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07/07/2012

For the week 7/2-7/6

[Posted: 6:00 AM ET]

The European Debt Crisis, continued…

International Monetary Fund chief Christine Lagarde was in Japan on Friday and warned:

“Over the past few months, the outlook has, regrettably, become more worrisome. This is a global crisis. In today’s interconnected world, we can no longer afford to look only at what goes on within our national borders. This crisis does not recognize borders.”

When the IMF releases its latest global growth forecast on July 16, Lagarde added the “outlook will be somewhat less than we anticipated just three months ago. And even that lower projection will depend on the right policy actions being taken.”

The “key emerging markets” of Brazil, China and India are showing signs of slowdown, Lagarde said, and those three, along with Russia, comprise more than 20% of the world economy this year, according to IMF data.

[The IMF has already lowered its U.S. growth estimate to 2 percent this year, and to just 2.25% in 2013.]

Last week I quoted Stephen Cecchetti, the chief economist for the Bank for International Settlements, which acts as a clearinghouse for central banks.

“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.”

So on Thursday, three of the world’s leading central banks, the European Central Bank, the Bank of China and the Bank of England, all took further steps to ease monetary policy, either by lowering their key lending rates, as in the case of the first two by 25 and 31 basis points, respectively, or expanding a bond-buying program, as was the case with the Bank of England (which held its key lending rate at 0.5%). The BoE warned that despite progress at the EU summit the prior week, the euro crisis was weighing on confidence in Britain.

Well, what was the result of the uncoordinated action on the part of the three central banks? Markets rallied for about ten minutes. Yes, as Stephen Cecchetti noted, it would be a mistake to think central bankers can solve every economic and financial problem, especially when most of the banks are already at or near zero on rates.

It’s a global slowdown, and in the case of much of Europe, a recession, with one region feeding on the other….the doom loop.

As for the eurozone, the EU summit of June 28-29, emergency summit No. 19 if you’re counting, led to that spectacular rally on Friday the 29th but markets have been down or treading water since. This Friday’s dour action was compounded by another lousy U.S. jobs report, with more on that in a bit.

But first, I continue to express pessimism with each supposed EU solution to the region’s myriad problems because upon further examination, invariably it comes back to one or two constants. The bailout mechanisms in place are in no way big enough and the musings the eurozone leaders scribble out on cocktail napkins are seldom the kind that can be implemented the next day.

Yes, it was important that the Euro-17 agreed to allow rescue funds to recapitalize distressed banks directly, and to buy government bonds in the open market, without adding to the sovereign debt levels of the likes of Spain and Italy.

And it was important that any rescue loans not be ‘senior’ to existing ones so as not to tick off the private market.

And it was important the euro leaders agreed to a 150 billion euro growth package.

But…the new European Stability Mechanism, which takes over for the European Financial Stability Facility (after some time for overlap), was not increased beyond its approved 500 billion euro limit, there is no region wide deposit insurance scheme to prevent bank runs, and, critically, the key to all the above, a new single banking supervisor under the auspices of the ECB, making the latter closer to the structure of the Federal Reserve, will not be in place until year end, if that.

I mean it’s as if after all 19 of these emergency summits, the participants look at the clock at the end, go “Zut alors! It’s 4:00 a.m.! We’ll reconvene in a month or so” and then it’s left for the aides to pick up the cocktail napkins, shoot off a memo on some of the better ideas while calling out to their bosses as they get into their limousines, “Hey, remember you actually have to enact some of this stuff!” “Yeah, yeah…get some sleep, Pierre.”

And not for nothing, but the Spanish and Italian banks that will one of these days be recapitalized – no telling, for example, when the 100 billion euro Spain requested will actually be injected – will still hardly engender confidence among depositors.   Why would you possibly keep your funds in one of them vs. a major German bank, for example?

As for Germany’s Angela Merkel, she had trouble explaining to her coalition members why she seemingly gave in to the new troika of Spain, Italy and France on the bailout funds and/or how the growth package is to be used. Some German pols are also wondering if their constituents are about to become unwitting investors in these same risky Spanish banks, or lenders to the Italian government that won’t be subject to the same monitoring as, say, the IMF.

Merkel insists she won’t give anything away, or give in on Eurobonds (pooled debt) or a deposit insurance scheme without enforceable budget controls, which goes back to, again, the single banking supervisor.

But Merkel’s personal popularity among her people just hit a 2 ½-year high, a 66% approval rating, up 8 points from June, and the Financial Times’ Wolfgang Munchau said Merkel was the real winner in Brussels because if the ESM is to buy Italian bonds in the open market, “Italy must still sign a memorandum of understanding, and subject itself to the [Ed. real] troika – the International Monetary Fund, the European Central Bank and the European Commission. The procedure will be less invasive, more face-saving. But there will still be a procedure.”

But then Munchau continues that the ESM at a lending capacity of 500 billion “is simply not big enough” and “I cannot see how you can fit Spain under the umbrella, plus Italian bond purchases.”

Meanwhile, Finland is musing, government bond purchases? ‘We aren’t approving the ESM buying government bonds in the open market.’ The Netherlands has also indicated opposition to bond buying. Heck, Finland went so far as to say, ‘You know this Euro idea?  I’m thinking it kind of sucks. We might bail on it.’

So was it any wonder that by week’s end, the 10-year yield on Spanish debt was back to the critical 7.00% level after rallying to 6.30% following the Brussels summit?

Robert Zoellick, who just retired as president of the World Bank, related a story from the recent Rio earth summit as EU environment ministers lectured developing nations on how to run an economy sustainably.

“The rest of the world is saying, who do these people think they are? We are worried they are going to bring down the world economy, and they are trying to tell us how to run our economies?” [The Times of London]

Which brings me to the actual state of the euro economy. The eurozone PMI on manufacturing for June came in at a putrid 45.1, while the service sector index was 46.4, an uptick from May’s 46.0 but still lousy. 

And the May jobless figure was 11.1%, the highest on record for the eurozone since the currency was introduced in 1999.

Spain’s unemployment rate is 24.6%, Greece’s 21.9%, though Greece hasn’t supplied an update since March and its picture is thus worse. The jobless rate among those under age 25 in both countries is 52%. Staggering, and immensely depressing, or as the Organization for Economic Cooperation and Development warned, “a significant and growing proportion of youth, even among those who would have found jobs in good times, are at high risk of prolonged unemployment or inactivity. This will likely hurt their entire careers and livelihoods.”

[In the U.S., it’s a different problem. Staggering post-college debt loads.]

The good news on the employment front comes from the likes of Germany, 5.6% jobless rate, Luxembourg 5.4%, Netherlands 5.1%, and Austria 4.1%.

Elsewhere:

French President Francois Hollande introduced his plan to cap pay in the corporate suite, 450,000 euros ($565,000). The measure is to be debated in parliament later in the year.

This is nuts. Of course it puts French companies at a huge disadvantage and what is the incentive to invest in a publicly held French entity when government is so heavy-handed?

Prime Minister Jean-Marc Ayrault called on the “patriotism” of corporate leaders during the debt crisis. Recall, Hollande’s plan also contains a proposed 75% tax on income of more than 1 million euros. Britain’s Prime Minister David Cameron is avidly recruiting French entrepreneurs. Come to London! Many Frenchmen are considering it.

Back to Spain, remember that property prices tripled there between 1995 and 2007 as construction activity grew from 10% of GDP in 1992 to 43% in 2009. Prices are only down 25% from the 2007-08 peak and thus have a long ways to go from here.

Lastly, it is clear Angela Merkel gave in to Italian Prime Minister Mario Monti in Brussels because of the specter of former Prime Minister Silvio Berlusconi’s return if Monti faltered.   That would be a nightmare. It could yet happen.

[Monti’s government did approve $32 billion in budget cuts over the next three years on Friday.]

Washington and Wall Street

The holiday-shortened week started off with bad news on the manufacturing front as the June ISM came in at 49.7 when a reading of 52 was expected, the figure falling below the 50 dividing line between growth and contraction for the first time since April 2009. Later the June non-manufacturing ISM came in at a poor 52.1 vs. 53.7 in May. But the figures on May construction and factory orders were up a better than expected 0.9% and 0.7%, respectively.

Which left Friday’s June non-farm payroll report and it was another disaster, up just 80,000 jobs (84,000 for the private sector), with the unemployment rate coming in at 8.2%, unchanged. With just a few reports left before Nov. 6, it’s increasingly looking like the White House won’t be able to tout a jobless rate below 8%. It’s now 41 straight months at that level or higher. President Obama had little to say about the numbers, nor how to explain a second quarter average monthly gain of just 75,000 jobs without blaming President Bush.

As noted earlier, the IMF lowered its growth forecast to just 2% for 2012, the consensus these days for the U.S. We’ve seen how that just doesn’t cut it when it comes to job creation.  

The IMF also cited the “uncertainty over domestic fiscal plans,” which are non-existent. I’ve argued since middle of 2011 that we would have a crash in this country in 2012 when reality set in that nothing was being done about the debt and I still believe that can occur. The debt is being ignored as a topic of discussion these days but that will change shortly. We are no different than Europe.

But the president can take heart in a new CNN poll on the economy that asked the question what will conditions be like next year? 60% said ‘good,’ 39% said ‘poor,’ or exactly the reverse of the figures from last October.

Now, though, we are entering earnings season and the news is not going to be good, especially in terms of company guidance. The only question is going to be how much is already discounted by the market.

Street Bytes

--Owing to Friday’s poor action, what had been an OK week turned into a mixed one with the Dow Jones ending down 0.8% to 12772, while the S&P 500 fell 0.5% and Nasdaq eked out a 2-point gain to 2937 (+0.1%). Figures from the nation’s big retailers for the month of June were generally very poor.

--U.S. Treasury Yields

6-mo. 0.14%   2-yr. 0.27% 10-yr. 1.55% 30-yr. 2.66%

Bonds rallied on the long end at week’s end on a flight to safety and the collapsing euro.

--As noted earlier, the rate cut by the People’s Bank of China was a surprise in terms of the timing, earlier than expected, it being the second cut in just a few weeks, while there is growing evidence commodities like cotton, coal and iron ore are piling up amid increasing talk of a hard landing (such as the 7/2 Barron’s cover story echoing same). For China, a hard landing is genuinely thought to mean GDP growth decelerating to the 4% to 7% range, though I would peg it at 5.99% or lower (not being cute…just think 6% is still a ‘soft’ landing, assuming the figure is real).

June housing prices were up for the first time since September, though still down vs. June of last year, and the government is warning real estate speculators not to think that just because the Bank of China lowered interest rates again it’s off to the races.

The government also announced that the official PMI reading on manufacturing was 50.2 vs. 50.4 in May, while the services index for the month rose to 56.7. I was a little surprised to see in a government mouthpiece editorial that the HSBC manufacturing PMI of 48.1 in June was included, somewhat encouraging if you are seeking transparency in China.

And on a different topic, China’s auto sector, there was an interesting piece by Chen Chenchen (sic) in mouthpiece Global Times.

“The local government in Guangzhou decided to put a cap on car sales starting Sunday, making Guangzhou the fourth Chinese city to use car quotas to tackle traffic gridlock and air pollution. Since July 1, no more than 10,000 new cars can be registered every month in the city.

“The sudden announcement of the new limit late Saturday instantly sparked long queues in auto dealerships across the city. Online, complaints and anger from local residents, whose plans for car purchases have been disrupted, are widespread.

“According to the international standard of 20 cars per 100 families, the Chinese have already become an auto society. As cars become the new must-have for Chinese families, the country is tasting the full bitterness of being an auto society. Heavy traffic and choking smog have become common scenes in Chinese cities.

“But compared to car density in rich countries, China is far from a true auto country. Statistics show that the U.S. has the highest vehicle-to-person ratio in the world, about 1:1.3, while the ratio in China is about 1:17.2 among the country’s 1.3 billion people.

“It is beyond imagination how much petrol will be consumed if China reaches the same level of car ownership and Chinese become as enthusiastic about gas-guzzling vehicles as Americans are.

“Besides, the problem in China also seems to be much more complicated. Behind the traffic jams in Chinese cities are chronic problems of energy shortage, transportation systems that need improving, and urban management levels that often seem to lag behind actual needs.”

--Bob Diamond was forced out as CEO of Barclays over the Libor-rigging scandal, following a week of political outcry in the U.K. with the bank’s admission that it manipulated interbank lending rates. But Barclays in turn said Paul Tucker, deputy Bank of England governor, and “senior Whitehall figures” from the previous government [the scandal basically covering a period 2005-2009] knew of – and even condoned – the rate-setting process during the financial crisis. Diamond pointed to notes he took during a 2008 conversation in which he wrote that Tucker knew full well what Barclays Libor submissions had been.

Diamond, with Barclays having previously agreed to pay a record $440 million fine, was asked by British legislators why he took so long to uncover his firm’s attempts to manipulate interest rates.  Libor is the benchmark for more than $350 trillion of global securities after all.

“This isn’t just Barclays,” he replied. “Throughout 2007 and 2008, no institution of the 16 banks reporting three-month dollar Libor was at the higher end more consistently than Barclays. Barclays was getting questions about why it was always high and we were saying, ‘We are high because we were reporting at where we were borrowing money.’”

Scottish National Party lawmaker Stewart Hosie cut to the heart of the parliamentary investigation.

“I’m asking why people at Barclays noticed other people doing this, but were unable for whatever reason to recognize what was going on internally.”

Diamond alleged trading-desk supervisors had failed to alert their bosses. He also claimed he didn’t know about the rigging actions until a week before regulators published their findings, including e-mails between Barclays’ traders, which is rather hard to believe; as in I don’t. 

Labour MP John Mann summed it up: “Either you were complicit, or grossly negligent, or grossly incompetent.”

Criminal probes are ongoing.    Rating agency Moody’s lowered its outlook on Barclays from stable to negative. Other banks are in the crosshairs, with other governments now launching their own investigations, and the fines will total in the $billions as loss of confidence in the financial sector just grows and grows…and with good reason.

I’m sick of the apologists for Diamond and Barclays, conflating the bank’s and his possible actions with that of central banks and their manipulation of rates. 

It’s not the same! You can argue all you want about central bank policy and its repercussions, but it’s not illegal. What Barclays admitted to is.

--Meanwhile, JPMorgan Chase was sued by the U.S. Federal Energy Regulatory Commission for failure to release 25 e-mails in an investigation of possible manipulation of power markets in California and the Midwest. As analyst Paul Miller of FBR Capital Markets told Bloomberg, “(Jamie Dimon) has a PR nightmare in front of him. It’s another headline risk, which means more regulators, which means over-regulation, which will eventually hit their bottom line.”

[JPM is also still among the banks that will get nailed in the Libor scandal.]

--The Financial Times’ Gillian Tett writes that “a looming report from Dick Ravitch and Paul Volcker, two respected financial grandees, on America’s state finances…could be shocking.”

--Spain’s high court opened a fraud probe into the former chairman of Bankia, the partially (eventually fully) nationalized lender at the forefront of the country’s banking crisis. I’m shocked! Absolutely shocked!

[I told you years and years ago of the fraud linking the regional and local Spanish governments, the banks, and the developers.]

--Non-euro Britain’s June manufacturing PMI was 48.6, better than the eurozone average but still poor.

--Russia’s economy is booming, despite all the doom and gloom. Unemployment is down to a historical low of 5.4%, with wages up a whopping 14% in the first quarter on an annualized basis, while retail borrowing was up 43% in May.   This surge is fragile, however, given the still heavy reliance on energy prices.

--Australia’s retail sales surprised to the upside in May, 0.5% more than in April and the fifth straight monthly gain. [April’s were revised upward, from negative to positive.]

--Canada’s unemployment rate fell to 7.2% in June.

--Gambling revenue in Macau rose 12% in June from a year earlier, a further sign of slowing for the mainland economy, though this was better than May’s 7% rise.   In the first six months of 2012, revenue is up 20% from the first half of 2011. But what will the second half bring? To me, 12-15% gains would be very bullish and certainly point to a bottom in economic activity. Below that wouldn’t be good.

--Auto sales in the U.S. for June came in at a seasonally adjusted annual selling rate of 14.1 million vehicles, up 22% from a year earlier. For the first six months of the year, vehicle sales are up 14.8% over the first half of 2011. 

General Motors reported a 15.5% increase, Chrysler’s sales were up 20.3% and Ford’s rose 7.1%.

Toyota saw its sales grow 60.3% in June over last year, while Honda’s were up 48.8%, as both the Toyota Camry and Honda Accord made comebacks.

Nissan’s rose 28.2% and Volkswagen saw a 32.1% increase.

--GlaxoSmithKline LLC will pay a $3 billion fine and plead guilty to promoting two popular drugs for unapproved uses, as well as failing to provide proper safety information on a third, in the largest health care fraud settlement in U.S. history, the Justice Department announced.   Among the company’s misdeeds was providing doctors with exclusive vacations, including European hunting trips and even tickets to a Madonna concert. GlaxoSmithKline also agreed to be monitored by government officials for five years.

Among the other findings were payments back in 1999 to “Dr. Drew,” popular radio and television personality Dr. Drew Pinsky, who is said to have received payments totaling $275,000 from a communications firm working for Glaxo to promote the antidepressant Wellbutrin. Dr. Drew, in a statement, said “My comments (related to a promotional campaign) were consistent with my clinical experience.”

--This week it was Amazon’s turn to announce it was developing a competing product; in this case a smartphone to go up against Apple’s iPhone and Google’s Android operating system.

--Not to be outdone, Apple will supposedly debut a smaller, cheaper iPad by year-end, according to sources, with a screen that’s 7 to 8 inches diagonally, less than the current 9.7-inch version. Apple is thus looking to undercut Amazon, Google and Microsoft and products like Google’s Nexus 7 tablet and Amazon’s Kindle Fire, both which have 7-inch screens.

Since iPad went on sale in April 2010, the company has picked up 61% of the tablet market, according to Gartner Inc. [Bloomberg]

[Separately, Apple ended its long legal battle over the use of the iPad name in China with a $60 million payout to Proview Technology (Shenzhen), substantially less than the $2 billion first claimed by Proview in February.]

--Samsung, the world’s largest maker of memory chips, mobile phones and flat-screen panels, estimated second-quarter operating profit will jump 79% from a year earlier when it reports later in July, powered by sales of its Galaxy smartphone (about 65% of its operating earnings). But, shares fell on talk of slackening demand in Europe and China.

--Microsoft announced it would take a $6.2 billion writedown to reflect a slump in value of its online services division, specifically related to a 2007 acquisition of aQuantive, a digital advertising firm.

Heard on the Street / Wall Street Journal

“The tech giant emphasized this wouldn’t result in a cash outflow. That is correct. But it doesn’t change that Microsoft’s assets now are worth $6.2 billion less. It also is an admission Microsoft overpaid for a deal made in hope of keeping pace with Google and that those efforts haven’t borne fruit.

“Plus, the acquisition – the $6.3 billion purchase of aQuantive back in 2007 – was an all-cash deal. So Microsoft has seen a cash outflow; it just occurred years ago.

“It is true that cash is king. But the value of assets matter, too, even ones as intangible as goodwill. Indeed, those often prove the most ephemeral.”

--Research In Motion CEO Thorstein Heins said the BlackBerry maker is facing very big challenges but is not in a “death spiral,” as one high-profile research report recently put it. Heins said the twice-delayed BlackBerry 10 platform would “empower people as never before” by linking them to parking meters, car computers, credit card machines and ticket counters.

Ooh…

--The record heatwave in the Midwest could not have come at a worse time in terms of the corn crop. Everything was looking great, but as I’ve seen on my trips to Iowa and the region, the situation can turn on a dime. It can also be highly localized. Of course each year, without fail, a part of the country (the world, for that matter) is experiencing drought and we are shown the same pictures, but as I related last summer when I was in Iowa for a week, driving around for just an hour you can see all kinds of extremes, not just due to whether a farm is irrigated or not, but also simply where the localized showers have fallen.

It’s also interesting that when it comes to wheat, France is raking it in this year as they have had abundant rain. Unless you’ve flown over that country, an outsider has little concept of what a huge farming nation France is. In fact this year, France will be the world’s second-biggest exporter of wheat.

The USDA estimates the global wheat crop will drop 3.2% this year. In the U.S., less than half of the corn crop was in good shape.

--The National Association of Manufacturing says pending defense cuts could result in up to one million job losses, including 134,000 in manufacturing; which means by my simplistic way of thinking, 866,000 are just pushing paper. The Bureau of Economic Analysis, though, says that weaker defense spending also shaved off a half-percentage point off first-quarter GDP. Instead of growing at 2.4%, we grew at 1.9%.

--California’s Senate approved a 130-mile stretch of a high-speed rail line that will eventually run between Los Angeles and San Francisco, the first dedicated high-speed line in the U.S. The final cost is estimated at $68 billion, which means if it’s ever completed it would come in at $1.2 trillion…just an educated guess.

--Boeing projects a $4.5 trillion jetliner market over the next 20 years for 34,000 new commercial jets, up over last year’s estimate.

“The world’s aviation market is broader, deeper and more diverse than we’ve ever seen it,” according to a spokesperson. Boeing sees a 4% increase in the number of people flying each year.

Airbus is projecting about 7,950 deliveries of its own aircraft over the next two decades, up 620 from its estimate a year ago, with Airbus announcing it would invest $600 million in a plant in Mobile, Alabama, where its single-aisle A320 will be assembled. This is good. 1,000 jobs will be created, as Airbus of course hopes the move will help it sell more planes in the U.S. Airbus’ other assembly plants are in Toulouse, France; Hamburg, Germany; and Tianjin, China.

--The House, by a 373-52 margin, and the Senate, 74-19, passed a final $127 billion package on transportation and student loans, with both parties pointing to the positive jobs aspects, while some conservatives said it was yet another budget buster.

The transportation legislation extends federal highway, rail and transit programs for 27 months, authorizing $120 billion in spending (financed by taxes and a hefty transfer from the Treasury), while about $7 billion is a student loan provision extending the current 3.4% interest rate, which neither party wanted to be blamed for failing to do come November. Students faced a doubling of their interest rate to 6.8%.

--According to a new report by the House Oversight Committee, hundreds of Capitol Hill VIPs landed special breaks in securing mortgages with Countrywide, 90% of which were backed by Fannie Mae; the “Friends of Angelo” program (named for former Countrywide CEO Angelo Mozilo, he of the lizard skin).

But as Republican chairman Darryl Issa said of his committee’s findings, which were zero surprise, this all having been reported in one fashion or another previously, no laws were broken…or as the New York Post editorialized, “of course no laws were broken: Washington writes them, after all.”

--Manchester United filed to go public in the United States, seeking to raise a maximum of $100 million that would be used to keep and acquire players it needs to regain English and European titles. Man U was listed on the London Stock Exchange from 1991 until June 2005, when the Glazer family, owners of the NFL’s Tampa Bay Buccaneers, acquired the team in a leveraged buyout valued at $1.47 billion. Forbes values the franchise at $2.24 billion, but there is gobs of debt attached from the ’05 LBO which carries 8%+ interest rates.

--I’ve been watching Wolf Blitzer and “The Situation Room” most afternoons and I just have to correct the man. The other day, in questioning a Republican, “Blitz” said the “Dow was well under 7000” when President Obama took office.

Obama was inaugurated on Jan. 20, 2009 and the Dow closed that day at 7949. It was 8251 the previous Friday, Jan. 16 (the market being closed for MLK Day on Jan. 19) and finished the week, Jan. 23, at 8077. The S&P 500 was more volatile, going from 850 on Jan. 16 to 805 on Jan. 20 and then 840 on Jan. 21.

So, yes, since Obama came into office Wall Street has rallied strongly, the actual bottom in the market being on March 9, 2009 at Dow 6547 (S&P 676). But Wolf being a stickler for details, I just had to set him straight.

--China is going to ban the serving of shark fin soup at official banquets in a move applauded by environmentalists. An estimated 73 million sharks a year are killed for the delicacy. China said it would implement the ban immediately but expects it could take up to three years to be fully enforced.

--The London Olympics nightmare is just around the corner, that being trying to clear customs at Heathrow airport. Last week, non-EU citizens faced a 90-minute delay passing through immigration.

[The latest long-range weather forecast for the Olympics is not good; this after record rainfalls in London in April and June. This weekend’s British Grand Prix, with 300,000 tickets having been sold for the three days, is evidently an unmitigated disaster with heavy rain causing monumental traffic jams in the area.]

Foreign Affairs

Iran: A quick review. The P5+1, the five permanent members of the U.N. Security Council (Britain, France, the United States, China and Russia) plus Germany, have held formal, high-level talks with Iran over its suspected nuclear weapons program three times this year – Istanbul in April, Baghdad in May, and Moscow in June. In addition there were lower-level talks this past week in Istanbul which may, or may not, lead to further ‘high-level’ talks.

There is no reason for further talks, period. Iran’s gig is up. At least it should be.   But just as Iran continues with its brilliant stall game, it’s version of a four-corners offense, the White House is conducting its own pathetic stall game…keep things low key until after the November election.

The process is going nowhere, everyone knows that. Iran has long known what it must do. Cease enriching uranium. Ship out that which has already been enriched to 20%. Close down the underground facility at Qom (Fordo). If Iran did all three (these being Israel’s demands as well), there is no doubt economic sanctions on Iran would be greatly lifted, including the EU embargo on Iranian crude that went into effect on July 1.

At the same time, yes, it needs to be noted that the existing sanctions on Iran are having a serious impact on Iran’s economy; 80% of which is dependent on oil. Many in Congress, however, from both sides of the aisle, want the screws tightened even further. Iranian President Mahmoud Ahmadinejad himself admitted “The sanctions imposed on our country are the most severe and strictest sanctions ever imposed on a country. But the enemies’ assumption that they can put Iran in a weak position through these sanctions is false and is the result of their materialistic calculations.” [New York Times]

The administration has made it clear to Iran by its increasing show of force in the Persian Gulf that it not only has Israel’s back but will do all it can to keep the Strait of Hormuz open, which Iran again threatened to shut down, firing off some short- and medium-range missiles the other day in an attempt to intimidate the West.

I have never been concerned with Iran’s threats in this regard, knowing the U.S. already has more firepower in the Gulf than Iran’s entire military has, let alone other assets we have in the region.

But I have also placed a bet that the price of crude is ready to spike on the supposition that Israel will strike sooner than later. You also can’t ever discount the possibility of a rogue Iranian general in the Revolutionary Guard acting on his own, at which point all hell breaks loose.

Separately, Iranian state television published an online poll Tuesday in which 63% of respondents said they would abandon Iran’s nuclear program in exchange for the lifting of international sanctions, though the results were quickly removed from the network’s website. [Jerusalem Post]

The figure shatters the myth, put forward by the regime, that the Iranian public is behind the nuclear program. [The public is also against shutting the Strait by a huge margin.]

Back to the sanctions, just how tough are they?
Editorial / Wall Street Journal

“(The) real news happened under the radar last week: Though economic sanctions still haven’t slowed or stopped Iran’s nuclear drive, the Obama Administration has decided to make them even weaker. The Iran sanctions regime is looking like the U.S. tax code – filled with loopholes.

“It’s so weak, in fact, that all 20 of Iran’s major trading partners are now exempt from them. We’ve arrived at a kind of voodoo version of sanctions. They look real, insofar as Congress forced them into a bill President Obama had to sign in December. The Administration has spoken incantations about their powers. But if you’re a big oil importer in China, India or 18 other major economies, the sanctions are mostly smoke.

“This is possible because, thanks to lobbying by the Obama Administration, the sanctions law contained several loopholes you could drive a warhead through. One provided that if a country ‘significantly reduced’ its oil imports from Iran, the State Department could exempt it from sanctions for a renewable period of six months. Naturally, the definition of a significant reduction was left to the Administration’s discretion.”

11% in the case of India, 22% for Japan.

“We’ve never considered sanctions likely to persuade Iran to drop its nuclear program, but it’s dangerous to pursue them half-heartedly while claiming progress and keeping the international temperature down as Iran’s centrifuges spin. That’s been the Obama Administration’s consistent approach, and it’ll probably continue at least through Election Day in November. It’s a good way to comfort adversaries in Tehran and Beijing while undermining friends in Jerusalem and beyond. “

[Funny how Secretary of State Hillary Clinton is making her first visit to Israel in almost two years on July 16, two weeks before Mitt Romney is scheduled to arrive.]

Syria: Human Rights Watch has documented systemic torture, on both sides, in the civil war as the U.N. attempts to broker a peace settlement where the result is a government of national unity, excluding President Bashar Assad, but Assad won’t accept a non-Syrian model. On Friday, Sec. of State Clinton blasted Russia and China for not putting pressure on Assad to leave. The death toll in the conflict is now estimated between 14,000 and 16,500, including 800 over a recent seven-day period. 4,100 of the deaths are apparently government troops.

Meanwhile, tensions between Turkey and Syria worsened further as Ankara scrambled fighter jets after Syrian helicopters flew close to the border. President Assad issued a statement for the first time saying he regretted “100%” the earlier downing of a Turkish jet (the bodies of the two pilots being finally found this week), but then blasted Turkish President Erdogan as the relationship between these two once close friends is now irreparable. 

Egypt: Mohamed Morsi was sworn in as president last Saturday and the battle for power has begun between the Muslim Brotherhood and the Supreme Council of the Armed Forces (SCAF). As of today, Morsi has no real power over the budget and no role in foreign policy, defense or security matters. Plus the country needs to elect a new parliament and write a constitution that SCAF seems determined to have enshrine its powers, including keeping its budget secret.

Morsi himself, in a speech at Tahrir Square the day before he was inaugurated, vowed to pursue the release of the blind sheik Omar Abdel-Rahman, who is in U.S. custody for plotting to blow up various New York City landmarks.

How can the United States influence matters?   Simple. Cut off the $1.3 billion in aid we supply the Egyptian military unless it shares power, as hard as that might be for some in the U.S. to stomach, and keeps the peace with Israel.

For now, one week into a Brotherhood presidency, there are signs already of stepped up harassment of women not wearing a veil or wearing colorful ones while traveling in women-only train cars, according to activists, while some police officers have sued the Interior Ministry to rescind punitive measures against growing beards, a hallmark of Islamic piety.

Women held fewer than 10 of the 508 seats in the Islamist-dominated parliament that was recently disbanded and many proposals will be put before a new assembly that undermine women further. Stay tuned.

Afghanistan: Three British soldiers were shot dead by an Afghan police officer in the latest “green on blue” attacks that have claimed at least 26 of the 218 NATO-led troops killed in Afghanistan this year. [The term referring to the color of Afghan army uniforms and the blue pennants worn by NATO troops at military exercises.] Seven of the 28 British troops killed in Afghanistan this year have died at the hands of Afghan security forces. Later, five American troops were shot (the status of their injuries is not known as I go to post) in a similar incident as the Taliban seeks to sow a crisis in confidence that would negatively impact the training effort.

Iraq: It was a bad week in what has been an increasingly bad year on the security front with at least 40 killed by a single truck bomb in southern Iraq on Tuesday. The U.N. estimates that through June, 2,100 Iraqis were killed in violent attacks this year vs. 1,800 in the first half of 2011.

The Washington Post’s Walter Pincus also had a piece that began:

“Why doesn’t the Iraqi government seem to like us?

“Why won’t Prime Minister Nouri al-Maliki give better treatment to the U.S. government officials whose military freed Iraq from the dictator, Saddam Hussein, and whose employees now are trying to make his country better?

“Why are we giving more than $1 billion next year, mostly to Iraq’s military, while its oil income has soared, supposedly putting the Baghdad regime in surplus?”

Iraqi security forces harass and detain U.S.-hired private security contractors at checkpoints, there’s been a lack of cooperation from Iraqi law enforcement with the U.S. on potential fraud cases, difficulties in getting Iraqi entities to sustain projects the U.S. poured $billions into…the list goes on and on. All this while Maliki strengthens his relationship with Iran. It’s sickening.

Libya: Today, Saturday, the nation holds the first election in its history as voters will elect a 200-seat Constituent Assembly that will name a prime minister, a council of ministers to replace the current interim government, and then the establishment of a commission that will write a new constitution, with the aim being a full transition period of no more than 18 months. Good luck to all.

Pakistan: After a U.S. airstrike accidentally killed 24 Pakistani soldiers in November, Pakistan shut down crucial supply lines used by NATO-led forces in Afghanistan. Pakistan has been adamant the U.S. must apologize.   This week, Secretary of State Clinton said: “We are sorry for the losses suffered by the Pakistani military.” Pakistan reopened the supply lines. It’s enough to make one think “WTF?” That’s all it took, not exactly a real apology, after seven months?

Now the U.S. was upset because of all the American troops that have been killed by Taliban with alleged connections to Pakistan’s ISI intelligence agency, thus the reason for not saying we were “sorry.” But it cost us $100 million a month to use alternative routes.

This makes for an interesting case study in foreign diplomacy school.

Lebanon: Last time I was here, spring of 2010, the guests at my hotel all seemed to be Saudis, Kuwaitis, Qataris…folks of that sort. The mammoth new hotel and shopping complexes in Beirut were all fueled by investment from the same countries as Beirut returned to its former role as a vacation playground for those in the region.

Bu now Saudi Arabia became the latest this week to warn its citizens not to travel to Lebanon, joining Kuwait, Qatar, the U.A.E. and Bahrain who have issued similar travel advisories, including urging those already in the country to leave.

Ukraine: Ukrainians clashed with riot police in Kiev this week after a bill that would place Russian on par with Ukrainian as the official language of 13 of the nation’s 27 regions was rushed through parliament. President Viktor Yanukoych was expected to sign the bill into law, allowing Russian to be used in courts, schools and other state institutions.

Ukraine has always been like two separate countries since its independence with the breakup of the Soviet Union (literally East and West).

Russia: An AP-GfK poll shows 60% of Russians maintain a favorable opinion of President Vladimir Putin, but only 38% of Muscovites, which makes perfect sense. For starters, the hinterlands are not real sophisticated. Putin’s high in job approval was 81% as he wrapped up his second term in 2008, according to the Levada Center, which also measures his current approval at 60%. 

91% cite corruption as the number one problem among Muscovites. Only 18% trust the police, notorious shakedown artists.

Meanwhile, a leader of the Nashi youth group became the latest Kremlin ally to accuse opposition leader Alexei Navalny of graft and tax evasion as Navalny could be headed for prison on what very well might be trumped up charges. Navalny says his emails were hacked into.

On the “ultranationalist” front, the Moscow Times had a scary story concerning the rise of various groups of this kind. One growing party, Great Russia, parades around in Nazi uniforms. What is even more worrisome is the ultranationalists are beginning to drown out the legitimate opposition, such as liberal-leaning former Prime Minister Mikhail Kasyanov. Ivan Mironov, 31, a leader of the ultranationalist All-Russian People’s Union, served three years in pretrial detention for the attempted murder of Anatoly Chubais, the architect of Russian privatization, in 2005. He was found not guilty.

Ironically, this could rally some liberals behind Putin. As one liberal politician told the Moscow Times, “Fascists in power are much worse than Putin.”

I am sticking with my own prediction that Putin doesn’t make it through the year.

China: Riot police in Sichuan province clashed with thousands of environmental protesters and in a rare victory for environmentalists, authorities decided to cancel the building of a metals refinery that the citizens of Shifang city thought would poison their air and water.

In Hong Kong, there have been massive protests against the new Chief Executive Leung Chun-ying, handpicked by Beijing.  Many believe their democratic rights are gradually being infringed upon.

Japan: An independent parliamentary panel has concluded that the Fukushima nuclear plant was “a profoundly man-made disaster” that “could and should have been foreseen and prevented” and its effects “mitigated by a more effective human response.”

The report also blamed cultural conventions and a reluctance to question authority.

“Although triggered by cataclysmic events (the earthquake and tsunami), the subsequent accident at the Fukushima Daiichi Nuclear Power Plant cannot be regarded as a natural disaster,” it said.

Key government agencies in the aftermath of the twin disasters “did not function properly.”

Last Sunday, the first nuclear plant since the disaster in Japan was restarted in Fukui prefecture; the restart sparking large protests as the government said a return to nuclear power was essential for the economic recovery.

Mexico: Enrique Pena Nieto was elected president on Sunday with 38% of the vote, marking the political comeback of his Institutional Revolution Party (PRI), which ran the nation for more than 70 years until 2000. The PRI, though, as I’ve written before, has a reputation for cutting deals with the drug cartels and allowing drugs to flow north as long as the cartels avoid public violence. Anywhere from 47,500 to 55,000 have died in the drug war in the past 5 ½ years and Pena Nieto said:

“We will wage an effective fight against the capos, against the heads of the cartels, but clearly also with a rethinking that will allow a lowering of violence. There will be no truce, no pact with organized crime.”

Pena Nieto has vowed to increase security spending and double the ranks of the federal police by 35,000 officers and using it in places where local law enforcement is weak or corrupt.

But while Pena Nieto doesn’t take office until December 1 (way too long a transition period), many say he has no real blueprint for combating the violence. He certainly said little about it during the campaign (nor did the others contending say much on the topic). To be continued…

Random Musings

--The last I looked at the Gallup daily tracking poll it read President Obama 48, Mitt Romney 44, a slight uptick over the previous two month’s data showing a virtual tie. State-by-state Obama is seeing small upticks, owing to the Supreme Court’s ruling on ObamaCare as well as the campaign’s attacks on Romney (see Journal editorial below).

--In a CNN/ORC International survey, 50% said they agree with the court’s decision on the individual mandate and 49% disagree. The Supreme Court’s approval rating among Democrats jumped by 23 points to 73%, while among Republicans it fell by 21 points to 31%. Approval among independents edged up five points to 53%.

In the same CNN/ORC poll, 49% favor President Obama, 46% say they’d vote for Romney. Obama’s overall approval number is 51% (he has a 55% personal “favorability” rating). 

--Daniel Henninger / Wall Street Journal

“Back at the dawn of ObamaCare in June 2009, speaking to the American Medical Association’s annual meeting, President Obama said: ‘No matter how we reform health care, we will keep this promise: If you like your doctor, you will be able to keep your doctor. Period.’

“But will your doctor be able to keep you? Or will your doctor even want to keep you, rather than quit medicine?

“For the longest time now, since day one of the Affordable Care Act, we have been having arguments over the mandate to purchase health-care insurance, requirements that insurance companies accept policyholders regardless of health, and price discrimination in insurance policies.

“And of course this past week, the Supreme Court – or something resembling the Supreme Court – outputted a decision on the tax status of the insurance-purchase mandate, the states’ obligation to pay for Medicaid and as a bonus, the Commerce Clause.

“Have you noticed what got lost in this historic rumble? Doctors. Remember them?

“ObamaCare has been a war over the processing of insurance claims. It has been fought by institutional interests representing insurance, hospital and pharmaceutical firms. The doctor patient relationship, or what used to be called ‘the practice of medicine,’ has sunk beneath these waves….

“A Wall Street Journal story the day after the Supreme Court ruling examined in detail its impact across the ‘health sector.’ The words ‘doctor,’ ‘physician’ and ‘nurse’ appeared nowhere in this report. The piece, however, did cite the view of one CEO who runs a chain of hospitals, explaining how they’d deal with the law’s expected $155 billion in compensation cuts. ‘We will make it up in volume,’ he said.

“Volume? Would that be another world for human beings? It is now. At Obama Memorial, docs won’t be treating patients. They’ll be processing ‘volume.’ [Ed. and as Henninger goes on, lots of mandated reports…total time killers.]

“Mitt Romney needs a way to talk about health care in America. This isn’t just a fight over insurance companies. It’s about the people at the center of health care – doctors. The Affordable Care Act will damage that most crucial of all life relationships, that between an ill person and his physician. Barack Obama’s assertion that we all can keep our doctors is false. You could line up practicing physicians from here to Boston to explain to Mr. Romney why that is so.”

--Speaking of Romney, what the heck is he doing?! What the heck is his staff doing?! Romney in a CBS News interview, and on the Fourth, said the Supreme Court determined that Congress held the authority to levy taxes and the majority opinion said the penalty for not purchasing insurance was, in fact, a tax.

Romney told CBS News, “The majority of the court said it’s a tax and, therefore, it’s a tax.” At a Fourth of July parade, he reiterated, “Of course, if that’s what they say it is” when asked about the court’s tax designation.

But senior adviser Eric Fehrnstrom said on Monday, “The governor believes that what we put in place in Massachusetts was a penalty and he disagrees with the court’s ruling that the mandate was a tax.”

Needless to say the Obama campaign had a field day. The Wall Street Journal’s editorial board concluded:

“If Mitt Romney loses his run for the White House, a turning point will have been his decision Monday to absolve President Obama of raising taxes on the middle class. He is managing to turn the only possible silver lining in Chief Justice John Roberts’ ObamaCare salvage operation – that the mandate to buy insurance or pay a penalty is really a tax – into a second political defeat….

“For conservative optimists who think Mr. Fehrnstrom misspoke or is merely dense, his tax absolution gift to Mr. Obama was confirmed by campaign spokeswoman Andrea Saul, who tried the same lame jujitsu spin. In any event, Mr. Fehrnstrom is part of the Boston coterie who are closest to Mr. Romney, and he wouldn’t say such a thing without the candidate’s approval.

“In a stroke, the Romney campaign contradicted Republicans throughout the country who had used the Chief Justice’s opinion to declare accurately that Mr. Obama had raised taxes on the middle class. Three-quarters of those who will pay the mandate tax will make less than $120,000 a year, according to the Congressional Budget Office. The Romney high command has muddied the tax issue in a way that will help Mr. Obama’s claims that he is merely taxing rich folks like Mr. Romney. And it has made it that much harder for Republicans to again turn ObamaCare into the winning issue it was in 2010.

“Why make such an unforced error? Because it fits with Mr. Romney’s fear of being labeled a flip-flopper, as if that is worse than confusing voters about the tax and health-care issues. Mr. Romney favored the individual mandate as part of his reform in Massachusetts, and as we’ve said from the beginning of his candidacy his failure to admit that mistake makes him less able to carry the anti-ObamaCare case to voters….

“The Romney campaign thinks it can play it safe and coast to the White House by saying the economy stinks and it’s Mr. Obama’s fault. We’re on the email list and the main daily message from the campaign is that ‘Obama isn’t working.’ Thanks, guys, but Americans already know that. What they want to hear from the challenger is some understanding of why the President’s policies aren’t working and how Mr. Romney’s policies will do better….

“Mr. Romney promised Republicans he was the best man to make the case against President Obama, whom they desperately want to defeat. So far Mr. Romney is letting them down.”

I couldn’t agree more with the Journal, but I’d add that Romney has been a miserable failure on the foreign policy front and has missed one opportunity after another in this regard.   And now I have zero confidence he will excoriate the president during the debates on ‘leakgate’ as well.

--So I printed out a ton of pieces on Chief Justice Roberts and his ObamaCare ruling, such as the New York Post’s John Podhoretz who said, “The Roberts opinion is nothing less than an intellectual, political and moral scandal.” But I’ll highlight a more balanced essay; that being the lead editorial in USA TODAY.

“The instant reaction to last week’s Supreme Court decision upholding ObamaCare was entirely predictable. The right fumed at Chief Justice John Roberts for siding with the court’s four liberal justices….

“But with time comes wisdom. Though the decision saved Obama’s signature achievement and is better for the president than a loss, it fired up an opposition that already despises the law and could make his re-election more difficult.

“And if anyone thinks Roberts betrayed his principles, they’re not looking past the headlines.

“The chief justice’s reason for leaving the Affordable Care Act in place was that the courts should, when possible, defer to the political branches – a principle conservatives have preached for decades in denouncing ‘activist judges.’

“More significant, the ruling advanced two other long-sought conservative goals. It limited the scope of the Constitution’s commerce clause, the basis for federal authority over a wide range of commercial activity, and it limited Congress’ ability to threaten states with loss of Medicaid money if they fail to participate in ObamaCare.

“Just how powerful those limits are won’t be clear for years, but the potential is significant….

“Critics of federal overreach can use the decision to restrain new laws going forward, but the even more interesting question is whether the decision provides a way to undo regulations on labor practices, the environment and so on.

“The court’s decision on Medicaid is also potentially expansive. Its immediate effect is to stop the federal government from taking away all of a state’s Medicaid funding if the state refuses to cover a large new population of low-income beneficiaries required under the new law. But Congress often uses the federal funding as a club to force states to do things – raising the drinking age to 21 or enacting right-on red laws, for example – that they might otherwise resist. This ruling could shrink the size of that club, but it will take more litigation to determine how robust either this or the commerce clause limitation really is.

“When the day was done, Roberts had sided with the court’s liberals in defending ObamaCare’s constitutionality, with its conservatives in limiting the commerce clause and with justices from both wings to get the Medicaid ruling. It was a crafty opinion by a chief justice with a long-term perspective, and not insignificantly, one that insulated the court from rising charges that it is driven by politics, not law.

“If politicians exercised similar thoughtfulness, a lot of the nation’s problems might go away.”

--From Stanford Univ. economist Michael J. Boskin:

“In 2009, 2010 and 2011, the administration forecast average economic growth of 4% in the next two years. But the economy has not had even one quarter of 4% growth during Mr. Obama’s stewardship. Rather, our economy has experienced its longest string of consecutive quarters of economic growth below 4% since World War II. Growth has averaged 1.4% in Mr. Obama’s first 13 quarters as president.

“His record on jobs is just as bad. Mr. Obama’s initial forecast claimed unemployment would never reach 8% if his $800 billion stimulus bill passed in early 2009 (as it did) and would now be below 6%. That’s off by 3.9 million unemployed workers, millions more if we include those who have given up looking for work.

“Perhaps we should not have expected more from the eloquent apostle of hope and change. Mr. Obama had little experience in or respect for the ‘for profit’ part of the economy. Of his one brief sojourn in the business world, he says in his autobiography he felt ‘like a spy behind enemy lines.’

“He now says that Mr. Romney’s business career – which former President Clinton describes as ‘sterling’ – is not a qualification to be president. How would he know? Before becoming president, he had no executive experience of any kind – private or public.”

--New Jersey Republican Gov. Chris Christie has had a rough stretch. Last week he signed a budget for next fiscal year that increases spending 6.8% when I thought we elected him (at least some of us did) to reduce spending. And then when he asked for a 10% cut in the income tax it was the Democrats, who control the legislature, who said, hold on a minute. Revenues aren’t coming in as anticipated, let’s wait until January to see if the revenue picks up first. Funny, isn’t it?

[I’m also getting very tired of Christie’s personal behavior…such as his latest blow up at the Jersey shore caught on video. Vice president? No way.]

--No wonder 83-year-old Professor Peter Higgs had tears in his eyes on Wednesday. Higgs was present in Geneva for the formal announcement that a particle he and five others first proposed nearly 50 years ago had been proved, the “God particle.” Rolf Heuer, director-general of the CERN laboratory, told colleagues that they were “99.99995 percent sure their data was correct and while many questions remain (hopefully to be answered in the next four years’ worth of experiments), Heuer said, “As a layman, I think I would say ‘we have it.’ But as a scientist I have to say, ‘what do we have?’”

What scientists think they now have is the completion of the Standard Model – physics’ mathematical description of the subatomic world.

Alan Barr, of the University of Oxford and CERN’s Atlas experiment, said: “Many theoretical physicists will say there is not just one Higgs boson, but at least five. If there are, this is just one of them. If this does not quite have the properties of the Standard Model, then it can point to more particles.

“The Standard Model has been around since the 1970s…but we know it is broken. It can’t describe nature, certainly can’t describe gravity, and has nothing at all to say about the nature of most of the contents of the Universe. It’s clearly not the whole story. It would be great if this is not an isolated island coming over the horizon, but an indicator of a whole new world to come.”

Or as the Wall Street Journal editorialized:

“The seas of modern science, in other words, are stormy and contain many uncharted waters. For now, though, it is enough to marvel again at how far we have sailed”

--Last week I wrote of the “exploding” sexual abuse scandal at Lackland Air Force base in San Antonio and since then the story has grown to sickening proportions, thanks to various editorials and a new documentary, “The Invisible War,” which depicts an epidemic of rape within the U.S. military.

“When does this ever end?” retired Air Force Brig. Gen. Wilma L. Vaught asks as the film details “how a female soldier in combat zones is more likely to be raped by a fellow soldier than killed by enemy fire.” [Editorial / Washington Post]

I wrote last week:

“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.”

Editorial / Washington Post…July 4

“Critics say that the changes [just imposed by Defense Secretary Leon E. Panetta after watching the documentary] don’t go far enough, and some are pressing for an overhaul of the military’s judicial system that would take decisions out of the chain of command and establish civilian supervision. It’s a move strenuously opposed by the military, which views the chain of command as the foundation for the order and discipline so vital to its mission. The new policy involving more senior and experienced officers, which went into effect only last week, must be given a chance, but if it fails to produce real results, the Pentagon must not hesitate to make additional changes. Among ideas with merit are empowering military prosecutors to make the final decision on cases or providing a process for victims to appeal decisions not to prosecute.

“One area that clearly demands immediate attention is how the military punishes those who are accused or convicted of sex crimes. Analysis by the Service Women’s Action Network of 2011 Defense Department statistics showed that 10 percent of accused sex offenders were never held accountable because they were allowed to resign. Even more startling is its finding that one in every three convicted sex offenders was allowed to remain in the service. So much for zero tolerance.”

--So that dock I talked about last time that washed up on a beach in Newport, Oregon that had traveled 5,000 miles across the Pacific following the Japanese tsunami, turns out to weigh 132 tons. In reading a story in the Oregonian by Joseph Fanelli after posting my piece, I learned:

“The Japanese government has estimated 1.5 million tons of tsunami debris is adrift in the Pacific and making its way toward the West Coast. To put the volume in context, it is the equivalent of 11,300 docks like the one beached near Newport. And it rivals the 2.5 million tons of waste that Oregonians sent to landfills in 2010.”

--Gerard Henderson / Sydney Morning Herald…July 3

“It’s not surprising that a narcissist such as Julian Assange [Ed. technically an Australian citizen] has one standard for himself and another for everyone else. However, it is surprising that some of his supporters in Australia and overseas have signed up to his sense of self-indulgence.

“The report in yesterday’s [7/1] Herald that Dianne Feinstein, the Democratic Party chairwoman of the U.S. Senate select committee on intelligence, has called for Assange to be prosecuted for harming U.S. national security, does not change his immediate situation.

“Assange is wanted in Sweden for questioning about possible rape or sexual misconduct. This has been the situation for close to two years.

“Imagine if a right-wing male activist was wanted in Sweden for questioning for similar alleged offenses against women. He would have no supporters among the left in general or feminists in particular.   Why should this be any different for Assange?....

“Sweden’s sexual conduct laws may be tough. But they are the laws of a democratic nation and they apply to everyone who lives in, or visits, Sweden.

“For the [Aussie] Prime Minister, Julia Gillard, and her ministers to have acted any way other than they have in this case would have meant Assange had more rights than other Australian citizens in a similar situation.

“The hypocrisy does not end here. Assange supporters believe he may end up in the U.S., where following a trial and a conviction, he could receive a long term of imprisonment. Yet the WikiLeaks founder has shown scant concern for the people named in secret documents that he has released, and that threatens the security of men and women who have supported the U.S.

“In WikiLeaks: Inside Julian Assange’s War on Secrecy, the journalists David Leigh and Luke Harding quoted the WikiLeaks founder as making the following comment about pro-American Afghans who might be identified as a result of WikiLeak’s information dumps and could be targeted by the Taliban: ‘Well, they’re informants. So if they get killed, they’ve got it coming to them. They deserve it.’

“In his profile of Assange in The New Yorker on June 7, 2010, Raffi Khatchadourian reported that when it was suggested that WikiLeaks’ dumps might endanger the lives of American forces on the battlefield, Assange conceded he and his associates might get ‘blood on our hands.’

“So Assange and his supporters suggest Australians should be very concerned he might be imprisoned in the U.S. for a long term. However, he and his mates either dismiss or rationalize the fact that his activities might have led to the deaths of others.

“The Assange saga has gone on too long already. He would be well advised to leave the Ecuadorean embassy and go to Sweden for questioning. There may well be no charges of sexual misconduct. Alternatively, if charged and convicted, he may serve a brief term of imprisonment.

“Following either eventuality, Assange would be free to return to Australia or reside in any country that would accept him.”

So after giving you some cryptic comments of my own the past few weeks, here’s the deal. On June 4, 2012, I received an email from Mr. Assange and his people. It was about a WIR I did wherein I quoted another story on Assange and the Assange team found it and said among other things:

“Majid Jamali Fashi is not the source named in the cable:

“The cable does not even mention Israel.

“Fashi was not a martial arts expert, he was a kickboxer. The source mentioned in the cable was a Taekwondo coach.

“At no point have the Iranian authorities mentioned any U.S. embassy cable in connection with Fashi’s case.”

It goes on and on….But then:

“Due to the number of inaccuracies it contains, the (article) is extremely misleading to its readers and you may prefer to write a whole new article….

“Cost of the libel to me are:

“ – As a result of re-reportage and internet readership the harm to my reputation, and to my organization, is global. WikiLeaks relies entirely on the goodwill of the public, which this article compromises through false means.

“ – Contribution to a hostile media climate in the United States where a Grand Jury has been empanelled to indict me for espionage.

“ – Contribution to a hostile media climate in the U.K. while the decision to extradite me is before the courts.

“ – Contribution to a hostile media climate in Sweden, to which I am likely to be extradited and trailed in.

“ – Contribution to undermining political support in Australia, discouraging the Australian government from intervening to stop my extradition or intervene in the Grand Jury process.

“ – Contribution to a reduction in my ability to raise revenue for WikiLeaks through loss of reputation.

“ – Contribution to a reduction in donations to my personal Defense Fund through a loss of reputation.

“ – Contribution to a reduction in political support for WikiLeaks and myself at a time when we are imperiled by publicly declared FBI, Pentagon, CIA and U.S. State Department Task Forces.

“Yours sincerely,

“pp Debra Sheehan
on behalf of Julian Assange”

The letter only shook me up briefly, in actuality, but it was an initial shock. I’ll comment further as appropriate.

--Brian C. Mitchell, an educator and historian who was most recently the president of Bucknell University, on the meaning of the Fourth of July.

“The Declaration is about our aspirations and the Constitution is about how we do it. And how we do it is messy and imperfect.   The Constitution is what precipitates and provokes debate. But I think the Declaration is the right thing to celebrate. Because it’s about who we want to be.” [Ted Anthony / AP]

--Now I understand at age 236, America is a great nation, but how pathetic is it that much of Northern Virginia was without 911 service through last weekend following the June 29 superstorm. That’s not good enough. It’s Third World stuff.

--NASA unveiled the $500 million spacecraft from which astronauts will one day make their first foray on to Mars. Didn’t look to me like it had enough room for a full bath…just sayin’. It’s a long trip, after all. Plus no wet bar. [It’s a long trip, after all.] I’m assuming their iPads will come fully loaded with movies for the journey because I don’t know what the hell they’re going to be doing 95% of the time.

Unmanned test flights begin in 2014 with a possible lunar flyby as soon as 2019.

Frankly, with Planet Earth in a titanic funk these days, I’d start the manned flights in ’14 and just keep trying until we get it right. Use the snowboarders.

---

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

God bless America.
---

Gold closed at $1583
Oil, $84.12

Returns for the week 7/2-7/6

Dow Jones -0.8%   [12772]
S&P 500 -0.5% [1354]
S&P MidCap +0.6%
Russell 2000 +1.0%
Nasdaq   +0.1% [2937]

Returns for the period 1/1/12-7/6/12

Dow Jones +4.5%
S&P 500 +7.7%
S&P MidCap +7.7%
Russell 2000 +8.9%
Nasdaq +12.7% 

Bulls 42.5
Bears 24.6 [Source: Investors Intelligence]

*Dr. Bortrum has a new column.

**Don’t forget the StocksandNews iPad app…perfect for hunting Great White sharks off Cape Cod.

Have a great week. I appreciate your support.

Brian Trumbore



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-07/07/2012-      
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Week in Review

07/07/2012

For the week 7/2-7/6

[Posted: 6:00 AM ET]

The European Debt Crisis, continued…

International Monetary Fund chief Christine Lagarde was in Japan on Friday and warned:

“Over the past few months, the outlook has, regrettably, become more worrisome. This is a global crisis. In today’s interconnected world, we can no longer afford to look only at what goes on within our national borders. This crisis does not recognize borders.”

When the IMF releases its latest global growth forecast on July 16, Lagarde added the “outlook will be somewhat less than we anticipated just three months ago. And even that lower projection will depend on the right policy actions being taken.”

The “key emerging markets” of Brazil, China and India are showing signs of slowdown, Lagarde said, and those three, along with Russia, comprise more than 20% of the world economy this year, according to IMF data.

[The IMF has already lowered its U.S. growth estimate to 2 percent this year, and to just 2.25% in 2013.]

Last week I quoted Stephen Cecchetti, the chief economist for the Bank for International Settlements, which acts as a clearinghouse for central banks.

“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.”

So on Thursday, three of the world’s leading central banks, the European Central Bank, the Bank of China and the Bank of England, all took further steps to ease monetary policy, either by lowering their key lending rates, as in the case of the first two by 25 and 31 basis points, respectively, or expanding a bond-buying program, as was the case with the Bank of England (which held its key lending rate at 0.5%). The BoE warned that despite progress at the EU summit the prior week, the euro crisis was weighing on confidence in Britain.

Well, what was the result of the uncoordinated action on the part of the three central banks? Markets rallied for about ten minutes. Yes, as Stephen Cecchetti noted, it would be a mistake to think central bankers can solve every economic and financial problem, especially when most of the banks are already at or near zero on rates.

It’s a global slowdown, and in the case of much of Europe, a recession, with one region feeding on the other….the doom loop.

As for the eurozone, the EU summit of June 28-29, emergency summit No. 19 if you’re counting, led to that spectacular rally on Friday the 29th but markets have been down or treading water since. This Friday’s dour action was compounded by another lousy U.S. jobs report, with more on that in a bit.

But first, I continue to express pessimism with each supposed EU solution to the region’s myriad problems because upon further examination, invariably it comes back to one or two constants. The bailout mechanisms in place are in no way big enough and the musings the eurozone leaders scribble out on cocktail napkins are seldom the kind that can be implemented the next day.

Yes, it was important that the Euro-17 agreed to allow rescue funds to recapitalize distressed banks directly, and to buy government bonds in the open market, without adding to the sovereign debt levels of the likes of Spain and Italy.

And it was important that any rescue loans not be ‘senior’ to existing ones so as not to tick off the private market.

And it was important the euro leaders agreed to a 150 billion euro growth package.

But…the new European Stability Mechanism, which takes over for the European Financial Stability Facility (after some time for overlap), was not increased beyond its approved 500 billion euro limit, there is no region wide deposit insurance scheme to prevent bank runs, and, critically, the key to all the above, a new single banking supervisor under the auspices of the ECB, making the latter closer to the structure of the Federal Reserve, will not be in place until year end, if that.

I mean it’s as if after all 19 of these emergency summits, the participants look at the clock at the end, go “Zut alors! It’s 4:00 a.m.! We’ll reconvene in a month or so” and then it’s left for the aides to pick up the cocktail napkins, shoot off a memo on some of the better ideas while calling out to their bosses as they get into their limousines, “Hey, remember you actually have to enact some of this stuff!” “Yeah, yeah…get some sleep, Pierre.”

And not for nothing, but the Spanish and Italian banks that will one of these days be recapitalized – no telling, for example, when the 100 billion euro Spain requested will actually be injected – will still hardly engender confidence among depositors.   Why would you possibly keep your funds in one of them vs. a major German bank, for example?

As for Germany’s Angela Merkel, she had trouble explaining to her coalition members why she seemingly gave in to the new troika of Spain, Italy and France on the bailout funds and/or how the growth package is to be used. Some German pols are also wondering if their constituents are about to become unwitting investors in these same risky Spanish banks, or lenders to the Italian government that won’t be subject to the same monitoring as, say, the IMF.

Merkel insists she won’t give anything away, or give in on Eurobonds (pooled debt) or a deposit insurance scheme without enforceable budget controls, which goes back to, again, the single banking supervisor.

But Merkel’s personal popularity among her people just hit a 2 ½-year high, a 66% approval rating, up 8 points from June, and the Financial Times’ Wolfgang Munchau said Merkel was the real winner in Brussels because if the ESM is to buy Italian bonds in the open market, “Italy must still sign a memorandum of understanding, and subject itself to the [Ed. real] troika – the International Monetary Fund, the European Central Bank and the European Commission. The procedure will be less invasive, more face-saving. But there will still be a procedure.”

But then Munchau continues that the ESM at a lending capacity of 500 billion “is simply not big enough” and “I cannot see how you can fit Spain under the umbrella, plus Italian bond purchases.”

Meanwhile, Finland is musing, government bond purchases? ‘We aren’t approving the ESM buying government bonds in the open market.’ The Netherlands has also indicated opposition to bond buying. Heck, Finland went so far as to say, ‘You know this Euro idea?  I’m thinking it kind of sucks. We might bail on it.’

So was it any wonder that by week’s end, the 10-year yield on Spanish debt was back to the critical 7.00% level after rallying to 6.30% following the Brussels summit?

Robert Zoellick, who just retired as president of the World Bank, related a story from the recent Rio earth summit as EU environment ministers lectured developing nations on how to run an economy sustainably.

“The rest of the world is saying, who do these people think they are? We are worried they are going to bring down the world economy, and they are trying to tell us how to run our economies?” [The Times of London]

Which brings me to the actual state of the euro economy. The eurozone PMI on manufacturing for June came in at a putrid 45.1, while the service sector index was 46.4, an uptick from May’s 46.0 but still lousy. 

And the May jobless figure was 11.1%, the highest on record for the eurozone since the currency was introduced in 1999.

Spain’s unemployment rate is 24.6%, Greece’s 21.9%, though Greece hasn’t supplied an update since March and its picture is thus worse. The jobless rate among those under age 25 in both countries is 52%. Staggering, and immensely depressing, or as the Organization for Economic Cooperation and Development warned, “a significant and growing proportion of youth, even among those who would have found jobs in good times, are at high risk of prolonged unemployment or inactivity. This will likely hurt their entire careers and livelihoods.”

[In the U.S., it’s a different problem. Staggering post-college debt loads.]

The good news on the employment front comes from the likes of Germany, 5.6% jobless rate, Luxembourg 5.4%, Netherlands 5.1%, and Austria 4.1%.

Elsewhere:

French President Francois Hollande introduced his plan to cap pay in the corporate suite, 450,000 euros ($565,000). The measure is to be debated in parliament later in the year.

This is nuts. Of course it puts French companies at a huge disadvantage and what is the incentive to invest in a publicly held French entity when government is so heavy-handed?

Prime Minister Jean-Marc Ayrault called on the “patriotism” of corporate leaders during the debt crisis. Recall, Hollande’s plan also contains a proposed 75% tax on income of more than 1 million euros. Britain’s Prime Minister David Cameron is avidly recruiting French entrepreneurs. Come to London! Many Frenchmen are considering it.

Back to Spain, remember that property prices tripled there between 1995 and 2007 as construction activity grew from 10% of GDP in 1992 to 43% in 2009. Prices are only down 25% from the 2007-08 peak and thus have a long ways to go from here.

Lastly, it is clear Angela Merkel gave in to Italian Prime Minister Mario Monti in Brussels because of the specter of former Prime Minister Silvio Berlusconi’s return if Monti faltered.   That would be a nightmare. It could yet happen.

[Monti’s government did approve $32 billion in budget cuts over the next three years on Friday.]

Washington and Wall Street

The holiday-shortened week started off with bad news on the manufacturing front as the June ISM came in at 49.7 when a reading of 52 was expected, the figure falling below the 50 dividing line between growth and contraction for the first time since April 2009. Later the June non-manufacturing ISM came in at a poor 52.1 vs. 53.7 in May. But the figures on May construction and factory orders were up a better than expected 0.9% and 0.7%, respectively.

Which left Friday’s June non-farm payroll report and it was another disaster, up just 80,000 jobs (84,000 for the private sector), with the unemployment rate coming in at 8.2%, unchanged. With just a few reports left before Nov. 6, it’s increasingly looking like the White House won’t be able to tout a jobless rate below 8%. It’s now 41 straight months at that level or higher. President Obama had little to say about the numbers, nor how to explain a second quarter average monthly gain of just 75,000 jobs without blaming President Bush.

As noted earlier, the IMF lowered its growth forecast to just 2% for 2012, the consensus these days for the U.S. We’ve seen how that just doesn’t cut it when it comes to job creation.  

The IMF also cited the “uncertainty over domestic fiscal plans,” which are non-existent. I’ve argued since middle of 2011 that we would have a crash in this country in 2012 when reality set in that nothing was being done about the debt and I still believe that can occur. The debt is being ignored as a topic of discussion these days but that will change shortly. We are no different than Europe.

But the president can take heart in a new CNN poll on the economy that asked the question what will conditions be like next year? 60% said ‘good,’ 39% said ‘poor,’ or exactly the reverse of the figures from last October.

Now, though, we are entering earnings season and the news is not going to be good, especially in terms of company guidance. The only question is going to be how much is already discounted by the market.

Street Bytes

--Owing to Friday’s poor action, what had been an OK week turned into a mixed one with the Dow Jones ending down 0.8% to 12772, while the S&P 500 fell 0.5% and Nasdaq eked out a 2-point gain to 2937 (+0.1%). Figures from the nation’s big retailers for the month of June were generally very poor.

--U.S. Treasury Yields

6-mo. 0.14%   2-yr. 0.27% 10-yr. 1.55% 30-yr. 2.66%

Bonds rallied on the long end at week’s end on a flight to safety and the collapsing euro.

--As noted earlier, the rate cut by the People’s Bank of China was a surprise in terms of the timing, earlier than expected, it being the second cut in just a few weeks, while there is growing evidence commodities like cotton, coal and iron ore are piling up amid increasing talk of a hard landing (such as the 7/2 Barron’s cover story echoing same). For China, a hard landing is genuinely thought to mean GDP growth decelerating to the 4% to 7% range, though I would peg it at 5.99% or lower (not being cute…just think 6% is still a ‘soft’ landing, assuming the figure is real).

June housing prices were up for the first time since September, though still down vs. June of last year, and the government is warning real estate speculators not to think that just because the Bank of China lowered interest rates again it’s off to the races.

The government also announced that the official PMI reading on manufacturing was 50.2 vs. 50.4 in May, while the services index for the month rose to 56.7. I was a little surprised to see in a government mouthpiece editorial that the HSBC manufacturing PMI of 48.1 in June was included, somewhat encouraging if you are seeking transparency in China.

And on a different topic, China’s auto sector, there was an interesting piece by Chen Chenchen (sic) in mouthpiece Global Times.

“The local government in Guangzhou decided to put a cap on car sales starting Sunday, making Guangzhou the fourth Chinese city to use car quotas to tackle traffic gridlock and air pollution. Since July 1, no more than 10,000 new cars can be registered every month in the city.

“The sudden announcement of the new limit late Saturday instantly sparked long queues in auto dealerships across the city. Online, complaints and anger from local residents, whose plans for car purchases have been disrupted, are widespread.

“According to the international standard of 20 cars per 100 families, the Chinese have already become an auto society. As cars become the new must-have for Chinese families, the country is tasting the full bitterness of being an auto society. Heavy traffic and choking smog have become common scenes in Chinese cities.

“But compared to car density in rich countries, China is far from a true auto country. Statistics show that the U.S. has the highest vehicle-to-person ratio in the world, about 1:1.3, while the ratio in China is about 1:17.2 among the country’s 1.3 billion people.

“It is beyond imagination how much petrol will be consumed if China reaches the same level of car ownership and Chinese become as enthusiastic about gas-guzzling vehicles as Americans are.

“Besides, the problem in China also seems to be much more complicated. Behind the traffic jams in Chinese cities are chronic problems of energy shortage, transportation systems that need improving, and urban management levels that often seem to lag behind actual needs.”

--Bob Diamond was forced out as CEO of Barclays over the Libor-rigging scandal, following a week of political outcry in the U.K. with the bank’s admission that it manipulated interbank lending rates. But Barclays in turn said Paul Tucker, deputy Bank of England governor, and “senior Whitehall figures” from the previous government [the scandal basically covering a period 2005-2009] knew of – and even condoned – the rate-setting process during the financial crisis. Diamond pointed to notes he took during a 2008 conversation in which he wrote that Tucker knew full well what Barclays Libor submissions had been.

Diamond, with Barclays having previously agreed to pay a record $440 million fine, was asked by British legislators why he took so long to uncover his firm’s attempts to manipulate interest rates.  Libor is the benchmark for more than $350 trillion of global securities after all.

“This isn’t just Barclays,” he replied. “Throughout 2007 and 2008, no institution of the 16 banks reporting three-month dollar Libor was at the higher end more consistently than Barclays. Barclays was getting questions about why it was always high and we were saying, ‘We are high because we were reporting at where we were borrowing money.’”

Scottish National Party lawmaker Stewart Hosie cut to the heart of the parliamentary investigation.

“I’m asking why people at Barclays noticed other people doing this, but were unable for whatever reason to recognize what was going on internally.”

Diamond alleged trading-desk supervisors had failed to alert their bosses. He also claimed he didn’t know about the rigging actions until a week before regulators published their findings, including e-mails between Barclays’ traders, which is rather hard to believe; as in I don’t. 

Labour MP John Mann summed it up: “Either you were complicit, or grossly negligent, or grossly incompetent.”

Criminal probes are ongoing.    Rating agency Moody’s lowered its outlook on Barclays from stable to negative. Other banks are in the crosshairs, with other governments now launching their own investigations, and the fines will total in the $billions as loss of confidence in the financial sector just grows and grows…and with good reason.

I’m sick of the apologists for Diamond and Barclays, conflating the bank’s and his possible actions with that of central banks and their manipulation of rates. 

It’s not the same! You can argue all you want about central bank policy and its repercussions, but it’s not illegal. What Barclays admitted to is.

--Meanwhile, JPMorgan Chase was sued by the U.S. Federal Energy Regulatory Commission for failure to release 25 e-mails in an investigation of possible manipulation of power markets in California and the Midwest. As analyst Paul Miller of FBR Capital Markets told Bloomberg, “(Jamie Dimon) has a PR nightmare in front of him. It’s another headline risk, which means more regulators, which means over-regulation, which will eventually hit their bottom line.”

[JPM is also still among the banks that will get nailed in the Libor scandal.]

--The Financial Times’ Gillian Tett writes that “a looming report from Dick Ravitch and Paul Volcker, two respected financial grandees, on America’s state finances…could be shocking.”

--Spain’s high court opened a fraud probe into the former chairman of Bankia, the partially (eventually fully) nationalized lender at the forefront of the country’s banking crisis. I’m shocked! Absolutely shocked!

[I told you years and years ago of the fraud linking the regional and local Spanish governments, the banks, and the developers.]

--Non-euro Britain’s June manufacturing PMI was 48.6, better than the eurozone average but still poor.

--Russia’s economy is booming, despite all the doom and gloom. Unemployment is down to a historical low of 5.4%, with wages up a whopping 14% in the first quarter on an annualized basis, while retail borrowing was up 43% in May.   This surge is fragile, however, given the still heavy reliance on energy prices.

--Australia’s retail sales surprised to the upside in May, 0.5% more than in April and the fifth straight monthly gain. [April’s were revised upward, from negative to positive.]

--Canada’s unemployment rate fell to 7.2% in June.

--Gambling revenue in Macau rose 12% in June from a year earlier, a further sign of slowing for the mainland economy, though this was better than May’s 7% rise.   In the first six months of 2012, revenue is up 20% from the first half of 2011. But what will the second half bring? To me, 12-15% gains would be very bullish and certainly point to a bottom in economic activity. Below that wouldn’t be good.

--Auto sales in the U.S. for June came in at a seasonally adjusted annual selling rate of 14.1 million vehicles, up 22% from a year earlier. For the first six months of the year, vehicle sales are up 14.8% over the first half of 2011. 

General Motors reported a 15.5% increase, Chrysler’s sales were up 20.3% and Ford’s rose 7.1%.

Toyota saw its sales grow 60.3% in June over last year, while Honda’s were up 48.8%, as both the Toyota Camry and Honda Accord made comebacks.

Nissan’s rose 28.2% and Volkswagen saw a 32.1% increase.

--GlaxoSmithKline LLC will pay a $3 billion fine and plead guilty to promoting two popular drugs for unapproved uses, as well as failing to provide proper safety information on a third, in the largest health care fraud settlement in U.S. history, the Justice Department announced.   Among the company’s misdeeds was providing doctors with exclusive vacations, including European hunting trips and even tickets to a Madonna concert. GlaxoSmithKline also agreed to be monitored by government officials for five years.

Among the other findings were payments back in 1999 to “Dr. Drew,” popular radio and television personality Dr. Drew Pinsky, who is said to have received payments totaling $275,000 from a communications firm working for Glaxo to promote the antidepressant Wellbutrin. Dr. Drew, in a statement, said “My comments (related to a promotional campaign) were consistent with my clinical experience.”

--This week it was Amazon’s turn to announce it was developing a competing product; in this case a smartphone to go up against Apple’s iPhone and Google’s Android operating system.

--Not to be outdone, Apple will supposedly debut a smaller, cheaper iPad by year-end, according to sources, with a screen that’s 7 to 8 inches diagonally, less than the current 9.7-inch version. Apple is thus looking to undercut Amazon, Google and Microsoft and products like Google’s Nexus 7 tablet and Amazon’s Kindle Fire, both which have 7-inch screens.

Since iPad went on sale in April 2010, the company has picked up 61% of the tablet market, according to Gartner Inc. [Bloomberg]

[Separately, Apple ended its long legal battle over the use of the iPad name in China with a $60 million payout to Proview Technology (Shenzhen), substantially less than the $2 billion first claimed by Proview in February.]

--Samsung, the world’s largest maker of memory chips, mobile phones and flat-screen panels, estimated second-quarter operating profit will jump 79% from a year earlier when it reports later in July, powered by sales of its Galaxy smartphone (about 65% of its operating earnings). But, shares fell on talk of slackening demand in Europe and China.

--Microsoft announced it would take a $6.2 billion writedown to reflect a slump in value of its online services division, specifically related to a 2007 acquisition of aQuantive, a digital advertising firm.

Heard on the Street / Wall Street Journal

“The tech giant emphasized this wouldn’t result in a cash outflow. That is correct. But it doesn’t change that Microsoft’s assets now are worth $6.2 billion less. It also is an admission Microsoft overpaid for a deal made in hope of keeping pace with Google and that those efforts haven’t borne fruit.

“Plus, the acquisition – the $6.3 billion purchase of aQuantive back in 2007 – was an all-cash deal. So Microsoft has seen a cash outflow; it just occurred years ago.

“It is true that cash is king. But the value of assets matter, too, even ones as intangible as goodwill. Indeed, those often prove the most ephemeral.”

--Research In Motion CEO Thorstein Heins said the BlackBerry maker is facing very big challenges but is not in a “death spiral,” as one high-profile research report recently put it. Heins said the twice-delayed BlackBerry 10 platform would “empower people as never before” by linking them to parking meters, car computers, credit card machines and ticket counters.

Ooh…

--The record heatwave in the Midwest could not have come at a worse time in terms of the corn crop. Everything was looking great, but as I’ve seen on my trips to Iowa and the region, the situation can turn on a dime. It can also be highly localized. Of course each year, without fail, a part of the country (the world, for that matter) is experiencing drought and we are shown the same pictures, but as I related last summer when I was in Iowa for a week, driving around for just an hour you can see all kinds of extremes, not just due to whether a farm is irrigated or not, but also simply where the localized showers have fallen.

It’s also interesting that when it comes to wheat, France is raking it in this year as they have had abundant rain. Unless you’ve flown over that country, an outsider has little concept of what a huge farming nation France is. In fact this year, France will be the world’s second-biggest exporter of wheat.

The USDA estimates the global wheat crop will drop 3.2% this year. In the U.S., less than half of the corn crop was in good shape.

--The National Association of Manufacturing says pending defense cuts could result in up to one million job losses, including 134,000 in manufacturing; which means by my simplistic way of thinking, 866,000 are just pushing paper. The Bureau of Economic Analysis, though, says that weaker defense spending also shaved off a half-percentage point off first-quarter GDP. Instead of growing at 2.4%, we grew at 1.9%.

--California’s Senate approved a 130-mile stretch of a high-speed rail line that will eventually run between Los Angeles and San Francisco, the first dedicated high-speed line in the U.S. The final cost is estimated at $68 billion, which means if it’s ever completed it would come in at $1.2 trillion…just an educated guess.

--Boeing projects a $4.5 trillion jetliner market over the next 20 years for 34,000 new commercial jets, up over last year’s estimate.

“The world’s aviation market is broader, deeper and more diverse than we’ve ever seen it,” according to a spokesperson. Boeing sees a 4% increase in the number of people flying each year.

Airbus is projecting about 7,950 deliveries of its own aircraft over the next two decades, up 620 from its estimate a year ago, with Airbus announcing it would invest $600 million in a plant in Mobile, Alabama, where its single-aisle A320 will be assembled. This is good. 1,000 jobs will be created, as Airbus of course hopes the move will help it sell more planes in the U.S. Airbus’ other assembly plants are in Toulouse, France; Hamburg, Germany; and Tianjin, China.

--The House, by a 373-52 margin, and the Senate, 74-19, passed a final $127 billion package on transportation and student loans, with both parties pointing to the positive jobs aspects, while some conservatives said it was yet another budget buster.

The transportation legislation extends federal highway, rail and transit programs for 27 months, authorizing $120 billion in spending (financed by taxes and a hefty transfer from the Treasury), while about $7 billion is a student loan provision extending the current 3.4% interest rate, which neither party wanted to be blamed for failing to do come November. Students faced a doubling of their interest rate to 6.8%.

--According to a new report by the House Oversight Committee, hundreds of Capitol Hill VIPs landed special breaks in securing mortgages with Countrywide, 90% of which were backed by Fannie Mae; the “Friends of Angelo” program (named for former Countrywide CEO Angelo Mozilo, he of the lizard skin).

But as Republican chairman Darryl Issa said of his committee’s findings, which were zero surprise, this all having been reported in one fashion or another previously, no laws were broken…or as the New York Post editorialized, “of course no laws were broken: Washington writes them, after all.”

--Manchester United filed to go public in the United States, seeking to raise a maximum of $100 million that would be used to keep and acquire players it needs to regain English and European titles. Man U was listed on the London Stock Exchange from 1991 until June 2005, when the Glazer family, owners of the NFL’s Tampa Bay Buccaneers, acquired the team in a leveraged buyout valued at $1.47 billion. Forbes values the franchise at $2.24 billion, but there is gobs of debt attached from the ’05 LBO which carries 8%+ interest rates.

--I’ve been watching Wolf Blitzer and “The Situation Room” most afternoons and I just have to correct the man. The other day, in questioning a Republican, “Blitz” said the “Dow was well under 7000” when President Obama took office.

Obama was inaugurated on Jan. 20, 2009 and the Dow closed that day at 7949. It was 8251 the previous Friday, Jan. 16 (the market being closed for MLK Day on Jan. 19) and finished the week, Jan. 23, at 8077. The S&P 500 was more volatile, going from 850 on Jan. 16 to 805 on Jan. 20 and then 840 on Jan. 21.

So, yes, since Obama came into office Wall Street has rallied strongly, the actual bottom in the market being on March 9, 2009 at Dow 6547 (S&P 676). But Wolf being a stickler for details, I just had to set him straight.

--China is going to ban the serving of shark fin soup at official banquets in a move applauded by environmentalists. An estimated 73 million sharks a year are killed for the delicacy. China said it would implement the ban immediately but expects it could take up to three years to be fully enforced.

--The London Olympics nightmare is just around the corner, that being trying to clear customs at Heathrow airport. Last week, non-EU citizens faced a 90-minute delay passing through immigration.

[The latest long-range weather forecast for the Olympics is not good; this after record rainfalls in London in April and June. This weekend’s British Grand Prix, with 300,000 tickets having been sold for the three days, is evidently an unmitigated disaster with heavy rain causing monumental traffic jams in the area.]

Foreign Affairs

Iran: A quick review. The P5+1, the five permanent members of the U.N. Security Council (Britain, France, the United States, China and Russia) plus Germany, have held formal, high-level talks with Iran over its suspected nuclear weapons program three times this year – Istanbul in April, Baghdad in May, and Moscow in June. In addition there were lower-level talks this past week in Istanbul which may, or may not, lead to further ‘high-level’ talks.

There is no reason for further talks, period. Iran’s gig is up. At least it should be.   But just as Iran continues with its brilliant stall game, it’s version of a four-corners offense, the White House is conducting its own pathetic stall game…keep things low key until after the November election.

The process is going nowhere, everyone knows that. Iran has long known what it must do. Cease enriching uranium. Ship out that which has already been enriched to 20%. Close down the underground facility at Qom (Fordo). If Iran did all three (these being Israel’s demands as well), there is no doubt economic sanctions on Iran would be greatly lifted, including the EU embargo on Iranian crude that went into effect on July 1.

At the same time, yes, it needs to be noted that the existing sanctions on Iran are having a serious impact on Iran’s economy; 80% of which is dependent on oil. Many in Congress, however, from both sides of the aisle, want the screws tightened even further. Iranian President Mahmoud Ahmadinejad himself admitted “The sanctions imposed on our country are the most severe and strictest sanctions ever imposed on a country. But the enemies’ assumption that they can put Iran in a weak position through these sanctions is false and is the result of their materialistic calculations.” [New York Times]

The administration has made it clear to Iran by its increasing show of force in the Persian Gulf that it not only has Israel’s back but will do all it can to keep the Strait of Hormuz open, which Iran again threatened to shut down, firing off some short- and medium-range missiles the other day in an attempt to intimidate the West.

I have never been concerned with Iran’s threats in this regard, knowing the U.S. already has more firepower in the Gulf than Iran’s entire military has, let alone other assets we have in the region.

But I have also placed a bet that the price of crude is ready to spike on the supposition that Israel will strike sooner than later. You also can’t ever discount the possibility of a rogue Iranian general in the Revolutionary Guard acting on his own, at which point all hell breaks loose.

Separately, Iranian state television published an online poll Tuesday in which 63% of respondents said they would abandon Iran’s nuclear program in exchange for the lifting of international sanctions, though the results were quickly removed from the network’s website. [Jerusalem Post]

The figure shatters the myth, put forward by the regime, that the Iranian public is behind the nuclear program. [The public is also against shutting the Strait by a huge margin.]

Back to the sanctions, just how tough are they?
Editorial / Wall Street Journal

“(The) real news happened under the radar last week: Though economic sanctions still haven’t slowed or stopped Iran’s nuclear drive, the Obama Administration has decided to make them even weaker. The Iran sanctions regime is looking like the U.S. tax code – filled with loopholes.

“It’s so weak, in fact, that all 20 of Iran’s major trading partners are now exempt from them. We’ve arrived at a kind of voodoo version of sanctions. They look real, insofar as Congress forced them into a bill President Obama had to sign in December. The Administration has spoken incantations about their powers. But if you’re a big oil importer in China, India or 18 other major economies, the sanctions are mostly smoke.

“This is possible because, thanks to lobbying by the Obama Administration, the sanctions law contained several loopholes you could drive a warhead through. One provided that if a country ‘significantly reduced’ its oil imports from Iran, the State Department could exempt it from sanctions for a renewable period of six months. Naturally, the definition of a significant reduction was left to the Administration’s discretion.”

11% in the case of India, 22% for Japan.

“We’ve never considered sanctions likely to persuade Iran to drop its nuclear program, but it’s dangerous to pursue them half-heartedly while claiming progress and keeping the international temperature down as Iran’s centrifuges spin. That’s been the Obama Administration’s consistent approach, and it’ll probably continue at least through Election Day in November. It’s a good way to comfort adversaries in Tehran and Beijing while undermining friends in Jerusalem and beyond. “

[Funny how Secretary of State Hillary Clinton is making her first visit to Israel in almost two years on July 16, two weeks before Mitt Romney is scheduled to arrive.]

Syria: Human Rights Watch has documented systemic torture, on both sides, in the civil war as the U.N. attempts to broker a peace settlement where the result is a government of national unity, excluding President Bashar Assad, but Assad won’t accept a non-Syrian model. On Friday, Sec. of State Clinton blasted Russia and China for not putting pressure on Assad to leave. The death toll in the conflict is now estimated between 14,000 and 16,500, including 800 over a recent seven-day period. 4,100 of the deaths are apparently government troops.

Meanwhile, tensions between Turkey and Syria worsened further as Ankara scrambled fighter jets after Syrian helicopters flew close to the border. President Assad issued a statement for the first time saying he regretted “100%” the earlier downing of a Turkish jet (the bodies of the two pilots being finally found this week), but then blasted Turkish President Erdogan as the relationship between these two once close friends is now irreparable. 

Egypt: Mohamed Morsi was sworn in as president last Saturday and the battle for power has begun between the Muslim Brotherhood and the Supreme Council of the Armed Forces (SCAF). As of today, Morsi has no real power over the budget and no role in foreign policy, defense or security matters. Plus the country needs to elect a new parliament and write a constitution that SCAF seems determined to have enshrine its powers, including keeping its budget secret.

Morsi himself, in a speech at Tahrir Square the day before he was inaugurated, vowed to pursue the release of the blind sheik Omar Abdel-Rahman, who is in U.S. custody for plotting to blow up various New York City landmarks.

How can the United States influence matters?   Simple. Cut off the $1.3 billion in aid we supply the Egyptian military unless it shares power, as hard as that might be for some in the U.S. to stomach, and keeps the peace with Israel.

For now, one week into a Brotherhood presidency, there are signs already of stepped up harassment of women not wearing a veil or wearing colorful ones while traveling in women-only train cars, according to activists, while some police officers have sued the Interior Ministry to rescind punitive measures against growing beards, a hallmark of Islamic piety.

Women held fewer than 10 of the 508 seats in the Islamist-dominated parliament that was recently disbanded and many proposals will be put before a new assembly that undermine women further. Stay tuned.

Afghanistan: Three British soldiers were shot dead by an Afghan police officer in the latest “green on blue” attacks that have claimed at least 26 of the 218 NATO-led troops killed in Afghanistan this year. [The term referring to the color of Afghan army uniforms and the blue pennants worn by NATO troops at military exercises.] Seven of the 28 British troops killed in Afghanistan this year have died at the hands of Afghan security forces. Later, five American troops were shot (the status of their injuries is not known as I go to post) in a similar incident as the Taliban seeks to sow a crisis in confidence that would negatively impact the training effort.

Iraq: It was a bad week in what has been an increasingly bad year on the security front with at least 40 killed by a single truck bomb in southern Iraq on Tuesday. The U.N. estimates that through June, 2,100 Iraqis were killed in violent attacks this year vs. 1,800 in the first half of 2011.

The Washington Post’s Walter Pincus also had a piece that began:

“Why doesn’t the Iraqi government seem to like us?

“Why won’t Prime Minister Nouri al-Maliki give better treatment to the U.S. government officials whose military freed Iraq from the dictator, Saddam Hussein, and whose employees now are trying to make his country better?

“Why are we giving more than $1 billion next year, mostly to Iraq’s military, while its oil income has soared, supposedly putting the Baghdad regime in surplus?”

Iraqi security forces harass and detain U.S.-hired private security contractors at checkpoints, there’s been a lack of cooperation from Iraqi law enforcement with the U.S. on potential fraud cases, difficulties in getting Iraqi entities to sustain projects the U.S. poured $billions into…the list goes on and on. All this while Maliki strengthens his relationship with Iran. It’s sickening.

Libya: Today, Saturday, the nation holds the first election in its history as voters will elect a 200-seat Constituent Assembly that will name a prime minister, a council of ministers to replace the current interim government, and then the establishment of a commission that will write a new constitution, with the aim being a full transition period of no more than 18 months. Good luck to all.

Pakistan: After a U.S. airstrike accidentally killed 24 Pakistani soldiers in November, Pakistan shut down crucial supply lines used by NATO-led forces in Afghanistan. Pakistan has been adamant the U.S. must apologize.   This week, Secretary of State Clinton said: “We are sorry for the losses suffered by the Pakistani military.” Pakistan reopened the supply lines. It’s enough to make one think “WTF?” That’s all it took, not exactly a real apology, after seven months?

Now the U.S. was upset because of all the American troops that have been killed by Taliban with alleged connections to Pakistan’s ISI intelligence agency, thus the reason for not saying we were “sorry.” But it cost us $100 million a month to use alternative routes.

This makes for an interesting case study in foreign diplomacy school.

Lebanon: Last time I was here, spring of 2010, the guests at my hotel all seemed to be Saudis, Kuwaitis, Qataris…folks of that sort. The mammoth new hotel and shopping complexes in Beirut were all fueled by investment from the same countries as Beirut returned to its former role as a vacation playground for those in the region.

Bu now Saudi Arabia became the latest this week to warn its citizens not to travel to Lebanon, joining Kuwait, Qatar, the U.A.E. and Bahrain who have issued similar travel advisories, including urging those already in the country to leave.

Ukraine: Ukrainians clashed with riot police in Kiev this week after a bill that would place Russian on par with Ukrainian as the official language of 13 of the nation’s 27 regions was rushed through parliament. President Viktor Yanukoych was expected to sign the bill into law, allowing Russian to be used in courts, schools and other state institutions.

Ukraine has always been like two separate countries since its independence with the breakup of the Soviet Union (literally East and West).

Russia: An AP-GfK poll shows 60% of Russians maintain a favorable opinion of President Vladimir Putin, but only 38% of Muscovites, which makes perfect sense. For starters, the hinterlands are not real sophisticated. Putin’s high in job approval was 81% as he wrapped up his second term in 2008, according to the Levada Center, which also measures his current approval at 60%. 

91% cite corruption as the number one problem among Muscovites. Only 18% trust the police, notorious shakedown artists.

Meanwhile, a leader of the Nashi youth group became the latest Kremlin ally to accuse opposition leader Alexei Navalny of graft and tax evasion as Navalny could be headed for prison on what very well might be trumped up charges. Navalny says his emails were hacked into.

On the “ultranationalist” front, the Moscow Times had a scary story concerning the rise of various groups of this kind. One growing party, Great Russia, parades around in Nazi uniforms. What is even more worrisome is the ultranationalists are beginning to drown out the legitimate opposition, such as liberal-leaning former Prime Minister Mikhail Kasyanov. Ivan Mironov, 31, a leader of the ultranationalist All-Russian People’s Union, served three years in pretrial detention for the attempted murder of Anatoly Chubais, the architect of Russian privatization, in 2005. He was found not guilty.

Ironically, this could rally some liberals behind Putin. As one liberal politician told the Moscow Times, “Fascists in power are much worse than Putin.”

I am sticking with my own prediction that Putin doesn’t make it through the year.

China: Riot police in Sichuan province clashed with thousands of environmental protesters and in a rare victory for environmentalists, authorities decided to cancel the building of a metals refinery that the citizens of Shifang city thought would poison their air and water.

In Hong Kong, there have been massive protests against the new Chief Executive Leung Chun-ying, handpicked by Beijing.  Many believe their democratic rights are gradually being infringed upon.

Japan: An independent parliamentary panel has concluded that the Fukushima nuclear plant was “a profoundly man-made disaster” that “could and should have been foreseen and prevented” and its effects “mitigated by a more effective human response.”

The report also blamed cultural conventions and a reluctance to question authority.

“Although triggered by cataclysmic events (the earthquake and tsunami), the subsequent accident at the Fukushima Daiichi Nuclear Power Plant cannot be regarded as a natural disaster,” it said.

Key government agencies in the aftermath of the twin disasters “did not function properly.”

Last Sunday, the first nuclear plant since the disaster in Japan was restarted in Fukui prefecture; the restart sparking large protests as the government said a return to nuclear power was essential for the economic recovery.

Mexico: Enrique Pena Nieto was elected president on Sunday with 38% of the vote, marking the political comeback of his Institutional Revolution Party (PRI), which ran the nation for more than 70 years until 2000. The PRI, though, as I’ve written before, has a reputation for cutting deals with the drug cartels and allowing drugs to flow north as long as the cartels avoid public violence. Anywhere from 47,500 to 55,000 have died in the drug war in the past 5 ½ years and Pena Nieto said:

“We will wage an effective fight against the capos, against the heads of the cartels, but clearly also with a rethinking that will allow a lowering of violence. There will be no truce, no pact with organized crime.”

Pena Nieto has vowed to increase security spending and double the ranks of the federal police by 35,000 officers and using it in places where local law enforcement is weak or corrupt.

But while Pena Nieto doesn’t take office until December 1 (way too long a transition period), many say he has no real blueprint for combating the violence. He certainly said little about it during the campaign (nor did the others contending say much on the topic). To be continued…

Random Musings

--The last I looked at the Gallup daily tracking poll it read President Obama 48, Mitt Romney 44, a slight uptick over the previous two month’s data showing a virtual tie. State-by-state Obama is seeing small upticks, owing to the Supreme Court’s ruling on ObamaCare as well as the campaign’s attacks on Romney (see Journal editorial below).

--In a CNN/ORC International survey, 50% said they agree with the court’s decision on the individual mandate and 49% disagree. The Supreme Court’s approval rating among Democrats jumped by 23 points to 73%, while among Republicans it fell by 21 points to 31%. Approval among independents edged up five points to 53%.

In the same CNN/ORC poll, 49% favor President Obama, 46% say they’d vote for Romney. Obama’s overall approval number is 51% (he has a 55% personal “favorability” rating). 

--Daniel Henninger / Wall Street Journal

“Back at the dawn of ObamaCare in June 2009, speaking to the American Medical Association’s annual meeting, President Obama said: ‘No matter how we reform health care, we will keep this promise: If you like your doctor, you will be able to keep your doctor. Period.’

“But will your doctor be able to keep you? Or will your doctor even want to keep you, rather than quit medicine?

“For the longest time now, since day one of the Affordable Care Act, we have been having arguments over the mandate to purchase health-care insurance, requirements that insurance companies accept policyholders regardless of health, and price discrimination in insurance policies.

“And of course this past week, the Supreme Court – or something resembling the Supreme Court – outputted a decision on the tax status of the insurance-purchase mandate, the states’ obligation to pay for Medicaid and as a bonus, the Commerce Clause.

“Have you noticed what got lost in this historic rumble? Doctors. Remember them?

“ObamaCare has been a war over the processing of insurance claims. It has been fought by institutional interests representing insurance, hospital and pharmaceutical firms. The doctor patient relationship, or what used to be called ‘the practice of medicine,’ has sunk beneath these waves….

“A Wall Street Journal story the day after the Supreme Court ruling examined in detail its impact across the ‘health sector.’ The words ‘doctor,’ ‘physician’ and ‘nurse’ appeared nowhere in this report. The piece, however, did cite the view of one CEO who runs a chain of hospitals, explaining how they’d deal with the law’s expected $155 billion in compensation cuts. ‘We will make it up in volume,’ he said.

“Volume? Would that be another world for human beings? It is now. At Obama Memorial, docs won’t be treating patients. They’ll be processing ‘volume.’ [Ed. and as Henninger goes on, lots of mandated reports…total time killers.]

“Mitt Romney needs a way to talk about health care in America. This isn’t just a fight over insurance companies. It’s about the people at the center of health care – doctors. The Affordable Care Act will damage that most crucial of all life relationships, that between an ill person and his physician. Barack Obama’s assertion that we all can keep our doctors is false. You could line up practicing physicians from here to Boston to explain to Mr. Romney why that is so.”

--Speaking of Romney, what the heck is he doing?! What the heck is his staff doing?! Romney in a CBS News interview, and on the Fourth, said the Supreme Court determined that Congress held the authority to levy taxes and the majority opinion said the penalty for not purchasing insurance was, in fact, a tax.

Romney told CBS News, “The majority of the court said it’s a tax and, therefore, it’s a tax.” At a Fourth of July parade, he reiterated, “Of course, if that’s what they say it is” when asked about the court’s tax designation.

But senior adviser Eric Fehrnstrom said on Monday, “The governor believes that what we put in place in Massachusetts was a penalty and he disagrees with the court’s ruling that the mandate was a tax.”

Needless to say the Obama campaign had a field day. The Wall Street Journal’s editorial board concluded:

“If Mitt Romney loses his run for the White House, a turning point will have been his decision Monday to absolve President Obama of raising taxes on the middle class. He is managing to turn the only possible silver lining in Chief Justice John Roberts’ ObamaCare salvage operation – that the mandate to buy insurance or pay a penalty is really a tax – into a second political defeat….

“For conservative optimists who think Mr. Fehrnstrom misspoke or is merely dense, his tax absolution gift to Mr. Obama was confirmed by campaign spokeswoman Andrea Saul, who tried the same lame jujitsu spin. In any event, Mr. Fehrnstrom is part of the Boston coterie who are closest to Mr. Romney, and he wouldn’t say such a thing without the candidate’s approval.

“In a stroke, the Romney campaign contradicted Republicans throughout the country who had used the Chief Justice’s opinion to declare accurately that Mr. Obama had raised taxes on the middle class. Three-quarters of those who will pay the mandate tax will make less than $120,000 a year, according to the Congressional Budget Office. The Romney high command has muddied the tax issue in a way that will help Mr. Obama’s claims that he is merely taxing rich folks like Mr. Romney. And it has made it that much harder for Republicans to again turn ObamaCare into the winning issue it was in 2010.

“Why make such an unforced error? Because it fits with Mr. Romney’s fear of being labeled a flip-flopper, as if that is worse than confusing voters about the tax and health-care issues. Mr. Romney favored the individual mandate as part of his reform in Massachusetts, and as we’ve said from the beginning of his candidacy his failure to admit that mistake makes him less able to carry the anti-ObamaCare case to voters….

“The Romney campaign thinks it can play it safe and coast to the White House by saying the economy stinks and it’s Mr. Obama’s fault. We’re on the email list and the main daily message from the campaign is that ‘Obama isn’t working.’ Thanks, guys, but Americans already know that. What they want to hear from the challenger is some understanding of why the President’s policies aren’t working and how Mr. Romney’s policies will do better….

“Mr. Romney promised Republicans he was the best man to make the case against President Obama, whom they desperately want to defeat. So far Mr. Romney is letting them down.”

I couldn’t agree more with the Journal, but I’d add that Romney has been a miserable failure on the foreign policy front and has missed one opportunity after another in this regard.   And now I have zero confidence he will excoriate the president during the debates on ‘leakgate’ as well.

--So I printed out a ton of pieces on Chief Justice Roberts and his ObamaCare ruling, such as the New York Post’s John Podhoretz who said, “The Roberts opinion is nothing less than an intellectual, political and moral scandal.” But I’ll highlight a more balanced essay; that being the lead editorial in USA TODAY.

“The instant reaction to last week’s Supreme Court decision upholding ObamaCare was entirely predictable. The right fumed at Chief Justice John Roberts for siding with the court’s four liberal justices….

“But with time comes wisdom. Though the decision saved Obama’s signature achievement and is better for the president than a loss, it fired up an opposition that already despises the law and could make his re-election more difficult.

“And if anyone thinks Roberts betrayed his principles, they’re not looking past the headlines.

“The chief justice’s reason for leaving the Affordable Care Act in place was that the courts should, when possible, defer to the political branches – a principle conservatives have preached for decades in denouncing ‘activist judges.’

“More significant, the ruling advanced two other long-sought conservative goals. It limited the scope of the Constitution’s commerce clause, the basis for federal authority over a wide range of commercial activity, and it limited Congress’ ability to threaten states with loss of Medicaid money if they fail to participate in ObamaCare.

“Just how powerful those limits are won’t be clear for years, but the potential is significant….

“Critics of federal overreach can use the decision to restrain new laws going forward, but the even more interesting question is whether the decision provides a way to undo regulations on labor practices, the environment and so on.

“The court’s decision on Medicaid is also potentially expansive. Its immediate effect is to stop the federal government from taking away all of a state’s Medicaid funding if the state refuses to cover a large new population of low-income beneficiaries required under the new law. But Congress often uses the federal funding as a club to force states to do things – raising the drinking age to 21 or enacting right-on red laws, for example – that they might otherwise resist. This ruling could shrink the size of that club, but it will take more litigation to determine how robust either this or the commerce clause limitation really is.

“When the day was done, Roberts had sided with the court’s liberals in defending ObamaCare’s constitutionality, with its conservatives in limiting the commerce clause and with justices from both wings to get the Medicaid ruling. It was a crafty opinion by a chief justice with a long-term perspective, and not insignificantly, one that insulated the court from rising charges that it is driven by politics, not law.

“If politicians exercised similar thoughtfulness, a lot of the nation’s problems might go away.”

--From Stanford Univ. economist Michael J. Boskin:

“In 2009, 2010 and 2011, the administration forecast average economic growth of 4% in the next two years. But the economy has not had even one quarter of 4% growth during Mr. Obama’s stewardship. Rather, our economy has experienced its longest string of consecutive quarters of economic growth below 4% since World War II. Growth has averaged 1.4% in Mr. Obama’s first 13 quarters as president.

“His record on jobs is just as bad. Mr. Obama’s initial forecast claimed unemployment would never reach 8% if his $800 billion stimulus bill passed in early 2009 (as it did) and would now be below 6%. That’s off by 3.9 million unemployed workers, millions more if we include those who have given up looking for work.

“Perhaps we should not have expected more from the eloquent apostle of hope and change. Mr. Obama had little experience in or respect for the ‘for profit’ part of the economy. Of his one brief sojourn in the business world, he says in his autobiography he felt ‘like a spy behind enemy lines.’

“He now says that Mr. Romney’s business career – which former President Clinton describes as ‘sterling’ – is not a qualification to be president. How would he know? Before becoming president, he had no executive experience of any kind – private or public.”

--New Jersey Republican Gov. Chris Christie has had a rough stretch. Last week he signed a budget for next fiscal year that increases spending 6.8% when I thought we elected him (at least some of us did) to reduce spending. And then when he asked for a 10% cut in the income tax it was the Democrats, who control the legislature, who said, hold on a minute. Revenues aren’t coming in as anticipated, let’s wait until January to see if the revenue picks up first. Funny, isn’t it?

[I’m also getting very tired of Christie’s personal behavior…such as his latest blow up at the Jersey shore caught on video. Vice president? No way.]

--No wonder 83-year-old Professor Peter Higgs had tears in his eyes on Wednesday. Higgs was present in Geneva for the formal announcement that a particle he and five others first proposed nearly 50 years ago had been proved, the “God particle.” Rolf Heuer, director-general of the CERN laboratory, told colleagues that they were “99.99995 percent sure their data was correct and while many questions remain (hopefully to be answered in the next four years’ worth of experiments), Heuer said, “As a layman, I think I would say ‘we have it.’ But as a scientist I have to say, ‘what do we have?’”

What scientists think they now have is the completion of the Standard Model – physics’ mathematical description of the subatomic world.

Alan Barr, of the University of Oxford and CERN’s Atlas experiment, said: “Many theoretical physicists will say there is not just one Higgs boson, but at least five. If there are, this is just one of them. If this does not quite have the properties of the Standard Model, then it can point to more particles.

“The Standard Model has been around since the 1970s…but we know it is broken. It can’t describe nature, certainly can’t describe gravity, and has nothing at all to say about the nature of most of the contents of the Universe. It’s clearly not the whole story. It would be great if this is not an isolated island coming over the horizon, but an indicator of a whole new world to come.”

Or as the Wall Street Journal editorialized:

“The seas of modern science, in other words, are stormy and contain many uncharted waters. For now, though, it is enough to marvel again at how far we have sailed”

--Last week I wrote of the “exploding” sexual abuse scandal at Lackland Air Force base in San Antonio and since then the story has grown to sickening proportions, thanks to various editorials and a new documentary, “The Invisible War,” which depicts an epidemic of rape within the U.S. military.

“When does this ever end?” retired Air Force Brig. Gen. Wilma L. Vaught asks as the film details “how a female soldier in combat zones is more likely to be raped by a fellow soldier than killed by enemy fire.” [Editorial / Washington Post]

I wrote last week:

“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.”

Editorial / Washington Post…July 4

“Critics say that the changes [just imposed by Defense Secretary Leon E. Panetta after watching the documentary] don’t go far enough, and some are pressing for an overhaul of the military’s judicial system that would take decisions out of the chain of command and establish civilian supervision. It’s a move strenuously opposed by the military, which views the chain of command as the foundation for the order and discipline so vital to its mission. The new policy involving more senior and experienced officers, which went into effect only last week, must be given a chance, but if it fails to produce real results, the Pentagon must not hesitate to make additional changes. Among ideas with merit are empowering military prosecutors to make the final decision on cases or providing a process for victims to appeal decisions not to prosecute.

“One area that clearly demands immediate attention is how the military punishes those who are accused or convicted of sex crimes. Analysis by the Service Women’s Action Network of 2011 Defense Department statistics showed that 10 percent of accused sex offenders were never held accountable because they were allowed to resign. Even more startling is its finding that one in every three convicted sex offenders was allowed to remain in the service. So much for zero tolerance.”

--So that dock I talked about last time that washed up on a beach in Newport, Oregon that had traveled 5,000 miles across the Pacific following the Japanese tsunami, turns out to weigh 132 tons. In reading a story in the Oregonian by Joseph Fanelli after posting my piece, I learned:

“The Japanese government has estimated 1.5 million tons of tsunami debris is adrift in the Pacific and making its way toward the West Coast. To put the volume in context, it is the equivalent of 11,300 docks like the one beached near Newport. And it rivals the 2.5 million tons of waste that Oregonians sent to landfills in 2010.”

--Gerard Henderson / Sydney Morning Herald…July 3

“It’s not surprising that a narcissist such as Julian Assange [Ed. technically an Australian citizen] has one standard for himself and another for everyone else. However, it is surprising that some of his supporters in Australia and overseas have signed up to his sense of self-indulgence.

“The report in yesterday’s [7/1] Herald that Dianne Feinstein, the Democratic Party chairwoman of the U.S. Senate select committee on intelligence, has called for Assange to be prosecuted for harming U.S. national security, does not change his immediate situation.

“Assange is wanted in Sweden for questioning about possible rape or sexual misconduct. This has been the situation for close to two years.

“Imagine if a right-wing male activist was wanted in Sweden for questioning for similar alleged offenses against women. He would have no supporters among the left in general or feminists in particular.   Why should this be any different for Assange?....

“Sweden’s sexual conduct laws may be tough. But they are the laws of a democratic nation and they apply to everyone who lives in, or visits, Sweden.

“For the [Aussie] Prime Minister, Julia Gillard, and her ministers to have acted any way other than they have in this case would have meant Assange had more rights than other Australian citizens in a similar situation.

“The hypocrisy does not end here. Assange supporters believe he may end up in the U.S., where following a trial and a conviction, he could receive a long term of imprisonment. Yet the WikiLeaks founder has shown scant concern for the people named in secret documents that he has released, and that threatens the security of men and women who have supported the U.S.

“In WikiLeaks: Inside Julian Assange’s War on Secrecy, the journalists David Leigh and Luke Harding quoted the WikiLeaks founder as making the following comment about pro-American Afghans who might be identified as a result of WikiLeak’s information dumps and could be targeted by the Taliban: ‘Well, they’re informants. So if they get killed, they’ve got it coming to them. They deserve it.’

“In his profile of Assange in The New Yorker on June 7, 2010, Raffi Khatchadourian reported that when it was suggested that WikiLeaks’ dumps might endanger the lives of American forces on the battlefield, Assange conceded he and his associates might get ‘blood on our hands.’

“So Assange and his supporters suggest Australians should be very concerned he might be imprisoned in the U.S. for a long term. However, he and his mates either dismiss or rationalize the fact that his activities might have led to the deaths of others.

“The Assange saga has gone on too long already. He would be well advised to leave the Ecuadorean embassy and go to Sweden for questioning. There may well be no charges of sexual misconduct. Alternatively, if charged and convicted, he may serve a brief term of imprisonment.

“Following either eventuality, Assange would be free to return to Australia or reside in any country that would accept him.”

So after giving you some cryptic comments of my own the past few weeks, here’s the deal. On June 4, 2012, I received an email from Mr. Assange and his people. It was about a WIR I did wherein I quoted another story on Assange and the Assange team found it and said among other things:

“Majid Jamali Fashi is not the source named in the cable:

“The cable does not even mention Israel.

“Fashi was not a martial arts expert, he was a kickboxer. The source mentioned in the cable was a Taekwondo coach.

“At no point have the Iranian authorities mentioned any U.S. embassy cable in connection with Fashi’s case.”

It goes on and on….But then:

“Due to the number of inaccuracies it contains, the (article) is extremely misleading to its readers and you may prefer to write a whole new article….

“Cost of the libel to me are:

“ – As a result of re-reportage and internet readership the harm to my reputation, and to my organization, is global. WikiLeaks relies entirely on the goodwill of the public, which this article compromises through false means.

“ – Contribution to a hostile media climate in the United States where a Grand Jury has been empanelled to indict me for espionage.

“ – Contribution to a hostile media climate in the U.K. while the decision to extradite me is before the courts.

“ – Contribution to a hostile media climate in Sweden, to which I am likely to be extradited and trailed in.

“ – Contribution to undermining political support in Australia, discouraging the Australian government from intervening to stop my extradition or intervene in the Grand Jury process.

“ – Contribution to a reduction in my ability to raise revenue for WikiLeaks through loss of reputation.

“ – Contribution to a reduction in donations to my personal Defense Fund through a loss of reputation.

“ – Contribution to a reduction in political support for WikiLeaks and myself at a time when we are imperiled by publicly declared FBI, Pentagon, CIA and U.S. State Department Task Forces.

“Yours sincerely,

“pp Debra Sheehan
on behalf of Julian Assange”

The letter only shook me up briefly, in actuality, but it was an initial shock. I’ll comment further as appropriate.

--Brian C. Mitchell, an educator and historian who was most recently the president of Bucknell University, on the meaning of the Fourth of July.

“The Declaration is about our aspirations and the Constitution is about how we do it. And how we do it is messy and imperfect.   The Constitution is what precipitates and provokes debate. But I think the Declaration is the right thing to celebrate. Because it’s about who we want to be.” [Ted Anthony / AP]

--Now I understand at age 236, America is a great nation, but how pathetic is it that much of Northern Virginia was without 911 service through last weekend following the June 29 superstorm. That’s not good enough. It’s Third World stuff.

--NASA unveiled the $500 million spacecraft from which astronauts will one day make their first foray on to Mars. Didn’t look to me like it had enough room for a full bath…just sayin’. It’s a long trip, after all. Plus no wet bar. [It’s a long trip, after all.] I’m assuming their iPads will come fully loaded with movies for the journey because I don’t know what the hell they’re going to be doing 95% of the time.

Unmanned test flights begin in 2014 with a possible lunar flyby as soon as 2019.

Frankly, with Planet Earth in a titanic funk these days, I’d start the manned flights in ’14 and just keep trying until we get it right. Use the snowboarders.

---

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

God bless America.
---

Gold closed at $1583
Oil, $84.12

Returns for the week 7/2-7/6

Dow Jones -0.8%   [12772]
S&P 500 -0.5% [1354]
S&P MidCap +0.6%
Russell 2000 +1.0%
Nasdaq   +0.1% [2937]

Returns for the period 1/1/12-7/6/12

Dow Jones +4.5%
S&P 500 +7.7%
S&P MidCap +7.7%
Russell 2000 +8.9%
Nasdaq +12.7% 

Bulls 42.5
Bears 24.6 [Source: Investors Intelligence]

*Dr. Bortrum has a new column.

**Don’t forget the StocksandNews iPad app…perfect for hunting Great White sharks off Cape Cod.

Have a great week. I appreciate your support.

Brian Trumbore