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08/01/2015

For the week 7/27-7/31

[Posted 10:30 PM ET, Friday]

Edition 851

Washington and Wall Street

A funny thing happened on the way to a September rate hike by the Federal Reserve. On Friday, the Department of Labor released its key employment cost index for the second quarter and it showed wages and salaries for U.S. workers rose by the smallest amount since 1982, 0.2% vs. the 0.6% Wall Street was expecting.

Government bond yields on the long end of the curve collapsed in response with the 10-year down to 2.18%; the feeling now being the Fed would not be raising rates with zero inflation pressures.

Just two days earlier, Wednesday, the Fed, in announcing it was staying the course and holding the line on interest rates after a two-day Open Market Committee meeting, said it would raise rates when it had seen “some further improvement” in the labor market.

So now it would be easy for the Fed to lay back another few months and not “lift-off” in September. But we do have lots of data between now and then, including two key employment reports, and the Fed may yet proceed with a 25 basis point hike in the funds rate next confab.

In other economic news, Thursday brought the first look at second-quarter GDP and it came in at just 2.3%, less than forecast, though the first quarter’s contraction of 0.2% was revised to up 0.6%. [Kudos to the Atlanta Fed’s GDPNow indicator that forecast Q2 would come in 2.4%.]

But this was also a day when the government made its annual revisions to past numbers, going back three years, and it turns out between 2012 and 2014, GDP increased at an average annual rate of 2%, down 0.3 percentage points from prior estimates. 

And while it was great the first quarter of 2015 was revised into positive territory, the fact is first half growth was just 1.5%, even slower than the prior three years. So much for 2015 being a growth breakout year...we’re still waiting for one.

That said, job gains, if not wages, have been solid and the key housing sector is doing fine. Consumer spending also rose 2.9% in the second quarter, compared with 1.8% in Q1, so perhaps some of the savings at the gas pump are now being spent.

But another component of the GDP report, business spending, contracted in Q2 for the first time since 2012. Nonresidential fixed investment – spending on items like software, research and development, equipment and structures – retreated at a 0.6% rate, compared with growth of 1.6% in the first quarter. [Kate Davidson / Wall Street Journal]

Editorial / Wall Street Journal

“(With the revisions from the Bureau of Economic Analysis)...Since the recession ended in June 2009, the economy has grown at an annual rate of about 2.1%. That’s 0.6-percentage points worse than even during the much-maligned George W. Bush expansion. Growth averaged more than 3% from 2003-06, but the best growth during the Obama years has been 2.5% in 2010, and in both 2011 and 2013 it nearly slipped back into recession....

“The slow-growth Obama era has given way to multiple explanations and excuses from the President’s economic advocates. They blame the hangover from the financial crisis (even six years later), foreign economic problems, the failure of government to spend and tax more, an aging population – anything but the policy differences between those previous eras and this one....

“Maybe it’s time to try something new – or, more precisely, return to the policies we know worked so well in the past. Freeze and roll back stifling regulation. Reform the tax code to unleash investment and raise wages....

“Much is being made of the angry middle-class – those supporting Bernie Sanders and Donald Trump – in the waning days of the Obama Administration. But this public frustration is no great mystery. This is what happens after a lost decade of slow growth and stagnant incomes. This is why we can’t afford more of the same policies that have produced this six-year slough.”

The S&P/Case-Shiller 20-city home price index for May was up 4.9% over May 2014. All 20 cities posted year over year gains, with Denver leading the way, up 10.0%, and San Francisco up 9.7%.

June durable goods (big-ticket items) were up 3.4%, and up 0.8%, ex-transportation, which for the latter was its best since August, while the Chicago Purchasing Managers’ index for July was 54.7, much stronger than expected.

July proved to be the seventh worst month on record for the S&P GSCI index that tracks 24 commodities, going back to 1970, as the GSCI hit its lowest level since Feb. 2002. West Texas Intermediate, the oil price I quote weekly down below, finished down about 20% this month, the worst drop since a 33% fall in October 2008. Big producers such as Saudi Arabia and Iraq are producing at record levels and now the market will be looking at increased production from Iran. I detail the damage down below in terms of the major oil companies, and thousands more jobs are going to be lost.

[I don’t have time to detail some of the damage in the hedge-fund industry as a result of the commodities swoon but will next time.]

Finally, with the House now in recess until after Labor Day, and the Senate about to follow suit, that means there are only about 10 legislative days left once everyone returns before the Oct. 1 deadline for a new budget. While there isn’t a lot of talk about a government shutdown at this time, there probably will be come September as President Obama has vowed to bust the spending caps, sequestration, he’s been under since 2011, while rejecting any Republican attempts to increase defense spending without also boosting spending on some of his favored domestic programs.

The presidential campaign is going to play a role in the process with senators like Rand Paul and Ted Cruz looking to either defund programs or to stop the Iran nuke deal by attaching riders to a budget bill. House Speaker John Boehner has already conceded there will most likely be a short-term budget extension to keep the doors open.

Friday, President Obama signed a three-month extension to the highway-funding program, which will run out Oct. 29. Stay tuned.

Europe and Asia

Talks on a third Greek bailout are already off to a poor start, plus one week later than expected, with many details to be worked out before an Aug. 17 deadline. But at least the Athens stock exchange will finally reopen on Monday, which should be interesting.

Greece’s creditors have vowed they won’t be stampeded into a rushed agreement, especially when there is so little confidence Greece can stick to its promises. Again, the key word is ‘implementation.’

The International Monetary Fund’s board concluded Athens’ high debt levels and poor record of implementation disqualify it from further aid, so if the IMF doesn’t join the latest rescue package, what happens then? The IMF said it may not decide for months whether to become a party to a new program, which has a big impact on Germany, which has insisted the IMF must be part of any bailout or the Bundestag won’t go along.

At the same time, Greek Prime Minister Alexis Tsipras’ Syriza Party is in disarray with the hard-left members demanding the government break off negotiations and return to its anti-bailout roots.

For their part, eurozone officials are insisting on immediate pension reforms before any of the 86bn euro (over three years) is to be disbursed.

Tsipras did stave off the challenge to his premiership, for now, with the party agreeing to hold an emergency congress in September, when it is assumed a bailout will have been reached beforehand that will then be put to a vote. Though at that point there is little Syriza could really do.

It also seems likely that Tsipras will call an early referendum, probably for October, to cement his leadership. As he told his party committee on Thursday, the deal he reached was the best he could get. “Whoever thinks another government and another prime minister would do better, they should speak up,” he said.

Then there was this. Former finance minister Yanis Varoufakis faces possible criminal charges over a plan to set up a parallel payments system inside the monetary union.

While he was in control, Varoufakis and a small circle of cohorts established a “surreptitious” blueprint to introduce a euro-denominated alternative currency as a precursor to an exit from the eurozone.

No real surprise there. Everyone was working on alternative plans, both inside Greece and out.

But what earned Varoufakis the ire of many in his country was the revelation that the group hacked into government computer systems to gain access to sensitive taxpayer information and duplicate files for use under the parallel system; so copies of taxpayer files and pin codes were made.

Varoufakis said the plans were all carried out within “the laws of the land, and at keeping the country in the eurozone.”

Friday, Prime Minister Tsipras defended his former finance minister.

“You can blame him all you want for his comments, for his political plans, for his bad taste in shirts... But you cannot say that he is a crook, you can’t say that he stole the money of the Greek people, you can’t say that he had a secret plan to lead the country onto the rocks.”

Tsipras said he had approved of the plans beforehand. “We had an emergency situation response plan, as we ought to, and we should have been held responsible if we hadn’t prepared such plans.”

Lastly, while the Athens stock exchange reopens after five weeks, the capital controls on individuals continue, and most likely will for several months, while bank lending remains virtually non-existent, so the strangulation of economic activity continues though, importantly, tourism is rebounding strongly and last year it accounted for about 10% of GDP. Reminder...foreign bank card holders are not subject to the 60 euro daily limit on cash withdrawals from ATMs that Greeks are. High-end hotels in Athens, Mykonos and Crete are fully booked to the end of September.

But, this last positive aside, the bottom line is the badly-weakened Greek banks need to be recapitalized before any capital controls can be lifted and some sense of true normalcy returns.

---

As for the economic data for the region this week, a flash estimate on euro area inflation for July was 0.2%, annualized, the same as June. But if you strip out energy, the core rate is 1.0%. Energy prices declined 5.6% in July.

Like in the U.S., the European Central Bank wants inflation to be closer to 2.0%, not near zero.

Separately, the eurozone unemployment rate for June was 11.1%, same as May and down from 11.6% in June 2014. Still no real progress. Germany (4.7%) and Czech Republic (4.9%) had the lowest rates. Greece (25.6% in April) and Spain (22.5%) the highest.

Compared with a year ago, Spain declined from 24.5% and Portugal 14.3% to 12.4%. Ireland’s jobless rate is down from 11.4% to 9.7%.

But Italy’s unemployment rate rose the past year from 12.4% to 12.7%. France is unchanged at 10.2%, same as June 2014.

As for the youth unemployment picture, Greece’s rate is 53.2% (April), up from 52.3% in March, and up from 49.4% in June 2014. Spain’s is 49.2%, down from 53.4% year over year. Italy’s has increased to 44.2% from 42.3%.

Separately, the Spanish economy grew by 1% in the second quarter, according to preliminary statistics from the government, up from 0.9% in the first quarter. On the year, Spain is growing at a 3.1% clip. Not bad.

Non-euro U.K. saw growth of 0.7% (2.8% annualized) for Q2, the tenth straight quarter of expansion.

Finally, I have written extensively on the migrant crisis in Europe, which continues to get worse. About the last place on earth you want to be these days is Calais, the French end of the Channel tunnel. Tuesday night, 1,500 migrants tried to enter the tunnel and one was killed when hit by a lorry, the eighth death there since June when the crisis at the French port started escalating.

There have been huge delays for the trains as French and British authorities attempt to work out emergency security measures while keeping up a schedule. Holidaymakers, for example, are bearing the brunt of the disturbances.

Last year I wrote of the hundreds of migrants living in squalid conditions in Calais and today there are as many as 5,000, most having escaped from Syria and Libya, or the likes of Sudan and Eritrea.

On the broader issue of the migrants arriving in Italy and Greece, Greece is now the main route for those fleeing the Middle East. Over 75,000 came in the first half of this year, seven times more than in 2014. In the week to July 17, The Economist reports 8,500 landed on the island of Lesbos, which has a population of 86,000.

What a freakin’ disaster. If you’re making travel plans to the Greek isles, make sure you’re aware of this situation.

---

Turning to Asia, China’s Shanghai Composite Index closed July at 3,663, which meant the ‘blue chip’ China benchmark fell 15% for the month, the biggest drop since August 2009, as the government’s efforts to re-instill confidence have been failing.

The Shanghai gauge had rebounded 16% from the July 8 low through Friday, but then the bottom fell out all over again this past week. Monday, the market fell a sickening 8.5%.

In Japan, a Bloomberg survey of economists has second-quarter GDP coming in +0.8%, annualized, down from the first quarter’s robust 3.9% rate. But one top forecaster with Dai-ichi Life Research Institute said Q2 GDP would fall 2.5%, which would be a big blow for Prime Minister Shinzo Abe.

Street Bytes

--Stocks rebounded from the drubbing they took the prior week, with the Dow Jones up 0.7% to 17689, the S&P 500 up 1.2% and Nasdaq up 0.8%. For July the S&P gained 2.0% but the Dow only advanced 0.4%. The Stoxx Europe 600 (like the S&P) rose 4% in July with the crisis in Greece ebbing for the time being.

In July, Amazon surged 24% and Google 22%.

--Earnings have not been good at all. Yes, the usual 75% or so of companies beat expectations, but this is bogus. According to FactSet, growth in the first quarter for S&P 500 companies was 1.1%, but they are expected to contract at a 2.2% rate in the second quarter when the tallying is complete. The last time the S&P saw a year-over-year decline for the first half was 2009.

Thomson Reuters has first-quarter EPS growth at 2% and pegs Q2 at 0.3%. Choose either one. The numbers are putrid.

And that’s the bottom line. The top line, revenues, is equally poor (actually, negative). Corporate America can manipulate the bottom line through financial engineering, but you can’t mask sales growth, or lack thereof. All of this is in keeping with the opening bit of WIR on the GDP report, especially since 2012.

--Dan Strumpf of the Wall Street Journal had an instructive piece on Monday.

“Six firms – Amazon.com Inc., Google Inc., Apple Inc., Facebook Inc., Netflix Inc. and Gilead Sciences Inc. – now account for more than half of the $664 billion in value added this year to the Nasdaq Composite Index, according to data compiled by brokerage firm JonesTrading.”

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.66% 10-yr. 2.18% 30-yr. 2.91%

--Facebook surpassed expectations on both profit and revenues. The world’s largest online social network said Wednesday it had 1.31 billion people visiting from a mobile device at least once a month, on average, during the quarter, up 23% year over year. Facebook had 1.49bn monthly users overall, up 13%, with 968 million daily active users and 844 million on mobile devices.

According to CEO Mark Zuckerberg, users now spend more than 46 minutes a day on average on Facebook, including photo-sharing app Instagram.

Mobile advertising represented 76% of total advertising revenue during the quarter and Facebook has been steadily growing its share of the digital advertising market. It was 7.9% in 2014 and eMarketer expects Facebook’s share to surpass 9% by the end of the year. Google is expected to maintain its current 31% share. So the two combined are 40% in total.

Facebook’s net income was $715 million and, ex-charges, it earned 50 cents per share.

Revenue was up 39% to $4.04 billion, but expenses rose 82%.

--Meanwhile, Twitter saw ad sales rise last quarter, leading to better than expected revenue, as well as better profits than analysts’ had forecast. Overall revenue reached $502 million.

But there is little user growth at Twitter and interim CEO Jack Dorsey, co-founder of the company, expressed his dissatisfaction on a conference call after the earnings release, promising a better user experience.

Last quarter, Twitter’s monthly user base rose to 316 million, up from 308 million during the prior quarter. But Twitter told analysts it would take a considerable amount of time before it could attract mainstream users and that’s when the share price, in the after-hours market, began to plummet.

User growth in the U.S. has been dismal...as in zero growth two of the last four quarters.

--Yelp Inc., the operator of the consumer review website Yelp.com, reported dismal earnings, a surprise loss for the quarter, and forecast revenue for the current quarter that is far below what the Street had been expecting, sending its shares plummeting.

Yelp reported its slowest revenue growth in 18 quarters and Chairman Max Levchin announced he was stepping down “to pursue other interests.”

--Ford reported a pre-tax profit of $2.9bn in the second quarter, up 10% from a year ago. Net income came in at $1.9bn, one of the strongest quarters in Ford’s history, with the company reaffirming guidance for full-year pre-tax profit of $8.5bn to $9.5bn as North American sales surge.

But Ford forecast flat sales at best in China this year, 23 to 24 million cars, compared with 24 million last year. Should they actually decline, it would be the first time since 1990 that there would be a sales drop there for the automaker.

--Fiat Chrysler was hit with a $105m record fine for its inadequate response to 23 recalls affecting millions of Jeep vehicles, the U.S. National Highway Traffic Safety Administration said.

--Royal Dutch Shell is cutting 6,500 jobs and reducing capital spending by 20% this year. In terms of capex, that’s $7bn less than last year’s levels to about $30bn. Shell reported a 37% fall in second-quarter earnings to $3.8bn.

--Pemex reported its 11th straight quarter of losses, Mexico’s state oil company being battered on a number of fronts, including falling oil prices and reduced production.

The company lost $5.2bn as production averaged 2.22m barrels per day during the second quarter, a decline of 10% on the same quarter last year.

--BP reported a loss of $5.8 billion in the second quarter, reflecting the settlement over the 2010 Deepwater Horizon disaster and oil spill. A 40% fall in oil prices since last year isn’t helping. BP earned $228 million in Q2 from oil and gas exploration and production, compared with $4 billion a year earlier.

The company said it was preparing for a long period of low oil prices with capital expenditures for 2015 expected to be below $20bn, compared with an earlier forecast of $24bn to $26bn before prices started falling.

--Friday, ExxonMobil announced second-quarter earnings plunged 52% despite increased production. It was its lowest profit since 2009. The company cut spending on capex by the same 20% everyone else seems to be. Earnings per share, $1.00, were below expectations.

--After Exxon, Chevron reported miserable profits (its worst in 12 years) due to impairments and charges for suspended projects. Chevron’s revenue fell 30% over year ago levels.

Shares in ExxonMobil and Chevron both tumbled 5% Friday.

--According to Graves & Co., a Houston energy consultant, 150,000 jobs have been lost in the oil and gas industry since prices started to tumble last fall, including 50,000 in the past three months. Now the cuts are extending to engineers and scientists.

--Friday, the U.S. Energy Information Administration announced that the country’s oil production hit a 44-year high of nearly 9.7 million barrels a day in March but has declined to 9.5 million barrels in the two months since. It’s a small difference, but it appears production has peaked.

--Budget airline Ryanair saw its profits jump 25% to $270 million in the first quarter of its fiscal year. Revenue was up 10%, with the number of customers traveling with the carrier up 16% to 28m.

--Merck saw its sales drop 11%, as its key arthritis treatment drug, Remicade, has been hit by knockoffs in Europe, the drug’s sales declining 25%, but the company reported earnings, ex-charges, that exceeded expectations.

--Dupont is suffering from a soft commodities market, chiefly lower prices for crops that are prompting farmers to rein in spending on the animal feed and crop protection products Dupont makes.

Corn prices had actually rallied 17% in the two weeks to July 16 (not that this had anything to do with the second quarter) on worries about a poor harvest, but after heavy rains, the fields have dried out and the weather has been very favorable for growing.  So the corn price fell back 14%.

--Anheuser-Busch InBev NV, the world’s largest brewer, reported net profits fell 32% in the second quarter, while revenue for the maker of Budweiser, Corona and Stella Artois fell 9% from a year ago.

Sales volume in Brazil fell 8% due to a comparison with a year-earlier period during which Brazil hosted the World Cup.

In the U.S. market, sales to retailers fell 2.2%, with Bud Light falling slightly...sales of the Budweiser brand increasingly losing out to craft and Mexican beers.

--Revenue at UPS fell 1.2% in the second quarter, hurt by the stronger dollar impacting its overseas business. 

--Taiwan’s economy grew at the slowest pace in three years as exports collapsed, GDP rising 0.6% in the second quarter from a year earlier, according to the statistics bureau. The pace in the first quarter was 3.4%. Yes, it’s largely about the slowdown in China.

--As Erik Engquist and Andrew J. Hawkins of Crain’s New York Business reported, there is the real risk of an industrywide collapse in New York City’s taxi medallion market. One of the main credit unions has seen delinquencies on medallion loans jump by 22%. It’s now all Uber, which has been growing 3% a month in Gotham. A medallion worth about $1 million two years ago recently changed hands for $700,000, but, as Crain’s notes, “In a mass sale of foreclosed medallions, prices could fall much further.”

[It was announced Friday that Uber Technologies Inc. closed a new round of funding that values the company at about $51 billion, according to a story in the Journal.]

--On Monday, New York Gov. Andrew Cuomo announced an overhaul of LaGuardia Airport that could take 10 years and cost at least $8 billion. Initially, the governor was touting a $4 billion project (taking only five years) and I’m thinking, no way, but various sources said after it would be closer to $8bn (and 10 years) and I’m guessing its $12bn, the way these things go, plus this is a massive project, with three new terminals, including a new Central Terminal Building.

--This is interesting from a business standpoint. “Aspen (Co.), at nearly 8,000 feet elevation, now averages 23 fewer days below freezing each year than it did before 1980. If global action is not taken to reduce greenhouse gas emissions, the average temperature here is expected to rise as much as 9 degrees by 2050.” [William Yardley / Los Angeles Times]

Forget whether you believe the global warming story or not...I have said since day one of this column it should be called “global pollution”...major resorts, whether in the Rockies or the Alps, need to scramble to come up with other ways to promote their regions. One reality, golf seasons are being extended a bit. Longer hiking seasons. It’s like the difference between going to college up north and down south, as I did. I always told people spring arrived a month earlier in North Carolina than in my native state of New Jersey, and winter came a month later. It’s not all bad. But just be careful in terms of resort real estate in places like Aspen going forward. [And it’s just a truism...wildfires are becoming a bigger and bigger issue in such places as well.]

--Beijing was selected as host of the 2022 Winter Olympics, which will make it the first city to stage both the Summer and Winter Games. The only competitor was Almaty, Kazakhstan. Don’t ask me how the heck the Alpine events will go, seeing as there are few mountains in the area and little actual snow. Other sports such as hockey, figure skating and speed skating will be held downtown.

The ski events will actually be held at two venues, 40 and 90 miles away. Maybe the Chinese will build an 8,000 foot mountain.

Separately, Boston smartly pulled out of the bidding process on the 2024 Summer Games, with little real support among residents, for starters.

Frankly, I’ve long felt the Olympics should be shelved and instead focus on each sport’s world championships.... everything in prime time.

--Lastly, we will end this segment on some potential great news. Public health experts are hailing a “turning point” in the fight against Ebola, with preliminary results for an experimental vaccine showing it to be 100 percent effective against the virus.

The first large-scale trial was conducted in Guinea. The VSV-EBOV vaccine was developed in record time by the Public Health Agency of Canada, working with two U.S. companies, Merck and NewLink Genetics.

So everyone keep your fingers crossed. In the future, every contact at risk of infection would receive the vaccine immediately and it will be huge for the frontline health workers.

The latest World Health Organization tally for the recent outbreak was 27,836 recorded cases in Guinea, Liberia and Sierra Leone, with 11,280 deaths. [Financial Times]

Foreign Affairs

Iran: The latest Pew poll has Americans disapproving of the Iranian nuclear deal by a 48 to 38 percent margin. A new CNN/ORC poll had 52% wanting Congress to oppose the deal, while 44% said it should be approved.

But it just doesn’t seem likely that more than a dozen Senate Democrats and almost 50 House Democrats will defect from the president and vote both to disapprove and then to override President Obama’s veto.

With Congress in the midst of its 60-day review of the accord (Sept. 17 is the deadline), the administration noted in a report to Capitol Hill that Iran isn’t likely to admit to having pursued a covert nuclear weapons program, but that this wasn’t critical to verifying Iranian commitments going forward, which is absurd.

This is a crucial point in that the International Atomic Energy Agency may not be able to ascertain conclusively what Iran’s past intentions were and the nuclear deal just agreed to wasn’t supposed to go forward without the IAEA being satisfied Iran answered all its questions on issues such as the disputed military base at Parchin I have harped on for years.

Iran is required by mid-October to satisfy the IAEA and give its inspectors access to suspected sites, scientists and documents.

The IAEA was then to publish a report by year-end on Iran’s alleged past military work. That’s when the real sanctions relief is to kick in.

But now it’s clear there was a secret agreement between the IAEA and Tehran spelling out how the U.N. agency will complete its probe.

As reported by the Wall Street Journal’s Jay Solomon: “Some senators complained last week that they were told by administration officials that Iran would be allowed to manage some of the IAEA’s investigation. They said they were told Tehran would conduct its own soil sampling at a military site called Parchin, where, allegedly, explosive devices were tested.

“ ‘We’re going to trust Iran to do their own testing? This is absolutely ludicrous,’ Sen. James Risch (R., Idaho) told Obama administration officials at a congressional hearing last week.

“Sen. Robert Menendez (D., N.J.) said: ‘Chain of custody means nothing if, at the very beginning, what you’re given is chosen and derived by the perpetrator. If that is true, it would be the equivalent of the fox guarding the chicken coop.’....

“Former U.S. intelligence officials have questioned White House claims that it already knows enough about Iran’s overall program to ensure the Vienna agreement is properly verified.

“They said the U.S. and IAEA initially failed to detect major advances in Iran’s nuclear program, such as the construction of a uranium enrichment facility in the city of Natanz and a heavy water reactor in Arak.

“ ‘We, of course, do not have total knowledge of how much progress the Iranians had made,’ the former head of the Central Intelligence Agency, retired Gen. Michael Hayden, told a recent congressional hearing.”

Iran’s Supreme Leader Ayatollah Khamenei was his usual classy self in tweeting a graphic last weekend that appears to depict President Obama holding a gun to his head

The caption reads:

“US president has said he could knock out Iran’s military. We welcome no war, nor do we initiate any war, but if any war happens, the one who will emerge loser will be the aggressive and criminal U.S.”

Lee Smith / The Weekly Standard

“Last week the secretary of state’s nose grew longer and longer nearly every time he opened his mouth. According to the terms of the deal, said Kerry, Iran is not allowed to fund and arm terrorist allies Hizbullah. Nope, said the Iranians, correctly, there’s nothing like that in the deal. Indeed, the deal lifts the U.N. arms embargo. Accordingly, Iran’s deputy foreign minister Abbas Araqchi said Iran told the Western negotiators that ‘we will supply arms to anyone and anywhere necessary and will import weapons from anywhere we want, and we have clarified this during the negotiations.’

“Perhaps oddest of all, Kerry kept lying about whether sanctions had been lifted on Quds Force commander Qassem Suleimani. Kerry denied it when the terms of the deal were first made public. Administration spokespersons set the record straight, explaining that, yes, U.N. nuclear-related sanctions would no longer apply to Suleimani in eight years’ time. And yet in a press conference with Saudi foreign minister Adel Jubeir two days after the correction had been made, Kerry still insisted Suleimani was not coming off the sanctions list....

“The administration’s stealth, subterfuge, and lies have revealed one very big truth: It knows the deal won’t withstand the scrutiny of the American people and their representatives.”

Niall Ferguson / Wall Street Journal

“Why should Iran suddenly mend its ways? In return for merely slowing down its pursuit of nuclear weapons, it is being handed up to $150 billion in previously frozen assets, a commercial bonanza as sanctions are lifted, and the prospect of an end to conventional arms and ballistic-missile embargoes after, respectively, five and eight years. All Iran has to do is keep the International Atomic Energy Agency happy that it is sticking to its nuclear commitments. There will be no ‘snap back’ of sanctions if Tehran opts to use its new resources to double or quadruple its support for Hizbullah and Hamas, the Assad regime in Syria, and the Houthi rebellion in Yemen....

“Even before (Obama) hands over the White House keys to his successor, we shall see that there was no simple, binary choice between peace and war. We bought time. We postponed Iran’s nuclear breakout. But we also stoked the flames of a conflict that doesn’t need nukes to get a lot more lethal than it already is.”

As for Iran’s neighbors, Saudi Arabia said it wants to buy 600 new Patriot missile interceptors, the first of many such deals as Washington’s allies arm themselves in response to the nuclear deal. As Thomas Karako of the Center for Strategic and International Studies said, “This is the consequence of leaving the Iranian missile program intact and in fact signaling sanctions will go down with it.” [Defense One]

Iraq/ISIS/Syria/Turkey: Turkey and the United States have reached agreement on a general outline for a safe-zone, or “Islamic State-free zone,” a 60-mile-long strip of northern Syria along the Turkish border that could be used as a safe-zone for displaced Syrians. But the details still have to be hammered out...first and foremost, just who really takes the lead and does this represent major mission creep for the U.S.

From the New York Times: “Whatever the goal, the plan will put American and allies warplanes closer than ever to areas that Syrian aircraft regularly bomb, raising the question of what they will do if Syrian warplanes attack their partners on the ground.”

American officials also continue to emphasize the plan is not directed against Bashar Assad, while Turkey and Syrian opposition leaders say it would be a tool against Assad. [Once Assad is gone, the feeling goes, they’ll handle ISIS.]

Meanwhile, Turkey is hardening its stance against both ISIS and Kurdish PKK militants, bombing both last week. The attacks on the Kurds effectively marked the end of a two-year ceasefire and a shaky peace process designed to end the conflict between Turkey and the PKK that has killed more than 40,000.

The problem is, Syria’s Kurdish YPG militia, which is linked to the PKK, has emerged as an effective force against ISIS, and, backed by U.S. airstrikes, the YPG controls as much as half of Syria’s 800-kilometer border with Turkey, and Turkish President Erdogan has said he is determined to prevent the Kurds from forming an independent state in the north of Syria.

Back to Assad, he started the week issuing a decree announcing a general amnesty for military deserters who violated the country’s compulsory conscription law, as Assad attempts to rebuild his battered forces.

The next day, Sunday, Assad said in a televised speech that the army had been forced to give up areas in order to hold onto more important ones in its fight with insurgents.

It was a remarkably frank assessment of the strains the military is facing after four years of war.

“Sometimes, in some circumstances, we are forced to give up areas to move those forces to the areas that we want to hold onto,” Assad said. “We must define the important regions that the armed forces hold onto so it doesn’t allow the collapse of the rest of the areas.”

Currently, the Syrian government controls no more than 25 percent of the country, with the rest divided among ISIS, the Kurdish militia, and other rebel groups like the al-Qaeda-backed Nusra Front.

But Assad said he wasn’t backing down, and that in giving up territory to consolidate elsewhere, he was allowing for later counter-attacks.

Assad is also relying more heavily than ever on support from Iran and Hizbullah, the latter more critical than the former these days. Hizbullah has been engaged in a battle to dislodge ISIS forces near the Lebanese border.

Editorial / Washington Post

“The welcome new cooperation (between Turkey and the United States) could deal a powerful blow to the Islamic State if it succeeds in curtailing the group’s access to the border and its smuggling routes for fighters and supplies. It could also allow for the emergence of a more coherent Syrian opposition leadership and perhaps even an alternative government based in the country itself – something that opponents of the regime of Bashar al-Assad have been advocating for years.

“Nevertheless, the Obama administration’s commitment to the plan looks like another half-step in its approach to Syria. Officials insist there will be no formal no-fly zone over the prospective safe area... Nor has the administration changed its policy of refusing to commit itself to defending rebel forces against the Assad regime, as opposed to the Islamic State....

“What’s still missing is a coherent U.S. strategy for ending the civil war in Syria – something that will be necessary for the ultimate destruction of the Islamic State.”

Yemen: Saudi-led airstrikes killed as many as 120 in the port city of Mukha last Saturday, hours before a five-day humanitarian truce (that then never took hold), in fighting with Iran-backed Houthi rebels who have seized the capital, Sana, and other cities.

The Saudi-backed fighters have made progress in recent weeks after retaking the port city of Aden, and as an expert on Persian Gulf countries at Durham University in Britain told the Washington Post: “The Saudis feel they need to be able to get a foothold back in Yemen again before Iran starts to mobilize and get more committed to this war.”

Israel / Lebanon: Hizbullah leader Sayyed Hasan Nasrallah said Hizbullah will never bow to pressure to normalize ties with Israel.

“Israel is delusional if it thinks that Hizbullah will ever extend its hand to it,” Nasrallah said.

Nasrallah affirmed Hizbullah’s aim remained to foil the Israeli project in Lebanon. He also blamed regional developments for shifting the focus away from the Palestinian cause, saying that Israel is using the unrest in the region to normalize ties with Arab countries.

But as reported in the Daily Star, Nasrallah is increasingly concerned ISIS will assassinate him, so he’s running from one underground bunker to another like a cornered rat in south Beirut.

Also in Lebanon, there have been violent clashes between protesters and security forces over a massive garbage crisis. The protesters are attempting to prevent the government from moving trash piled on the streets of Beirut to a region south of the capital.

Now I’ve been to Beirut twice (2005, 2010) and noted that while it is a beautiful city, its seacoast is heavily polluted and there have always been major trash issues.

So the government finally closed a key landfill that was beyond overflowing, but hadn’t worked out where to ship the city’s trash instead. No one wants it, of course.

I’m glad I’m not there today. I’ve seen pictures of streets I’m familiar with, with huge mounds of trash in them. Talk about disgusting. And you think the rats are having a field day?

[It doesn’t help any that Lebanon has been without a president for 14 months.]

China: The Defense Ministry on Thursday accused the United States of “militarizing” the South China Sea by staging patrols and joint military drills there, ramping up the rhetoric ahead of a key security meeting next week in Malaysia.

Well that shows a lot of chutzpah, seeing as China is of course facing condemnation from its neighbors and the U.S. regarding its creation of artificial islands that are nothing more than military bases, including for its new nuclear submarines down the road.

Adm. Harry Harris, commander of the U.S. Pacific Command, said the U.S. would use military force to defend its interests and its allies against any threats from the islands.

“They are building ports that are deep enough to host warships and they’re building a 10,000-foot runway at Fiery Cross Reef,” Harris said, referring to one of China’s construction activities in the Spratly Islands that Japan has protested. “A 10,000-foot runway is large enough to take a B-52, almost large enough for the Space Shuttle, and 3,000 feet longer than you need for a 747. So, there’s no small airplane that requires a runway of that length. They’re building revetted aircraft hangars at some of the facilities there that are clearly designed, in my view, to host tactical fighter aircraft.”

And the chain of islands will be used as listening posts.

“I think those islands, given the capabilities we have, are clearly and easily targets in any combat scenario with China. But they’re also easily seen as forward operating posts,” Harris added. [Defense One]

Separately, in the latest move by President Xi Jinping to put his stamp on the military, a retired general, Guo Boxiong, who was one of the country’s most senior leaders until his retirement more than two years ago, was expelled from the Communist Party, accused of accepting bribes and abusing his position to help others gain promotions and other benefits. His son, also a general, was put under investigation for corruption in March.

Russia: The Financial Times reported that “Fighter jets from NATO’s Baltic air policing mission have scrambled to intercept 22 Russian aircraft in multiple formations over the past week, including two of the largest interceptions over eastern Europe since tensions with Moscow began to rise 18 months ago.

“In total, NATO aircraft have had to conduct emergency deployments on more than 250 occasions this year over Europe, NATO officials said – the highest number for an equivalent period since the end of the cold war....

“Last Friday, British Typhoon fighter jets stationed at Amari in Estonia were deployed after NATO air defenses picked up 10 Russian aircraft approaching Baltic airspace across the Gulf of Finland.”

Jimbo passed on a piece by Catherine Herridge and Pamela Browne of Fox News that read in part:

“Russia seeks to test the United States at every opportunity and divide the NATO alliance, posing the most significant long term threat to U.S. national security, the head of the U.S. Special Operations Command, General Joseph Votel, told the Aspen Security Forum.

“ ‘Russia is looking to challenge us wherever they can,’ Votel told Fox News’ Catherine Herridge. ‘The intent is to create a situation where NATO can’t continue to thrive.’

“Votel said he did not have ‘unique insights’ into Russian President Vladimir Putin but he believes Putin sees the expansion of NATO ‘...as a threat to him and I think what they (Moscow) are attempting to do is create these frozen conflicts and create situations that are very, very difficult to resolve along their border.’

“That ‘does, could pose an existential threat,’ Votel added.”

On the Ukraine front, President Petro Poroshenko said Ukraine’s military was seeking “just 1,240 Javelin (anti-tank) missiles” to fend off separatist armor. But President Obama continues to refuse to supply Kiev with lethal weapons, committing only to non-lethal aid, including medical supplies, armored cars and radars.

Disconcertingly for Poroshenko is another issue, brought forward by Roman Olearchyk of the Financial Times on Friday. Morale among the frontline troops in eastern Ukraine is awful.

“They complain they are exhausted, underequipped and feel like cannon fodder in an increasingly forgotten but still smoldering war.

“The mood change among the military rank-and-file echoes a broader ebbing of support in society for Ukraine’s post-revolutionary leaders, seen – despite praise from international observers – as slow to deliver on pledges to reform governance and curb corruption.

“It also suggests that if Russia’s continued backing for the eastern rebels is aimed at destabilizing Ukraine, it may be gaining ground.

“Most worryingly for Kiev, many frontline soldiers express admiration for Right Sector, a rightwing militia whose leader last week called for a national no-confidence vote in the government and a new revolution.”

According to a poll by the Kiev International Institute of Sociology, Poroshenko, who garnered 54% support in presidential elections in May last year, would receive only 14.6% today.

The honeymoon is long over.

Lastly, Russia killed off a UN push for an international criminal tribunal to prosecute those who shot down Malaysia Airlines flight MH17. The Russia veto – the sole dissenting vote on the 15-member Security Council – came despite 11 nations voting to establish the tribunal and just three nations, including China, abstaining.

Australian Foreign Minister Julie Bishop told the Security Council it was “inconceivable” that, in a world with a growing number of violent terrorist groups in it, “the Security Council would now walk away from holding to account those who brought down a commercial airliner.” 39 of the 298 killed were Aussies. [Sydney Morning Herald]

Afghanistan: Afghan officials declared this week that the leader of the Taliban, Mullah Omar, died two to three years ago, though no further details were released. While there have been similar reports in the past, this is the first time it was confirmed by top sources in the Afghan government. The Taliban had long denied the rumors, saying he was incommunicado for security reasons.

A Pakistani newspaper claims Omar’s son Yaqoub is replacing him.

India / Pakistan: In one of the bigger attacks on the India-Pakistan border in recent years, three suspected militants mounted a deadly assault on a police station in northern India after attacking a bus. Six died, including three officers, and then the three terrorists were taken out. 

But a few days later, Pakistani police gunned down one of the country’s most-feared terrorists and 13 followers. Malik Ishaq directed a Sunni group that had ties to the Taliban and Al-Qaeda and was believed to be behind the slaughter of hundreds of the nation’s minority Shiites. He was so feared, frightened judges hid their faces from him.

It seems Ishaq, who had been detained days earlier on suspicion of killing two Shiites was killed along with his associates when an attempt to free him from a convoy transporting him failed.

Separately, according to the United Nations, India will surpass China and become the world’s most populous country in less than a decade – six years sooner than previously forecast.

The current global population is 7.3 billion and is forecast to reach 9.7bn in 2050.

Experts predict Africa will account for more than half the world’s population growth in the next 35 years.

Random Musings

--In two new NBC News/Marist polls, Donald Trump is receiving 21% of potential GOP primary voters in New Hampshire, with Jeb Bush at 14%, Scott Walker 12% and John Kasich 7%.

In Iowa, Walker leads with 19%, with Trump at 17%, followed by Bush 12%, Ben Carson 8% and Mike Huckabee 7%.

In the Democratic field, Hillary Clinton leads Bernie Sanders in New Hampshire, 47% to 34%.

In Iowa, Clinton leads Sanders 55% to 26%.

The NBC/Marist survey also found that President Obama’s approval rating is just 43% in Iowa, 41% in New Hampshire.

--In a Monmouth University Poll of likely New Hampshire GOP primary voters, Donald Trump received 24%, double that of Jeb Bush at 12%. John Kasich was third with 7%, as was Scott Walker, while Marco Rubio took 6%.

--In a new CNN/ORC national poll, trump leads among Republicans at 18%, with Bush at 15% and Walker 10%, and this was after Trump’s comments about John McCain’s military service.

Among all registered voters, Trump did have a 59% unfavorable rating, though it’s 42% among GOP voters.

On the Democratic side, Clinton leads Sanders, nationally, 56% to 19%.

--A Quinnipiac national survey of Republican voters has Trump at 20%, Walker at 13% and Bush at 10%.

Hillary leads Bernie Sanders in this one, 55-17, with Joe Biden at 13%.

But in hypothetical matchups, Hillary trounces Trump 48-36, but she loses to Jeb Bush, 42-41, and edges Scott Walker 44-43.

--The Real Clear Politics average of national polls from July 9-25 has Trump in first place with 18.2%, followed by Jeb Bush with 13.7% and Scott Walker with 11.7%

--William Hill, a London-based gambling site, once had the odds of Trump securing the Republican presidential nomination at 100 to 1. Today the odds are down to 8 to 1. [Bush is 11 to 8.]

--I’m sorry, but I have trouble taking Mike Huckabee seriously. And Michael Goodwin of the New York Post nails my sentiments re: a statement of the former governor’s that received quite a bit of press this week.

“Mike Huckabee is mixed up. The GOP presidential candidate got carried away denouncing the Iranian nuke deal and charged President Obama ‘will take the Israelis and march them to the door of the oven.’

“The Holocaust reference equates Obama with Hitler, and the president was right to call the remark ‘ridiculous.’

“Huckabee’s mistake was to conflate evil with appeasement. He should have compared Obama to Neville Chamberlain, the British leader who convinced himself that ‘Herr Hitler’ wanted to avoid war as much as he did.

“After signing the Munich agreement with Hitler in September 1938, Chamberlain boasted that he had achieved ‘peace for our time.’ He advised his countrymen to ‘go home and get a nice quiet sleep.’

“That’s exactly what Obama is doing by trusting Iran, and that’s what Huckabee should have said.

“When the Brits finally woke, they dumped Chamberlain and made Winston Churchill prime minister.

“Does America have a Churchill waiting in the wings? After Obama, we desperately need one.”

--Talk about an unlikable person, that’s Trump lawyer and political adviser Michael Cohen, he of the “you can’t rape your spouse” comment. While Cohan apologized profusely after this caused a brief firestorm, I’ve seen him a few times in interviews and Trump should understand he needs to muzzle the guy.

Meanwhile, the Wall Street Journal interviewed folks in Iowa who have been turning out in large numbers to see The Donald.

“I am the silent majority. He talks for me,” said one retiree.

WSJ: “Republicans who consider themselves disenfranchised from the political mainstream see Mr. Trump as a candidate they have long waited for: Someone who shares their opinions on issues like immigration.”

“I want someone who is going to push all those other people around and be the big dog in the world,” said the owner of a paint company.

--Michael Goodwin / New York Post, on the news two inspectors general from the Obama administration want the Justice Department to investigate Hillary Clinton’s handling of classified material.

“(Clinton) must play defense against her former colleagues in the State Department and intelligence agencies.

“Actually, it’s worse. She’s almost certainly up against the White House.

“Somebody very high in the food chain leaked the memos requesting the probe. The New York Times, which broke the story, identified its source only as ‘a senior government official.’

“My money is on Valerie Jarrett, the Obamas’ Rasputin, who is known to despise Clinton. If it was Jarrett, she would not do this against the president’s wishes....

“(Clinton) had it coming. Her arrogance and bald-face lies about the emails must have infuriated her boss and colleagues. Her decision to conduct government business on a private server in her home and use personal email accounts was a giant ‘f—k you’ to the administration.

“When it was revealed in March that she had deleted tens of thousands of emails before turning over those she deemed government property, she compounded injury with an insulting insistence that she did nothing wrong. Insiders knew that was a big fat lie.

“As I wrote then, Clinton’s claim that she acted out of ‘convenience’ was hogwash. She wanted to keep her correspondence secret from Congress, the media – and also from the White House, and the people it stashed at State to watch her.

“It’s obvious now she underestimated the ammunition she was providing. As a result, she has put her dream of being the second President Clinton in mortal jeopardy.”

As Mr. Goodwin also points out:

“Any honest prosecutor looking at her emails would also look for evidence she traded government favors for contributions to the Clinton Foundation or paid speeches.”

Bill and Hillary “were paid $25 million for speeches in just 16 months, and some of that cash came from donors and companies with business before her.”

“One place to look for information on any conflicts of interest, or worse, would be the 30,000 emails Clinton said she withheld on the grounds they were ‘personal.’”

[Hillary had another late Friday document/email dump. No time to look through it all this week.]

--Some key statistics in a piece in The Weekly Standard by Tom Edmonds. In the 2012 election, 71.9% of those aged 65 and older voted, while just 41.2% of those 18 to 24 did.

Latino turnout was just 48% - far below that of whites (64.1%) and blacks (66.2%).

--Officials believe debris found on Reunion Island, in the Indian Ocean, came from a Boeing 777, making it almost certain it is debris from Flight 370, the Malaysia Airlines jetliner that disappeared in March 2014. It’s pretty easy... no other Boeing 777 is known to be missing.

--Months after overseeing the fraudulent story in Rolling Stone on a supposed gang rape at the University of Virginia, managing editor Will Dana is leaving. When asked about his departure, Rolling Stone publisher, Jann Wenner, said, via a spokeswoman, that “many factors go into a decision like this.” [Ravi Somaiya / New York Times]

Coincidentally, the day Dana announced he was leaving, three graduates and members of the fraternity profiled in the RS story filed a lawsuit against the publication and the article’s author. The men, through their lawyer, said they suffered “vicious and hurtful attacks” because of inaccuracies in the article.

--I have written of the case of Walter Palmer and Cecil the Lion in Zimbabwe in my Bar Chat column and this is an important story. First, if we assume, as Zimbabwean authorities allege, that Palmer did not have the proper license to shoot any lion, then he’s screwed, but one would assume he’d just be fined and the two men who set the trip up and acted as his guides are the ones who you’d think would face harsher penalties.

But it’s bigger than this. I am in no way anti-hunting. I wish all the Canada geese and deer in my area, for example, would be eliminated. I also support the black bear hunts carried out in my home state. We have too many bruins.

In the case of Cecil, though, his case has brought to life the whole idea of trophy hunting, which is carried out largely by Americans. Proponents say the funds raised through the practice help in local conservation efforts, but the far bigger revenue stream for a country like Zimbabwe is basic safari tourism. [Plus, much of the money raised in trophy hunting simply lines the pockets of local authorities.]

My problem with Palmer, and the shoddy reporting, is if you want to give him the benefit of the doubt and believe his story he didn’t know he was killing a local favorite that was clearly lured out from his sanctuary, you can’t ignore the fact Palmer has a prior! He has done stuff like this before, including in 2008 in killing a black bear illegally in Wisconsin where he pleaded guilty to poaching and the state took back the body parts.

Trophy hunting is shades of Soviet times when Leonid Brezhnev’s lackeys would tie a bear up to a tree so he could easily kill it. Note to Ted Nugent. That’s not hunting.

--Baltimore reported homicides in July exceeded 40 for a second month this year, actually, a record 45 (worst in 43 years). May’s 42 had marked the deadliest month in the city since Aug. 1990. Recall, the death of Freddie Gray was April 19. 

--You think you had it hot this week? In the Iranian city of Bandar Mahshahr on Thursday, the air temperature was 109 degrees with a dew point of 90, which meant the heat index was 154! [A NOAA calculator actually pegs this at 159.] The highest known heat index ever recorded, according to weather historian Christopher Burt, is in the 155-160 range. [Washington Post]

Meanwhile, Sydney recorded its coldest July in 17 years.

--Look for me among the throng at The Haskell Invitational (Monmouth Park) on NBC, Sunday. I have hair like Bob Baffert. American Pharoah, baby. [Just hope he doesn’t hurt himself.]

---

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

God bless America.
---

Gold closed at $1095
Oil $47.12

Returns for the week 7/27-7/31

Dow Jones +0.7% [17689]
S&P 500 +1.2% [2103]
S&P MidCap +1.8%
Russell 2000 +1.0%
Nasdaq +0.8% [5128]

Returns for the period 1/1/15-7/31/15

Dow Jones -0.7%
S&P 500 +2.2%
S&P MidCap +3.5%
Russell 2000 +2.8%
Nasdaq +8.3%

Bulls 43.9
Bears 17.5 [Source: Investors Intelligence]

*Dr. Bortrum posted a new column...talkin’ Pluto.

Have a great week. Click on the gofundme link above if you haven’t already given to the cause, or send a check to PO Box 990, New Providence, NJ 07974.

Brian Trumbore



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Week in Review

08/01/2015

For the week 7/27-7/31

[Posted 10:30 PM ET, Friday]

Edition 851

Washington and Wall Street

A funny thing happened on the way to a September rate hike by the Federal Reserve. On Friday, the Department of Labor released its key employment cost index for the second quarter and it showed wages and salaries for U.S. workers rose by the smallest amount since 1982, 0.2% vs. the 0.6% Wall Street was expecting.

Government bond yields on the long end of the curve collapsed in response with the 10-year down to 2.18%; the feeling now being the Fed would not be raising rates with zero inflation pressures.

Just two days earlier, Wednesday, the Fed, in announcing it was staying the course and holding the line on interest rates after a two-day Open Market Committee meeting, said it would raise rates when it had seen “some further improvement” in the labor market.

So now it would be easy for the Fed to lay back another few months and not “lift-off” in September. But we do have lots of data between now and then, including two key employment reports, and the Fed may yet proceed with a 25 basis point hike in the funds rate next confab.

In other economic news, Thursday brought the first look at second-quarter GDP and it came in at just 2.3%, less than forecast, though the first quarter’s contraction of 0.2% was revised to up 0.6%. [Kudos to the Atlanta Fed’s GDPNow indicator that forecast Q2 would come in 2.4%.]

But this was also a day when the government made its annual revisions to past numbers, going back three years, and it turns out between 2012 and 2014, GDP increased at an average annual rate of 2%, down 0.3 percentage points from prior estimates. 

And while it was great the first quarter of 2015 was revised into positive territory, the fact is first half growth was just 1.5%, even slower than the prior three years. So much for 2015 being a growth breakout year...we’re still waiting for one.

That said, job gains, if not wages, have been solid and the key housing sector is doing fine. Consumer spending also rose 2.9% in the second quarter, compared with 1.8% in Q1, so perhaps some of the savings at the gas pump are now being spent.

But another component of the GDP report, business spending, contracted in Q2 for the first time since 2012. Nonresidential fixed investment – spending on items like software, research and development, equipment and structures – retreated at a 0.6% rate, compared with growth of 1.6% in the first quarter. [Kate Davidson / Wall Street Journal]

Editorial / Wall Street Journal

“(With the revisions from the Bureau of Economic Analysis)...Since the recession ended in June 2009, the economy has grown at an annual rate of about 2.1%. That’s 0.6-percentage points worse than even during the much-maligned George W. Bush expansion. Growth averaged more than 3% from 2003-06, but the best growth during the Obama years has been 2.5% in 2010, and in both 2011 and 2013 it nearly slipped back into recession....

“The slow-growth Obama era has given way to multiple explanations and excuses from the President’s economic advocates. They blame the hangover from the financial crisis (even six years later), foreign economic problems, the failure of government to spend and tax more, an aging population – anything but the policy differences between those previous eras and this one....

“Maybe it’s time to try something new – or, more precisely, return to the policies we know worked so well in the past. Freeze and roll back stifling regulation. Reform the tax code to unleash investment and raise wages....

“Much is being made of the angry middle-class – those supporting Bernie Sanders and Donald Trump – in the waning days of the Obama Administration. But this public frustration is no great mystery. This is what happens after a lost decade of slow growth and stagnant incomes. This is why we can’t afford more of the same policies that have produced this six-year slough.”

The S&P/Case-Shiller 20-city home price index for May was up 4.9% over May 2014. All 20 cities posted year over year gains, with Denver leading the way, up 10.0%, and San Francisco up 9.7%.

June durable goods (big-ticket items) were up 3.4%, and up 0.8%, ex-transportation, which for the latter was its best since August, while the Chicago Purchasing Managers’ index for July was 54.7, much stronger than expected.

July proved to be the seventh worst month on record for the S&P GSCI index that tracks 24 commodities, going back to 1970, as the GSCI hit its lowest level since Feb. 2002. West Texas Intermediate, the oil price I quote weekly down below, finished down about 20% this month, the worst drop since a 33% fall in October 2008. Big producers such as Saudi Arabia and Iraq are producing at record levels and now the market will be looking at increased production from Iran. I detail the damage down below in terms of the major oil companies, and thousands more jobs are going to be lost.

[I don’t have time to detail some of the damage in the hedge-fund industry as a result of the commodities swoon but will next time.]

Finally, with the House now in recess until after Labor Day, and the Senate about to follow suit, that means there are only about 10 legislative days left once everyone returns before the Oct. 1 deadline for a new budget. While there isn’t a lot of talk about a government shutdown at this time, there probably will be come September as President Obama has vowed to bust the spending caps, sequestration, he’s been under since 2011, while rejecting any Republican attempts to increase defense spending without also boosting spending on some of his favored domestic programs.

The presidential campaign is going to play a role in the process with senators like Rand Paul and Ted Cruz looking to either defund programs or to stop the Iran nuke deal by attaching riders to a budget bill. House Speaker John Boehner has already conceded there will most likely be a short-term budget extension to keep the doors open.

Friday, President Obama signed a three-month extension to the highway-funding program, which will run out Oct. 29. Stay tuned.

Europe and Asia

Talks on a third Greek bailout are already off to a poor start, plus one week later than expected, with many details to be worked out before an Aug. 17 deadline. But at least the Athens stock exchange will finally reopen on Monday, which should be interesting.

Greece’s creditors have vowed they won’t be stampeded into a rushed agreement, especially when there is so little confidence Greece can stick to its promises. Again, the key word is ‘implementation.’

The International Monetary Fund’s board concluded Athens’ high debt levels and poor record of implementation disqualify it from further aid, so if the IMF doesn’t join the latest rescue package, what happens then? The IMF said it may not decide for months whether to become a party to a new program, which has a big impact on Germany, which has insisted the IMF must be part of any bailout or the Bundestag won’t go along.

At the same time, Greek Prime Minister Alexis Tsipras’ Syriza Party is in disarray with the hard-left members demanding the government break off negotiations and return to its anti-bailout roots.

For their part, eurozone officials are insisting on immediate pension reforms before any of the 86bn euro (over three years) is to be disbursed.

Tsipras did stave off the challenge to his premiership, for now, with the party agreeing to hold an emergency congress in September, when it is assumed a bailout will have been reached beforehand that will then be put to a vote. Though at that point there is little Syriza could really do.

It also seems likely that Tsipras will call an early referendum, probably for October, to cement his leadership. As he told his party committee on Thursday, the deal he reached was the best he could get. “Whoever thinks another government and another prime minister would do better, they should speak up,” he said.

Then there was this. Former finance minister Yanis Varoufakis faces possible criminal charges over a plan to set up a parallel payments system inside the monetary union.

While he was in control, Varoufakis and a small circle of cohorts established a “surreptitious” blueprint to introduce a euro-denominated alternative currency as a precursor to an exit from the eurozone.

No real surprise there. Everyone was working on alternative plans, both inside Greece and out.

But what earned Varoufakis the ire of many in his country was the revelation that the group hacked into government computer systems to gain access to sensitive taxpayer information and duplicate files for use under the parallel system; so copies of taxpayer files and pin codes were made.

Varoufakis said the plans were all carried out within “the laws of the land, and at keeping the country in the eurozone.”

Friday, Prime Minister Tsipras defended his former finance minister.

“You can blame him all you want for his comments, for his political plans, for his bad taste in shirts... But you cannot say that he is a crook, you can’t say that he stole the money of the Greek people, you can’t say that he had a secret plan to lead the country onto the rocks.”

Tsipras said he had approved of the plans beforehand. “We had an emergency situation response plan, as we ought to, and we should have been held responsible if we hadn’t prepared such plans.”

Lastly, while the Athens stock exchange reopens after five weeks, the capital controls on individuals continue, and most likely will for several months, while bank lending remains virtually non-existent, so the strangulation of economic activity continues though, importantly, tourism is rebounding strongly and last year it accounted for about 10% of GDP. Reminder...foreign bank card holders are not subject to the 60 euro daily limit on cash withdrawals from ATMs that Greeks are. High-end hotels in Athens, Mykonos and Crete are fully booked to the end of September.

But, this last positive aside, the bottom line is the badly-weakened Greek banks need to be recapitalized before any capital controls can be lifted and some sense of true normalcy returns.

---

As for the economic data for the region this week, a flash estimate on euro area inflation for July was 0.2%, annualized, the same as June. But if you strip out energy, the core rate is 1.0%. Energy prices declined 5.6% in July.

Like in the U.S., the European Central Bank wants inflation to be closer to 2.0%, not near zero.

Separately, the eurozone unemployment rate for June was 11.1%, same as May and down from 11.6% in June 2014. Still no real progress. Germany (4.7%) and Czech Republic (4.9%) had the lowest rates. Greece (25.6% in April) and Spain (22.5%) the highest.

Compared with a year ago, Spain declined from 24.5% and Portugal 14.3% to 12.4%. Ireland’s jobless rate is down from 11.4% to 9.7%.

But Italy’s unemployment rate rose the past year from 12.4% to 12.7%. France is unchanged at 10.2%, same as June 2014.

As for the youth unemployment picture, Greece’s rate is 53.2% (April), up from 52.3% in March, and up from 49.4% in June 2014. Spain’s is 49.2%, down from 53.4% year over year. Italy’s has increased to 44.2% from 42.3%.

Separately, the Spanish economy grew by 1% in the second quarter, according to preliminary statistics from the government, up from 0.9% in the first quarter. On the year, Spain is growing at a 3.1% clip. Not bad.

Non-euro U.K. saw growth of 0.7% (2.8% annualized) for Q2, the tenth straight quarter of expansion.

Finally, I have written extensively on the migrant crisis in Europe, which continues to get worse. About the last place on earth you want to be these days is Calais, the French end of the Channel tunnel. Tuesday night, 1,500 migrants tried to enter the tunnel and one was killed when hit by a lorry, the eighth death there since June when the crisis at the French port started escalating.

There have been huge delays for the trains as French and British authorities attempt to work out emergency security measures while keeping up a schedule. Holidaymakers, for example, are bearing the brunt of the disturbances.

Last year I wrote of the hundreds of migrants living in squalid conditions in Calais and today there are as many as 5,000, most having escaped from Syria and Libya, or the likes of Sudan and Eritrea.

On the broader issue of the migrants arriving in Italy and Greece, Greece is now the main route for those fleeing the Middle East. Over 75,000 came in the first half of this year, seven times more than in 2014. In the week to July 17, The Economist reports 8,500 landed on the island of Lesbos, which has a population of 86,000.

What a freakin’ disaster. If you’re making travel plans to the Greek isles, make sure you’re aware of this situation.

---

Turning to Asia, China’s Shanghai Composite Index closed July at 3,663, which meant the ‘blue chip’ China benchmark fell 15% for the month, the biggest drop since August 2009, as the government’s efforts to re-instill confidence have been failing.

The Shanghai gauge had rebounded 16% from the July 8 low through Friday, but then the bottom fell out all over again this past week. Monday, the market fell a sickening 8.5%.

In Japan, a Bloomberg survey of economists has second-quarter GDP coming in +0.8%, annualized, down from the first quarter’s robust 3.9% rate. But one top forecaster with Dai-ichi Life Research Institute said Q2 GDP would fall 2.5%, which would be a big blow for Prime Minister Shinzo Abe.

Street Bytes

--Stocks rebounded from the drubbing they took the prior week, with the Dow Jones up 0.7% to 17689, the S&P 500 up 1.2% and Nasdaq up 0.8%. For July the S&P gained 2.0% but the Dow only advanced 0.4%. The Stoxx Europe 600 (like the S&P) rose 4% in July with the crisis in Greece ebbing for the time being.

In July, Amazon surged 24% and Google 22%.

--Earnings have not been good at all. Yes, the usual 75% or so of companies beat expectations, but this is bogus. According to FactSet, growth in the first quarter for S&P 500 companies was 1.1%, but they are expected to contract at a 2.2% rate in the second quarter when the tallying is complete. The last time the S&P saw a year-over-year decline for the first half was 2009.

Thomson Reuters has first-quarter EPS growth at 2% and pegs Q2 at 0.3%. Choose either one. The numbers are putrid.

And that’s the bottom line. The top line, revenues, is equally poor (actually, negative). Corporate America can manipulate the bottom line through financial engineering, but you can’t mask sales growth, or lack thereof. All of this is in keeping with the opening bit of WIR on the GDP report, especially since 2012.

--Dan Strumpf of the Wall Street Journal had an instructive piece on Monday.

“Six firms – Amazon.com Inc., Google Inc., Apple Inc., Facebook Inc., Netflix Inc. and Gilead Sciences Inc. – now account for more than half of the $664 billion in value added this year to the Nasdaq Composite Index, according to data compiled by brokerage firm JonesTrading.”

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.66% 10-yr. 2.18% 30-yr. 2.91%

--Facebook surpassed expectations on both profit and revenues. The world’s largest online social network said Wednesday it had 1.31 billion people visiting from a mobile device at least once a month, on average, during the quarter, up 23% year over year. Facebook had 1.49bn monthly users overall, up 13%, with 968 million daily active users and 844 million on mobile devices.

According to CEO Mark Zuckerberg, users now spend more than 46 minutes a day on average on Facebook, including photo-sharing app Instagram.

Mobile advertising represented 76% of total advertising revenue during the quarter and Facebook has been steadily growing its share of the digital advertising market. It was 7.9% in 2014 and eMarketer expects Facebook’s share to surpass 9% by the end of the year. Google is expected to maintain its current 31% share. So the two combined are 40% in total.

Facebook’s net income was $715 million and, ex-charges, it earned 50 cents per share.

Revenue was up 39% to $4.04 billion, but expenses rose 82%.

--Meanwhile, Twitter saw ad sales rise last quarter, leading to better than expected revenue, as well as better profits than analysts’ had forecast. Overall revenue reached $502 million.

But there is little user growth at Twitter and interim CEO Jack Dorsey, co-founder of the company, expressed his dissatisfaction on a conference call after the earnings release, promising a better user experience.

Last quarter, Twitter’s monthly user base rose to 316 million, up from 308 million during the prior quarter. But Twitter told analysts it would take a considerable amount of time before it could attract mainstream users and that’s when the share price, in the after-hours market, began to plummet.

User growth in the U.S. has been dismal...as in zero growth two of the last four quarters.

--Yelp Inc., the operator of the consumer review website Yelp.com, reported dismal earnings, a surprise loss for the quarter, and forecast revenue for the current quarter that is far below what the Street had been expecting, sending its shares plummeting.

Yelp reported its slowest revenue growth in 18 quarters and Chairman Max Levchin announced he was stepping down “to pursue other interests.”

--Ford reported a pre-tax profit of $2.9bn in the second quarter, up 10% from a year ago. Net income came in at $1.9bn, one of the strongest quarters in Ford’s history, with the company reaffirming guidance for full-year pre-tax profit of $8.5bn to $9.5bn as North American sales surge.

But Ford forecast flat sales at best in China this year, 23 to 24 million cars, compared with 24 million last year. Should they actually decline, it would be the first time since 1990 that there would be a sales drop there for the automaker.

--Fiat Chrysler was hit with a $105m record fine for its inadequate response to 23 recalls affecting millions of Jeep vehicles, the U.S. National Highway Traffic Safety Administration said.

--Royal Dutch Shell is cutting 6,500 jobs and reducing capital spending by 20% this year. In terms of capex, that’s $7bn less than last year’s levels to about $30bn. Shell reported a 37% fall in second-quarter earnings to $3.8bn.

--Pemex reported its 11th straight quarter of losses, Mexico’s state oil company being battered on a number of fronts, including falling oil prices and reduced production.

The company lost $5.2bn as production averaged 2.22m barrels per day during the second quarter, a decline of 10% on the same quarter last year.

--BP reported a loss of $5.8 billion in the second quarter, reflecting the settlement over the 2010 Deepwater Horizon disaster and oil spill. A 40% fall in oil prices since last year isn’t helping. BP earned $228 million in Q2 from oil and gas exploration and production, compared with $4 billion a year earlier.

The company said it was preparing for a long period of low oil prices with capital expenditures for 2015 expected to be below $20bn, compared with an earlier forecast of $24bn to $26bn before prices started falling.

--Friday, ExxonMobil announced second-quarter earnings plunged 52% despite increased production. It was its lowest profit since 2009. The company cut spending on capex by the same 20% everyone else seems to be. Earnings per share, $1.00, were below expectations.

--After Exxon, Chevron reported miserable profits (its worst in 12 years) due to impairments and charges for suspended projects. Chevron’s revenue fell 30% over year ago levels.

Shares in ExxonMobil and Chevron both tumbled 5% Friday.

--According to Graves & Co., a Houston energy consultant, 150,000 jobs have been lost in the oil and gas industry since prices started to tumble last fall, including 50,000 in the past three months. Now the cuts are extending to engineers and scientists.

--Friday, the U.S. Energy Information Administration announced that the country’s oil production hit a 44-year high of nearly 9.7 million barrels a day in March but has declined to 9.5 million barrels in the two months since. It’s a small difference, but it appears production has peaked.

--Budget airline Ryanair saw its profits jump 25% to $270 million in the first quarter of its fiscal year. Revenue was up 10%, with the number of customers traveling with the carrier up 16% to 28m.

--Merck saw its sales drop 11%, as its key arthritis treatment drug, Remicade, has been hit by knockoffs in Europe, the drug’s sales declining 25%, but the company reported earnings, ex-charges, that exceeded expectations.

--Dupont is suffering from a soft commodities market, chiefly lower prices for crops that are prompting farmers to rein in spending on the animal feed and crop protection products Dupont makes.

Corn prices had actually rallied 17% in the two weeks to July 16 (not that this had anything to do with the second quarter) on worries about a poor harvest, but after heavy rains, the fields have dried out and the weather has been very favorable for growing.  So the corn price fell back 14%.

--Anheuser-Busch InBev NV, the world’s largest brewer, reported net profits fell 32% in the second quarter, while revenue for the maker of Budweiser, Corona and Stella Artois fell 9% from a year ago.

Sales volume in Brazil fell 8% due to a comparison with a year-earlier period during which Brazil hosted the World Cup.

In the U.S. market, sales to retailers fell 2.2%, with Bud Light falling slightly...sales of the Budweiser brand increasingly losing out to craft and Mexican beers.

--Revenue at UPS fell 1.2% in the second quarter, hurt by the stronger dollar impacting its overseas business. 

--Taiwan’s economy grew at the slowest pace in three years as exports collapsed, GDP rising 0.6% in the second quarter from a year earlier, according to the statistics bureau. The pace in the first quarter was 3.4%. Yes, it’s largely about the slowdown in China.

--As Erik Engquist and Andrew J. Hawkins of Crain’s New York Business reported, there is the real risk of an industrywide collapse in New York City’s taxi medallion market. One of the main credit unions has seen delinquencies on medallion loans jump by 22%. It’s now all Uber, which has been growing 3% a month in Gotham. A medallion worth about $1 million two years ago recently changed hands for $700,000, but, as Crain’s notes, “In a mass sale of foreclosed medallions, prices could fall much further.”

[It was announced Friday that Uber Technologies Inc. closed a new round of funding that values the company at about $51 billion, according to a story in the Journal.]

--On Monday, New York Gov. Andrew Cuomo announced an overhaul of LaGuardia Airport that could take 10 years and cost at least $8 billion. Initially, the governor was touting a $4 billion project (taking only five years) and I’m thinking, no way, but various sources said after it would be closer to $8bn (and 10 years) and I’m guessing its $12bn, the way these things go, plus this is a massive project, with three new terminals, including a new Central Terminal Building.

--This is interesting from a business standpoint. “Aspen (Co.), at nearly 8,000 feet elevation, now averages 23 fewer days below freezing each year than it did before 1980. If global action is not taken to reduce greenhouse gas emissions, the average temperature here is expected to rise as much as 9 degrees by 2050.” [William Yardley / Los Angeles Times]

Forget whether you believe the global warming story or not...I have said since day one of this column it should be called “global pollution”...major resorts, whether in the Rockies or the Alps, need to scramble to come up with other ways to promote their regions. One reality, golf seasons are being extended a bit. Longer hiking seasons. It’s like the difference between going to college up north and down south, as I did. I always told people spring arrived a month earlier in North Carolina than in my native state of New Jersey, and winter came a month later. It’s not all bad. But just be careful in terms of resort real estate in places like Aspen going forward. [And it’s just a truism...wildfires are becoming a bigger and bigger issue in such places as well.]

--Beijing was selected as host of the 2022 Winter Olympics, which will make it the first city to stage both the Summer and Winter Games. The only competitor was Almaty, Kazakhstan. Don’t ask me how the heck the Alpine events will go, seeing as there are few mountains in the area and little actual snow. Other sports such as hockey, figure skating and speed skating will be held downtown.

The ski events will actually be held at two venues, 40 and 90 miles away. Maybe the Chinese will build an 8,000 foot mountain.

Separately, Boston smartly pulled out of the bidding process on the 2024 Summer Games, with little real support among residents, for starters.

Frankly, I’ve long felt the Olympics should be shelved and instead focus on each sport’s world championships.... everything in prime time.

--Lastly, we will end this segment on some potential great news. Public health experts are hailing a “turning point” in the fight against Ebola, with preliminary results for an experimental vaccine showing it to be 100 percent effective against the virus.

The first large-scale trial was conducted in Guinea. The VSV-EBOV vaccine was developed in record time by the Public Health Agency of Canada, working with two U.S. companies, Merck and NewLink Genetics.

So everyone keep your fingers crossed. In the future, every contact at risk of infection would receive the vaccine immediately and it will be huge for the frontline health workers.

The latest World Health Organization tally for the recent outbreak was 27,836 recorded cases in Guinea, Liberia and Sierra Leone, with 11,280 deaths. [Financial Times]

Foreign Affairs

Iran: The latest Pew poll has Americans disapproving of the Iranian nuclear deal by a 48 to 38 percent margin. A new CNN/ORC poll had 52% wanting Congress to oppose the deal, while 44% said it should be approved.

But it just doesn’t seem likely that more than a dozen Senate Democrats and almost 50 House Democrats will defect from the president and vote both to disapprove and then to override President Obama’s veto.

With Congress in the midst of its 60-day review of the accord (Sept. 17 is the deadline), the administration noted in a report to Capitol Hill that Iran isn’t likely to admit to having pursued a covert nuclear weapons program, but that this wasn’t critical to verifying Iranian commitments going forward, which is absurd.

This is a crucial point in that the International Atomic Energy Agency may not be able to ascertain conclusively what Iran’s past intentions were and the nuclear deal just agreed to wasn’t supposed to go forward without the IAEA being satisfied Iran answered all its questions on issues such as the disputed military base at Parchin I have harped on for years.

Iran is required by mid-October to satisfy the IAEA and give its inspectors access to suspected sites, scientists and documents.

The IAEA was then to publish a report by year-end on Iran’s alleged past military work. That’s when the real sanctions relief is to kick in.

But now it’s clear there was a secret agreement between the IAEA and Tehran spelling out how the U.N. agency will complete its probe.

As reported by the Wall Street Journal’s Jay Solomon: “Some senators complained last week that they were told by administration officials that Iran would be allowed to manage some of the IAEA’s investigation. They said they were told Tehran would conduct its own soil sampling at a military site called Parchin, where, allegedly, explosive devices were tested.

“ ‘We’re going to trust Iran to do their own testing? This is absolutely ludicrous,’ Sen. James Risch (R., Idaho) told Obama administration officials at a congressional hearing last week.

“Sen. Robert Menendez (D., N.J.) said: ‘Chain of custody means nothing if, at the very beginning, what you’re given is chosen and derived by the perpetrator. If that is true, it would be the equivalent of the fox guarding the chicken coop.’....

“Former U.S. intelligence officials have questioned White House claims that it already knows enough about Iran’s overall program to ensure the Vienna agreement is properly verified.

“They said the U.S. and IAEA initially failed to detect major advances in Iran’s nuclear program, such as the construction of a uranium enrichment facility in the city of Natanz and a heavy water reactor in Arak.

“ ‘We, of course, do not have total knowledge of how much progress the Iranians had made,’ the former head of the Central Intelligence Agency, retired Gen. Michael Hayden, told a recent congressional hearing.”

Iran’s Supreme Leader Ayatollah Khamenei was his usual classy self in tweeting a graphic last weekend that appears to depict President Obama holding a gun to his head

The caption reads:

“US president has said he could knock out Iran’s military. We welcome no war, nor do we initiate any war, but if any war happens, the one who will emerge loser will be the aggressive and criminal U.S.”

Lee Smith / The Weekly Standard

“Last week the secretary of state’s nose grew longer and longer nearly every time he opened his mouth. According to the terms of the deal, said Kerry, Iran is not allowed to fund and arm terrorist allies Hizbullah. Nope, said the Iranians, correctly, there’s nothing like that in the deal. Indeed, the deal lifts the U.N. arms embargo. Accordingly, Iran’s deputy foreign minister Abbas Araqchi said Iran told the Western negotiators that ‘we will supply arms to anyone and anywhere necessary and will import weapons from anywhere we want, and we have clarified this during the negotiations.’

“Perhaps oddest of all, Kerry kept lying about whether sanctions had been lifted on Quds Force commander Qassem Suleimani. Kerry denied it when the terms of the deal were first made public. Administration spokespersons set the record straight, explaining that, yes, U.N. nuclear-related sanctions would no longer apply to Suleimani in eight years’ time. And yet in a press conference with Saudi foreign minister Adel Jubeir two days after the correction had been made, Kerry still insisted Suleimani was not coming off the sanctions list....

“The administration’s stealth, subterfuge, and lies have revealed one very big truth: It knows the deal won’t withstand the scrutiny of the American people and their representatives.”

Niall Ferguson / Wall Street Journal

“Why should Iran suddenly mend its ways? In return for merely slowing down its pursuit of nuclear weapons, it is being handed up to $150 billion in previously frozen assets, a commercial bonanza as sanctions are lifted, and the prospect of an end to conventional arms and ballistic-missile embargoes after, respectively, five and eight years. All Iran has to do is keep the International Atomic Energy Agency happy that it is sticking to its nuclear commitments. There will be no ‘snap back’ of sanctions if Tehran opts to use its new resources to double or quadruple its support for Hizbullah and Hamas, the Assad regime in Syria, and the Houthi rebellion in Yemen....

“Even before (Obama) hands over the White House keys to his successor, we shall see that there was no simple, binary choice between peace and war. We bought time. We postponed Iran’s nuclear breakout. But we also stoked the flames of a conflict that doesn’t need nukes to get a lot more lethal than it already is.”

As for Iran’s neighbors, Saudi Arabia said it wants to buy 600 new Patriot missile interceptors, the first of many such deals as Washington’s allies arm themselves in response to the nuclear deal. As Thomas Karako of the Center for Strategic and International Studies said, “This is the consequence of leaving the Iranian missile program intact and in fact signaling sanctions will go down with it.” [Defense One]

Iraq/ISIS/Syria/Turkey: Turkey and the United States have reached agreement on a general outline for a safe-zone, or “Islamic State-free zone,” a 60-mile-long strip of northern Syria along the Turkish border that could be used as a safe-zone for displaced Syrians. But the details still have to be hammered out...first and foremost, just who really takes the lead and does this represent major mission creep for the U.S.

From the New York Times: “Whatever the goal, the plan will put American and allies warplanes closer than ever to areas that Syrian aircraft regularly bomb, raising the question of what they will do if Syrian warplanes attack their partners on the ground.”

American officials also continue to emphasize the plan is not directed against Bashar Assad, while Turkey and Syrian opposition leaders say it would be a tool against Assad. [Once Assad is gone, the feeling goes, they’ll handle ISIS.]

Meanwhile, Turkey is hardening its stance against both ISIS and Kurdish PKK militants, bombing both last week. The attacks on the Kurds effectively marked the end of a two-year ceasefire and a shaky peace process designed to end the conflict between Turkey and the PKK that has killed more than 40,000.

The problem is, Syria’s Kurdish YPG militia, which is linked to the PKK, has emerged as an effective force against ISIS, and, backed by U.S. airstrikes, the YPG controls as much as half of Syria’s 800-kilometer border with Turkey, and Turkish President Erdogan has said he is determined to prevent the Kurds from forming an independent state in the north of Syria.

Back to Assad, he started the week issuing a decree announcing a general amnesty for military deserters who violated the country’s compulsory conscription law, as Assad attempts to rebuild his battered forces.

The next day, Sunday, Assad said in a televised speech that the army had been forced to give up areas in order to hold onto more important ones in its fight with insurgents.

It was a remarkably frank assessment of the strains the military is facing after four years of war.

“Sometimes, in some circumstances, we are forced to give up areas to move those forces to the areas that we want to hold onto,” Assad said. “We must define the important regions that the armed forces hold onto so it doesn’t allow the collapse of the rest of the areas.”

Currently, the Syrian government controls no more than 25 percent of the country, with the rest divided among ISIS, the Kurdish militia, and other rebel groups like the al-Qaeda-backed Nusra Front.

But Assad said he wasn’t backing down, and that in giving up territory to consolidate elsewhere, he was allowing for later counter-attacks.

Assad is also relying more heavily than ever on support from Iran and Hizbullah, the latter more critical than the former these days. Hizbullah has been engaged in a battle to dislodge ISIS forces near the Lebanese border.

Editorial / Washington Post

“The welcome new cooperation (between Turkey and the United States) could deal a powerful blow to the Islamic State if it succeeds in curtailing the group’s access to the border and its smuggling routes for fighters and supplies. It could also allow for the emergence of a more coherent Syrian opposition leadership and perhaps even an alternative government based in the country itself – something that opponents of the regime of Bashar al-Assad have been advocating for years.

“Nevertheless, the Obama administration’s commitment to the plan looks like another half-step in its approach to Syria. Officials insist there will be no formal no-fly zone over the prospective safe area... Nor has the administration changed its policy of refusing to commit itself to defending rebel forces against the Assad regime, as opposed to the Islamic State....

“What’s still missing is a coherent U.S. strategy for ending the civil war in Syria – something that will be necessary for the ultimate destruction of the Islamic State.”

Yemen: Saudi-led airstrikes killed as many as 120 in the port city of Mukha last Saturday, hours before a five-day humanitarian truce (that then never took hold), in fighting with Iran-backed Houthi rebels who have seized the capital, Sana, and other cities.

The Saudi-backed fighters have made progress in recent weeks after retaking the port city of Aden, and as an expert on Persian Gulf countries at Durham University in Britain told the Washington Post: “The Saudis feel they need to be able to get a foothold back in Yemen again before Iran starts to mobilize and get more committed to this war.”

Israel / Lebanon: Hizbullah leader Sayyed Hasan Nasrallah said Hizbullah will never bow to pressure to normalize ties with Israel.

“Israel is delusional if it thinks that Hizbullah will ever extend its hand to it,” Nasrallah said.

Nasrallah affirmed Hizbullah’s aim remained to foil the Israeli project in Lebanon. He also blamed regional developments for shifting the focus away from the Palestinian cause, saying that Israel is using the unrest in the region to normalize ties with Arab countries.

But as reported in the Daily Star, Nasrallah is increasingly concerned ISIS will assassinate him, so he’s running from one underground bunker to another like a cornered rat in south Beirut.

Also in Lebanon, there have been violent clashes between protesters and security forces over a massive garbage crisis. The protesters are attempting to prevent the government from moving trash piled on the streets of Beirut to a region south of the capital.

Now I’ve been to Beirut twice (2005, 2010) and noted that while it is a beautiful city, its seacoast is heavily polluted and there have always been major trash issues.

So the government finally closed a key landfill that was beyond overflowing, but hadn’t worked out where to ship the city’s trash instead. No one wants it, of course.

I’m glad I’m not there today. I’ve seen pictures of streets I’m familiar with, with huge mounds of trash in them. Talk about disgusting. And you think the rats are having a field day?

[It doesn’t help any that Lebanon has been without a president for 14 months.]

China: The Defense Ministry on Thursday accused the United States of “militarizing” the South China Sea by staging patrols and joint military drills there, ramping up the rhetoric ahead of a key security meeting next week in Malaysia.

Well that shows a lot of chutzpah, seeing as China is of course facing condemnation from its neighbors and the U.S. regarding its creation of artificial islands that are nothing more than military bases, including for its new nuclear submarines down the road.

Adm. Harry Harris, commander of the U.S. Pacific Command, said the U.S. would use military force to defend its interests and its allies against any threats from the islands.

“They are building ports that are deep enough to host warships and they’re building a 10,000-foot runway at Fiery Cross Reef,” Harris said, referring to one of China’s construction activities in the Spratly Islands that Japan has protested. “A 10,000-foot runway is large enough to take a B-52, almost large enough for the Space Shuttle, and 3,000 feet longer than you need for a 747. So, there’s no small airplane that requires a runway of that length. They’re building revetted aircraft hangars at some of the facilities there that are clearly designed, in my view, to host tactical fighter aircraft.”

And the chain of islands will be used as listening posts.

“I think those islands, given the capabilities we have, are clearly and easily targets in any combat scenario with China. But they’re also easily seen as forward operating posts,” Harris added. [Defense One]

Separately, in the latest move by President Xi Jinping to put his stamp on the military, a retired general, Guo Boxiong, who was one of the country’s most senior leaders until his retirement more than two years ago, was expelled from the Communist Party, accused of accepting bribes and abusing his position to help others gain promotions and other benefits. His son, also a general, was put under investigation for corruption in March.

Russia: The Financial Times reported that “Fighter jets from NATO’s Baltic air policing mission have scrambled to intercept 22 Russian aircraft in multiple formations over the past week, including two of the largest interceptions over eastern Europe since tensions with Moscow began to rise 18 months ago.

“In total, NATO aircraft have had to conduct emergency deployments on more than 250 occasions this year over Europe, NATO officials said – the highest number for an equivalent period since the end of the cold war....

“Last Friday, British Typhoon fighter jets stationed at Amari in Estonia were deployed after NATO air defenses picked up 10 Russian aircraft approaching Baltic airspace across the Gulf of Finland.”

Jimbo passed on a piece by Catherine Herridge and Pamela Browne of Fox News that read in part:

“Russia seeks to test the United States at every opportunity and divide the NATO alliance, posing the most significant long term threat to U.S. national security, the head of the U.S. Special Operations Command, General Joseph Votel, told the Aspen Security Forum.

“ ‘Russia is looking to challenge us wherever they can,’ Votel told Fox News’ Catherine Herridge. ‘The intent is to create a situation where NATO can’t continue to thrive.’

“Votel said he did not have ‘unique insights’ into Russian President Vladimir Putin but he believes Putin sees the expansion of NATO ‘...as a threat to him and I think what they (Moscow) are attempting to do is create these frozen conflicts and create situations that are very, very difficult to resolve along their border.’

“That ‘does, could pose an existential threat,’ Votel added.”

On the Ukraine front, President Petro Poroshenko said Ukraine’s military was seeking “just 1,240 Javelin (anti-tank) missiles” to fend off separatist armor. But President Obama continues to refuse to supply Kiev with lethal weapons, committing only to non-lethal aid, including medical supplies, armored cars and radars.

Disconcertingly for Poroshenko is another issue, brought forward by Roman Olearchyk of the Financial Times on Friday. Morale among the frontline troops in eastern Ukraine is awful.

“They complain they are exhausted, underequipped and feel like cannon fodder in an increasingly forgotten but still smoldering war.

“The mood change among the military rank-and-file echoes a broader ebbing of support in society for Ukraine’s post-revolutionary leaders, seen – despite praise from international observers – as slow to deliver on pledges to reform governance and curb corruption.

“It also suggests that if Russia’s continued backing for the eastern rebels is aimed at destabilizing Ukraine, it may be gaining ground.

“Most worryingly for Kiev, many frontline soldiers express admiration for Right Sector, a rightwing militia whose leader last week called for a national no-confidence vote in the government and a new revolution.”

According to a poll by the Kiev International Institute of Sociology, Poroshenko, who garnered 54% support in presidential elections in May last year, would receive only 14.6% today.

The honeymoon is long over.

Lastly, Russia killed off a UN push for an international criminal tribunal to prosecute those who shot down Malaysia Airlines flight MH17. The Russia veto – the sole dissenting vote on the 15-member Security Council – came despite 11 nations voting to establish the tribunal and just three nations, including China, abstaining.

Australian Foreign Minister Julie Bishop told the Security Council it was “inconceivable” that, in a world with a growing number of violent terrorist groups in it, “the Security Council would now walk away from holding to account those who brought down a commercial airliner.” 39 of the 298 killed were Aussies. [Sydney Morning Herald]

Afghanistan: Afghan officials declared this week that the leader of the Taliban, Mullah Omar, died two to three years ago, though no further details were released. While there have been similar reports in the past, this is the first time it was confirmed by top sources in the Afghan government. The Taliban had long denied the rumors, saying he was incommunicado for security reasons.

A Pakistani newspaper claims Omar’s son Yaqoub is replacing him.

India / Pakistan: In one of the bigger attacks on the India-Pakistan border in recent years, three suspected militants mounted a deadly assault on a police station in northern India after attacking a bus. Six died, including three officers, and then the three terrorists were taken out. 

But a few days later, Pakistani police gunned down one of the country’s most-feared terrorists and 13 followers. Malik Ishaq directed a Sunni group that had ties to the Taliban and Al-Qaeda and was believed to be behind the slaughter of hundreds of the nation’s minority Shiites. He was so feared, frightened judges hid their faces from him.

It seems Ishaq, who had been detained days earlier on suspicion of killing two Shiites was killed along with his associates when an attempt to free him from a convoy transporting him failed.

Separately, according to the United Nations, India will surpass China and become the world’s most populous country in less than a decade – six years sooner than previously forecast.

The current global population is 7.3 billion and is forecast to reach 9.7bn in 2050.

Experts predict Africa will account for more than half the world’s population growth in the next 35 years.

Random Musings

--In two new NBC News/Marist polls, Donald Trump is receiving 21% of potential GOP primary voters in New Hampshire, with Jeb Bush at 14%, Scott Walker 12% and John Kasich 7%.

In Iowa, Walker leads with 19%, with Trump at 17%, followed by Bush 12%, Ben Carson 8% and Mike Huckabee 7%.

In the Democratic field, Hillary Clinton leads Bernie Sanders in New Hampshire, 47% to 34%.

In Iowa, Clinton leads Sanders 55% to 26%.

The NBC/Marist survey also found that President Obama’s approval rating is just 43% in Iowa, 41% in New Hampshire.

--In a Monmouth University Poll of likely New Hampshire GOP primary voters, Donald Trump received 24%, double that of Jeb Bush at 12%. John Kasich was third with 7%, as was Scott Walker, while Marco Rubio took 6%.

--In a new CNN/ORC national poll, trump leads among Republicans at 18%, with Bush at 15% and Walker 10%, and this was after Trump’s comments about John McCain’s military service.

Among all registered voters, Trump did have a 59% unfavorable rating, though it’s 42% among GOP voters.

On the Democratic side, Clinton leads Sanders, nationally, 56% to 19%.

--A Quinnipiac national survey of Republican voters has Trump at 20%, Walker at 13% and Bush at 10%.

Hillary leads Bernie Sanders in this one, 55-17, with Joe Biden at 13%.

But in hypothetical matchups, Hillary trounces Trump 48-36, but she loses to Jeb Bush, 42-41, and edges Scott Walker 44-43.

--The Real Clear Politics average of national polls from July 9-25 has Trump in first place with 18.2%, followed by Jeb Bush with 13.7% and Scott Walker with 11.7%

--William Hill, a London-based gambling site, once had the odds of Trump securing the Republican presidential nomination at 100 to 1. Today the odds are down to 8 to 1. [Bush is 11 to 8.]

--I’m sorry, but I have trouble taking Mike Huckabee seriously. And Michael Goodwin of the New York Post nails my sentiments re: a statement of the former governor’s that received quite a bit of press this week.

“Mike Huckabee is mixed up. The GOP presidential candidate got carried away denouncing the Iranian nuke deal and charged President Obama ‘will take the Israelis and march them to the door of the oven.’

“The Holocaust reference equates Obama with Hitler, and the president was right to call the remark ‘ridiculous.’

“Huckabee’s mistake was to conflate evil with appeasement. He should have compared Obama to Neville Chamberlain, the British leader who convinced himself that ‘Herr Hitler’ wanted to avoid war as much as he did.

“After signing the Munich agreement with Hitler in September 1938, Chamberlain boasted that he had achieved ‘peace for our time.’ He advised his countrymen to ‘go home and get a nice quiet sleep.’

“That’s exactly what Obama is doing by trusting Iran, and that’s what Huckabee should have said.

“When the Brits finally woke, they dumped Chamberlain and made Winston Churchill prime minister.

“Does America have a Churchill waiting in the wings? After Obama, we desperately need one.”

--Talk about an unlikable person, that’s Trump lawyer and political adviser Michael Cohen, he of the “you can’t rape your spouse” comment. While Cohan apologized profusely after this caused a brief firestorm, I’ve seen him a few times in interviews and Trump should understand he needs to muzzle the guy.

Meanwhile, the Wall Street Journal interviewed folks in Iowa who have been turning out in large numbers to see The Donald.

“I am the silent majority. He talks for me,” said one retiree.

WSJ: “Republicans who consider themselves disenfranchised from the political mainstream see Mr. Trump as a candidate they have long waited for: Someone who shares their opinions on issues like immigration.”

“I want someone who is going to push all those other people around and be the big dog in the world,” said the owner of a paint company.

--Michael Goodwin / New York Post, on the news two inspectors general from the Obama administration want the Justice Department to investigate Hillary Clinton’s handling of classified material.

“(Clinton) must play defense against her former colleagues in the State Department and intelligence agencies.

“Actually, it’s worse. She’s almost certainly up against the White House.

“Somebody very high in the food chain leaked the memos requesting the probe. The New York Times, which broke the story, identified its source only as ‘a senior government official.’

“My money is on Valerie Jarrett, the Obamas’ Rasputin, who is known to despise Clinton. If it was Jarrett, she would not do this against the president’s wishes....

“(Clinton) had it coming. Her arrogance and bald-face lies about the emails must have infuriated her boss and colleagues. Her decision to conduct government business on a private server in her home and use personal email accounts was a giant ‘f—k you’ to the administration.

“When it was revealed in March that she had deleted tens of thousands of emails before turning over those she deemed government property, she compounded injury with an insulting insistence that she did nothing wrong. Insiders knew that was a big fat lie.

“As I wrote then, Clinton’s claim that she acted out of ‘convenience’ was hogwash. She wanted to keep her correspondence secret from Congress, the media – and also from the White House, and the people it stashed at State to watch her.

“It’s obvious now she underestimated the ammunition she was providing. As a result, she has put her dream of being the second President Clinton in mortal jeopardy.”

As Mr. Goodwin also points out:

“Any honest prosecutor looking at her emails would also look for evidence she traded government favors for contributions to the Clinton Foundation or paid speeches.”

Bill and Hillary “were paid $25 million for speeches in just 16 months, and some of that cash came from donors and companies with business before her.”

“One place to look for information on any conflicts of interest, or worse, would be the 30,000 emails Clinton said she withheld on the grounds they were ‘personal.’”

[Hillary had another late Friday document/email dump. No time to look through it all this week.]

--Some key statistics in a piece in The Weekly Standard by Tom Edmonds. In the 2012 election, 71.9% of those aged 65 and older voted, while just 41.2% of those 18 to 24 did.

Latino turnout was just 48% - far below that of whites (64.1%) and blacks (66.2%).

--Officials believe debris found on Reunion Island, in the Indian Ocean, came from a Boeing 777, making it almost certain it is debris from Flight 370, the Malaysia Airlines jetliner that disappeared in March 2014. It’s pretty easy... no other Boeing 777 is known to be missing.

--Months after overseeing the fraudulent story in Rolling Stone on a supposed gang rape at the University of Virginia, managing editor Will Dana is leaving. When asked about his departure, Rolling Stone publisher, Jann Wenner, said, via a spokeswoman, that “many factors go into a decision like this.” [Ravi Somaiya / New York Times]

Coincidentally, the day Dana announced he was leaving, three graduates and members of the fraternity profiled in the RS story filed a lawsuit against the publication and the article’s author. The men, through their lawyer, said they suffered “vicious and hurtful attacks” because of inaccuracies in the article.

--I have written of the case of Walter Palmer and Cecil the Lion in Zimbabwe in my Bar Chat column and this is an important story. First, if we assume, as Zimbabwean authorities allege, that Palmer did not have the proper license to shoot any lion, then he’s screwed, but one would assume he’d just be fined and the two men who set the trip up and acted as his guides are the ones who you’d think would face harsher penalties.

But it’s bigger than this. I am in no way anti-hunting. I wish all the Canada geese and deer in my area, for example, would be eliminated. I also support the black bear hunts carried out in my home state. We have too many bruins.

In the case of Cecil, though, his case has brought to life the whole idea of trophy hunting, which is carried out largely by Americans. Proponents say the funds raised through the practice help in local conservation efforts, but the far bigger revenue stream for a country like Zimbabwe is basic safari tourism. [Plus, much of the money raised in trophy hunting simply lines the pockets of local authorities.]

My problem with Palmer, and the shoddy reporting, is if you want to give him the benefit of the doubt and believe his story he didn’t know he was killing a local favorite that was clearly lured out from his sanctuary, you can’t ignore the fact Palmer has a prior! He has done stuff like this before, including in 2008 in killing a black bear illegally in Wisconsin where he pleaded guilty to poaching and the state took back the body parts.

Trophy hunting is shades of Soviet times when Leonid Brezhnev’s lackeys would tie a bear up to a tree so he could easily kill it. Note to Ted Nugent. That’s not hunting.

--Baltimore reported homicides in July exceeded 40 for a second month this year, actually, a record 45 (worst in 43 years). May’s 42 had marked the deadliest month in the city since Aug. 1990. Recall, the death of Freddie Gray was April 19. 

--You think you had it hot this week? In the Iranian city of Bandar Mahshahr on Thursday, the air temperature was 109 degrees with a dew point of 90, which meant the heat index was 154! [A NOAA calculator actually pegs this at 159.] The highest known heat index ever recorded, according to weather historian Christopher Burt, is in the 155-160 range. [Washington Post]

Meanwhile, Sydney recorded its coldest July in 17 years.

--Look for me among the throng at The Haskell Invitational (Monmouth Park) on NBC, Sunday. I have hair like Bob Baffert. American Pharoah, baby. [Just hope he doesn’t hurt himself.]

---

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

God bless America.
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Gold closed at $1095
Oil $47.12

Returns for the week 7/27-7/31

Dow Jones +0.7% [17689]
S&P 500 +1.2% [2103]
S&P MidCap +1.8%
Russell 2000 +1.0%
Nasdaq +0.8% [5128]

Returns for the period 1/1/15-7/31/15

Dow Jones -0.7%
S&P 500 +2.2%
S&P MidCap +3.5%
Russell 2000 +2.8%
Nasdaq +8.3%

Bulls 43.9
Bears 17.5 [Source: Investors Intelligence]

*Dr. Bortrum posted a new column...talkin’ Pluto.

Have a great week. Click on the gofundme link above if you haven’t already given to the cause, or send a check to PO Box 990, New Providence, NJ 07974.

Brian Trumbore