation is the result of the stupidity and weakness of U.S. leaders, whose main failing seems to be that they are not Mr. Trump.

“His politics are fundamentally personal, and not merely in the sense that he is compelled to make himself the center of attention.  The businessman’s convictions on public matters are elusive; he is an unreliable guide to his own program, which can change from day to day; and to the extent he has a guiding ideology it is an invincible conviction in his own instincts, business ability and understanding of human nature....

“Mr. Trump also knows remarkably little about most policy questions, and he does not sweat the details.  This means he’d be more dependent on his advisers than most Presidents, if he’s willing to listen to them.   His Administration would probably be as improvisational and disorganized as his campaign....

“A candidate with so many question marks would normally be expected to lose, but then he isn’t running against George Washington or even Bill Clinton. The alternative is Barack Obama’s third term led by Hillary Clinton.  No wonder polling suggests that most of Mr. Trump’s support is composed of opposition to Mrs. Clinton, and most of hers opposition to him.  Both parties have nominated historically unpopular candidates who would lose to a generic opponent.  While Mr. Trump’s Presidency would be polarizing, so would Mrs. Clinton’s.

“Mr. Trump could win if he persuades voters to trust him as much as he trusts himself, and projects an air of competence and confidence.  Or he could implode, and take the GOP’s Senate majority and even the House down with him.  That’s the nature of his unconventional and unpredictable candidacy.”

More on the convention below in “random musings.”

Turkey: The coup was crushed but not before hundreds died in a spasm of violence.  Immediately after, President Erdogan blamed a U.S.-based Muslim cleric, Fethullah Gulen, for being behind the coup.  Gulen denied any involvement.

Erdogan then set about settling scores and in a wide-ranging crackdown, 24,000 teachers and Interior Ministry employees were fired, with Erdogan demanding 1,577 university deans resign.

The Directorate of Religious Affairs sacked 492, including clerics, religious leaders, and preachers.

9,000 security personnel, judges, and prosecutors were rounded up.

6,000 soldiers arrested.  9,000 police purged.  1,500 in the Finance Ministry were fired.

At least 85 generals and admirals were ordered jailed, including the former Air Force commander and the General who oversaw Turkey’s key 2nd Army.

It is thought about 10,000 remain in jail today, with 1,000 in the military on the run.

In the old days, secularists ran the state and the military, which intervened from time to time to cut any religious conservative majority down to size when it gained too much power at the ballot box.

But Erdogan has been promising to create “pious generations,” reversing the mission of Turkey’s founder, Mustafa Kemal Ataturk, to secularize the country.  He has dramatically increased the number of religious schools and expanded religious education in the secondary schools, but he has always denied he wants to create an Islamic republic.

Last Friday night was the military’s first attempt to seize power in 40 years.

That much of the country, including the opposition, stood against a coup as a violation of democracy, raised hopes Erdogan would seize the moment to find peace with his opponents and unite the country, but what seemed clear was that it was instead a triumph of political Islam.

Erdogan barely escaped the hotel where he was vacationing, allowing him to deploy Turkey’s vast network of mosques and state-appointed imams, with the government-run Presidency of Religious Affairs issuing nonstop calls to prayer known as sela to rally people onto the streets.

As for Gulen, he was once an ally of Mr. Erdogan and helped the Turkish leader consolidate power in the early years of his rule. Gulen advocates an interpretation of Islam that stresses religious coexistence.  His detractors accuse him of seeking power by installing and recruiting followers throughout Turkey’s institutions.

Gulen has lived in the U.S. since 1999, when he left Turkey under threat of prosecution during a clampdown on Islamists.  Gulen and Erdogan then had a fallout after Gulen challenged Erdogan’s tightening grip on power in 2013.

Law enforcement and judicial officials loyal to Gulen back then launched an anti-corruption drive against people close to Erdogan, including targeting one of his sons.  But in early 2014, Erdogan struck back, purging thousands of police officials, prosecutors and judges suspected to be Gulenists.

In a rare interview from his compound in Pennsylvania’s Pocono Mountains, Gulen told the Financial Times last Saturday: “I don’t believe that the world takes the accusations made by President Erdogan [against me] seriously.  There is a possibility that it could be a staged coup [by Mr. Erdogan’s AKP] and it could be meant for further accusations” against Gulenists.

Erdogan has demanded the United States extradite Gulen, and he has repeatedly called on Turks to stay in the streets in the fight against the “terrorist” followers of the spiritual leader whom he accuses of forming a secretive “parallel state” in Turkey.

Wednesday, a ‘confession’ by a former top military aide appeared in publications including the pro-government daily Sabah and the independent daily Hurriyet, delivering some stunning revelations.

Lt. Col. Levent Turkkan, a Gulen supporter since he attended military academy, said he had planted listening devices on behalf of the Gulen organization in the office of the former chief of staff, Gen. Nedcet Ozel, who held his post from 2011 to 2015.

Turkkan said he would exchange the device daily and then hand it over to a Gulen backer working for the Turkish telecommunications authority.

“Yes, I am a member of the parallel establishment. I am from the Gulen community.”

President Obama said Friday there is a process and the U.S. is awaiting evidence from Turkey against Gulen before it would act on an extradition request.

Erdogan faced growing EU criticism over his “unacceptable” crackdown and on Thursday his government declared a three-month state of emergency, Turkey’s first since 2002, strengthening powers to round up suspects behind the failed coup, as opposition parties and rights groups fear the emergency powers will further curb freedom of speech and assembly.

The opposition Peoples’ Democratic Party (HDP) said: “The road to arbitrary rule, unlawful behavior, feeding on violence, has been chosen.  Society has been forced to choose between a coup or an undemocratic government.”

Erdogan pointed out that France also declared an emergency in the wake of a series of terrorist attacks and that democracy would “not be compromised.”

Deputy Prime Minister Kurtulmus said there would be no curfews and that: “We want to end the state of emergency as soon as possible. This is not a declaration of martial law.”

In a joint statement from EU foreign affairs chief Federica Mogherini and enlargement commissioner Johannes Hahn, the EU urged Turkey “to respect under any circumstances the rule of law, human rights and fundamental freedoms.”

They slammed as “unacceptable” the mass sacking or suspension of tens of thousands of people in the education system, judiciary and the media.

The White House warned Ankara that the international community “will be watching” as it took the decision to declare the state of emergency.

Erdogan promises to restructure the armed forces in order to prevent another coup attempt, signaling a major overhaul.  “We cannot afford to be complacent,” he said, and the military would have “new blood” soon.  [Islamist blood, mused the editor.]

German Foreign Minister Frank-Walter Steinmeier warned the government against extending the state of emergency beyond three months, which Erdogan said he could do, with Steinmeier saying this “would exacerbate tensions inside Turkey.”

Separately, a number of coup plotters fled to Greece and while Greece has an extradition treaty with Turkey, if Turkey now adopts the death penalty, as Erdogan wants, this complicates matters, because the EU, of which Greece is a member, does not have it.

Erdogan has said July 15 would in the future be marked as the “Remembrance Day of the Martyrs.”

The last death toll was 24 plotters, and 241 citizens and members of the security forces.

At week’s end, the government continues to denounce Fethullah Gulen.

As to why Turkey’s military is important, as a NATO member it has a been a key partner in U.S.-led efforts to defeat the Islamic State and has allowed American jets to use its Incirlik air base to fly missions against ISIL. 

Editorial / The Economist

“Much is unknown about the attempted military coup in Turkey on the night of July 15th. Why was it botched so badly?  How far up the ranks did the conspiracy reach?  Were the putschists old-style secularists, as their initial communique suggested; or were they followers of an exiled Islamist cleric, Fethullah Gulen, as the government claims?

“But two things are clear. First, the people of Turkey showed great bravery in coming out onto the streets to confront the soldiers; hundreds died.  Opposition parties, no matter how much they may despise President Recep Tayyip Erdogan, united to denounce the assault on democracy.  Better the flawed, Islamist-tinged strongman than the return of the generals for the fifth time since the 1960s.

“The second, more alarming conclusion is that Mr. Erdogan is fast destroying the very democracy that the people defended with their lives. He has declared a state of emergency that will last at least three months.  About 6,000 soldiers have been arrested; thousands more policemen, prosecutors and judges have been sacked or suspended.  So have academics, teachers and civil servants, though there is little sign they have anything to do with the coup.  Secularists, Kurds and other minorities feel intimidated by Mr. Erdogan’s loyalists on the streets.

“The purge is so deep and so wide – affecting at least 60,000 people – that some compare it to America’s disastrous de-Baathification of Iraq.  It goes far beyond the need to preserve the security of the state.  Mr. Erdogan conflates dissent with treachery; he is staging his own coup against Turkish pluralism.  Unrestrained, he will lead his country to more conflict and chaos.  And that, in turn, poses a serious danger to Turkey’s neighbors, to Europe and to the West.

“The failed putsch may well become the third shock to Europe’s post-1989 order.  Russia’s annexation of Crimea and invasion of eastern Ukraine in 2014 destroyed the idea that Europe’s borders were fixed and that the cold war was over.  The Brexit referendum last month shattered the notion of ineluctable integration in the European Union.  Now the coup attempt in Turkey, and the reaction to it, raise troubling questions about the irreversibility of democracy within the Western world – which Turkey, though on its fringe, once seemed destined to join....

“Mr. Erdogan has become ever more autocratic. His regime has jailed journalists, eviscerated the army and cowed the judiciary, all in the name of rooting out the ‘parallel state’ Mr. Erdogan claims the Gulenists have built.  As a cheerleader for the overthrow of Syria’s president, Bashar al-Assad, he turned a blind eye to the passage of jihadists through Turkey. Mr. Erdogan wants a new constitution to allow himself to become an executive president, though he hardly lacks power.  He has abandoned all caution to achieve it, not least by letting peace talks with the Kurds break down.  Turkey now faces a double insurgency: by the Kurds and the jihadists....

“The repercussions of the putsch will be felt for a long time. The coup-makers killed many fellow Turks, discredited the army, weakened its ability to protect the frontier and fight terrorists, rattled NATO and removed the restraints on an autocratic president.  A terrible toll for a night of power-lust.”

Editorial / Washington Post

“Turkish President Recep Tayyip Erdogan has responded to a failed military coup with what amounts to a political coup of his own.  Since last weekend, tens of thousands of Turks have been arrested or fired from their jobs: not just military officers involved in the rebellion but also teachers, university professors, judges and thousands of other civil servants.  A state of emergency has been declared; hundreds of schools have been closed; dozens of journalists have had their credentials revoked.  According to Turks monitoring the purge, those targeted include not just supporters of the exiled Islamic leader Mr. Erdogan blames for the coup, but also anyone suspected of not supporting his government, including members of minority groups and secular liberals.

“Mr. Erdogan, who called the failed putsch a ‘gift from God,’ is not just moving to further consolidate what already had become an authoritarian regime.  He is also attempting to force the United States, Turkey’s NATO ally, to aid his crackdown – in particular by handing over the alleged mastermind, Pennsylvania-based cleric Fethullah Gulen.  The Obama administration is rightly resisting – and it must continue to do so even if it means a breach in cooperating with Turkey against the Islamic State.

“Mr. Gulen leads a peaceful, if secretive, Islamic movement that operates schools in Turkey, the United States and other parts of the world.  For years, his followers in the Turkish police and judiciary were allied with Mr. Erdogan’s own Islamist party – ironically, the two combined to purge the Turkish military of officers suspected of coup-plotting.  But the two leaders fell out in late 2013, when the government moved to close some Gulenist schools and prosecutors suspected of Gulenist sympathies brought major corruption cases against the government.

“Mr. Erdogan has since carried out purges of the police, judiciary and press to eliminate Mr. Gulen’s followers, and it is not surprising he would blame the coup attempt on his rival.  What he has not offered is evidence that a 75-year-old man confined to a remote compound in the Poconos somehow orchestrated a military uprising across Turkey.  Remarkably, Mr. Erdogan’s foreign minister, Mevlut Cavusoglu, told The Post on Tuesday that there was no need for proof.  ‘They should understand, they don’t need any evidence,’ Mr. Cavusoglu said of the Obama administration.

“Actually, they do.  Though the United States has an extradition treaty with Turkey, Mr. Gulen cannot be arrested or returned to his homeland unless Turkey can convince the Justice Department, and federal courts, that he may be properly charged with a crime.”

Soner Cagaptay / Wall Street Journal

“After winning electoral victories in 2007 and 2011 on a platform of economic good governance, Mr. Erdogan turned staunchly conservative and authoritarian.

“He now regularly cracks down on freedoms of expression, assembly and association. He has shut down or taken over media outlets.  He bans access to social media, locks up journalists and sends the police to harass opposition rallies.

“Mr. Erdogan also promotes efforts to impose religion: In December 2014, Turkey’s Higher Education Council, a government-regulated body, issued a policy recommendation that mandatory courses on Sunni Islam be taught in publicly funded schools to all students, even ones as young as age 6....

“Erdogan supporters – who took to the streets to defy the coup, and who have continued to rally throughout the country since then – are not the garden-variety conservative AKP supporters, but rather Islamists, and even jihadists.  Over the weekend, pro-Erdogan mobs captured and beat soldiers who had supported the coup.  Images were reportedly posted online, in the Islamic State style, of a soldier who had been beheaded.

“Unfortunately, jihadist sentiments in Turkey have become increasingly noticeable lately, in no small part due to Mr. Erdogan’s education policy, as well as his Syrian policy, which has allowed Islamist radicals to use Turkey as a staging ground.  According to a recent poll by the Pew Research Center, 27% of Turks don’t view Islamic State unfavorably.  Mr. Erdogan can now harness these forces to usher in an Islamist revolution.

“Revolutions don’t require majorities, but rather angry and excited minorities that are willing to act violently to take power.  Following the failed coup plot, Turkish politics has not settled down....Religious fervor is running high; mosques continue to call for prayers throughout the day.  Islamists and jihadists who are angry at the military roam the streets, while most Turks of other political outlooks are scared to leave their homes.

“If Mr. Erdogan were to pump up religious fervor further, he could convert the religious counter-coup d’etat into an Islamist counter-revolution, ending Turkey’s status as a secular democracy. Adding to the temptation is the fact that the military, divided and discredited in the public eye following the failed coup, is in no position to prevent a counterrevolution.”

Brexit and Europe

Research group Markit said a flash reading of Britain’s PMI survey for the services sector – which accounts for nearly 80 percent of the economy – has dropped to 47.4 for July from 52.3 in June (50 being the dividing line between growth and contraction), a huge decline as these surveys go, a “dramatic deterioration” since the June 23 vote to leave the European Union.

A flash reading on the manufacturing sector dropped to 49.1 from 52.1 in June.

Chris Williamson, chief economist at Markit:

“July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early-2009.”

The Bank of England opted not to cut interest rates last week, deciding to hold its fire to see how the economy responded to Brexit, but data like this will have them acting to loosen policy in August.  The BoE said that while business uncertainty “had risen markedly,” there was little evidence that consumers were spending less.

Overall in the eurozone, a flash PMI reading on the services sector came in at 52.7 for July vs. 52.8 in June, while manufacturing dipped to 51.9 vs. 52.8.  Overall business activity edged down to an 18-month low and would seem to suggest an annual rate of growth for the Euro area of around 1.5%, according to Markit’s Williamson.

Germany’s flash services reading was 54.6 vs. 53.7 (June), with manufacturing at 53.7 vs. 54.5.

France reported a rebound in services to 50.3 from 49.9 in June, while manufacturing remained in contraction mode, 48.6 vs. 48.3.

Separately, European car-sales growth was 6.5% in June, year-on-year, the 34th consecutive month of gains in Europe, with first half sales up 9.1%, according to the European Automobile Manufacturers Association.  June sales in the UK, however, were down 0.8% yoy.

European Central Bank President Mario Draghi backed a public bailout of Italy’s troubled banks “in exceptional circumstances,” while holding the line on interest rates with, as he put it, Europe’s resilience in the aftermath of the Brexit vote, though Draghi also said it was too early for the ECB to fully assess the impact of the referendum on economic activity throughout the region.

A deal on the Italian banks could be reached before July 29, when new European bank stress test results are published, which promise to show Italy’s financial institutions in dire straits.  [A poor report card making it more difficult to do any kind of bailout or ‘bail in.’]

In terms of Brexit itself, French President Francois Hollande has been pushing Britain to start moving, though he’s now conceded the UK needs time to prepare for negotiations on its post-Brexit ties.  But Hollande reiterated, “the sooner, the better, in the common interests of Europe, the UK and our economies.”

On Wednesday, German Chancellor Angela Merkel said the question of Brexit could not be left “in the air,” but she supported new British leader Theresa May in her intention to set out the British position early in 2017.

The European Commission said the eurozone could suffer a 0.5 percentage point hit to GDP growth next year, as the currency area is hit by the adverse effects of Britain’s vote.

Eurobits....

--The UK did report the unemployment rate fell to a fresh 11-year low in May of 4.9%, the first time below 5% since October 2005.

--France adopted its deeply divisive labor bill Wednesday after the government used some kind of executive action to force it through Parliament without a vote.

Prime Minister Manuel Valls argued to the lower house of Parliament that the bill – which weakens union powers, makes layoffs easier and extends the work week – is necessary to create jobs and make the economy more competitive.

--France’s top antiterror prosecutor said that the man who killed 84 in Nice on Bastille Day conspired with several others in an attack planned for months, a shift in earlier reports that Mohamed Lahouaiej Bouhlel had only recently been radicalized and acted alone.

The new information came as investigators pore over computer and phone records, while five people suspected of providing support are interrogated. 

Paris Prosecutor Francois Molins provided evidence and a timeline that has the attacker and his potential accomplices embracing Islamist extremism as early as the Charlie Hebdo attack in January 2015.  [Wall Street Journal]

Yet again, another reason why you always ‘wait 24 hours.’

[At a memorial service for the Nice victims, Prime Minister Valls didn’t utter a word but still faced a chorus of jeering as he walked in front of the crowd estimated at 42,000, an example of how the mood in France has soured so, with French security clearly letting the people down in this instance.]

--And in Germany, a 17-year-old Afghan refugee, shouting “Allahu Akbar,” severely wounded four Hong Kong residents on a train while wielding an axe, before police shot him dead.

This is exactly the kind of attack that speaks directly to the migrant crisis and the unease in Germany because of its open-door policy.  The 17-year-old entered the country as an unaccompanied minor and was registered as a refugee on June 30 last year in Passau.

Washington and Wall Street

The only economic news of significance this week concerned the housing sector.  June housing starts came in better than expected, and then June existing home sales, at a 5.57 million annualized rate, were at their best levels in 9 years, 2007.  The median existing home price in the U.S. is now $247,700, up 4.8% from a year ago and a new peak.

On another issue I’ve been writing about, low pension fund returns and the impact of same, California’s largest public pension fund, CalPERS, (California Public Employees’ Retirement System), reported its rate of return for the year ended June 30 was just 0.61%.  The fund’s chief investment officer, Ted Eliopoulos, said the poor year has pushed CalPERS’ long-term returns below expected levels.

CalPERS assumes in the long term it will earn returns averaging 7.5% a year, and as James Rufus Koren of the Los Angeles Times notes: “If the fund fails to meet that goal, the state’s taxpayers could be forced to make up any shortfall in pension funding.

“Now, after two consecutive years of lackluster returns, CalPERS’ long-term averages have fallen below that crucial benchmark.  Over the past 20 years, average investment returns now stand at 7.03%.  Returns over the last 10 and 15 years now average less than 6%.”

Understand CalPERS has as good a long-term track record as any in its universe.

So with ultra-low interest rates, it’s the same situation all over the pension fund arena.  Lots of gaps to be filled.

Asia

The Wall Street Journal’s Lingling Wei and Jeremy Page report that President Xi Jinping and Premier Li Keqiang could be at serious odds with each other. For example, recently they both delivered “forceful instructions on how to reform China’s state-owned sector.  Their messages directly contradicted one another.”

Xi called for “stronger, better, bigger” state juggernauts, with a central role for the Communist Party in their management, while Li stressed the need to “slim down” state companies and to “follow market rules” in remaking them.

I wrote a few weeks ago that there have been rumblings Li may not serve out his full 10-year term and stories like the above perhaps are foretelling Li’s ouster, because it will be him, not Xi, who loses this battle, you can be sure.  [But I’ll light a candle for Li.  Xi is a scary figure, Li isn’t.]

Separately, Li told heads of major international finance and trade organizations in Beijing on Friday that the world should not pin its hopes on China being the sole engine of growth to bolster the global economy.

“China is still a developing country. We cannot shoulder the major responsibilities of the world.”

In Japan, a flash reading on manufacturing in July from Markit came in at 49.0 vs. 48.1 in June, a fifth month of contraction.

Street Bytes

--It was an uneventful week in the markets, and a welcome breather, though the major averages continued their post-Brexit rally, stretching it to four weeks, with the Dow Jones adding 0.3% to 18570, while the S&P 500 finished up 0.6% to another all-time high of 2175, and Nasdaq gained 1.4%.

I have all the pertinent earnings stories below, but this coming week is the biggest, with the likes of McDonald’s, Google, Facebook, Amazon and Apple.

--U.S. Treasury Yields

6-mo. 0.43%  2-yr. 0.70%  10-yr. 1.57%  30-yr. 2.28%

A quiet week in the bond pits, too, including in Euroland.

--Gary Friedman / Los Angeles Times:

“Premiums for Californians’ ObamaCare health coverage will rise an average of 13.2% next year – more than three times the increase of the last two years and a jump that is bound to raise debate in an election year.”

Everyone predicted this.  I’ve been disappointed there was zippo about this this week, whether at the Republican National Convention or elsewhere.  This is great fodder for us elephants.  Like, hel-loo...use it!

Friedman:

“The big hikes come after two years in which California officials had bragged that the program had helped insure hundreds of thousands of people in the state while keeping costs moderately in check....

“An analysis of 14 metro areas [around the country] that have already announced their 2017 premiums found an average jump of 11%.  The changes ranged from a decrease of 14% in Providence, R.I., to an increase of 26% in Portland, Ore., according to the analysis by the nonpartisan Kaiser Family Foundation.”

--Elon Musk sketched out his lofty and futuristic plans for Tesla Motors on Wednesday, describing an update to his “master plan” of ten years ago.  It involves Tesla expanding to make a full range of electric cars, buses and trucks, as well as a smartphone app through which Tesla owners will one day earn money by renting out their self-driving cars.

Musk, as is often the case, was very vague in the details though he said Tesla was in the “early stages of development” on heavy trucks as well as a new form of “high passenger-density urban transport,” some kind of shrunken bus as one report described it.  Perhaps an electric clown car could also be in the offing, mused your editor.

Many analysts who have now become used to Musk and his broad ideas feel he continues to spread himself too thin, especially when he should be focusing on meeting lofty production goals for the Tesla 3.

--General Motors posted its best quarter in seven years since emerging from bankruptcy, with profit doubling to $2.9 billion for the second quarter on an 11% jump in revenue.

Significantly, GM finally reported a gain in Europe, $137 million, its first in the region since 2011.  But GM warned Brexit could have an impact later this year with forecasted softening demand.

GM earned $3.6 billion in operating profit in North America.

The automaker has also been making non-traditional investments, such as a $500 million stake in ride-sharing firm Lyft Inc., and the purchase of autonomous-car developer, Cruise Automation Inc., for an estimated $700 million, as GM ramps up development of fully autonomous vehicles.

But GM also said on Thursday it may have to eventually recall an additional 4.3 million vehicles equipped with Takata air bags.

--Goldman Sachs reported earnings and revenue that handily beat expectations, but the Street was otherwise unimpressed and the shares fell, with actual revenue down 13% to $7.9 billion.

Investment banking revenue fell 11%, while fixed income, currency and commodities trading was up 20%, but stock trading fell 12%.

Goldman set aside $3.3 billion to pay its employees in the quarter, which was down 13% from a year ago.

Over the past year, Goldman shares are off about 25%.  CEO Lloyd Blankfein hasn’t been earning his paycheck.  Dick Bove, a longtime securities analyst, said Blankfein oversaw a “lost decade” by doubling down on trading and investment banking – businesses being squeezed by low interest rates and regulation.

--Morgan Stanley reported revenues fell 7% to $8.9bn in the second quarter, better than analysts’ forecast, while earnings, while down to 75 cents from 79 cents a year ago, handily beat the Street as well.

Chairman and CEO James Gorman said the market environment had improved from a very rocky first quarter but was still looking “fragile” at the start to the third quarter.

The bank’s fixed-income and commodities unit – the focus of major headcount reductions – generated net revenues of $1.3 billion, up a bit on a year ago.

--Bank of America Corp. said it would slash costs another $5 billion by 2018 to deal with persistently low interest rates that are hitting profitability.  BofA has shed about 25% of its workforce since Brian Moynihan became CEO in 2010, with employment falling to 210,000 from 284,000, and more cuts in the offing.

The bank reported a profit of $4.23 billion in the quarter, down 18% from a year earlier, with revenue falling 7% to $20.4 billion, both figures nonetheless beating expectations.

--HSBC’s head of global foreign exchange cash trading, Mark Johnson, was charged by the U.S. attorney’s office in Brooklyn, N.Y., with fraud for currency trades that allegedly profited at the expense of a corporate client.

It’s alleged that Johnson, along with an accomplice, used privileged information that led to a $3.5bn purchase of UK pounds that was “executed in a manner designed to cause the price of sterling to spike...to the benefit of HSBC and the defendants, and at the expense of the Victim Company, despite HSBC’s representations to execute the transaction in the best interests of, and to avoid adverse market impact to, the victim company,” according to prosecutors.  [Adam Samson / Financial Times]

--Shares in Microsoft had their best day in six months as its Intelligent Cloud division reported revenue of $6.7 billion in its fiscal fourth quarter, up 7% from a year earlier, which helped boost Microsoft’s overall sales to $22.6bn, an increase of 2% [adjusted for Windows 10 revenue deferrals].  Sales from its Personal Computing segment fell 4%, but this was predictable as this segment includes the failed Nokia acquisition that Microsoft is in the process of shedding.

Bottom line, CEO Satya Nadella has done a very solid job after taking over from Steve Ballmer in February 2014, with the shares up about 35% since.

--IBM reported total revenue in the second quarter dropped 2.8%, marking the company’s 17th straight quarterly revenue decline, though it wasn’t as steep as expected.  IBM’s cloud-based initiatives are gaining traction, with revenue jumping 30%, compared with 34% in the preceding quarter.  IBM beat on earnings, with net income of $2.5 billion.

--Intel reported disappointing results for the second quarter, with $7.3bn in client computing revenues, which includes PCs, falling 3% year on year, while the ‘internet of things’ (IoT) grew just 2% to $572m.  CEO Brian Krzanich said he expected the PC market’s percentage decline to be in the high single digits for the rest of the year.

Everyone is talking of cloud and IoT growth in areas like industrial applications and security video cameras that saw stronger growth.

Intel shares fell on the lackluster report.

--Qualcomm, on the other hand, reported revenues grew 4% compared with the same period a year ago, with net income 22% higher; Qualcomm reporting stronger demand for its chips that power smartphones.  The company is also apparently having more success in getting some Chinese tech companies to pony up back sales and royalties.

--Japanese telecom group SoftBank has made a $30 billion+ bid for Arm Holdings, the Cambridge, UK-based technology company.  Hermann Hauser, the founder of Arm, said it was one of the “sad and unintended consequences” of Brexit.

SoftBank said it intended to create at least 1,500 new Arm jobs in the UK in the next five years and that Arm would maintain its headquarters in Cambridge.

But the move by SoftBank is a bet on the ‘internet of things,’ Arm being a leading smartphone chip designer.

As for the impact of Brexit, Hauser said the timing of SoftBank’s move was helped by a more than 10 percent depreciation in sterling following the June 23 referendum.

--Yahoo reported a 5.2% rise in total quarterly revenue to $1.31 billion in the second quarter, but after deducting fees paid to partner websites, revenue fell to $841.2 million from $1.04 billion.  Yahoo is nearing the end of its process to auction off its core search and advertising business, with a final bidder to be announced soon, apparently Verizon at $5 billion, slightly higher than expected.

Yahoo announced a second write-down on Tumblr, a blogging site that Marissa Mayer, CEO, bought for nearly $1bn shortly after she became chief executive.  Tumblr has failed to generate revenue, with the value of the business now being written down over $700 million.

--Southwest Airlines reported disappointing earnings on Thursday, while on Wednesday, technical issues forced the delay or cancellation of up to 700 flights, which was solely its fault.

--United Airlines reported a 50% drop in net earnings as revenues declined 5.2% to $9.4 billion, with passenger revenue for the miles flown declining 6.6%, United suffering from a strong dollar.  But fuel cost nearly 32% less in the quarter than a year earlier.

Another positive is that United is, finally, nearing the completion of its 2010 merger with Continental Airlines, as if reaches tentative agreements with the last unions (like the flight attendants) that have been an outstanding issue.

United has also agreed to pay a $2.25 million fine to avoid prosecution for a bribery route provided for David Samson, the former chairman of the Port Authority of New York and New Jersey, and friend of Chris Christie, who pleaded guilty to bribery for requiring a money-losing flight twice weekly from Newark to Columbia, S.C., near his vacation home.  Talk about a dirtball.

--Schlumberger, the world’s largest oilfield services group, said the worst is over in the industry’s downturn.  CEO Paal Kibsgaard said in a statement accompanying the second quarter earnings report: “In spite of the continuing headwinds we now appear to have reached the bottom of the cycle.” [FT]

Schlumberger cut 16,000 jobs in the first half of 2016, bringing the total to about 50,000.

--The national average for regular, unleaded gasoline is $2.21 per gallon, the lowest mark for this time of year since 2004, with about 1 in 4 stations selling gas for less than $2 per gallon.

--So you know how I have been warning about foreign investments in China, such as Apple’s, and how at any moment the Chinese government can invoke nationalism to hurt foreign company sales, i.e., it’s highly risky to count on operations there being a long-term success?

With the recent ruling by an international tribune in The Hague against China, regarding maritime rights in the South China Sea, Beijing is doing just that.  One of the initial victims is KFC, with Julie Makinen of the Los Angeles Times reporting that in the city of Tangshan, “scores of protesters carrying Chinese flags unfurled a red banner outside one of the fast-food outlets. ‘Boycott the U.S., Japan, South Korea and the Philippines; love our Chinese nation,’ it declared.  ‘What you eat is American KFC; what is lost is the face of our ancestors.’

“A video that circulated on Chinese social media sites captured a protester outside the restaurant trying to persuade three young men not to go in. ‘If there is a war, every bomb the U.S. uses on us will have some share of your money,’ he chides.  ‘If you stop now, you are still Chinese. If you enter, when the U.S. and the Philippines start the war, you will all be traitors.’ The prospective customers then appear to walk away.”

--Starbucks reported quarterly sales growth that fell short of expectations, with global same-store sales up 4% in its fiscal third quarter ending June 26, well short of the 5.6% analysts expected.

The Americas region posted the same 4% growth, after rising 7% in the second quarter and 9% in the first.  CEO Howard Schultz called the U.S. café results “an anomaly,” blaming political and social unrest for a “profound weakening in consumer confidence.”

--Dunkin’ Donuts said traffic to its stores fell in the second quarter from a year ago, as McDonald’s and, to a lesser extent, Taco Bell and its $1 value menu eat into Dunkin’s customer base.  Same-store sales rose 0.5%, only because those coming in are spending more.  A year ago the figure was 2.8%.

--Chipotle Mexican Grill reported a bigger-than-expected drop in quarterly same-store sales as demand continues to be hit by a series of food-borne illnesses linked to the chain.  Comp-store sales fell a whopping 23.6%, more than expected.  It is going to be exceedingly difficult for Chipotle to win back customer loyalty.

But the shares rose 6% on Friday, for what reason I don’t know.

--General Mills Inc. announced it was cutting 1,400 jobs, which along with previously announced cuts will mark a reduction of more than 10% in the workforce since spring 2014.

In fiscal 2016, the maker of Cheerios, Haagen-Dazs and Annie’s frozen foods saw sales decline a second year in a row, down 6%.

In New Jersey, General Mills will close a facility in Vineland that makes Progresso soup – affecting 370 jobs, which is devastating for that community.

--Johnson and Johnson beat the Street’s expectations as strong sales of new prescription drugs offset lackluster performance at its consumer health business.

J&J’s share of a cancer drug, Imbruvica, which it is co-developing with AbbVie, almost doubled year-on-year to $295 million, while revenues from other recently-launched products were also strong.

U.S. sales of Remicade, J&J’s blockbuster arthritis drug, were $1.78bn vs. $1.67bn a year ago.

But the company’s consumer products division continues to struggle.  Band Aids sales are down 25% to $272m.  C’mon, parents.  If you know your kids are in their room, playing video games or Snapchatting, kick them outside and tell them to go to the field or play in the street.  Eventually they’ll need a Band Aid then and you’re helping J&J and American workers...really. 

--General Electric Co. beat the Street on earnings for the quarter, but industrial orders – a key measure of future demand for GE’s jet engines, power turbines and such – fell 16% in Q2.  The shares fell 2% in response.

CEO Jeff Immelt said the outlook for the global economy “is no better, no worse” than earlier in the year.  Revenue from the company’s oil and gas division fell 22% and Immelt said he saw no likelihood that the sector would improve in 2017.

--Southern California home prices rose 5% from a year earlier to hit $464,000 in June, according to CoreLogic.  The median price in Orange County surpassed its bubble-era high of $645,000 in May, climbing to $657,500 last month.

--Speaking of Southern California, Newport Beach being the headquarters for PIMCO, the giant money manager appointed Man Group PLC CEO Manny Roman as its new CEO, following management upheaval and massive outflows at the bond manager.

Roman was a former Goldman Sachs banker who led a turnaround of Man Group, the largest public hedge fund operation.  Douglas Hodge, the current CEO, will move aside and become a managing director and senior adviser.

--Shares in Netflix tumbled about 15% after the digital-streaming service announced it had signed up only 1.7 million new subscribers when it had originally forecast 2.5 million for the recent quarter.  But it was more than this.  As Jeffrey Goldfarb of Reuters put it:

“Netflix just served up a linguistic doozy for the annals of corporate obfuscation. In reporting its second-quarter results on Monday, (the company) threw around the mortifying ‘un-grandfather’ to mean raising prices on longtime customers. It’s the sort of hilarious term a television watcher would expect to hear on ‘Silicon Valley,’ the hit HBO sitcom that slyly skewers startup culture....Investors have become all too accustomed, and maybe immune, to creative entrepreneurial phraseology. Words like ‘pivot’ and ‘acqui-hire’ have become just as big a part of the vernacular as explanations of profit that depart from accounting conventions.”

Anyway, Netflix said it expected to add 2m overseas subscribers in the third quarter, below Wall Street’s forecasts.  The domestic subscriber growth outlook was also way below estimates.

Sales in the second quarter did rise 33% to $1.97bn.

--Morningstar reported that the shift from actively managed investment funds to low-cost index trackers accelerated last month, with $21.7bn flowing out of actively managed U.S. equity funds in June, the worst monthly figure since October 2008, while passive funds, including ETFs, took in $8.7bn.

Fidelity and Franklin Templeton suffered outflows of $3.8bn and $3.7bn respectively last month. [Financial Times]

--Fox News has been the dominant force in cable news, a cultural phenomenon as Roger Ailes has directed the ratings juggernaut the past two decades, turning Fox into a cash cow.

But with the sexual harassment suit brought by former Fox News host Gretchen Carlson, and then others following with allegations, including Megyn Kelly, Fox parent 21st Century Fox decided to end Ailes’ reign and he resigned on Thursday.

Rupert Murdoch, 85, longtime head of Fox, let Ailes run Fox News as he saw fit and the network brought in $1 billion annually in profits ($1.5bn last year, nearly four times that of CNN, according to SNL Financial), but now Murdoch’s sons, James and Lachlan, are running the family business with their father and they’ve never been comfortable with Ailes, so the lawsuit gave them an excuse to jettison Fox’ chief.  Rupert is taking over for Ailes on an interim basis, in an acknowledgement there are no obvious successors, but also in an effort to convey stability.

One thing Fox watchers are anxiously following is the status of Sean Hannity, Bill O’Reilly and Greta Van Susteren, who all have clauses in their contracts that allows them to leave should Ailes go.

Back to Kelly, she told investigators, according to multiple reports and her attorney, that Ailes made unwanted sexual advances toward her about 10 years ago, when she was a young correspondent at Fox.  New York magazine reported she described the events in detail.

But recently she was on video praising Ailes.  Ailes’ attorney, Susan Estrich, said: “Roger Ailes has never sexually harassed Megyn Kelly. In fact, he has spent much of the last decade promoting and helping her to achieve the stardom she earned, for which she has repeatedly and publicly thanked him.”

It was the Murdoch sons’ who opened an internal investigation after Carlson’s lawsuit.

Fox News has been the No. 1-rated cable news station for 15 years.

--Unilever is acquiring Dollar Shave Club for a reported $1 billion in cash.  The company is a four-year-old e-commerce operation with 3.2 million members – but has yet to make a profit.  The founder, Michael Dubin, will remain as chief executive and will now no doubt be able to afford even better razors and blades, should that be his wont. 

Apparently, Dollar Shave Club has cut into Gillette’s market share.

--Christie’s sales of art and collectibles fell 28% in the first six months, as the world’s largest art broker is suffering from a slowdown in the supply of top works.

I need to raise cash and I’ve offered Christie’s my Lew Alcindor rookie card but they don’t seem to have an interest.

--Still thinking about a last minute trip to see the Olympics in Rio?  According to an opinion poll of Brazilians by Datafolha, half of the people surveyed opposed hosting the Games, double the number three years earlier, while nearly two-thirds believe that the role of host will do the country more harm than good.

Also, more than half of Brazilians think Rio’s security problems are a cause of shame.  The police have such awful working conditions that many stations are missing basics such as toilet paper, let alone the fact there are often delays in getting paid.

And on Thursday, authorities arrested 10 members of an Islamist group that was allegedly organizing terrorist attacks, though Brazil’s justice minister called it “an amateur cell without any preparation.”  No arms, for example, had been acquired yet.

There was some good news.  A last allotment of 100,000 new tickets were sold in less than five hours, though officials didn’t say if this batch included tickets previously put up for sale.

--According to the World Health Organization, the Zika virus is spreading rapidly in the Americas.  The U.S. Centers for Disease Control and Prevention concluded that infection with the Zika virus in pregnant women is a cause of the birth defect microcephaly and other severe brain abnormalities in babies.

This week, public-health officials identified the first case in which a woman passed the virus to a man through sex, while it had previously been known Zika could be transmitted sexually from a man to a woman.

We also learned that an elderly Utah man who died after contracting Zika from travel abroad may have spread the virus to a family member who did not leave the country, raising fears about a new transmission route.

And then on Friday it was reported a baby has been born at a New York City hospital with birth defects from a Zika virus infection transmitted by the baby’s mother, a first here, sadly.

The mother was infected outside the U.S. The baby was diagnosed with microcephaly.  As of July 14th, 12 infants have been born in the U.S. with birth defects and evidence of possible Zika infection.  [Wall Street Journal]

--The NBA announced it was moving the 2017 All-Star Game out of Charlotte because a law limiting anti-discrimination protection against the LGBT community has not been overturned; a move Commissioner Adam Silver had threatened to make back in April.

It is estimated the change in venue will cost Charlotte $100 million in economic activity.  New Orleans is apparently the new front-runner to hold the festivities, with the NBA needing to act fast, the event scheduled for Feb. 17-19.

Foreign Affairs, cont’d

Iraq/Syria/ISIS/Russia: U.S.-backed fighters gave ISIS 48 hours to leave the Syrian battleground town of Manbij, amid a report U.S.-led airstrikes nearby killed dozens of civilians.

The raids on Tuesday by the coalition provoked an intense backlash and local protests.  At least 56 civilians, including children, died, with tens of thousands of civilians remaining in Manbij, according to the Syrian Observatory for Human Rights, the British-based activist group whose reporting has been as good as any during the conflict.

Syria’s opposition urged the U.S.-led coalition to suspend its strikes, while international rights groups demanded an investigation.

General Joe Votel, head of U.S. Central Command, said the Manbij operation was a ‘very difficult fight’ with ISIS extremists in various locations.

“And so when it’s a dynamic situation like that...we have to respond.  And I think that’s the situation in which we found this particular operation.”

The Pentagon has acknowledged 41 civilian deaths in its strikes in both Syria and Iraq since 2014, but the Observatory puts the toll at more than 450.  [Agence France Presse]

Manbij is an extremist bastion in Aleppo province and the alliance has been trying to oust ISIS from the strategic town near the Turkish border since June, backed by heavy airstrikes.

Meanwhile, in second city Aleppo, government forces continue to tighten their siege of rebel-held districts, where 200,000 still live in conditions that are truly hellish.

But on Friday, nearly 40 Syrian soldiers and pro-government fighters were killed when rebels blew up a tunnel under a government position in Aleppo, according to the Observatory and AFP. The blast brought down a building used by the government.

Editorial / Wall Street Journal

“John Kerry was in Moscow this week, where he invoked Thursday’s terror attack in Nice to press the need to broker an end to the civil war in Syria.  ‘Nowhere is there a greater hotbed or incubator for these terrorist than in Syria,’ he said, and on that score he’s right.  Too bad another bad deal with Russia isn’t likely to achieve that goal.

“The Administration wants the Kremlin to force Syrian dictator Bashar Assad to ground his air force, which continues to use barrel bombs and chemical munitions against civilian targets in rebel-held areas.  In exchange, Mr. Kerry is offering Russia enhanced intelligence cooperation, including target coordinates for Russian bombers to attack Islamic State and the al Qaeda-linked Nusra Front.  Longer term, Mr. Kerry wants Russia to help ease Assad out of power as part of an overall political settlement for Syria.

“That might be a reasonable bargain – if only Vladimir Putin had any record of abiding by previous commitments. The Russian president deployed his air force to Syria last year after spending four years blocking every effort at the United Nations to censure the Assad regime.  From the beginning his planes have bombed marketplaces, pediatric hospitals, Turkmen villages and other non-ISIS targets in areas besieged by regime forces....

“As for Syria, Assad will continue to consolidate his grip on power, whether or not there’s a deal, while Russia and Iran extend their sway in the eastern Mediterranean.  The refugees will continue to pour out of Syria.  Syria’s neighbors will continue to be destabilized, as the unfolding coup attempt in Turkey makes clear.  And the tide of terror moving toward the West will not soon wane.”

In Iraq, powerful Shiite cleric Moqtada al-Sadr posted on his website that the new U.S. forces being sent to Iraq, 560, “are a target for us.”

There are, though, already thousands of American military personnel in Iraq as part of the anti-ISIS fight and Sadr hasn’t directly threatened them as yet.

Sadr’s own forces, once called the Mahdi Army but now Saraya al-Salam, have taken part in anti-ISIS operations but their main responsibility these days has been to protect shrines and other religious sites.

Iran: The Associated Press reported that the unpublished side deal to the Iranian nuclear accord is even more disastrous than the rest of the agreement.  It relaxes key restrictions on Iran’s nuke program in just over a decade, not the 15 years the White House has been saying.

Editorial / New York Post

“As of January 2027, Iran can start replacing its mainstay centrifuges with thousands of advanced machines up to five times as efficient as what it now has.

“Bottom line: The time Iran needs to produce a nuclear bomb would be cut in half, or worse.  If Obama’s correct that the current rules leave Tehran a year from sprinting to the bomb, it’s become at most six months.

“And because the secret deal doesn’t spell out what happens after year 13, it could mean an end to all restrictions on centrifuges.

“The head of the Institute for Science and International Security, a go-to agency on Iran’s nuclear program, says the side deal ‘will create a great deal of instability and possibly even lead to war.’

“Yet just last week, the president boasted that his deal – which provides the mullahs with tens of billions in sanctions relief for use on terrorism – is ‘avoiding further conflict and making us safer.’  Really?

“All this proves that Israeli Prime Minister Benjamin Netanyahu, whom Obama openly mocked as a scare-monger for warning that Iran’s ‘breakout time’ was six months or less, was anything but.

“Since agreeing to the deal, Iran has kept on testing ballistic missiles that can deliver nuclear warheads.  It’s also been caught in clandestine efforts to illicitly acquire high-level nuclear technology and equipment.

“It’s becoming alarmingly clear that Team Obama played the American people – and the congressional Democrats who supported the deal – for fools.”

Israel: Regarding the threat Hizbullah poses to Israel, I just wanted to get down some facts from a recent extensive report by Jonathan Spyer in the Jerusalem Post.  While Hizbullah remains a potent force, it’s heavy involvement in Syria, defending Bashar Assad, has weakened its potential to stage a largescale war against Israel.

More than 1,000 Hizbullah fighters have died in Syria, and it remains fully committed to the regime’s effort, with around 6,000 fighters deployed in the country at any given time.

In terms of Lebanon, while Hizbullah remains dominant, the role it is playing in Syria is hurting its “strategic function as a generator of legitimacy for its patron, Iran.”

“Hizbullah is now seen throughout the Arab world as a Shia sectarian force, engaged mainly in the killing of Sunnis.  For as long as the Syrian war continues, it will be impossible for Hizbullah to shake this image.  There are also indications of growing discontent even among Hizbullah’s own Lebanese Shia community at the seemingly endless bloodletting in Syria and the movement’s role in it.”

On the other hand, its involvement in Syria gains it experience and expertise.

Libya: France said three of its soldiers were killed in a helicopter crash in Libya, the first acknowledgement by the government that it has special forces in the country; the three being on a secret mission near the coastal city of Benghazi.

President Francois Hollande said on Wednesday: “Libya is going through dangerous instability and it’s a few hundred kilometers from European Coasts. We are carrying out dangerous intelligence operations there.  Three of our soldiers who were taking part in those operations have lost their lives.”

ISIS reportedly has a stronghold in Sirte, a coastal city, with 3,000 fighters there, but Sirte has been the site of an ongoing battle and I have also seen stories that ISIS has been moving some of its force out of the area.

China: Beijing said Monday it was closing off a part of the South China Sea for military exercises, days after the tribunal in The Hague ruled against China’s claim to ownership of virtually all of the waterway.

Editorial / The Economist

“(How China responds to the ruling) is of the utmost geopolitical importance.  If, in its fury, China flouts the ruling and continues its creeping annexation, it will be elevating brute force over international law as the arbiter of disputes among states.  China’s bullying of its neighbors greatly raises the risks of a local clash escalating into war between the century’s rising superpower and America, the current one. The stakes could hardly be higher.”

Geoff Dyer and Tom Mitchell / Financial Times

“Whoever replaces Barack Obama will face many difficult choices but few are likely to be as stark as those in the Asia Pacific region.  In a 497-page, densely argued ruling this week, an international tribunal in The Hague blew away the legal ambiguity that has long surrounded China’s claim to control the bulk of the South China Sea – one of the busiest trading routes in the world.

“How the White House responds to the verdict in the coming months will help define Washington’s relationship with Beijing for years, and dramatically influence the geopolitics of the region....

“ ‘China has to make a decision – is it going to adhere to the rule of law and act like a world leader with responsibilities, or is it going to go its own course,’ says Ben Cardin, the senior Democrat on the Senate foreign relations committee.  However, he adds: ‘They will probably assert their sovereignty by additional island building or military activity.’....

“In the short term, top of the list of potential Sino-U.S. flashpoints is Scarborough Shoal, 140 miles from the Philippines’ coast where China took control three years ago.  Earlier this year, the Obama administration delivered private warnings to Beijing not to begin a new exercise in land reclamation.  Although U.S. officials refuse to say if Scarborough Shoal is covered by the mutual defense treaty between the two countries, some in Washington would like to see a formal declaration in order to deter Beijing.  ‘I think we should be prepared to take military action in Scarborough Shoal’ if China tries to build a new artificial island, says Admiral Dennis Blair, former head of U.S. Pacific Command.  ‘Draw the line there.’”

Lastly, a tour bus carrying visitors from China burst into flames on a busy highway near Taiwan’s capital of Taipei on Tuesday, killing all 26 people on board.  The pictures are horrifying and I was wondering how it was that no one got off.  It seems the back door was locked.

North Korea: Pyongyang fired three ballistic missiles on Tuesday, which flew between 300 and 360 miles into the sea off its east coast, according to South Korea’s military, the latest in a series of provocative acts.  The United States issued its usual lame denunciation.

North Korea has threatened to retaliate over South Korea’s agreement to place a U.S.-operated missile-defense system on the peninsula.

Seoul said on Monday that the North may be preparing to conduct a fifth nuclear test after a spike in activity at a site used for this in the past.

Russia / Ukraine: One of Ukraine’s most respected journalists was killed by a car bomb in Kiev on Wednesday morning, rattling the political establishment and reviving memories of 2000, and the murder of Georgy Gongadze, the founder of Ukrainska Pravda, who was abducted by corrupt police officers, murdered and beheaded.

Wednesday, Pavel Sheremet, a Belarus-born award winning journalist with the same publication, was killed in a move that President Petro Poroshenko said had “a single goal in mind – to destabilize the situation in Ukraine.  I don’t exclude the presence of foreign interests here.”

Arsen Avakov, Ukraine’s interior ministry chief, suggested the possible involvement of Russian secret services.

The Kremlin denied this, with Dmitry Peskov, President Vladimir Putin’s spokesman, saying the murder was “cause for very serious concern.”

Meanwhile, seven Ukrainian soldiers were killed in clashes with pro-Russian separatists in the country’s east between Monday and Tuesday.

Separately, the Interfax news agency reported last weekend that Russia plans to deploy the latest S-400 anti-aircraft missile system to Crimea in August. The S-400 is Russia’s latest such system and is designed to destroy cruise and ballistic missiles.  It can also be used against ground targets.

As to the banning of the Russian Olympic team from the Rio Games, Putin said the decision was highly politicized and probably pushed by the sinister hand of the United States.

But he also pledged cooperation.

India / Pakistan: Violence the past few weeks in Indian-controlled Kashmir has killed at least 36 and wounded over 3,000, most of them by police fire, in the worst outbreak in six years in this disputed territory also claimed by Pakistan.  Indian authorities seized newspapers and shut down cable television last weekend in an attempt to quell the flare-up in tensions.

India claimed it was necessary to shut down cable stations that Pakistan was using to foment trouble.

Random Musings

--Hillary Clinton made a solid choice in Virginia Sen. Tim Kaine to be her running mate; a guy I tabbed a long time ago.  Had she chosen Labor Sec. Thomas Perez, I would have become violently ill.

--In an interview with the New York Times on Wednesday, Donald Trump said he would not pressure Turkey or other authoritarian regimes for cracking down on civil liberties, saying the United States has to “fix our own mess” before trying to influence others.

“I don’t think we have a right to lecture.  Look at what is happening in our country.  How are we going to lecture when people are shooting policemen in cold blood?”

But what got some of us who follow foreign policy closely was his declaration that he couldn’t automatically come to the defense of a NATO country under attack, say in the Baltics, until he saw that country’s contribution to the alliance.

“I would prefer to be able to continue” existing agreements, said Trump, but only if allies stopped taking advantage of us, seeing as how America can’t afford to be policeman of the world.

Trump added the forward deployment of American troops abroad was not always necessary.

“If we decide we have to defend the United States, we can always deploy” from American soil, Mr. Trump said, “and it will be a lot less expensive.”

As for Turkey’s President Erdogan, Trump told the Times, “I give great credit to him for being able to turn that around.”  [David E. Sanger and Maggie Haberman / New York Times]

--John Podhoretz / New York Post

“Ted Cruz is a provocateur – a divider, not a uniter, someone whose political career is characterized by the challenges he poses to the leaders of his own party.

“On Wednesday night, in a jaw-dropping speech that led to the longest and loudest set of boos I’ve ever heard for a speaker at any convention, Cruz sought to do to Donald Trump what he has done to Mitch McConnell – the Republican Senate leader against whom he has set himself from the moment he came to Washington in 2012.

“He was setting himself up either as the internal GOP critic for a Trump presidency or the voice of conscience for a GOP trying to repair itself after a Trump defeat.

“In this case, he intended to offer his challenge subtly – though a text that did not explicitly endorse Trump and instead called for ‘leaders who stand for principle.  Unite us all behind shared values.  Cast aside anger for love.  That is the standard we should expect, from everybody.’

“Subtle it may have been, but not subtle enough to evade the rage of the Trump campaign.  Evidence suggests the Trump camp had decided it was going to punish Cruz for this impertinence....

“Cruz is a daring politician, and takes risky steps to advance his own interests.  His leadership in forcing the government shutdown in 2013 was ill-advised and pointless, but it served to set him up as the outsider-insider, the DC GOP senator who rejected the working order of the Republican Senate....

“The question now is whether Cruz helped or harmed himself, and the answer depends entirely on November.”

--Peggy Noonan / Wall Street Journal...on Ted Cruz...

“If you can’t endorse, good for you and stay home. That isn’t politics, it’s basic human comportment.  If someone you’re certain is awful invites you to a party, you politely decline.  You don’t go, walk into the room, and punch your host in the head.  Mr. Cruz miscalculated, thinking if he snubbed Trump half the delegates would cheer.  Instead almost all booed.  He thought the media would laud his courage and integrity.  They saw him as wounded and treated him as prey.

“When his campaign ended in June, I attended a small dinner in his honor.  Mr. Cruz was charming, modest and funny.  When we said goodnight I told him I felt, in retrospect, that I hadn’t always been just to him and was glad I’d have a chance to be more generous in the future.  Apparently I will need still more time. What a jerk.”

My Republican Party is frankly loaded with jerks.

--David Brooks / New York Times

“Does anybody else have the sense that Donald Trump is slipping off the rails?  His speeches have always had a rambling, free association quality, but a couple of the recent ones have, as the Republican political consultant Mike Murphy put it, passed from the category of rant to the category of full on ‘drunk wedding toast.’

“Trump’s verbal style has always been distinct.  He doesn’t really speak in sentences of paragraphs.  His speeches are punctuated by five- or six-word jabs that are sort of strung together by connections that can only be understood through chaos theory: ‘They want the wall...I dominated with the evangelicals...I won in a landslide...We can’t be the stupid people anymore.’

“Occasionally Trump will attempt a sentence longer than eight words, but no matter what subject he starts the sentence with, by the end he has been pulled over to the subject of himself. Here’s an example from the Mike Pence announcement speech: ‘So one of the primary reasons I chose Mike was I looked at Indiana, and I won Indiana big.’  There’s sort of a gravitational narcissistic pull that takes command whenever he attempts to utter a compound thought.”

--Michael Goodwin / New York Post

“Pick your metaphor for the world: It’s on fire, it’s spinning out of control, the wheels are coming off, it’s turned upside down.  Whatever your pick, it is unanimous that the job of the next president is to make it better, and to make Americans feel better about the future.

“Donald Trump took a big step forward in making his case by selecting Mike Pence as his running mate. The Indiana governor represents the seasoned, steady, conservative influence missing from the Trump arsenal. He could be the yin to Trump’s yang.

“Their first joint appearance painted the picture. Trump started with a rambling introduction where he strayed from his notes more often than he stuck to them, even catching himself at one point to say, ‘Now back to Mike,’ before beginning another digression.

“Pence, by contrast, was precise and disciplined, delivering his remarks with the skill of a professional pol in the best sense of the word. With his record and reputation for integrity, he adds credibility to Trump’s wild disrupter instincts.”

--It was a pretty remarkable moment when Silicon Valley billionaire Peter Thiel addressed the RNC and declared, “I am proud to be gay. I am proud to be a Republican.”

What was extraordinary was the loud applause he received at a gathering that you would think might not have been as receptive.

--A longtime Trump employee, Meredith McIver, finally fessed up to lifting two passages from Michelle Obama’s 2008 speech for Melania Trump’s address on Monday, saying it was an innocent mistake.  It seems McIver was brought in after Melania ditched a draft by two professional speechwriters.

But for 48 hours the Trump campaign, namely chief strategist Paul Manafort, was lying about whether the passages were even plagiarism, and of course this is all many were talking about rather than the messages of the day that should have prevailed.  Plus Melania did a good job, pilfered passages aside.

McIver said she had “offered my resignation to Mr. Trump and the Trump family but they rejected it,” and that “Mr. Trump told me that people make innocent mistakes and we learn and grow from these experiences.”

Kathleen Parker / Washington Post

“Imitation may be the highest form of flattery, but plagiarism, not so much.

“This is especially so if you’re Melania Trump on opening night at the Republican National Convention.

“Or is it?  By the reaction, both within and without the campaign, you’d have thought the woman had lifted Lady Macbeth’s ‘Out, damned spot,’ or, say, Hillary Clinton’s ‘What difference, at this point, does it make?’

“Instead, Trump – or one of her speechwriters – lifted nearly 60 words from Michelle Obama’s speech at the 2008 Democratic convention.  The lines in question fall squarely in the category of boilerplate.  Banal, in other words, such that one wonders why anyone would bother.

“This isn’t to disparage Obama’s speech, which was original to her and benefited from the ring of authenticity and the future first lady’s passion.  Repeated by Trump, it was as inspiring as a fortune-cookie platitude....

“How simple it would have been the day after to say ‘oops’ and move along....

“It is doubtful that anyone beyond the media (or the Trump campaign) cares much about this scandalous affront to intellectual property (cough, cough).  Half the country watching Trump’s speech likely weren’t paying close attention to her words, given the visual distraction of her physical presence.

“But, as always, the handling of the episode has become the story....

“Moreover, isn’t the view from Trump Tower that deny-and-cover is Clinton’s template?”

--I was at a gathering Wednesday night and we all ended up talking politics and the convention, and it was funny how many of us said we were initially voting for John Kasich, but then what a jerk he has been in not attending the convention in his home state.

I did tell you, though, that when he was running and I was supporting him, that I understood he had his prickly side, and the inside scoop was that he wasn’t likeable, personally, despite his touchy-feely campaign schtick.  Well he just offered more proof of the kind of guy he can be.

--I got a kick out of the stories that said Chris Christie was furious he hadn’t been selected as Donald Trump’s running mate.  That’s really amazing, given the governor’s sizable baggage, that would require him paying an extra fee when taking a flight.

Trump campaign manager Paul Manafort was overheard by the Weekly Standard’s John McCormack talking about Christie’s state of mind.  When someone said to Manafort, “Christie was livid, right?” Manafort replied, “Yeah.”

Yes, Christie was first to throw his support behind Trump, back in February, and he has been a staunch supporter since, but no way would he be a plus on a ticket with Trump.  If, and it’s a big if, he continues to skate by with regards to Bridgegate, I can easily then see him as attorney general, and he’s more than qualified for that position.

But his approval rating in New Jersey continues to plummet and he’s under increasing pressure to resign because the work of the state is getting ignored.

--Former Ku Klux Klan leader David Duke announced he was running for the U.S. Senate in Louisiana.  Duke is a vocal Trump supporter, so some media outlets will have a field day with this.  Duke is one of nine Republicans running for the seat being vacated by David Vitter.

--A poll of 1,915 active-duty troops, reservists and National Guard for Military Times shows Trump receiving 49.5% to Clinton’s 20.5%, and Gary Johnson 13%.

Enlisted troops favor Trump over Clinton 55 to 17.

Officers favor Trump 40 to 26.

--Wright State University in Ohio has opted to pull out of hosting the first presidential debate, slated for Sept. 26, because the president of the school, David Hopkins, said, “I can’t assure the safety of our students and the community.”

Hopkins cited recent terrorist attacks and the rising cost of security.

The Commission on Presidential Debates said the debate will instead be held at Hofstra University in Hempstead, N.Y.

--The July 25 issue of Army Times had this from Leon Shane III (who technically authored this for Military Times):

“More than 70,000 veterans disability claims are currently backlogged in Veterans Affairs processing centers, seven months after department officials missed their public goal of getting the number down to zero.

“VA Acting Under Secretary for Benefits Thomas Murphy said that figure includes a substantial number of claims left open longer than four months intentionally to ensure veterans are receiving all of the payouts they deserve.  But he acknowledged his agency needs to drive that number down further....

“Roughly one in five benefits claims submitted to the Veterans Benefits Administration ends up taking longer than four months to process.”

--Sumathi Reddy / Wall Street Journal

“Scientists are finding a growing number of ways placebos appear to bring about real health benefits in patients....

“Studies have shown that administering placebos reduces pain and symptoms in patients with irritable bowel syndrome and migraines, even when patients know they are taking a placebo.  Scientists are exploring if they can get the same result in chronic back pain and cancer-related fatigue....

“Dozens of studies have shown that the power of placebos goes beyond patients’ imaginations, says Prof. Kaptchuk, of Beth Israel Deaconess.  This was first demonstrated in 1979 when patients in a dental-pain experiment were given a placebo they thought was a painkiller, he says.  About one-third of them reported less pain.  Subsequent drugs to block the action of painkillers removed the placebo effect.

“The study showed placebos cause the brain to release endogenous opioids, or endorphins, that reduce pain, Prof. Kaptchuk says.   Subsequent research has found that other substances are also activated by placebos, including endocannabinoids and dopamine, part of the brain’s reward system.”

--Authorities on Monday said they believed the gunman who opened fire in Baton Rouge the day before, killing three police officers and wounding three others, clearly targeted them.

Col. Michael Edmonson of the Louisiana State Police said, “There is no doubt whatsoever that these officers were intentionally targeted and assassinated.”

Police added they believe the gunman, Gavin Long, could have gone on to continue his violent rampage were it not for him being taken down by a Baton Rouge officer firing a shot from more than 100 yards away.

31 officers have been fatally shot in the line of duty this year, including one in Kansas City this week, almost double the number from this point last year.  [This includes the two bailiffs, both deputized sheriffs, killed in a Michigan courthouse the previous week.]

---

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

God bless America.

---

Gold $1323
Oil $44.19

Returns for the week 7/18-7/22

Dow Jones  +0.3%  [18570]
S&P 500  +0.6%  [2175]
S&P MidCap  +0.6%
Russell 2000  +0.6%
Nasdaq  +1.4%  [5100]

Returns for the period 1/1/16-7/22/16

Dow Jones  +6.6%
S&P 500  +6.4%
S&P MidCap  +11.0%
Russell 2000  +6.8%
Nasdaq  +1.9%

Bulls 54.4
Bears 23.3  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore



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Week in Review

07/23/2016

For the week 7/18-7/22

[Posted 11:30 PM ET, Friday]

Note: StocksandNews has significant ongoing costs.  Your support is greatly appreciated.  Click on the gofundme link above or send a check to PO Box 990, New Providence, NJ 07974.

Edition 902

*Another Friday night, and another excuse to pull out the adage ‘wait 24 hours.’  We don’t as yet know why the German-Iranian gunman in Munich killed nine and then himself.  We also should have learned by now that when police initially say they are looking for multiple shooters, it’s often just one.  [It’s not the police’ fault...it’s the witnesses.]

But as you’ll see below, the killer in Nice, who was thought to be a lone wolf, clearly wasn’t upon further review and had been radicalized over a year ago.

And so it was that last Friday, I was posting as the attempted coup in Turkey was underway, though we were hours from learning if it had been beaten back.  But I took a stab at what would happen next.

“As for this coup attempt, it is a symptom of far more serious problems as Turkey slides into what Erdogan would like to see, an Islamist theocracy, a dictatorship.  We’ve been seeing Turks’ freedoms consistently taken away the past few years and if the coup is crushed, it will only get worse.  I do not see him reforming.”

Not bad, in hindsight.  Erdogan is on a roll...as in he’s rolling everyone up.

But first, I start off with events in Cleveland.  Kudos to the Cleveland police and the men and women from forces around the country that heeded the call to lend assistance.  We now wish the authorities well in Philadelphia this coming week.

Just know as you read my comments and those of others that I will provide equal time to the Democrats next Week in Review after their shindig.

The Republican National Convention

I will be surprised if Donald Trump gets the traditional 5% bounce after this week’s festivities.  Let’s just say I was underwhelmed.  Yeah, I liked the Trump kids, but what does that say about the party? 

I thought Ted Cruz was a classless jerk, but then I’ve been writing that since day one.

And as for The Donald, what was he doing today going right back after Cruz?!  That was idiotic.

This is going to be an unreal 3 ½ months.  I just hope the two sides at least give us all some time off in August.

Dan Balz / Washington Post

“There were no echoes of Ronald Reagan’s ‘Morning in America,’ George H.W. Bush’s ‘kinder and gentler nation’ or even George W. Bush’s compassionate conservatism in Donald Trump’s speech accepting the Republican presidential nomination here Thursday night.  Instead, in both theme and target audience, Trump offered a powerful echo of Richard Nixon almost 50 years ago.

“Trump’s speech proved once again that he would continue to throw out the traditional campaign rulebook that might dictate softer language and broader appeals.  Instead, he offered his grim portrait of the country and a law-and-order message in the hope of summoning an army of disaffected and forgotten voters large enough to topple the political status quo in November....

“In Nixon’s time, it was a call for the ‘Silent Majority’ to rise up and take back the country.  Trump spoke to the ‘forgotten men and women’ who he said no longer have a voice in a rigged political system run by ‘censors’ and ‘cynics.’....

“Trump proved during the primaries that there is a sizable audience for his harsh critique of the status quo and receptivity to a candidate who pledges strength and firmness above all else.  That was enough to win the nomination.  His Thursday night speech significantly raised the volume on that message.

“From here there is no turning back.  He has set his course, controversial as it might be.”

Michael Goodwin / New York Post

“Donald Trump needed to give the speech of his life – he did that, and much more. He laid out an inspiring American Manifesto for our troubled times.

“And he did it his way.

“Not surprisingly, from start to finish, it is muscular and bold, leavened only by appeals to racial harmony and pledges of compassion for all.  It offers a prominent nod to Bernie Sanders’ supporters in a bid to get some to jump the Democratic ship.

“Most important, it keeps faith with his campaign themes of putting forgotten Americans first.  In contrasting his view with his opponent’s, the Republican nominee put it this way: ‘Americanism, not globalism, will be our credo.’

“And ‘I am your voice.’....

“The stirring speech saved what had been a mediocre convention, with sloppy mistakes leading to distracting controversies and fueling fears that Trump and his team still are not ready for prime time.  Delegates were not so much divided as dispirited over the prospect that the party would once again lose a very winnable race.

“Especially with the well-oiled and well-funded Clinton machine revving up its engines with attack ads and with her message amplified by the left-wing media echo chamber, Trumpsters suddenly faced an enthusiasm gap. Rows of empty seats in the Quicken Loans Arena seemed symbolic of sagging hopes.”

Editorial / Washington Post

“These are anxious times in America.  Despite a steadily, if slowly, growing economy and the absence of a major war, people remain troubled by a sense of national underperformance and myriad social ills, most recently the surge in racially tinged fatal shootings committed by law enforcement officers and against them.  A new Gallup poll reports that only 17 percent of Americans feel satisfied with the way things are going, the lowest percentage since October 2013 – and down 12 points in just the past month.

“For many, of course, a cause of concern is Donald Trump, who accepted the Republican presidential nomination Thursday evening.  Belligerent and erratic, Mr. Trump nevertheless has a serious chance to win in November.  In his acceptance speech, he sought to enhance his political prospects the only way he knows how: by inflaming public angst, so as to exploit it.

“Mr. Trump took real challenges and recast them in terms that were not only exaggerated but also apocalyptic.  ‘The attacks on our police, and the terrorism in our cities, threaten our very way of life,’ he claimed.  Though he addressed issues ranging from public safety, to immigration, to trade, Mr. Trump’s proposed solutions all shared a common premise: the way to overcome difficulty is through force.  To American companies that exercise their right to move production abroad, the Trump administration will administer unspecified ‘consequences.’....

“Mr. Trump began his speech by presenting himself as the bearer of painful but necessary truth.  And no doubt, for many of his listeners, his words expressed a deeply felt emotional reality. There is real fear in the land; real pain. But it will take real leadership, not the wishful, demagogic brand Mr. Trump embodied Thursday night, to address this.”

Editorial / New York Post

“Donald Trump had a big job to do Thursday night, but of course big jobs are what he does for a living – so it’s really no surprise that he got it done...beautifully.

“The Republican nominee needed to not just act presidential, but be presidential – while still being himself.

“He needed to keep every ounce of New York toughness and roughness he’d shown in the campaign to date, while also showing sensitivity and a sincere commitment to making life better for all Americans.

“He needed to show a coherent policy vision recognizably his, that spoke to ‘his’ voters, regular Republicans and all Americans.

“And he did it in a speech characteristically Trump – wandering and emphatic, hard-hitting and a little chatty; blending policy and principle, anecdote and attack line, while speaking from the heart.”

Edward Luce / Financial Times

“If elections are won on a message of hope, Donald Trump may have been ill-advised.  His acceptance speech was not only the longest on record for a U.S. presidential nominee.  It was by far the darkest.

“By comparison, Richard Nixon’s famously gloomy 1968 address, which apparently inspired Mr. Trump’s Cleveland speech, reads like a Disneyland brochure. The basis of Mr. Trump’s message was a choice between a dystopian future of ‘poverty and violence’ under Hillary Clinton, or a new age of ‘Americanism’ that would put an end to the destructive forces of ‘globalism.’  Only Mr. Trump could arrest America’s disintegration.  Only he could free it from the stranglehold of special interests.  ‘The system is rigged,’ said Mr. Trump.  ‘I alone can fix it.’

“Mr. Trump’s message is unlikely to send voters skipping to the polling booths.  Yet it may just stir enough fear to make up for its missing hope....

“Mr. Trump depicts Mrs. Clinton as a criminal.  It is clear that most of his party agrees.  ‘Hillary for prison 2016,’ was among the best-selling memorabilia in Cleveland.

“Mrs. Clinton views Mr. Trump as ‘temperamentally unfit to hold office.’  That is a mild description of what most Democrats think of him.  This will be a scorched earth election.  It is hard to see how either side could live with the other’s victory.  We will know Mrs. Clinton’s battle plan soon enough....

“Mr. Trump...has taken his party into uncharted territory....The party no longer has room for Reagan’s ‘morning in America.’  It has committed itself to the evening.”

Editorial / Wall Street Journal

“(Trump) is disrupting one political norm after another, which is the source of his appeal as an agent of change.  But the uncertainty he creates along the way is also the largest obstacle he must now overcome.

“Voters tend to prefer more self-discipline, policy knowledge and predictability in their potential Presidents, or at least a better idea of what they would do in office.  Could 2016 be the year they break with tradition and decide that Mr. Trump is a risk worth taking if he will topple the political and economic status quo? Aside from elegant and classy, as the candidate might describe it, what would a Trump Presidency be like?

“Mr. Trump has an opening because of poor, arrogant governance in Washington and a decade of slow economic growth.  Some 69% of Americans believe the country is on the wrong track in the Real Clear Politics average, and only 23% say the right track.  Such pessimism hasn’t been seen since the 1970s.

“This week the White House revised its growth projections down to 1.9% for this year and 2.5% in 2017.  GDP numbers can seem like abstractions, but in human terms the difference between a 3%-4% economy and the 1%-2% trend of the last decade is millions of citizens denied the opportunity to fulfill their potential.

“The optimistic interpretation of Mr. Trump’s rise is that Americans won’t accept decline as the new normal.  People who are satisfied with the status quo, and believe the Obama economy is the best this nation can do, have a champion in Hillary Clinton. But for those who want the next four years to be better than the past eight, ‘make America great again’ is a patriotic demand for change and U.S. revival.  A more traditional Republican would thus be offering a larger narrative of why Clinton-Obama policies aren’t working and how his agenda and vision would improve the future.

“But that’s not Trump’s M.O.  From his business pursuits to politics, he has always appealed to the brain’s right hemisphere that governs emotion and intuition, not analysis.  As he tells it, stagnation is the result of the stupidity and weakness of U.S. leaders, whose main failing seems to be that they are not Mr. Trump.

“His politics are fundamentally personal, and not merely in the sense that he is compelled to make himself the center of attention.  The businessman’s convictions on public matters are elusive; he is an unreliable guide to his own program, which can change from day to day; and to the extent he has a guiding ideology it is an invincible conviction in his own instincts, business ability and understanding of human nature....

“Mr. Trump also knows remarkably little about most policy questions, and he does not sweat the details.  This means he’d be more dependent on his advisers than most Presidents, if he’s willing to listen to them.   His Administration would probably be as improvisational and disorganized as his campaign....

“A candidate with so many question marks would normally be expected to lose, but then he isn’t running against George Washington or even Bill Clinton. The alternative is Barack Obama’s third term led by Hillary Clinton.  No wonder polling suggests that most of Mr. Trump’s support is composed of opposition to Mrs. Clinton, and most of hers opposition to him.  Both parties have nominated historically unpopular candidates who would lose to a generic opponent.  While Mr. Trump’s Presidency would be polarizing, so would Mrs. Clinton’s.

“Mr. Trump could win if he persuades voters to trust him as much as he trusts himself, and projects an air of competence and confidence.  Or he could implode, and take the GOP’s Senate majority and even the House down with him.  That’s the nature of his unconventional and unpredictable candidacy.”

More on the convention below in “random musings.”

Turkey: The coup was crushed but not before hundreds died in a spasm of violence.  Immediately after, President Erdogan blamed a U.S.-based Muslim cleric, Fethullah Gulen, for being behind the coup.  Gulen denied any involvement.

Erdogan then set about settling scores and in a wide-ranging crackdown, 24,000 teachers and Interior Ministry employees were fired, with Erdogan demanding 1,577 university deans resign.

The Directorate of Religious Affairs sacked 492, including clerics, religious leaders, and preachers.

9,000 security personnel, judges, and prosecutors were rounded up.

6,000 soldiers arrested.  9,000 police purged.  1,500 in the Finance Ministry were fired.

At least 85 generals and admirals were ordered jailed, including the former Air Force commander and the General who oversaw Turkey’s key 2nd Army.

It is thought about 10,000 remain in jail today, with 1,000 in the military on the run.

In the old days, secularists ran the state and the military, which intervened from time to time to cut any religious conservative majority down to size when it gained too much power at the ballot box.

But Erdogan has been promising to create “pious generations,” reversing the mission of Turkey’s founder, Mustafa Kemal Ataturk, to secularize the country.  He has dramatically increased the number of religious schools and expanded religious education in the secondary schools, but he has always denied he wants to create an Islamic republic.

Last Friday night was the military’s first attempt to seize power in 40 years.

That much of the country, including the opposition, stood against a coup as a violation of democracy, raised hopes Erdogan would seize the moment to find peace with his opponents and unite the country, but what seemed clear was that it was instead a triumph of political Islam.

Erdogan barely escaped the hotel where he was vacationing, allowing him to deploy Turkey’s vast network of mosques and state-appointed imams, with the government-run Presidency of Religious Affairs issuing nonstop calls to prayer known as sela to rally people onto the streets.

As for Gulen, he was once an ally of Mr. Erdogan and helped the Turkish leader consolidate power in the early years of his rule. Gulen advocates an interpretation of Islam that stresses religious coexistence.  His detractors accuse him of seeking power by installing and recruiting followers throughout Turkey’s institutions.

Gulen has lived in the U.S. since 1999, when he left Turkey under threat of prosecution during a clampdown on Islamists.  Gulen and Erdogan then had a fallout after Gulen challenged Erdogan’s tightening grip on power in 2013.

Law enforcement and judicial officials loyal to Gulen back then launched an anti-corruption drive against people close to Erdogan, including targeting one of his sons.  But in early 2014, Erdogan struck back, purging thousands of police officials, prosecutors and judges suspected to be Gulenists.

In a rare interview from his compound in Pennsylvania’s Pocono Mountains, Gulen told the Financial Times last Saturday: “I don’t believe that the world takes the accusations made by President Erdogan [against me] seriously.  There is a possibility that it could be a staged coup [by Mr. Erdogan’s AKP] and it could be meant for further accusations” against Gulenists.

Erdogan has demanded the United States extradite Gulen, and he has repeatedly called on Turks to stay in the streets in the fight against the “terrorist” followers of the spiritual leader whom he accuses of forming a secretive “parallel state” in Turkey.

Wednesday, a ‘confession’ by a former top military aide appeared in publications including the pro-government daily Sabah and the independent daily Hurriyet, delivering some stunning revelations.

Lt. Col. Levent Turkkan, a Gulen supporter since he attended military academy, said he had planted listening devices on behalf of the Gulen organization in the office of the former chief of staff, Gen. Nedcet Ozel, who held his post from 2011 to 2015.

Turkkan said he would exchange the device daily and then hand it over to a Gulen backer working for the Turkish telecommunications authority.

“Yes, I am a member of the parallel establishment. I am from the Gulen community.”

President Obama said Friday there is a process and the U.S. is awaiting evidence from Turkey against Gulen before it would act on an extradition request.

Erdogan faced growing EU criticism over his “unacceptable” crackdown and on Thursday his government declared a three-month state of emergency, Turkey’s first since 2002, strengthening powers to round up suspects behind the failed coup, as opposition parties and rights groups fear the emergency powers will further curb freedom of speech and assembly.

The opposition Peoples’ Democratic Party (HDP) said: “The road to arbitrary rule, unlawful behavior, feeding on violence, has been chosen.  Society has been forced to choose between a coup or an undemocratic government.”

Erdogan pointed out that France also declared an emergency in the wake of a series of terrorist attacks and that democracy would “not be compromised.”

Deputy Prime Minister Kurtulmus said there would be no curfews and that: “We want to end the state of emergency as soon as possible. This is not a declaration of martial law.”

In a joint statement from EU foreign affairs chief Federica Mogherini and enlargement commissioner Johannes Hahn, the EU urged Turkey “to respect under any circumstances the rule of law, human rights and fundamental freedoms.”

They slammed as “unacceptable” the mass sacking or suspension of tens of thousands of people in the education system, judiciary and the media.

The White House warned Ankara that the international community “will be watching” as it took the decision to declare the state of emergency.

Erdogan promises to restructure the armed forces in order to prevent another coup attempt, signaling a major overhaul.  “We cannot afford to be complacent,” he said, and the military would have “new blood” soon.  [Islamist blood, mused the editor.]

German Foreign Minister Frank-Walter Steinmeier warned the government against extending the state of emergency beyond three months, which Erdogan said he could do, with Steinmeier saying this “would exacerbate tensions inside Turkey.”

Separately, a number of coup plotters fled to Greece and while Greece has an extradition treaty with Turkey, if Turkey now adopts the death penalty, as Erdogan wants, this complicates matters, because the EU, of which Greece is a member, does not have it.

Erdogan has said July 15 would in the future be marked as the “Remembrance Day of the Martyrs.”

The last death toll was 24 plotters, and 241 citizens and members of the security forces.

At week’s end, the government continues to denounce Fethullah Gulen.

As to why Turkey’s military is important, as a NATO member it has a been a key partner in U.S.-led efforts to defeat the Islamic State and has allowed American jets to use its Incirlik air base to fly missions against ISIL. 

Editorial / The Economist

“Much is unknown about the attempted military coup in Turkey on the night of July 15th. Why was it botched so badly?  How far up the ranks did the conspiracy reach?  Were the putschists old-style secularists, as their initial communique suggested; or were they followers of an exiled Islamist cleric, Fethullah Gulen, as the government claims?

“But two things are clear. First, the people of Turkey showed great bravery in coming out onto the streets to confront the soldiers; hundreds died.  Opposition parties, no matter how much they may despise President Recep Tayyip Erdogan, united to denounce the assault on democracy.  Better the flawed, Islamist-tinged strongman than the return of the generals for the fifth time since the 1960s.

“The second, more alarming conclusion is that Mr. Erdogan is fast destroying the very democracy that the people defended with their lives. He has declared a state of emergency that will last at least three months.  About 6,000 soldiers have been arrested; thousands more policemen, prosecutors and judges have been sacked or suspended.  So have academics, teachers and civil servants, though there is little sign they have anything to do with the coup.  Secularists, Kurds and other minorities feel intimidated by Mr. Erdogan’s loyalists on the streets.

“The purge is so deep and so wide – affecting at least 60,000 people – that some compare it to America’s disastrous de-Baathification of Iraq.  It goes far beyond the need to preserve the security of the state.  Mr. Erdogan conflates dissent with treachery; he is staging his own coup against Turkish pluralism.  Unrestrained, he will lead his country to more conflict and chaos.  And that, in turn, poses a serious danger to Turkey’s neighbors, to Europe and to the West.

“The failed putsch may well become the third shock to Europe’s post-1989 order.  Russia’s annexation of Crimea and invasion of eastern Ukraine in 2014 destroyed the idea that Europe’s borders were fixed and that the cold war was over.  The Brexit referendum last month shattered the notion of ineluctable integration in the European Union.  Now the coup attempt in Turkey, and the reaction to it, raise troubling questions about the irreversibility of democracy within the Western world – which Turkey, though on its fringe, once seemed destined to join....

“Mr. Erdogan has become ever more autocratic. His regime has jailed journalists, eviscerated the army and cowed the judiciary, all in the name of rooting out the ‘parallel state’ Mr. Erdogan claims the Gulenists have built.  As a cheerleader for the overthrow of Syria’s president, Bashar al-Assad, he turned a blind eye to the passage of jihadists through Turkey. Mr. Erdogan wants a new constitution to allow himself to become an executive president, though he hardly lacks power.  He has abandoned all caution to achieve it, not least by letting peace talks with the Kurds break down.  Turkey now faces a double insurgency: by the Kurds and the jihadists....

“The repercussions of the putsch will be felt for a long time. The coup-makers killed many fellow Turks, discredited the army, weakened its ability to protect the frontier and fight terrorists, rattled NATO and removed the restraints on an autocratic president.  A terrible toll for a night of power-lust.”

Editorial / Washington Post

“Turkish President Recep Tayyip Erdogan has responded to a failed military coup with what amounts to a political coup of his own.  Since last weekend, tens of thousands of Turks have been arrested or fired from their jobs: not just military officers involved in the rebellion but also teachers, university professors, judges and thousands of other civil servants.  A state of emergency has been declared; hundreds of schools have been closed; dozens of journalists have had their credentials revoked.  According to Turks monitoring the purge, those targeted include not just supporters of the exiled Islamic leader Mr. Erdogan blames for the coup, but also anyone suspected of not supporting his government, including members of minority groups and secular liberals.

“Mr. Erdogan, who called the failed putsch a ‘gift from God,’ is not just moving to further consolidate what already had become an authoritarian regime.  He is also attempting to force the United States, Turkey’s NATO ally, to aid his crackdown – in particular by handing over the alleged mastermind, Pennsylvania-based cleric Fethullah Gulen.  The Obama administration is rightly resisting – and it must continue to do so even if it means a breach in cooperating with Turkey against the Islamic State.

“Mr. Gulen leads a peaceful, if secretive, Islamic movement that operates schools in Turkey, the United States and other parts of the world.  For years, his followers in the Turkish police and judiciary were allied with Mr. Erdogan’s own Islamist party – ironically, the two combined to purge the Turkish military of officers suspected of coup-plotting.  But the two leaders fell out in late 2013, when the government moved to close some Gulenist schools and prosecutors suspected of Gulenist sympathies brought major corruption cases against the government.

“Mr. Erdogan has since carried out purges of the police, judiciary and press to eliminate Mr. Gulen’s followers, and it is not surprising he would blame the coup attempt on his rival.  What he has not offered is evidence that a 75-year-old man confined to a remote compound in the Poconos somehow orchestrated a military uprising across Turkey.  Remarkably, Mr. Erdogan’s foreign minister, Mevlut Cavusoglu, told The Post on Tuesday that there was no need for proof.  ‘They should understand, they don’t need any evidence,’ Mr. Cavusoglu said of the Obama administration.

“Actually, they do.  Though the United States has an extradition treaty with Turkey, Mr. Gulen cannot be arrested or returned to his homeland unless Turkey can convince the Justice Department, and federal courts, that he may be properly charged with a crime.”

Soner Cagaptay / Wall Street Journal

“After winning electoral victories in 2007 and 2011 on a platform of economic good governance, Mr. Erdogan turned staunchly conservative and authoritarian.

“He now regularly cracks down on freedoms of expression, assembly and association. He has shut down or taken over media outlets.  He bans access to social media, locks up journalists and sends the police to harass opposition rallies.

“Mr. Erdogan also promotes efforts to impose religion: In December 2014, Turkey’s Higher Education Council, a government-regulated body, issued a policy recommendation that mandatory courses on Sunni Islam be taught in publicly funded schools to all students, even ones as young as age 6....

“Erdogan supporters – who took to the streets to defy the coup, and who have continued to rally throughout the country since then – are not the garden-variety conservative AKP supporters, but rather Islamists, and even jihadists.  Over the weekend, pro-Erdogan mobs captured and beat soldiers who had supported the coup.  Images were reportedly posted online, in the Islamic State style, of a soldier who had been beheaded.

“Unfortunately, jihadist sentiments in Turkey have become increasingly noticeable lately, in no small part due to Mr. Erdogan’s education policy, as well as his Syrian policy, which has allowed Islamist radicals to use Turkey as a staging ground.  According to a recent poll by the Pew Research Center, 27% of Turks don’t view Islamic State unfavorably.  Mr. Erdogan can now harness these forces to usher in an Islamist revolution.

“Revolutions don’t require majorities, but rather angry and excited minorities that are willing to act violently to take power.  Following the failed coup plot, Turkish politics has not settled down....Religious fervor is running high; mosques continue to call for prayers throughout the day.  Islamists and jihadists who are angry at the military roam the streets, while most Turks of other political outlooks are scared to leave their homes.

“If Mr. Erdogan were to pump up religious fervor further, he could convert the religious counter-coup d’etat into an Islamist counter-revolution, ending Turkey’s status as a secular democracy. Adding to the temptation is the fact that the military, divided and discredited in the public eye following the failed coup, is in no position to prevent a counterrevolution.”

Brexit and Europe

Research group Markit said a flash reading of Britain’s PMI survey for the services sector – which accounts for nearly 80 percent of the economy – has dropped to 47.4 for July from 52.3 in June (50 being the dividing line between growth and contraction), a huge decline as these surveys go, a “dramatic deterioration” since the June 23 vote to leave the European Union.

A flash reading on the manufacturing sector dropped to 49.1 from 52.1 in June.

Chris Williamson, chief economist at Markit:

“July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early-2009.”

The Bank of England opted not to cut interest rates last week, deciding to hold its fire to see how the economy responded to Brexit, but data like this will have them acting to loosen policy in August.  The BoE said that while business uncertainty “had risen markedly,” there was little evidence that consumers were spending less.

Overall in the eurozone, a flash PMI reading on the services sector came in at 52.7 for July vs. 52.8 in June, while manufacturing dipped to 51.9 vs. 52.8.  Overall business activity edged down to an 18-month low and would seem to suggest an annual rate of growth for the Euro area of around 1.5%, according to Markit’s Williamson.

Germany’s flash services reading was 54.6 vs. 53.7 (June), with manufacturing at 53.7 vs. 54.5.

France reported a rebound in services to 50.3 from 49.9 in June, while manufacturing remained in contraction mode, 48.6 vs. 48.3.

Separately, European car-sales growth was 6.5% in June, year-on-year, the 34th consecutive month of gains in Europe, with first half sales up 9.1%, according to the European Automobile Manufacturers Association.  June sales in the UK, however, were down 0.8% yoy.

European Central Bank President Mario Draghi backed a public bailout of Italy’s troubled banks “in exceptional circumstances,” while holding the line on interest rates with, as he put it, Europe’s resilience in the aftermath of the Brexit vote, though Draghi also said it was too early for the ECB to fully assess the impact of the referendum on economic activity throughout the region.

A deal on the Italian banks could be reached before July 29, when new European bank stress test results are published, which promise to show Italy’s financial institutions in dire straits.  [A poor report card making it more difficult to do any kind of bailout or ‘bail in.’]

In terms of Brexit itself, French President Francois Hollande has been pushing Britain to start moving, though he’s now conceded the UK needs time to prepare for negotiations on its post-Brexit ties.  But Hollande reiterated, “the sooner, the better, in the common interests of Europe, the UK and our economies.”

On Wednesday, German Chancellor Angela Merkel said the question of Brexit could not be left “in the air,” but she supported new British leader Theresa May in her intention to set out the British position early in 2017.

The European Commission said the eurozone could suffer a 0.5 percentage point hit to GDP growth next year, as the currency area is hit by the adverse effects of Britain’s vote.

Eurobits....

--The UK did report the unemployment rate fell to a fresh 11-year low in May of 4.9%, the first time below 5% since October 2005.

--France adopted its deeply divisive labor bill Wednesday after the government used some kind of executive action to force it through Parliament without a vote.

Prime Minister Manuel Valls argued to the lower house of Parliament that the bill – which weakens union powers, makes layoffs easier and extends the work week – is necessary to create jobs and make the economy more competitive.

--France’s top antiterror prosecutor said that the man who killed 84 in Nice on Bastille Day conspired with several others in an attack planned for months, a shift in earlier reports that Mohamed Lahouaiej Bouhlel had only recently been radicalized and acted alone.

The new information came as investigators pore over computer and phone records, while five people suspected of providing support are interrogated. 

Paris Prosecutor Francois Molins provided evidence and a timeline that has the attacker and his potential accomplices embracing Islamist extremism as early as the Charlie Hebdo attack in January 2015.  [Wall Street Journal]

Yet again, another reason why you always ‘wait 24 hours.’

[At a memorial service for the Nice victims, Prime Minister Valls didn’t utter a word but still faced a chorus of jeering as he walked in front of the crowd estimated at 42,000, an example of how the mood in France has soured so, with French security clearly letting the people down in this instance.]

--And in Germany, a 17-year-old Afghan refugee, shouting “Allahu Akbar,” severely wounded four Hong Kong residents on a train while wielding an axe, before police shot him dead.

This is exactly the kind of attack that speaks directly to the migrant crisis and the unease in Germany because of its open-door policy.  The 17-year-old entered the country as an unaccompanied minor and was registered as a refugee on June 30 last year in Passau.

Washington and Wall Street

The only economic news of significance this week concerned the housing sector.  June housing starts came in better than expected, and then June existing home sales, at a 5.57 million annualized rate, were at their best levels in 9 years, 2007.  The median existing home price in the U.S. is now $247,700, up 4.8% from a year ago and a new peak.

On another issue I’ve been writing about, low pension fund returns and the impact of same, California’s largest public pension fund, CalPERS, (California Public Employees’ Retirement System), reported its rate of return for the year ended June 30 was just 0.61%.  The fund’s chief investment officer, Ted Eliopoulos, said the poor year has pushed CalPERS’ long-term returns below expected levels.

CalPERS assumes in the long term it will earn returns averaging 7.5% a year, and as James Rufus Koren of the Los Angeles Times notes: “If the fund fails to meet that goal, the state’s taxpayers could be forced to make up any shortfall in pension funding.

“Now, after two consecutive years of lackluster returns, CalPERS’ long-term averages have fallen below that crucial benchmark.  Over the past 20 years, average investment returns now stand at 7.03%.  Returns over the last 10 and 15 years now average less than 6%.”

Understand CalPERS has as good a long-term track record as any in its universe.

So with ultra-low interest rates, it’s the same situation all over the pension fund arena.  Lots of gaps to be filled.

Asia

The Wall Street Journal’s Lingling Wei and Jeremy Page report that President Xi Jinping and Premier Li Keqiang could be at serious odds with each other. For example, recently they both delivered “forceful instructions on how to reform China’s state-owned sector.  Their messages directly contradicted one another.”

Xi called for “stronger, better, bigger” state juggernauts, with a central role for the Communist Party in their management, while Li stressed the need to “slim down” state companies and to “follow market rules” in remaking them.

I wrote a few weeks ago that there have been rumblings Li may not serve out his full 10-year term and stories like the above perhaps are foretelling Li’s ouster, because it will be him, not Xi, who loses this battle, you can be sure.  [But I’ll light a candle for Li.  Xi is a scary figure, Li isn’t.]

Separately, Li told heads of major international finance and trade organizations in Beijing on Friday that the world should not pin its hopes on China being the sole engine of growth to bolster the global economy.

“China is still a developing country. We cannot shoulder the major responsibilities of the world.”

In Japan, a flash reading on manufacturing in July from Markit came in at 49.0 vs. 48.1 in June, a fifth month of contraction.

Street Bytes

--It was an uneventful week in the markets, and a welcome breather, though the major averages continued their post-Brexit rally, stretching it to four weeks, with the Dow Jones adding 0.3% to 18570, while the S&P 500 finished up 0.6% to another all-time high of 2175, and Nasdaq gained 1.4%.

I have all the pertinent earnings stories below, but this coming week is the biggest, with the likes of McDonald’s, Google, Facebook, Amazon and Apple.

--U.S. Treasury Yields

6-mo. 0.43%  2-yr. 0.70%  10-yr. 1.57%  30-yr. 2.28%

A quiet week in the bond pits, too, including in Euroland.

--Gary Friedman / Los Angeles Times:

“Premiums for Californians’ ObamaCare health coverage will rise an average of 13.2% next year – more than three times the increase of the last two years and a jump that is bound to raise debate in an election year.”

Everyone predicted this.  I’ve been disappointed there was zippo about this this week, whether at the Republican National Convention or elsewhere.  This is great fodder for us elephants.  Like, hel-loo...use it!

Friedman:

“The big hikes come after two years in which California officials had bragged that the program had helped insure hundreds of thousands of people in the state while keeping costs moderately in check....

“An analysis of 14 metro areas [around the country] that have already announced their 2017 premiums found an average jump of 11%.  The changes ranged from a decrease of 14% in Providence, R.I., to an increase of 26% in Portland, Ore., according to the analysis by the nonpartisan Kaiser Family Foundation.”

--Elon Musk sketched out his lofty and futuristic plans for Tesla Motors on Wednesday, describing an update to his “master plan” of ten years ago.  It involves Tesla expanding to make a full range of electric cars, buses and trucks, as well as a smartphone app through which Tesla owners will one day earn money by renting out their self-driving cars.

Musk, as is often the case, was very vague in the details though he said Tesla was in the “early stages of development” on heavy trucks as well as a new form of “high passenger-density urban transport,” some kind of shrunken bus as one report described it.  Perhaps an electric clown car could also be in the offing, mused your editor.

Many analysts who have now become used to Musk and his broad ideas feel he continues to spread himself too thin, especially when he should be focusing on meeting lofty production goals for the Tesla 3.

--General Motors posted its best quarter in seven years since emerging from bankruptcy, with profit doubling to $2.9 billion for the second quarter on an 11% jump in revenue.

Significantly, GM finally reported a gain in Europe, $137 million, its first in the region since 2011.  But GM warned Brexit could have an impact later this year with forecasted softening demand.

GM earned $3.6 billion in operating profit in North America.

The automaker has also been making non-traditional investments, such as a $500 million stake in ride-sharing firm Lyft Inc., and the purchase of autonomous-car developer, Cruise Automation Inc., for an estimated $700 million, as GM ramps up development of fully autonomous vehicles.

But GM also said on Thursday it may have to eventually recall an additional 4.3 million vehicles equipped with Takata air bags.

--Goldman Sachs reported earnings and revenue that handily beat expectations, but the Street was otherwise unimpressed and the shares fell, with actual revenue down 13% to $7.9 billion.

Investment banking revenue fell 11%, while fixed income, currency and commodities trading was up 20%, but stock trading fell 12%.

Goldman set aside $3.3 billion to pay its employees in the quarter, which was down 13% from a year ago.

Over the past year, Goldman shares are off about 25%.  CEO Lloyd Blankfein hasn’t been earning his paycheck.  Dick Bove, a longtime securities analyst, said Blankfein oversaw a “lost decade” by doubling down on trading and investment banking – businesses being squeezed by low interest rates and regulation.

--Morgan Stanley reported revenues fell 7% to $8.9bn in the second quarter, better than analysts’ forecast, while earnings, while down to 75 cents from 79 cents a year ago, handily beat the Street as well.

Chairman and CEO James Gorman said the market environment had improved from a very rocky first quarter but was still looking “fragile” at the start to the third quarter.

The bank’s fixed-income and commodities unit – the focus of major headcount reductions – generated net revenues of $1.3 billion, up a bit on a year ago.

--Bank of America Corp. said it would slash costs another $5 billion by 2018 to deal with persistently low interest rates that are hitting profitability.  BofA has shed about 25% of its workforce since Brian Moynihan became CEO in 2010, with employment falling to 210,000 from 284,000, and more cuts in the offing.

The bank reported a profit of $4.23 billion in the quarter, down 18% from a year earlier, with revenue falling 7% to $20.4 billion, both figures nonetheless beating expectations.

--HSBC’s head of global foreign exchange cash trading, Mark Johnson, was charged by the U.S. attorney’s office in Brooklyn, N.Y., with fraud for currency trades that allegedly profited at the expense of a corporate client.

It’s alleged that Johnson, along with an accomplice, used privileged information that led to a $3.5bn purchase of UK pounds that was “executed in a manner designed to cause the price of sterling to spike...to the benefit of HSBC and the defendants, and at the expense of the Victim Company, despite HSBC’s representations to execute the transaction in the best interests of, and to avoid adverse market impact to, the victim company,” according to prosecutors.  [Adam Samson / Financial Times]

--Shares in Microsoft had their best day in six months as its Intelligent Cloud division reported revenue of $6.7 billion in its fiscal fourth quarter, up 7% from a year earlier, which helped boost Microsoft’s overall sales to $22.6bn, an increase of 2% [adjusted for Windows 10 revenue deferrals].  Sales from its Personal Computing segment fell 4%, but this was predictable as this segment includes the failed Nokia acquisition that Microsoft is in the process of shedding.

Bottom line, CEO Satya Nadella has done a very solid job after taking over from Steve Ballmer in February 2014, with the shares up about 35% since.

--IBM reported total revenue in the second quarter dropped 2.8%, marking the company’s 17th straight quarterly revenue decline, though it wasn’t as steep as expected.  IBM’s cloud-based initiatives are gaining traction, with revenue jumping 30%, compared with 34% in the preceding quarter.  IBM beat on earnings, with net income of $2.5 billion.

--Intel reported disappointing results for the second quarter, with $7.3bn in client computing revenues, which includes PCs, falling 3% year on year, while the ‘internet of things’ (IoT) grew just 2% to $572m.  CEO Brian Krzanich said he expected the PC market’s percentage decline to be in the high single digits for the rest of the year.

Everyone is talking of cloud and IoT growth in areas like industrial applications and security video cameras that saw stronger growth.

Intel shares fell on the lackluster report.

--Qualcomm, on the other hand, reported revenues grew 4% compared with the same period a year ago, with net income 22% higher; Qualcomm reporting stronger demand for its chips that power smartphones.  The company is also apparently having more success in getting some Chinese tech companies to pony up back sales and royalties.

--Japanese telecom group SoftBank has made a $30 billion+ bid for Arm Holdings, the Cambridge, UK-based technology company.  Hermann Hauser, the founder of Arm, said it was one of the “sad and unintended consequences” of Brexit.

SoftBank said it intended to create at least 1,500 new Arm jobs in the UK in the next five years and that Arm would maintain its headquarters in Cambridge.

But the move by SoftBank is a bet on the ‘internet of things,’ Arm being a leading smartphone chip designer.

As for the impact of Brexit, Hauser said the timing of SoftBank’s move was helped by a more than 10 percent depreciation in sterling following the June 23 referendum.

--Yahoo reported a 5.2% rise in total quarterly revenue to $1.31 billion in the second quarter, but after deducting fees paid to partner websites, revenue fell to $841.2 million from $1.04 billion.  Yahoo is nearing the end of its process to auction off its core search and advertising business, with a final bidder to be announced soon, apparently Verizon at $5 billion, slightly higher than expected.

Yahoo announced a second write-down on Tumblr, a blogging site that Marissa Mayer, CEO, bought for nearly $1bn shortly after she became chief executive.  Tumblr has failed to generate revenue, with the value of the business now being written down over $700 million.

--Southwest Airlines reported disappointing earnings on Thursday, while on Wednesday, technical issues forced the delay or cancellation of up to 700 flights, which was solely its fault.

--United Airlines reported a 50% drop in net earnings as revenues declined 5.2% to $9.4 billion, with passenger revenue for the miles flown declining 6.6%, United suffering from a strong dollar.  But fuel cost nearly 32% less in the quarter than a year earlier.

Another positive is that United is, finally, nearing the completion of its 2010 merger with Continental Airlines, as if reaches tentative agreements with the last unions (like the flight attendants) that have been an outstanding issue.

United has also agreed to pay a $2.25 million fine to avoid prosecution for a bribery route provided for David Samson, the former chairman of the Port Authority of New York and New Jersey, and friend of Chris Christie, who pleaded guilty to bribery for requiring a money-losing flight twice weekly from Newark to Columbia, S.C., near his vacation home.  Talk about a dirtball.

--Schlumberger, the world’s largest oilfield services group, said the worst is over in the industry’s downturn.  CEO Paal Kibsgaard said in a statement accompanying the second quarter earnings report: “In spite of the continuing headwinds we now appear to have reached the bottom of the cycle.” [FT]

Schlumberger cut 16,000 jobs in the first half of 2016, bringing the total to about 50,000.

--The national average for regular, unleaded gasoline is $2.21 per gallon, the lowest mark for this time of year since 2004, with about 1 in 4 stations selling gas for less than $2 per gallon.

--So you know how I have been warning about foreign investments in China, such as Apple’s, and how at any moment the Chinese government can invoke nationalism to hurt foreign company sales, i.e., it’s highly risky to count on operations there being a long-term success?

With the recent ruling by an international tribune in The Hague against China, regarding maritime rights in the South China Sea, Beijing is doing just that.  One of the initial victims is KFC, with Julie Makinen of the Los Angeles Times reporting that in the city of Tangshan, “scores of protesters carrying Chinese flags unfurled a red banner outside one of the fast-food outlets. ‘Boycott the U.S., Japan, South Korea and the Philippines; love our Chinese nation,’ it declared.  ‘What you eat is American KFC; what is lost is the face of our ancestors.’

“A video that circulated on Chinese social media sites captured a protester outside the restaurant trying to persuade three young men not to go in. ‘If there is a war, every bomb the U.S. uses on us will have some share of your money,’ he chides.  ‘If you stop now, you are still Chinese. If you enter, when the U.S. and the Philippines start the war, you will all be traitors.’ The prospective customers then appear to walk away.”

--Starbucks reported quarterly sales growth that fell short of expectations, with global same-store sales up 4% in its fiscal third quarter ending June 26, well short of the 5.6% analysts expected.

The Americas region posted the same 4% growth, after rising 7% in the second quarter and 9% in the first.  CEO Howard Schultz called the U.S. café results “an anomaly,” blaming political and social unrest for a “profound weakening in consumer confidence.”

--Dunkin’ Donuts said traffic to its stores fell in the second quarter from a year ago, as McDonald’s and, to a lesser extent, Taco Bell and its $1 value menu eat into Dunkin’s customer base.  Same-store sales rose 0.5%, only because those coming in are spending more.  A year ago the figure was 2.8%.

--Chipotle Mexican Grill reported a bigger-than-expected drop in quarterly same-store sales as demand continues to be hit by a series of food-borne illnesses linked to the chain.  Comp-store sales fell a whopping 23.6%, more than expected.  It is going to be exceedingly difficult for Chipotle to win back customer loyalty.

But the shares rose 6% on Friday, for what reason I don’t know.

--General Mills Inc. announced it was cutting 1,400 jobs, which along with previously announced cuts will mark a reduction of more than 10% in the workforce since spring 2014.

In fiscal 2016, the maker of Cheerios, Haagen-Dazs and Annie’s frozen foods saw sales decline a second year in a row, down 6%.

In New Jersey, General Mills will close a facility in Vineland that makes Progresso soup – affecting 370 jobs, which is devastating for that community.

--Johnson and Johnson beat the Street’s expectations as strong sales of new prescription drugs offset lackluster performance at its consumer health business.

J&J’s share of a cancer drug, Imbruvica, which it is co-developing with AbbVie, almost doubled year-on-year to $295 million, while revenues from other recently-launched products were also strong.

U.S. sales of Remicade, J&J’s blockbuster arthritis drug, were $1.78bn vs. $1.67bn a year ago.

But the company’s consumer products division continues to struggle.  Band Aids sales are down 25% to $272m.  C’mon, parents.  If you know your kids are in their room, playing video games or Snapchatting, kick them outside and tell them to go to the field or play in the street.  Eventually they’ll need a Band Aid then and you’re helping J&J and American workers...really. 

--General Electric Co. beat the Street on earnings for the quarter, but industrial orders – a key measure of future demand for GE’s jet engines, power turbines and such – fell 16% in Q2.  The shares fell 2% in response.

CEO Jeff Immelt said the outlook for the global economy “is no better, no worse” than earlier in the year.  Revenue from the company’s oil and gas division fell 22% and Immelt said he saw no likelihood that the sector would improve in 2017.

--Southern California home prices rose 5% from a year earlier to hit $464,000 in June, according to CoreLogic.  The median price in Orange County surpassed its bubble-era high of $645,000 in May, climbing to $657,500 last month.

--Speaking of Southern California, Newport Beach being the headquarters for PIMCO, the giant money manager appointed Man Group PLC CEO Manny Roman as its new CEO, following management upheaval and massive outflows at the bond manager.

Roman was a former Goldman Sachs banker who led a turnaround of Man Group, the largest public hedge fund operation.  Douglas Hodge, the current CEO, will move aside and become a managing director and senior adviser.

--Shares in Netflix tumbled about 15% after the digital-streaming service announced it had signed up only 1.7 million new subscribers when it had originally forecast 2.5 million for the recent quarter.  But it was more than this.  As Jeffrey Goldfarb of Reuters put it:

“Netflix just served up a linguistic doozy for the annals of corporate obfuscation. In reporting its second-quarter results on Monday, (the company) threw around the mortifying ‘un-grandfather’ to mean raising prices on longtime customers. It’s the sort of hilarious term a television watcher would expect to hear on ‘Silicon Valley,’ the hit HBO sitcom that slyly skewers startup culture....Investors have become all too accustomed, and maybe immune, to creative entrepreneurial phraseology. Words like ‘pivot’ and ‘acqui-hire’ have become just as big a part of the vernacular as explanations of profit that depart from accounting conventions.”

Anyway, Netflix said it expected to add 2m overseas subscribers in the third quarter, below Wall Street’s forecasts.  The domestic subscriber growth outlook was also way below estimates.

Sales in the second quarter did rise 33% to $1.97bn.

--Morningstar reported that the shift from actively managed investment funds to low-cost index trackers accelerated last month, with $21.7bn flowing out of actively managed U.S. equity funds in June, the worst monthly figure since October 2008, while passive funds, including ETFs, took in $8.7bn.

Fidelity and Franklin Templeton suffered outflows of $3.8bn and $3.7bn respectively last month. [Financial Times]

--Fox News has been the dominant force in cable news, a cultural phenomenon as Roger Ailes has directed the ratings juggernaut the past two decades, turning Fox into a cash cow.

But with the sexual harassment suit brought by former Fox News host Gretchen Carlson, and then others following with allegations, including Megyn Kelly, Fox parent 21st Century Fox decided to end Ailes’ reign and he resigned on Thursday.

Rupert Murdoch, 85, longtime head of Fox, let Ailes run Fox News as he saw fit and the network brought in $1 billion annually in profits ($1.5bn last year, nearly four times that of CNN, according to SNL Financial), but now Murdoch’s sons, James and Lachlan, are running the family business with their father and they’ve never been comfortable with Ailes, so the lawsuit gave them an excuse to jettison Fox’ chief.  Rupert is taking over for Ailes on an interim basis, in an acknowledgement there are no obvious successors, but also in an effort to convey stability.

One thing Fox watchers are anxiously following is the status of Sean Hannity, Bill O’Reilly and Greta Van Susteren, who all have clauses in their contracts that allows them to leave should Ailes go.

Back to Kelly, she told investigators, according to multiple reports and her attorney, that Ailes made unwanted sexual advances toward her about 10 years ago, when she was a young correspondent at Fox.  New York magazine reported she described the events in detail.

But recently she was on video praising Ailes.  Ailes’ attorney, Susan Estrich, said: “Roger Ailes has never sexually harassed Megyn Kelly. In fact, he has spent much of the last decade promoting and helping her to achieve the stardom she earned, for which she has repeatedly and publicly thanked him.”

It was the Murdoch sons’ who opened an internal investigation after Carlson’s lawsuit.

Fox News has been the No. 1-rated cable news station for 15 years.

--Unilever is acquiring Dollar Shave Club for a reported $1 billion in cash.  The company is a four-year-old e-commerce operation with 3.2 million members – but has yet to make a profit.  The founder, Michael Dubin, will remain as chief executive and will now no doubt be able to afford even better razors and blades, should that be his wont. 

Apparently, Dollar Shave Club has cut into Gillette’s market share.

--Christie’s sales of art and collectibles fell 28% in the first six months, as the world’s largest art broker is suffering from a slowdown in the supply of top works.

I need to raise cash and I’ve offered Christie’s my Lew Alcindor rookie card but they don’t seem to have an interest.

--Still thinking about a last minute trip to see the Olympics in Rio?  According to an opinion poll of Brazilians by Datafolha, half of the people surveyed opposed hosting the Games, double the number three years earlier, while nearly two-thirds believe that the role of host will do the country more harm than good.

Also, more than half of Brazilians think Rio’s security problems are a cause of shame.  The police have such awful working conditions that many stations are missing basics such as toilet paper, let alone the fact there are often delays in getting paid.

And on Thursday, authorities arrested 10 members of an Islamist group that was allegedly organizing terrorist attacks, though Brazil’s justice minister called it “an amateur cell without any preparation.”  No arms, for example, had been acquired yet.

There was some good news.  A last allotment of 100,000 new tickets were sold in less than five hours, though officials didn’t say if this batch included tickets previously put up for sale.

--According to the World Health Organization, the Zika virus is spreading rapidly in the Americas.  The U.S. Centers for Disease Control and Prevention concluded that infection with the Zika virus in pregnant women is a cause of the birth defect microcephaly and other severe brain abnormalities in babies.

This week, public-health officials identified the first case in which a woman passed the virus to a man through sex, while it had previously been known Zika could be transmitted sexually from a man to a woman.

We also learned that an elderly Utah man who died after contracting Zika from travel abroad may have spread the virus to a family member who did not leave the country, raising fears about a new transmission route.

And then on Friday it was reported a baby has been born at a New York City hospital with birth defects from a Zika virus infection transmitted by the baby’s mother, a first here, sadly.

The mother was infected outside the U.S. The baby was diagnosed with microcephaly.  As of July 14th, 12 infants have been born in the U.S. with birth defects and evidence of possible Zika infection.  [Wall Street Journal]

--The NBA announced it was moving the 2017 All-Star Game out of Charlotte because a law limiting anti-discrimination protection against the LGBT community has not been overturned; a move Commissioner Adam Silver had threatened to make back in April.

It is estimated the change in venue will cost Charlotte $100 million in economic activity.  New Orleans is apparently the new front-runner to hold the festivities, with the NBA needing to act fast, the event scheduled for Feb. 17-19.

Foreign Affairs, cont’d

Iraq/Syria/ISIS/Russia: U.S.-backed fighters gave ISIS 48 hours to leave the Syrian battleground town of Manbij, amid a report U.S.-led airstrikes nearby killed dozens of civilians.

The raids on Tuesday by the coalition provoked an intense backlash and local protests.  At least 56 civilians, including children, died, with tens of thousands of civilians remaining in Manbij, according to the Syrian Observatory for Human Rights, the British-based activist group whose reporting has been as good as any during the conflict.

Syria’s opposition urged the U.S.-led coalition to suspend its strikes, while international rights groups demanded an investigation.

General Joe Votel, head of U.S. Central Command, said the Manbij operation was a ‘very difficult fight’ with ISIS extremists in various locations.

“And so when it’s a dynamic situation like that...we have to respond.  And I think that’s the situation in which we found this particular operation.”

The Pentagon has acknowledged 41 civilian deaths in its strikes in both Syria and Iraq since 2014, but the Observatory puts the toll at more than 450.  [Agence France Presse]

Manbij is an extremist bastion in Aleppo province and the alliance has been trying to oust ISIS from the strategic town near the Turkish border since June, backed by heavy airstrikes.

Meanwhile, in second city Aleppo, government forces continue to tighten their siege of rebel-held districts, where 200,000 still live in conditions that are truly hellish.

But on Friday, nearly 40 Syrian soldiers and pro-government fighters were killed when rebels blew up a tunnel under a government position in Aleppo, according to the Observatory and AFP. The blast brought down a building used by the government.

Editorial / Wall Street Journal

“John Kerry was in Moscow this week, where he invoked Thursday’s terror attack in Nice to press the need to broker an end to the civil war in Syria.  ‘Nowhere is there a greater hotbed or incubator for these terrorist than in Syria,’ he said, and on that score he’s right.  Too bad another bad deal with Russia isn’t likely to achieve that goal.

“The Administration wants the Kremlin to force Syrian dictator Bashar Assad to ground his air force, which continues to use barrel bombs and chemical munitions against civilian targets in rebel-held areas.  In exchange, Mr. Kerry is offering Russia enhanced intelligence cooperation, including target coordinates for Russian bombers to attack Islamic State and the al Qaeda-linked Nusra Front.  Longer term, Mr. Kerry wants Russia to help ease Assad out of power as part of an overall political settlement for Syria.

“That might be a reasonable bargain – if only Vladimir Putin had any record of abiding by previous commitments. The Russian president deployed his air force to Syria last year after spending four years blocking every effort at the United Nations to censure the Assad regime.  From the beginning his planes have bombed marketplaces, pediatric hospitals, Turkmen villages and other non-ISIS targets in areas besieged by regime forces....

“As for Syria, Assad will continue to consolidate his grip on power, whether or not there’s a deal, while Russia and Iran extend their sway in the eastern Mediterranean.  The refugees will continue to pour out of Syria.  Syria’s neighbors will continue to be destabilized, as the unfolding coup attempt in Turkey makes clear.  And the tide of terror moving toward the West will not soon wane.”

In Iraq, powerful Shiite cleric Moqtada al-Sadr posted on his website that the new U.S. forces being sent to Iraq, 560, “are a target for us.”

There are, though, already thousands of American military personnel in Iraq as part of the anti-ISIS fight and Sadr hasn’t directly threatened them as yet.

Sadr’s own forces, once called the Mahdi Army but now Saraya al-Salam, have taken part in anti-ISIS operations but their main responsibility these days has been to protect shrines and other religious sites.

Iran: The Associated Press reported that the unpublished side deal to the Iranian nuclear accord is even more disastrous than the rest of the agreement.  It relaxes key restrictions on Iran’s nuke program in just over a decade, not the 15 years the White House has been saying.

Editorial / New York Post

“As of January 2027, Iran can start replacing its mainstay centrifuges with thousands of advanced machines up to five times as efficient as what it now has.

“Bottom line: The time Iran needs to produce a nuclear bomb would be cut in half, or worse.  If Obama’s correct that the current rules leave Tehran a year from sprinting to the bomb, it’s become at most six months.

“And because the secret deal doesn’t spell out what happens after year 13, it could mean an end to all restrictions on centrifuges.

“The head of the Institute for Science and International Security, a go-to agency on Iran’s nuclear program, says the side deal ‘will create a great deal of instability and possibly even lead to war.’

“Yet just last week, the president boasted that his deal – which provides the mullahs with tens of billions in sanctions relief for use on terrorism – is ‘avoiding further conflict and making us safer.’  Really?

“All this proves that Israeli Prime Minister Benjamin Netanyahu, whom Obama openly mocked as a scare-monger for warning that Iran’s ‘breakout time’ was six months or less, was anything but.

“Since agreeing to the deal, Iran has kept on testing ballistic missiles that can deliver nuclear warheads.  It’s also been caught in clandestine efforts to illicitly acquire high-level nuclear technology and equipment.

“It’s becoming alarmingly clear that Team Obama played the American people – and the congressional Democrats who supported the deal – for fools.”

Israel: Regarding the threat Hizbullah poses to Israel, I just wanted to get down some facts from a recent extensive report by Jonathan Spyer in the Jerusalem Post.  While Hizbullah remains a potent force, it’s heavy involvement in Syria, defending Bashar Assad, has weakened its potential to stage a largescale war against Israel.

More than 1,000 Hizbullah fighters have died in Syria, and it remains fully committed to the regime’s effort, with around 6,000 fighters deployed in the country at any given time.

In terms of Lebanon, while Hizbullah remains dominant, the role it is playing in Syria is hurting its “strategic function as a generator of legitimacy for its patron, Iran.”

“Hizbullah is now seen throughout the Arab world as a Shia sectarian force, engaged mainly in the killing of Sunnis.  For as long as the Syrian war continues, it will be impossible for Hizbullah to shake this image.  There are also indications of growing discontent even among Hizbullah’s own Lebanese Shia community at the seemingly endless bloodletting in Syria and the movement’s role in it.”

On the other hand, its involvement in Syria gains it experience and expertise.

Libya: France said three of its soldiers were killed in a helicopter crash in Libya, the first acknowledgement by the government that it has special forces in the country; the three being on a secret mission near the coastal city of Benghazi.

President Francois Hollande said on Wednesday: “Libya is going through dangerous instability and it’s a few hundred kilometers from European Coasts. We are carrying out dangerous intelligence operations there.  Three of our soldiers who were taking part in those operations have lost their lives.”

ISIS reportedly has a stronghold in Sirte, a coastal city, with 3,000 fighters there, but Sirte has been the site of an ongoing battle and I have also seen stories that ISIS has been moving some of its force out of the area.

China: Beijing said Monday it was closing off a part of the South China Sea for military exercises, days after the tribunal in The Hague ruled against China’s claim to ownership of virtually all of the waterway.

Editorial / The Economist

“(How China responds to the ruling) is of the utmost geopolitical importance.  If, in its fury, China flouts the ruling and continues its creeping annexation, it will be elevating brute force over international law as the arbiter of disputes among states.  China’s bullying of its neighbors greatly raises the risks of a local clash escalating into war between the century’s rising superpower and America, the current one. The stakes could hardly be higher.”

Geoff Dyer and Tom Mitchell / Financial Times

“Whoever replaces Barack Obama will face many difficult choices but few are likely to be as stark as those in the Asia Pacific region.  In a 497-page, densely argued ruling this week, an international tribunal in The Hague blew away the legal ambiguity that has long surrounded China’s claim to control the bulk of the South China Sea – one of the busiest trading routes in the world.

“How the White House responds to the verdict in the coming months will help define Washington’s relationship with Beijing for years, and dramatically influence the geopolitics of the region....

“ ‘China has to make a decision – is it going to adhere to the rule of law and act like a world leader with responsibilities, or is it going to go its own course,’ says Ben Cardin, the senior Democrat on the Senate foreign relations committee.  However, he adds: ‘They will probably assert their sovereignty by additional island building or military activity.’....

“In the short term, top of the list of potential Sino-U.S. flashpoints is Scarborough Shoal, 140 miles from the Philippines’ coast where China took control three years ago.  Earlier this year, the Obama administration delivered private warnings to Beijing not to begin a new exercise in land reclamation.  Although U.S. officials refuse to say if Scarborough Shoal is covered by the mutual defense treaty between the two countries, some in Washington would like to see a formal declaration in order to deter Beijing.  ‘I think we should be prepared to take military action in Scarborough Shoal’ if China tries to build a new artificial island, says Admiral Dennis Blair, former head of U.S. Pacific Command.  ‘Draw the line there.’”

Lastly, a tour bus carrying visitors from China burst into flames on a busy highway near Taiwan’s capital of Taipei on Tuesday, killing all 26 people on board.  The pictures are horrifying and I was wondering how it was that no one got off.  It seems the back door was locked.

North Korea: Pyongyang fired three ballistic missiles on Tuesday, which flew between 300 and 360 miles into the sea off its east coast, according to South Korea’s military, the latest in a series of provocative acts.  The United States issued its usual lame denunciation.

North Korea has threatened to retaliate over South Korea’s agreement to place a U.S.-operated missile-defense system on the peninsula.

Seoul said on Monday that the North may be preparing to conduct a fifth nuclear test after a spike in activity at a site used for this in the past.

Russia / Ukraine: One of Ukraine’s most respected journalists was killed by a car bomb in Kiev on Wednesday morning, rattling the political establishment and reviving memories of 2000, and the murder of Georgy Gongadze, the founder of Ukrainska Pravda, who was abducted by corrupt police officers, murdered and beheaded.

Wednesday, Pavel Sheremet, a Belarus-born award winning journalist with the same publication, was killed in a move that President Petro Poroshenko said had “a single goal in mind – to destabilize the situation in Ukraine.  I don’t exclude the presence of foreign interests here.”

Arsen Avakov, Ukraine’s interior ministry chief, suggested the possible involvement of Russian secret services.

The Kremlin denied this, with Dmitry Peskov, President Vladimir Putin’s spokesman, saying the murder was “cause for very serious concern.”

Meanwhile, seven Ukrainian soldiers were killed in clashes with pro-Russian separatists in the country’s east between Monday and Tuesday.

Separately, the Interfax news agency reported last weekend that Russia plans to deploy the latest S-400 anti-aircraft missile system to Crimea in August. The S-400 is Russia’s latest such system and is designed to destroy cruise and ballistic missiles.  It can also be used against ground targets.

As to the banning of the Russian Olympic team from the Rio Games, Putin said the decision was highly politicized and probably pushed by the sinister hand of the United States.

But he also pledged cooperation.

India / Pakistan: Violence the past few weeks in Indian-controlled Kashmir has killed at least 36 and wounded over 3,000, most of them by police fire, in the worst outbreak in six years in this disputed territory also claimed by Pakistan.  Indian authorities seized newspapers and shut down cable television last weekend in an attempt to quell the flare-up in tensions.

India claimed it was necessary to shut down cable stations that Pakistan was using to foment trouble.

Random Musings

--Hillary Clinton made a solid choice in Virginia Sen. Tim Kaine to be her running mate; a guy I tabbed a long time ago.  Had she chosen Labor Sec. Thomas Perez, I would have become violently ill.

--In an interview with the New York Times on Wednesday, Donald Trump said he would not pressure Turkey or other authoritarian regimes for cracking down on civil liberties, saying the United States has to “fix our own mess” before trying to influence others.

“I don’t think we have a right to lecture.  Look at what is happening in our country.  How are we going to lecture when people are shooting policemen in cold blood?”

But what got some of us who follow foreign policy closely was his declaration that he couldn’t automatically come to the defense of a NATO country under attack, say in the Baltics, until he saw that country’s contribution to the alliance.

“I would prefer to be able to continue” existing agreements, said Trump, but only if allies stopped taking advantage of us, seeing as how America can’t afford to be policeman of the world.

Trump added the forward deployment of American troops abroad was not always necessary.

“If we decide we have to defend the United States, we can always deploy” from American soil, Mr. Trump said, “and it will be a lot less expensive.”

As for Turkey’s President Erdogan, Trump told the Times, “I give great credit to him for being able to turn that around.”  [David E. Sanger and Maggie Haberman / New York Times]

--John Podhoretz / New York Post

“Ted Cruz is a provocateur – a divider, not a uniter, someone whose political career is characterized by the challenges he poses to the leaders of his own party.

“On Wednesday night, in a jaw-dropping speech that led to the longest and loudest set of boos I’ve ever heard for a speaker at any convention, Cruz sought to do to Donald Trump what he has done to Mitch McConnell – the Republican Senate leader against whom he has set himself from the moment he came to Washington in 2012.

“He was setting himself up either as the internal GOP critic for a Trump presidency or the voice of conscience for a GOP trying to repair itself after a Trump defeat.

“In this case, he intended to offer his challenge subtly – though a text that did not explicitly endorse Trump and instead called for ‘leaders who stand for principle.  Unite us all behind shared values.  Cast aside anger for love.  That is the standard we should expect, from everybody.’

“Subtle it may have been, but not subtle enough to evade the rage of the Trump campaign.  Evidence suggests the Trump camp had decided it was going to punish Cruz for this impertinence....

“Cruz is a daring politician, and takes risky steps to advance his own interests.  His leadership in forcing the government shutdown in 2013 was ill-advised and pointless, but it served to set him up as the outsider-insider, the DC GOP senator who rejected the working order of the Republican Senate....

“The question now is whether Cruz helped or harmed himself, and the answer depends entirely on November.”

--Peggy Noonan / Wall Street Journal...on Ted Cruz...

“If you can’t endorse, good for you and stay home. That isn’t politics, it’s basic human comportment.  If someone you’re certain is awful invites you to a party, you politely decline.  You don’t go, walk into the room, and punch your host in the head.  Mr. Cruz miscalculated, thinking if he snubbed Trump half the delegates would cheer.  Instead almost all booed.  He thought the media would laud his courage and integrity.  They saw him as wounded and treated him as prey.

“When his campaign ended in June, I attended a small dinner in his honor.  Mr. Cruz was charming, modest and funny.  When we said goodnight I told him I felt, in retrospect, that I hadn’t always been just to him and was glad I’d have a chance to be more generous in the future.  Apparently I will need still more time. What a jerk.”

My Republican Party is frankly loaded with jerks.

--David Brooks / New York Times

“Does anybody else have the sense that Donald Trump is slipping off the rails?  His speeches have always had a rambling, free association quality, but a couple of the recent ones have, as the Republican political consultant Mike Murphy put it, passed from the category of rant to the category of full on ‘drunk wedding toast.’

“Trump’s verbal style has always been distinct.  He doesn’t really speak in sentences of paragraphs.  His speeches are punctuated by five- or six-word jabs that are sort of strung together by connections that can only be understood through chaos theory: ‘They want the wall...I dominated with the evangelicals...I won in a landslide...We can’t be the stupid people anymore.’

“Occasionally Trump will attempt a sentence longer than eight words, but no matter what subject he starts the sentence with, by the end he has been pulled over to the subject of himself. Here’s an example from the Mike Pence announcement speech: ‘So one of the primary reasons I chose Mike was I looked at Indiana, and I won Indiana big.’  There’s sort of a gravitational narcissistic pull that takes command whenever he attempts to utter a compound thought.”

--Michael Goodwin / New York Post

“Pick your metaphor for the world: It’s on fire, it’s spinning out of control, the wheels are coming off, it’s turned upside down.  Whatever your pick, it is unanimous that the job of the next president is to make it better, and to make Americans feel better about the future.

“Donald Trump took a big step forward in making his case by selecting Mike Pence as his running mate. The Indiana governor represents the seasoned, steady, conservative influence missing from the Trump arsenal. He could be the yin to Trump’s yang.

“Their first joint appearance painted the picture. Trump started with a rambling introduction where he strayed from his notes more often than he stuck to them, even catching himself at one point to say, ‘Now back to Mike,’ before beginning another digression.

“Pence, by contrast, was precise and disciplined, delivering his remarks with the skill of a professional pol in the best sense of the word. With his record and reputation for integrity, he adds credibility to Trump’s wild disrupter instincts.”

--It was a pretty remarkable moment when Silicon Valley billionaire Peter Thiel addressed the RNC and declared, “I am proud to be gay. I am proud to be a Republican.”

What was extraordinary was the loud applause he received at a gathering that you would think might not have been as receptive.

--A longtime Trump employee, Meredith McIver, finally fessed up to lifting two passages from Michelle Obama’s 2008 speech for Melania Trump’s address on Monday, saying it was an innocent mistake.  It seems McIver was brought in after Melania ditched a draft by two professional speechwriters.

But for 48 hours the Trump campaign, namely chief strategist Paul Manafort, was lying about whether the passages were even plagiarism, and of course this is all many were talking about rather than the messages of the day that should have prevailed.  Plus Melania did a good job, pilfered passages aside.

McIver said she had “offered my resignation to Mr. Trump and the Trump family but they rejected it,” and that “Mr. Trump told me that people make innocent mistakes and we learn and grow from these experiences.”

Kathleen Parker / Washington Post

“Imitation may be the highest form of flattery, but plagiarism, not so much.

“This is especially so if you’re Melania Trump on opening night at the Republican National Convention.

“Or is it?  By the reaction, both within and without the campaign, you’d have thought the woman had lifted Lady Macbeth’s ‘Out, damned spot,’ or, say, Hillary Clinton’s ‘What difference, at this point, does it make?’

“Instead, Trump – or one of her speechwriters – lifted nearly 60 words from Michelle Obama’s speech at the 2008 Democratic convention.  The lines in question fall squarely in the category of boilerplate.  Banal, in other words, such that one wonders why anyone would bother.

“This isn’t to disparage Obama’s speech, which was original to her and benefited from the ring of authenticity and the future first lady’s passion.  Repeated by Trump, it was as inspiring as a fortune-cookie platitude....

“How simple it would have been the day after to say ‘oops’ and move along....

“It is doubtful that anyone beyond the media (or the Trump campaign) cares much about this scandalous affront to intellectual property (cough, cough).  Half the country watching Trump’s speech likely weren’t paying close attention to her words, given the visual distraction of her physical presence.

“But, as always, the handling of the episode has become the story....

“Moreover, isn’t the view from Trump Tower that deny-and-cover is Clinton’s template?”

--I was at a gathering Wednesday night and we all ended up talking politics and the convention, and it was funny how many of us said we were initially voting for John Kasich, but then what a jerk he has been in not attending the convention in his home state.

I did tell you, though, that when he was running and I was supporting him, that I understood he had his prickly side, and the inside scoop was that he wasn’t likeable, personally, despite his touchy-feely campaign schtick.  Well he just offered more proof of the kind of guy he can be.

--I got a kick out of the stories that said Chris Christie was furious he hadn’t been selected as Donald Trump’s running mate.  That’s really amazing, given the governor’s sizable baggage, that would require him paying an extra fee when taking a flight.

Trump campaign manager Paul Manafort was overheard by the Weekly Standard’s John McCormack talking about Christie’s state of mind.  When someone said to Manafort, “Christie was livid, right?” Manafort replied, “Yeah.”

Yes, Christie was first to throw his support behind Trump, back in February, and he has been a staunch supporter since, but no way would he be a plus on a ticket with Trump.  If, and it’s a big if, he continues to skate by with regards to Bridgegate, I can easily then see him as attorney general, and he’s more than qualified for that position.

But his approval rating in New Jersey continues to plummet and he’s under increasing pressure to resign because the work of the state is getting ignored.

--Former Ku Klux Klan leader David Duke announced he was running for the U.S. Senate in Louisiana.  Duke is a vocal Trump supporter, so some media outlets will have a field day with this.  Duke is one of nine Republicans running for the seat being vacated by David Vitter.

--A poll of 1,915 active-duty troops, reservists and National Guard for Military Times shows Trump receiving 49.5% to Clinton’s 20.5%, and Gary Johnson 13%.

Enlisted troops favor Trump over Clinton 55 to 17.

Officers favor Trump 40 to 26.

--Wright State University in Ohio has opted to pull out of hosting the first presidential debate, slated for Sept. 26, because the president of the school, David Hopkins, said, “I can’t assure the safety of our students and the community.”

Hopkins cited recent terrorist attacks and the rising cost of security.

The Commission on Presidential Debates said the debate will instead be held at Hofstra University in Hempstead, N.Y.

--The July 25 issue of Army Times had this from Leon Shane III (who technically authored this for Military Times):

“More than 70,000 veterans disability claims are currently backlogged in Veterans Affairs processing centers, seven months after department officials missed their public goal of getting the number down to zero.

“VA Acting Under Secretary for Benefits Thomas Murphy said that figure includes a substantial number of claims left open longer than four months intentionally to ensure veterans are receiving all of the payouts they deserve.  But he acknowledged his agency needs to drive that number down further....

“Roughly one in five benefits claims submitted to the Veterans Benefits Administration ends up taking longer than four months to process.”

--Sumathi Reddy / Wall Street Journal

“Scientists are finding a growing number of ways placebos appear to bring about real health benefits in patients....

“Studies have shown that administering placebos reduces pain and symptoms in patients with irritable bowel syndrome and migraines, even when patients know they are taking a placebo.  Scientists are exploring if they can get the same result in chronic back pain and cancer-related fatigue....

“Dozens of studies have shown that the power of placebos goes beyond patients’ imaginations, says Prof. Kaptchuk, of Beth Israel Deaconess.  This was first demonstrated in 1979 when patients in a dental-pain experiment were given a placebo they thought was a painkiller, he says.  About one-third of them reported less pain.  Subsequent drugs to block the action of painkillers removed the placebo effect.

“The study showed placebos cause the brain to release endogenous opioids, or endorphins, that reduce pain, Prof. Kaptchuk says.   Subsequent research has found that other substances are also activated by placebos, including endocannabinoids and dopamine, part of the brain’s reward system.”

--Authorities on Monday said they believed the gunman who opened fire in Baton Rouge the day before, killing three police officers and wounding three others, clearly targeted them.

Col. Michael Edmonson of the Louisiana State Police said, “There is no doubt whatsoever that these officers were intentionally targeted and assassinated.”

Police added they believe the gunman, Gavin Long, could have gone on to continue his violent rampage were it not for him being taken down by a Baton Rouge officer firing a shot from more than 100 yards away.

31 officers have been fatally shot in the line of duty this year, including one in Kansas City this week, almost double the number from this point last year.  [This includes the two bailiffs, both deputized sheriffs, killed in a Michigan courthouse the previous week.]

---

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

God bless America.

---

Gold $1323
Oil $44.19

Returns for the week 7/18-7/22

Dow Jones  +0.3%  [18570]
S&P 500  +0.6%  [2175]
S&P MidCap  +0.6%
Russell 2000  +0.6%
Nasdaq  +1.4%  [5100]

Returns for the period 1/1/16-7/22/16

Dow Jones  +6.6%
S&P 500  +6.4%
S&P MidCap  +11.0%
Russell 2000  +6.8%
Nasdaq  +1.9%

Bulls 54.4
Bears 23.3  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore