Week in Review

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Week in Review

06/09/2012

For the week 6/4-6/8

The Euro Debt Crisis, continued…

It’s all coming to a head in just the next few weeks.

June 16-17…Egypt’s presidential runoff that seems destined to unleash a violent reaction, with a Muslim Brotherhood victory spelling major trouble for Israel.

June 17…Greece ostensibly votes on whether or not to stay in the eurozone.

June 18…Scheduled talks between the P5+1 and Iran on its nuclear program in Moscow that seem destined not to go well, thus giving Israel the green light to attack at a time of its choosing.

June 28-29…EU summit that is supposed to tie a bow on the latest package to end the debt crisis, at least in the short-term.

But today, Saturday, Spain is expected to ask for help from the European Commission, European Central Bank, International Monetary Fund, or various combinations of the three, for major emergency assistance in shoring up its distressed banks, pounded by the collapse of Spain’s titanic real estate bubble. Spain would thus become the fourth euro-area nation to require aid that, according to the ECB on Friday, would be “exclusively directed at the recapitalization of banks.”

[Note: this column is being posted just hours before the scheduled conference call between finance ministers so obviously the situation is fluid. The IMF just released an audit saying Spain needs a bare minimum of 46 billion euro for the banks.]

Spain and the other members of the eurozone want to craft a temporary solution before the June 17 Greek elections in case voters there make anti-austerity party Syriza number one, which would greatly destabilize markets all over again and make it impossible for Spain to obtain aid for its banks on its own. So if a bank recapitalization is in play, at least it would provide some investor confidence that Spain is in the process of being ringfenced. At least that is how it would be presented.

The fact that Spain is being forced to act before two international consultants complete their examination of Spain’s banking situation tells you how dire it is.

But there’s one big problem. How does the recapitalization take place? Where are the funds coming from and how do they get to the banks? Heck, how much is needed?

Figures up to 100 billion euro for the banks have been floated, but the government itself may require another 250 billion euro.

And what would the conditions be for Spain? Germany obviously isn’t going to be party to a plan to move 350 billion from Pile A to Pile B without placing restrictions on the Spanish government, which results in a loss of sovereignty.

I mean understand that when the Spanish government the other week said it would bailout the third-largest bank, Bankia, for 19 billion euro, this after nationalizing it one week earlier by injecting 4.5 billion, the government only had 5 billion euro left in its original bank bailout fund established in 2009. Yet the central bank, the Bank of Spain, says banks have some $231 billion in “problematic” real estate holdings, though the independent consultants the government hired may find the problem to be even higher.

As for what Germany thinks about all this, a parliamentary leader and close ally of Chancellor Angela Merkel, Volker Kauder, said, “Germany will demonstrate its solidarity with the other states in Europe in order to resolve the problems caused by the debt crisis. But the states of Europe must for their part undertake every endeavor to contribute to solving those problems themselves.”

Chancellor Merkel and her finance minister, Wolfgang Schauble, have no problem providing some short- and medium-term relief but, again, it must be part of a longer-term plan to move towards a full “fiscal union,” that would then be part of an eventual political union.

Schauble was quick this week to draw the distinction between Greece and Spain.  

“The Spanish are doing everything right, and yet they are still facing pressure in the markets because of contagion from Greece. We must deal with that.”

As for the concept of Eurobonds, I made clear my position last week; it just isn’t going to happen.   It would take years to put in place.   But I do have to note the comment of Josef Ackermann, the former Deutsche Bank AG chief, who in saying he was against euro bonds, added, “If we do it right now, it allows maybe the funding with Germany guaranteeing up to 27%....The people in Germany would not support (common borrowing, euro-area debt sharing) and secondly there are also some constitutional limits to do it because of the no bail-out clause.”

You can only have euro bonds if all are in agreement on true fiscal integration and that’s just not in the cards today.

Billionaire investor George Soros said European leaders have a “three-month window” to save the euro. 

But for now it’s about funneling the aid to Spain’s banks. The Financial Times’ Gavyn Davies summed up the dilemma.

“The most likely eventual route would be to use ESM (European Stability Mechanism) assets to recapitalize the Spanish banks….

“Under the current ESM arrangements, these funds would need to be lent to the Spanish government, which could then inject them into the banking system. But this, of course, would add to the debt of Spain’s government, which is already beginning to appear insolvent, not just illiquid. And it would come with economic conditions that Spain is finding it hard to accept.”

The latest sense of urgency is a result of the timetable you see above, specifically Greece’s election, and the credit markets’ impatience when it comes to the likes of Spain.

George Soros said, “I expect the Greek public will be sufficiently frightened by the prospect of expulsion from the EU that it will give a narrow majority of seats to a coalition that is ready to abide by the current [bailout] agreement.”

But it’s only a temporary respite, he warned, as the German public becomes less willing to continue bailing out its weaker European neighbors.

“The crisis is likely to come to a climax in the [autumn]. By that time, the German economy will also be weakening, so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities.

For now, aside from the potential ECB-European Commission-IMF action for Spain, we wait to see how the Greek people vote on June 17. Alexis Tsipras, 37-year-old leader of Syriza, the anti-austerity coalition, said in an interview with TIME:

“If we continue taking this austerity medicine and especially at a higher dose, that’s when Greece is going to be forced out of the euro. And when Greece leaves, the whole eurozone will start wobbling.”

“It’s not our choice for Greece to exit the eurozone, and it’s not an option. Greece’s fate is linked to Europe’s and vice versa.” 

Tsipras is playing a dangerous game of chicken, convinced should his coalition win the majority in parliament the other members of the eurozone and the ECB, etc. will cut Greece some slack.

The latest polls still have it too close to call. Greece’s coffers run dry in July as tax revenue dries up. There are increasing stories that wages are not being paid as it is, in some cases since the start of the year. Some public employees just received their final 2011 installment. An estimated 400-500,000 haven’t been paid in three months or more.

The European Central Bank held the line on interest rates at 1%, wanting the politicians to act first before it cuts rates again. President Mario Draghi said that while “we stand ready to act…I don’t think it would be right for the ECB to fill other institutions’ lack of action,” in essence wanting to wait until after the Greek elections, though now Spain is forcing the ECB’s hand earlier.

Spain’s regions (50% of the economy) were told to cut their deficits last year and instead raised spending 14%, so now they can’t hit up the markets for funding.

The eurozone service sector PMI fell to 46.7 in May. [50 being the dividing line between contraction and growth.]

Germany’s industrial production fell 2.7% in April over March.

Because Germany is perceived to be Europe’s ultimate safe haven, deposits rose 4.4% as of April 30 from a year earlier, according to ECB figures. Deposits in Spain, Greece and Ireland shrank 6.5% in the same period, including a 16% drop for Greece. [Bloomberg]

Portugal’s economy fell 0.1% in the first quarter from the fourth, the sixth quarter in a row of declines in GDP.   The European Commission has forecast Portugal’s economic activity will fall 3.3% this year, with car sales dropping 18.5%, while the construction sector is on the verge of collapse with a euro-era record unemployment rate of 14.9%, on its way to 15.9% or higher this year, according to government forecasts.

France’s President Hollande fulfilled a campaign promise and lowered the retirement age to 60 from 62 (which former President Sarkozy had raised it to) even though the French live to an average age of 81. Hollande’s new rule applies to those who started work at 18 or 19 and will cost the government 3 billion euro a year. Insane.

Hollande did this just days before the two-phase French parliamentary elections, June 10 and 17. France’s jobless rate hit 10% for the first time since 1999.

The Bank of France expects the economy to contract in the second quarter.

Italy’s industrial production in April declined by 1.9% over March, worse than expected.

Consumer spending in Greece fell by 7.5% in the first quarter as the economy contracted 6.5%.

Washington and Wall Street

President Obama gave a brief statement on the economy Friday morning as he tried to stop the bleeding from an awful stretch of news, going back to last Friday’s employment report, including the Wisconsin-Scott Walker-recall vote (more below) and the fact Mitt Romney for the first time raised more money than Obama in May, $77 million to $60 million.

So the president stepped forward yesterday and reiterated the new talking points; that the still struggling economy is owed in no small part to Europe’s myriad problems and inactivity on the part of Congress.

Obama appeared timid and gave his usual seven-minute answers to each question, no doubt boring 100% of his audience to tears. Actually, I fell asleep, only to perk up when his last question was on the congressional investigations being launched into the “avalanche of leaks” of intelligence information coming out of the White House.

This last issue could easily be the one that hands Romney the election. It is potentially explosive, perhaps of Iran-Contra type seriousness. I have more on this below as well. Every American, regardless of their party affiliation, should be sickened by what the White House is doing only because it’s an election year. Lives are being put at risk.

But back to the economy, the president argued “the private sector has been doing a good job creating jobs,” after which Speaker John Boehner tweeted, “President Obama says ‘the private sector is doing fine’ – millions out of work, 8%+ unemployment for 40 months…doing fine?”

Actually, the Federal Reserve’s beige book of economic activity in the Fed’s 12 regions offered that overall the economy is expanding at a “moderate pace.”

But various Fed officials spoke this week and one, Dennis Lockhart, president of the Atlanta Fed, said: “It is my sense that material risks to the outlook are gathering.”

Fed vice chairwoman Janet Yellen said: “It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest.”

Appearing before a congressional committee, Chairman Ben Bernanke said Fed officials were updating their economic forecasts before a critical June 19-20 meeting, which many have said is about as far as the Fed wants to go if they are to announce any policy changes before the election, i.e., another bout of quantitative easing. Of course they can act anytime they want, but they don’t want to be seen as influencing the election so as Bernanke said, in his standard boilerplate language, the Fed “remains prepared to take action as needed to protect the U.S. financial system and economy,” pointing to the intensifying risks from Europe.

Meanwhile the Congressional Budget Office warned that the national debt (federal debt held by the public…what we have to pay back) will hit 90% of GDP by 2022; 109% by 2026. It was 40% in 2008. The 40-year average had been 38%.

If the economy would grow at 3%+ instead of the CBO’s projected 2.2%, however, the debt picture improves considerably.

Lastly, China remains a major part of the global economic equation and this week the central bank cut interest rates 25 basis points to 6.31% on the benchmark one-year lending rate, while lowering the one-year deposit rate to 3.25%. It was the first time China reduced rates since 2008.

So at first the markets thought this was good; stimulus to avoid a hard landing. But then the view developed that the government must be panicking because the May economic data, about to be released, would be far worse than expected.

And as I go to post it just came in…inflation slowed to 3% from a year earlier, industrial production increased 9.6%, slightly lower than expected, and retail sales increased 13.8%. More easing is needed and the benign inflation outlook allows the government to do so. Further economic news is due shortly.

Separately, the HSBC service sector PMI for May was 54.7, up from 54.1 for April, while the government’s ‘official’ number was 55.2, down from April’s 56.1.

Bottom line, the government has been approving infrastructure projects without officially calling it stimulus, as I’ve been noting the past few weeks. JPMorgan Chase was the latest to reduce its GDP forecast for 2012…but only to 7.7%.

Street Bytes

--Stocks staged their biggest rally of the year after one of their worst performances the prior week, owing to unwarranted optimism that Spain will be bailed out at least on a short-term basis. What Europe really needs is a short-term mechanism guaranteeing bank deposits in order to prevent bank runs should Greece exit the group, but this too takes time.

For the week the Dow Jones gained 3.6% to close at 12554, the S&P 500 rose 3.7% and Nasdaq picked up 4%.

--U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.27% 10-yr. 1.63% 30-yr. 2.74%

The risk trade was back on as money flowed into equities from bonds.

--The Supreme Court could rule any day now on ObamaCare, seeing as it had its mind made up months ago and it’s just a matter of cut and pasting an opinion; not that I’m being disrespectful of the Supremes.

--The Federal Reserve reported that consumers cut back sharply on their credit card purchases in April, the first drop since January and not a good sign.

--April factory orders unexpectedly fell 0.6% when a small gain had been forecast. March’s number was revised sharply downward as well.

--11-15% of revenues recorded by S&P 500 companies come from Europe.

--Australia reported first quarter GDP was much better than expected, up 1.3% (4.3% annualized rate). Job growth in May was also the best in 8 years. Aussie Aussie Aussie!!!

--According to Russia’s Central Bank, Russian capital outflows reached a net $46.5 billion in the first five months of the year, though the central bank chief said “a trend [towards outflow slowing] is already being observed.”

--China’s direct investment into Europe tripled to $10 billion in 2011, part of a global shopping spree that some say could amount to as much as $500 billion a year in the Euro region by 2020 (out of a projected $1 trillion to $2 trillion worldwide), with Chinese companies most interested in buying European technology, consumer brands and high-end manufacturing.

--Despite talk of a slowdown in China, General Motors said its May sales there hit a record 231,183 vehicles, or up 21.3% over year ago levels and 1.7% over April’s.

--Owing to the Olympics, the number of tourists traveling to London is expected to be 13% higher this summer than last. At the same time it appears more Britons are planning on staying home to watch the Games than first thought.

--The feud between the New York Stock Exchange and Nasdaq heated up anew after Nasdaq chief Bob Greifeld offered $40 million in cash and discounts on trades to its clients impacted by the botched Facebook offering. Only traders that attempted to trade the shares at $42 will be eligible for recoveries.

What ticks off NYSE chief Duncan Niederauer, though, is the $26.3 million worth of discounts.

“This is tantamount to forcing the industry to subsidize Nasdaq’s missteps and would establish a harmful precedent that could have far-reaching implications for the markets, investors and the public interest,” the discounts providing an incentive for institutional traders to move their business away from the NYSE.

Market makers such as Knight Capital claim losses of roughly $200 million due to Nasdaq’s botched opening of the stock.

--Meanwhile, a poll by Reuters/Ipsos revealed one-third of Facebook users say they are now spending less time on the social network than they were six months ago, attributing the decrease in use to Facebook becoming “boring,” “not relevant” or “not useful.” But 20% said they are spending more time.

And…four out of five Facebook users said neither advertisements nor comments on the site have ever led them to make a purchase; which is kind of deadly if you’re looking to sell advertising.

--LinkedIn users were targeted by a phishing scam after hackers stole 6.4 million passwords and posted them on a Russian web forum. Emails designed to look like they were sent by LinkedIn to “confirm” their email address, instead sent recipients to a site selling counterfeit drugs.

--Google said some users of its e-mail service (Gmail) may have been targeted by state-sponsored cyberattacks.

--Sean Parker, an early executive at Facebook and co-founder at Napster, is starting a video chat site called Airtime that will allow users to video chat with their Facebook friends or talk anonymously with other people sharing similar interests.

Parker says Airtime “will solve a social problem that has arisen amid the rapid adoption of social networking sites such as Facebook, where face-to-face conversations and human interactions are often reduced to impersonal clicks and status updates.”   [Emily Steel / Financial Times]

Parker told USA TODAY, “In one sense, the Internet has become dehumanized…it is boring.” Airtime builds on YouTube and Skype in the evolution of video communications.

I don’t disagree with Parker’s premise; I just think Airtime looks like a freakin’ nightmare.

--The Energy Information Administration said U.S. oil output in the first quarter topped six million barrels a day for the first time in 13 years. North Dakota pumped a record 575,000 barrels a day in March, beating out Alaska’s 567,000 barrels. Texas is at 1.8 million.

--Shares in McDonald’s fell on news May comps weren’t that great with U.S. same-store sales up 4.4% vs. an estimate of 5.6%. Sales around the globe weren’t as strong as expected either.

--Former Bear Stearns Cos. executives, including former CEO Jimmy Cayne and “Ace” Greenberg, have agreed to a $275 million settlement of a shareholder lawsuit with investors led by the State of Michigan Retirement Systems following the firm’s demise four years ago. But the executives won’t have to pay it off as the funds will come from a $9 billion pool set aside by JPMorgan Chase for litigation and other expenses in 2008 when it scooped up Bear in a deal blessed by the government.

--The SEC approved changes to the New York Stock Exchange’s circuit breakers that have been in place since 1988 in response to the 1987 crash. Currently trading is halted if the Dow Jones Industrial Average tumbles 10%, 20% or 30%. The new triggers will be drops of 7%, 13% or 20% in the S&P 500. Trading halts will be shortened to 15 minutes from the current 30 minutes, hour or two hours. I have to admit I’m a little unclear as to some of the extra details but it seems if the S&P drops 7% after 3:25 p.m., the market then closes for the day, as it does if the index declines 20%.   Certainly, given the prevalence of program/high-frequency trading, 7% is doable. Like the market probably wouldn’t react well to Iran testing a nuclear weapon for the first time, don’t you think?

--Coinstar is teaming with Starbucks to place single-cup coffee vending machines in retail shops under the “Seattle’s best” brand. Sales for Coinstar’s DVD vending machine operation have been soaring and Starbucks wants to take advantage of Coinstar’s marketing position in self-service.

--Back in 2004, then California Gov. Arnold Schwarzenegger signed into law a ban on foie gras, but an 8-year grace period was allowed.

Well on July 1, the state becomes the first in America to ban the delicacy. So prices are skyrocketing as restaurants go for one last binge.

Why I was going to have some foie gras myself, today, watching the Belmont Stakes, until word came that I’ll Have Another was being retired rather than go for the Triple Crown. So I’ll save my foie gras for another time. My sympathies to Californians who will no longer be able to spread it on a loaf of Italian bread.

My sympathies also to executives at NBC, who are showing the Belmont and are now on suicide watch.

Foreign Affairs

Iran:  The next round of nuclear talks is slated for June 18 in Moscow, as noted above, but there is a chance Iran might postpone or withdraw entirely from the process because the Iranians are upset the European Union has refused to organize preliminary planning talks among experts and deputies. Iranian nuclear negotiator Saeed Jalili said, “The process of talks only for (further) talks is fruitless,” in comments reported by the Islamic Republic News Agency. Of course Iran would love to slow the talks to a trickle as part of its brilliant stall game.

As for the International Atomic Energy Agency’s quest to get its inspectors into the disputed military complex at Parchin, Iran continues to deny access and talks on this front are going nowhere.

Separately, Der Spiegel reported that the German government seems to be aware that submarines it has been providing Israel are subsequently loaded with nuclear-tipped cruise missiles.

“The White House has justified its unwillingness to back the Free Syrian Army by explaining that to do so would only result in more carnage. By not acting, though, the administration is perhaps inviting the bloodshed it hopes to avoid.

“Both allies and adversaries can sense this administration’s weakness. Because the Obama team has refused to play America’s traditional role as regional power, the Israelis are led to believe that stopping Iran is up to them alone. The world’s failure to intervene in Syria, Israeli Defense Minister Ehud Barak recently observed, shows that ‘it is not clear’ that ‘the world will indeed act’ to come to Israel’s defense. This was a message meant for the White House….

“Since the White House’s handling of Syria has given evidence only of impotence, the Israelis, as well as the Iranians, cannot help but conclude that Obama will play the same hand with Iran that he has with Syria. He isn’t even bluffing. He has simply folded.”

“It remains unclear whether President Obama will be able to strengthen sanctions to the point where they might prove decisive in convincing Iran to relinquish its nuclear aspirations. Though you would never guess it from reading White House press releases, the multiple rounds of U.S., EU and UN sanctions implemented thus far are pockmarked with loopholes and exemptions. The fact is that neither ‘reset buttons’ nor diplomatic overtures have assuaged Russia or China’s refusal to support sanctions with enough bite to actually threaten the stability of the Iranian regime….

“In a similar fashion, Obama’s unwillingness to credibly threaten military action works to offset diplomatic and economic pressures on Iran. The Obama administration’s occasional, perfunctory statements that ‘all options are on the table’ ring hollow, since its body language suggests otherwise.

“Indeed, the intensity with which senior U.S. officials have hectored Israel to delay a military strike against Iranian nuclear facilities provides a window into just how reluctant the Obama administration is to threaten military action of its own. But with his emphasis on sheathing the saber, Obama is undermining his own diplomatic leverage and actually making armed conflict with Iran more likely.

Syria: The situation continues to rapidly deteriorate as on Thursday, UN observers were targeted as they attempted to investigate the latest atrocity inflicted by President Bashar Assad’s goons, an estimated 78 slaughtered in another village, Al-Kubeir (Qubeir).  UN Secretary General Ban Ki-moon told the Security Council civilians had been killed with “barbarity.”

But then UN-Arab League envoy Kofi Annan said he wanted Iran to be involved in any “solution” to the conflict. “Iran, as an important country in the region, I hope will be part of the solution.”

U.S. Ambassador Susan Rice responded, “Iran is part of the problem in Syria…There is no question that it is actively engaged in supporting the government in perpetrating the violence on the ground.”

As I’ve offered up many times before, Kofi Annan is pathetic. He’s a house-sitter, not a diplomat. I mean, incredibly, Annan said on Thursday that Syria was not implementing his peace plan. Believe it or not, this was the first time he publicly stated this, though he claims he confronted Assad nine days earlier.

Meanwhile, with Russian President Vladimir Putin in China, a joint statement read: “Russia and China are decisively against attempts to regulate the Syrian crisis with outside military intervention, as well as imposing…a policy of regime change.”

Russian Foreign Minister Sergei Lavrov said, “(Opposition groups) outside Syria appeal to the world community more and more to bomb the Assad regime, to change this regime. This is very risky, I would even say it is a way that will bring the region to catastrophe.”

But there seems to be a little wiggle room developing in both the Russian and Chinese positions, while for his part President Assad, in a nationally televised address last Sunday, continued to maintain there was a “foreign conspiracy” against his country as he denied there was any government involvement in the Houla massacre.

Lebanon: The conflict in Syria continues to bleed over the border and at least 14 were killed last weekend in armed clashes between supporters and opponents of Bashar Assad in the city of Tripoli, Lebanon’s second-largest. Former Prime Minister Saad Hariri said, “What happened in Tripoli is proof the Syrian regime is unrelenting in its plot to set Lebanon on fire.”

Egypt: The presidential runoff is June 16-17 and it’s safe to say that based on the results of the first round of voting, half of Egyptians face a wrenching choice between Mohammad Mursi of the Muslim Brotherhood, and Ahmed Shafiq, Hosni Mubarak’s last prime minister and an ex-military man. Thousands of Egyptians poured into Tahrir Square on Tuesday, waving placards such as one that read, “No to Mursi, no to Shafiq, the revolution is halfway through.”

Shafiq said Mursi would drag Egypt into the “dark ages” and threaten the rights of women and Christians.

The ruling military council is to formally hand over power to the new president by July 1.

As for the life sentence handed down to Mubarak last weekend, news of which broke as I was going to post, the euphoria over the verdict quickly evaporated upon learning top security officers who clearly had a role in the violence that killed more than 800 were exonerated.  It’s clear the ruling council simply wants to maintain its power and avoid accountability.

Mubarak’s health immediately deteriorated after the verdict and he may not live much longer.

Iraq: In an under the radar development, Iraqi lawmakers signed a letter demanding a no-confidence vote against Prime Minister Nouri al-Maliki, with Shiite cleric Moqtada al-Sadr joining the ranks of Maliki’s opponents, which include Sunni and Kurdish parties as well as President Talabani.

“We say, complete your [good work] and announce your resignation, for the sake of the people…and for the sake of partners,” Sadr said in a statement. [Jerusalem Post]

Despite this, it’s not clear the no-confidence vote will actually go forward, plus it doesn’t seem to have any legal standing, but the region needs a stable Iraq more than ever. Sectarian tensions are building again. A wave of bombings has killed at least 42 in Baghdad alone the past ten days.

Pakistan: Al-Qaeda’s No. 2, Abu Yahya al-Libi, was taken out in a CIA drone attack. Ayman al-Zawahri remains the nominal leader, but the group’s far-flung affiliates probably take few orders from him, with the Yemeni affiliate Al Qaeda in the Arabian Peninsula clearly the chief focus of American officials.

Separately, U.S. Defense Secretary Leon Panetta told Pakistan, “we are reaching the limits of our patience” when it comes to their lack of cooperation on rooting out the al-Qaeda-linked Haqqani terrorist network that is moving across the border into Afghanistan to kill Americans.

Russia: A potentially explosive event takes place on Tuesday, June 12, as a large anti-government, anti-Putin protest is to be held in Moscow, this after the Russian parliament approved legislation that increases fines for those violating rally rules some 60 times, from 5,000 rubles to 300,000 rubles, or about $9,000. $30,000 is the new maximum fine for an organization. Understand the maximum fine is greater than the average annual income in the country. Just for protesting.

Yes, you need go no further than this coming week to see just how much of a dictator Vladimir Putin plans to be when looking at his handling of this situation. I’ll defer comment until after, but the independent Levada Center took a poll the other day and only 17% of the Russian people approve of the new penalties, though 26% said fines were a good idea, just not this high.

However, 67% believe Putin should enter into a dialogue with opposition protesters, though 45% said they thought he would try to stamp out the opposition, up from 32% in January.

For his part, Putin, in endorsing the legislation, said, “We must shield our people from radical actions.”

“How radical? In some of the recent protests, participants have held aloft placards saying, ‘Russia without Putin!’ Now, Mr. Putin is saying he wants a Russia without them.”

One other item. Two high-ranking media executives have been pushed out of their jobs thus raising issues of censorship. While both said the decisions were business driven, one editor-in-chief, Phillip Dzyadko, painted a bleak picture:

“In the first summer month of Putin’s third term, a ‘purge’ of sources of independent media is taking place in front of everybody’s eyes.”

Japan: More than a year after the earthquake, tsunami and nuclear catastrophe that killed 20,000 and contaminated a large area of farmland, a Pew Research Center poll shows 70% of Japanese wanted nuclear power reduced or eliminated, while a year ago 44% urged a phase-out. On a different matter, 80% were critical of the government and 78% said they were dissatisfied with the direction the country was headed in.

Random Musings

--After taking office two years ago, Wisconsin Republican Gov. Scott Walker targeted unions representing state workers, specifically their collective-bargaining rights. The pushback was fierce and Walker faced a historic recall election this week, which he won easily, 53-46, dealing a big defeat to Big Labor in general. Union leaders reject the notion that the vote reflected growing antipathy toward labor, but of course it does. And how do you explain 38% of union households voted for Walker, up from when he was first elected?

Gov. Walker rode into office in 2010 on the crest of the Tea Party wave and actually did what he said he’d do…enact fiscal reforms, including reining in outsized public-employee benefits. That was funny; a politician who actually followed through on his campaign promises.

Last weekend’s Wall Street Journal had a front page story on the situation with public employees in San Jose, California, as reported by Michael Corkery.

“Firefighter Brian Endicott got an early taste of the pension battle brewing here when a man at the grocery store angrily pointed to the steaks in his cart.

“ ‘Who do you think you are, wasting taxpayers’ money on a meal like this?’ the man yelled at 46-year-old Mr. Endicott, who was shopping for dinner with three other firefighters from San Jose Fire Station No. 1….

“In the current fiscal year ending June 30, San Jose’s retirement obligations soared to $245 million, up from $73 million a decade ago, according to the city.  For police officers and firefighters who have retired since 2007, the average pension is $95,336, making them among the most generously compensated in the state.”

Yup, it’s all about that last number. One retired police officer in the city “receives an annual pension of $106,000, plus a 3% increase every year. He was owed $91,000 for unused vacation and sick time when he retired in August, according to city records.”

So on Tuesday, San Jose voters approved a measure granting the mayor power to reform the pension system by an overwhelming margin.

“Twice last week, The New York Times published insider accounts of Obama-administration decisions. One involved ‘kill lists’ of terrorists targeted by drones. The other described cyberwarfare attacks against Iran.

“The articles revealed details of top-level meetings and quoted the president’s comments. They were so gushingly favorable to him that it’s clear they were based on authorized leaks by the White House designed to make Obama look tough against terror. Flattery was part of the bargain.

“So we learned the president insists on giving final approval to each target, a ‘grim debating society’ that tests his ‘principles.’ We learned he ‘is a student of writings on war by Augustine and Thomas Aquinas’ and follows the ‘just war theories of Christian philosophers.’ Adviser John Brennan, described as a ‘grizzled’ son of Irish immigrants, is compared ‘to a priest whose blessing has become indispensable’ to Obama.

“Naturally, campaign guru David Axelrod attends these ‘Terror Tuesday’ meetings. Not that politics is involved, of course.

“This is more than an unseemly spiking of the football. This is reckless politicking that reflects an ‘anything goes’ approach to November: Nothing is sacred except four more years….

“These authorized leaks go to the heart of integrity and presidential character. With the economy stuck in stall and with even leading Democrats bucking their attacks on Mitt Romney, Obama and Axelrod appear ready to abandon all principles in a frenetic quest for victory.

“It is shocking, and it is June. One can only imagine the outrages they will unleash in the coming months to preserve their hold on power.”

Republican Sen. John McCain from the Senate floor, June 5:

“Over the past few months, a disturbing stream of articles have come out. Common among them is that they cite leaked classified or highly-sensitive information in what appears to be a broader Administration effort to paint a portrait of President Obama as a strong leader on national security issues – information for which there is no legitimate reason whatsoever to believe should be out in the public domain. Indeed, its release only harms our national security and the men and women sworn to protect it.

“What price did the Administration apparently pay to proliferate such a presidential persona – highly-valued in an election-year? Access – access to senior administration officials who appear to have served as anonymous sources divulging extremely sensitive military and intelligence information and operations.

“With the leaks that these articles were based on, our enemies now know much more than they even did the day before they came out about important aspects of the Nation’s unconventional offensive capability and how we use them. Such disclosures can only undermine similar ongoing or future operations and, in this sense, compromise national security. For this reason, regardless of how politically useful these leaks may be to the President, they have to stop. The fact that this Administration would aggressively pursue leaks perpetrated by a 22-year-old Army private in the ‘Wikileaks’ matter and former CIA employees in other leaks cases but apparently sanctions leaks made by senior Administration officials for political purposes is simply unacceptable. It also calls for the need for a special counsel to investigate what happened here.” [Source: mccain.senate.gov]

Democratic Chairman of the Senate Armed Services Committee, Carl Levin, has agreed to hold a hearing on the leaks. On Wednesday, I saw Democratic Sen. Diane Feinstein on CNN and she was furious over the “avalanche of leaks…that puts American lives at risk, allies’ lives…people will stop helping the United States.”

CNN’s Wolf Blitzer tried to get Feinstein to admit that this happens all the time, but the senator responded, “Not like this.” Wolf then tried to pin her down if American lives had indeed been put at risk and did she know of specific times when this was the case. She said “Yes.”

In his press conference on Friday, President Obama was asked to respond to accusations his administration purposely leaked information about the terrorist “kill list” and cyberwarfare to make him look tough in an election year.

“The notion that my White House would purposely release classified national security information is offensive. It’s wrong. And people, I think, need to have a better sense of how I approach this office.”

Go back to Democratic Sen. Feinstein’s “avalanche of leaks” comment.

“It sure sounds like Bill Clinton is angling to get back on the ballot as a VP candidate – the surprise is that it looks like he wants to run with Mitt Romney.

“The former president came out Tuesday in support of an extension of the Bush tax cuts, which is abject heresy in the Democratic Party.

“He declared the economy to be in ‘recession’ and said extending tax cuts even for the wealthiest earners is vital to ‘find some way to avoid the fiscal cliff’ before the cuts expire at year’s end.

“This was no slip of the tongue: Clinton has spent days working the circuit as what amounts to a quasi-surrogate for Romney. Just last week, he hailed the Republican’s ‘sterling business career’ at Bain Capital, where Romney helped launch businesses like Staples and Sports Authority into the stratosphere.

“Clinton even defended Bain itself – getting behind the practice of private-equity investing, too. ‘I don’t think that we ought to get into the position where we say this is bad work. This is good work,’ he told CNN.

“Yes, Bubba was batting for Bam in the city Monday night, headlining three big-bucks fund-raisers. But it’s obvious that his heart isn’t in it. If Clinton is interested in switching teams, he should go ahead.”

--New Jersey voters selected Republican State Sen. Joe Kyrillos in our Tuesday primary to go up against Democratic incumbent Sen. Bob Menendez in what will be a closely watched race.

I went to vote because my Republican congressman, Leonard Lance, was facing a primary challenge from a guy, David Larsen, who in one of his robo calls wished me a “Happy Mother’s Day.” To which I fired off a nasty e-mail to his campaign. Lance romped.

But I was particularly upset when I went to vote and there was no bake sale! Geezuz. I went early to grab all the snickerdoodles, assuming someone would have made them. I learned later in the day that a friend in a neighboring town said there was no bake sale at his polling place either. What a spoiled, lazy ass country.

--As a piece in The Economist points out, the weighted unemployment rate in 13 states they describe as toss-ups (including Wisconsin) is 7.7% vs. the national rate of 8.2%. So the issue is, can President Obama exploit this?

“To the extent that local conditions do make a difference, it would be a stretch to assign either credit or blame to Mr. Obama’s policies. The auto bailout had a huge impact in Michigan, and may explain why it is solidly in Mr. Obama’s camp despite Mr. Romney’s personal connections to the state where he was born. But for the rest, the recovery in manufacturing and housing in swing states owes more to the rhythms of the business cycle and global conditions, or to broad-based federal stimulus and easy monetary policy. Moreover, if Mr. Obama tried to take credit for good news in swing states such as Ohio, Virginia and Florida, he will have to share it with incumbent Republican governors equally intent on reaping the political benefit.”

--Barack Obama has made 20 trips to New York City since he was sworn in, holding 40 fundraisers. 

--In a study by the Pew Research Center, tracking American values, we are becoming a far more polarized nation over the last 25 years. For example, Pew researchers “found that the percentage of both consistent liberals and consistent conservatives has risen. In 1987, fewer than one-in-three Americans fit into one of those two ideological categories; today 44% do.” But by overwhelming majorities in both parties, Americans also like compromise. [David Lauter / Los Angeles times]

--According to a recent Gallup poll, about 58% of veterans prefer Mitt Romney with 34% saying they favor President Obama, a huge gap given the margin when measuring registered voters overall. Male veterans overwhelmingly favor Romney, 60-32. Female veterans favor Obama, 47-42. Veterans make up about 13% of the voting population.

--In a survey from the Program for Public Consultation, Stimson Center and the Center for Public Integrity, 3/4s of those surveyed would cut defense spending beyond the additional $500 billion currently in the pipeline (sequestration). [Source: Defense News]

--According to Pentagon statistics obtained by the AP, “Suicides are surging among America’s troops, averaging nearly one a day this year…The 154 suicides for active-duty troops in the first 155 days of the year far outdistance the U.S. forces killed in action in Afghanistan – about 50% more .

--Misha Glenny / Financial Times…on the dangers from cyberwarfare, such as from the new/old Flame computer virus that was discovered by a Russian antivirus expert, Eugene Kaspersky, though Flame “has been going about its business for several years without anybody having noticed it.” Kaspersky “appealed to the U.S. and Israel to cease deploying cyberweapons. They ‘are a very bad idea,’ he said. ‘My message is: stop doing this before it’s too late.’”

This week the New York Times reported the U.S. was behind the development and deployment of Flame’s notorious predecessor, Stuxnet, which targeted Natanz, Iran’s uranium enrichment facility. [One of the disputed leaks referred to above.]

“The U.S. had previously denied any involvement in Stuxnet. Last week’s revelation appears to be an attempt by the White House to reject allegations by Mitt Romney, Barack Obama’s rival in the presidential race, that the president is soft on Iran. It also strengthens the impression that the White House is getting closer to Israel, another plus for Mr. Obama’s campaign.

“However, these short-term benefits will be obscured by the long-term adverse consequences of the cavalier deployment of advanced cyberweaponry.

“Given the relentless attacks that rain down on the networked systems of large institutions, it is of course essential for states to manage a defensive wall against intrusion, be it politically or criminally motivated. Our dependency on the Internet is such that a major disruption to the web could inflict immense damage on the economy.

“Washington’s doctrine for cyberspace emphasizes the need to protect its systems….

“But sending Stuxnet out into the wild goes well beyond this. There are no agreements regulating the use of malware for military purposes. America has frequently appealed to Russia and China to cooperate in stemming the spread of malfeasance on the web. So its decision to use malware itself will not win friends. Other countries will infer that to ensure their security, they will have to ramp up their cybercapability.

 “The pre-emptive act against Iran sets an ugly precedent. Countries that feel threatened or have a grievance will be tempted to develop and use disruptive cybertechnology. There is no legal framework restraining intelligence agencies or the military from investing in and then testing these weapons.

“The implications are grave. Regardless of its original purpose or target, malware does not usually discriminate. Somehow Stuxnet escaped Natanz, whose computers are not connected to the Internet, and infected 50,000 machines around the world. Once circulating so widely, viruses attract the interests of hacking groups, cybercriminals and intelligence agencies, who can copy and adapt them for their own ends.”

--Further comments from the aforementioned Eugene Kaspersky, the founder of Europe’s largest antivirus company.

“Cyberweapons are the most dangerous innovation of this century,” he told a gathering of technology company executives in Sydney, Australia last month. ‘While the United States and Israel are using the weapons to slow the nuclear bomb-making abilities of Iran, they could also be used to disrupt power grids and financial systems or even wreak havoc with military defenses.’” 

But the Russian Kaspersky hasn’t been as forthcoming with native viruses perpetrated in his own backyard as he was with Flame. You see, last year his 19-year-old son was kidnapped by criminals demanding a ransom. [Andrew E. Kramer and Nicole Perlroth / New York Times]

--A Massachusetts teenager was sentenced to one year in jail for a fatal traffic accident that occurred while he was texting. Good. [More than half of high school seniors admitted in a government survey they have texted while driving.]

--Television icon Barbara Walters was forced to apologize after it became known that following her exclusive interview with Syrian President Assad, Walters tried to get his young press aide, a rather attractive young woman, a job at CNN and a spot at Columbia University. Sheherzad Jaafari had helped arrange Walters’ big ‘get’ and she in turn called Jaafari “dear girl” in her e-mails. Jaafari is the daughter of the Syrian ambassador to the UN.

For his part, Assad was humiliated by Walters’ questions on the violence in the country and had Jaafari fired.

--Steven Spielberg said of the death of science fiction novelist and futurist/visionary Ray Bradbury at the age of 91:

“He was my muse for the better part of my sci-fi career. He lives on through his legion of fans. In the world of science fiction and fantasy and imagination he is immortal.”

Bradbury’s best-known work, ‘Fahrenheit 451,’ remains a staple of high school curricula nearly 60 years after it was written. Back in a 2010 interview with the Los Angeles Times, the highly political Bradbury said “I think our country is in need of a revolution. There is too much government today. We’ve got to remember the government should be by the people, of the people, and for the people.”

Ray Bradbury also called Ronald Reagan “our greatest president” while once calling former President Bill Clinton “a sh—head” in an interview with Salon.

And on President Obama, Bradbury was quoted in the Los Angeles Times as saying: “He should be announcing that we should go back to the moon…We should never have left there. We should go to the moon and prepare a base to fire a rocket off to Mars and then go to Mars and colonize Mars. Then when we do that, we will live forever.” [U.S. News & World Report Weekly]

--The first Hospital Safety Score has been published. This measures items such as preventing infection and falls.  Some 2,652 institutions across the country were graded, so you might want to check the marks for hospitals in your area. The large one in my town only got a ‘B,’ though the national numbers showed 53% at A or B. 

--Picture Junior Guy of Orlando, Florida. He bought his first mobile phone at the age of 49 and immediately started getting a flood of abusive calls. On the second day he figured out the problem.

The phone company had given him the number previously used by George Zimmerman of Trayvon Martin fame. The number…407-435-2400…was the one Zimmerman spelled out to police in a recorded call the night he killed Trayvon. Guy estimates he received 70 threatening calls.

--According to an article just published in the journal Nature, without policy and behavioral changes the planet’s environment may be nearing an ecological tipping point that threatens biodiversity, food production and water supplies. Professor Anthony Barnosky of Cal-Berkeley says we are consuming resources at an unsustainable pace; like 2.25 acres of resources per capita and with Earth’s population projected to reach nine billion by 2045, half of all land may be in use by 2025, which includes uninhabitable regions such as Antarctica and Greenland.

--Finally, a Washington Post editorial pointed out that June 8, 1982, marked the 30th anniversary of one of the greatest speeches of Ronald Reagan’s presidency, an address to the British Parliament.

“At a time when the Soviet Union seemed to be a permanent, if foreboding, presence in the world, Reagan predicted that ‘the march of freedom and democracy’ would ‘leave Marxism-Leninism on the ash heap of history as it has left other tyrannies which stifle the freedom and muzzle the self-expression of the people.’

“The ‘ash heap of history’ was language Mr. Reagan personally wrote into the address, according to Robert C. Rowland and John M. Jones, who wrote a book about the making of the speech, ‘Reagan at Westminster: Foreshadowing the End of the Cold War.’ The words reflected Mr. Reagan’s notion, not universally accepted at the time, that the West should not just criticize or contain Soviet behavior but also challenge the basic legitimacy of the Soviet system.”

The Post concludes today, as recent events in China, Russia and the Arab world vividly demonstrate, “democracy remains a universal aspiration – but also that the forces of repression have powerful means to resist the tide….Words, too, are important. Reading the Westminster speech is a good reminder of their power to inspire action, and change history.”

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

Gold closed at $1595
Oil, $84.32

Returns for the week 6/4-6/8

Dow Jones +3.6% [12554]
S&P 500 +3.7% [1325]
S&P MidCap +3.3%
Russell 2000 +4.3%
Nasdaq +4.0% [2858]

Returns for the period 1/1/12-6/8/12

Dow Jones +2.8%
S&P 500 +5.4%
S&P MidCap +5.3%
Russell 2000 +3.8%
Nasdaq +9.7%

Bulls 34.0
Bears 26.6   [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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