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06/04/2011

For the week 5/30-6/3

[Posted 7:00 AM ET]

The Global Slowdown

Five weeks ago I was in Paris, France, when word came that Osama bin-Laden had been killed. I didn’t respond in this space until I returned and my May 7 “Week in Review.” You then undoubtedly noticed my tone was a bit subdued, as much as I documented the praise for our president in making the decision to take out the al-Qaeda leader and terrorist.

The reason is I had a lot of other things on my mind. As in I kept thinking, those celebrating can enjoy the moment but the world’s problems go far beyond this one man, and the issues are frankly more serious than al-Qaeda, assuming they can be prevented from getting their hands on a weapon of mass destruction.

The Arab Spring, for starters, on balance is hardly cause for celebration. Name one major success story thus far…and if you say Egypt you just don’t get it. The upcoming parliamentary elections there (currently slated for September) do not look promising for the West, while I have been writing for months now that Israel is increasingly encircled, far more than before, a point brought home recently by Benjamin Netanyahu with his titanic trip to Washington.

I continue to maintain, however, as I have since the end of last year, that the two big issues on the geopolitical front that could totally cause mayhem are Pakistan and Lebanon (and by inference, Iran). I stick to this. As has been proven with recent Taliban attacks that were carried out with “inside” help, it is more apparent than ever that the Taliban has the ability to decapitate the Pakistani government, which would lead to war with India. Regarding Lebanon, given certain circumstances, Tehran just has to give the O.K. and Hizbullah will start another, far more fearsome war with Israel, only this time the battle would undoubtedly be joined on other fronts.

That’s just the geopolitics of today and the items that stand out. Then there is the ongoing European debt crisis, that before it’s finished threatens to not only transform the European Union and do a number on some of the world’s leading banks, but it could transform the continent in other ways, which is why I have written so much on the immigration issue and how it’s tied closely to the monetary crisis. The far-right is rising across Europe and if various economies don’t start exhibiting strong growth from north to south, the kinds of protests you have seen in Greece and Spain thus far are nothing compared to what is to come. Of course the odds of the needed strong growth are also nil.

This week saw a slew of data on manufacturing, from around the world, and I’ll be damned if I could find a single silver lining. Even in a case such as with China’s purchasing managers’ index for May, 52.0 vs. expectations of 51.7, it was still down from April’s reading of 52.9. This was about the best case. The 17-nation eurozone’s May PMI came in at 54.6 vs. 58.0 in April. Non-euro Britain was at 52.1 vs. April’s 54.4. Russia was nearing stagnation at 50.7. India’s was 57.5 vs. 58. 

Here in the U.S. the PMI was 53.5 vs. April’s 60.4 and a projection of 57.6; another huge miss on the data for economists. Heck, the Chicago Purchasing Managers Index for May was 56.6 vs. 67.6 in April and a projected 62.0. Factory orders for April in this country were down 1.2%. And to top it off, the May employment data for the U.S. revealed the economy created all of 54,000 jobs vs. last month’s revised 232,000 and, again, way off the 185,000 projection. In the private sector, April’s job growth was 254,000; May’s was just 83,000. The unemployment rate ticked up from 9.0% to 9.1%. 

What is my mantra around here? Wait 24 hours. Since Osama bin-Laden was killed, you cannot point to another piece of good news, anywhere…in the world…go ahead, try. Think about the fact that in Afghanistan, since bin-Laden’s death more than 400 U.S. servicemen and women have been injured and over 20 killed. Hundreds of innocents have been killed in Syria in the last five weeks of protests. Hundreds in Pakistan. Hundreds in Yemen, a critical hot spot.

And back to Europe, out of nowhere you have an E. coli outbreak, a virulent strain never seen before by global health officials that not only has killed at least 18 as I go to post, but it has sickened almost 2,000 (some say the toll is ten times that figure) and, more importantly, 500 have developed a rare kidney failure complication that, if it doesn’t lead to death, will cause health problems in those individuals the rest of their lives. Obviously, no one could have forecast such a disaster, but this is sheer terror for Europeans, especially Germans where the outbreak is centered, that rivals anything al-Qaeda and its ilk could come up with. This isn’t a case of tainted Tylenol…this is the food supply, and what makes it even worse is scientists still haven’t found the source.

No identified source, but Spain has been fingered nonetheless as the leading suspect for the tainted cucumbers, tomatoes and lettuce and so no one is accepting such produce from Spain, which is screaming bloody murder and is now going to suffer losses in the $billions before all is said and done, with some 70,000 jobs impacted at a time the nation already has 21% unemployment and is increasingly looked at as the next shoe to drop after Greece, Ireland and Portugal in the debt crisis. It’s incredibly depressing for those of us with half a brain who follow the news, plus consider this last fact. This E. coli strain is at risk of spreading from person to person just through close contact, according to the British Health Protection Agency, which issued such a warning on Thursday. This is an outbreak unlike any other, at the worst possible time in terms of euro-area confidence. 

As for Greece and its financial difficulties, the European Union and International Monetary Fund will pay the next installment under last year’s $155 billion bailout, convinced Greece is serious about its latest round of budget cuts and privatization plans, but have put off for another few weeks a second aid package as details are worked out. This as Moody’s raised the probability of a default to 50%, while other experts say the prospects are far higher. EU/ECB officials are adamant there will be no restructuring because they know the impact this would have on some of the largest financial institutions and governments that are holding Greek crapola, while what’s also increasingly clear is that nothing the EU, ECB and IMF come up with will work because Greece is not going to see the kind of explosive growth needed not just to meet its debt obligations, but also to engender confidence in the market to finance future debt offerings. Instead of just jettisoning Greece from the eurozone, why not stick it on the last space shuttle and leave it on the International Space Station? Now that’s a deal the citizenry of Germany and Finland, among others, could agree to.

As for Ireland, the government keeps saying the economy will grow this year, while Ernst & Young sees a decline in activity of 2.3%. Another 35,000 are expected to emigrate over spreading fears there.

And Denmark entered recession with its second straight down quarter. Q4 GDP down 0.5%. Q1 down 0.2%. This was unexpected.

But Germany’s unemployment rate fell to 7.0% in May.

Martin Wolf / Financial Times

“The eurozone, as designed, has failed. It was based on a set of principles that have proved unworkable at the first contact with a financial and fiscal crisis. It has only two options: to go towards a closer union or backwards towards at least partial dissolution. This is what is at stake….

“Government insolvencies would now…threaten the solvency of debtor country central banks. This would then impose large losses on creditor country central banks, which national taxpayers would have to make good. This would be a fiscal transfer by the back door….

“Prof. (Hans-Werner) Sinn (of the Ifo Institute for Economic Research) makes three points. First, this backdoor way of financing debtor countries cannot continue for very long. By shifting so much of the eurozone’s money creation towards indirect finance of deficit countries, the system has had to withdraw credit from commercial banks in creditor countries. Within two years, he states, the latter will have negative credit positions with their national central banks – in other words, be owed money by them. For this reason, these operations will then have to cease. Second, the only way to stop them, without a crisis, is for solvent governments to take over what are, in essence, fiscal operations. Yet, third, when one adds the sums owed by national central banks to the debts of national governments, totals are now frighteningly high. The only way out is to return to a situation in which the private sector finances both the banks and the governments. But this will take many years, if it can be done with today’s huge debt levels at all.

“Debt restructuring looks inevitable. Yet it is also easy to see why it would be a nightmare, particularly if…the ECB would refuse to lend against the debt of defaulting states. In the absence of ECB support, banks would collapse. Governments would surely have to freeze bank accounts and redenominated debt in a new currency. A run from the public and private debts of every other fragile country would ensue. That would drive these countries towards a similar catastrophe. The eurozone would then unravel. The alternative would be a politically explosive operation to recycle fleeing outflows via public sector inflows….

“The eurozone confronts a choice between two intolerable options: either default and partial dissolution or open-ended official support. The existence of this choice proves that an enduring union will at the very least need deeper financial integration and greater fiscal support than was originally envisaged. How will the politics of these choices now play out? I truly have no idea. I wonder whether anybody does.”

Turning to the U.S., with the above-noted economic data, along with further distressing news on the housing front from the folks at S&P/Case-Shiller, which showed new lows in home prices by their calculation for the quarter ending March, and thereby a double-dip (I’m not ready to call it that myself, officially, but it’s splitting hairs), what is readily apparent is that QE2 has been a miserable failure. 

The purpose of Fed Chairman Ben Bernanke’s program was to keep interest rates low so as to juice housing and encourage investment, both in stocks and other assets, as well as plant and equipment which would lead to more hiring.

Instead, job growth has been anemic given how far we had fallen, housing is dead in the water, and while asset prices and corporate profits are up, again, the point of QE2 was to juice housing and the job market!

Additionally, and never to be discounted, is the fact that Bernanke has totally screwed savers, particularly the elderly. Federal Reserve Bank of Kansas City President Thomas Hoenig said the U.S. needs to raise interest rates to encourage individuals to save and avoid future asset bubbles. But Hoenig, the central bank’s longest-serving policy maker, doesn’t have a vote this year.

“I’m not advocating for tight monetary policy, but I do think we have to get off of zero if we want to avoid repeating some of the mistakes of the past with a very easy credit environment.”

As for the debate over raising the debt ceiling, this week Moody’s said it would put the U.S. government’s Aaa credit rating under review for a downgrade unless progress is made on increasing the debt limit by mid-July. Many pooh-pooh this. They’re wrong to do so.

Peggy Noonan / Wall Street Journal

“The debate in Washington is serious as a heart attack: whether the United States should raise its debt ceiling so it can borrow more money to stay afloat. The statutory ceiling on our national debt – our legal borrowing limit – is $14.3 trillion. That limit was reached, according to the Treasury Department, on May 16. Treasury says it can make do until early August, when the ceiling must be raised by $2.4 trillion.

“Congressional Republicans have made their stand clear: They will agree to raise the limit only if it is accompanied by spending cuts or reforms.

“The Democrats want to raise the ceiling, period.

“The Republicans are being hard-line because of the base, and the base is hard-line for two reasons. First, we are in an unprecedented debt crisis. Second, the past 40 years have taught them that if dramatic action is not taken to stanch spending, Congress will spend more. Something is needed to shock the system.

“If Republicans can get the White House to cut where the money is – Medicare – then Medicare, and all controversy over the Ryan plan, will be taken off the table as an issue in the 2012 election. This would not be good for Democrats. Democrats in turn would likely make some cuts in spending if Republicans agree to some tax increases. But that would take a great Republican issue off the table.”

So now what?

“Democrats are right that the debt ceiling must be raised. Republicans are right that the decision to raise the debt ceiling must be accompanied by reforms or cuts to spending that equal or exceed the amount of the raise, $2.4 trillion. Here’s why.

“Default is unthinkable. We are the United States of America, and we pay our bills.

“Raising the ceiling without attempting to control spending is a depressing and wearying thought. It will avert crisis, yes, but there would be no gain in it beyond that. It would demonstrate to the world that we are not capable of taking necessary steps to dig our way out of the spending mess. It would mean things just continue as they are.”

What about the president? Ms. Noonan praises Bill Clinton’s skills in bringing both sides together. “(He) understood why conservatives think what they think because he was raised in the South. He was surrounded by them, and he wasn’t by nature an ideologue.”

And Obama?

“Barack Obama is different, not a political practitioner, really, but something else, and not a warm-blooded animal but a cool, chill character, a fish who sits deep in the tank and stares, stilly, at the other fish.

“He doesn’t know how to confuse his foes with ‘outreach,’ with phone calls, jokes, affection. He doesn’t leave them saying, as Reagan did, ‘I just can’t help it, I like the guy.’ And because he can’t confuse them or reach them they more readily coalesce around their own explanation of him: socialist, destroyer.

“This isn’t good, and has had an impact on the president’s contacts with Republicans. And it’s added an edge to an emerging campaign theme among them. Two years ago I wrote of Clare Booth Luce’s observation that all presidents have a sentence: ‘He fought to hold the union together and end slavery.’ ‘He brought America through economic collapse and a world war.’ You didn’t have to be told it was Lincoln, or FDR. I said that Mr. Obama didn’t understand his sentence. But Republicans now think they know it.

“Four words: He made it worse.

“Obama inherited financial collapse, deficits and debt. He inherited a broken political culture. These things weren’t his fault. But through his decisions, he made them all worse.”

[Obama at least agreed to play golf with House Speaker Boehner in two weeks. It’s a start.]

Oh, and that better news coming from the states on the budget front? Not so fast.

Karen Hube / Washington Post

“Many states have announced higher-than-expected tax revenue – the first upbeat news to come out of beleaguered state budget offices since 2007. But the windfall is largely the result of smoke and mirrors. Revenue estimates for this year were set at ultra-low levels, leaving plenty of room for good news.

“The reality is that state budget problems are the worst they’ve been since the start of the recession. State tax revenue is more than 10% below their 2008 levels, and 44 states and the District of Columbia have scrambled to close a collective $112 billion budget shortfall for fiscal 2012, which for most states begins July 1.

“The budget gap is dwarfed by last year’s $191 billion shortfall, but this is the first year since 2008 that states have to balance their budgets without federal aid. Stimulus under the American Recovery and Reinvestment Act, which pumped $137 billion into state budgets over the past three years, has essentially dried up for 2012. ‘Many one-time maneuvers to generate cash or delay expenditures have been used, so the budget gaps that have to be filled are now very real numbers,’ says Harley Duncan, KPMG’s leader for state and local tax.

“For taxpayers – already weary of rising tax rates and cuts to crucial services – the fiscal noose is tightening sharply as states resort almost entirely to deep spending cuts and tax increases to balance their budgets.”

Finally, I’m on record as calling for a crash at some point in 2012, exacerbated by the ever-present derivatives risk along with the inevitable flash-trading shenanigans that will help speed the decline.

So I note the thoughts of Templeton Asset Management’s emerging markets guru, Mark Mobius, who said some of the following at the Foreign Correspondents’ Club of Japan in Tokyo.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis. Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

Mobius added the total value of derivatives in the world exceeds total global GDP by a factor of 10. And on the issue of the “too big to fail” banks, Mobius notes that they will grow 40% over the next 15 years (using data compiled by Bloomberg).

“Are the banks bigger than they were before? They’re bigger,” he said. “Too big to fail.” [Bloomberg / Investment News]

Street Bytes

--The Dow Jones fell for a fifth straight week, the longest such skid since 2004, which I find kind of remarkable. All the bad economic news took its toll and the three major averages, the Dow, S&P 500 and Nasdaq, all fell the same 2.3%. The Dow remains up 5% for the year but the other two are up just 3%. The dollar also got crushed on Friday on word EU officials were pulling out the stops for Greece, which is a total crock but we’ll let them have a few weeks off as they play their shell game.

--U.S. Treasury Yields

6-mo. 0.10% 2-yr. 0.42% 10-yr. 2.99% 30-yr. 4.22%

Just last February the 10-year Treasury was 3.72%. Look at it now.

--On the commodities front, Russia is lifting its year-old grain-export ban, thus bolstering supply as the government feels secure enough that it will have more than ample stockpiles to take care of both its domestic needs as well as meeting some of Europe’s after the disastrous Russian drought of 2010. Part of the problem, though, is that it’s now France, the euro region’s leading wheat producer, that is in the midst of its own historic dry spell. The U.S. crop situation is not good either, plus you have the rolling, region by region, drought in China. What I haven’t seen a lot of news on is the situation in Australia, that I’m on record as saying will be a huge positive now that their own record drought is history.

China’s agriculture minister, by the way, maintains the mainland will still see a bumper wheat harvest this summer despite the issues in the Yangtze River basin.

--The consensus GDP for China’s second quarter is in the 8.5%-9.0% range after a 9.7% rise in Q1. But China is also still slated for widespread power disruptions this summer and your guess is as good as mine how this will play out. I do know there have already been serious disruptions in the Hong Kong manufacturing area.

--Australia reported a flood-related first quarter drop in GDP of 1.2%, a big surprise, but April retail sales were up more than expected so the government is convinced the GDP report is a one-time event.

--Japan’s industrial production for April, the first month after the triple disaster, was up a less than expected 1.0%, while the jobless rate ticked up to 4.7%. More below.

--Ohh, Ca-na-daaa…we love our e-co-no-meee…

Yes, Canada’s GDP was 3.9% in the first quarter, double that of the U.S. Of course our friends from the Great White North never had the banking issues we did because regulators there stuck to stiff capital requirements (a gross, but not inaccurate generalization).

That’s Canada…where the ‘domestic’ is ‘premium.’

--China denied it was the source of attacks on Google’s email service, Gmail. Google insisted hackers in the northeast of China got into hundreds of accounts, including those of U.S. government officials (with the hackers at least attempting to get into White House accounts as well). But a Chinese Foreign Ministry spokesman said the allegations are "unacceptable." Saying that the Chinese government supports hacking activity is entirely a fabrication.”

Google did not finger the Chinese government directly, though the area suspected of the activity is the home of the People’s Liberation Army.

--Hackers also appear to have broken into Sony Corp.’s computer networks yet again, accessing the information of one million customers, this according to LulzSec, a group that claims attacks on PBS television and Fox.com. The group said in a statement, “From a single injection, we accessed EVERYTHING. Why do you put such faith in a company that allows itself to become open to these simple attacks?”

--And this week Lockheed Martin acknowledged a “tenacious attack” on its systems network in May but insisted no customer data had been compromised. More on this one next time.

--Regarding all of the above attacks, the Wall Street Journal reported that a soon-to-be-released Pentagon study will conclude that computer sabotage coming from another country can be construed to be an act of war. The Pentagon’s first formal cyber strategy is intended to be a warning to those who would test us that such hack attacks, such as that on critical Lockheed Martin, let alone government agencies, might lead to a military response.

--The White House said this week that taxpayers could lose $14 billion of the money spent on auto industry bailouts. The administration’s auto czar, Ron Bloom, said, “While we are obviously extremely conscious of our obligation to get every penny we can for the taxpayer, we’re also not going to apologize for the fact that there are literally hundreds and hundreds of thousands of Americans who are working today” because of the bailouts.

The administration, particularly President Obama and Treasury Secretary Geithner, wants to trumpet the bailout as a big success.

Editorial / Washington Post

“Would a disinterested observer be equally bullish? Mr. Geithner is surely right that the liquidation of both GM and Chrysler in early 2009 would have shocked a U.S. economy already in free-fall. Avoiding this shock had large public benefits.

“But it’s difficult to measure those benefits against the costs of the rescue, even if the Treasury Department is right that the direct price tag for taxpayers will be $14 billion out of an $80 billion investment. Among other uncertainties, we do not know what the government will get for its remaining one-third share of GM. Lately the stock has traded at $30, down $3 since last year’s initial public offering.

“The auto industry as a whole did not quite face ‘extinction, total collapse,’ as Vice President Biden said recently. If GM and Chrysler had failed, their profitable parts would, eventually, have been bought up and put to work by others. Over time, U.S.-based plants run by Ford, Honda, BMW and the rest would have captured market share, presumably expanding production and hiring workers in the process. Government dollars spent propping up the two automakers might have created jobs elsewhere….

“According to a new survey by Booz & Co., only 16% of executives in the auto industry believe the Chrysler rescue was a positive development….

“Mr. Geithner, to his credit, argued that GM and Chrysler should be masters of their own destiny. ‘We cannot guarantee their success, and at some point they may stumble,’ he wrote. But a message of ‘too big to fail’ has been sent. Can he guarantee there will never be another bailout for GM – or a third for Chrysler? For all the good news from Detroit, the industry is not out of the woods, as poor May sales and GM’s sagging stock price suggest. A remarkable 29% of executives told Booz & Co. that a U.S. automaker could fail within the next 24 months.”

--So what of the May auto sales? They were hideous for some, great for others.

Overall, U.S. sales were down 8% from April and 4% from last May. Toyota, Honda and Nissan, all impacted by the March 11 earthquake in Japan and the resulting parts shortages, were off 33%, 23%, and 9%, respectively vs. year ago levels. GM’s sales fell 1.2%, while Ford’s fell 2.4%. Chrysler’s bucked the trend, up 10%, but that was off a very low bottom in 2010.

The big winners were South Korea’s Hyundai, up 21%, and affiliate Kia Motors, up 53%.

--In Japan itself, auto sales fell by a third in May, the lowest total for the month there since 1968! That is Japanese automakers, I hasten to add. Hyundai and Kia continued to gain in Japan just as they are doing in the U.S., while Japanese automakers struggled from the earthquake and tsunami. However, Toyota said it is bouncing back quicker than expected and hopes to return to 90% of its pre-quake levels by this month.

--When OPEC ministers gather in Vienna next week, they will at least discuss raising production for the first time in about four years as it’s unquestionable $100 oil has hurt the global economy. For starters, the war in Libya has removed 1.3 million barrels a day from the market. Saudi billionaire Prince Alwaleed bin Talal, a leading global investor, particularly in the U.S., said an oil price of $70 to $80 is ideal because it diminishes the urgency in the U.S. and Europe to develop alternative energy sources.

--China will increase its annual coal imports from Russia by almost 30% in the next five years as energy cooperation between the countries grows. The two are also looking to sign a 30-year natural gas supply contract on June 10 during a planned visit to Moscow by Chinese President Hu Jintao.

--Goldman Sachs Group Inc. was subpoenaed by the Manhattan District Attorney’s office for the investment bank’s activities leading up to the financial crisis; specifically the marketing of risky investments on the housing market’s success while simultaneously Goldman was reaping billions from its own bets the sector would tank. The subpoena does not mean an indictment is pending, it’s just the first stage. But since this latest move emanates from a Senate panel investigation it could have legs.

However, analyst Brad Hintz of Sanford C. Bernstein says there is no way Goldman will face criminal prosecution because such a move could threaten the U.S. financial system. Goldman is simply “too big to fail,” according to Hintz.

“In a worst-case environment,” he wrote clients, “we would expect a ‘too big to fail’ bank such as Goldman to be offered a deferred-prosecution agreement, pay a significant fine and submit to a federal monitor in lieu of a criminal charge.”

Last July, Goldman agreed to pay $550 million to settle a civil fraud suit by the SEC that alleged the firm misled clients about a specific mortgage-linked investment.

--I got a kick out of the European Union’s top financial regulator warning the White House that it must speed up and toughen its banking rules, this as the EU has watered down key aspects of its latest efforts to beef up capital requirements for its own banks, which are woefully inadequate.

--About six months ago, I signed up on Groupon to get the daily email and see just what all the hype was about. To say I am unimpressed would be an understatement. Thursday, the biggest provider of online daily-deal coupons announced it would go public in a highly-anticipated IPO that would value the company at up to $25 billion…at least that is the company’s goal. But as Bloomberg noted, the business model is so easy to copy “it has spawned 482 imitators.” Groupon also has had $540 million in operating losses since 2008, though sales are up to $645 million as of the first quarter. Subscribers total 83 million vs. 3.4 million a year ago. Groupon’s workforce has exploded to over 7,100 employees as of March 31, from 37 in June 2009.   

--Meanwhile, Internet music site Pandora Media Inc. announced it is going public in an offering that could value the company at about $1.5 billion. Pandora last recorded revenue of $51 million and a loss of $6.75 million, but in what I would view as a positive sign, the top two executives are not selling any of their shares as part of the IPO. I would buy Pandora before touching Groupon.

--Social-networking site Twitter Inc. is now used by 13% of U.S. adults online, up from 8% in November. 54% are using their mobile devices to access the service, according to a Pew Research Center survey. Older people, including 55 to 64, are beginning to jump in. 

--Britain’s five-largest banks have slashed payroll by 103,000 since 2008, or 11% of their respective combined global workforces. Bloomberg estimates 34,500 were in U.K. proper.

--I would argue the best single indicator for the Chinese economy continues to spit out bullish data, that being gambling revenues in Macau, up another record 42% in May vs. year ago levels. Such a pace isn’t likely to continue but as I’ve said before as long as the increases are 20% or so, overall concern in China that a significant slowdown is imminent (say a growth rate below 7.5%) is unwarranted. But when we get below 20% in revenue gains, which is inevitable, that will warrant closer scrutiny.

--The Los Angeles Times reports that domestic wine retail sales grew 7% in 2010 over the previous year, while U.S. wine exports jumped to a record $1.14 billion last year, up nearly 26% from 2009. However, California wine producers saw sales increase only 1%, with 29% of the state’s wineries still saying they have excess inventory.

--The other day I saw a Spanish protester complain he was 29, couldn’t find a job, and “he had a psychology degree.” I opted not to comment on this last time, not wanting to offend the psych majors in my audience, but I should have. Barron’s laid it out perfectly. $120,000 is the median earnings for those graduating in the U.S. with majors in petroleum engineering. $29,000 is the median wage for psych majors employed in counseling.

--The World Health Organization weighed in on the cellphone-brain cancer linkage debate and said mobile phone users should use texting and hands-free devices to reduce exposure, significantly saying that radio-frequency electromagnetic fields generated by such devices are “possibly carcinogenic to humans.” Tin can and string sales should soar.

--Years ago I had an apartment at the foot of Stevens Institute of Technology in Hoboken, N.J. (a great place to live for young professionals, I hasten to add), Stevens having a good reputation for churning out engineers. So I couldn’t help but note a piece in the current issue of Defense News:

“Chemical engineering students at Stevens…have invented a microreactor that converts everyday fossil fuels like propane and butane into pure hydrogen for highly efficient fuel-cell batteries. These batteries can be replenished with hydrogen again and again for use by soldiers in the field.

“With soldiers carrying up to 80% of gear weight in batteries, the U.S. Army wants to replace single-use batteries with a reliable, reusable power source.

“The Stevens microreactor uses low temperatures and atmospheric pressure, and produces hydrogen only as needed to avoid creating explosive targets in combat areas. These advanced reactors are created with microfabrication techniques similar to those used to create plasma TV screens.”

Congratulations, kids. And that’s your commercial for Stevens.

--Led by “The Hangover Part II,” Hollywood had a record-breaking weekend over the Memorial Day holiday with the 50 highest-grossing films taking in $280 million from Friday through Monday, with “Hangover II” pulling in $137.4 million (nearly $200 million including overseas sales).

Foreign Affairs

Egypt: Christians, 10% of the population here, are increasingly marginalized, just as they are throughout the entire Middle East, and there is no cause for optimism whatsoever in this regard, at least in my remaining lifetime.

From Beirut’s Daily Star:

“(Lebanese) Maronite Patriarch Beshara Rai said Sunday that Christians in the Middle East were at all times the victims of conflicts and disputes which others provoke….

“Rai prayed for God to safeguard people in the Middle East and help Christians in particular to overcome difficulties.

“ ‘Christians have always been the victims of conflicts and disputes just because [of their religious identity] despite the fact that they are innocent.’”

One example of the plight of Christians in Egypt is the fact there are severe regulations for building a church, but virtually none for building a mosque.   And in the case of the Muslim Brotherhood, it “is using mosques as the headquarters of its party branches, and the organization is gradually seeking to create a Shari’a-based state, former Mossad chief Shabtai Shavit warned on Tuesday (in Tel Aviv).”

Shavit, as reported by Yaakov Lappin in the Jerusalem Post, said “The Brotherhood was maneuvering itself through the current turmoil in Egypt skillfully, adding that its immediate goal was to be a balance changer in parliament, following the upcoming parliamentary elections.

“ ‘After that, they would like to place the country under Shari’a law,’ he said.”

Israel: The Arab League appears to be set to seek full membership for a Palestinian state at September’s UN General Assembly in New York. 

[It just needs to be said that while this is always a nightmare, logistically, for the city, this General Assembly in particular promises to be the worst, ever, as you can imagine the kinds of dueling demonstrations that will be taking place over the statehood issue.]

For his part, Palestinian President Mahmoud Abbas said there were “no shared foundations” for resuming peace talks with Israeli Prime Minister Benjamin Netanyahu. Abbas, once thought to be the only moderate on the Palestinian side, is no different than the rest these days. 

Israel needs 60 votes of support from the Assembly in order to squelch any unilateral statehood initiative and this is going to be a tall order. Of course the U.S. can exercise its veto, and will, but would prefer others join it, such as Colombia, which is sitting on the Security Council today and is viewed as Israel’s main ally in Latin America.

In line with the Palestinian move in September, Israel is already preparing for mass rioting that month.

Lastly, a Pew Research poll showed that 68% of Palestinian Muslims still support suicide bombing.

Syria: The death toll in the protests here continues to climb, well over 1,000 with another 10,000+ being detained. The cases of torture are growing commensurately as well, including children, as beaten bodies are returned to their families.

Pitifully, President Bashar Assad issued a general amnesty that state media said would cover all political movements, including the outlawed Muslim Brotherhood, but everyone knows this is a total sham and sure enough, Assad goons continued their shelling and killing.

One thing that is different now from the start of the uprising is that a real opposition is attempting to form, with leaders meeting in Turkey the other day, while foreign journalists continue to be barred. President Obama must take a harder, more public stance, and not just trot out the by now discredited Hillary Clinton for a few inane comments.

Yemen: I get a kick out of the news outlets that dance around the term ‘civil war’ when describing what is taking place in Yemen. I told you last week it was civil war by any common definition. Breakaway army and tribal factions, including elements of al-Qaeda, are fighting the government of President Saleh…that is civil war. One southern town was taken over by Islamists and the country has spun out of control. On Friday, shells struck Saleh’s palace in the capital of Sanaa but the president survived. Tribesmen were blamed for the assassination attempt, though it gives you a sense of how the capital itself is no-man’s land. Incredibly, given the previously low level of violence in relative terms, close to 500 have now been killed in just the past ten days. Explosions were heard on Friday in many other cities and towns across the country.

While the casual observer who doesn’t read the column or any good newspaper at least once a week might not understand why this place is important, strategically, it’s all about the dangers in Yemen becoming a failed state, a la Somalia, and a home to terrorists, even more so than it already is.

Libya: The rebels are appreciative of NATO’s stepped up bombing campaign, which will drive Gaddafi out once and for all if they keep it up, but the rebels do not want ground troops (not that this is in the cards) because they don’t want to upset the conservative Muslims. What the rebels do need these days, aside from fuel, is money.

As for Gaddafi himself, he is counting on the citizenry that he has been handing out weapons to to defend the regime, turning Libya into a “living hell” should NATO forces invade. Gaddafi has also gathered young members of his own tribe to help him make a last stand as his regular forces are depleted.

Pakistan: Intense fighting on the border with Afghanistan killed at least 72 in two days as Afghan militants crossed over and attacked a Pakistani checkpoint; this as Pakistan is finally preparing to launch an offensive against the Taliban and Haqqani terror network in North Waziristan.

Afghanistan: It was a bad week here as a Taliban suicide bomber infiltrated a governor’s compound where top NATO and Afghan officials were meeting, killing three German soldiers, a provincial police chief, and the highly regarded police commander, Gen. Daoud Daoud. Daoud’s heroics in his country went back to his days fighting against the Soviets in the 1980s. Former presidential candidate Abdullah Abdullah, the man who should be in charge instead of Hamid Karzai, the latter having stolen the last election, said General Daoud “cannot be replaced.”

Speaking of Karzai, following a NATO airstrike that killed a reported 14 civilians, he said this was his “last warning” to stop such attacks, particularly at night.

[Separately, two Australian soldiers were killed bringing their toll in Afghanistan to 26. One was killed by an Afghan soldier he had been training; the other died in a helicopter crash.]

Lebanon: Still no formal government. There has been none since January.

Michael Young / Daily Star

“Only a few months ago Hizbullah was willing to take the hazardous step of barring Saad Hariri’s return to office, in the hope that it could follow this up by swiftly forming a favorable government that would face supposedly imminent indictments issued by the Special Tribunal for Lebanon. Today, we must believe that Hizbullah’s sense of urgency has evaporated and that the party is no longer concerned with the likelihood that the tribunal will formally accuse party members of involvement in the assassination of Rafik Hariri. There is a disconnect here, one suggesting that Syria’s objective and Hizbullah’s may not be as closely aligned as some assume over delaying (forming a government).

“It is a matter of anxiety in Beirut how Hizbullah might react if the situation in Syria were to deteriorate further and the Assad regime’s hold on power were loosened further. In that event the existence of a Lebanese government would help Hizbullah, because if the party has to watch one of its principal allies collapsing, it would prefer to do so after having anchored itself in the legitimacy of Lebanese state institutions. In other words the party needs a government in place that it can dominate, both to bless its weapons and help it absorb the aftershocks of a tribunal indictment and radical change in Syria….

“The deadlock will persist in Beirut, with Najib Mikati remaining unable to form a government. However, it’s still an open question whether Hizbullah truly gains from this state of affairs, even if Syria does. Assad wants an open Lebanese playing field to manipulate. Yet at some stage (Hizbullah chief Sheikh) Nasrallah needs the state to be credible, as it may become the last bastion between Hizbullah and regional and international demands that the party surrender its arms.”

Iraq: As reported in the Washington Post, with the reemergence of cleric Moqtada al-Sadr and his Mahdi Army, Sunnis are once again debating whether to reconstitute their own militias to counteract Sadr. This is just super. The Post quoted a Sunni lawmaker, Ahmed al-Alwani, who said:

“Al-Mahdi’s Army duty is very well known: It’s to kill the Sunni people and to evacuate Baghdad of the Sunnis.”

What is creating even more unease is the fact Prime Minister Maliki, a Shiite, blessed the recent march through Baghdad by the Mahdi Army that I reported on last time. And on Friday, at least 34 were killed in various attacks in Saddam’s former home town of Tikrit.

Germany: Stupidly, the German government of Angela Merkel announced it would shut down all 17 of its nuclear reactors by 2022 in reaction to Japan’s Fukushima disaster in a drastic policy reversal, as Merkel runs around scared like one of the Three Little Pigs being chased by the Bogeymen in “Babes in Toyland.” Get some backbone, woman! It’s one thing for Merkel to have shut down the seven oldest of the 17 temporarily in March to make sure they were safe, thus giving into the Green Party. It’s quite another to then shut them all down. The plants account for 23% of Germany’s energy needs.

Editorial / London Times

“Last autumn – hardly an age ago – the German Government decided that the country’s nuclear power stations should stay open. The Economy Minister carefully explained that ‘for the first time in many years a German government is setting out an energy plan for the long term.’  Nuclear power was to be an important ‘bridging element’ in the evolution of a low-carbon economy. This approach was mildly brave, because Germany’s powerful Greens and their supporters have long been obsessively anxious about nuclear power.

“Then came the events at the Fukushima nuclear power plant in Japan. The marchers came out again on the streets of Germany to demonstrate their concerns… despite the rather obvious problem that the power stations were neither in earthquake nor tsunami-prone areas. The Government announced a review. Two days ago it was decided to get rid of nuclear power in Germany within 11 years….

“Yet it remains true that not a single German has died as a result of an accident relating to nuclear power….

“As the late-night decision on closing the zero-casualty nuclear industry was being taken, however, Germans were indeed dying of an entirely avoidable condition. At the time of the writing 16 are dead from the E. coli outbreak in northern Germany and possibly hundreds more have suffered serious illness. Worse, several days into the outbreak the German authorities do not yet know the source of the infection.”

Editorial / Washington Post

“Instead of providing a model for greening a post-industrial economy, Germany’s overreaching greens are showing the rest of the world just how difficult it is to contemplate big cuts in carbon emissions without keeping nuclear power on the table. Panicked overreaction isn’t the right response to the partial meltdowns in Japan’s Fukushima nuclear complex. Instead, countries aiming to provide their citizens with reliable, low-carbon electricity should ask how to minimize inevitable, if small, risks – making their nuclear facilities safer, more reliable and more efficient.”

China: Defense Secretary Robert Gates, in one of his last official moves, is attending an Asia security conference in Singapore and in route said of the relationship with China:

“We are not trying to hold China down. China has been a great power, for thousands of years. It is a global power and will be a global power.

“So the question is how we work our way through this in a way that assures that we continue to have positive relations in areas like economics and other areas that are important to both of us, and manage whatever differences of view we have in the other areas.”

Of China’s military modernization, Gates said it was pursuing weapons that were “a concern to us.” 

The weaponry posed a potential threat to U.S. aircraft carriers, with the mainland developing “long-range, accurate cruise and ballistic anti-ship missiles,” a larger navy, a new stealth fighter jet as well as cyber and anti-satellite capabilities. [South China Morning Post / AFP]

Japan: A report from the International Atomic Energy Agency said Japan greatly underestimated the danger of tsunamis and failed to prepare back-up systems at the Fukushima Daiichi nuclear plant. The facility was only designed to withstand waves about 19 feet high, while the tsunami was as high as 46 feet. It’s also not as if the plant operators and builders knew they were in a high-profile tsunami zone.

The IAEA’s findings were just more bad news for Prime Minister Naoto Kan but he survived a no-confidence motion Thursday, 293-152 in the lower house, with the remaining members either absent or abstained from the vote.

Kan, though, said he was willing to resign once the country’s recovery takes hold, but then the issue became, well what does that mean? When are you leaving, Naoto? Most seem to think this means a few months. Others thought a few weeks. Kan seems to believe he can now stick around until next year.

Serbia: As Ratko Mladic was extradited to The Hague to stand trial on war crimes, and as Mladic then said he was terminally ill (he isn’t), thousands of ultranationalists rallied against his arrest in Belgrade, thereby backing up my recent missive that this remains a place to watch because everyone in the Balkans still hates each other. At least the protests didn’t spiral totally out of control though scores were hurt. Those supporting Mladic reiterated that he was a hero for them, including his son, Darko Mladic, who insisted his father was not responsible for the slaughter at Srebrenica and other war crimes during Bosnia’s 1992-95 war.

Russia: The European Court of Human Rights handed the Kremlin a victory in a ruling on the prosecution of former oil tycoon Mikhail Khodorkovsky. The court said Khodorkovsky had been arrested illegally and held under inhumane conditions. But then it added that while “The Court admits that the applicant’s case may raise a certain suspicion as to the real intent of the authorities,” it required incontrovertible proof to find that the entire legal machinery of the state had been misused against Khodorkovsky, as reported by Kathy Lally of the Washington Post.

In other words, yet another sham ruling! 

But, of perhaps more import, as reported by the Moscow Times earlier in the week, “State-owned NTV television broadcast a prime-time report in which Khodorkovsky announced that he would seek parole, fueling speculation that the Kremlin might be edging toward a decision to free him.

“NTV, which has harshly criticized Khodorkovsky in the past, showed a seemingly unbiased report about the businessman Sunday in an indication that his name was no longer taboo on state-controlled airwaves.”

Very curious, indeed. Does President Dmitry Medvedev, who recently said Khodorkovsky presented no danger, release Khodorkovsky to get back at Prime Minister Vladimir Putin, who has called the prisoner a “thief”?

The problem is the report aired two days before the European Court of Human Rights’ ruling. Did NTV, read Medvedev, expect a more favorable outcome and thus get burned…by Putin himself? [Just thinking outside the box.]

Random Musings

--George Will / Washington Post

“The U.S. intervention in Libya’s civil war, intervention that began with a surplus of confusion about capabilities and a shortage of candor about objectives, is now taking a toll on the rule of law. In a bipartisan cascade of hypocrisies, a liberal president, with the collaborative silence of most congressional conservatives, is traducing the War Powers Resolution.

“Enacted in 1973 over President Nixon’s veto, the WPR may or may not be wise. It is, however, unquestionably a law, and Barack Obama certainly is violating it. It stipulates that a president must terminate military action 60 days after initiating it (or 90, if the president ‘certifies’ in writing an ‘unavoidable military necessity’ respecting the safety of U.S. forces), unless Congress approves it. Congress has been supine and silent about this war, which began more than 70 days ago….

“Sen. Richard Lugar – former chairman of and currently ranking Republican on the Foreign Relations Committee – normally is as placid as an Indiana meadow, but in a tart May 23 letter to Obama, Lugar charged that Obama’s commitments to consult with Congress and act ‘consistent with’ the WPR ‘have not been fulfilled.’ Lugar said that the administration recently ‘canceled without explanation’ a committee briefing on Libya by the vice chairman of the Joint Chiefs of Staff and declined the committee’s request that a Defense Department official testify at another hearing – where the one administration official who did appear, from the State Department, ‘declined to answer questions about our military operations in Libya on the ground that such questions would be more appropriately answered by the Defense Department.’

“Stonewalling is, perhaps, prudent when policy is ludicrous. It is, however, intolerable in the third month of a war that Obama said would involve days, not weeks. And as Lugar said with notable understatement, U.S. operations ‘have assumed a different character than you suggested when you announced the decision to initiate them.’ Obama has made a perfunctory request for congressional approval of this war but clearly will proceed without it.”

--I am on record as saying we must cut defense spending, that Eisenhower’s fear of the power of the military-industrial complex was never greater than it is today.

But it obviously has to be done prudently. I’m also the same guy, however, who touted Defense Secretary Robert Gates’ cuts, but then showed you how in a study by Defense News, the cuts were actually illusory. Programs that were to be eliminated are just being reconfigured.

At the same time we must nonetheless heed the following warning from Mark Helprin, senior fellow at the Claremont Institute and one of the great military strategists of our time, as put forward in his Wall Street Journal op-ed.

“On Memorial Day, we pause at the graves of lost soldiers and make speeches that sometimes open to view the heartbreak and love that are their last traces. But this is not enough, because they do not hear, and because those who will have followed in the years to come will not hear. Love is not enough, rationalization not enough, commemoration a thin and insufficient offering. The only just memorial to those who went forth and died for us, and who therefore question us eternally, cannot be of stone or steel or time set aside for speeches and picnics.

“We should offer instead a memorial, never ending, of probity and preparation, shared sacrifice, continuing resolve, and the clarity the nation once had in regard to how, where, when, and when not to go to war. This is the least we can do both for America and for the troops we dispatch into worlds of sorrow and death. Once, it came naturally, but no longer, and it must be restored.

“First, and despite the times, is the demonstrable fact that throttling defense in the name of economy is economical neither in the long nor the short run. Not if you count the cost of avoidable wars undeterred. Not if you count the cost of major world realignments that lead to overt challenges and adventures. Not if you count the cost – in money, division, demoralization, decline, death, and grief – of lost wars. Is there any doubt that a relatively minor expenditure of money and courage would have kept Germany in its place and prevented the incalculable cost of World War II?

“A public that otherwise professes deep loyalty to its troops is in the name of economy stripping down their equipment and resources, making it more likely that they will fight future battles against forces both gratuitously undeterred and against which they may not prevail. This is short sighted, tragic, hardly a memorial, and in fact an irony, in that other than in redeploying a portion of our wealth from luxury to security, military spending has always been a spur to the economy, as history demonstrates and every member of Congress with military facilities or manufacturers in his district knows….

“When in defense of our essential interests we do go to war, not only must we carefully determine war aims – and thus dictate to the enemy the time, place, and nature of battle rather than chasing him into the briar patch of his choosing – but we must accomplish them massively, overwhelmingly, decisively, and, if necessary, ruthlessly….

“We can construct a genuine memorial to the patriot graves in Arlington and thousands of other cemeteries only if we abandon the many illusory and destructive assumptions with which the weakness of the present will burden the future.

“We will fail to assure the national security if we assume that we will not be drawn into two wars at once; if we do not provide a surplus of material power; if we believe that ‘conventional’ war is a thing of the past; if in the name of false economy we do not apply our full technological potential to our arsenals; if we imagine that technological advance will carry the day in the absence of strategic clarity and the proven principles of warfare; if we make the armed forces a laboratory for the hobby horses of progressivism; and if our political leaders, very few of whom have studied much less known war, commit our troops promiscuously, in service to tangential ideology, with scatterbrained objectives, and without what Winston Churchill called the ‘continual stress of soul’ necessary for proper decision.

“Only the dead have seen the end of war, which will not be eradicated but must be suppressed, managed, and minimized. This cannot be accomplished in the absence of resolution, vigilance, and sacrifice. These are the only fitting memorials to the long ranks of the dead, and what we owe to those who in the absence of our care and devotion are sure to join them.”

--Former senator and presidential candidate John Edwards was indicted on six counts of campaign finance fraud, including conspiracy and making false statements as he took over $900,000 in under-the-table contributions that were then used to keep his mistress hidden while Sleazeball Johnny ran for the highest office in the land. This is an old story, but it’s still remarkable to think what would have happened had we actually elected the guy and then the truth came out. For treating the American people as chumps, Edwards deserves life without parole. 

--Wiener also weiner: n [short for wienerwurst, Vienna sausage]: Frankfurter. See also, Oscar Mayer and the Wienermobile.

Understand that around these parts, where you watch New York-centric local newscasts and primarily New York politicians (unless Chris Christie is making waves in New Jersey, both good and bad…see below), one of the real jerks who is on incessantly is New York Democratic Congressman Anthony Weiner, who hoped to be Gotham’s next mayor. So suffice it to say some of us are rather enjoying Wienergate, or Weinergate, take your pick. By now the entire free world knows about the crotch shot, which is as far from the ‘money shot’ as you can get when it’s your crotch and shorts in question, just sayin’.

Jennifer Rubin / Washington Post

“I think honest Democrats would agree this is pathetic.

“Rep. Anthony Weiner says he ‘can’t say with certitude’ that the lewd photo of a man’s crotch sent using his Twitter account to one of his followers isn’t of him.

“ ‘I didn’t send that picture out,’ Weiner said in a Wednesday afternoon interview with NBC News. ‘That’s not a picture of you?’ reporter Luke Russert asked.

“Weiner responded: ‘You know, I can’t say with certitude.’

“Good golly. He doesn’t recognize his own, er, profile? One can hardly wait for the next installment of Jon Stewart’s mockery fest.

“The lack of a pass-the-laugh-test explanation for all this and his continued refusal to either call the police or disclose his Twitter timeline and direct messages put Democrats in a tough spot. Weiner’s effectiveness, indeed his ability to go out in public, is severely compromised and there is nothing to be gained from defending him (as many left-leaning blogs have already demonstrated).

“The way these scandals work is that the accused, if he doesn’t confess, is supposed to mount a credible defense that allows his party to avoid dumping him. Weiner isn’t holding up his end of the bargain. How long before a Democrat calls for him to get lost?”

Michael Daly / New York Daily News

“For a second day, Anthony Weiner declared that he would not let a prank distract him from the larger issues facing Congress.   If some perv wearing an Anthony Weiner mask presented a lewd bulge to a woman on the subway, you can bet Weiner would be calling for an immediate arrest.

“So why isn’t he calling for the arrest of whoever did the equivalent in cyberspace?

“Not for his sake.

“For the sake of the young woman who received the perv photo Weiner claims was sent by somebody who masqueraded as him by hacking his Twitter account.

“Even if she is able just to shrug it off, what about other women who might not be?

“What’s to prevent the perv in the Weiner mask from cyberflashing them?

“One difference between a cyberperv and a subway perv is that a cyberperv can be easily identified long afterward.

“The person who has been hacked needs only file a complaint and give the okay for the authorities to scrutinize accounts.

“Investigators can then determine the computer’s unique IP address. That includes the one that actually sent the pic.

“Presto! The perv unmasked!

“What’s stopping Weiner, anyway?

“Wednesday, the politician again dismissed the incident as a trifle, barely worth attention.

“ ‘I was the victim of a prank here,’ he told a TV interviewer.

“He seemed barely bothered that somebody posing as him sent a pervy photo to a woman young enough to be his daughter.

“ ‘A moderately funny way that somebody hacked me,’ he said.

“For a second day, he declared that he would not let a prank distract him from the larger issues facing Congress. It would have taken Weiner no more time to call the U.S. Capitol Police or the FBI than it did to call a lawyer and a private internet security firm….

“Weiner has suggested that the hacker was a political foe seeking ‘to undermine me.’ That could be cleared up right away by tracing the hacker’s IP address….

“Maybe Weiner figures he can’t lie to the feds but he can lie to the press and everyone else.

“Or maybe somebody really did hack the Twitter account.

“Maybe they also lifted a pic from Weiner’s computer.

“Maybe the owner of that bulge is not just a liar, he’s also embarrassed.”

Editorial / New York Post

“So the man who would be mayor ‘can’t say with certitude’ whether or not the world’s most famous Twitter crotch shot is of him?

“Could Tony Weiner’s contempt for the people of New York City be any more, well, certain?

“Actually, it looks like this wiener is fully cooked.

“Which is fine, because it’s now clear that Rep. Anthony Weiner isn’t remotely up to the ethical demands of the office he now holds – let alone those of the New York City mayoralty.

“The embattled Brooklyn Democrat wasn’t in a deep enough hole yesterday; he had to keep digging – holding a series of one-on-one interviews with cable-news outlets.

“Asked by MSNBC’s Luke Russert whether it was in fact his crotch in the photo so famously tweeted to a Seattle community-college student, Weiner said:

“ ‘You know, I can’t say with certitude. My system was hacked…pictures can be dropped in and inserted.’

“This is true.

“But it’s equally true that all computer activity leaves easily discoverable shadows….

“All that’s missing is the will to do the job – Weiner’s will….

“Instead, Weiner says he’s hired a private security firm – which he won’t identify – to look into it.

“But why not the authorities?

“He claims he doesn’t ‘want to put national, federal resources into trying to figure out’ what happened – which is ludicrous on its face: Tony Weiner has never seen a taxpayer dime that he didn’t lust to spend….

“Ultimately, this whole bizarre incident is about character – or, more to the point, Weiner’s lack thereof.

“The upside is that New Yorkers are getting a good look at a man who also lacks the sound judgment and the temperament to be their mayor – before they make the mistake of electing him to that office.”

At week’s end, Weiner and Co. were down for the count. It’s safe to say his wife won’t let him, or it, off the canvas.

--Mitt Romney formally announced his candidacy. I won’t be sending him a dime. 

--What’s this? Donald Trump is actually running again? Only if the Republicans nominate a weak candidate, he now says. Trump would then run as an independent, which I’m thinking means you have to shake fewer hands, something The Donald hates to do because of germs. 

Trump told Fox, “Sarah Palin wants me to run, a lot of people want me to run, and I actually think I’d be better off running perhaps as an independent.”

--The latest Quinnipiac University poll has New York Gov. Andrew Cuomo with still sky-high approval ratings six months into his job. Voters give him the nod by a 61-18 margin. I said it before, but Cuomo is going to be a real force to be reckoned with in 2016 presidential politics. He just needs to kind of lay low for now, as he’s been doing, work behind the scenes, get budgets approved quicker than his predecessors (New York is notoriously late on this score), and when out in public, flash his great sense of humor. 

--As for the aforementioned Chris Christie, the governor stupidly used a State Police helicopter Tuesday to attend his son’s baseball game and then return to the governor’s mansion for a dinner with Iowans hoping to convince Christie to run for president. Democrats had a field day, citing the Republican’s cost-cutting hypocrisy.

The issue is that previous governors of both parties reimbursed the state for the cost of such trips. But on Wednesday, a spokesman said Christie wouldn’t, which was another stupid move.

“The governor does not reimburse for security and travel. The use of air travel has been extremely limited and appropriate,” said spokesman Michael Drewniak.

The State Police defended the trip themselves, saying it was used as a training mission in the new, $12.5 million aircraft. Plus Christie hardly uses the thing…just 35 times thus far.

By contrast, Republican Gov. Tom Kean used the chopper 1,000 times in four years, while Democratic Gov. Jim Florio used it 2,300 times in his term, which is almost unfathomable. [Star-Ledger]

But the issue isn’t the use of the chopper, it is the perception that he hadn’t preannounced a policy for reimbursement when on personal business such as this excursion. Coupled with his Disney World vacation with the family during the Christmas blizzard when he didn’t exactly rush back and his opponent in 2013 will pummel him.

Which is why, sports fans, I have maintained talk of Christie for President is ludicrous. Just do the job, Governor, build up your conservative bona-fides, and first and foremost, get re-elected. Then you can look at 2016.

Yes, in the end, after 24 hours reflection, Christie did opt to pay for the chopper, but notice his counterpart across the border in New York and the strategy Gov. Cuomo is adopting.

Or as Josh P. wrote me about Christie and his staff:

“Don’t these people THINK! What the heck do their advisors do for them? You have all but wrapped up the 2016 nomination, you are the symbol of smaller government and the rationalization/restructuring of long-term entitlements and you pull a stunt like this?!

“As Mr. C. Brown would say, ‘Good grief.’”

--Prospective Republican presidential candidate Jon Huntsman, the former Utah governor and ambassador to China, gave a little campaign speech in the form of an op-ed in the Wall Street Journal this week. Basic conservative stuff. Shouldn’t increase the debt ceiling without significant reductions in government spending at the same time, things like that.

I just don’t know enough about the guy, but he has a good pedigree. I do like the following simple statement that all Republicans should be parroting, though not all are because they are running scared and showing zero guts.

“I admire Congressman Paul Ryan’s honest attempt to save Medicare. Those who disagree with his approach incur a moral responsibility to propose reforms that would ensure Medicare’s ability to meet its responsibilities to retirees without imposing an unaffordable tax burden on future generations of Americans.”

--Would someone please tell Sarah Palin to go away…I’m too tired to do it.

--Tim Pawlenty is not our answer, my fellow pachyderms.

--I want Michele Bachmann to run because I’d like to get an autographed picture of her when I’m in Iowa this August.

--There is no way Sarah Palin could explain Pickett’s Charge, especially after her Paul Revere gaff. Yikes.

--I didn’t say I would vote for Michele Bachmann so stop writing that e-mail to me! 

--I was disappointed to see that former Sen. Judd Gregg joined Goldman Sachs as an advisor four months after retiring from the Senate. It’s a freakin’ sellout. I thought Gregg, the New Hampshire Republican, was one of the good guys. You won’t catch me saying that again.

--According to a study from the Journal of Weather and Forecasting, as reported by Doyle Rice of USA TODAY, “Most of the strongest hurricanes have decreased in intensity just before hitting the Gulf Coast, where two-thirds of all hurricanes to hit land in the USA have struck in the past 30 years.”

You all remember how Katrina’s intensity actually fell considerably before slamming into the coast. Katrina was a Cat 5 with winds of 175 mph but made landfall as a Cat 3 with a wind speed of 125 mph.

“Overall, of the 12 most powerful hurricanes (Categories 3-5) in the Gulf between 1979 and 2008, including Katrina, 10 weakened during the 12 hours before making landfall.”

Study co-author Mark DeMaria says:

“It’s something special about the Gulf of Mexico. In the center of the Gulf, deep, warm water comes out of the tropics, but closer to the northern Gulf Coast, warm water does not extend as deep below the surface….

“When hurricanes move over that water, high surface winds tend to mix cooler water up to the surface, which can lessen a storm’s intensity.”

--For the record, the tornado death toll for 2011, at least 520, makes it the highest recorded count in a single year since 1953. Storm totals before 1950 did not rely on precise figures.

--The New York Times’ Leslie Kaufman had a report on the massive flooding of the Mississippi River that “is expected to result in the largest dead zone ever in the Gulf of Mexico.”

The main culprit is chemicals such as nitrogen and phosphorous from fertilizers, as well as animal manure in river runoff.

“They settle in at the mouth of the gulf and fertilize algae, which prospers and eventually starves other living things of oxygen.”

--The International Energy Agency said that with Germany’s closure of all 17 of its nuclear power plants, it would be impossible to stop a global temperature rise of more than 2C (3.6F). Fatih Birol, its chief economist, said: ‘This significant increase in CO2 emissions and the locking in of future emissions due to infrastructure investments represent a serious setback to our hopes of limiting the global rise in temperatures to no more than 2C.”

--The weather extremes in Europe continue. After record cold last December in the likes of Britain and Germany, this spring has been the hottest on record in France. The resultant drought is reducing the flow of water into its nuclear plants which could soon impact the cooling process.

--We note the passing of “Dr. Death,” Jack Kevorkian, at the age of 83. He was believed to have assisted in 130 suicides and later served eight years in prison for second-degree murder. Kevorkian never had any regrets. His own cause of death was kind of scary, though. A blood clot in his leg that broke off and traveled to his heart. [If you sit still for long periods and travel on a lot of airplanes you think about this stuff from time to time.]

--Tom Hanks caught some grief last year for statements he made about our current wars when the HBO series “The Pacific” came out. I prefer to give him the benefit of the doubt because of his exceptional support in making sure stories like World War II are told correctly and with “The Pacific” and his prior efforts on the European theater (“Saving Private Ryan” and “Band of Brothers”), generations to come now have on film accurate portrayals of the horrors, and heroism, of those campaigns.

So I note below Hanks’ commencement speech comments on today at Yale, as reported by Army Times.

Hanks said veterans of the wars in Iraq and Afghanistan will return in the coming months and years “different from what they were when they left.”

“Let those of us who watched and debated their long deployment serve them now as they served. Let’s provide for them their place free from fear…by empathizing with the new journey they are starting even though we will never fully understand the journey they just completed.

“Give it four years – as many years as you spent here at Yale. In acts both proactive and spontaneous, do the things you can to free veterans from the new uncertainty that awaits them, from the mysterious fears they will face the day after they come home,” Hanks said.

“Cultivate in them the faith to carry on – and they will do the rest.”

---

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

God bless America.
---

Gold closed at $1542
Oil, $100.22

Returns for the week 5/30-6/3

Dow Jones -2.3% [12151]
S&P 500 -2.3% [1300]
S&P MidCap -2.9%
Russell 2000 -3.4%
Nasdaq -2.3% [2732]

Returns for the period 1/1/11-6/3/11

Dow Jones +5.0%
S&P 500 +3.4%
S&P MidCap +5.9%
Russell 2000 +3.1%
Nasdaq +3.0%

Bulls 45.2
Bears 20.4 [Source: Chartcraft / Investors Intelligence]

*Dr. Bortrum posted a new column.

Have a great week. I appreciate your support.

Brian Trumbore



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-06/04/2011-      
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Week in Review

06/04/2011

For the week 5/30-6/3

[Posted 7:00 AM ET]

The Global Slowdown

Five weeks ago I was in Paris, France, when word came that Osama bin-Laden had been killed. I didn’t respond in this space until I returned and my May 7 “Week in Review.” You then undoubtedly noticed my tone was a bit subdued, as much as I documented the praise for our president in making the decision to take out the al-Qaeda leader and terrorist.

The reason is I had a lot of other things on my mind. As in I kept thinking, those celebrating can enjoy the moment but the world’s problems go far beyond this one man, and the issues are frankly more serious than al-Qaeda, assuming they can be prevented from getting their hands on a weapon of mass destruction.

The Arab Spring, for starters, on balance is hardly cause for celebration. Name one major success story thus far…and if you say Egypt you just don’t get it. The upcoming parliamentary elections there (currently slated for September) do not look promising for the West, while I have been writing for months now that Israel is increasingly encircled, far more than before, a point brought home recently by Benjamin Netanyahu with his titanic trip to Washington.

I continue to maintain, however, as I have since the end of last year, that the two big issues on the geopolitical front that could totally cause mayhem are Pakistan and Lebanon (and by inference, Iran). I stick to this. As has been proven with recent Taliban attacks that were carried out with “inside” help, it is more apparent than ever that the Taliban has the ability to decapitate the Pakistani government, which would lead to war with India. Regarding Lebanon, given certain circumstances, Tehran just has to give the O.K. and Hizbullah will start another, far more fearsome war with Israel, only this time the battle would undoubtedly be joined on other fronts.

That’s just the geopolitics of today and the items that stand out. Then there is the ongoing European debt crisis, that before it’s finished threatens to not only transform the European Union and do a number on some of the world’s leading banks, but it could transform the continent in other ways, which is why I have written so much on the immigration issue and how it’s tied closely to the monetary crisis. The far-right is rising across Europe and if various economies don’t start exhibiting strong growth from north to south, the kinds of protests you have seen in Greece and Spain thus far are nothing compared to what is to come. Of course the odds of the needed strong growth are also nil.

This week saw a slew of data on manufacturing, from around the world, and I’ll be damned if I could find a single silver lining. Even in a case such as with China’s purchasing managers’ index for May, 52.0 vs. expectations of 51.7, it was still down from April’s reading of 52.9. This was about the best case. The 17-nation eurozone’s May PMI came in at 54.6 vs. 58.0 in April. Non-euro Britain was at 52.1 vs. April’s 54.4. Russia was nearing stagnation at 50.7. India’s was 57.5 vs. 58. 

Here in the U.S. the PMI was 53.5 vs. April’s 60.4 and a projection of 57.6; another huge miss on the data for economists. Heck, the Chicago Purchasing Managers Index for May was 56.6 vs. 67.6 in April and a projected 62.0. Factory orders for April in this country were down 1.2%. And to top it off, the May employment data for the U.S. revealed the economy created all of 54,000 jobs vs. last month’s revised 232,000 and, again, way off the 185,000 projection. In the private sector, April’s job growth was 254,000; May’s was just 83,000. The unemployment rate ticked up from 9.0% to 9.1%. 

What is my mantra around here? Wait 24 hours. Since Osama bin-Laden was killed, you cannot point to another piece of good news, anywhere…in the world…go ahead, try. Think about the fact that in Afghanistan, since bin-Laden’s death more than 400 U.S. servicemen and women have been injured and over 20 killed. Hundreds of innocents have been killed in Syria in the last five weeks of protests. Hundreds in Pakistan. Hundreds in Yemen, a critical hot spot.

And back to Europe, out of nowhere you have an E. coli outbreak, a virulent strain never seen before by global health officials that not only has killed at least 18 as I go to post, but it has sickened almost 2,000 (some say the toll is ten times that figure) and, more importantly, 500 have developed a rare kidney failure complication that, if it doesn’t lead to death, will cause health problems in those individuals the rest of their lives. Obviously, no one could have forecast such a disaster, but this is sheer terror for Europeans, especially Germans where the outbreak is centered, that rivals anything al-Qaeda and its ilk could come up with. This isn’t a case of tainted Tylenol…this is the food supply, and what makes it even worse is scientists still haven’t found the source.

No identified source, but Spain has been fingered nonetheless as the leading suspect for the tainted cucumbers, tomatoes and lettuce and so no one is accepting such produce from Spain, which is screaming bloody murder and is now going to suffer losses in the $billions before all is said and done, with some 70,000 jobs impacted at a time the nation already has 21% unemployment and is increasingly looked at as the next shoe to drop after Greece, Ireland and Portugal in the debt crisis. It’s incredibly depressing for those of us with half a brain who follow the news, plus consider this last fact. This E. coli strain is at risk of spreading from person to person just through close contact, according to the British Health Protection Agency, which issued such a warning on Thursday. This is an outbreak unlike any other, at the worst possible time in terms of euro-area confidence. 

As for Greece and its financial difficulties, the European Union and International Monetary Fund will pay the next installment under last year’s $155 billion bailout, convinced Greece is serious about its latest round of budget cuts and privatization plans, but have put off for another few weeks a second aid package as details are worked out. This as Moody’s raised the probability of a default to 50%, while other experts say the prospects are far higher. EU/ECB officials are adamant there will be no restructuring because they know the impact this would have on some of the largest financial institutions and governments that are holding Greek crapola, while what’s also increasingly clear is that nothing the EU, ECB and IMF come up with will work because Greece is not going to see the kind of explosive growth needed not just to meet its debt obligations, but also to engender confidence in the market to finance future debt offerings. Instead of just jettisoning Greece from the eurozone, why not stick it on the last space shuttle and leave it on the International Space Station? Now that’s a deal the citizenry of Germany and Finland, among others, could agree to.

As for Ireland, the government keeps saying the economy will grow this year, while Ernst & Young sees a decline in activity of 2.3%. Another 35,000 are expected to emigrate over spreading fears there.

And Denmark entered recession with its second straight down quarter. Q4 GDP down 0.5%. Q1 down 0.2%. This was unexpected.

But Germany’s unemployment rate fell to 7.0% in May.

Martin Wolf / Financial Times

“The eurozone, as designed, has failed. It was based on a set of principles that have proved unworkable at the first contact with a financial and fiscal crisis. It has only two options: to go towards a closer union or backwards towards at least partial dissolution. This is what is at stake….

“Government insolvencies would now…threaten the solvency of debtor country central banks. This would then impose large losses on creditor country central banks, which national taxpayers would have to make good. This would be a fiscal transfer by the back door….

“Prof. (Hans-Werner) Sinn (of the Ifo Institute for Economic Research) makes three points. First, this backdoor way of financing debtor countries cannot continue for very long. By shifting so much of the eurozone’s money creation towards indirect finance of deficit countries, the system has had to withdraw credit from commercial banks in creditor countries. Within two years, he states, the latter will have negative credit positions with their national central banks – in other words, be owed money by them. For this reason, these operations will then have to cease. Second, the only way to stop them, without a crisis, is for solvent governments to take over what are, in essence, fiscal operations. Yet, third, when one adds the sums owed by national central banks to the debts of national governments, totals are now frighteningly high. The only way out is to return to a situation in which the private sector finances both the banks and the governments. But this will take many years, if it can be done with today’s huge debt levels at all.

“Debt restructuring looks inevitable. Yet it is also easy to see why it would be a nightmare, particularly if…the ECB would refuse to lend against the debt of defaulting states. In the absence of ECB support, banks would collapse. Governments would surely have to freeze bank accounts and redenominated debt in a new currency. A run from the public and private debts of every other fragile country would ensue. That would drive these countries towards a similar catastrophe. The eurozone would then unravel. The alternative would be a politically explosive operation to recycle fleeing outflows via public sector inflows….

“The eurozone confronts a choice between two intolerable options: either default and partial dissolution or open-ended official support. The existence of this choice proves that an enduring union will at the very least need deeper financial integration and greater fiscal support than was originally envisaged. How will the politics of these choices now play out? I truly have no idea. I wonder whether anybody does.”

Turning to the U.S., with the above-noted economic data, along with further distressing news on the housing front from the folks at S&P/Case-Shiller, which showed new lows in home prices by their calculation for the quarter ending March, and thereby a double-dip (I’m not ready to call it that myself, officially, but it’s splitting hairs), what is readily apparent is that QE2 has been a miserable failure. 

The purpose of Fed Chairman Ben Bernanke’s program was to keep interest rates low so as to juice housing and encourage investment, both in stocks and other assets, as well as plant and equipment which would lead to more hiring.

Instead, job growth has been anemic given how far we had fallen, housing is dead in the water, and while asset prices and corporate profits are up, again, the point of QE2 was to juice housing and the job market!

Additionally, and never to be discounted, is the fact that Bernanke has totally screwed savers, particularly the elderly. Federal Reserve Bank of Kansas City President Thomas Hoenig said the U.S. needs to raise interest rates to encourage individuals to save and avoid future asset bubbles. But Hoenig, the central bank’s longest-serving policy maker, doesn’t have a vote this year.

“I’m not advocating for tight monetary policy, but I do think we have to get off of zero if we want to avoid repeating some of the mistakes of the past with a very easy credit environment.”

As for the debate over raising the debt ceiling, this week Moody’s said it would put the U.S. government’s Aaa credit rating under review for a downgrade unless progress is made on increasing the debt limit by mid-July. Many pooh-pooh this. They’re wrong to do so.

Peggy Noonan / Wall Street Journal

“The debate in Washington is serious as a heart attack: whether the United States should raise its debt ceiling so it can borrow more money to stay afloat. The statutory ceiling on our national debt – our legal borrowing limit – is $14.3 trillion. That limit was reached, according to the Treasury Department, on May 16. Treasury says it can make do until early August, when the ceiling must be raised by $2.4 trillion.

“Congressional Republicans have made their stand clear: They will agree to raise the limit only if it is accompanied by spending cuts or reforms.

“The Democrats want to raise the ceiling, period.

“The Republicans are being hard-line because of the base, and the base is hard-line for two reasons. First, we are in an unprecedented debt crisis. Second, the past 40 years have taught them that if dramatic action is not taken to stanch spending, Congress will spend more. Something is needed to shock the system.

“If Republicans can get the White House to cut where the money is – Medicare – then Medicare, and all controversy over the Ryan plan, will be taken off the table as an issue in the 2012 election. This would not be good for Democrats. Democrats in turn would likely make some cuts in spending if Republicans agree to some tax increases. But that would take a great Republican issue off the table.”

So now what?

“Democrats are right that the debt ceiling must be raised. Republicans are right that the decision to raise the debt ceiling must be accompanied by reforms or cuts to spending that equal or exceed the amount of the raise, $2.4 trillion. Here’s why.

“Default is unthinkable. We are the United States of America, and we pay our bills.

“Raising the ceiling without attempting to control spending is a depressing and wearying thought. It will avert crisis, yes, but there would be no gain in it beyond that. It would demonstrate to the world that we are not capable of taking necessary steps to dig our way out of the spending mess. It would mean things just continue as they are.”

What about the president? Ms. Noonan praises Bill Clinton’s skills in bringing both sides together. “(He) understood why conservatives think what they think because he was raised in the South. He was surrounded by them, and he wasn’t by nature an ideologue.”

And Obama?

“Barack Obama is different, not a political practitioner, really, but something else, and not a warm-blooded animal but a cool, chill character, a fish who sits deep in the tank and stares, stilly, at the other fish.

“He doesn’t know how to confuse his foes with ‘outreach,’ with phone calls, jokes, affection. He doesn’t leave them saying, as Reagan did, ‘I just can’t help it, I like the guy.’ And because he can’t confuse them or reach them they more readily coalesce around their own explanation of him: socialist, destroyer.

“This isn’t good, and has had an impact on the president’s contacts with Republicans. And it’s added an edge to an emerging campaign theme among them. Two years ago I wrote of Clare Booth Luce’s observation that all presidents have a sentence: ‘He fought to hold the union together and end slavery.’ ‘He brought America through economic collapse and a world war.’ You didn’t have to be told it was Lincoln, or FDR. I said that Mr. Obama didn’t understand his sentence. But Republicans now think they know it.

“Four words: He made it worse.

“Obama inherited financial collapse, deficits and debt. He inherited a broken political culture. These things weren’t his fault. But through his decisions, he made them all worse.”

[Obama at least agreed to play golf with House Speaker Boehner in two weeks. It’s a start.]

Oh, and that better news coming from the states on the budget front? Not so fast.

Karen Hube / Washington Post

“Many states have announced higher-than-expected tax revenue – the first upbeat news to come out of beleaguered state budget offices since 2007. But the windfall is largely the result of smoke and mirrors. Revenue estimates for this year were set at ultra-low levels, leaving plenty of room for good news.

“The reality is that state budget problems are the worst they’ve been since the start of the recession. State tax revenue is more than 10% below their 2008 levels, and 44 states and the District of Columbia have scrambled to close a collective $112 billion budget shortfall for fiscal 2012, which for most states begins July 1.

“The budget gap is dwarfed by last year’s $191 billion shortfall, but this is the first year since 2008 that states have to balance their budgets without federal aid. Stimulus under the American Recovery and Reinvestment Act, which pumped $137 billion into state budgets over the past three years, has essentially dried up for 2012. ‘Many one-time maneuvers to generate cash or delay expenditures have been used, so the budget gaps that have to be filled are now very real numbers,’ says Harley Duncan, KPMG’s leader for state and local tax.

“For taxpayers – already weary of rising tax rates and cuts to crucial services – the fiscal noose is tightening sharply as states resort almost entirely to deep spending cuts and tax increases to balance their budgets.”

Finally, I’m on record as calling for a crash at some point in 2012, exacerbated by the ever-present derivatives risk along with the inevitable flash-trading shenanigans that will help speed the decline.

So I note the thoughts of Templeton Asset Management’s emerging markets guru, Mark Mobius, who said some of the following at the Foreign Correspondents’ Club of Japan in Tokyo.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis. Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

Mobius added the total value of derivatives in the world exceeds total global GDP by a factor of 10. And on the issue of the “too big to fail” banks, Mobius notes that they will grow 40% over the next 15 years (using data compiled by Bloomberg).

“Are the banks bigger than they were before? They’re bigger,” he said. “Too big to fail.” [Bloomberg / Investment News]

Street Bytes

--The Dow Jones fell for a fifth straight week, the longest such skid since 2004, which I find kind of remarkable. All the bad economic news took its toll and the three major averages, the Dow, S&P 500 and Nasdaq, all fell the same 2.3%. The Dow remains up 5% for the year but the other two are up just 3%. The dollar also got crushed on Friday on word EU officials were pulling out the stops for Greece, which is a total crock but we’ll let them have a few weeks off as they play their shell game.

--U.S. Treasury Yields

6-mo. 0.10% 2-yr. 0.42% 10-yr. 2.99% 30-yr. 4.22%

Just last February the 10-year Treasury was 3.72%. Look at it now.

--On the commodities front, Russia is lifting its year-old grain-export ban, thus bolstering supply as the government feels secure enough that it will have more than ample stockpiles to take care of both its domestic needs as well as meeting some of Europe’s after the disastrous Russian drought of 2010. Part of the problem, though, is that it’s now France, the euro region’s leading wheat producer, that is in the midst of its own historic dry spell. The U.S. crop situation is not good either, plus you have the rolling, region by region, drought in China. What I haven’t seen a lot of news on is the situation in Australia, that I’m on record as saying will be a huge positive now that their own record drought is history.

China’s agriculture minister, by the way, maintains the mainland will still see a bumper wheat harvest this summer despite the issues in the Yangtze River basin.

--The consensus GDP for China’s second quarter is in the 8.5%-9.0% range after a 9.7% rise in Q1. But China is also still slated for widespread power disruptions this summer and your guess is as good as mine how this will play out. I do know there have already been serious disruptions in the Hong Kong manufacturing area.

--Australia reported a flood-related first quarter drop in GDP of 1.2%, a big surprise, but April retail sales were up more than expected so the government is convinced the GDP report is a one-time event.

--Japan’s industrial production for April, the first month after the triple disaster, was up a less than expected 1.0%, while the jobless rate ticked up to 4.7%. More below.

--Ohh, Ca-na-daaa…we love our e-co-no-meee…

Yes, Canada’s GDP was 3.9% in the first quarter, double that of the U.S. Of course our friends from the Great White North never had the banking issues we did because regulators there stuck to stiff capital requirements (a gross, but not inaccurate generalization).

That’s Canada…where the ‘domestic’ is ‘premium.’

--China denied it was the source of attacks on Google’s email service, Gmail. Google insisted hackers in the northeast of China got into hundreds of accounts, including those of U.S. government officials (with the hackers at least attempting to get into White House accounts as well). But a Chinese Foreign Ministry spokesman said the allegations are "unacceptable." Saying that the Chinese government supports hacking activity is entirely a fabrication.”

Google did not finger the Chinese government directly, though the area suspected of the activity is the home of the People’s Liberation Army.

--Hackers also appear to have broken into Sony Corp.’s computer networks yet again, accessing the information of one million customers, this according to LulzSec, a group that claims attacks on PBS television and Fox.com. The group said in a statement, “From a single injection, we accessed EVERYTHING. Why do you put such faith in a company that allows itself to become open to these simple attacks?”

--And this week Lockheed Martin acknowledged a “tenacious attack” on its systems network in May but insisted no customer data had been compromised. More on this one next time.

--Regarding all of the above attacks, the Wall Street Journal reported that a soon-to-be-released Pentagon study will conclude that computer sabotage coming from another country can be construed to be an act of war. The Pentagon’s first formal cyber strategy is intended to be a warning to those who would test us that such hack attacks, such as that on critical Lockheed Martin, let alone government agencies, might lead to a military response.

--The White House said this week that taxpayers could lose $14 billion of the money spent on auto industry bailouts. The administration’s auto czar, Ron Bloom, said, “While we are obviously extremely conscious of our obligation to get every penny we can for the taxpayer, we’re also not going to apologize for the fact that there are literally hundreds and hundreds of thousands of Americans who are working today” because of the bailouts.

The administration, particularly President Obama and Treasury Secretary Geithner, wants to trumpet the bailout as a big success.

Editorial / Washington Post

“Would a disinterested observer be equally bullish? Mr. Geithner is surely right that the liquidation of both GM and Chrysler in early 2009 would have shocked a U.S. economy already in free-fall. Avoiding this shock had large public benefits.

“But it’s difficult to measure those benefits against the costs of the rescue, even if the Treasury Department is right that the direct price tag for taxpayers will be $14 billion out of an $80 billion investment. Among other uncertainties, we do not know what the government will get for its remaining one-third share of GM. Lately the stock has traded at $30, down $3 since last year’s initial public offering.

“The auto industry as a whole did not quite face ‘extinction, total collapse,’ as Vice President Biden said recently. If GM and Chrysler had failed, their profitable parts would, eventually, have been bought up and put to work by others. Over time, U.S.-based plants run by Ford, Honda, BMW and the rest would have captured market share, presumably expanding production and hiring workers in the process. Government dollars spent propping up the two automakers might have created jobs elsewhere….

“According to a new survey by Booz & Co., only 16% of executives in the auto industry believe the Chrysler rescue was a positive development….

“Mr. Geithner, to his credit, argued that GM and Chrysler should be masters of their own destiny. ‘We cannot guarantee their success, and at some point they may stumble,’ he wrote. But a message of ‘too big to fail’ has been sent. Can he guarantee there will never be another bailout for GM – or a third for Chrysler? For all the good news from Detroit, the industry is not out of the woods, as poor May sales and GM’s sagging stock price suggest. A remarkable 29% of executives told Booz & Co. that a U.S. automaker could fail within the next 24 months.”

--So what of the May auto sales? They were hideous for some, great for others.

Overall, U.S. sales were down 8% from April and 4% from last May. Toyota, Honda and Nissan, all impacted by the March 11 earthquake in Japan and the resulting parts shortages, were off 33%, 23%, and 9%, respectively vs. year ago levels. GM’s sales fell 1.2%, while Ford’s fell 2.4%. Chrysler’s bucked the trend, up 10%, but that was off a very low bottom in 2010.

The big winners were South Korea’s Hyundai, up 21%, and affiliate Kia Motors, up 53%.

--In Japan itself, auto sales fell by a third in May, the lowest total for the month there since 1968! That is Japanese automakers, I hasten to add. Hyundai and Kia continued to gain in Japan just as they are doing in the U.S., while Japanese automakers struggled from the earthquake and tsunami. However, Toyota said it is bouncing back quicker than expected and hopes to return to 90% of its pre-quake levels by this month.

--When OPEC ministers gather in Vienna next week, they will at least discuss raising production for the first time in about four years as it’s unquestionable $100 oil has hurt the global economy. For starters, the war in Libya has removed 1.3 million barrels a day from the market. Saudi billionaire Prince Alwaleed bin Talal, a leading global investor, particularly in the U.S., said an oil price of $70 to $80 is ideal because it diminishes the urgency in the U.S. and Europe to develop alternative energy sources.

--China will increase its annual coal imports from Russia by almost 30% in the next five years as energy cooperation between the countries grows. The two are also looking to sign a 30-year natural gas supply contract on June 10 during a planned visit to Moscow by Chinese President Hu Jintao.

--Goldman Sachs Group Inc. was subpoenaed by the Manhattan District Attorney’s office for the investment bank’s activities leading up to the financial crisis; specifically the marketing of risky investments on the housing market’s success while simultaneously Goldman was reaping billions from its own bets the sector would tank. The subpoena does not mean an indictment is pending, it’s just the first stage. But since this latest move emanates from a Senate panel investigation it could have legs.

However, analyst Brad Hintz of Sanford C. Bernstein says there is no way Goldman will face criminal prosecution because such a move could threaten the U.S. financial system. Goldman is simply “too big to fail,” according to Hintz.

“In a worst-case environment,” he wrote clients, “we would expect a ‘too big to fail’ bank such as Goldman to be offered a deferred-prosecution agreement, pay a significant fine and submit to a federal monitor in lieu of a criminal charge.”

Last July, Goldman agreed to pay $550 million to settle a civil fraud suit by the SEC that alleged the firm misled clients about a specific mortgage-linked investment.

--I got a kick out of the European Union’s top financial regulator warning the White House that it must speed up and toughen its banking rules, this as the EU has watered down key aspects of its latest efforts to beef up capital requirements for its own banks, which are woefully inadequate.

--About six months ago, I signed up on Groupon to get the daily email and see just what all the hype was about. To say I am unimpressed would be an understatement. Thursday, the biggest provider of online daily-deal coupons announced it would go public in a highly-anticipated IPO that would value the company at up to $25 billion…at least that is the company’s goal. But as Bloomberg noted, the business model is so easy to copy “it has spawned 482 imitators.” Groupon also has had $540 million in operating losses since 2008, though sales are up to $645 million as of the first quarter. Subscribers total 83 million vs. 3.4 million a year ago. Groupon’s workforce has exploded to over 7,100 employees as of March 31, from 37 in June 2009.   

--Meanwhile, Internet music site Pandora Media Inc. announced it is going public in an offering that could value the company at about $1.5 billion. Pandora last recorded revenue of $51 million and a loss of $6.75 million, but in what I would view as a positive sign, the top two executives are not selling any of their shares as part of the IPO. I would buy Pandora before touching Groupon.

--Social-networking site Twitter Inc. is now used by 13% of U.S. adults online, up from 8% in November. 54% are using their mobile devices to access the service, according to a Pew Research Center survey. Older people, including 55 to 64, are beginning to jump in. 

--Britain’s five-largest banks have slashed payroll by 103,000 since 2008, or 11% of their respective combined global workforces. Bloomberg estimates 34,500 were in U.K. proper.

--I would argue the best single indicator for the Chinese economy continues to spit out bullish data, that being gambling revenues in Macau, up another record 42% in May vs. year ago levels. Such a pace isn’t likely to continue but as I’ve said before as long as the increases are 20% or so, overall concern in China that a significant slowdown is imminent (say a growth rate below 7.5%) is unwarranted. But when we get below 20% in revenue gains, which is inevitable, that will warrant closer scrutiny.

--The Los Angeles Times reports that domestic wine retail sales grew 7% in 2010 over the previous year, while U.S. wine exports jumped to a record $1.14 billion last year, up nearly 26% from 2009. However, California wine producers saw sales increase only 1%, with 29% of the state’s wineries still saying they have excess inventory.

--The other day I saw a Spanish protester complain he was 29, couldn’t find a job, and “he had a psychology degree.” I opted not to comment on this last time, not wanting to offend the psych majors in my audience, but I should have. Barron’s laid it out perfectly. $120,000 is the median earnings for those graduating in the U.S. with majors in petroleum engineering. $29,000 is the median wage for psych majors employed in counseling.

--The World Health Organization weighed in on the cellphone-brain cancer linkage debate and said mobile phone users should use texting and hands-free devices to reduce exposure, significantly saying that radio-frequency electromagnetic fields generated by such devices are “possibly carcinogenic to humans.” Tin can and string sales should soar.

--Years ago I had an apartment at the foot of Stevens Institute of Technology in Hoboken, N.J. (a great place to live for young professionals, I hasten to add), Stevens having a good reputation for churning out engineers. So I couldn’t help but note a piece in the current issue of Defense News:

“Chemical engineering students at Stevens…have invented a microreactor that converts everyday fossil fuels like propane and butane into pure hydrogen for highly efficient fuel-cell batteries. These batteries can be replenished with hydrogen again and again for use by soldiers in the field.

“With soldiers carrying up to 80% of gear weight in batteries, the U.S. Army wants to replace single-use batteries with a reliable, reusable power source.

“The Stevens microreactor uses low temperatures and atmospheric pressure, and produces hydrogen only as needed to avoid creating explosive targets in combat areas. These advanced reactors are created with microfabrication techniques similar to those used to create plasma TV screens.”

Congratulations, kids. And that’s your commercial for Stevens.

--Led by “The Hangover Part II,” Hollywood had a record-breaking weekend over the Memorial Day holiday with the 50 highest-grossing films taking in $280 million from Friday through Monday, with “Hangover II” pulling in $137.4 million (nearly $200 million including overseas sales).

Foreign Affairs

Egypt: Christians, 10% of the population here, are increasingly marginalized, just as they are throughout the entire Middle East, and there is no cause for optimism whatsoever in this regard, at least in my remaining lifetime.

From Beirut’s Daily Star:

“(Lebanese) Maronite Patriarch Beshara Rai said Sunday that Christians in the Middle East were at all times the victims of conflicts and disputes which others provoke….

“Rai prayed for God to safeguard people in the Middle East and help Christians in particular to overcome difficulties.

“ ‘Christians have always been the victims of conflicts and disputes just because [of their religious identity] despite the fact that they are innocent.’”

One example of the plight of Christians in Egypt is the fact there are severe regulations for building a church, but virtually none for building a mosque.   And in the case of the Muslim Brotherhood, it “is using mosques as the headquarters of its party branches, and the organization is gradually seeking to create a Shari’a-based state, former Mossad chief Shabtai Shavit warned on Tuesday (in Tel Aviv).”

Shavit, as reported by Yaakov Lappin in the Jerusalem Post, said “The Brotherhood was maneuvering itself through the current turmoil in Egypt skillfully, adding that its immediate goal was to be a balance changer in parliament, following the upcoming parliamentary elections.

“ ‘After that, they would like to place the country under Shari’a law,’ he said.”

Israel: The Arab League appears to be set to seek full membership for a Palestinian state at September’s UN General Assembly in New York. 

[It just needs to be said that while this is always a nightmare, logistically, for the city, this General Assembly in particular promises to be the worst, ever, as you can imagine the kinds of dueling demonstrations that will be taking place over the statehood issue.]

For his part, Palestinian President Mahmoud Abbas said there were “no shared foundations” for resuming peace talks with Israeli Prime Minister Benjamin Netanyahu. Abbas, once thought to be the only moderate on the Palestinian side, is no different than the rest these days. 

Israel needs 60 votes of support from the Assembly in order to squelch any unilateral statehood initiative and this is going to be a tall order. Of course the U.S. can exercise its veto, and will, but would prefer others join it, such as Colombia, which is sitting on the Security Council today and is viewed as Israel’s main ally in Latin America.

In line with the Palestinian move in September, Israel is already preparing for mass rioting that month.

Lastly, a Pew Research poll showed that 68% of Palestinian Muslims still support suicide bombing.

Syria: The death toll in the protests here continues to climb, well over 1,000 with another 10,000+ being detained. The cases of torture are growing commensurately as well, including children, as beaten bodies are returned to their families.

Pitifully, President Bashar Assad issued a general amnesty that state media said would cover all political movements, including the outlawed Muslim Brotherhood, but everyone knows this is a total sham and sure enough, Assad goons continued their shelling and killing.

One thing that is different now from the start of the uprising is that a real opposition is attempting to form, with leaders meeting in Turkey the other day, while foreign journalists continue to be barred. President Obama must take a harder, more public stance, and not just trot out the by now discredited Hillary Clinton for a few inane comments.

Yemen: I get a kick out of the news outlets that dance around the term ‘civil war’ when describing what is taking place in Yemen. I told you last week it was civil war by any common definition. Breakaway army and tribal factions, including elements of al-Qaeda, are fighting the government of President Saleh…that is civil war. One southern town was taken over by Islamists and the country has spun out of control. On Friday, shells struck Saleh’s palace in the capital of Sanaa but the president survived. Tribesmen were blamed for the assassination attempt, though it gives you a sense of how the capital itself is no-man’s land. Incredibly, given the previously low level of violence in relative terms, close to 500 have now been killed in just the past ten days. Explosions were heard on Friday in many other cities and towns across the country.

While the casual observer who doesn’t read the column or any good newspaper at least once a week might not understand why this place is important, strategically, it’s all about the dangers in Yemen becoming a failed state, a la Somalia, and a home to terrorists, even more so than it already is.

Libya: The rebels are appreciative of NATO’s stepped up bombing campaign, which will drive Gaddafi out once and for all if they keep it up, but the rebels do not want ground troops (not that this is in the cards) because they don’t want to upset the conservative Muslims. What the rebels do need these days, aside from fuel, is money.

As for Gaddafi himself, he is counting on the citizenry that he has been handing out weapons to to defend the regime, turning Libya into a “living hell” should NATO forces invade. Gaddafi has also gathered young members of his own tribe to help him make a last stand as his regular forces are depleted.

Pakistan: Intense fighting on the border with Afghanistan killed at least 72 in two days as Afghan militants crossed over and attacked a Pakistani checkpoint; this as Pakistan is finally preparing to launch an offensive against the Taliban and Haqqani terror network in North Waziristan.

Afghanistan: It was a bad week here as a Taliban suicide bomber infiltrated a governor’s compound where top NATO and Afghan officials were meeting, killing three German soldiers, a provincial police chief, and the highly regarded police commander, Gen. Daoud Daoud. Daoud’s heroics in his country went back to his days fighting against the Soviets in the 1980s. Former presidential candidate Abdullah Abdullah, the man who should be in charge instead of Hamid Karzai, the latter having stolen the last election, said General Daoud “cannot be replaced.”

Speaking of Karzai, following a NATO airstrike that killed a reported 14 civilians, he said this was his “last warning” to stop such attacks, particularly at night.

[Separately, two Australian soldiers were killed bringing their toll in Afghanistan to 26. One was killed by an Afghan soldier he had been training; the other died in a helicopter crash.]

Lebanon: Still no formal government. There has been none since January.

Michael Young / Daily Star

“Only a few months ago Hizbullah was willing to take the hazardous step of barring Saad Hariri’s return to office, in the hope that it could follow this up by swiftly forming a favorable government that would face supposedly imminent indictments issued by the Special Tribunal for Lebanon. Today, we must believe that Hizbullah’s sense of urgency has evaporated and that the party is no longer concerned with the likelihood that the tribunal will formally accuse party members of involvement in the assassination of Rafik Hariri. There is a disconnect here, one suggesting that Syria’s objective and Hizbullah’s may not be as closely aligned as some assume over delaying (forming a government).

“It is a matter of anxiety in Beirut how Hizbullah might react if the situation in Syria were to deteriorate further and the Assad regime’s hold on power were loosened further. In that event the existence of a Lebanese government would help Hizbullah, because if the party has to watch one of its principal allies collapsing, it would prefer to do so after having anchored itself in the legitimacy of Lebanese state institutions. In other words the party needs a government in place that it can dominate, both to bless its weapons and help it absorb the aftershocks of a tribunal indictment and radical change in Syria….

“The deadlock will persist in Beirut, with Najib Mikati remaining unable to form a government. However, it’s still an open question whether Hizbullah truly gains from this state of affairs, even if Syria does. Assad wants an open Lebanese playing field to manipulate. Yet at some stage (Hizbullah chief Sheikh) Nasrallah needs the state to be credible, as it may become the last bastion between Hizbullah and regional and international demands that the party surrender its arms.”

Iraq: As reported in the Washington Post, with the reemergence of cleric Moqtada al-Sadr and his Mahdi Army, Sunnis are once again debating whether to reconstitute their own militias to counteract Sadr. This is just super. The Post quoted a Sunni lawmaker, Ahmed al-Alwani, who said:

“Al-Mahdi’s Army duty is very well known: It’s to kill the Sunni people and to evacuate Baghdad of the Sunnis.”

What is creating even more unease is the fact Prime Minister Maliki, a Shiite, blessed the recent march through Baghdad by the Mahdi Army that I reported on last time. And on Friday, at least 34 were killed in various attacks in Saddam’s former home town of Tikrit.

Germany: Stupidly, the German government of Angela Merkel announced it would shut down all 17 of its nuclear reactors by 2022 in reaction to Japan’s Fukushima disaster in a drastic policy reversal, as Merkel runs around scared like one of the Three Little Pigs being chased by the Bogeymen in “Babes in Toyland.” Get some backbone, woman! It’s one thing for Merkel to have shut down the seven oldest of the 17 temporarily in March to make sure they were safe, thus giving into the Green Party. It’s quite another to then shut them all down. The plants account for 23% of Germany’s energy needs.

Editorial / London Times

“Last autumn – hardly an age ago – the German Government decided that the country’s nuclear power stations should stay open. The Economy Minister carefully explained that ‘for the first time in many years a German government is setting out an energy plan for the long term.’  Nuclear power was to be an important ‘bridging element’ in the evolution of a low-carbon economy. This approach was mildly brave, because Germany’s powerful Greens and their supporters have long been obsessively anxious about nuclear power.

“Then came the events at the Fukushima nuclear power plant in Japan. The marchers came out again on the streets of Germany to demonstrate their concerns… despite the rather obvious problem that the power stations were neither in earthquake nor tsunami-prone areas. The Government announced a review. Two days ago it was decided to get rid of nuclear power in Germany within 11 years….

“Yet it remains true that not a single German has died as a result of an accident relating to nuclear power….

“As the late-night decision on closing the zero-casualty nuclear industry was being taken, however, Germans were indeed dying of an entirely avoidable condition. At the time of the writing 16 are dead from the E. coli outbreak in northern Germany and possibly hundreds more have suffered serious illness. Worse, several days into the outbreak the German authorities do not yet know the source of the infection.”

Editorial / Washington Post

“Instead of providing a model for greening a post-industrial economy, Germany’s overreaching greens are showing the rest of the world just how difficult it is to contemplate big cuts in carbon emissions without keeping nuclear power on the table. Panicked overreaction isn’t the right response to the partial meltdowns in Japan’s Fukushima nuclear complex. Instead, countries aiming to provide their citizens with reliable, low-carbon electricity should ask how to minimize inevitable, if small, risks – making their nuclear facilities safer, more reliable and more efficient.”

China: Defense Secretary Robert Gates, in one of his last official moves, is attending an Asia security conference in Singapore and in route said of the relationship with China:

“We are not trying to hold China down. China has been a great power, for thousands of years. It is a global power and will be a global power.

“So the question is how we work our way through this in a way that assures that we continue to have positive relations in areas like economics and other areas that are important to both of us, and manage whatever differences of view we have in the other areas.”

Of China’s military modernization, Gates said it was pursuing weapons that were “a concern to us.” 

The weaponry posed a potential threat to U.S. aircraft carriers, with the mainland developing “long-range, accurate cruise and ballistic anti-ship missiles,” a larger navy, a new stealth fighter jet as well as cyber and anti-satellite capabilities. [South China Morning Post / AFP]

Japan: A report from the International Atomic Energy Agency said Japan greatly underestimated the danger of tsunamis and failed to prepare back-up systems at the Fukushima Daiichi nuclear plant. The facility was only designed to withstand waves about 19 feet high, while the tsunami was as high as 46 feet. It’s also not as if the plant operators and builders knew they were in a high-profile tsunami zone.

The IAEA’s findings were just more bad news for Prime Minister Naoto Kan but he survived a no-confidence motion Thursday, 293-152 in the lower house, with the remaining members either absent or abstained from the vote.

Kan, though, said he was willing to resign once the country’s recovery takes hold, but then the issue became, well what does that mean? When are you leaving, Naoto? Most seem to think this means a few months. Others thought a few weeks. Kan seems to believe he can now stick around until next year.

Serbia: As Ratko Mladic was extradited to The Hague to stand trial on war crimes, and as Mladic then said he was terminally ill (he isn’t), thousands of ultranationalists rallied against his arrest in Belgrade, thereby backing up my recent missive that this remains a place to watch because everyone in the Balkans still hates each other. At least the protests didn’t spiral totally out of control though scores were hurt. Those supporting Mladic reiterated that he was a hero for them, including his son, Darko Mladic, who insisted his father was not responsible for the slaughter at Srebrenica and other war crimes during Bosnia’s 1992-95 war.

Russia: The European Court of Human Rights handed the Kremlin a victory in a ruling on the prosecution of former oil tycoon Mikhail Khodorkovsky. The court said Khodorkovsky had been arrested illegally and held under inhumane conditions. But then it added that while “The Court admits that the applicant’s case may raise a certain suspicion as to the real intent of the authorities,” it required incontrovertible proof to find that the entire legal machinery of the state had been misused against Khodorkovsky, as reported by Kathy Lally of the Washington Post.

In other words, yet another sham ruling! 

But, of perhaps more import, as reported by the Moscow Times earlier in the week, “State-owned NTV television broadcast a prime-time report in which Khodorkovsky announced that he would seek parole, fueling speculation that the Kremlin might be edging toward a decision to free him.

“NTV, which has harshly criticized Khodorkovsky in the past, showed a seemingly unbiased report about the businessman Sunday in an indication that his name was no longer taboo on state-controlled airwaves.”

Very curious, indeed. Does President Dmitry Medvedev, who recently said Khodorkovsky presented no danger, release Khodorkovsky to get back at Prime Minister Vladimir Putin, who has called the prisoner a “thief”?

The problem is the report aired two days before the European Court of Human Rights’ ruling. Did NTV, read Medvedev, expect a more favorable outcome and thus get burned…by Putin himself? [Just thinking outside the box.]

Random Musings

--George Will / Washington Post

“The U.S. intervention in Libya’s civil war, intervention that began with a surplus of confusion about capabilities and a shortage of candor about objectives, is now taking a toll on the rule of law. In a bipartisan cascade of hypocrisies, a liberal president, with the collaborative silence of most congressional conservatives, is traducing the War Powers Resolution.

“Enacted in 1973 over President Nixon’s veto, the WPR may or may not be wise. It is, however, unquestionably a law, and Barack Obama certainly is violating it. It stipulates that a president must terminate military action 60 days after initiating it (or 90, if the president ‘certifies’ in writing an ‘unavoidable military necessity’ respecting the safety of U.S. forces), unless Congress approves it. Congress has been supine and silent about this war, which began more than 70 days ago….

“Sen. Richard Lugar – former chairman of and currently ranking Republican on the Foreign Relations Committee – normally is as placid as an Indiana meadow, but in a tart May 23 letter to Obama, Lugar charged that Obama’s commitments to consult with Congress and act ‘consistent with’ the WPR ‘have not been fulfilled.’ Lugar said that the administration recently ‘canceled without explanation’ a committee briefing on Libya by the vice chairman of the Joint Chiefs of Staff and declined the committee’s request that a Defense Department official testify at another hearing – where the one administration official who did appear, from the State Department, ‘declined to answer questions about our military operations in Libya on the ground that such questions would be more appropriately answered by the Defense Department.’

“Stonewalling is, perhaps, prudent when policy is ludicrous. It is, however, intolerable in the third month of a war that Obama said would involve days, not weeks. And as Lugar said with notable understatement, U.S. operations ‘have assumed a different character than you suggested when you announced the decision to initiate them.’ Obama has made a perfunctory request for congressional approval of this war but clearly will proceed without it.”

--I am on record as saying we must cut defense spending, that Eisenhower’s fear of the power of the military-industrial complex was never greater than it is today.

But it obviously has to be done prudently. I’m also the same guy, however, who touted Defense Secretary Robert Gates’ cuts, but then showed you how in a study by Defense News, the cuts were actually illusory. Programs that were to be eliminated are just being reconfigured.

At the same time we must nonetheless heed the following warning from Mark Helprin, senior fellow at the Claremont Institute and one of the great military strategists of our time, as put forward in his Wall Street Journal op-ed.

“On Memorial Day, we pause at the graves of lost soldiers and make speeches that sometimes open to view the heartbreak and love that are their last traces. But this is not enough, because they do not hear, and because those who will have followed in the years to come will not hear. Love is not enough, rationalization not enough, commemoration a thin and insufficient offering. The only just memorial to those who went forth and died for us, and who therefore question us eternally, cannot be of stone or steel or time set aside for speeches and picnics.

“We should offer instead a memorial, never ending, of probity and preparation, shared sacrifice, continuing resolve, and the clarity the nation once had in regard to how, where, when, and when not to go to war. This is the least we can do both for America and for the troops we dispatch into worlds of sorrow and death. Once, it came naturally, but no longer, and it must be restored.

“First, and despite the times, is the demonstrable fact that throttling defense in the name of economy is economical neither in the long nor the short run. Not if you count the cost of avoidable wars undeterred. Not if you count the cost of major world realignments that lead to overt challenges and adventures. Not if you count the cost – in money, division, demoralization, decline, death, and grief – of lost wars. Is there any doubt that a relatively minor expenditure of money and courage would have kept Germany in its place and prevented the incalculable cost of World War II?

“A public that otherwise professes deep loyalty to its troops is in the name of economy stripping down their equipment and resources, making it more likely that they will fight future battles against forces both gratuitously undeterred and against which they may not prevail. This is short sighted, tragic, hardly a memorial, and in fact an irony, in that other than in redeploying a portion of our wealth from luxury to security, military spending has always been a spur to the economy, as history demonstrates and every member of Congress with military facilities or manufacturers in his district knows….

“When in defense of our essential interests we do go to war, not only must we carefully determine war aims – and thus dictate to the enemy the time, place, and nature of battle rather than chasing him into the briar patch of his choosing – but we must accomplish them massively, overwhelmingly, decisively, and, if necessary, ruthlessly….

“We can construct a genuine memorial to the patriot graves in Arlington and thousands of other cemeteries only if we abandon the many illusory and destructive assumptions with which the weakness of the present will burden the future.

“We will fail to assure the national security if we assume that we will not be drawn into two wars at once; if we do not provide a surplus of material power; if we believe that ‘conventional’ war is a thing of the past; if in the name of false economy we do not apply our full technological potential to our arsenals; if we imagine that technological advance will carry the day in the absence of strategic clarity and the proven principles of warfare; if we make the armed forces a laboratory for the hobby horses of progressivism; and if our political leaders, very few of whom have studied much less known war, commit our troops promiscuously, in service to tangential ideology, with scatterbrained objectives, and without what Winston Churchill called the ‘continual stress of soul’ necessary for proper decision.

“Only the dead have seen the end of war, which will not be eradicated but must be suppressed, managed, and minimized. This cannot be accomplished in the absence of resolution, vigilance, and sacrifice. These are the only fitting memorials to the long ranks of the dead, and what we owe to those who in the absence of our care and devotion are sure to join them.”

--Former senator and presidential candidate John Edwards was indicted on six counts of campaign finance fraud, including conspiracy and making false statements as he took over $900,000 in under-the-table contributions that were then used to keep his mistress hidden while Sleazeball Johnny ran for the highest office in the land. This is an old story, but it’s still remarkable to think what would have happened had we actually elected the guy and then the truth came out. For treating the American people as chumps, Edwards deserves life without parole. 

--Wiener also weiner: n [short for wienerwurst, Vienna sausage]: Frankfurter. See also, Oscar Mayer and the Wienermobile.

Understand that around these parts, where you watch New York-centric local newscasts and primarily New York politicians (unless Chris Christie is making waves in New Jersey, both good and bad…see below), one of the real jerks who is on incessantly is New York Democratic Congressman Anthony Weiner, who hoped to be Gotham’s next mayor. So suffice it to say some of us are rather enjoying Wienergate, or Weinergate, take your pick. By now the entire free world knows about the crotch shot, which is as far from the ‘money shot’ as you can get when it’s your crotch and shorts in question, just sayin’.

Jennifer Rubin / Washington Post

“I think honest Democrats would agree this is pathetic.

“Rep. Anthony Weiner says he ‘can’t say with certitude’ that the lewd photo of a man’s crotch sent using his Twitter account to one of his followers isn’t of him.

“ ‘I didn’t send that picture out,’ Weiner said in a Wednesday afternoon interview with NBC News. ‘That’s not a picture of you?’ reporter Luke Russert asked.

“Weiner responded: ‘You know, I can’t say with certitude.’

“Good golly. He doesn’t recognize his own, er, profile? One can hardly wait for the next installment of Jon Stewart’s mockery fest.

“The lack of a pass-the-laugh-test explanation for all this and his continued refusal to either call the police or disclose his Twitter timeline and direct messages put Democrats in a tough spot. Weiner’s effectiveness, indeed his ability to go out in public, is severely compromised and there is nothing to be gained from defending him (as many left-leaning blogs have already demonstrated).

“The way these scandals work is that the accused, if he doesn’t confess, is supposed to mount a credible defense that allows his party to avoid dumping him. Weiner isn’t holding up his end of the bargain. How long before a Democrat calls for him to get lost?”

Michael Daly / New York Daily News

“For a second day, Anthony Weiner declared that he would not let a prank distract him from the larger issues facing Congress.   If some perv wearing an Anthony Weiner mask presented a lewd bulge to a woman on the subway, you can bet Weiner would be calling for an immediate arrest.

“So why isn’t he calling for the arrest of whoever did the equivalent in cyberspace?

“Not for his sake.

“For the sake of the young woman who received the perv photo Weiner claims was sent by somebody who masqueraded as him by hacking his Twitter account.

“Even if she is able just to shrug it off, what about other women who might not be?

“What’s to prevent the perv in the Weiner mask from cyberflashing them?

“One difference between a cyberperv and a subway perv is that a cyberperv can be easily identified long afterward.

“The person who has been hacked needs only file a complaint and give the okay for the authorities to scrutinize accounts.

“Investigators can then determine the computer’s unique IP address. That includes the one that actually sent the pic.

“Presto! The perv unmasked!

“What’s stopping Weiner, anyway?

“Wednesday, the politician again dismissed the incident as a trifle, barely worth attention.

“ ‘I was the victim of a prank here,’ he told a TV interviewer.

“He seemed barely bothered that somebody posing as him sent a pervy photo to a woman young enough to be his daughter.

“ ‘A moderately funny way that somebody hacked me,’ he said.

“For a second day, he declared that he would not let a prank distract him from the larger issues facing Congress. It would have taken Weiner no more time to call the U.S. Capitol Police or the FBI than it did to call a lawyer and a private internet security firm….

“Weiner has suggested that the hacker was a political foe seeking ‘to undermine me.’ That could be cleared up right away by tracing the hacker’s IP address….

“Maybe Weiner figures he can’t lie to the feds but he can lie to the press and everyone else.

“Or maybe somebody really did hack the Twitter account.

“Maybe they also lifted a pic from Weiner’s computer.

“Maybe the owner of that bulge is not just a liar, he’s also embarrassed.”

Editorial / New York Post

“So the man who would be mayor ‘can’t say with certitude’ whether or not the world’s most famous Twitter crotch shot is of him?

“Could Tony Weiner’s contempt for the people of New York City be any more, well, certain?

“Actually, it looks like this wiener is fully cooked.

“Which is fine, because it’s now clear that Rep. Anthony Weiner isn’t remotely up to the ethical demands of the office he now holds – let alone those of the New York City mayoralty.

“The embattled Brooklyn Democrat wasn’t in a deep enough hole yesterday; he had to keep digging – holding a series of one-on-one interviews with cable-news outlets.

“Asked by MSNBC’s Luke Russert whether it was in fact his crotch in the photo so famously tweeted to a Seattle community-college student, Weiner said:

“ ‘You know, I can’t say with certitude. My system was hacked…pictures can be dropped in and inserted.’

“This is true.

“But it’s equally true that all computer activity leaves easily discoverable shadows….

“All that’s missing is the will to do the job – Weiner’s will….

“Instead, Weiner says he’s hired a private security firm – which he won’t identify – to look into it.

“But why not the authorities?

“He claims he doesn’t ‘want to put national, federal resources into trying to figure out’ what happened – which is ludicrous on its face: Tony Weiner has never seen a taxpayer dime that he didn’t lust to spend….

“Ultimately, this whole bizarre incident is about character – or, more to the point, Weiner’s lack thereof.

“The upside is that New Yorkers are getting a good look at a man who also lacks the sound judgment and the temperament to be their mayor – before they make the mistake of electing him to that office.”

At week’s end, Weiner and Co. were down for the count. It’s safe to say his wife won’t let him, or it, off the canvas.

--Mitt Romney formally announced his candidacy. I won’t be sending him a dime. 

--What’s this? Donald Trump is actually running again? Only if the Republicans nominate a weak candidate, he now says. Trump would then run as an independent, which I’m thinking means you have to shake fewer hands, something The Donald hates to do because of germs. 

Trump told Fox, “Sarah Palin wants me to run, a lot of people want me to run, and I actually think I’d be better off running perhaps as an independent.”

--The latest Quinnipiac University poll has New York Gov. Andrew Cuomo with still sky-high approval ratings six months into his job. Voters give him the nod by a 61-18 margin. I said it before, but Cuomo is going to be a real force to be reckoned with in 2016 presidential politics. He just needs to kind of lay low for now, as he’s been doing, work behind the scenes, get budgets approved quicker than his predecessors (New York is notoriously late on this score), and when out in public, flash his great sense of humor. 

--As for the aforementioned Chris Christie, the governor stupidly used a State Police helicopter Tuesday to attend his son’s baseball game and then return to the governor’s mansion for a dinner with Iowans hoping to convince Christie to run for president. Democrats had a field day, citing the Republican’s cost-cutting hypocrisy.

The issue is that previous governors of both parties reimbursed the state for the cost of such trips. But on Wednesday, a spokesman said Christie wouldn’t, which was another stupid move.

“The governor does not reimburse for security and travel. The use of air travel has been extremely limited and appropriate,” said spokesman Michael Drewniak.

The State Police defended the trip themselves, saying it was used as a training mission in the new, $12.5 million aircraft. Plus Christie hardly uses the thing…just 35 times thus far.

By contrast, Republican Gov. Tom Kean used the chopper 1,000 times in four years, while Democratic Gov. Jim Florio used it 2,300 times in his term, which is almost unfathomable. [Star-Ledger]

But the issue isn’t the use of the chopper, it is the perception that he hadn’t preannounced a policy for reimbursement when on personal business such as this excursion. Coupled with his Disney World vacation with the family during the Christmas blizzard when he didn’t exactly rush back and his opponent in 2013 will pummel him.

Which is why, sports fans, I have maintained talk of Christie for President is ludicrous. Just do the job, Governor, build up your conservative bona-fides, and first and foremost, get re-elected. Then you can look at 2016.

Yes, in the end, after 24 hours reflection, Christie did opt to pay for the chopper, but notice his counterpart across the border in New York and the strategy Gov. Cuomo is adopting.

Or as Josh P. wrote me about Christie and his staff:

“Don’t these people THINK! What the heck do their advisors do for them? You have all but wrapped up the 2016 nomination, you are the symbol of smaller government and the rationalization/restructuring of long-term entitlements and you pull a stunt like this?!

“As Mr. C. Brown would say, ‘Good grief.’”

--Prospective Republican presidential candidate Jon Huntsman, the former Utah governor and ambassador to China, gave a little campaign speech in the form of an op-ed in the Wall Street Journal this week. Basic conservative stuff. Shouldn’t increase the debt ceiling without significant reductions in government spending at the same time, things like that.

I just don’t know enough about the guy, but he has a good pedigree. I do like the following simple statement that all Republicans should be parroting, though not all are because they are running scared and showing zero guts.

“I admire Congressman Paul Ryan’s honest attempt to save Medicare. Those who disagree with his approach incur a moral responsibility to propose reforms that would ensure Medicare’s ability to meet its responsibilities to retirees without imposing an unaffordable tax burden on future generations of Americans.”

--Would someone please tell Sarah Palin to go away…I’m too tired to do it.

--Tim Pawlenty is not our answer, my fellow pachyderms.

--I want Michele Bachmann to run because I’d like to get an autographed picture of her when I’m in Iowa this August.

--There is no way Sarah Palin could explain Pickett’s Charge, especially after her Paul Revere gaff. Yikes.

--I didn’t say I would vote for Michele Bachmann so stop writing that e-mail to me! 

--I was disappointed to see that former Sen. Judd Gregg joined Goldman Sachs as an advisor four months after retiring from the Senate. It’s a freakin’ sellout. I thought Gregg, the New Hampshire Republican, was one of the good guys. You won’t catch me saying that again.

--According to a study from the Journal of Weather and Forecasting, as reported by Doyle Rice of USA TODAY, “Most of the strongest hurricanes have decreased in intensity just before hitting the Gulf Coast, where two-thirds of all hurricanes to hit land in the USA have struck in the past 30 years.”

You all remember how Katrina’s intensity actually fell considerably before slamming into the coast. Katrina was a Cat 5 with winds of 175 mph but made landfall as a Cat 3 with a wind speed of 125 mph.

“Overall, of the 12 most powerful hurricanes (Categories 3-5) in the Gulf between 1979 and 2008, including Katrina, 10 weakened during the 12 hours before making landfall.”

Study co-author Mark DeMaria says:

“It’s something special about the Gulf of Mexico. In the center of the Gulf, deep, warm water comes out of the tropics, but closer to the northern Gulf Coast, warm water does not extend as deep below the surface….

“When hurricanes move over that water, high surface winds tend to mix cooler water up to the surface, which can lessen a storm’s intensity.”

--For the record, the tornado death toll for 2011, at least 520, makes it the highest recorded count in a single year since 1953. Storm totals before 1950 did not rely on precise figures.

--The New York Times’ Leslie Kaufman had a report on the massive flooding of the Mississippi River that “is expected to result in the largest dead zone ever in the Gulf of Mexico.”

The main culprit is chemicals such as nitrogen and phosphorous from fertilizers, as well as animal manure in river runoff.

“They settle in at the mouth of the gulf and fertilize algae, which prospers and eventually starves other living things of oxygen.”

--The International Energy Agency said that with Germany’s closure of all 17 of its nuclear power plants, it would be impossible to stop a global temperature rise of more than 2C (3.6F). Fatih Birol, its chief economist, said: ‘This significant increase in CO2 emissions and the locking in of future emissions due to infrastructure investments represent a serious setback to our hopes of limiting the global rise in temperatures to no more than 2C.”

--The weather extremes in Europe continue. After record cold last December in the likes of Britain and Germany, this spring has been the hottest on record in France. The resultant drought is reducing the flow of water into its nuclear plants which could soon impact the cooling process.

--We note the passing of “Dr. Death,” Jack Kevorkian, at the age of 83. He was believed to have assisted in 130 suicides and later served eight years in prison for second-degree murder. Kevorkian never had any regrets. His own cause of death was kind of scary, though. A blood clot in his leg that broke off and traveled to his heart. [If you sit still for long periods and travel on a lot of airplanes you think about this stuff from time to time.]

--Tom Hanks caught some grief last year for statements he made about our current wars when the HBO series “The Pacific” came out. I prefer to give him the benefit of the doubt because of his exceptional support in making sure stories like World War II are told correctly and with “The Pacific” and his prior efforts on the European theater (“Saving Private Ryan” and “Band of Brothers”), generations to come now have on film accurate portrayals of the horrors, and heroism, of those campaigns.

So I note below Hanks’ commencement speech comments on today at Yale, as reported by Army Times.

Hanks said veterans of the wars in Iraq and Afghanistan will return in the coming months and years “different from what they were when they left.”

“Let those of us who watched and debated their long deployment serve them now as they served. Let’s provide for them their place free from fear…by empathizing with the new journey they are starting even though we will never fully understand the journey they just completed.

“Give it four years – as many years as you spent here at Yale. In acts both proactive and spontaneous, do the things you can to free veterans from the new uncertainty that awaits them, from the mysterious fears they will face the day after they come home,” Hanks said.

“Cultivate in them the faith to carry on – and they will do the rest.”

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

God bless America.
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Gold closed at $1542
Oil, $100.22

Returns for the week 5/30-6/3

Dow Jones -2.3% [12151]
S&P 500 -2.3% [1300]
S&P MidCap -2.9%
Russell 2000 -3.4%
Nasdaq -2.3% [2732]

Returns for the period 1/1/11-6/3/11

Dow Jones +5.0%
S&P 500 +3.4%
S&P MidCap +5.9%
Russell 2000 +3.1%
Nasdaq +3.0%

Bulls 45.2
Bears 20.4 [Source: Chartcraft / Investors Intelligence]

*Dr. Bortrum posted a new column.

Have a great week. I appreciate your support.

Brian Trumbore