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06/30/2012

For the week 6/25-6/29

[Posted 12:00 a.m. ET from Halsey, Oregon]

Note: I’ve tried my best to keep up this week with some rather tumultuous events, though understand communication hasn’t always been the best from where I’m based and I’ve also spent long stretches either at the U.S. Olympic Track and Field Trials in Eugene or on lengthy drives heading elsewhere in the state. I’ll fill in the blanks next time.

The European Debt Crisis

I have been appropriately negative throughout the over two years of the eurozone crisis and even when there has been a little positive shuffling of chairs at one of the many EU summits I haven’t changed my tune one bit. This past Thursday and Friday we saw another bout of optimism resulting from the latest attempt at summitry and the Euro stock markets responded with their best gain in seven months on Friday, while other markets around the world responded in kind. Nonetheless, I’m still negative.

But what would turn me positive? If you tell me the Europe is suddenly about to embark on a growth spurt of 3% or so throughout much of the region. That, in turn, would indeed change sentiment in a big way and despite the still-massive levels of debt that you’d have, I’d become a bull, at least in the short- to medium-term.

But that’s not happening, guys, despite talk of the new growth package of about $150 billion and injections of cash into sick banks.

Last Sunday, the Bank for International Settlements, which acts as a clearinghouse for central banks such as the Federal Reserve and the European Central Bank, a place where they can play cards, drink and bitch about the politicians they have to deal with, issued a statement.

“Central banks are being cornered into prolonging monetary stimulus, as governments drag their feet and adjustment is delayed. It would be a mistake to think that central bankers can use their balance sheets to solve every economic and financial problem.”

Stephen Cecchetti, the organization’s chief economist, told reporters on a conference call that the first thing that is needed when it comes to the eurozone crisis is to lay the groundwork for a banking union.

“The first step has to be the banks. If you can make sure the banks are solid, then the banks are not putting weights on the sovereigns and the banks are able to support real economic activity.” [Jack Ewing / New York Times]

But as I’ve been writing, the first thing you need is a deposit guarantee fund a la our FDIC to prevent bank runs. And while what we saw at week’s end with the ‘proposal’ of the EU-17 was a way to stabilize Italy’s and Spain’s banks, the 17 are still no closer to the deposit guarantee system that must be step one. Of course you can’t have the FDIC-like body before you have a single banking supervisor and in the press releases I saw from the summit partners at week’s end, yes, the EU-17 seemed to open a way to recapitalize the banks directly with bailout funds but they need the banking supervisor and as German Chancellor Angela Merkel said all week, this will take time. Again, we aren’t talking the United States of America where the government can create with the stroke of a pen, essentially, something of the sort and tell the 50 states that if they have a problem, go play in traffic. Instead you have to get 17 nations, 17 political systems, to agree.

So this week, again as ‘proposed,’ the euro governments, read Italy and Spain, were granted access to rescue loans without relinquishing control of their economies, no loss of sovereignty, it seems, which was a concession by Angela Merkel, but not until there is a central supervisor and that won’t be in place until year end!

What was a positive, though, is that the costs of bank bailouts are removed from the sovereign balance sheets. A statement at the close of the summit said in part:

“We affirm that it is imperative to break the vicious circle between banks and sovereigns.”

This is very good, but no actual funds were injected and it may yet take some time before this occurs. Maybe I will be proved wrong as the Europeans keep kicking the crisis down the road, until into 2013 and beyond, that the markets won’t give the players that much time.

But before we get to the topic of the rescue funds and Spain and Italy’s tapping of same per the latest agreement, I liked how Simon Nixon framed the debate in the Journal’s “Heard on the Street” column the other day, pre-summit.

“One test of whether proposals for European banking, fiscal and political union circulated ahead of Thursday’s summit will calm the crisis is to ask a simple question: Do the proposals make it more likely that France raises its retirement age to 67? It was only recently reduced to 60 for some workers.

“Put another way, will the proposals make it more likely that struggling Italian companies can lay off underperforming workers without the say-so of a judge? Or, to labor the point, will they make it more likely Spain shuts down the branches of failed banks rather than keeping them afloat?

“Sadly, there is little in the flimsy seven-page document put together by the presidents of the European Council, European Commission, European Central Bank and Eurogroup to suggest the answer to any of these questions is ‘yes.’

“The road map to a banking union has been well-flagged. The proposals for tighter control of national budgets build on already existing arrangements. But the section on how to ensure national governments pursue policies that lead to strong and sustainable growth and employment is threadbare. It contains nothing more than platitudes about the need for ‘measures to strengthen the political and administrative capacity of national institutions.’….

“It isn’t enough for countries to stabilize debts if structural rigidities and long-term pension and health-care commitments make it impossible for them to expand and cut their overall debt burden. So long as Italy is unable to expand faster than its 20-year average of around 1% per annum, it will remain a sword of Damocles over the eurozone economy.”

Speaking of Italy, fake Prime Minister Monti continues to water down his labor reform law under pressure as, of all people, former Prime Minister Berlusconi is now offering his advice, not always in a polite fashion. I mean this guy should be in jail. But he’s still around and some folks actually listen to him. Heck, Berlusconi is talking of early elections. Monti is supposed to remain on until May 2013.

So back to the latest agreement to recapitalize the banks of Spain and Italy, a big sticking point was that the governments were going to receive preferred creditor status, which would have severely jeopardized any private sector participation in the debt markets without rates going sky high. That’s now not going to be the case. So that’s helpful.

But let’s talk about the funding…which I’ve only done about 55 times previously.

Nothing has changed in terms of the amounts available. There still aren’t anywhere near ample funds under the existing European Financial Stability Facility or coming European Stability Mechanism; the latter soon-to-be the permanent rescue fund vehicle.

Bloomberg estimates that Italy and Spain have a combined 2.4 trillion euro in debt, and the ESM is only slated to be 500 billion euro in size, with Spain’s previously announced 100 billion euro bank bailout taking the pool down to 400 billion, plus, Cyprus, bailout nation number five as of this week, is going to grab another 10 billion. [Don’t worry, I’ll talk about the dangers of Greece, but I promise to never talk about the dangers of Cyprus. Just understand Cyprus’ problems are directly tied to Greece and the financial relationships between the two.]

So you have 390 billion euro left of the still to be established ESM (notice how during this whole crisis everything is in theory and seldom in fact?), but you do still have about 250 euro in unspent funds from the EFSF, which was for the bailouts of Greece, Ireland and Portugal.

I think a better example of the funding issue is supplied by Gavyn Davies of the Financial Times, who notes that you should focus on the amount of debt Spain and Italy have maturing in the next three years; both budget and sovereign.

Davies comes up with 1.56 trillion between the two, thru 2014, vs. 400 billion? You can’t really say 400 + 250…the other countries will still require more of that latter pool, especially Greece.

Which leaves what? The ECB could issue more LTROs, those longer-term refinancing operations at 1% interest rates that encouraged the banks to load up further on sovereign debt. That’s not a great solution, as we’ve already seen, especially in the case of Spain. Or you lever up the ESM, but the Germans have already said that is a major no-go. The continent doesn’t need more debt, it needs growth.

As for German Chancellor Merkel, specifically, she is seeing her own economy, the rock of the eurozone, stumble with unemployment climbing a third straight month and business and consumer sentiment sliding.

All week Merkel continued to say that the concept of pooled debt, Eurobonds, as well as a European deposit insurance scheme with joint liability, were “economically wrong and counterproductive,” saying they run against the German constitution.

“It’s not a bold prediction to say that in Brussels, most eyes – all eyes – will be on Germany yet again…I’m concerned that (the) discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures…Liability and control must be in balance.”

But in the end Merkel did allow the ESM to help the banks directly without loading up sovereign balance sheets further and for one day, the yield on Spain’s 10-year bond fell to 6.30% from the 7.00% level, which it had reached earlier in the week, again, while Italy’s fell to 5.80%.  It was indeed a form of debt mutualization of the kind Merkel said she would never accept, and she had to convince her parliament that money injected directly into Spanish banks would not expose the German taxpayer, plus Germany is to be the monitor of any new arrangement, though needless to say the details have yet to be released.

And it needs to be added that Prime Minister Monti did evidently win a concession that the ESM could buy Italian sovereign debt; at least the markets reacted as if this would be the case.

Meanwhile, remember Greece? That strange looking configuration that peaked over 2,000 years ago? They formed a new coalition government, you’ll recall, but then the new prime minister couldn’t make the EU summit because of eye surgery and the just named finance minister had to quit because of his own health issues. How fitting.

Washington, the Supreme Court and Wall Street

Back on 3/31/12 in this space, I wrote the following after oral arguments in the Supreme Court on the Affordable Care Act (ObamaCare).

“…many believe it will once again come down to Justice Anthony Kennedy as the swing vote, though I’m betting Chief Justice John Roberts could surprise going the other way.”

And I didn’t change that stance in the succeeding months.

With Justice Roberts indeed being the swing vote, shocking many, the United States Supreme Court ruled that the individual mandate portion of the Affordable Care Act, which compels every American to buy health insurance, was not valid under the Commerce Clause of the Constitution. 

But the justices also ruled that the financial penalty outlined in the law against people who did not buy insurance was allowed. So as written the mandate was unconstitutional but implementation could proceed because it can be enforced as a tax, which is absurd logic. 26 states had argued that if government could impel citizens to buy insurance, then where would it stop? Forcing people to buy broccoli, for example, was often cited as the direction we were headed (and is so referenced in the decision), or to buy a domestic car.

For the majority, Justice Roberts wrote:

“The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.”

The four justices in opposition, Scalia, Thomas, Alito and Kennedy, wrote:

“(To) say that the individual mandate merely imposes a tax is not to interpret the statute but to rewrite it. Judicial tax-writing is particularly troubling. Taxes have never been popular…and in part for that reason the Constitution requires tax increases to originate in the House of Representatives.”

However, the court’s decision also significantly restricts one major portion of the law: expansion of Medicaid, giving states some flexibility not to expand their own programs without paying financial penalties that the law calls for. On this issue the court voted 7-2, ruling that come 2014, the states don’t have to give in to Medicaid being greatly expanded at the risk of losing existing funding. Should the states thus decide they don’t want to accept the increased funding because it could result in increasing taxes and/or further cuts to public spending and education, they can opt to do so. The expansion, though, is meant to cover the uninsured so by not accepting the funding, fewer will be insured than ObamaCare planned on…potentially far fewer.

But this isn’t a cut and dry issue and the states have at least until early 2013 to decide what to do come 2014 (depending on their respective election cycles, of course).

The bottom line for Republican presidential candidate Mitt Romney is that for him to fulfill his campaign promise that he’d repeal ObamaCare, he needs to achieve a whopping majority in the Senate (60 votes), plus retain a big majority in the House, and the odds of both occurring, let alone his own election, are virtually nil. [I see some Republicans are already talking about the process of “reconciliation.” I will not get into that until after the election. To do so beforehand is freakin’ stupid.]

Nonetheless, Romney issued a solid statement on Thursday following the decision, saying the Court did not say ObamaCare is good law, or good policy; then getting into the litany of Republican reasons just why it is bad law…it raises taxes, cuts Medicare, add $trillions to the debt, it’s a job killer, and puts the federal government between you and your doctor.

Romney added that of course there are provisions that are good and that he would retain; such as people must be able to keep their current insurance and no one should lose coverage because of pre-existing conditions.

Senate Minority Leader Mitch McConnell said:

“This bill was sold to the American people on a deception…and made problems it was meant to solve even worse.”

So while the choice in November, as stated by Romney, is between larger, more intrusive government or whether you want to return to the time where consumers have the choice, I still don’t see the Republicans getting the majorities they need to make a difference. Nonetheless, some can take hope from the following, perhaps, the third part of the ruling, this one 5-4 with Roberts joining his conservative brethren as alluded to above.

George Will / Washington Post

“Conservatives won a substantial victory on Thursday. The physics of American politics – actions provoking reactions – continues to move the crucial debate, about the nature of the American regime, toward conservatism. Chief Justice John Roberts has served this cause.

“The health care legislation’s expansion of the federal government’s purview has improved our civic health by rekindling interest in what this expansion threatens – the Framers’ design for limited government.

“Conservatives distraught about the survival of the individual mandate are missing the considerable consolation prize they won when the Supreme Court rejected a constitutional rationale for the mandate – Congress’ rationale – that was pregnant with rampant statism.

“The case challenged the court to fashion a judicially administrable principle that limits Congress’ power to act on the mere pretense of regulating interstate commerce. At least Roberts got the court to embrace emphatic language rejecting the Commerce Clause rationale for penalizing the inactivity of not buying insurance:

“ ‘The power to regulate commerce presupposes the existence of commercial activity to be regulated….The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce.

“ ‘Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority…Allowing Congress to justify federal regulation by pointing to the effect of inaction on commerce would bring countless decisions an individual could potentially make within the scope of federal regulation, and, under the government’s theory, empower Congress to make those decisions for him.’

“If the mandate had been upheld under the Commerce Clause, the court would have decisively construed this clause so permissively as to give Congress an essentially unlimited police power – the power to mandate, proscribe and regulate behavior for whatever Congress deems a public benefit. Instead, the court rejected the Obama administration’s Commerce Clause doctrine. The court remains clearly committed to this previous holding: ‘Under our written Constitution…the limitation of congressional authority is not solely a matter of legislative grace.’

“The court held that the mandate is constitutional only because Congress could have identified its enforcement penalty as a tax. The court thereby guaranteed that the argument ignited by the mandate will continue as the principal fault line in our policy….

“By persuading the court to reject a Commerce Clause rationale for a president’s signature act, the conservative legal insurgency against ObamaCare has won a huge victory for the long haul….

“Any democracy, even one with a written and revered constitution, ultimately rests on public opinion, which is shiftable sand. Conservatives understand the patience requisite for the politics of democracy – the politics of persuasion.

“Elections matter most; only they can end ObamaCare. But in Roberts’ decision, conservatives can see the court has been persuaded to think more as they do about the constitutional language that has most enabled the promiscuous expansion of government.”

---

Regardless of the court’s rulings this week, the election is still going to be mostly about the economy (though I argue there is still time for foreign policy to enter the picture, i.e., Iran, a war that spreads beyond Syria, or North Korean intransigence). This coming week sees another crucial employment report, the jobs data for June, as the weekly figures on jobless claims continue to point to trouble on this front for the White House, and American jobseekers. 

The numbers on housing this week, however, were decent, with new home sales coming in better than expected, while pending home sales are at a two-year high. The S&P/Case-Shiller price data for April also showed a third consecutive month with an increase in the average price for their 20-city index, owing in no small part to a surge in some of the worst-hit areas, Arizona and Florida.

I said awhile back the housing market in the U.S. had bottomed, but that doesn’t mean prices will return to pre-bubble levels for years. I’d also caution that the still ongoing European debt crisis, despite Friday’s spectacular rally, could once again rear its ugly head and impact confidence, and housing, here in the U.S.

The figures on May durable goods were stronger than expected, but two gauges of consumer confidence, the Conference Board’s and the Univ. of Michigan’s, were at or near the worst levels of the year, while the May reading on consumer spending was unchanged, the worst performance for that gauge since November.

At least we’re getting a break on oil prices (though they were up big Friday on the optimism out of Europe) as the price at the pump has been steadily decreasing. The problem is that until the seeming better tone in Europe, oil was declining for all the wrong reasons; the Euro debt crisis and slowdowns in both China and the U.S.

Robert Samuelson / Washington Post…on the broad issues the global economy faces.

“Everything feeds on everything else. There is no longer a large source of strong economic growth in the world to stimulate and support struggling economies. Not surprisingly, the latest World Bank forecast has the global economy growing only 2.5 percent in 2012, down from 4.1 percent in 2010.

“Time may cure some of these problems. After all, economies move in cycles. In the United States, debts may be paid down. Housing prices may stabilize. Businesses may develop new products that spur investment. Elsewhere, pent-up demand may provide relief.

“But the fact that what’s happening in so many places is an assault on long-held expectations and practices – economic and social models – suggests that finding a path forward could be time-consuming, tortuous and, possibly, inconclusive. If so, stalemate becomes an independent source of frustration and fear.”

Street Bytes

--It would have been a down week, and a far worse quarter, had it not been for Friday’s euro-inspired huge rally that saw the Dow Jones soar 277 points (2.2%), while the S&P 500 rocketed 2.5% and Nasdaq 3.0%. As it was on the week the Dow gained 1.9% to 12880, with the S&P adding 2.0% and Nasdaq 1.5%.

It ended up being the best June for the S&P since 1999, up 4.0%.

I’ll have the quarter-end numbers next time because as I go to post I see all kinds of figures and want to get it right.

Meanwhile, in about ten days we’ll start to see the rush of second-quarter earnings and they promise to be all over the board owing to the impact of Europe and the slowdown in Asia.

--U.S. Treasury Yields

6-mo. 0.15% 2-yr. 0.30% 10-yr. 1.64% 30-yr. 2.75%

Despite the volatility, yields were largely unchanged on the week. Next week could be a different story if the Euro-led rally continues.

Separately, the final revision for first quarter GDP came in unchanged at 1.9% after a 3.0% rise in the fourth quarter.

--As noted in a report by Keith Bradsher of the New York Times, how much worse is China’s slowdown than the government is letting on? Many point to declining and/or falsified electricity production numbers vs. mammoth coal stockpiles. It’s probably safe to say GDP is at least one percentage point less than Beijing is letting on. [On the other hand, in good times the government understates growth so as to smooth out perceived volatility.]

--Retail sales for the month of May in Japan rose a solid 3.6% from a year earlier, better than expected. But then industrial production for the month declined 3.1% from April’s pace and the consumer price index for May fell 0.1%, bringing back that old bugaboo for Japan, deflation.

--Bloomberg News had a detailed piece on Chinese leader-in-waiting Xi Jinping and the fortune he and his family have amassed over the years owing to insider deals in various businesses; the kind of story the Chinese government does not want out there so they blocked the Bloomberg website for a spell.

--Shares in hospital stocks rose in the wake of the Supreme Court’s ruling on ObamaCare as it will reduce the cost of treating uninsured patients, while the newly insured will seek more nonemergency treatments. Medical device makers, however, will start paying a 2.3% tax on the sales of items such as pacemakers. I’d say the jury is still out on the insurers, who get millions of new customers, but will also now pay large annual fees.

--The New York Times reported that the trading loss from the credit derivatives debacle at JPMorgan Chase could grow to as much as $9 billion from the $2 to $4 billion originally estimated by CEO Jamie Dimon when he first released details of the trade gone wrong in May. JPMorgan is unwinding their positions faster than expected and hedge funds and other traders are taking advantage of the situation, knowing what JPM is trying to get out of, thus exacerbating the losses. As one expert put it in the Times, more and more it’s as if JPM was operating a hedge fund with federally insured positions within a bank.

[Separately, former Chief Investment Officer Ina Drew is receiving $21.5 million in cash and prizes (specifically restricted stock and options), while her total deferred pay and pension package is in the area of $57.5 million. But before you go torching the Drew estate, just understand she did work there 30 years and held senior positions much of that time, plus as of what we know now, it doesn’t appear she could be fired with cause, which would have allowed for clawbacks.] 

--Barclays Bank was fined $450 million by British regulators for manipulating the Libor rate at which banks lend to each other during the period 2005-09. Others under investigation are said to be HSBC, RBC (with a rumored $220 million fine in the pipeline), Citigroup and UBS. The U.S. is conducting its own investigation.

Current Barclays CEO Bob Diamond was in charge of the unit where the shenanigans took place and British Prime Minister David Cameron is among those calling for his resignation. Diamond said he is not stepping down; that the wrongdoing was on the part of traders and low-level supervisors, with top execs like Diamond not knowing the manipulation was taking place.

But Friday night, the Financial Times ran a story that Barclays compliance department failed to act on three separate internal warnings between 2007 and 2008 about conflicts of interest and “patently false” submissions by its staff.

Yet another reason to hate the big banks. And to Phil Mickelson, I’d abandon my friendship with Bob Diamond if I were you. Won’t be good for the ol’ image, if you catch my drift.

--Nasdaq CEO Robert Greifeld said “arrogance” and “overconfidence” among Nasdaq staffers contributed to the Facebook IPO debacle. Coincidentally, this week saw the end to the post-IPO “quiet period” and analysts whose firms were involved in the offering are now allowed to issue research reports and ratings. Of 36 firms that have initiated coverage of Facebook, 18 labeled it a ‘buy,’ 15 a ‘hold’ and 3 a ‘sell.’ The average one-year price target is $37.75, or right at the $38 IPO level. Shares in Facebook closed the week at $31. 

--Shares in BlackBerry maker Research in Motion hit a new low of $7.35 (they were at $33 last September) after the Canadian company said revenues fell 43% in its fiscal first quarter and it had a far larger loss than expected. Additionally, the company announced it was laying off 5,000 and delaying its new product launch until the first quarter of next year. 

Earlier, a Morgan Stanley analyst helped precipitate the selling prior to the earnings news when he offered: “We believe the only way RIM remains a viable entity is at a fraction of its current size, a transformation that erases much of its earnings power. The next 9 months will likely see rapidly deteriorating fundaments on the one hand offset by stories of potential strategic options on the other.”

--Google is introducing a small tablet computer in direct competition to Amazon’s Kindle Fire. The Nexus 7 is designed specifically for Google Play, the online store that sells music, movies, books and apps. Google’s move comes one week after Microsoft announced it was introducing a competitor to Apple’s iPad.

--Microsoft is also buying Internet startup Yammer for $1.2 billion; this outfit specializing in creating private social networks so employees within the same company can keep tabs on what colleagues are working on, similar to what Facebook allows friends and families to do. Last year, in its ongoing attempt to remain relevant, Microsoft paid $8.5 billion for Skype.

--Stockton, California became the largest U.S. city since Cleveland in 1979 to seek bankruptcy protection, it facing a $26 million budget shortfall with $100s of millions in debt.

--Shares in Ford Motor dropped as the automaker warned second quarter results will come in less than expected owing to significant losses (a projected $570 million) in its Asian, South American and European operations.

--The Wall Street Journal ran a story on how the U.S. will wean itself off Middle East oil by 2035, and halve its reliance by the end of the decade. It’s a tale of declining demand and rapid growth of new sources in the Western Hemisphere. By 2020, 82% will come from this side of the Atlantic.

But remember, our good fortune has little if any direct impact on the global price and, worrisomely in this regard, worldwide production is not ramping up as it is here.

--Our heart goes out to the people of Colorado Springs, among many suffering communities in the West these days, who have lost their homes in the Waldo Canyon blaze. I’ve been there many times and love it.

But while the timing of these disasters is never good, it couldn’t be worse occurring in the middle of prime tourist season, so imagine the economic consequences for all the businesses relying on the trade.

--The Labor Department reported that unemployment rates rose in 255 of the 372 largest metropolitan areas in May, fell in 87 and were unchanged in 30. That’s worse than April when rates fell in 356 areas. Rather telling given the recent employment data and the continuing high weekly jobless claims numbers.

--The U.S. Postal Service received permission to proceed with the closure of 230 plants by 2014, cutting 5% of its workforce.

--A big story in Eugene this week was the announcement the next Lane County budget, $482.2 million, would be $98.9 million less than the current level, which will not only result in the dismissal of 188 employees, but also the release of 96 prisoners, the latter being completed by week’s end, 32 at a time. I watched the releases on the local news and picture that some of these characters are violent offenders (three were involved in homicides…as well as various assault cases), and from the looks of the now ex-cons, I think I’ll go back to New Jersey on Monday.

--And in another example of budget woes, and outrageous spending, I went to the coastal town of Newport to spend Tuesday night and you go by way of scenic Route 20 over the mountains. I’ve taken this road a lot over the years and noticed a construction project in this one spot each time, and so it turns out the cost for reworking the five-mile stretch has soared from $126 million to $219 million, plus it should have been completed years ago, and is now slated for completion in maybe 2015. 

--Growers in Washington State left 10% of their crop in some products (like asparagus) in the fields this spring for the first time anyone can remember for a simple reason. Couldn’t find enough labor. Now the fear is the summer cherry harvest – predicted to be a record crop and the most labor intensive of all. They need 40,000 workers to strip off the cherries in a normally 10-day sprint. The president of the Washington State Fruit Commission and Northwest Cherry Growers said, “I think we are all terrified.” [Lynda Mapes / Seattle Times]

Well, of course it’s the story of not enough migrant workers these days, for various reasons, plus the locals don’t want to do the job. [There are a ton of homeless folks in the area I’m in now, total vagabonds, who should be working these fields by my way of thinking; let alone those on welfare.]

--I’ve been staying at this truck stop in Halsey and by the time I leave I will have had 9 dinners in the Pioneer Saloon, the only decent restaurant within a quick drive.

But while I’m tired of the place, I’ve enjoyed listening in on the truckers’ conversations. One night these two old-timers who were sharing a rig started talking about the labor situation in America; similar to what I’ve been noting in this column recently.

One guy goes, “Remember when we worked in Milwaukee and they had that technical school that pumped out tool & die workers like crazy? All of the students ended up at Deere or Allis-Chalmers. Now these positions are in huge demand but the kids they interview can’t even do the math!”

--Speaking of truckers, USA TODAY had a piece this week on the ongoing shortage of them. “Many unemployed construction and factory workers can’t afford the $4,000 to $6,000 cost of a six-week driver-training course,” said one consultant. The average salary for a long-haul trucker is up to $45,000 to $50,000. The crunch is going to get worse next year when stricter federal limits on the number of hours a driver can work take effect. Boy, have I heard some great stories on this aspect of the business. Or rather scary stories.

--In a blow for the New Jersey pharmaceutical industry, Roche, the Swiss giant, said it is closing its Nutley, N.J. site, resulting in about 1,000 job losses.

--The SEC filed a civil lawsuit against one-time top hedge-fund manager Philip Falcone, charging the 49-year-old with market manipulation, giving preferential treatment to several big investors (such as in being allowed to cash out their holdings while others could not) and borrowing cash from his fund to pay his personal expenses, including for the use of a private jet.

--Bernie Madoff’s kid brother, Peter, age 66, finally pleaded guilty to one count of conspiracy to commit securities fraud and one count of falsifying records in the Madoff scandal. He’ll receive a maximum of ten years in prison, far better than the 150+ years his older brother received.

--Coca-Cola announced it would be investing $5 billion in India in a bid to increase its market share, $3 billion more than previously announced.

--In a study by the Partnership for a New American Economy, a nonprofit co-founded by New York City Mayor Michael Bloomberg, nine out of ten patents at the University of Illinois system in 2011 had at least one foreign-born inventor. “Of those, 64 percent had a foreign inventor who was not yet a professor but rather a student, researcher or postdoctoral fellow, a group more likely to face immigration problems.”

The partnership seeks legislation making it easier for foreign-born innovators in the science, technology, engineering and math fields to stay in the U.S.

--Rupert Murdoch is spinning off his News Corp.’s newspaper business into a separate publicly traded entity, with a second company comprising News Corp.’s far more profitable entertainment division. Shareholders have long called for such a move and reacted favorably.

--Of course it’s all about Nike here at the Olympic Track and Field Trials and on Thursday after the close, Nike reported net income fell a far greater than projected 8 percent, $1.17 vs. an expected $1.37. Shares then plummeted $9 at the close on Friday, 10%, though were off more earlier in the day. Revenues for the sporting-goods giant were up 12% but even that was shy. It was the first time since 2009 the company failed to beat estimates. Nike blamed continued uncertainty over the global economy.

-- “Today’s” Ann Curry officially stepped down from her anchor position in a tearful farewell after just one year in the coveted seat opposite Matt Lauer. Some will argue, as she did, that she wasn’t given enough time to fix the “kinks” in this critically important show to NBC’s fortunes, a revenue juggernaut.

I just observe that it was a bad choice to have her replace Meredith Vieira in the first place; that Curry, for all her foreign correspondent chops (which is where she is returning for the network), tried way too hard and came off as sickeningly sweet. Meredith, and before her, Katie Couric, had the needed ‘edge,’ especially in dealing with Matt.

Savannah Guthrie, following a meteoric rise up the NBC ladder, is taking over. All seem to agree she is well-liked and a “team player.” Knock ‘em dead, Savannah.

--Good local news in Oregon country…the sockeye salmon population in the Columbia Basin is exploding, with thousands more crossing the river’s dams in a single day than the total numbers seen in some previous years.

“Since Bonneville Dam outside Portland was built in 1938, there have been plenty of times there weren’t 38,000 sockeye salmon swimming over the fish ladders in a whole year. But on Monday that many passed the Columbia River dam and another 41,000 swam over the dam on Wednesday – a rate of nearly 30 a minute.” [AP / The Register-Guard]

And these are wild fish bred in rivers, instead of nasty, crap-filled hatcheries, sports fans! Salmon lovers celebrate. Salmon Sunday is secure.

--According to the AP, there is a boom taking place in the restaurant industry in the niche known as “breastaurants,” or sports bars featuring scantily clad waitresses. I’ve never had a problem with this, quite frankly; but the food has to be good, too. Then again, now I’m wondering where they get their salmon.

--Switching gears, I did see where the Food and Drug Administration approved the first new prescription drug for long-term weight loss in 13 years, Arena Pharmaceutical’s anti-obesity pill Belviq. The pill doesn’t actually show more than modest weight loss in clinical studies, but it was deemed safe and thus the decision by the FDA to rush it out given all the calls by doctors for new weight-loss treatments.

The drug should be available in early 2013, while as you can imagine, shares in Arena rose sharply.

--Anheuser-Busch InBev completed its acquisition of Mexico’s Grupo Modelo, taking out the other 50% it didn’t own. Grupo Modelo is Mexico’s largest brewer and the maker of Corona. Personally, on the premium front I’ve been going more and more for InBev’s Stella Artois. But Grupo Modelo’s Pacifico is a fine choice as well.

Foreign Affairs

Egypt: The powerful electoral commission affirmed the original Muslim Brotherhood projection that their candidate, Mohammed Morsi, had defeated Ahmed Shafiq by a 51.7 to 48.3 margin in what was the first free election in the history of Egypt, seriously, going back some 5,000 years.

So going forward, just how much authority will the still ruling military council grant Morsi, and in turn, how will Morsi’s government treat women and the 10% of the population that calls themselves Christian? Morsi has vowed to support Islamic law, but to what extent? And how will Morsi, who vowed to make changes in the peace treaty with Israel, do so?

Morsi also declared after the result was announced that he would seek an end to corruption, restructure education, develop the private sector and restore “Egypt’s leading role in the region,” according to a statement by the political arm of the Muslim Brotherhood.

Iran’s Fars News Agency reported that Morsi told the organization he sought to expand ties with Iran, though Morsi denied he gave the Fars Agency an interview! It does seem Fars totally made it up.

Then you have Egypt’s administrative court, which said it would delay action on three issues related to the ‘coup attempt’ by the Supreme Council of the Armed Forces (Scaf).

For instance, the court delayed until July 7 a decision on the military council’s dissolution of the Muslim Brotherhood-dominated Parliament. It is delaying until July 10 a ruling on the validity of the council’s amendment of the constitution to severely restrict the powers of the president and give it the final say over a new constitution.

And for whatever reason, the court said it would delay until Sept. 1 Scaf’s dissolution of the constituent assembly that was to write the new constitution.

Lastly, facing an allegation he wasted public funds, Ahmed Shafiq has apparently fled to the U.A.E.

So the situation is confusing and we need time, at least weeks, if not months, to just begin to see how things may shake out. At least Egypt has been largely peaceful after the vote. Morsi is officially sworn in on Saturday, though he had a fiery, unofficial swearing in at Tahrir Square on Friday.

Editorial / Wall Street Journal

“One undesirable outcome going forward would be a military establishment that lets the Brotherhood slowly Islamicize the country in return for keeping power. The world can do without an Arab Pakistan.”

Turkey and Syria: Over 32,000 Syrian refugees now call Turkey home as the Ankara government also provides major support for dissident groups. So the shoot down of a Turkish fighter jet by Syrian forces, with the two pilots never being found, is a major issue and, for starters, Turkey began to reinforce the border, including moving in anti-aircraft batteries and rocket launchers.

Turkey claims the jet was on a mission to test out Turkey’s radar and that it might have strayed briefly over the border but, as U.K. Foreign Minister William Hague put it, Syria’s reaction was “outrageous.” [Turkey’s story, though, isn’t totally accurate, according to some reports.]

Meanwhile, the killing continues at an accelerated pace. 100 died last Friday, 100 Saturday…this as the number of Syrian military members defecting to the rebel cause grows. And in a symbolic blow to the Assad government, the central court complex in Damascus was bombed. Earlier Assad conceded “we are at war” as a state television station was attacked with at least seven killed (executed), including journalists.

Iran: A Russian specialist and adviser to Kremlin leadership familiar with the recent nuclear talks between the P5+1 and Iran in Moscow, Sergei Markov, said the probability was “quite high” for Israel to initiate an armed campaign against Iran either next month or in August.  [Global Security Newswire]

This week Russian President Putin and Israeli Prime Minister Netanyahu met briefly in Jerusalem, Putin being in town mainly to commemorate a memorial in the coastal city of Netanya honoring Soviet Red Army soldiers who died during World War II and their role in the victory over Nazi Germany.

Putin and Netanyahu discussed Syria and Iran though little was said after and there was zero reason to hope Russian policy towards both had changed.

But at a state dinner after, hosted by Israeli President Shimon Peres, Peres tweaked his guest:

“I am confident that Russia, which defeated fascism, will not allow today’s threats to continue. Not the Iranian threat. Not the bloodshed in Syria.”

Regarding the sanctions on Iran’s oil, the Obama administration spared China and Singapore from potential financial penalties, required under America’s law, saying both countries had earned an exemption by significantly reducing their purchases of Iranian crude. The EU ban on imports begins July 1.

Pakistan: The government elected a new prime minister, Raja Pervez Ashraf, but Chief Justice Chaudhry, the real power in the country these days, insisted Ashraf send the Swiss government a letter reopening the corruption probe into President Zardari that former Prime Minister Gilani had refused to do.

The Army doesn’t want to get involved at this time, but I have argued (and predicted) a coup this year is inevitable. I’ve seen no reason to change my opinion.

Afghanistan: Insurgent attacks were up 21% in May over May 2011’s pace.

South Korea and Japan: The two were toput aside past suspicions (and history) in order to sign a military pact to share sensitive data on North Korea’s nuclear and missile programs, as well as China’s growing military threat, but then the day the treaty was to be signed, Friday, South Korea suddenly balked as the opposition party there told the government it was moving too fast. Japan was taken aback, to say the least.

Separately, the North renewed its threat to bolster its nuclear force as the U.S. and South Korea carried out large joint military exercises. The North may step up its threats the next few months, thinking this is the only way they can get the U.S. and others to pony up desperately needed food aid, with the Korean peninsula in the midst of its worst drought in a century. It is so bad, and pathetic, that North Korean soldiers are pouring buckets of water on parched fields.

Mexico: In an awful situation at Mexico City’s international airport, normally a quiet place, three federal police officers were killed when they confronted suspected drug dealers also wearing police uniforms. The airport is known to be a major transit point for drugs and the victims were part of an ongoing investigation into smuggling there.

But the presidential election is Sunday and Enrique Pena Nieto of the P.R.I. (Institutional Revolutionary Party), which was ousted from the presidency after decades in power back in 2001, is expected to prevail. The P.R.I. has long had ties to the cartels and has been suspected of buying them off for peace. President Felipe Calderon, on the other hand, spent his six years in office seeking to dismantle the cartels, which has obviously failed.

Honduras: In a sign of growing U.S. involvement in counternarcotics operations in the region, a Drug Enforcement Administration agent shot a man to death in Honduras during a raid on a smuggling operation, with the agent apparently firing in self-defense. D.E.A. agents have heretofore been heavily involved in surveillance efforts of suspected smuggling operations, but this is the first in which an American agent, rather than a Honduran official, has killed a suspect.

[Just musing, but who the heck would want this job? Honduras? Really?]

Nigeria: The government said both the state and oil companies are losing over $1 billion a month to theft by criminal networks that have expanded rapidly since President Goodluck Jonathan took office. [Financial Times]

Paraguay: A bizarre development here I failed to comment on last time as with light speed (a 5-hour trial), though under the rules of the constitution, Paraguay’s legislature impeached President Lugo and appointed his vice president in his stead following allegations of mismanagement in a botched effort to remove squatters from a private farm that resulted in 17 deaths.

The vote in the Senate was 39-4, and in the House 73-1.

But Lugo had just nine months left in his term and as both he and his democratic neighbors (specifically Argentina, Brazil and Uruguay) asserted, Paraguay’s democracy “has been deeply wounded.”

Argentina: The U.K. is concerned Argentina will launch a 1968 Mexico City Olympics “black power” type protest with their athletes at the London Games over the Falkland Islands dispute between the two nations; the Olympics being the perfect venue for gaining worldwide publicity for your cause.

Britain: Domestic security service MI5 said the amount of hostile activity being generated by foreign states in cyberspace was now “astonishing,” with the head of the bureau saying they have discovered “many thousands of people lying behind both state-sponsored cyber espionage and organized cybercrime.”

A major London listed company “suffered estimated losses of $1 billion in revenues,” though MI5 didn’t say which state was responsible. China and Russia are obviously prime suspects. [Financial Times]

Northern Ireland: It was just a handshake, but a startling one at that as Queen Elizabeth II shook hands with former IRA commander Martin McGuinness, currently Northern Ireland’s deputy first minister. McGuinness, during the IRA’s 30-year campaign against British rule, was long considered one of Britain’s greatest enemies, but the exchange between the two on Wednesday, albeit brief, was a warm one.

Random Musings

--In Arizona v. United States, a majority of the Supreme Court overturned 3 of 4 outcomes of a plan to have state and local police enforce the immigration law. But the Court unanimously (8-0…Justice Kagan sat out due to a pulled hamstring…or something like that) sustained the rule that requires Arizona state and local police to verify the legal status of people who come in contact with law enforcement, the “show me your papers” provision, assuming a “reasonable suspicion” exists that they’re in the country illegally. State officers can thus share information with federal law enforcement.

Justice Anthony Kennedy, writing for the majority on the other three provisions, such as subjecting illegal immigrants to criminal penalties for activities like seeking work, said, “Arizona may have understandable frustrations with the problems caused by illegal immigration while that process continues, but the state may not pursue policies that undermine the federal law.”

Justice Antonin Scalia, in dissent, said the states should have the right to make immigration policy if the federal government is not enforcing its own policies.

“To say, as the court does, that Arizona contradicts federal law by enforcing applications of the Immigration Act that the president declines to enforce boggles the mind.”

Both Arizona Gov. Jan Brewer and President Obama claimed victory.

--Attorney General Eric Holder became the first Cabinet member in history to be cited for contempt by the full House after refusing to turn over documents relating to the failed federal gun-running operation, Fast and Furious. The vote was 255-67, with 17 Democrats voting yes, while many Dems walked out of the chamber in protest without voting. The Justice Department had initially lied about its knowledge of the case, with Border Patrol agent Brian Terry having been killed in a shootout in December 2010, and with two guns from the operation found at the scene, and then took nine months to come clean. Republicans in the House simply want to know why this was the case. Who knew what and when? And why hasn’t anyone been fired?

Michael Gerson / Washington Post

“His handling of the Fast and Furious case was botched from the start – requiring President Obama to assert executive privilege to cover a trail of incompetence and forcing Democratic members of Congress to rally in the cause of opacity and mediocrity.

“The problem is not primarily a matter of ideology. Holder is the critic of enhanced interrogation who defends the use of killer drones against American citizens. He is the enemy of indefinite detention at Guantanamo Bay prison who has institutionalized indefinite detention at Guantanamo Bay prison. His views seem to conform exactly to the contours of the president’s political requirements at any given moment. ‘Like a cushion,’ David Lloyd George is reputed to have said of one opponent, ‘he always bore the impress of the last man who sat on him.’

“Yet this does not stop the lecturing. Unlike his congressional detractors, Holder was not ‘scared’ of what (Khalid Sheik) Mohammed would say at trial.

“He prefers not to ‘cower.’ He says his critics lack ‘confidence in the American system of justice.’

“It is Eric Holder’s distinctive contribution to the American political system: self-righteousness without the inconvenience of principle.

“ ‘The supreme arrogance, the lack of accountability,’ (Texas Republican Senator Jon) Cornyn says, ‘are driving people up the wall…Is he going to be the chief law enforcement officer of the United States or the political arm of the administration? Every time Eric Holder has had a choice to make, he has made the political choice, not the one grounded in a reasonable interpretation of the law.’

“That presents an immediate, practical challenge. Holder’s appointment of two prosecutors – one an Obama campaign donor – to investigate administration national security leaks is discredited before it begins. Which points to an immediate, practical need: an attorney general who inspires more trust than contempt.”

--In an NBC News/Wall Street Journal poll, President Obama has a 47-44 lead over Mitt Romney, though the president leads 50-42 in key battleground states, the exact same level a Quinnipiac survey has it when looking at the 12. The NBC/WSJ survey had Obama with just a 47-45 lead in this grouping for the period Jan.-April.

The NBC/WSJ poll also shows that Romney’s negative ratings are six points higher than in May, while Obama’s overall approval rating is at 47%, the lowest of the year.

--Iowa, a swing state, is a good example of the problems faced by the Romney campaign in some areas. It has a 5.1% unemployment rate as the farm economy is booming, with one in four rows of soybeans, for example, going to China. [Los Angeles Times] Romney can’t blast the economy here. Obama won the state in 2008.

--In a USA TODAY/Gallup poll of Hispanics, Obama leads Romney 66-25, but this survey was completed May 31, and since then a new poll of Latinos following President Obama’s decision to block the deportation of undocumented young Hispanics shows 82% approve, 16% disapprove, so you can safely assume the 66-25 margin is even greater today for Obama.

[George W. Bush received 44% of the Latino vote in 2004, John McCain 31% in 2008.]

--According to a Gallup Poll, 44% of Americans can’t name President Obama’s religion. Just 34% correctly identify Obama as a Christian. 11% insist he is a Muslim. 

--The assault on ObamaCare in some respects is just starting. Challenges to aspects such as the law’s “death panel” and its impact on privacy rights and religious liberty are being filed.

As Jonathan Adler and Michael Canon note in an op-ed for USA TODAY, prior to Thursday’s Court ruling:

“The (Affordable Care Act’s) ‘employer mandate’ taxes employers up to $3,000 per employee if they fail to offer required health benefits. But that tax kicks in only if their employees receive tax credits or subsidies to purchase a health plan through a state-run insurance ‘exchange.’

“This 2,000-page law is complex. But in one respect the statute is clear: Credits are available only in states that create an exchange themselves. The federal government might create exchanges in states that decline, but it cannot offer credits through its own exchanges. And where there can be no credits, there is nothing to trigger that $3,000 tax.”

--By a 6-3 ruling the Supreme Court also overturned a federal law that made it a crime to lie about having earned a military decoration.  The justices ruled that it was an infringement on free speech.

--A drill sergeant at Lackland Air Force base in San Antonio is under investigation for a series of assaults on female recruits in a case that is exploding rapidly. Two other drill sergeants have turned state witness in admitting their own guilt, and in a report by week’s end, the number under investigation is said to be 12 at Lackland. There are thousands of assault cases that could be prosecuted each year, by the U.S. military’s own admission. The systemic breakdown in discipline should not only be highly disturbing, but it is time for the people to take an interest and demand from our increasingly corrupt military leadership that heads must roll.

--Since former Obama chief of staff Rahm Emanuel became mayor of Chicago, the murder rate is up 38%, even as killings have held steady in the likes of New York and Los Angeles. Good job, Mr. Emanuel. Throwing around a bunch of F-bombs isn’t enough in this instance.

--The Supreme Court ruled that laws requiring youths convicted of murder to be sentenced to life terms without parole violate the Eighth Amendment’s ban on cruel and unusual punishment. Justice Kennedy joined the four members of the liberal wing.

--For the archives, Tropical storm Debby marked the first time there have been four recorded storms before July 1. In the New York area, over the past six months or so we have been inundated with commercials sponsored by BP to go visit the Gulf and the past month in particular could not have been a worse time with two huge rainmakers that lingered for days.

--The region from Cape Hatteras, N.C., to just north of Boston, a 600-mile swath, is experiencing climbing sea levels at a rate three to four times greater than the global average since 1990, according to the U.S. Geological Survey. Since then, for example, the sea level in Norfolk, Va., has risen 5 inches, vs. about 2 inches globally. That doesn’t seem like much but Norfolk has indeed been facing more frequent flooding already.

--Is there a weaker campaign slogan than President Obama’s “Forward”? Good god, that’s pitiful.

--Bob Welch, a columnist for the Register-Guard newspaper in Eugene, had a good description of the city the other day, having made some of the same observations myself in my three trips here the past four years.

“We’re either one big town or one small city. When the Matthew Knight basketball arena opened last year, a man next to me asked if I would hold his drink while he doctored his hot dog. It was author and former Olympic runner Kenny Moore.

“That happens in Eugene. You’re walking along the 28 miles of off-street bicycle paths and, whoosh, some Olympic-class runner zips by, often with a ‘mornin’.’

“Though friendly, we’re an independent lot [Ed. Welch nails this], which traces back to our self-imposed uprooting of our mid-American roots in the mid-1800s. Our ancestors left the security of the pack for the loneliness of the Oregon Trail – and the West.

“Bill Hayward – the stadium’s namesake – was cut from that same adventurous cloth. In 1904, he agreed to become UO’s track and field coach, largely because he loved to fly-fish the McKenzie River.

“He trained a youth athlete, Bill Bowerman, who eventually replaced him as coach, won four NCAA track and field championships in the 1960s and, meanwhile, turned the country onto jogging.

“At the 1972 Trials, Bowerman introduced a track shoe whose prototype sole was made from his wife Barbara’s waffle iron – at a house, ironically, high above that same McKenzie River.

“Bowerman had coached a so-so runner named Phil Knight, who ultimately had a dream to start a little shoe company. He sold out of the back of his car, got kicked out of at least one bank, but persevered.

“The result, of course, was Nike.”

--In my above noted trip to Newport, Oregon, on the coast, I saw the Japanese tsunami dock that has been featured on various national news reports, including CBS News the day I was there. The dock was loaded with invasive species but had long been scrubbed clean before I arrived and it turns out the dock is being broken up shortly. Researchers already found one species of plant and one species of animal that posed a risk to Oregon’s environment. All the species will be quarantined for four years, by the way.

The problem is tsunami debris is everywhere now and will continue to wash up for another one to two years. As the news reports have noted, however, the local communities are in no position to bear the costs of the cleanup. The federal government is going to have to kick in, while the White House should go after Japan (my idea…not the networks’).

The dock that washed up on Newport is 66-feet long and a local told me there are supposedly three more of similar size out in the waters that will eventually come ashore. [It will cost $84,000 to dismantle it…a cost borne by the Oregon Parks and Recreation Department.]

But as you’ve seen in pictures from Alaska, for instance, look at all the tires and appliances that will be washing ashore. It’s disgusting. And who knows what’s attached to them.

---

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

God bless America.
---

Gold closed at $1604
Oil, $84.96

Returns for the week 6/25-6/29

Dow Jones +1.9% [12880]
S&P 500 +2.0% [1362]
S&P MidCap +2.8%
Russell 2000 +3.0%
Nasdaq +1.5% [2935]

Returns for the period 1/1/12-6/29/12

Dow Jones +5.4%
S&P 500 +8.3%
S&P MidCap +7.1%
Russell 2000 +7.8%
Nasdaq +12.7%

Bulls 38.7
Bears 24.7 [Source: Investors Intelligence]

Have a good week. I appreciate your support.
 
Brian Trumbore



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Week in Review

06/30/2012

For the week 6/25-6/29

[Posted 12:00 a.m. ET from Halsey, Oregon]

Note: I’ve tried my best to keep up this week with some rather tumultuous events, though understand communication hasn’t always been the best from where I’m based and I’ve also spent long stretches either at the U.S. Olympic Track and Field Trials in Eugene or on lengthy drives heading elsewhere in the state. I’ll fill in the blanks next time.

The European Debt Crisis

I have been appropriately negative throughout the over two years of the eurozone crisis and even when there has been a little positive shuffling of chairs at one of the many EU summits I haven’t changed my tune one bit. This past Thursday and Friday we saw another bout of optimism resulting from the latest attempt at summitry and the Euro stock markets responded with their best gain in seven months on Friday, while other markets around the world responded in kind. Nonetheless, I’m still negative.

But what would turn me positive? If you tell me the Europe is suddenly about to embark on a growth spurt of 3% or so throughout much of the region. That, in turn, would indeed change sentiment in a big way and despite the still-massive levels of debt that you’d have, I’d become a bull, at least in the short- to medium-term.

But that’s not happening, guys, despite talk of the new growth package of about $150 billion and injections of cash into sick banks.

Last Sunday, the Bank for International Settlements, which acts as a clearinghouse for central banks such as the Federal Reserve and the European Central Bank, a place where they can play cards, drink and bitch about the politicians they have to deal with, issued a statement.

“Central banks are being cornered into prolonging monetary stimulus, as governments drag their feet and adjustment is delayed. It would be a mistake to think that central bankers can use their balance sheets to solve every economic and financial problem.”

Stephen Cecchetti, the organization’s chief economist, told reporters on a conference call that the first thing that is needed when it comes to the eurozone crisis is to lay the groundwork for a banking union.

“The first step has to be the banks. If you can make sure the banks are solid, then the banks are not putting weights on the sovereigns and the banks are able to support real economic activity.” [Jack Ewing / New York Times]

But as I’ve been writing, the first thing you need is a deposit guarantee fund a la our FDIC to prevent bank runs. And while what we saw at week’s end with the ‘proposal’ of the EU-17 was a way to stabilize Italy’s and Spain’s banks, the 17 are still no closer to the deposit guarantee system that must be step one. Of course you can’t have the FDIC-like body before you have a single banking supervisor and in the press releases I saw from the summit partners at week’s end, yes, the EU-17 seemed to open a way to recapitalize the banks directly with bailout funds but they need the banking supervisor and as German Chancellor Angela Merkel said all week, this will take time. Again, we aren’t talking the United States of America where the government can create with the stroke of a pen, essentially, something of the sort and tell the 50 states that if they have a problem, go play in traffic. Instead you have to get 17 nations, 17 political systems, to agree.

So this week, again as ‘proposed,’ the euro governments, read Italy and Spain, were granted access to rescue loans without relinquishing control of their economies, no loss of sovereignty, it seems, which was a concession by Angela Merkel, but not until there is a central supervisor and that won’t be in place until year end!

What was a positive, though, is that the costs of bank bailouts are removed from the sovereign balance sheets. A statement at the close of the summit said in part:

“We affirm that it is imperative to break the vicious circle between banks and sovereigns.”

This is very good, but no actual funds were injected and it may yet take some time before this occurs. Maybe I will be proved wrong as the Europeans keep kicking the crisis down the road, until into 2013 and beyond, that the markets won’t give the players that much time.

But before we get to the topic of the rescue funds and Spain and Italy’s tapping of same per the latest agreement, I liked how Simon Nixon framed the debate in the Journal’s “Heard on the Street” column the other day, pre-summit.

“One test of whether proposals for European banking, fiscal and political union circulated ahead of Thursday’s summit will calm the crisis is to ask a simple question: Do the proposals make it more likely that France raises its retirement age to 67? It was only recently reduced to 60 for some workers.

“Put another way, will the proposals make it more likely that struggling Italian companies can lay off underperforming workers without the say-so of a judge? Or, to labor the point, will they make it more likely Spain shuts down the branches of failed banks rather than keeping them afloat?

“Sadly, there is little in the flimsy seven-page document put together by the presidents of the European Council, European Commission, European Central Bank and Eurogroup to suggest the answer to any of these questions is ‘yes.’

“The road map to a banking union has been well-flagged. The proposals for tighter control of national budgets build on already existing arrangements. But the section on how to ensure national governments pursue policies that lead to strong and sustainable growth and employment is threadbare. It contains nothing more than platitudes about the need for ‘measures to strengthen the political and administrative capacity of national institutions.’….

“It isn’t enough for countries to stabilize debts if structural rigidities and long-term pension and health-care commitments make it impossible for them to expand and cut their overall debt burden. So long as Italy is unable to expand faster than its 20-year average of around 1% per annum, it will remain a sword of Damocles over the eurozone economy.”

Speaking of Italy, fake Prime Minister Monti continues to water down his labor reform law under pressure as, of all people, former Prime Minister Berlusconi is now offering his advice, not always in a polite fashion. I mean this guy should be in jail. But he’s still around and some folks actually listen to him. Heck, Berlusconi is talking of early elections. Monti is supposed to remain on until May 2013.

So back to the latest agreement to recapitalize the banks of Spain and Italy, a big sticking point was that the governments were going to receive preferred creditor status, which would have severely jeopardized any private sector participation in the debt markets without rates going sky high. That’s now not going to be the case. So that’s helpful.

But let’s talk about the funding…which I’ve only done about 55 times previously.

Nothing has changed in terms of the amounts available. There still aren’t anywhere near ample funds under the existing European Financial Stability Facility or coming European Stability Mechanism; the latter soon-to-be the permanent rescue fund vehicle.

Bloomberg estimates that Italy and Spain have a combined 2.4 trillion euro in debt, and the ESM is only slated to be 500 billion euro in size, with Spain’s previously announced 100 billion euro bank bailout taking the pool down to 400 billion, plus, Cyprus, bailout nation number five as of this week, is going to grab another 10 billion. [Don’t worry, I’ll talk about the dangers of Greece, but I promise to never talk about the dangers of Cyprus. Just understand Cyprus’ problems are directly tied to Greece and the financial relationships between the two.]

So you have 390 billion euro left of the still to be established ESM (notice how during this whole crisis everything is in theory and seldom in fact?), but you do still have about 250 euro in unspent funds from the EFSF, which was for the bailouts of Greece, Ireland and Portugal.

I think a better example of the funding issue is supplied by Gavyn Davies of the Financial Times, who notes that you should focus on the amount of debt Spain and Italy have maturing in the next three years; both budget and sovereign.

Davies comes up with 1.56 trillion between the two, thru 2014, vs. 400 billion? You can’t really say 400 + 250…the other countries will still require more of that latter pool, especially Greece.

Which leaves what? The ECB could issue more LTROs, those longer-term refinancing operations at 1% interest rates that encouraged the banks to load up further on sovereign debt. That’s not a great solution, as we’ve already seen, especially in the case of Spain. Or you lever up the ESM, but the Germans have already said that is a major no-go. The continent doesn’t need more debt, it needs growth.

As for German Chancellor Merkel, specifically, she is seeing her own economy, the rock of the eurozone, stumble with unemployment climbing a third straight month and business and consumer sentiment sliding.

All week Merkel continued to say that the concept of pooled debt, Eurobonds, as well as a European deposit insurance scheme with joint liability, were “economically wrong and counterproductive,” saying they run against the German constitution.

“It’s not a bold prediction to say that in Brussels, most eyes – all eyes – will be on Germany yet again…I’m concerned that (the) discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures…Liability and control must be in balance.”

But in the end Merkel did allow the ESM to help the banks directly without loading up sovereign balance sheets further and for one day, the yield on Spain’s 10-year bond fell to 6.30% from the 7.00% level, which it had reached earlier in the week, again, while Italy’s fell to 5.80%.  It was indeed a form of debt mutualization of the kind Merkel said she would never accept, and she had to convince her parliament that money injected directly into Spanish banks would not expose the German taxpayer, plus Germany is to be the monitor of any new arrangement, though needless to say the details have yet to be released.

And it needs to be added that Prime Minister Monti did evidently win a concession that the ESM could buy Italian sovereign debt; at least the markets reacted as if this would be the case.

Meanwhile, remember Greece? That strange looking configuration that peaked over 2,000 years ago? They formed a new coalition government, you’ll recall, but then the new prime minister couldn’t make the EU summit because of eye surgery and the just named finance minister had to quit because of his own health issues. How fitting.

Washington, the Supreme Court and Wall Street

Back on 3/31/12 in this space, I wrote the following after oral arguments in the Supreme Court on the Affordable Care Act (ObamaCare).

“…many believe it will once again come down to Justice Anthony Kennedy as the swing vote, though I’m betting Chief Justice John Roberts could surprise going the other way.”

And I didn’t change that stance in the succeeding months.

With Justice Roberts indeed being the swing vote, shocking many, the United States Supreme Court ruled that the individual mandate portion of the Affordable Care Act, which compels every American to buy health insurance, was not valid under the Commerce Clause of the Constitution. 

But the justices also ruled that the financial penalty outlined in the law against people who did not buy insurance was allowed. So as written the mandate was unconstitutional but implementation could proceed because it can be enforced as a tax, which is absurd logic. 26 states had argued that if government could impel citizens to buy insurance, then where would it stop? Forcing people to buy broccoli, for example, was often cited as the direction we were headed (and is so referenced in the decision), or to buy a domestic car.

For the majority, Justice Roberts wrote:

“The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.”

The four justices in opposition, Scalia, Thomas, Alito and Kennedy, wrote:

“(To) say that the individual mandate merely imposes a tax is not to interpret the statute but to rewrite it. Judicial tax-writing is particularly troubling. Taxes have never been popular…and in part for that reason the Constitution requires tax increases to originate in the House of Representatives.”

However, the court’s decision also significantly restricts one major portion of the law: expansion of Medicaid, giving states some flexibility not to expand their own programs without paying financial penalties that the law calls for. On this issue the court voted 7-2, ruling that come 2014, the states don’t have to give in to Medicaid being greatly expanded at the risk of losing existing funding. Should the states thus decide they don’t want to accept the increased funding because it could result in increasing taxes and/or further cuts to public spending and education, they can opt to do so. The expansion, though, is meant to cover the uninsured so by not accepting the funding, fewer will be insured than ObamaCare planned on…potentially far fewer.

But this isn’t a cut and dry issue and the states have at least until early 2013 to decide what to do come 2014 (depending on their respective election cycles, of course).

The bottom line for Republican presidential candidate Mitt Romney is that for him to fulfill his campaign promise that he’d repeal ObamaCare, he needs to achieve a whopping majority in the Senate (60 votes), plus retain a big majority in the House, and the odds of both occurring, let alone his own election, are virtually nil. [I see some Republicans are already talking about the process of “reconciliation.” I will not get into that until after the election. To do so beforehand is freakin’ stupid.]

Nonetheless, Romney issued a solid statement on Thursday following the decision, saying the Court did not say ObamaCare is good law, or good policy; then getting into the litany of Republican reasons just why it is bad law…it raises taxes, cuts Medicare, add $trillions to the debt, it’s a job killer, and puts the federal government between you and your doctor.

Romney added that of course there are provisions that are good and that he would retain; such as people must be able to keep their current insurance and no one should lose coverage because of pre-existing conditions.

Senate Minority Leader Mitch McConnell said:

“This bill was sold to the American people on a deception…and made problems it was meant to solve even worse.”

So while the choice in November, as stated by Romney, is between larger, more intrusive government or whether you want to return to the time where consumers have the choice, I still don’t see the Republicans getting the majorities they need to make a difference. Nonetheless, some can take hope from the following, perhaps, the third part of the ruling, this one 5-4 with Roberts joining his conservative brethren as alluded to above.

George Will / Washington Post

“Conservatives won a substantial victory on Thursday. The physics of American politics – actions provoking reactions – continues to move the crucial debate, about the nature of the American regime, toward conservatism. Chief Justice John Roberts has served this cause.

“The health care legislation’s expansion of the federal government’s purview has improved our civic health by rekindling interest in what this expansion threatens – the Framers’ design for limited government.

“Conservatives distraught about the survival of the individual mandate are missing the considerable consolation prize they won when the Supreme Court rejected a constitutional rationale for the mandate – Congress’ rationale – that was pregnant with rampant statism.

“The case challenged the court to fashion a judicially administrable principle that limits Congress’ power to act on the mere pretense of regulating interstate commerce. At least Roberts got the court to embrace emphatic language rejecting the Commerce Clause rationale for penalizing the inactivity of not buying insurance:

“ ‘The power to regulate commerce presupposes the existence of commercial activity to be regulated….The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce.

“ ‘Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority…Allowing Congress to justify federal regulation by pointing to the effect of inaction on commerce would bring countless decisions an individual could potentially make within the scope of federal regulation, and, under the government’s theory, empower Congress to make those decisions for him.’

“If the mandate had been upheld under the Commerce Clause, the court would have decisively construed this clause so permissively as to give Congress an essentially unlimited police power – the power to mandate, proscribe and regulate behavior for whatever Congress deems a public benefit. Instead, the court rejected the Obama administration’s Commerce Clause doctrine. The court remains clearly committed to this previous holding: ‘Under our written Constitution…the limitation of congressional authority is not solely a matter of legislative grace.’

“The court held that the mandate is constitutional only because Congress could have identified its enforcement penalty as a tax. The court thereby guaranteed that the argument ignited by the mandate will continue as the principal fault line in our policy….

“By persuading the court to reject a Commerce Clause rationale for a president’s signature act, the conservative legal insurgency against ObamaCare has won a huge victory for the long haul….

“Any democracy, even one with a written and revered constitution, ultimately rests on public opinion, which is shiftable sand. Conservatives understand the patience requisite for the politics of democracy – the politics of persuasion.

“Elections matter most; only they can end ObamaCare. But in Roberts’ decision, conservatives can see the court has been persuaded to think more as they do about the constitutional language that has most enabled the promiscuous expansion of government.”

---

Regardless of the court’s rulings this week, the election is still going to be mostly about the economy (though I argue there is still time for foreign policy to enter the picture, i.e., Iran, a war that spreads beyond Syria, or North Korean intransigence). This coming week sees another crucial employment report, the jobs data for June, as the weekly figures on jobless claims continue to point to trouble on this front for the White House, and American jobseekers. 

The numbers on housing this week, however, were decent, with new home sales coming in better than expected, while pending home sales are at a two-year high. The S&P/Case-Shiller price data for April also showed a third consecutive month with an increase in the average price for their 20-city index, owing in no small part to a surge in some of the worst-hit areas, Arizona and Florida.

I said awhile back the housing market in the U.S. had bottomed, but that doesn’t mean prices will return to pre-bubble levels for years. I’d also caution that the still ongoing European debt crisis, despite Friday’s spectacular rally, could once again rear its ugly head and impact confidence, and housing, here in the U.S.

The figures on May durable goods were stronger than expected, but two gauges of consumer confidence, the Conference Board’s and the Univ. of Michigan’s, were at or near the worst levels of the year, while the May reading on consumer spending was unchanged, the worst performance for that gauge since November.

At least we’re getting a break on oil prices (though they were up big Friday on the optimism out of Europe) as the price at the pump has been steadily decreasing. The problem is that until the seeming better tone in Europe, oil was declining for all the wrong reasons; the Euro debt crisis and slowdowns in both China and the U.S.

Robert Samuelson / Washington Post…on the broad issues the global economy faces.

“Everything feeds on everything else. There is no longer a large source of strong economic growth in the world to stimulate and support struggling economies. Not surprisingly, the latest World Bank forecast has the global economy growing only 2.5 percent in 2012, down from 4.1 percent in 2010.

“Time may cure some of these problems. After all, economies move in cycles. In the United States, debts may be paid down. Housing prices may stabilize. Businesses may develop new products that spur investment. Elsewhere, pent-up demand may provide relief.

“But the fact that what’s happening in so many places is an assault on long-held expectations and practices – economic and social models – suggests that finding a path forward could be time-consuming, tortuous and, possibly, inconclusive. If so, stalemate becomes an independent source of frustration and fear.”

Street Bytes

--It would have been a down week, and a far worse quarter, had it not been for Friday’s euro-inspired huge rally that saw the Dow Jones soar 277 points (2.2%), while the S&P 500 rocketed 2.5% and Nasdaq 3.0%. As it was on the week the Dow gained 1.9% to 12880, with the S&P adding 2.0% and Nasdaq 1.5%.

It ended up being the best June for the S&P since 1999, up 4.0%.

I’ll have the quarter-end numbers next time because as I go to post I see all kinds of figures and want to get it right.

Meanwhile, in about ten days we’ll start to see the rush of second-quarter earnings and they promise to be all over the board owing to the impact of Europe and the slowdown in Asia.

--U.S. Treasury Yields

6-mo. 0.15% 2-yr. 0.30% 10-yr. 1.64% 30-yr. 2.75%

Despite the volatility, yields were largely unchanged on the week. Next week could be a different story if the Euro-led rally continues.

Separately, the final revision for first quarter GDP came in unchanged at 1.9% after a 3.0% rise in the fourth quarter.

--As noted in a report by Keith Bradsher of the New York Times, how much worse is China’s slowdown than the government is letting on? Many point to declining and/or falsified electricity production numbers vs. mammoth coal stockpiles. It’s probably safe to say GDP is at least one percentage point less than Beijing is letting on. [On the other hand, in good times the government understates growth so as to smooth out perceived volatility.]

--Retail sales for the month of May in Japan rose a solid 3.6% from a year earlier, better than expected. But then industrial production for the month declined 3.1% from April’s pace and the consumer price index for May fell 0.1%, bringing back that old bugaboo for Japan, deflation.

--Bloomberg News had a detailed piece on Chinese leader-in-waiting Xi Jinping and the fortune he and his family have amassed over the years owing to insider deals in various businesses; the kind of story the Chinese government does not want out there so they blocked the Bloomberg website for a spell.

--Shares in hospital stocks rose in the wake of the Supreme Court’s ruling on ObamaCare as it will reduce the cost of treating uninsured patients, while the newly insured will seek more nonemergency treatments. Medical device makers, however, will start paying a 2.3% tax on the sales of items such as pacemakers. I’d say the jury is still out on the insurers, who get millions of new customers, but will also now pay large annual fees.

--The New York Times reported that the trading loss from the credit derivatives debacle at JPMorgan Chase could grow to as much as $9 billion from the $2 to $4 billion originally estimated by CEO Jamie Dimon when he first released details of the trade gone wrong in May. JPMorgan is unwinding their positions faster than expected and hedge funds and other traders are taking advantage of the situation, knowing what JPM is trying to get out of, thus exacerbating the losses. As one expert put it in the Times, more and more it’s as if JPM was operating a hedge fund with federally insured positions within a bank.

[Separately, former Chief Investment Officer Ina Drew is receiving $21.5 million in cash and prizes (specifically restricted stock and options), while her total deferred pay and pension package is in the area of $57.5 million. But before you go torching the Drew estate, just understand she did work there 30 years and held senior positions much of that time, plus as of what we know now, it doesn’t appear she could be fired with cause, which would have allowed for clawbacks.] 

--Barclays Bank was fined $450 million by British regulators for manipulating the Libor rate at which banks lend to each other during the period 2005-09. Others under investigation are said to be HSBC, RBC (with a rumored $220 million fine in the pipeline), Citigroup and UBS. The U.S. is conducting its own investigation.

Current Barclays CEO Bob Diamond was in charge of the unit where the shenanigans took place and British Prime Minister David Cameron is among those calling for his resignation. Diamond said he is not stepping down; that the wrongdoing was on the part of traders and low-level supervisors, with top execs like Diamond not knowing the manipulation was taking place.

But Friday night, the Financial Times ran a story that Barclays compliance department failed to act on three separate internal warnings between 2007 and 2008 about conflicts of interest and “patently false” submissions by its staff.

Yet another reason to hate the big banks. And to Phil Mickelson, I’d abandon my friendship with Bob Diamond if I were you. Won’t be good for the ol’ image, if you catch my drift.

--Nasdaq CEO Robert Greifeld said “arrogance” and “overconfidence” among Nasdaq staffers contributed to the Facebook IPO debacle. Coincidentally, this week saw the end to the post-IPO “quiet period” and analysts whose firms were involved in the offering are now allowed to issue research reports and ratings. Of 36 firms that have initiated coverage of Facebook, 18 labeled it a ‘buy,’ 15 a ‘hold’ and 3 a ‘sell.’ The average one-year price target is $37.75, or right at the $38 IPO level. Shares in Facebook closed the week at $31. 

--Shares in BlackBerry maker Research in Motion hit a new low of $7.35 (they were at $33 last September) after the Canadian company said revenues fell 43% in its fiscal first quarter and it had a far larger loss than expected. Additionally, the company announced it was laying off 5,000 and delaying its new product launch until the first quarter of next year. 

Earlier, a Morgan Stanley analyst helped precipitate the selling prior to the earnings news when he offered: “We believe the only way RIM remains a viable entity is at a fraction of its current size, a transformation that erases much of its earnings power. The next 9 months will likely see rapidly deteriorating fundaments on the one hand offset by stories of potential strategic options on the other.”

--Google is introducing a small tablet computer in direct competition to Amazon’s Kindle Fire. The Nexus 7 is designed specifically for Google Play, the online store that sells music, movies, books and apps. Google’s move comes one week after Microsoft announced it was introducing a competitor to Apple’s iPad.

--Microsoft is also buying Internet startup Yammer for $1.2 billion; this outfit specializing in creating private social networks so employees within the same company can keep tabs on what colleagues are working on, similar to what Facebook allows friends and families to do. Last year, in its ongoing attempt to remain relevant, Microsoft paid $8.5 billion for Skype.

--Stockton, California became the largest U.S. city since Cleveland in 1979 to seek bankruptcy protection, it facing a $26 million budget shortfall with $100s of millions in debt.

--Shares in Ford Motor dropped as the automaker warned second quarter results will come in less than expected owing to significant losses (a projected $570 million) in its Asian, South American and European operations.

--The Wall Street Journal ran a story on how the U.S. will wean itself off Middle East oil by 2035, and halve its reliance by the end of the decade. It’s a tale of declining demand and rapid growth of new sources in the Western Hemisphere. By 2020, 82% will come from this side of the Atlantic.

But remember, our good fortune has little if any direct impact on the global price and, worrisomely in this regard, worldwide production is not ramping up as it is here.

--Our heart goes out to the people of Colorado Springs, among many suffering communities in the West these days, who have lost their homes in the Waldo Canyon blaze. I’ve been there many times and love it.

But while the timing of these disasters is never good, it couldn’t be worse occurring in the middle of prime tourist season, so imagine the economic consequences for all the businesses relying on the trade.

--The Labor Department reported that unemployment rates rose in 255 of the 372 largest metropolitan areas in May, fell in 87 and were unchanged in 30. That’s worse than April when rates fell in 356 areas. Rather telling given the recent employment data and the continuing high weekly jobless claims numbers.

--The U.S. Postal Service received permission to proceed with the closure of 230 plants by 2014, cutting 5% of its workforce.

--A big story in Eugene this week was the announcement the next Lane County budget, $482.2 million, would be $98.9 million less than the current level, which will not only result in the dismissal of 188 employees, but also the release of 96 prisoners, the latter being completed by week’s end, 32 at a time. I watched the releases on the local news and picture that some of these characters are violent offenders (three were involved in homicides…as well as various assault cases), and from the looks of the now ex-cons, I think I’ll go back to New Jersey on Monday.

--And in another example of budget woes, and outrageous spending, I went to the coastal town of Newport to spend Tuesday night and you go by way of scenic Route 20 over the mountains. I’ve taken this road a lot over the years and noticed a construction project in this one spot each time, and so it turns out the cost for reworking the five-mile stretch has soared from $126 million to $219 million, plus it should have been completed years ago, and is now slated for completion in maybe 2015. 

--Growers in Washington State left 10% of their crop in some products (like asparagus) in the fields this spring for the first time anyone can remember for a simple reason. Couldn’t find enough labor. Now the fear is the summer cherry harvest – predicted to be a record crop and the most labor intensive of all. They need 40,000 workers to strip off the cherries in a normally 10-day sprint. The president of the Washington State Fruit Commission and Northwest Cherry Growers said, “I think we are all terrified.” [Lynda Mapes / Seattle Times]

Well, of course it’s the story of not enough migrant workers these days, for various reasons, plus the locals don’t want to do the job. [There are a ton of homeless folks in the area I’m in now, total vagabonds, who should be working these fields by my way of thinking; let alone those on welfare.]

--I’ve been staying at this truck stop in Halsey and by the time I leave I will have had 9 dinners in the Pioneer Saloon, the only decent restaurant within a quick drive.

But while I’m tired of the place, I’ve enjoyed listening in on the truckers’ conversations. One night these two old-timers who were sharing a rig started talking about the labor situation in America; similar to what I’ve been noting in this column recently.

One guy goes, “Remember when we worked in Milwaukee and they had that technical school that pumped out tool & die workers like crazy? All of the students ended up at Deere or Allis-Chalmers. Now these positions are in huge demand but the kids they interview can’t even do the math!”

--Speaking of truckers, USA TODAY had a piece this week on the ongoing shortage of them. “Many unemployed construction and factory workers can’t afford the $4,000 to $6,000 cost of a six-week driver-training course,” said one consultant. The average salary for a long-haul trucker is up to $45,000 to $50,000. The crunch is going to get worse next year when stricter federal limits on the number of hours a driver can work take effect. Boy, have I heard some great stories on this aspect of the business. Or rather scary stories.

--In a blow for the New Jersey pharmaceutical industry, Roche, the Swiss giant, said it is closing its Nutley, N.J. site, resulting in about 1,000 job losses.

--The SEC filed a civil lawsuit against one-time top hedge-fund manager Philip Falcone, charging the 49-year-old with market manipulation, giving preferential treatment to several big investors (such as in being allowed to cash out their holdings while others could not) and borrowing cash from his fund to pay his personal expenses, including for the use of a private jet.

--Bernie Madoff’s kid brother, Peter, age 66, finally pleaded guilty to one count of conspiracy to commit securities fraud and one count of falsifying records in the Madoff scandal. He’ll receive a maximum of ten years in prison, far better than the 150+ years his older brother received.

--Coca-Cola announced it would be investing $5 billion in India in a bid to increase its market share, $3 billion more than previously announced.

--In a study by the Partnership for a New American Economy, a nonprofit co-founded by New York City Mayor Michael Bloomberg, nine out of ten patents at the University of Illinois system in 2011 had at least one foreign-born inventor. “Of those, 64 percent had a foreign inventor who was not yet a professor but rather a student, researcher or postdoctoral fellow, a group more likely to face immigration problems.”

The partnership seeks legislation making it easier for foreign-born innovators in the science, technology, engineering and math fields to stay in the U.S.

--Rupert Murdoch is spinning off his News Corp.’s newspaper business into a separate publicly traded entity, with a second company comprising News Corp.’s far more profitable entertainment division. Shareholders have long called for such a move and reacted favorably.

--Of course it’s all about Nike here at the Olympic Track and Field Trials and on Thursday after the close, Nike reported net income fell a far greater than projected 8 percent, $1.17 vs. an expected $1.37. Shares then plummeted $9 at the close on Friday, 10%, though were off more earlier in the day. Revenues for the sporting-goods giant were up 12% but even that was shy. It was the first time since 2009 the company failed to beat estimates. Nike blamed continued uncertainty over the global economy.

-- “Today’s” Ann Curry officially stepped down from her anchor position in a tearful farewell after just one year in the coveted seat opposite Matt Lauer. Some will argue, as she did, that she wasn’t given enough time to fix the “kinks” in this critically important show to NBC’s fortunes, a revenue juggernaut.

I just observe that it was a bad choice to have her replace Meredith Vieira in the first place; that Curry, for all her foreign correspondent chops (which is where she is returning for the network), tried way too hard and came off as sickeningly sweet. Meredith, and before her, Katie Couric, had the needed ‘edge,’ especially in dealing with Matt.

Savannah Guthrie, following a meteoric rise up the NBC ladder, is taking over. All seem to agree she is well-liked and a “team player.” Knock ‘em dead, Savannah.

--Good local news in Oregon country…the sockeye salmon population in the Columbia Basin is exploding, with thousands more crossing the river’s dams in a single day than the total numbers seen in some previous years.

“Since Bonneville Dam outside Portland was built in 1938, there have been plenty of times there weren’t 38,000 sockeye salmon swimming over the fish ladders in a whole year. But on Monday that many passed the Columbia River dam and another 41,000 swam over the dam on Wednesday – a rate of nearly 30 a minute.” [AP / The Register-Guard]

And these are wild fish bred in rivers, instead of nasty, crap-filled hatcheries, sports fans! Salmon lovers celebrate. Salmon Sunday is secure.

--According to the AP, there is a boom taking place in the restaurant industry in the niche known as “breastaurants,” or sports bars featuring scantily clad waitresses. I’ve never had a problem with this, quite frankly; but the food has to be good, too. Then again, now I’m wondering where they get their salmon.

--Switching gears, I did see where the Food and Drug Administration approved the first new prescription drug for long-term weight loss in 13 years, Arena Pharmaceutical’s anti-obesity pill Belviq. The pill doesn’t actually show more than modest weight loss in clinical studies, but it was deemed safe and thus the decision by the FDA to rush it out given all the calls by doctors for new weight-loss treatments.

The drug should be available in early 2013, while as you can imagine, shares in Arena rose sharply.

--Anheuser-Busch InBev completed its acquisition of Mexico’s Grupo Modelo, taking out the other 50% it didn’t own. Grupo Modelo is Mexico’s largest brewer and the maker of Corona. Personally, on the premium front I’ve been going more and more for InBev’s Stella Artois. But Grupo Modelo’s Pacifico is a fine choice as well.

Foreign Affairs

Egypt: The powerful electoral commission affirmed the original Muslim Brotherhood projection that their candidate, Mohammed Morsi, had defeated Ahmed Shafiq by a 51.7 to 48.3 margin in what was the first free election in the history of Egypt, seriously, going back some 5,000 years.

So going forward, just how much authority will the still ruling military council grant Morsi, and in turn, how will Morsi’s government treat women and the 10% of the population that calls themselves Christian? Morsi has vowed to support Islamic law, but to what extent? And how will Morsi, who vowed to make changes in the peace treaty with Israel, do so?

Morsi also declared after the result was announced that he would seek an end to corruption, restructure education, develop the private sector and restore “Egypt’s leading role in the region,” according to a statement by the political arm of the Muslim Brotherhood.

Iran’s Fars News Agency reported that Morsi told the organization he sought to expand ties with Iran, though Morsi denied he gave the Fars Agency an interview! It does seem Fars totally made it up.

Then you have Egypt’s administrative court, which said it would delay action on three issues related to the ‘coup attempt’ by the Supreme Council of the Armed Forces (Scaf).

For instance, the court delayed until July 7 a decision on the military council’s dissolution of the Muslim Brotherhood-dominated Parliament. It is delaying until July 10 a ruling on the validity of the council’s amendment of the constitution to severely restrict the powers of the president and give it the final say over a new constitution.

And for whatever reason, the court said it would delay until Sept. 1 Scaf’s dissolution of the constituent assembly that was to write the new constitution.

Lastly, facing an allegation he wasted public funds, Ahmed Shafiq has apparently fled to the U.A.E.

So the situation is confusing and we need time, at least weeks, if not months, to just begin to see how things may shake out. At least Egypt has been largely peaceful after the vote. Morsi is officially sworn in on Saturday, though he had a fiery, unofficial swearing in at Tahrir Square on Friday.

Editorial / Wall Street Journal

“One undesirable outcome going forward would be a military establishment that lets the Brotherhood slowly Islamicize the country in return for keeping power. The world can do without an Arab Pakistan.”

Turkey and Syria: Over 32,000 Syrian refugees now call Turkey home as the Ankara government also provides major support for dissident groups. So the shoot down of a Turkish fighter jet by Syrian forces, with the two pilots never being found, is a major issue and, for starters, Turkey began to reinforce the border, including moving in anti-aircraft batteries and rocket launchers.

Turkey claims the jet was on a mission to test out Turkey’s radar and that it might have strayed briefly over the border but, as U.K. Foreign Minister William Hague put it, Syria’s reaction was “outrageous.” [Turkey’s story, though, isn’t totally accurate, according to some reports.]

Meanwhile, the killing continues at an accelerated pace. 100 died last Friday, 100 Saturday…this as the number of Syrian military members defecting to the rebel cause grows. And in a symbolic blow to the Assad government, the central court complex in Damascus was bombed. Earlier Assad conceded “we are at war” as a state television station was attacked with at least seven killed (executed), including journalists.

Iran: A Russian specialist and adviser to Kremlin leadership familiar with the recent nuclear talks between the P5+1 and Iran in Moscow, Sergei Markov, said the probability was “quite high” for Israel to initiate an armed campaign against Iran either next month or in August.  [Global Security Newswire]

This week Russian President Putin and Israeli Prime Minister Netanyahu met briefly in Jerusalem, Putin being in town mainly to commemorate a memorial in the coastal city of Netanya honoring Soviet Red Army soldiers who died during World War II and their role in the victory over Nazi Germany.

Putin and Netanyahu discussed Syria and Iran though little was said after and there was zero reason to hope Russian policy towards both had changed.

But at a state dinner after, hosted by Israeli President Shimon Peres, Peres tweaked his guest:

“I am confident that Russia, which defeated fascism, will not allow today’s threats to continue. Not the Iranian threat. Not the bloodshed in Syria.”

Regarding the sanctions on Iran’s oil, the Obama administration spared China and Singapore from potential financial penalties, required under America’s law, saying both countries had earned an exemption by significantly reducing their purchases of Iranian crude. The EU ban on imports begins July 1.

Pakistan: The government elected a new prime minister, Raja Pervez Ashraf, but Chief Justice Chaudhry, the real power in the country these days, insisted Ashraf send the Swiss government a letter reopening the corruption probe into President Zardari that former Prime Minister Gilani had refused to do.

The Army doesn’t want to get involved at this time, but I have argued (and predicted) a coup this year is inevitable. I’ve seen no reason to change my opinion.

Afghanistan: Insurgent attacks were up 21% in May over May 2011’s pace.

South Korea and Japan: The two were toput aside past suspicions (and history) in order to sign a military pact to share sensitive data on North Korea’s nuclear and missile programs, as well as China’s growing military threat, but then the day the treaty was to be signed, Friday, South Korea suddenly balked as the opposition party there told the government it was moving too fast. Japan was taken aback, to say the least.

Separately, the North renewed its threat to bolster its nuclear force as the U.S. and South Korea carried out large joint military exercises. The North may step up its threats the next few months, thinking this is the only way they can get the U.S. and others to pony up desperately needed food aid, with the Korean peninsula in the midst of its worst drought in a century. It is so bad, and pathetic, that North Korean soldiers are pouring buckets of water on parched fields.

Mexico: In an awful situation at Mexico City’s international airport, normally a quiet place, three federal police officers were killed when they confronted suspected drug dealers also wearing police uniforms. The airport is known to be a major transit point for drugs and the victims were part of an ongoing investigation into smuggling there.

But the presidential election is Sunday and Enrique Pena Nieto of the P.R.I. (Institutional Revolutionary Party), which was ousted from the presidency after decades in power back in 2001, is expected to prevail. The P.R.I. has long had ties to the cartels and has been suspected of buying them off for peace. President Felipe Calderon, on the other hand, spent his six years in office seeking to dismantle the cartels, which has obviously failed.

Honduras: In a sign of growing U.S. involvement in counternarcotics operations in the region, a Drug Enforcement Administration agent shot a man to death in Honduras during a raid on a smuggling operation, with the agent apparently firing in self-defense. D.E.A. agents have heretofore been heavily involved in surveillance efforts of suspected smuggling operations, but this is the first in which an American agent, rather than a Honduran official, has killed a suspect.

[Just musing, but who the heck would want this job? Honduras? Really?]

Nigeria: The government said both the state and oil companies are losing over $1 billion a month to theft by criminal networks that have expanded rapidly since President Goodluck Jonathan took office. [Financial Times]

Paraguay: A bizarre development here I failed to comment on last time as with light speed (a 5-hour trial), though under the rules of the constitution, Paraguay’s legislature impeached President Lugo and appointed his vice president in his stead following allegations of mismanagement in a botched effort to remove squatters from a private farm that resulted in 17 deaths.

The vote in the Senate was 39-4, and in the House 73-1.

But Lugo had just nine months left in his term and as both he and his democratic neighbors (specifically Argentina, Brazil and Uruguay) asserted, Paraguay’s democracy “has been deeply wounded.”

Argentina: The U.K. is concerned Argentina will launch a 1968 Mexico City Olympics “black power” type protest with their athletes at the London Games over the Falkland Islands dispute between the two nations; the Olympics being the perfect venue for gaining worldwide publicity for your cause.

Britain: Domestic security service MI5 said the amount of hostile activity being generated by foreign states in cyberspace was now “astonishing,” with the head of the bureau saying they have discovered “many thousands of people lying behind both state-sponsored cyber espionage and organized cybercrime.”

A major London listed company “suffered estimated losses of $1 billion in revenues,” though MI5 didn’t say which state was responsible. China and Russia are obviously prime suspects. [Financial Times]

Northern Ireland: It was just a handshake, but a startling one at that as Queen Elizabeth II shook hands with former IRA commander Martin McGuinness, currently Northern Ireland’s deputy first minister. McGuinness, during the IRA’s 30-year campaign against British rule, was long considered one of Britain’s greatest enemies, but the exchange between the two on Wednesday, albeit brief, was a warm one.

Random Musings

--In Arizona v. United States, a majority of the Supreme Court overturned 3 of 4 outcomes of a plan to have state and local police enforce the immigration law. But the Court unanimously (8-0…Justice Kagan sat out due to a pulled hamstring…or something like that) sustained the rule that requires Arizona state and local police to verify the legal status of people who come in contact with law enforcement, the “show me your papers” provision, assuming a “reasonable suspicion” exists that they’re in the country illegally. State officers can thus share information with federal law enforcement.

Justice Anthony Kennedy, writing for the majority on the other three provisions, such as subjecting illegal immigrants to criminal penalties for activities like seeking work, said, “Arizona may have understandable frustrations with the problems caused by illegal immigration while that process continues, but the state may not pursue policies that undermine the federal law.”

Justice Antonin Scalia, in dissent, said the states should have the right to make immigration policy if the federal government is not enforcing its own policies.

“To say, as the court does, that Arizona contradicts federal law by enforcing applications of the Immigration Act that the president declines to enforce boggles the mind.”

Both Arizona Gov. Jan Brewer and President Obama claimed victory.

--Attorney General Eric Holder became the first Cabinet member in history to be cited for contempt by the full House after refusing to turn over documents relating to the failed federal gun-running operation, Fast and Furious. The vote was 255-67, with 17 Democrats voting yes, while many Dems walked out of the chamber in protest without voting. The Justice Department had initially lied about its knowledge of the case, with Border Patrol agent Brian Terry having been killed in a shootout in December 2010, and with two guns from the operation found at the scene, and then took nine months to come clean. Republicans in the House simply want to know why this was the case. Who knew what and when? And why hasn’t anyone been fired?

Michael Gerson / Washington Post

“His handling of the Fast and Furious case was botched from the start – requiring President Obama to assert executive privilege to cover a trail of incompetence and forcing Democratic members of Congress to rally in the cause of opacity and mediocrity.

“The problem is not primarily a matter of ideology. Holder is the critic of enhanced interrogation who defends the use of killer drones against American citizens. He is the enemy of indefinite detention at Guantanamo Bay prison who has institutionalized indefinite detention at Guantanamo Bay prison. His views seem to conform exactly to the contours of the president’s political requirements at any given moment. ‘Like a cushion,’ David Lloyd George is reputed to have said of one opponent, ‘he always bore the impress of the last man who sat on him.’

“Yet this does not stop the lecturing. Unlike his congressional detractors, Holder was not ‘scared’ of what (Khalid Sheik) Mohammed would say at trial.

“He prefers not to ‘cower.’ He says his critics lack ‘confidence in the American system of justice.’

“It is Eric Holder’s distinctive contribution to the American political system: self-righteousness without the inconvenience of principle.

“ ‘The supreme arrogance, the lack of accountability,’ (Texas Republican Senator Jon) Cornyn says, ‘are driving people up the wall…Is he going to be the chief law enforcement officer of the United States or the political arm of the administration? Every time Eric Holder has had a choice to make, he has made the political choice, not the one grounded in a reasonable interpretation of the law.’

“That presents an immediate, practical challenge. Holder’s appointment of two prosecutors – one an Obama campaign donor – to investigate administration national security leaks is discredited before it begins. Which points to an immediate, practical need: an attorney general who inspires more trust than contempt.”

--In an NBC News/Wall Street Journal poll, President Obama has a 47-44 lead over Mitt Romney, though the president leads 50-42 in key battleground states, the exact same level a Quinnipiac survey has it when looking at the 12. The NBC/WSJ survey had Obama with just a 47-45 lead in this grouping for the period Jan.-April.

The NBC/WSJ poll also shows that Romney’s negative ratings are six points higher than in May, while Obama’s overall approval rating is at 47%, the lowest of the year.

--Iowa, a swing state, is a good example of the problems faced by the Romney campaign in some areas. It has a 5.1% unemployment rate as the farm economy is booming, with one in four rows of soybeans, for example, going to China. [Los Angeles Times] Romney can’t blast the economy here. Obama won the state in 2008.

--In a USA TODAY/Gallup poll of Hispanics, Obama leads Romney 66-25, but this survey was completed May 31, and since then a new poll of Latinos following President Obama’s decision to block the deportation of undocumented young Hispanics shows 82% approve, 16% disapprove, so you can safely assume the 66-25 margin is even greater today for Obama.

[George W. Bush received 44% of the Latino vote in 2004, John McCain 31% in 2008.]

--According to a Gallup Poll, 44% of Americans can’t name President Obama’s religion. Just 34% correctly identify Obama as a Christian. 11% insist he is a Muslim. 

--The assault on ObamaCare in some respects is just starting. Challenges to aspects such as the law’s “death panel” and its impact on privacy rights and religious liberty are being filed.

As Jonathan Adler and Michael Canon note in an op-ed for USA TODAY, prior to Thursday’s Court ruling:

“The (Affordable Care Act’s) ‘employer mandate’ taxes employers up to $3,000 per employee if they fail to offer required health benefits. But that tax kicks in only if their employees receive tax credits or subsidies to purchase a health plan through a state-run insurance ‘exchange.’

“This 2,000-page law is complex. But in one respect the statute is clear: Credits are available only in states that create an exchange themselves. The federal government might create exchanges in states that decline, but it cannot offer credits through its own exchanges. And where there can be no credits, there is nothing to trigger that $3,000 tax.”

--By a 6-3 ruling the Supreme Court also overturned a federal law that made it a crime to lie about having earned a military decoration.  The justices ruled that it was an infringement on free speech.

--A drill sergeant at Lackland Air Force base in San Antonio is under investigation for a series of assaults on female recruits in a case that is exploding rapidly. Two other drill sergeants have turned state witness in admitting their own guilt, and in a report by week’s end, the number under investigation is said to be 12 at Lackland. There are thousands of assault cases that could be prosecuted each year, by the U.S. military’s own admission. The systemic breakdown in discipline should not only be highly disturbing, but it is time for the people to take an interest and demand from our increasingly corrupt military leadership that heads must roll.

--Since former Obama chief of staff Rahm Emanuel became mayor of Chicago, the murder rate is up 38%, even as killings have held steady in the likes of New York and Los Angeles. Good job, Mr. Emanuel. Throwing around a bunch of F-bombs isn’t enough in this instance.

--The Supreme Court ruled that laws requiring youths convicted of murder to be sentenced to life terms without parole violate the Eighth Amendment’s ban on cruel and unusual punishment. Justice Kennedy joined the four members of the liberal wing.

--For the archives, Tropical storm Debby marked the first time there have been four recorded storms before July 1. In the New York area, over the past six months or so we have been inundated with commercials sponsored by BP to go visit the Gulf and the past month in particular could not have been a worse time with two huge rainmakers that lingered for days.

--The region from Cape Hatteras, N.C., to just north of Boston, a 600-mile swath, is experiencing climbing sea levels at a rate three to four times greater than the global average since 1990, according to the U.S. Geological Survey. Since then, for example, the sea level in Norfolk, Va., has risen 5 inches, vs. about 2 inches globally. That doesn’t seem like much but Norfolk has indeed been facing more frequent flooding already.

--Is there a weaker campaign slogan than President Obama’s “Forward”? Good god, that’s pitiful.

--Bob Welch, a columnist for the Register-Guard newspaper in Eugene, had a good description of the city the other day, having made some of the same observations myself in my three trips here the past four years.

“We’re either one big town or one small city. When the Matthew Knight basketball arena opened last year, a man next to me asked if I would hold his drink while he doctored his hot dog. It was author and former Olympic runner Kenny Moore.

“That happens in Eugene. You’re walking along the 28 miles of off-street bicycle paths and, whoosh, some Olympic-class runner zips by, often with a ‘mornin’.’

“Though friendly, we’re an independent lot [Ed. Welch nails this], which traces back to our self-imposed uprooting of our mid-American roots in the mid-1800s. Our ancestors left the security of the pack for the loneliness of the Oregon Trail – and the West.

“Bill Hayward – the stadium’s namesake – was cut from that same adventurous cloth. In 1904, he agreed to become UO’s track and field coach, largely because he loved to fly-fish the McKenzie River.

“He trained a youth athlete, Bill Bowerman, who eventually replaced him as coach, won four NCAA track and field championships in the 1960s and, meanwhile, turned the country onto jogging.

“At the 1972 Trials, Bowerman introduced a track shoe whose prototype sole was made from his wife Barbara’s waffle iron – at a house, ironically, high above that same McKenzie River.

“Bowerman had coached a so-so runner named Phil Knight, who ultimately had a dream to start a little shoe company. He sold out of the back of his car, got kicked out of at least one bank, but persevered.

“The result, of course, was Nike.”

--In my above noted trip to Newport, Oregon, on the coast, I saw the Japanese tsunami dock that has been featured on various national news reports, including CBS News the day I was there. The dock was loaded with invasive species but had long been scrubbed clean before I arrived and it turns out the dock is being broken up shortly. Researchers already found one species of plant and one species of animal that posed a risk to Oregon’s environment. All the species will be quarantined for four years, by the way.

The problem is tsunami debris is everywhere now and will continue to wash up for another one to two years. As the news reports have noted, however, the local communities are in no position to bear the costs of the cleanup. The federal government is going to have to kick in, while the White House should go after Japan (my idea…not the networks’).

The dock that washed up on Newport is 66-feet long and a local told me there are supposedly three more of similar size out in the waters that will eventually come ashore. [It will cost $84,000 to dismantle it…a cost borne by the Oregon Parks and Recreation Department.]

But as you’ve seen in pictures from Alaska, for instance, look at all the tires and appliances that will be washing ashore. It’s disgusting. And who knows what’s attached to them.

---

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

God bless America.
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Gold closed at $1604
Oil, $84.96

Returns for the week 6/25-6/29

Dow Jones +1.9% [12880]
S&P 500 +2.0% [1362]
S&P MidCap +2.8%
Russell 2000 +3.0%
Nasdaq +1.5% [2935]

Returns for the period 1/1/12-6/29/12

Dow Jones +5.4%
S&P 500 +8.3%
S&P MidCap +7.1%
Russell 2000 +7.8%
Nasdaq +12.7%

Bulls 38.7
Bears 24.7 [Source: Investors Intelligence]

Have a good week. I appreciate your support.
 
Brian Trumbore