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Week in Review

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06/25/2011

For the week 6/20-6/24

[Posted 7:00 AM ET]

Wall Street, Washington and Europe

Let’s start with Europe…and Greece. This coming week will determine whether the European Union and eurozone get to kick the can down the road another few months (max), or whether there is a run on the bank, literally. 

Greek Prime Minister Papandreou won a confidence vote for his reshuffled government, and his cabinet put together a new $112 billion austerity program of further tax hikes, cuts in spending, pay, and pensions, as well as a speeded up privatization program, all of which gained the approval of the EU and IMF, but now parliament has to approve the plan in order for Greece to get $17 billion from the EU that would allow Greece to meet its obligations in July. The vote in parliament is expected to be exceedingly tight, with Greece’s opposition opposed because, in their view, the further austerity cuts will throw the economy into Depression. They favor a plan of tax cuts, including to the value-added tax as well as corporate rates as a way of stimulating the economy and thus tax revenues. Should parliament, against current consensus, vote the Papandreou plan down, global equity markets will crash and it will take every emergency measure possible to limit the damage.

European Central Bank President Jean-Claude Trichet called the situation a code “red.” “The message of the board is that” the link between debt problems and banks “is the most serious threat to financial stability in the European Union.”

Martin Feldstein / Financial Times

“Even though the Greek parliament has given the government some breathing space with its vote of confidence…a default by Greece is inevitable. With a debt to gross domestic product ratio of more than 150% [Ed. and headed to 166% in 2012], large annual deficits and interest rates more than 25%, the only question is when the default will occur. The current negotiations are really about postponing the inevitable.

“If Greece were the only insolvent European country, it would be best if its default occurred now. Cutting its debt in half and replacing the existing debt with low interest rate bonds would allow Greece to service its debt without the excruciating pain that would be involved if it tried to service its current debt.

“But Greece is not alone in its insolvency and a default by Athens could trigger defaults by Portugal, Ireland and possibly Spain. The resulting losses would destroy large amounts of the capital of banks and other creditors in Germany, France and other countries. There would be a drying up of credit available to businesses throughout Europe and there could be a collapse of major European banks.

“This inevitable contagion and its potential consequences for the European financial system is the reason the European Central Bank is determined to avoid a default at this time.”

PIMCO’s Mohamed El-Erian:

“For the next three years, we’re going to see different economies work out different problems. For European economies, especially Greece, it would be through default,” he said in a press conference in Taipei.

“Nothing has been done to enhance growth. No single [Greek] indicator has shown strength.”

German Chancellor Angela Merkel threw in her two cents concerning one of the tangential risks of this crisis, that being the impact of credit default swaps, CDS contracts that represent insurance against a default.

“Nobody around the globe knows exactly who holds those papers and what it means if they come due,” Merkel told a German parliamentary committee, and it was unclear “who will have to pay how much and who will need fresh capital in that way.”

Plus, Merkel added, there isn’t any transparency in this part of the investment universe. Where have you heard that before? [Hint: here.]

Merkel mentions the potential need for fresh capital so following is some bank data from Bloomberg.

“French lenders had the highest overall foreign claims on Greek borrowers of $56.7 billion, including $15 billion in public debt (as the latest data from the Bank for International Settlements shows). French banks had $589.8 billion of loans tied to Ireland, Italy, Portugal and Spain.

“German lenders were the biggest foreign owners of Greek government debt with $22.7 billion in holdings last year and had the second-most overall claims, the BIS said. Their claims on Ireland, Italy, Portugal and Spain amounted to $498.8 billion. The two countries hold more than 60% of all foreign claims on Greece, according to BIS data.”

Separately, also from Bloomberg:

“Independent Credit View, a Swiss ratings company…said in a stress-test study earlier this month that 33 of Europe’s biggest banks would need $347 billion of additional capital by the end of 2012 to boost their tangible common equity to 10% from 9.1% at the end of 2010….

“An S&P stress test published in March estimated European banks would need as much as 250 billion euros ($350 billion) in fresh capital if faced with a ‘sharp’ increase in yields and a ‘severe’ economic decline.”

Political economist Spyros Economides of the London School of Economics told the New York Times that when it comes to Greece and Papandreou’s efforts:

“The main problem is that he’s only been able to deliver on the parts of the austerity package that are easily enforceable and transparent and irrevocable,” such as cuts to public sector salaries and pensions. “Unfortunately, the rest of it is a complete mess. It’s very easy to legislate. The problem is to enforce legislation. There’s no enforcement mechanism.”

Ah yes, implementation. In the 13 months under EU/IMF supervision under the first bailout, Greece has missed every spending and revenue target. The coming Austerity II, if approved, won’t help a lick. Greece has long deserved what it is suffering through today. The issue is does it drag down everyone else in Europe, as well as ourselves, with it.

And just a few more economic tidbits from the EU:

In Britain, the unions are gearing up for strikes galore. “We will strike to defend our pensions,” said the chief labor leader.

The IMF warned Spain that it faces “considerable” risks, with 21% unemployment being “unacceptably high.” [No kidding.]

And a reading on eurozone manufacturing in June dropped yet again to 53.6, though still above the 50 dividing line between growth and contraction.

---

Turning to the United States, a Bloomberg National Poll found that by a 44-34 margin, Americans say they believe they are worse off than when President Barack Obama took office in early 2009, which is really remarkable given we were in a near-depression that January. More than half of respondents now believe their children are destined to have a lower standard of living than they do. A full 66% of Americans think the U.S. is on the wrong track, which is higher than an ABC News/Washington Post poll reading from October 1982, when unemployment was peaking at 10.8% during the 1981-82 recession, of 57%.

A survey for AP/GfK revealed that for the first time, less than 50% of respondents say Obama deserves re-election. Four out of five in this one believe the economy is in poor shape, with 36% calling it “very poor,” a new high in AP-GfK polling.

[But Obama’s job approval rating is 52% in the AP survey.]

As for the economic data this week, the figure on May durable goods (big ticket items) was up a solid 1.9% for this highly volatile barometer, but weekly jobless claims continue to hold above the important 400,000 barrier and the latest figures on existing- and new-home sales for May were hardly anything to crow about. 

The Federal Reserve’s Open Market Committee met this week and opted again to hold the line on interest rates at zero for the now all-too-familiar “extended period,” meaning savers will continue to get screwed. Ben Bernanke and Co. also lowered their growth forecast for the U.S. economy from April’s forecast of 3.1% to 3.3% down to 2.7% to 2.9%, while the projected unemployment rate for 2012 is 7.8% to 8.2%, which one would think would be a killer for President Obama’s re-election hopes.

The Fed also offered for the first time that it was mildly concerned about the rise in commodity prices, but the chairman later said he still felt these were transitory (and this week commodities got crushed). One thing he did mention that was new was his belief that any thoughts of ‘deflation’ are now off the table, which given his track record on the forecasting side means it’s back on! [I’m running a series on Bernanke and Greenspan’s moves at the Fed on my “Wall Street History” link…worth a reminder just how awful our chairmen have been at times.]

The thing is the Fed, as well as other central banks around the world, have few options left when it comes to juicing the economy, so they surprised the markets this Wednesday when, in coordination with the International Energy Agency, announced they would release 60 million barrels of oil, 50% of this from America’s Strategic Petroleum Reserve of 727 million barrels that is supposed to be for genuine emergencies and/or supply shocks such as in the case of Hurricane Katrina.

The IEA explained that the 1.5 million barrels per day that has been lost due to the Libyan civil war, coupled with “the normal seasonal increase in refiner demand expected for this summer will exacerbate the shortfall further….Greater tightness in the oil market threatens to undermine the fragile global economic recovery.”

Oil in the futures pits promptly took a header, even though all are in agreement there really is no shortage of crude and oil had been moving off its recent $100 base anyway. But, at least for a few days the move by the IEA and the politicians had the desired effect. It’s just that the move smacks of desperation.

And hypocrisy…at least here in the U.S., as the Wall Street Journal opined.

“One irony is that a million barrels a day [Ed. our share of 30 million spaced over one month] is about how much oil experts believe we could be producing from the vast oil fields in Alaska’s wildlife reserve. President Obama has said that tapping Alaska wouldn’t affect oil prices but now says a temporary spurt will do so. How about opening up Alaska, and dropping the de facto Gulf moratorium too?”

Of course when it comes to the U.S., this next month it’s really all about the debt ceiling and what Congress and the administration are going to do about it. Early in the week, Sen. Kent Conrad (D-N.D.), a key figure in the deficit talks, said the goal of slicing more than $2 trillion from the federal budget by 2021 falls short of what’s needed, adding “most serious observers would tell you that it takes a package of at least $4 trillion to fundamentally change the trajectory we’re on. In the context of our debt, which is nearly $15 trillion and is headed for $25 trillion, $2 trillion over 10 years does not do the job.”

To those who say just raise the debt ceiling by the Aug. 2 deadline and then tackle the deficit later, Conrad argues all incentive would then be lost.

“If they reach an agreement and that passes and the debt limit then does not have to be dealt with until after next year’s election, there will be very little appetite here to come back and do what really has to be done to get our financial house in order.” [Washington Post]

[Conrad is most Republicans’ favorite Democrat. Too bad he is leaving after 2012.]

But on Thursday, Republican House Majority Leader Eric Cantor and Republican Senator Jon Kyl walked out of Vice President Biden’s budget talks, citing an “impasse” over tax increases. Republicans such as Senator Mitch McConnell said it’s up to the president to join the discussions.

“Where is he?” asked McConnell. “What does he propose? What is he willing to do to reduce the debt and to avoid this crisis that’s building on his watch? He’s the one in charge. I think most Americans think it’s about time he started acting like it.” [Bloomberg]

So that’s where we stand…at an impasse, though Obama is indeed going to join the talks on Monday. My bet has been that a deal will be cut which, upon close inspection will essentially be a sham and not well-received by the markets, after perhaps an initial relief rally. We’ll then have our own Greece-type moment in 2012 and the U.S. equity market crashes…assuming Greece’s parliament doesn’t take us all down next week.

One last item on this topic. As part of the above-mentioned Bloomberg survey, by a 57-34 margin, poll respondents say they would be worse off if Republican Congressman Paul Ryan’s Medicare overhaul was adopted; 58% of independents, a key voting block for 2012.

I said from day one that Ryan’s plan is flawed, but it was a courageous start. The survey results are yet another example, however, of how Americans are unwilling to sacrifice one iota when it comes to their cherished entitlements. To wit, the same Bloomberg poll has respondents saying they trust the Democrats, more than Republicans, to do a better job of dealing with Medicare by 43-34. Of course! The Democrats won’t touch it.

Street Bytes

--In a reversal of last week, this time the Dow Jones and S&P 500 fell anew, while Nasdaq broke its five-week losing streak, up 1.4% to 2652. Nasdaq is now exactly unchanged on the year. Concerns over Europe, including new ones involving Italy and its banks, trumped any good news for the most part. FedEx, for example, reported better than expected earnings for its recent quarter, citing an improving global economy and growing demand. I’m not too sure about an improving economy, but I’ll take them at their word on the demand side. On the other hand, giant Philips Electronics NV announced it would initiate further, unspecified job cuts as its European lighting business is suffering amid the slowdown there.

Overall, stocks are not overvalued…I never said they were when I established my 2011 forecast of negative returns on the three key benchmarks of 5% to 7%. It’s just that things on the earnings front are as good as they’ll get and expectations will be lowered, not raised, over the second half.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.33% 10-yr. 2.87% 30-yr. 4.19%

After an 11-week rally, the longest since the 1980s, the two-year note is just two basis points above its all-time low yield of 0.31%. The 10-year is now at its lowest yield since last December. In the final revision of first quarter GDP, the Commerce Department reported the economy grew 1.9% vs. 3.1% in the fourth quarter. The dollar has been strengthening vs. the euro.

--Pssst. Remember how your editor said that despite all the talk on commodities this year, and how prices are soaring ever higher, the CRB Index of 19 commodities would finish down for the year? Looked real stupid when the CRB, which closed 2010 at 332.80, hit 370. But I stayed the course. Friday it closed at 329.90. Of course it could finish the year back at 370, but I feel pretty good about my prediction today. More on this topic after we hit quarter end next week.

[Gulf Oil CEO Joe Petrowski said in a CNBC interview that 60%-70% of the oil market is comprised of speculators.]

--In China, a preliminary reading on manufacturing put out by HSBC has it at just 50.1 for June’s PMI, or essentially a manufacturing sector that is stagnating after a 51.6 rise in May (and readings above 60 last year). But if demand is cooling, so should inflationary pressures, as China has been continually hiking banks’ reserve requirements and interest rates. The housing sector in turn is slowing in terms of new sales. This is all good if you’re in the camp I am that there will be no hard landing in China, just a needed slowdown.

Premier Wen Jiabao, in an op-ed for the Financial Times, said the following.

“There is concern as to whether China can rein in inflation and sustain its rapid development – my answer is an emphatic yes. China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked.   The overall price level is within a controllable range and is expected to drop steadily.”

Now you can say this is all a crock of pig slop, seeing as Wen has every incentive to calm a restive nation when it comes to rising prices, but my reading of it is there is a lot of truth, particularly when it comes to food stuffs. The drought is broken in a key farming region and, as Wen went on to observe, “The output of grain, of which there is now an abundant supply, has increased for seven years in a row.” China is getting better all the time when it comes to more efficient agriculture. It has to. I have a small investment myself in a company that is tackling this issue there as I try and educate myself on the process, and the opportunities.

I also have to note on the housing front that prices on existing homes should come down with all the various restrictions the government has levied, but a crash? I vote no. It’s also important to note that the government is proceeding with its plans to build 10 million low-income units.

--ArcelorMittal, the world’s largest steel maker by volume, said it still expects demand in China to rise 7% this year. At the same time, 27 steel producers, including China’s largest State-owned steel maker, announced price cuts. But the above-mentioned 10 million affordable housing units could generate 40 million tons of steel demand.

--China’s highly anticipated high-speed rail link between Beijing and Shanghai goes into service July 1. The link cost $33 billion and will cut the trip by about two hours from the current fastest train to 4 hours and 45 minutes, vs. two hours by plane. But getting to the airports is a royal pain and then the flights are subject to delays.

--In a Wall Street Journal piece on how China has been exporting inflation to the likes of the U.S., as much as we know about China’s importance to our supply chain, some of the following figures are still enlightening.

“The Chinese supply 78% of the footwear imported into the U.S., 71% of the ties; 55% of the gloves; roughly 50% of dresses and baby clothing; and 90% of house slippers, according to Commerce Department data.”

[I thought Pakistan was the leader in house slippers. I feel so stupid!]

The issue is China finally being forced to pay its workers higher wages and that’s being passed on. The average earnings for China’s city dwellers rose to about $5,500 last year, up 77% from five years earlier, according to China’s National Bureau of Statistics.

--Japan’s May exports plunged 10.4% as the nation still suffers from supply disruptions caused by March’s triple disaster.

--Owing to the euro debt crisis, non-euro Denmark is facing renewed opposition to joining the currency union. A record 57% say ‘no’ in the latest survey, with only 41% saying ‘yes’. Danes rejected the euro in a 2000 referendum and advocates of the euro say they wouldn’t dare hold another one without clear evidence there is support. Currently, Denmark’s central bank uses monetary policy to peg the krone to the euro in a narrow band.

--The U.S. Postal Service is suspending contributions to an employee retirement account to save $800 million this year in an attempt to stay solvent. The agency is also seeking approval to delay a $5.5 billion payment for worker health benefits. Postal Service Inspector General David Williams said back in January 2010 that the agency had overpaid by $75 billion for its pension obligations, and if that was returned, it would create a surplus that could be transferred to a health-benefits fund.

--In the annual J.D. Power & Associates Quality Study for automakers, Toyota’s luxury Lexus brand led the way based on the least number of problems reported in the first three months of operation, followed by Honda, Acura, Mercedes-Benz, Mazda and Porsche. Toyota branded cars were ranked seventh, up from 21st a year ago, while Ford plummeted to 23rd from fifth. Consumers say Ford’s new models are way too complicated and have glitches with the computer system (MyFordTouch) that impacts performance. There’s a lesson here. Consumers are getting fed up with automakers trying to outdo each other with gadgets. It’s a car. Build it safe, simple and reliable.

--Memphis, Tenn.-based investment firm Morgan Keegan is paying $200 million to settle civil fraud charges for overstating the value of mortgage securities just as the housing market collapsed, as well as using false sales materials. $100 million of the penalty will go to a fund for investors in five states that were harmed. The other $100 million goes to the SEC.

And a day earlier, JPMorgan Chase & Co. agreed to pay $153.6 million to settle SEC civil fraud charges that it misled investors in complex mortgage investments at the same time as Morgan Keegan. In particular, JPM didn’t tell institutional buyers of its securities that they were partly designed by a hedge fund that would profit if the portfolio lost value.

But, JPM wasn’t charged with “intentional” or “reckless” misconduct since the bank retained an 85% stake in the main collateralized-debt obligation deal and took a $900 million loss in its fixed-income business in 2008.

[Separately, the National Credit Union Administration filed an $800 million suit against JPM and Royal Bank of Scotland for peddling toxic mortgage securities to five failed credit unions.]

--Trading revenues in both fixed-income and equities are drying up on Wall Street, which spells layoffs.

--In a huge victory for Wal-Mart, the Supreme Court threw out a wide-ranging sex-discrimination lawsuit, ruling that 1.6 million women who alleged they were victimized by company policy had little in common to file a single class-action suit. Once again, the Court split 5-4 along its ideological divide.

The suit goes back to 2001 as Wal-Mart was accused of systematically paying its female workers less than men, while providing few opportunities for advancement. Wal-Mart was potentially on the hook for $billions in back pay and punitive damages.

--Newspaper publisher and broadcaster Gannett Co. is laying off an additional 700 employees. The head of the newspaper division told employees in a memo that “slow job creation and now softer auto ad demand continue to challenge revenue growth.”

--Texas surpassed New York to become the second-largest economy behind California during the past decade. At the same time North Carolina, Virginia and Georgia all passed slumping industrial powerhouse Michigan from 2000 to 2010.

--Attorneys-general in California, New York and Ohio have all started antitrust investigations into Google, this while federal authorities have launched a full-blown inquiry of their own, as admitted by Google itself on Friday. The European Commission is in the midst of its own review. This isn’t good for the company, witness the case against Microsoft that began more than a decade ago. It’s a huge distraction for management, if nothing else.

The basic complaint is that Google pushes websites down the rankings in search results if they aren’t paying up.

--Shares in Oracle declined after hardware sales unexpectedly fell 6% in the quarter. The company had forecast back in March an increase of 6% to 12%. Revenues in its other businesses were solid and Oracle issued a positive outlook on the key software license originations category.

--Computer games firm Sega said that the personal data of 1.29 million of its customers was stolen in a hack attack, though the company maintains credit card information is safe.

--Those insufferable Winklevoss twins dropped their court appeal of a settlement with Facebook founder Mark Zuckerberg. That was Wednesday. But then on Thursday, they filed a new suit in Massachusetts. 

And Zuckerberg is facing a suit from this guy, Paul Ceglia, who claims that when he hired then Harvard student Zuckerberg to do some Web-development services for a business Ceglia was trying to start, Zuckerberg gave him half ownership in Facebook, though Zuckerberg didn’t start Facebook until months later. Ergo, Ceglia, according to Zuckerberg and his attorneys, is trying to perpetrate a fraud, claiming he has an original contract in a safe deposit box in Hornell, New York.

--Hey, kids…want a good career opportunity? Think about becoming an airline pilot. From USA TODAY:

“After nearly a four-year drought of job openings, the airline industry is on the brink of what’s predicted to be the biggest surge in pilot hiring in history. Aircraft maker Boeing has forecast a need for 466,650 more commercial pilots by 2029 – an average of 23,300 new pilots a year. Nearly 40% of the openings will be to meet the soaring travel market in the Asia-Pacific region, Boeing predicts, but more than 97,000 will be in North America.”

Granted, the starting pay at a regional carrier is beyond pathetic, and salaries have been slashed at the major airlines, but a job is a job these days, right?

--Inflation Watch: The Wall Street Journal reports that the Riverdale Country School will charge tuition of $40,450 for the coming academic year, the first time a New York private school has topped $40,000.

“Tuition costs at the city’s private schools…have climbed 79% in the past decade.”

--NBC Universal agreed to pay Donald Trump and co-producer Mark Burnett an estimated $160 million over two years in renewing “The Celebrity Apprentice.” Trump will reportedly receive $65 million a year. Burnett does well himself, $45 million a year, according to Forbes, when you add in his roles in “The Voice” and CBS’ “Survivor.”

--American Express CEO Kenneth Chenault has received total compensation of $295 million the past ten years at the same time 10-year total shareholder return has been zero. As Crain’s New York Business put it:

“Seldom has a CEO been so richly paid for shepherding a company whose stock performance has been so ordinary. AmEx’s shares are about where they were a decade ago. The company weathered the financial crisis thanks in part to billions in bailout assistance; it must now deal with a Justice Department lawsuit, filed last year, alleging anticompetitive practices.”

--Paulson & Co., the hedge fund run by billionaire John Paulson, took a $500 million hit in its holding of Sino Forest, the Chinese forestry company fighting fraud allegations. It is now in the midst of an expected months-long independent investigation into the accuracy of its holdings and Paulson is among those investors who isn’t willing to wait around for the details.

Of course the preceding doesn’t help the likes of my small cap holding in China. I was in touch with the CFO this week. Don’t sell in the next four weeks is my only advice. Events already in the public domain will finally start coming to fruition.

Foreign Affairs

Afghanistan: America’s top commander in Afghanistan, Gen. David Petraeus, tried to convince President Obama to delay pulling any combat troops from the theater but at the end of the day, Petraeus is commander in Afghanistan, not Commander-in-Chief, so Obama carved out a compromise, as announced this week in a prime-time address.

After taking office in January 2009, Obama increased the size of the American force in the country, having called it the “good war” during the 2008 presidential campaign, vs. the other war in Iraq. Then in December ’09, Obama announced a 33,000-strong surge. Wednesday, the president said 10,000 would be withdrawn by end of this year and the other 23,000 in the original surge force would come home by September of 2012, just in time for the election. The remaining 68,000 would be pulled out gradually in the lead-up to the 2014 handover to Afghan security forces.

“We will not try to make Afghanistan a perfect place. We will not police its streets or patrol its mountains indefinitely. That is the responsibility of the Afghan government, which must step up its ability to protect its people; and move from an economy shaped by war to one that can sustain a lasting peace,” said Obama.

“What we can do, and will do, is build a partnership with the Afghan people that endures – one that ensures that we will be able to continue targeting terrorists and supporting a sovereign Afghan government.”

There was no talk of victory. And the president gave far too much credit to the Afghans, such as in statements that “Afghans are fighting and dying for their people.” Some are, but far from all in this world-class hellhole.

It’s no surprise the latest Pew Research survey has 56% of Americans wanting the troops to come home immediately, an all-time high.

Echoing this view, Obama said it is “Time to focus on nation building here at home.” We’re spending over $110 billion a year in Afghanistan and it’s about reducing the deficit, so he’s telling us.

Most congressional Democrats, though, were not pleased with the president’s withdrawal plans. House Minority Leader Nancy Pelosi said:

“It has been the hope of many in Congress and across the country that the full drawdown of U.S. forces would happen sooner than the president laid out – and we will continue to press for a better outcome.”

Some Republicans, such as Sen. John McCain, countered, “This is not the ‘modest’ withdrawal that I and others had hoped for and advocated.”

“It seems the president is trying to find a political solution with a military component to it, when it needs to be the other way around,” said Rep. Mike Rogers, R-Mich., the chairman of the House Intelligence Committee.

As for the others in the coalition, France, in endorsing Obama’s plan, said it would begin a phased withdrawal of its 4,000 soldiers next month, though set no timetable for totally exiting the country. Britain said it would withdraw about 400 of its 10,000 troops by yearend and would pull its entire force in line with the U.S. by the end of 2014. Canada had already announced it would pull all of its 3,000 troops by end of this year, while Germany and Italy could follow in 2012.

Ayan Hirsi Ali / Financial Times

“Many in the U.S. and around the world wonder if the president’s speech is yet another sign of America’s decline. American power and weakness is often a matter of perception. From the perspective of the Taliban, the withdrawal of American troops is a sign of her weakness and their strength. And it is not only the Taliban that will see it this way: the Iranian regime, the Assad family in Syria and the malignant units in the Pakistani military and secret service see a weak America that roars but retreats when the going gets tough.”

Michael A. Walsh / New York Post

“So now we know: After 10 years, billions of dollars and thousands of American casualties, victory in Afghanistan come 2014 will consist of having killed Osama bin Laden in Pakistan. The rest is process, as we wind down our foreign wars and get on with the really important work – domestic infrastructure repair and clean energy….

“What we saw last night was a canny political speech. Obama, who came to prominence as the anti-war candidate, aimed to placate his liberal base and appeal to the growing number of Republicans who want to see us out of Afghanistan as quickly as possible.

“Still, our president always likes to have it both ways. At the start of the speech, he noted that ‘our nation was united as we struck at al Qaeda and routed the Taliban in Afghanistan’ just after 9/11. ‘Then, our focus shifted. A second war was launched in Iraq, and we spent enormous blood and treasure to support a new government there. By the time I took office, the war in Afghanistan had entered its seventh year.’

“(Translation: Not. My. Fault.)

“And so he ordered the surge and handed command of the war to Gen. David Petraeus, who’s made remarkable progress in the country’s southern provinces – but now will be stripped of needed troops just as the war is moving into its critical phase: pacifying the eastern provinces, which border the Taliban’s safe havens in the tribal regions of Pakistan.

“But no matter: The president is clearly proud that ‘we are meeting our goals’ – not of total victory and unconditional surrender, but ‘reversing the Taliban’s momentum’ and…the training of the Afghan security forces to defend their own country….

“The president concluded with a stirring defense of nation-building – not in Iraq or Afghanistan, but here at home…

“ ‘Let us finish the work at hand. Let us responsibly end these wars and reclaim the American Dream.’ Just after 9/11, is that really what we were fighting for?

“Whatever happened to victory?”

Editorial / Wall Street Journal

“President Obama delivered a remarkable speech last night, essentially unplugging the Afghanistan troop surge he proposed only 18 months ago and doing so before its goals have been achieved. We half expected to see a ‘mission accomplished’ banner somewhere in the background….

“In justifying the withdrawal, Mr. Obama repeatedly stressed the damage we’ve done to al Qaeda. Yet most of those successes have been mounted from Afghanistan, including the killing of Osama bin Laden. Mr. Obama stressed that he’ll continue to press Pakistan to cooperate in attacking terrorist havens, but his accelerated withdrawal schedule will make that persuasion harder. The Pakistan military will now almost surely not act against the Afghan Taliban. The Pakistanis will press instead for a ‘reconciliation’ between the Afghan government and Taliban leaders, who will be the most relieved by last night’s speech….

“Mr. Obama was laying out his re-election theme as a Commander-in-Chief who ended George W. Bush’s wars and brought the troops home from Iraq and Afghanistan. He could bring the troops home from Iraq because Mr. Bush had already won the surge before Mr. Obama took office. Let’s hope America’s generals can still conjure a similar success from Afghanistan, despite a pre-empted surge and a presidential march to the exits.”

Speaking of ‘reconciliation,’ Afghan President Hamid Karzai said he was willing to participate in the process, though in a speech this week he slammed the coalition’s presence, including the environmental damage from coalition weapons.

“Every time when their planes fly it makes smoke,” he said. “When they drop bombs, they have chemical materials in them. Our people get killed, but also our environment is damaged.”

And then he complained about the damage being done by NATO trucks to Afghan roads. We’re actually fighting to support this guy.

Pakistan: It is clear that Osama bin Laden had help from some in the Pakistani intelligence service, the ISI, and now the New York Times is reporting there is clear evidence some in the government may have been involved in protecting him. Plus, on a different matter, the Times and Associated Press report that each time American intelligence has notified Pakistani security forces of the existence of bomb-making factories, they are evacuated quickly – “four of them in the past month alone.”

The above-mentioned Rep. Mike Rogers of the House Intelligence Committee said on “Face the Nation” after returning from meetings in Pakistan, “I am more pessimistic coming out of this trip than I have been in the past.”

“Pakistan needs to understand that there is no such thing as a good terrorist,” said Rogers. “They’re playing this very dangerous game of destabilization by having elements of the ISI and the army sympathetic to the Taliban and al Qaeda elements.”

And as Fareed Zakaria wrote in an op-ed for the Washington Post:

“There is also strong evidence of a basic shift in the attitude of the Pakistani military. Last month, Pakistan’s ambassador to the United States, Husain Haqqani, was invited to speak at the country’s National Defense University. Addressing a large gathering of officers, Haqqani asked the audience, ‘What is the principal national security threat to Pakistan?’ He offered three categories: ‘from within [Pakistan],’ ‘India,’ and, ‘the United States.’ A plurality voted for the third option….

“Ambassador Haqqani explained to his audience, ‘If [the threat] really comes from the United States then we’ve already lost, ladies and gentlemen, because you can’t beat the United States in a military confrontation…[Let] us be honest, we do not have the means to take on the one military power in the world that spends more on defense technology than the next 20 nations in the world. So that is where I think we sometimes end up having what I call an ‘emotional discussion.’’ Haqqani was gently pointing out the incoherence of these attitudes, but they persist.

“It’s more than emotional. It is an indication that radical Islamist ideas – with America as the great Satan – are now reflexive for many in Pakistan’s military….

“Pakistan is drifting into a strategic black hole. Does the country really think its best path forward is as an adversary of the United States, currying favor with militants and becoming a vassal of China? Are its role models North Korea and Burma? Or does it want to crush the jihadist movements that are destroying the country, join the global economy, reform its society and become a real democracy? These are the questions Pakistan has to ask itself. The United States, for its part, having disbursed $20 billion in aid to Pakistan in the past decade – most of it to the military – needs to ask some questions of its own.”

Separately, in a survey of Pakistanis conducted by the Pew Research Center, 2/3s disapproved of the American raid to take out bin Laden, while 51% expect relations between the two countries to deteriorate as a result of the American military’s action.

Libya: To say the NATO coalition is in a shambles on this front would be an understatement. A few weeks ago it appeared NATO finally had its act together in attempting to bomb Libyan leader Moammar Gaddafi out of his bunker where they could get a clear shot, but then the action slowed to a crawl instead of reaching an “1812 Overture” type crescendo. Italy, for one, called on NATO to suspend hostilities to allow humanitarian aid to be brought in.

And on Friday, Congress dealt President Obama a humiliating blow when it voted to deny him support for the operation in Libya, but in a separate resolution refused to cut off funding in not wanting to undermine NATO and the Libyan rebels. In the first case, 70 Democrats opposed their leader, but then Republicans rejected their own leaders’ efforts to restrict funding.

For his part, British Prime Minister David Cameron said his country could continue its role for “as long as necessary” even as the deputy head of the Royal Air Force said Britain wouldn’t be able to carry out future missions if its involvement in Libya was extended. Cameron was forced to set his military leaders straight, or as he put it, “There are moments where I think, ‘Look, tell you what. You do the fighting and I’ll do the talking.’”

As for the rebels, they are reportedly out of money.   The rebel oil minister told Reuters:

“We are running out of everything. It’s a complete failure. Either they (Western nations) don’t understand or they don’t care. Nothing has materialized yet.”

Syria: President Bashar al-Assad went before the people for just the third time since the uprising began in mid-March and called for “national dialogue” while blaming the ongoing unrest on an unnamed foreign conspiracy. The dialogue, though, may delay the August elections he had promised.

And while Assad was speaking, hundreds more Syrians were crossing into Turkey, making it over 12,000 by week’s end.

At the same time, the Syrian army has deployed in sight of the border, angering Turkey. Secretary of State Hillary Clinton warned of “the potential for border clashes.”

Israel / Lebanon: A Lebanese official close to Hizbullah told the Jerusalem Post that the terror group is preparing for war with Israel should Syrian President Assad be weakened further. Hizbullah could then lash out as a way of deflecting attention from Assad, and to pay back its benefactor. The official told the paper:

“This is a battle for existence for the group and it is time to return the favor (of Syria’s support).”

Meanwhile, I still find it hard to believe Hizbullah actually leads the new government of Prime Minister Mikati, and while Mikati says he will not disregard the Special Tribunal for Lebanon that is investigating the 2005 assassination of Rafik Hariri, Hizbullah insists doing just that is in conformance with the new parliamentary majority’s position on the STL.

This is a mess. Mikati insists Lebanon is committed to having the “best relations” possible with the international community, but Hizbullah has the majority.

As for the new opposition, headed by former prime minister Saad Hariri, he is still in hiding in Paris and can’t come home due to death threats, specifically a planned car bomb attack, according to a French newspaper; this being the method used to kill Saad’s father.

Michel Aoun, a senior coalition partner of Hizbullah, said Saad was issued a “one-way ticket out of Lebanon and the government.”

Said one of Hariri’s supporters, a member of parliament, “When Aoun speaks about a one-way ticket he means obliterating, through assassination or other means.”

None of the above is good for Israel, where, on a separate topic, Prime Minister Netanyahu insisted that the end to the Israeli-Palestinian conflict starts with Palestinian leaders uttering six simple words: “I will accept the Jewish state.”

In a speech, Netanyahu noted he had accepted the idea of a Palestinian state two years ago.

“Now I say that [PA] President [Mahmoud] Abbas must do what I did: he must stand up to his people and say, ‘I will accept the Jewish state,’ (they can) call itself whatever it wants.’”

But the proposed reconciliation agreement between Hamas and Fatah has fallen apart as Hamas refuses to go along with Fatah’s selection of Salam Fayyad to lead the future interim government until elections are held. Hamas believes that Fayyad, who is the respected prime minister in the current West Bank-based Palestinian Authority government, is nothing more than “a tool in the hands of America and Israel.” [Jerusalem Post]

Iraq: At least two dozen died in a horrific bomb attack on a public market in Baghdad on Thursday evening, “leaving a gruesome scene of scattered body parts and bloodied shoppers.” [Tim Arango / New York Times] Earlier, a U.S. civilian working for U.S.A.I.D. was killed in an attack on an American convoy.

It will be apparent to all by mid-2012 (if it isn’t already) that this conflict was lost as Iraq devolves right back into civil war.

Yemen: With President Saleh continuing to receive medical treatment in Saudi Arabia following the assassination attempt on him June 3, the power vacuum is growing as Islamic militants continue to make gains in the south of the country. And then on Wednesday, more than 60 militants, some of whom are al Qaeda members that have targeted foreigners, tunneled out of a prison.

Morocco: King Mohammed proposed major changes, including a draft constitution that would shift significant power away from the monarchy. A new parliament would be the only body able to enact laws, with Mohammed today having absolute power in virtually every facet of life. The prime minister would be “head of government,” and be automatically drawn from whichever party won an election, rather than being selected by the king.

But the king would remain “inviolable” and also continue to head the army and appoint ambassadors. Nonetheless, it’s an important advance.

The people, though, remain largely unimpressed and 10,000 took to the streets, protesting Mohammed’s steps didn’t go far enough.

China: The government released activist artist Ai Weiwei on bail because of “his good attitude in confessing his crimes,” willingness to pay taxes he owes, and a chronic illness. This was a small step, but at least a positive one as the Communist Party gears up for its 90th anniversary celebration on July 1.

One of the chief issues to be discussed at the party gathering will be corruption. A top party discipline official told reporters, “We are at a stage that is prone to corruption. We should not lose sight of the fact that the situation remains severe and we have a daunting task in front of us.”

But Wu Yuliang added the government would “strengthen the administration of the internet,” an apparent reference to the routine censoring of news that is seen as casting the Communist Party in an unfavorable light.

“We need to guide the netizens in a way to make their reports on [corruption] cases accurate and reliable.” [South China Morning Post]

At the same time, a government mouthpiece, the Global Times newspaper, had some of the following in an editorial this week.

“Before the Internet became popular in China, (catching public officials doing bad things) was unimaginable.

“This kind of public monitoring will become even more ubiquitous and more ruthless. Not only grass-roots officials will be involved but higher-ranking officials will be targeted.

“This change may come as a shock to many. However, it is a positive change that will deal a substantial blow to chronic problems among officials.

“Some officials may feel it unfair, thinking that their ‘privacy’ has been invaded. They should quickly change their mind….

“We cannot deny that most officials are working hard. However, the absence of effective public monitoring has left many uncaring about forbidden behavior.

“The advance of this online anti-corruption storm has apparently outrun the officials’ awareness of how to behave in modern society. The traditional ways of enjoying their power have put them at high risk of being taken down.

“This may be a little cruel to the officials, as the public opinion will not show mercy to anybody. But as soon as they try to abuse power or take what is not theirs, they will risk public naming and shaming.”

Lastly, on a totally different matter, Beijing urged the United States to butt out when it came to disputes over the South China Sea. At least navy ships from Vietnam and China held a two-day joint patrol which was seen as lessening tensions some.

Russia: In an interview with the Financial Times, Dmitry Medvedev said he would like a second term as president but that he and Prime Minister Vladimir Putin would not run against each other. If Medvedev won, he vowed to introduce a more competitive political system to speed up economic modernization. “Political competition is necessary for the development of the economy,” he said. Medvedev hinted election of the 89 governors may be restored after Putin centralized the selection of them under his control.

Billions in capital is flowing out of Russia due to the political uncertainty over who is running for what next spring. For his part, Putin dismissed speculation of a rift with Medvedev, saying the two had a “joint program” for Russia’s development. “There are absolutely no differences between our positions,” he said at a news conference in Paris, at which point reporters in attendance coughed into their hands and uttered “Bulls---.”

For starters, also this week, the Kremlin refused to register the main opposition party challenging Putin in coming parliamentary elections. The Justice Ministry said that the new party, uniting the three best known opposition leaders, did not meet certain standards and that the petition was replete with the signatures of dead people.

Mikhail Kasyanov, prime minister from 2000 to 2004 during the Putin presidency and now one of the three main opponents, said the decision made a mockery of promises by Medvedev to increase political competition.

On a different matter, Russia protested the presence of a U.S. warship docked at a Georgian port as part of a training exercise, with the Kremlin saying the move undermined the diplomatic “reset” between Washington and Moscow, to which your editor mused, ‘Get over it.’

Robert Kagan / Washington Post

“Can the United States blithely do business with this corrupt, authoritarian mafia state, led by a president-for-life who crushes all dissent? Some in the administration don’t think so. They doubt that foreign investors will ever flock to a Russia this corrupt and dangerous, and also doubt that the American people will embrace a long-term partnership with a new czarist dictatorship, especially one with Putin’s reflexive anti-Americanism. Vice President Biden said in Moscow this year that greater freedom, democracy and respect for the rule of law in Russia were ‘necessary’ to have ‘a good relationship.’ The economic modernization that Russian leaders claim to want will not be possible without political liberalization, he noted, and he emphasized the need for a ‘viable opposition’ and ‘public parties that are able to compete.’….

“With all the turmoil in the Middle East, Russia’s political situation has been ignored. Most assume that prospects for change are bleak. But Russia is never as stable as it looks – which is what has Putin’s crowd worried. At this time last year, everyone thought Mubarak had things under control, too.”

The preceding is yet another reason why I continue to say, watch for a third force to emerge, possibly headed by Igor Sechin.

Finally, we note the passing of human rights activist Yelena Bonner at the age of 88. Bonner was married to nuclear scientist and Nobel Peace Prize winner Andrei Sakharov and was a huge figure in founding the Moscow Helsinki Group, a rights monitoring body, where she rose to become a leader alongside her husband.

Sakharov died in 1989, but Bonner continued the fight.

“Until the [Communist] party truly gives up all its wealth to the people who really earned it, everything, down to the last…ruble, Stalinism will still triumph and it will still triumph until we can establish the principle of sovereignty,” she said in 1991. “Sovereignty of the individual, sovereignty of the family and home, sovereignty of every ethnic group and every state.”

Northern Ireland: Oh, those daffy Irish. One of their own, Northern Ireland’s Rory McIlroy, wins the U.S. Open in stunning fashion, the country should be celebrating, and instead, Belfast saw its worst rioting between Protestants and Catholics in a decade, this as the idiotic “Marching Season” reaches its climax. The violence appears to have been coordinated by a Protestant terror group, the Ulster Volunteer Force. You see this and what is your incentive to move a business here? 

McIlroy himself had this to say:

“It is obviously very sad what has happened the last couple of nights.   I know what everyone else knows: 99% of the population don’t want that. Northern Ireland deserves better than that. It is sad to see and the majority of people don’t want it to happen.”

Stay safe, Rory.

Argentina: Remember the Falklands? Argentine President Cristina Fernandez, who announced she will seek re-election in October and seems a sure thing to win, accused British Prime Minister Cameron of “mediocrity bordering on stupidity” over the issue of the Falkland Islands. She then said Britain was “a crude colonial power in decline.”

Cameron told the House of Commons that the islands should remain British for as long as the inhabitants want to – “full stop, end of story.”

Britain won back the Falklands after the Argentine invasion of 1982 and now British companies are drilling for oil in the waters around it, which has riled Argentina up all over again.

Random Musings

--The U.S. Navy’s first new combat ship designed for operating close to shore, the Littoral Combat Ship built by the Mobile, Alabama-based subsidiary of Australia’s Austal and General Dynamics Corp., is showing “aggressive” corrosion. An independent naval analyst, Norman Polmar, told Bloomberg, “This could be a very serious setback. If the ship develops a serious flaw, you’re not going to continue producing them.”

Aluminum-hulled ships such as the Austal tend to rust faster than steel-hulled ships, Polmar said, “But I’m surprised it happened so early. This ship is brand new.” As in it was commissioned in January 2010.

The Littoral Combat Ship program was planned to ultimately consist of 55 ships. Missions for the ship, which was to have made up 17% of the Navy’s planned fleet, include clearing mines, hunting submarines and providing humanitarian relief.

Building all 55 ships was to cost the Navy at least $37.4 billion. Temporary repairs are available, but you can’t operate a fleet in such a fashion. As Bloomberg noted, combat ships are designed to last about 25 years. Each one is expected to cost $36.6 million a year to operate and support.

--In following up on last week, New Jersey lawmakers granted Republican Gov. Chris Christie a huge victory by enacting the sweeping pension reform program of his, as 1/3rd of Democrats crossed party lines. 

“Together, we’re showing New Jersey is serious about providing long-term fiscal stability for our children and grandchildren,” said the governor. “We are putting the people first and daring to touch the third rail of politics in order to bring reform to an unsustainable system.”

The state’s public employees will now be paying more of their salaries into their pensions and paying more for health care. The state is expecting savings of $120 billion over 30 years.

--But Gov. Christie saw his approval rating drop to 44%, with 47% disapproving – the first time more voters have disapproved than approved of him in a Quinnipiac poll since he took office. However, to be fair, he’s more popular than a lot of governors these days. In fact, only New York’s Andrew Cuomo, 61% approval, is more popular than Christie.   It’s true. Connecticut’s? 38%. Pennsylvania’s? 39%. Florida’s? 29%. Ohio’s? 38%.

--In a Bloomberg National Poll, among Republicans, Mitt Romney has a 59% favorable rating, while only 16% view him negatively. And he’s more popular than unpopular with independent voters by a 10% margin.

Said J. Ann Selzer, head of the firm that conducted the survey, “Romney is threading the needle the way a seasoned candidate knows he must. He’s saying enough of the things Republicans want to hear while holding the interest of independents.” But Americans view Republicans unfavorably by a 47 to 42 margin, while Democrats are viewed favorably by 48% and unfavorably by 42%.  And the Tea Party continues to lose ground with 45% saying they have an unflattering view of the movement.

Meanwhile, former Utah Gov. Jon Huntsman declared for the Republican nomination in most unimpressive fashion.

--In a new AP-GfK poll, Newt Gingrich’s favorability rating among Republicans plunged in one month from 61% to 43%. Romney has the highest favorability rating among announced candidates in this one at 61%. Sarah Palin, unannounced, has a 63% favorability mark. Michelle Bachmann’s favorable jumped from 41% to 54% among Republicans. Tim Pawlenty’s favorable rating rose 10 points to 43%. Jon Huntsman is still not known by 59% of party voters.

--U.N. Secretary-General Ban Ki-moon received a second term with a unanimous vote of approval from the General Assembly. Whatever. The U.N. still has agencies that can do some good, but the position of secretary-general has been irrelevant for decades.

You know who could bring some relevancy to the role, though, and already has vast related experience?  George Clooney. I’m totally serious.

--Sen. John McCain got in a bit of hot water when he blamed illegal immigrants for setting some of Arizona’s wildfires. But he didn’t deserve the grief. He was only telling the truth. McCain never said they did so intentionally, rather they clearly used them as signals. And McCain only voiced his concern after talking to officials who told him this was the case.

But then another U.S. Forest Service official, under pressure from the White House no doubt, said this wasn’t the case. Latino officials called McCain’s claim inflammatory. Tough.

--Author/professor Ted Gup, in an op-ed for the New York Times on the weirdness of walkathons, Mr. Gup having observed Boston’s “Walk for Hunger,” 42,000 strong on a 20-mile round-trip trek that raised $3.6 million for food banks.

“Why are benefactors moved by the sight of urban hordes headed for the suburbs and back? Why do such exertions trigger the charitable impulse?

“What I saw that morning in Boston was a resource diverted from its true purpose. Imagine those 210,000 man-hours (42,000 times a five-hour walk) put into direct service to benefit the poor. Think of the houses that might be built, roofs repaired, gardens planted and harvested, public spaces improved, and meals delivered to shut-ins. (And add in the efforts of the 2,000 volunteers that day and the contributions of 50,000 donors.) Now multiply that by the millions of man-hours that are represented by such events in cities across the nation, from Los Angeles to Louisville, Ky., from Austin, Tex., to Grand Rapids, Mich. ….

“I do not question the sincerity of the participants, but in these mass mobilizations I see many lost opportunity costs. I recognize the value of exercise and companionship, but question why society values these schemes.”

--Meanwhile, charitable giving among Americans ticked up 3.8% in 2010 from 2009. But giving peaked in 2007, before the financial crisis.

--Congratulations to Gloria Linares of Great Neck, L.I., who at age 60 completed a marathon last weekend in Anchorage, Alaska, and has now run one in all 50 states. You rock, Gloria! 

--Well this is sick. There are two “rhino farms” in China for the express purpose of chopping the horns off for the crackpot Chinese medicine market. The rhinos are said to be sedated as their horns are removed, and then operators wait for them to grow back, typically at a rate of 3 inches a year, before “harvesting” them again.

The South African government, though, is to blame in that they have exported 151 rhinos to China between 2000 and 2009, according to documents issued under the Convention on International Trade in Endangered Species. [London Times]

--Going to Puerto Rico on vacation? As Lizette Alvarez of the New York Times reported, the island is “plagued by a steadily worsening murder rate, (with) more Puerto Ricans second-guessing their evening plans, contemplating moving to the mainland and sending away for gun permits in larger numbers to protect themselves.”

“So far this year, there have been 525 murders in Puerto Rico, a number that is outpacing last year’s 983 homicides, the second-highest ever, and the 995 in 1994. New York City, with a population a bit over twice that of Puerto Rico, reported 199 murders through the middle of this month, with a total of 536 in 2010.”

Paid for by the New York City Department of Tourism.

--Boston crime boss James “Whitey” Bulger was finally arrested after 16 years on the run, almost all of it living in plain sight in Santa Monica, California. Bulger, 81, fled Boston in late 1994 as he was about to be arrested in connection to at least 19 killings, as well as racketeering and other crimes. His companion, Catherine Greig, 60, was also arrested and the FBI’s just launched media campaign to get the two, focusing on her, led to the big break after just two days.

For years the FBI believed Bulger was living overseas and there were constant rumors of sightings, including one in 2002 where he was reported to be in London. But many believe the FBI never did actively search for the man and as retired Massachusetts state police Col. Tom Foley put it, “Apparently, they should have spent more time in this country looking for him than gallivanting overseas.”

As one of the FBI’s “10 Most Wanted,” the bureau had offered a $2 million reward for Bulger’s arrest.

--The Wall Street Journal had an extensive report on “hacktivists,” such as the group Anonymous and its offshoot LulzSec; the latter having hacked into just about every government site by now. It’s going to get to the point where there will be pressure to change the laws to allow the death penalty for some of these ultimate dirtballs. In fact, that would be a good “24” movie plot line. Bring back Jack Bauer to take out LulzSec, one creep at a time. 

The world hasn’t seen anything yet when it comes to groups such as this. They are just getting started.

--Rich Lowry / op-ed New York Post…on the abysmal history grades our schoolchildren are receiving, per my bit last week on the topic.

“For decades, we have been congratulating ourselves for a broad-mindedness that is really a self-destructive national amnesia.

“It’s no accident that the teaching of U.S. history became ascendant during the surge of national self-confidence in the wake of the Civil War. The late sociologist Samuel Huntington noted that just six states required the teaching of history prior to the Civil War. By the turn of the century, 23 did.

“Back then, we infused the endeavor with an unabashed love for America. The historian Merle Curti writes that the schools ‘emphasized the importance of presenting vividly and attractively to children the glorious deeds of American heroes, the sacrifices and bravery of our soldiers and sailors in wartime, the personalities of the presidents, who might properly be regarded as symbols of the nation in the manner in which royal personages of Europe were regarded.’

“A study of 400 textbooks published between 1915 and 1930 found almost all were robustly nationalistic, or as one scholar commented: ‘The American is taught to respect and to venerate his forebears and the institutions which they designed and developed.’ Today, we’re lucky if students can pick their forebears out of a lineup.

“The content of education began to change in the middle of the 20th century, and eventually tipped into embarrassment and self-basement. Huntington cites a study of 22 grade-school readers published in the 1970s and ‘80s. Out of 670 stories and articles in the books, only five were patriotic. Four of them focused on a girl; three involved the same girl, Sybil Ludington, the female Paul Revere.

“As this transpired down below in the elementary schools, the professional historians worked to kill American history from above. They suffocated it first in data-driven ‘social history’ and then in multiculturalism, until it seemed fit only for obsessives about race or gender….

“The neglect of history leaves on the cutting-room floor all the entertaining, instructive and inspiring material involved in the world’s most daring and successful experiment in self-government. Worse, it robs us of one of the most important constituent parts of our national identity.

“Historian David Lowenthal says of heritage: ‘By means of it we tell ourselves who we are, where we came from, and to what we belong.’ Increasingly, we don’t now and don’t want to know. ‘Never forget’ is an appropriate admonition for victims of atrocities. ‘Never remember’ is a strange and ominous admonition for a nation somebody or other once called ‘the last best hope of man on earth.’”

--Brian Bolduc interviewed historian David McCullough in the Wall Street Journal. On the same topic, the National Assessment of Educational Progress, McCullough said, “We’re raising young people who are, by and large, historically illiterate.” Having lectured at more than 100 colleges and universities the past 25 years or so, he adds, “I know how much these young people – even at the most esteemed institutions of higher learning – don’t know.’ Slowly, he shakes his head in dismay. “It’s shocking.”

McCullough says one solution is to focus on grade school.

“Grade school children, as we all know, can learn a foreign language in a flash. They can learn anything in a flash. The brain at that stage in life is like a sponge. And one of the ways they get it is through art: drawing, making things out of clay, constructing models, and dramatic productions. If you play the part of Abigail Adams or Johnny Appleseed in a fourth-grade play, you’re never going to forget it as long as you live.

“We’re too concentrated on having our children learn the answers. I would teach them how to ask questions – because that’s how you learn.”

I kid you not. I remember my bit part in a fourth-grade play involving George Washington. It was a Tony-winning performance, if I may say so myself, as I played a sentry.

Me: “General Washington, Sir, there’s a man outside waiting to see you.”

Washington: “What does he want?”

Me: “I don’t know…but he sure looks serious!”

Yes, after that stirring stage debut, it was nothing but up for your editor. Then again, come to think of it, I really peaked when I was ten. 

True story…it just hit me that future rapper/actor “Ice-T” would have been in this play, as he was in my class at Brayton Elementary in Summit, N.J. I wish I could remember what his role was. 

---

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

God bless America.
---

Gold closed at $1500…down $39 on the week
Oil, $91.16

Returns for the week 6/20-6/24

Dow Jones -0.6% [11934]
S&P 500 -0.2% [1268]
S&P MidCap +1.4%
Russell 2000 +2.0%
Nasdaq +1.4% [2652]

Returns for the period 1/1/11-6/24/11

Dow Jones +3.1%
S&P 500 +0.9%
S&P MidCap +4.3%
Russell 2000 +1.8%
Nasdaq +0.0%

Bulls 37.8
Bears 28.0 [Source: Chartcraft / Investors Intelligence…spread between bulls and bears of 10 or less normally very bullish.]

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

06/25/2011

For the week 6/20-6/24

[Posted 7:00 AM ET]

Wall Street, Washington and Europe

Let’s start with Europe…and Greece. This coming week will determine whether the European Union and eurozone get to kick the can down the road another few months (max), or whether there is a run on the bank, literally. 

Greek Prime Minister Papandreou won a confidence vote for his reshuffled government, and his cabinet put together a new $112 billion austerity program of further tax hikes, cuts in spending, pay, and pensions, as well as a speeded up privatization program, all of which gained the approval of the EU and IMF, but now parliament has to approve the plan in order for Greece to get $17 billion from the EU that would allow Greece to meet its obligations in July. The vote in parliament is expected to be exceedingly tight, with Greece’s opposition opposed because, in their view, the further austerity cuts will throw the economy into Depression. They favor a plan of tax cuts, including to the value-added tax as well as corporate rates as a way of stimulating the economy and thus tax revenues. Should parliament, against current consensus, vote the Papandreou plan down, global equity markets will crash and it will take every emergency measure possible to limit the damage.

European Central Bank President Jean-Claude Trichet called the situation a code “red.” “The message of the board is that” the link between debt problems and banks “is the most serious threat to financial stability in the European Union.”

Martin Feldstein / Financial Times

“Even though the Greek parliament has given the government some breathing space with its vote of confidence…a default by Greece is inevitable. With a debt to gross domestic product ratio of more than 150% [Ed. and headed to 166% in 2012], large annual deficits and interest rates more than 25%, the only question is when the default will occur. The current negotiations are really about postponing the inevitable.

“If Greece were the only insolvent European country, it would be best if its default occurred now. Cutting its debt in half and replacing the existing debt with low interest rate bonds would allow Greece to service its debt without the excruciating pain that would be involved if it tried to service its current debt.

“But Greece is not alone in its insolvency and a default by Athens could trigger defaults by Portugal, Ireland and possibly Spain. The resulting losses would destroy large amounts of the capital of banks and other creditors in Germany, France and other countries. There would be a drying up of credit available to businesses throughout Europe and there could be a collapse of major European banks.

“This inevitable contagion and its potential consequences for the European financial system is the reason the European Central Bank is determined to avoid a default at this time.”

PIMCO’s Mohamed El-Erian:

“For the next three years, we’re going to see different economies work out different problems. For European economies, especially Greece, it would be through default,” he said in a press conference in Taipei.

“Nothing has been done to enhance growth. No single [Greek] indicator has shown strength.”

German Chancellor Angela Merkel threw in her two cents concerning one of the tangential risks of this crisis, that being the impact of credit default swaps, CDS contracts that represent insurance against a default.

“Nobody around the globe knows exactly who holds those papers and what it means if they come due,” Merkel told a German parliamentary committee, and it was unclear “who will have to pay how much and who will need fresh capital in that way.”

Plus, Merkel added, there isn’t any transparency in this part of the investment universe. Where have you heard that before? [Hint: here.]

Merkel mentions the potential need for fresh capital so following is some bank data from Bloomberg.

“French lenders had the highest overall foreign claims on Greek borrowers of $56.7 billion, including $15 billion in public debt (as the latest data from the Bank for International Settlements shows). French banks had $589.8 billion of loans tied to Ireland, Italy, Portugal and Spain.

“German lenders were the biggest foreign owners of Greek government debt with $22.7 billion in holdings last year and had the second-most overall claims, the BIS said. Their claims on Ireland, Italy, Portugal and Spain amounted to $498.8 billion. The two countries hold more than 60% of all foreign claims on Greece, according to BIS data.”

Separately, also from Bloomberg:

“Independent Credit View, a Swiss ratings company…said in a stress-test study earlier this month that 33 of Europe’s biggest banks would need $347 billion of additional capital by the end of 2012 to boost their tangible common equity to 10% from 9.1% at the end of 2010….

“An S&P stress test published in March estimated European banks would need as much as 250 billion euros ($350 billion) in fresh capital if faced with a ‘sharp’ increase in yields and a ‘severe’ economic decline.”

Political economist Spyros Economides of the London School of Economics told the New York Times that when it comes to Greece and Papandreou’s efforts:

“The main problem is that he’s only been able to deliver on the parts of the austerity package that are easily enforceable and transparent and irrevocable,” such as cuts to public sector salaries and pensions. “Unfortunately, the rest of it is a complete mess. It’s very easy to legislate. The problem is to enforce legislation. There’s no enforcement mechanism.”

Ah yes, implementation. In the 13 months under EU/IMF supervision under the first bailout, Greece has missed every spending and revenue target. The coming Austerity II, if approved, won’t help a lick. Greece has long deserved what it is suffering through today. The issue is does it drag down everyone else in Europe, as well as ourselves, with it.

And just a few more economic tidbits from the EU:

In Britain, the unions are gearing up for strikes galore. “We will strike to defend our pensions,” said the chief labor leader.

The IMF warned Spain that it faces “considerable” risks, with 21% unemployment being “unacceptably high.” [No kidding.]

And a reading on eurozone manufacturing in June dropped yet again to 53.6, though still above the 50 dividing line between growth and contraction.

---

Turning to the United States, a Bloomberg National Poll found that by a 44-34 margin, Americans say they believe they are worse off than when President Barack Obama took office in early 2009, which is really remarkable given we were in a near-depression that January. More than half of respondents now believe their children are destined to have a lower standard of living than they do. A full 66% of Americans think the U.S. is on the wrong track, which is higher than an ABC News/Washington Post poll reading from October 1982, when unemployment was peaking at 10.8% during the 1981-82 recession, of 57%.

A survey for AP/GfK revealed that for the first time, less than 50% of respondents say Obama deserves re-election. Four out of five in this one believe the economy is in poor shape, with 36% calling it “very poor,” a new high in AP-GfK polling.

[But Obama’s job approval rating is 52% in the AP survey.]

As for the economic data this week, the figure on May durable goods (big ticket items) was up a solid 1.9% for this highly volatile barometer, but weekly jobless claims continue to hold above the important 400,000 barrier and the latest figures on existing- and new-home sales for May were hardly anything to crow about. 

The Federal Reserve’s Open Market Committee met this week and opted again to hold the line on interest rates at zero for the now all-too-familiar “extended period,” meaning savers will continue to get screwed. Ben Bernanke and Co. also lowered their growth forecast for the U.S. economy from April’s forecast of 3.1% to 3.3% down to 2.7% to 2.9%, while the projected unemployment rate for 2012 is 7.8% to 8.2%, which one would think would be a killer for President Obama’s re-election hopes.

The Fed also offered for the first time that it was mildly concerned about the rise in commodity prices, but the chairman later said he still felt these were transitory (and this week commodities got crushed). One thing he did mention that was new was his belief that any thoughts of ‘deflation’ are now off the table, which given his track record on the forecasting side means it’s back on! [I’m running a series on Bernanke and Greenspan’s moves at the Fed on my “Wall Street History” link…worth a reminder just how awful our chairmen have been at times.]

The thing is the Fed, as well as other central banks around the world, have few options left when it comes to juicing the economy, so they surprised the markets this Wednesday when, in coordination with the International Energy Agency, announced they would release 60 million barrels of oil, 50% of this from America’s Strategic Petroleum Reserve of 727 million barrels that is supposed to be for genuine emergencies and/or supply shocks such as in the case of Hurricane Katrina.

The IEA explained that the 1.5 million barrels per day that has been lost due to the Libyan civil war, coupled with “the normal seasonal increase in refiner demand expected for this summer will exacerbate the shortfall further….Greater tightness in the oil market threatens to undermine the fragile global economic recovery.”

Oil in the futures pits promptly took a header, even though all are in agreement there really is no shortage of crude and oil had been moving off its recent $100 base anyway. But, at least for a few days the move by the IEA and the politicians had the desired effect. It’s just that the move smacks of desperation.

And hypocrisy…at least here in the U.S., as the Wall Street Journal opined.

“One irony is that a million barrels a day [Ed. our share of 30 million spaced over one month] is about how much oil experts believe we could be producing from the vast oil fields in Alaska’s wildlife reserve. President Obama has said that tapping Alaska wouldn’t affect oil prices but now says a temporary spurt will do so. How about opening up Alaska, and dropping the de facto Gulf moratorium too?”

Of course when it comes to the U.S., this next month it’s really all about the debt ceiling and what Congress and the administration are going to do about it. Early in the week, Sen. Kent Conrad (D-N.D.), a key figure in the deficit talks, said the goal of slicing more than $2 trillion from the federal budget by 2021 falls short of what’s needed, adding “most serious observers would tell you that it takes a package of at least $4 trillion to fundamentally change the trajectory we’re on. In the context of our debt, which is nearly $15 trillion and is headed for $25 trillion, $2 trillion over 10 years does not do the job.”

To those who say just raise the debt ceiling by the Aug. 2 deadline and then tackle the deficit later, Conrad argues all incentive would then be lost.

“If they reach an agreement and that passes and the debt limit then does not have to be dealt with until after next year’s election, there will be very little appetite here to come back and do what really has to be done to get our financial house in order.” [Washington Post]

[Conrad is most Republicans’ favorite Democrat. Too bad he is leaving after 2012.]

But on Thursday, Republican House Majority Leader Eric Cantor and Republican Senator Jon Kyl walked out of Vice President Biden’s budget talks, citing an “impasse” over tax increases. Republicans such as Senator Mitch McConnell said it’s up to the president to join the discussions.

“Where is he?” asked McConnell. “What does he propose? What is he willing to do to reduce the debt and to avoid this crisis that’s building on his watch? He’s the one in charge. I think most Americans think it’s about time he started acting like it.” [Bloomberg]

So that’s where we stand…at an impasse, though Obama is indeed going to join the talks on Monday. My bet has been that a deal will be cut which, upon close inspection will essentially be a sham and not well-received by the markets, after perhaps an initial relief rally. We’ll then have our own Greece-type moment in 2012 and the U.S. equity market crashes…assuming Greece’s parliament doesn’t take us all down next week.

One last item on this topic. As part of the above-mentioned Bloomberg survey, by a 57-34 margin, poll respondents say they would be worse off if Republican Congressman Paul Ryan’s Medicare overhaul was adopted; 58% of independents, a key voting block for 2012.

I said from day one that Ryan’s plan is flawed, but it was a courageous start. The survey results are yet another example, however, of how Americans are unwilling to sacrifice one iota when it comes to their cherished entitlements. To wit, the same Bloomberg poll has respondents saying they trust the Democrats, more than Republicans, to do a better job of dealing with Medicare by 43-34. Of course! The Democrats won’t touch it.

Street Bytes

--In a reversal of last week, this time the Dow Jones and S&P 500 fell anew, while Nasdaq broke its five-week losing streak, up 1.4% to 2652. Nasdaq is now exactly unchanged on the year. Concerns over Europe, including new ones involving Italy and its banks, trumped any good news for the most part. FedEx, for example, reported better than expected earnings for its recent quarter, citing an improving global economy and growing demand. I’m not too sure about an improving economy, but I’ll take them at their word on the demand side. On the other hand, giant Philips Electronics NV announced it would initiate further, unspecified job cuts as its European lighting business is suffering amid the slowdown there.

Overall, stocks are not overvalued…I never said they were when I established my 2011 forecast of negative returns on the three key benchmarks of 5% to 7%. It’s just that things on the earnings front are as good as they’ll get and expectations will be lowered, not raised, over the second half.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.33% 10-yr. 2.87% 30-yr. 4.19%

After an 11-week rally, the longest since the 1980s, the two-year note is just two basis points above its all-time low yield of 0.31%. The 10-year is now at its lowest yield since last December. In the final revision of first quarter GDP, the Commerce Department reported the economy grew 1.9% vs. 3.1% in the fourth quarter. The dollar has been strengthening vs. the euro.

--Pssst. Remember how your editor said that despite all the talk on commodities this year, and how prices are soaring ever higher, the CRB Index of 19 commodities would finish down for the year? Looked real stupid when the CRB, which closed 2010 at 332.80, hit 370. But I stayed the course. Friday it closed at 329.90. Of course it could finish the year back at 370, but I feel pretty good about my prediction today. More on this topic after we hit quarter end next week.

[Gulf Oil CEO Joe Petrowski said in a CNBC interview that 60%-70% of the oil market is comprised of speculators.]

--In China, a preliminary reading on manufacturing put out by HSBC has it at just 50.1 for June’s PMI, or essentially a manufacturing sector that is stagnating after a 51.6 rise in May (and readings above 60 last year). But if demand is cooling, so should inflationary pressures, as China has been continually hiking banks’ reserve requirements and interest rates. The housing sector in turn is slowing in terms of new sales. This is all good if you’re in the camp I am that there will be no hard landing in China, just a needed slowdown.

Premier Wen Jiabao, in an op-ed for the Financial Times, said the following.

“There is concern as to whether China can rein in inflation and sustain its rapid development – my answer is an emphatic yes. China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked.   The overall price level is within a controllable range and is expected to drop steadily.”

Now you can say this is all a crock of pig slop, seeing as Wen has every incentive to calm a restive nation when it comes to rising prices, but my reading of it is there is a lot of truth, particularly when it comes to food stuffs. The drought is broken in a key farming region and, as Wen went on to observe, “The output of grain, of which there is now an abundant supply, has increased for seven years in a row.” China is getting better all the time when it comes to more efficient agriculture. It has to. I have a small investment myself in a company that is tackling this issue there as I try and educate myself on the process, and the opportunities.

I also have to note on the housing front that prices on existing homes should come down with all the various restrictions the government has levied, but a crash? I vote no. It’s also important to note that the government is proceeding with its plans to build 10 million low-income units.

--ArcelorMittal, the world’s largest steel maker by volume, said it still expects demand in China to rise 7% this year. At the same time, 27 steel producers, including China’s largest State-owned steel maker, announced price cuts. But the above-mentioned 10 million affordable housing units could generate 40 million tons of steel demand.

--China’s highly anticipated high-speed rail link between Beijing and Shanghai goes into service July 1. The link cost $33 billion and will cut the trip by about two hours from the current fastest train to 4 hours and 45 minutes, vs. two hours by plane. But getting to the airports is a royal pain and then the flights are subject to delays.

--In a Wall Street Journal piece on how China has been exporting inflation to the likes of the U.S., as much as we know about China’s importance to our supply chain, some of the following figures are still enlightening.

“The Chinese supply 78% of the footwear imported into the U.S., 71% of the ties; 55% of the gloves; roughly 50% of dresses and baby clothing; and 90% of house slippers, according to Commerce Department data.”

[I thought Pakistan was the leader in house slippers. I feel so stupid!]

The issue is China finally being forced to pay its workers higher wages and that’s being passed on. The average earnings for China’s city dwellers rose to about $5,500 last year, up 77% from five years earlier, according to China’s National Bureau of Statistics.

--Japan’s May exports plunged 10.4% as the nation still suffers from supply disruptions caused by March’s triple disaster.

--Owing to the euro debt crisis, non-euro Denmark is facing renewed opposition to joining the currency union. A record 57% say ‘no’ in the latest survey, with only 41% saying ‘yes’. Danes rejected the euro in a 2000 referendum and advocates of the euro say they wouldn’t dare hold another one without clear evidence there is support. Currently, Denmark’s central bank uses monetary policy to peg the krone to the euro in a narrow band.

--The U.S. Postal Service is suspending contributions to an employee retirement account to save $800 million this year in an attempt to stay solvent. The agency is also seeking approval to delay a $5.5 billion payment for worker health benefits. Postal Service Inspector General David Williams said back in January 2010 that the agency had overpaid by $75 billion for its pension obligations, and if that was returned, it would create a surplus that could be transferred to a health-benefits fund.

--In the annual J.D. Power & Associates Quality Study for automakers, Toyota’s luxury Lexus brand led the way based on the least number of problems reported in the first three months of operation, followed by Honda, Acura, Mercedes-Benz, Mazda and Porsche. Toyota branded cars were ranked seventh, up from 21st a year ago, while Ford plummeted to 23rd from fifth. Consumers say Ford’s new models are way too complicated and have glitches with the computer system (MyFordTouch) that impacts performance. There’s a lesson here. Consumers are getting fed up with automakers trying to outdo each other with gadgets. It’s a car. Build it safe, simple and reliable.

--Memphis, Tenn.-based investment firm Morgan Keegan is paying $200 million to settle civil fraud charges for overstating the value of mortgage securities just as the housing market collapsed, as well as using false sales materials. $100 million of the penalty will go to a fund for investors in five states that were harmed. The other $100 million goes to the SEC.

And a day earlier, JPMorgan Chase & Co. agreed to pay $153.6 million to settle SEC civil fraud charges that it misled investors in complex mortgage investments at the same time as Morgan Keegan. In particular, JPM didn’t tell institutional buyers of its securities that they were partly designed by a hedge fund that would profit if the portfolio lost value.

But, JPM wasn’t charged with “intentional” or “reckless” misconduct since the bank retained an 85% stake in the main collateralized-debt obligation deal and took a $900 million loss in its fixed-income business in 2008.

[Separately, the National Credit Union Administration filed an $800 million suit against JPM and Royal Bank of Scotland for peddling toxic mortgage securities to five failed credit unions.]

--Trading revenues in both fixed-income and equities are drying up on Wall Street, which spells layoffs.

--In a huge victory for Wal-Mart, the Supreme Court threw out a wide-ranging sex-discrimination lawsuit, ruling that 1.6 million women who alleged they were victimized by company policy had little in common to file a single class-action suit. Once again, the Court split 5-4 along its ideological divide.

The suit goes back to 2001 as Wal-Mart was accused of systematically paying its female workers less than men, while providing few opportunities for advancement. Wal-Mart was potentially on the hook for $billions in back pay and punitive damages.

--Newspaper publisher and broadcaster Gannett Co. is laying off an additional 700 employees. The head of the newspaper division told employees in a memo that “slow job creation and now softer auto ad demand continue to challenge revenue growth.”

--Texas surpassed New York to become the second-largest economy behind California during the past decade. At the same time North Carolina, Virginia and Georgia all passed slumping industrial powerhouse Michigan from 2000 to 2010.

--Attorneys-general in California, New York and Ohio have all started antitrust investigations into Google, this while federal authorities have launched a full-blown inquiry of their own, as admitted by Google itself on Friday. The European Commission is in the midst of its own review. This isn’t good for the company, witness the case against Microsoft that began more than a decade ago. It’s a huge distraction for management, if nothing else.

The basic complaint is that Google pushes websites down the rankings in search results if they aren’t paying up.

--Shares in Oracle declined after hardware sales unexpectedly fell 6% in the quarter. The company had forecast back in March an increase of 6% to 12%. Revenues in its other businesses were solid and Oracle issued a positive outlook on the key software license originations category.

--Computer games firm Sega said that the personal data of 1.29 million of its customers was stolen in a hack attack, though the company maintains credit card information is safe.

--Those insufferable Winklevoss twins dropped their court appeal of a settlement with Facebook founder Mark Zuckerberg. That was Wednesday. But then on Thursday, they filed a new suit in Massachusetts. 

And Zuckerberg is facing a suit from this guy, Paul Ceglia, who claims that when he hired then Harvard student Zuckerberg to do some Web-development services for a business Ceglia was trying to start, Zuckerberg gave him half ownership in Facebook, though Zuckerberg didn’t start Facebook until months later. Ergo, Ceglia, according to Zuckerberg and his attorneys, is trying to perpetrate a fraud, claiming he has an original contract in a safe deposit box in Hornell, New York.

--Hey, kids…want a good career opportunity? Think about becoming an airline pilot. From USA TODAY:

“After nearly a four-year drought of job openings, the airline industry is on the brink of what’s predicted to be the biggest surge in pilot hiring in history. Aircraft maker Boeing has forecast a need for 466,650 more commercial pilots by 2029 – an average of 23,300 new pilots a year. Nearly 40% of the openings will be to meet the soaring travel market in the Asia-Pacific region, Boeing predicts, but more than 97,000 will be in North America.”

Granted, the starting pay at a regional carrier is beyond pathetic, and salaries have been slashed at the major airlines, but a job is a job these days, right?

--Inflation Watch: The Wall Street Journal reports that the Riverdale Country School will charge tuition of $40,450 for the coming academic year, the first time a New York private school has topped $40,000.

“Tuition costs at the city’s private schools…have climbed 79% in the past decade.”

--NBC Universal agreed to pay Donald Trump and co-producer Mark Burnett an estimated $160 million over two years in renewing “The Celebrity Apprentice.” Trump will reportedly receive $65 million a year. Burnett does well himself, $45 million a year, according to Forbes, when you add in his roles in “The Voice” and CBS’ “Survivor.”

--American Express CEO Kenneth Chenault has received total compensation of $295 million the past ten years at the same time 10-year total shareholder return has been zero. As Crain’s New York Business put it:

“Seldom has a CEO been so richly paid for shepherding a company whose stock performance has been so ordinary. AmEx’s shares are about where they were a decade ago. The company weathered the financial crisis thanks in part to billions in bailout assistance; it must now deal with a Justice Department lawsuit, filed last year, alleging anticompetitive practices.”

--Paulson & Co., the hedge fund run by billionaire John Paulson, took a $500 million hit in its holding of Sino Forest, the Chinese forestry company fighting fraud allegations. It is now in the midst of an expected months-long independent investigation into the accuracy of its holdings and Paulson is among those investors who isn’t willing to wait around for the details.

Of course the preceding doesn’t help the likes of my small cap holding in China. I was in touch with the CFO this week. Don’t sell in the next four weeks is my only advice. Events already in the public domain will finally start coming to fruition.

Foreign Affairs

Afghanistan: America’s top commander in Afghanistan, Gen. David Petraeus, tried to convince President Obama to delay pulling any combat troops from the theater but at the end of the day, Petraeus is commander in Afghanistan, not Commander-in-Chief, so Obama carved out a compromise, as announced this week in a prime-time address.

After taking office in January 2009, Obama increased the size of the American force in the country, having called it the “good war” during the 2008 presidential campaign, vs. the other war in Iraq. Then in December ’09, Obama announced a 33,000-strong surge. Wednesday, the president said 10,000 would be withdrawn by end of this year and the other 23,000 in the original surge force would come home by September of 2012, just in time for the election. The remaining 68,000 would be pulled out gradually in the lead-up to the 2014 handover to Afghan security forces.

“We will not try to make Afghanistan a perfect place. We will not police its streets or patrol its mountains indefinitely. That is the responsibility of the Afghan government, which must step up its ability to protect its people; and move from an economy shaped by war to one that can sustain a lasting peace,” said Obama.

“What we can do, and will do, is build a partnership with the Afghan people that endures – one that ensures that we will be able to continue targeting terrorists and supporting a sovereign Afghan government.”

There was no talk of victory. And the president gave far too much credit to the Afghans, such as in statements that “Afghans are fighting and dying for their people.” Some are, but far from all in this world-class hellhole.

It’s no surprise the latest Pew Research survey has 56% of Americans wanting the troops to come home immediately, an all-time high.

Echoing this view, Obama said it is “Time to focus on nation building here at home.” We’re spending over $110 billion a year in Afghanistan and it’s about reducing the deficit, so he’s telling us.

Most congressional Democrats, though, were not pleased with the president’s withdrawal plans. House Minority Leader Nancy Pelosi said:

“It has been the hope of many in Congress and across the country that the full drawdown of U.S. forces would happen sooner than the president laid out – and we will continue to press for a better outcome.”

Some Republicans, such as Sen. John McCain, countered, “This is not the ‘modest’ withdrawal that I and others had hoped for and advocated.”

“It seems the president is trying to find a political solution with a military component to it, when it needs to be the other way around,” said Rep. Mike Rogers, R-Mich., the chairman of the House Intelligence Committee.

As for the others in the coalition, France, in endorsing Obama’s plan, said it would begin a phased withdrawal of its 4,000 soldiers next month, though set no timetable for totally exiting the country. Britain said it would withdraw about 400 of its 10,000 troops by yearend and would pull its entire force in line with the U.S. by the end of 2014. Canada had already announced it would pull all of its 3,000 troops by end of this year, while Germany and Italy could follow in 2012.

Ayan Hirsi Ali / Financial Times

“Many in the U.S. and around the world wonder if the president’s speech is yet another sign of America’s decline. American power and weakness is often a matter of perception. From the perspective of the Taliban, the withdrawal of American troops is a sign of her weakness and their strength. And it is not only the Taliban that will see it this way: the Iranian regime, the Assad family in Syria and the malignant units in the Pakistani military and secret service see a weak America that roars but retreats when the going gets tough.”

Michael A. Walsh / New York Post

“So now we know: After 10 years, billions of dollars and thousands of American casualties, victory in Afghanistan come 2014 will consist of having killed Osama bin Laden in Pakistan. The rest is process, as we wind down our foreign wars and get on with the really important work – domestic infrastructure repair and clean energy….

“What we saw last night was a canny political speech. Obama, who came to prominence as the anti-war candidate, aimed to placate his liberal base and appeal to the growing number of Republicans who want to see us out of Afghanistan as quickly as possible.

“Still, our president always likes to have it both ways. At the start of the speech, he noted that ‘our nation was united as we struck at al Qaeda and routed the Taliban in Afghanistan’ just after 9/11. ‘Then, our focus shifted. A second war was launched in Iraq, and we spent enormous blood and treasure to support a new government there. By the time I took office, the war in Afghanistan had entered its seventh year.’

“(Translation: Not. My. Fault.)

“And so he ordered the surge and handed command of the war to Gen. David Petraeus, who’s made remarkable progress in the country’s southern provinces – but now will be stripped of needed troops just as the war is moving into its critical phase: pacifying the eastern provinces, which border the Taliban’s safe havens in the tribal regions of Pakistan.

“But no matter: The president is clearly proud that ‘we are meeting our goals’ – not of total victory and unconditional surrender, but ‘reversing the Taliban’s momentum’ and…the training of the Afghan security forces to defend their own country….

“The president concluded with a stirring defense of nation-building – not in Iraq or Afghanistan, but here at home…

“ ‘Let us finish the work at hand. Let us responsibly end these wars and reclaim the American Dream.’ Just after 9/11, is that really what we were fighting for?

“Whatever happened to victory?”

Editorial / Wall Street Journal

“President Obama delivered a remarkable speech last night, essentially unplugging the Afghanistan troop surge he proposed only 18 months ago and doing so before its goals have been achieved. We half expected to see a ‘mission accomplished’ banner somewhere in the background….

“In justifying the withdrawal, Mr. Obama repeatedly stressed the damage we’ve done to al Qaeda. Yet most of those successes have been mounted from Afghanistan, including the killing of Osama bin Laden. Mr. Obama stressed that he’ll continue to press Pakistan to cooperate in attacking terrorist havens, but his accelerated withdrawal schedule will make that persuasion harder. The Pakistan military will now almost surely not act against the Afghan Taliban. The Pakistanis will press instead for a ‘reconciliation’ between the Afghan government and Taliban leaders, who will be the most relieved by last night’s speech….

“Mr. Obama was laying out his re-election theme as a Commander-in-Chief who ended George W. Bush’s wars and brought the troops home from Iraq and Afghanistan. He could bring the troops home from Iraq because Mr. Bush had already won the surge before Mr. Obama took office. Let’s hope America’s generals can still conjure a similar success from Afghanistan, despite a pre-empted surge and a presidential march to the exits.”

Speaking of ‘reconciliation,’ Afghan President Hamid Karzai said he was willing to participate in the process, though in a speech this week he slammed the coalition’s presence, including the environmental damage from coalition weapons.

“Every time when their planes fly it makes smoke,” he said. “When they drop bombs, they have chemical materials in them. Our people get killed, but also our environment is damaged.”

And then he complained about the damage being done by NATO trucks to Afghan roads. We’re actually fighting to support this guy.

Pakistan: It is clear that Osama bin Laden had help from some in the Pakistani intelligence service, the ISI, and now the New York Times is reporting there is clear evidence some in the government may have been involved in protecting him. Plus, on a different matter, the Times and Associated Press report that each time American intelligence has notified Pakistani security forces of the existence of bomb-making factories, they are evacuated quickly – “four of them in the past month alone.”

The above-mentioned Rep. Mike Rogers of the House Intelligence Committee said on “Face the Nation” after returning from meetings in Pakistan, “I am more pessimistic coming out of this trip than I have been in the past.”

“Pakistan needs to understand that there is no such thing as a good terrorist,” said Rogers. “They’re playing this very dangerous game of destabilization by having elements of the ISI and the army sympathetic to the Taliban and al Qaeda elements.”

And as Fareed Zakaria wrote in an op-ed for the Washington Post:

“There is also strong evidence of a basic shift in the attitude of the Pakistani military. Last month, Pakistan’s ambassador to the United States, Husain Haqqani, was invited to speak at the country’s National Defense University. Addressing a large gathering of officers, Haqqani asked the audience, ‘What is the principal national security threat to Pakistan?’ He offered three categories: ‘from within [Pakistan],’ ‘India,’ and, ‘the United States.’ A plurality voted for the third option….

“Ambassador Haqqani explained to his audience, ‘If [the threat] really comes from the United States then we’ve already lost, ladies and gentlemen, because you can’t beat the United States in a military confrontation…[Let] us be honest, we do not have the means to take on the one military power in the world that spends more on defense technology than the next 20 nations in the world. So that is where I think we sometimes end up having what I call an ‘emotional discussion.’’ Haqqani was gently pointing out the incoherence of these attitudes, but they persist.

“It’s more than emotional. It is an indication that radical Islamist ideas – with America as the great Satan – are now reflexive for many in Pakistan’s military….

“Pakistan is drifting into a strategic black hole. Does the country really think its best path forward is as an adversary of the United States, currying favor with militants and becoming a vassal of China? Are its role models North Korea and Burma? Or does it want to crush the jihadist movements that are destroying the country, join the global economy, reform its society and become a real democracy? These are the questions Pakistan has to ask itself. The United States, for its part, having disbursed $20 billion in aid to Pakistan in the past decade – most of it to the military – needs to ask some questions of its own.”

Separately, in a survey of Pakistanis conducted by the Pew Research Center, 2/3s disapproved of the American raid to take out bin Laden, while 51% expect relations between the two countries to deteriorate as a result of the American military’s action.

Libya: To say the NATO coalition is in a shambles on this front would be an understatement. A few weeks ago it appeared NATO finally had its act together in attempting to bomb Libyan leader Moammar Gaddafi out of his bunker where they could get a clear shot, but then the action slowed to a crawl instead of reaching an “1812 Overture” type crescendo. Italy, for one, called on NATO to suspend hostilities to allow humanitarian aid to be brought in.

And on Friday, Congress dealt President Obama a humiliating blow when it voted to deny him support for the operation in Libya, but in a separate resolution refused to cut off funding in not wanting to undermine NATO and the Libyan rebels. In the first case, 70 Democrats opposed their leader, but then Republicans rejected their own leaders’ efforts to restrict funding.

For his part, British Prime Minister David Cameron said his country could continue its role for “as long as necessary” even as the deputy head of the Royal Air Force said Britain wouldn’t be able to carry out future missions if its involvement in Libya was extended. Cameron was forced to set his military leaders straight, or as he put it, “There are moments where I think, ‘Look, tell you what. You do the fighting and I’ll do the talking.’”

As for the rebels, they are reportedly out of money.   The rebel oil minister told Reuters:

“We are running out of everything. It’s a complete failure. Either they (Western nations) don’t understand or they don’t care. Nothing has materialized yet.”

Syria: President Bashar al-Assad went before the people for just the third time since the uprising began in mid-March and called for “national dialogue” while blaming the ongoing unrest on an unnamed foreign conspiracy. The dialogue, though, may delay the August elections he had promised.

And while Assad was speaking, hundreds more Syrians were crossing into Turkey, making it over 12,000 by week’s end.

At the same time, the Syrian army has deployed in sight of the border, angering Turkey. Secretary of State Hillary Clinton warned of “the potential for border clashes.”

Israel / Lebanon: A Lebanese official close to Hizbullah told the Jerusalem Post that the terror group is preparing for war with Israel should Syrian President Assad be weakened further. Hizbullah could then lash out as a way of deflecting attention from Assad, and to pay back its benefactor. The official told the paper:

“This is a battle for existence for the group and it is time to return the favor (of Syria’s support).”

Meanwhile, I still find it hard to believe Hizbullah actually leads the new government of Prime Minister Mikati, and while Mikati says he will not disregard the Special Tribunal for Lebanon that is investigating the 2005 assassination of Rafik Hariri, Hizbullah insists doing just that is in conformance with the new parliamentary majority’s position on the STL.

This is a mess. Mikati insists Lebanon is committed to having the “best relations” possible with the international community, but Hizbullah has the majority.

As for the new opposition, headed by former prime minister Saad Hariri, he is still in hiding in Paris and can’t come home due to death threats, specifically a planned car bomb attack, according to a French newspaper; this being the method used to kill Saad’s father.

Michel Aoun, a senior coalition partner of Hizbullah, said Saad was issued a “one-way ticket out of Lebanon and the government.”

Said one of Hariri’s supporters, a member of parliament, “When Aoun speaks about a one-way ticket he means obliterating, through assassination or other means.”

None of the above is good for Israel, where, on a separate topic, Prime Minister Netanyahu insisted that the end to the Israeli-Palestinian conflict starts with Palestinian leaders uttering six simple words: “I will accept the Jewish state.”

In a speech, Netanyahu noted he had accepted the idea of a Palestinian state two years ago.

“Now I say that [PA] President [Mahmoud] Abbas must do what I did: he must stand up to his people and say, ‘I will accept the Jewish state,’ (they can) call itself whatever it wants.’”

But the proposed reconciliation agreement between Hamas and Fatah has fallen apart as Hamas refuses to go along with Fatah’s selection of Salam Fayyad to lead the future interim government until elections are held. Hamas believes that Fayyad, who is the respected prime minister in the current West Bank-based Palestinian Authority government, is nothing more than “a tool in the hands of America and Israel.” [Jerusalem Post]

Iraq: At least two dozen died in a horrific bomb attack on a public market in Baghdad on Thursday evening, “leaving a gruesome scene of scattered body parts and bloodied shoppers.” [Tim Arango / New York Times] Earlier, a U.S. civilian working for U.S.A.I.D. was killed in an attack on an American convoy.

It will be apparent to all by mid-2012 (if it isn’t already) that this conflict was lost as Iraq devolves right back into civil war.

Yemen: With President Saleh continuing to receive medical treatment in Saudi Arabia following the assassination attempt on him June 3, the power vacuum is growing as Islamic militants continue to make gains in the south of the country. And then on Wednesday, more than 60 militants, some of whom are al Qaeda members that have targeted foreigners, tunneled out of a prison.

Morocco: King Mohammed proposed major changes, including a draft constitution that would shift significant power away from the monarchy. A new parliament would be the only body able to enact laws, with Mohammed today having absolute power in virtually every facet of life. The prime minister would be “head of government,” and be automatically drawn from whichever party won an election, rather than being selected by the king.

But the king would remain “inviolable” and also continue to head the army and appoint ambassadors. Nonetheless, it’s an important advance.

The people, though, remain largely unimpressed and 10,000 took to the streets, protesting Mohammed’s steps didn’t go far enough.

China: The government released activist artist Ai Weiwei on bail because of “his good attitude in confessing his crimes,” willingness to pay taxes he owes, and a chronic illness. This was a small step, but at least a positive one as the Communist Party gears up for its 90th anniversary celebration on July 1.

One of the chief issues to be discussed at the party gathering will be corruption. A top party discipline official told reporters, “We are at a stage that is prone to corruption. We should not lose sight of the fact that the situation remains severe and we have a daunting task in front of us.”

But Wu Yuliang added the government would “strengthen the administration of the internet,” an apparent reference to the routine censoring of news that is seen as casting the Communist Party in an unfavorable light.

“We need to guide the netizens in a way to make their reports on [corruption] cases accurate and reliable.” [South China Morning Post]

At the same time, a government mouthpiece, the Global Times newspaper, had some of the following in an editorial this week.

“Before the Internet became popular in China, (catching public officials doing bad things) was unimaginable.

“This kind of public monitoring will become even more ubiquitous and more ruthless. Not only grass-roots officials will be involved but higher-ranking officials will be targeted.

“This change may come as a shock to many. However, it is a positive change that will deal a substantial blow to chronic problems among officials.

“Some officials may feel it unfair, thinking that their ‘privacy’ has been invaded. They should quickly change their mind….

“We cannot deny that most officials are working hard. However, the absence of effective public monitoring has left many uncaring about forbidden behavior.

“The advance of this online anti-corruption storm has apparently outrun the officials’ awareness of how to behave in modern society. The traditional ways of enjoying their power have put them at high risk of being taken down.

“This may be a little cruel to the officials, as the public opinion will not show mercy to anybody. But as soon as they try to abuse power or take what is not theirs, they will risk public naming and shaming.”

Lastly, on a totally different matter, Beijing urged the United States to butt out when it came to disputes over the South China Sea. At least navy ships from Vietnam and China held a two-day joint patrol which was seen as lessening tensions some.

Russia: In an interview with the Financial Times, Dmitry Medvedev said he would like a second term as president but that he and Prime Minister Vladimir Putin would not run against each other. If Medvedev won, he vowed to introduce a more competitive political system to speed up economic modernization. “Political competition is necessary for the development of the economy,” he said. Medvedev hinted election of the 89 governors may be restored after Putin centralized the selection of them under his control.

Billions in capital is flowing out of Russia due to the political uncertainty over who is running for what next spring. For his part, Putin dismissed speculation of a rift with Medvedev, saying the two had a “joint program” for Russia’s development. “There are absolutely no differences between our positions,” he said at a news conference in Paris, at which point reporters in attendance coughed into their hands and uttered “Bulls---.”

For starters, also this week, the Kremlin refused to register the main opposition party challenging Putin in coming parliamentary elections. The Justice Ministry said that the new party, uniting the three best known opposition leaders, did not meet certain standards and that the petition was replete with the signatures of dead people.

Mikhail Kasyanov, prime minister from 2000 to 2004 during the Putin presidency and now one of the three main opponents, said the decision made a mockery of promises by Medvedev to increase political competition.

On a different matter, Russia protested the presence of a U.S. warship docked at a Georgian port as part of a training exercise, with the Kremlin saying the move undermined the diplomatic “reset” between Washington and Moscow, to which your editor mused, ‘Get over it.’

Robert Kagan / Washington Post

“Can the United States blithely do business with this corrupt, authoritarian mafia state, led by a president-for-life who crushes all dissent? Some in the administration don’t think so. They doubt that foreign investors will ever flock to a Russia this corrupt and dangerous, and also doubt that the American people will embrace a long-term partnership with a new czarist dictatorship, especially one with Putin’s reflexive anti-Americanism. Vice President Biden said in Moscow this year that greater freedom, democracy and respect for the rule of law in Russia were ‘necessary’ to have ‘a good relationship.’ The economic modernization that Russian leaders claim to want will not be possible without political liberalization, he noted, and he emphasized the need for a ‘viable opposition’ and ‘public parties that are able to compete.’….

“With all the turmoil in the Middle East, Russia’s political situation has been ignored. Most assume that prospects for change are bleak. But Russia is never as stable as it looks – which is what has Putin’s crowd worried. At this time last year, everyone thought Mubarak had things under control, too.”

The preceding is yet another reason why I continue to say, watch for a third force to emerge, possibly headed by Igor Sechin.

Finally, we note the passing of human rights activist Yelena Bonner at the age of 88. Bonner was married to nuclear scientist and Nobel Peace Prize winner Andrei Sakharov and was a huge figure in founding the Moscow Helsinki Group, a rights monitoring body, where she rose to become a leader alongside her husband.

Sakharov died in 1989, but Bonner continued the fight.

“Until the [Communist] party truly gives up all its wealth to the people who really earned it, everything, down to the last…ruble, Stalinism will still triumph and it will still triumph until we can establish the principle of sovereignty,” she said in 1991. “Sovereignty of the individual, sovereignty of the family and home, sovereignty of every ethnic group and every state.”

Northern Ireland: Oh, those daffy Irish. One of their own, Northern Ireland’s Rory McIlroy, wins the U.S. Open in stunning fashion, the country should be celebrating, and instead, Belfast saw its worst rioting between Protestants and Catholics in a decade, this as the idiotic “Marching Season” reaches its climax. The violence appears to have been coordinated by a Protestant terror group, the Ulster Volunteer Force. You see this and what is your incentive to move a business here? 

McIlroy himself had this to say:

“It is obviously very sad what has happened the last couple of nights.   I know what everyone else knows: 99% of the population don’t want that. Northern Ireland deserves better than that. It is sad to see and the majority of people don’t want it to happen.”

Stay safe, Rory.

Argentina: Remember the Falklands? Argentine President Cristina Fernandez, who announced she will seek re-election in October and seems a sure thing to win, accused British Prime Minister Cameron of “mediocrity bordering on stupidity” over the issue of the Falkland Islands. She then said Britain was “a crude colonial power in decline.”

Cameron told the House of Commons that the islands should remain British for as long as the inhabitants want to – “full stop, end of story.”

Britain won back the Falklands after the Argentine invasion of 1982 and now British companies are drilling for oil in the waters around it, which has riled Argentina up all over again.

Random Musings

--The U.S. Navy’s first new combat ship designed for operating close to shore, the Littoral Combat Ship built by the Mobile, Alabama-based subsidiary of Australia’s Austal and General Dynamics Corp., is showing “aggressive” corrosion. An independent naval analyst, Norman Polmar, told Bloomberg, “This could be a very serious setback. If the ship develops a serious flaw, you’re not going to continue producing them.”

Aluminum-hulled ships such as the Austal tend to rust faster than steel-hulled ships, Polmar said, “But I’m surprised it happened so early. This ship is brand new.” As in it was commissioned in January 2010.

The Littoral Combat Ship program was planned to ultimately consist of 55 ships. Missions for the ship, which was to have made up 17% of the Navy’s planned fleet, include clearing mines, hunting submarines and providing humanitarian relief.

Building all 55 ships was to cost the Navy at least $37.4 billion. Temporary repairs are available, but you can’t operate a fleet in such a fashion. As Bloomberg noted, combat ships are designed to last about 25 years. Each one is expected to cost $36.6 million a year to operate and support.

--In following up on last week, New Jersey lawmakers granted Republican Gov. Chris Christie a huge victory by enacting the sweeping pension reform program of his, as 1/3rd of Democrats crossed party lines. 

“Together, we’re showing New Jersey is serious about providing long-term fiscal stability for our children and grandchildren,” said the governor. “We are putting the people first and daring to touch the third rail of politics in order to bring reform to an unsustainable system.”

The state’s public employees will now be paying more of their salaries into their pensions and paying more for health care. The state is expecting savings of $120 billion over 30 years.

--But Gov. Christie saw his approval rating drop to 44%, with 47% disapproving – the first time more voters have disapproved than approved of him in a Quinnipiac poll since he took office. However, to be fair, he’s more popular than a lot of governors these days. In fact, only New York’s Andrew Cuomo, 61% approval, is more popular than Christie.   It’s true. Connecticut’s? 38%. Pennsylvania’s? 39%. Florida’s? 29%. Ohio’s? 38%.

--In a Bloomberg National Poll, among Republicans, Mitt Romney has a 59% favorable rating, while only 16% view him negatively. And he’s more popular than unpopular with independent voters by a 10% margin.

Said J. Ann Selzer, head of the firm that conducted the survey, “Romney is threading the needle the way a seasoned candidate knows he must. He’s saying enough of the things Republicans want to hear while holding the interest of independents.” But Americans view Republicans unfavorably by a 47 to 42 margin, while Democrats are viewed favorably by 48% and unfavorably by 42%.  And the Tea Party continues to lose ground with 45% saying they have an unflattering view of the movement.

Meanwhile, former Utah Gov. Jon Huntsman declared for the Republican nomination in most unimpressive fashion.

--In a new AP-GfK poll, Newt Gingrich’s favorability rating among Republicans plunged in one month from 61% to 43%. Romney has the highest favorability rating among announced candidates in this one at 61%. Sarah Palin, unannounced, has a 63% favorability mark. Michelle Bachmann’s favorable jumped from 41% to 54% among Republicans. Tim Pawlenty’s favorable rating rose 10 points to 43%. Jon Huntsman is still not known by 59% of party voters.

--U.N. Secretary-General Ban Ki-moon received a second term with a unanimous vote of approval from the General Assembly. Whatever. The U.N. still has agencies that can do some good, but the position of secretary-general has been irrelevant for decades.

You know who could bring some relevancy to the role, though, and already has vast related experience?  George Clooney. I’m totally serious.

--Sen. John McCain got in a bit of hot water when he blamed illegal immigrants for setting some of Arizona’s wildfires. But he didn’t deserve the grief. He was only telling the truth. McCain never said they did so intentionally, rather they clearly used them as signals. And McCain only voiced his concern after talking to officials who told him this was the case.

But then another U.S. Forest Service official, under pressure from the White House no doubt, said this wasn’t the case. Latino officials called McCain’s claim inflammatory. Tough.

--Author/professor Ted Gup, in an op-ed for the New York Times on the weirdness of walkathons, Mr. Gup having observed Boston’s “Walk for Hunger,” 42,000 strong on a 20-mile round-trip trek that raised $3.6 million for food banks.

“Why are benefactors moved by the sight of urban hordes headed for the suburbs and back? Why do such exertions trigger the charitable impulse?

“What I saw that morning in Boston was a resource diverted from its true purpose. Imagine those 210,000 man-hours (42,000 times a five-hour walk) put into direct service to benefit the poor. Think of the houses that might be built, roofs repaired, gardens planted and harvested, public spaces improved, and meals delivered to shut-ins. (And add in the efforts of the 2,000 volunteers that day and the contributions of 50,000 donors.) Now multiply that by the millions of man-hours that are represented by such events in cities across the nation, from Los Angeles to Louisville, Ky., from Austin, Tex., to Grand Rapids, Mich. ….

“I do not question the sincerity of the participants, but in these mass mobilizations I see many lost opportunity costs. I recognize the value of exercise and companionship, but question why society values these schemes.”

--Meanwhile, charitable giving among Americans ticked up 3.8% in 2010 from 2009. But giving peaked in 2007, before the financial crisis.

--Congratulations to Gloria Linares of Great Neck, L.I., who at age 60 completed a marathon last weekend in Anchorage, Alaska, and has now run one in all 50 states. You rock, Gloria! 

--Well this is sick. There are two “rhino farms” in China for the express purpose of chopping the horns off for the crackpot Chinese medicine market. The rhinos are said to be sedated as their horns are removed, and then operators wait for them to grow back, typically at a rate of 3 inches a year, before “harvesting” them again.

The South African government, though, is to blame in that they have exported 151 rhinos to China between 2000 and 2009, according to documents issued under the Convention on International Trade in Endangered Species. [London Times]

--Going to Puerto Rico on vacation? As Lizette Alvarez of the New York Times reported, the island is “plagued by a steadily worsening murder rate, (with) more Puerto Ricans second-guessing their evening plans, contemplating moving to the mainland and sending away for gun permits in larger numbers to protect themselves.”

“So far this year, there have been 525 murders in Puerto Rico, a number that is outpacing last year’s 983 homicides, the second-highest ever, and the 995 in 1994. New York City, with a population a bit over twice that of Puerto Rico, reported 199 murders through the middle of this month, with a total of 536 in 2010.”

Paid for by the New York City Department of Tourism.

--Boston crime boss James “Whitey” Bulger was finally arrested after 16 years on the run, almost all of it living in plain sight in Santa Monica, California. Bulger, 81, fled Boston in late 1994 as he was about to be arrested in connection to at least 19 killings, as well as racketeering and other crimes. His companion, Catherine Greig, 60, was also arrested and the FBI’s just launched media campaign to get the two, focusing on her, led to the big break after just two days.

For years the FBI believed Bulger was living overseas and there were constant rumors of sightings, including one in 2002 where he was reported to be in London. But many believe the FBI never did actively search for the man and as retired Massachusetts state police Col. Tom Foley put it, “Apparently, they should have spent more time in this country looking for him than gallivanting overseas.”

As one of the FBI’s “10 Most Wanted,” the bureau had offered a $2 million reward for Bulger’s arrest.

--The Wall Street Journal had an extensive report on “hacktivists,” such as the group Anonymous and its offshoot LulzSec; the latter having hacked into just about every government site by now. It’s going to get to the point where there will be pressure to change the laws to allow the death penalty for some of these ultimate dirtballs. In fact, that would be a good “24” movie plot line. Bring back Jack Bauer to take out LulzSec, one creep at a time. 

The world hasn’t seen anything yet when it comes to groups such as this. They are just getting started.

--Rich Lowry / op-ed New York Post…on the abysmal history grades our schoolchildren are receiving, per my bit last week on the topic.

“For decades, we have been congratulating ourselves for a broad-mindedness that is really a self-destructive national amnesia.

“It’s no accident that the teaching of U.S. history became ascendant during the surge of national self-confidence in the wake of the Civil War. The late sociologist Samuel Huntington noted that just six states required the teaching of history prior to the Civil War. By the turn of the century, 23 did.

“Back then, we infused the endeavor with an unabashed love for America. The historian Merle Curti writes that the schools ‘emphasized the importance of presenting vividly and attractively to children the glorious deeds of American heroes, the sacrifices and bravery of our soldiers and sailors in wartime, the personalities of the presidents, who might properly be regarded as symbols of the nation in the manner in which royal personages of Europe were regarded.’

“A study of 400 textbooks published between 1915 and 1930 found almost all were robustly nationalistic, or as one scholar commented: ‘The American is taught to respect and to venerate his forebears and the institutions which they designed and developed.’ Today, we’re lucky if students can pick their forebears out of a lineup.

“The content of education began to change in the middle of the 20th century, and eventually tipped into embarrassment and self-basement. Huntington cites a study of 22 grade-school readers published in the 1970s and ‘80s. Out of 670 stories and articles in the books, only five were patriotic. Four of them focused on a girl; three involved the same girl, Sybil Ludington, the female Paul Revere.

“As this transpired down below in the elementary schools, the professional historians worked to kill American history from above. They suffocated it first in data-driven ‘social history’ and then in multiculturalism, until it seemed fit only for obsessives about race or gender….

“The neglect of history leaves on the cutting-room floor all the entertaining, instructive and inspiring material involved in the world’s most daring and successful experiment in self-government. Worse, it robs us of one of the most important constituent parts of our national identity.

“Historian David Lowenthal says of heritage: ‘By means of it we tell ourselves who we are, where we came from, and to what we belong.’ Increasingly, we don’t now and don’t want to know. ‘Never forget’ is an appropriate admonition for victims of atrocities. ‘Never remember’ is a strange and ominous admonition for a nation somebody or other once called ‘the last best hope of man on earth.’”

--Brian Bolduc interviewed historian David McCullough in the Wall Street Journal. On the same topic, the National Assessment of Educational Progress, McCullough said, “We’re raising young people who are, by and large, historically illiterate.” Having lectured at more than 100 colleges and universities the past 25 years or so, he adds, “I know how much these young people – even at the most esteemed institutions of higher learning – don’t know.’ Slowly, he shakes his head in dismay. “It’s shocking.”

McCullough says one solution is to focus on grade school.

“Grade school children, as we all know, can learn a foreign language in a flash. They can learn anything in a flash. The brain at that stage in life is like a sponge. And one of the ways they get it is through art: drawing, making things out of clay, constructing models, and dramatic productions. If you play the part of Abigail Adams or Johnny Appleseed in a fourth-grade play, you’re never going to forget it as long as you live.

“We’re too concentrated on having our children learn the answers. I would teach them how to ask questions – because that’s how you learn.”

I kid you not. I remember my bit part in a fourth-grade play involving George Washington. It was a Tony-winning performance, if I may say so myself, as I played a sentry.

Me: “General Washington, Sir, there’s a man outside waiting to see you.”

Washington: “What does he want?”

Me: “I don’t know…but he sure looks serious!”

Yes, after that stirring stage debut, it was nothing but up for your editor. Then again, come to think of it, I really peaked when I was ten. 

True story…it just hit me that future rapper/actor “Ice-T” would have been in this play, as he was in my class at Brayton Elementary in Summit, N.J. I wish I could remember what his role was. 

---

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

God bless America.
---

Gold closed at $1500…down $39 on the week
Oil, $91.16

Returns for the week 6/20-6/24

Dow Jones -0.6% [11934]
S&P 500 -0.2% [1268]
S&P MidCap +1.4%
Russell 2000 +2.0%
Nasdaq +1.4% [2652]

Returns for the period 1/1/11-6/24/11

Dow Jones +3.1%
S&P 500 +0.9%
S&P MidCap +4.3%
Russell 2000 +1.8%
Nasdaq +0.0%

Bulls 37.8
Bears 28.0 [Source: Chartcraft / Investors Intelligence…spread between bulls and bears of 10 or less normally very bullish.]

Have a great week. I appreciate your support.

Brian Trumbore