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07/14/2012

For the week 7/9-7/13

[Posted 6:00 AM ET]

Europe, China and the United States

It’s earnings season and a slew of U.S.-based companies have already warned about their performance in the second quarter before releasing actual results; most in one form or another blaming Europe and/or China.   Warren Buffett got into the act in an interview with CNBC, saying that when it comes to Europe, “things are starting to slip pretty fast.”

It seems everyone who may have been fairly optimistic in the first quarter, as was Buffett, noticed a significant decline in activity the latter part of the second. 

Such as Cummins Engine, which warned its Q2 revenues will fall below initial expectations, citing falling demand for U.S. trucks and weakening conditions overseas.  Chipmaker Advanced Micro Devices said it saw an unexpected decline in Q2 sales, citing China and Europe. Alcoa’s sales were down, Ford Motor’s sales in Europe fell 10% in the first half, United Technologies’ CEO said: “Clearly the situation in Europe has gotten a lot worse than what we expected.” Printer maker Lexmark warned on Friday and its shares collapsed in talking about a “weaker than expected demand environment, particularly in Europe,” and Dave Cote, CEO of Honeywell, a major industrial, told the Financial Times: “We are being much more careful on hiring and investment around the world, because this is not a time to be out in front with your commitments. We are well-prepared for another global recession, if we get one.”

This last statement should be the most worrisome to the Obama administration with an election less than four months away.

So let’s look at Europe. The governor of the Bank of England, Sir Mervyn King, said of the eurozone debt crisis:

“There is a great black cloud of uncertainty hanging over businesses all around the world. The result is, until they know how this situation is going to be resolved, they are holding back from investment and spending.” [See David Cote]

This week Moody’s cut Italy’s debt rating to two levels above junk and the yield on the Italian 10-year bond rose back above 6%. The ratings agency said Italy was now “more likely to experience greater credit losses than anticipated, and Spain’s own funding challenges are greater than previously recognized.

“Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets.

“Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.”

As to the two rescue funds, the European Financial Stability Facility and the European Stability Mechanism, Moody’s said “there is a limit to the extent to which these support mechanisms can be used to backstop such a large, systemically important sovereign” debtor such as Italy.

The International Monetary Fund said Italy would be in recession at least another year as investors withdraw money and banks face rising bad loans. Prime Minister Mario Monti said a Spain-type bank bailout wasn’t needed, but he needs bailout funds from the EFSF and ESM to buy government bonds to keep rates low. 

And while Monti said he won’t run after his term expires in 2013, former Prime Minister Silvio Berlusconi continues to plot a comeback.

In Spain, Prime Minster Mariano Rajoy hailed a decision by eurozone finance ministers to help Spain shore up its banks. Last weekend ministers agreed to Spain’s earlier request for up to 100 billion euros and Rajoy declared:

“If we had not done what we have done in the past five months, the proposal would have been a bailout of the kingdom of Spain.”

But then we learned the actual bailout conditions and they are quite different from what was offered up for public consumption following the June 28-29 EU summit. The document reads:

“Banks and their shareholders will take losses before state aid measures are granted and ensure loss absorption of equity and hybrid capital instruments [preferred shares] to the full extent possible.”

As the Financial Times points out, Spanish banks have 67 billion euro of preferred share-like debt outstanding, much of which was sold to retail investors as savings products. No way these same investors know what is about to hit them.

The agreement to recapitalize the banks, including a first payment of 30 billion euro, is to be formalized July 20 with further funds dispersed following an independent review of the banks’ needs which is to be completed in September.

And remember how this aid wasn’t to add to Spain’s national debt? Now we’ve learned the funds will be funneled through Spain’s existing bank bailout fund, “Frob,” so it will indeed add to the debt.

But, we’re told, once EU leaders reach agreement on a new eurozone banking supervisor, such loans will go directly to troubled banks…but there it is again. You need the banking supervisor first and as I’ve been writing the past two weeks, and is reiterated below, that just isn’t happening in 2012.

Every week, or after every one of the 19 major summits during the crisis, you just have to wait 24 or 48 hours to be able to shoot all kinds of holes in these supposed agreements that are going to save the day.

Meanwhile, Finland is demanding collateral for any funds loaned to Spain, just as the Fins did before contributing to Greece’s second bailout package. Finance Minister Jutta Urpilainen said, “The collateral talks with Spain are ongoing and the timetable is challenging.”

At least Prime Minister Rajoy pushed through an $80 billion austerity program with tax hikes and spending cuts in return for the EU granting Spain an extra year to get its house in some semblance of order, but all manner of groups, including Spain’s miners, clashed with police in Madrid.

As for Germany, Chancellor Angela Merkel was forced to clarify just what she agreed to at the last summit as her country’s politicians are afraid they face surging costs as a result of the bailouts. The Bundesbank, for example, has “loans” to other EMU central banks of 729 billion euro as of June. This goes to the heart of the pooled bank debt issue, which Germans are vehemently against but some politicians see a world where they are getting sucked into it regardless. Total sovereign debt in the EU is said to be 23 trillion euro.

Germany’s Federal Constitutional Court is providing its own roadblock in failing to rule on whether the European Stability Mechanism is compatible with the country’s constitution.

All the while Europe’s north-south divide grows ever wider and the political backlashes on all sides, in all countries, are coming fast and furious.

Wolfgang Munchau / Financial Times

“The politics of the euro rescue has crossed an important threshold in Germany. A narrow majority is still in favor of the euro, but a majority is against further rescues. A group of 160 economists, led by Hans-Werner Sinn, president of the Ifo economics institute, last week published a manifesto against a banking union. It was full of sound and fury, but the importance of this document is that it reflects a consensus view.

“Angela Merkel’s answer was revealing. She told them that there is nothing to worry about. The banking union was about joint supervision, she said. There will be no joint deposit insurance. She has a very different understanding of a banking union than the European Central Bank. At most, I expect this new banking union to cover the 25 largest banks, and leave those cajas and Landesbanken in national control. This is like an alcoholic who promises to drink only the better cognacs from now on.

“The banking union that is required is the one Germany will not accept: central regulation and supervision, a common restructuring fund and common deposit insurance. It would take years to create. If done properly, it would require a change of national constitutions and European treaties, if only to redefine the role of the ECB. It is sheer madness to make crisis resolution contingent on the success of what would be the biggest European integration exercise in history.”

And remember how Ireland was said to be close to the day when they could restructure their bank debt through the ESM, thus taking the debt off the government’s books as early as October?

That was contingent on Ireland continuing to see recovery in its economy and instead first-quarter GDP fell 1.1% with GDP now estimated to rise just 0.5% in 2012, if that. So the EU is telling Ireland, ‘perhaps we’ll wait a spell before cutting you guys a break.’ If the economy tumbles back into recession, the deal is off. [It doesn’t matter that Q4 2011 performance was revised upward to growth of 1.1%.]

Editorial / The Economist

“(The June summit) delivered rather less than the market rally suggested. In theory, the agreement promises to break the self-reinforcing link between weak governments and weak banks. In practice that will not happen until the European Central Bank is put in charge of euro-area banking supervision, which may take a lot longer than the planned six months. Before then a deal stitched together in the bleary hours could well snag on legal difficulties about redefining the permanent fund’s remit without changing the treaty that set it up, or on political objections in smaller northern economies – Finland, for example, doesn’t like the idea of using rescue funds to buy government bonds in secondary markets. Meanwhile, Greece has lost none of its capacity to cause trouble, as a new, weak government tries to extract concessions from creditor nations.

“All of which means yet more uncertainty and more harm to the global economy.”

Turning to China, there was a slew of data this week, the most highly anticipated number being second-quarter GDP, which came in up 7.6%, a tick below expectations and down from Q1’s 8.1%, as well as the lowest reading since 2009. Now many doubt the veracity of the number but the government forecast 7.5% for all of 2012 so it seemed natural that Beijing would continue to massage the data as the country faces a critical leadership change beginning in the fall.

Premier Wen Jiabao said prior to the GDP release that “The economy is running at a generally stable pace, but there is still huge pressure for it to go downward.” But on the issue of the housing market, Wen said, “It is a crucial time for the controls over the property market. The controls have to be continued. And it will be long-term policy to curb speculation in the property market.”

Instead, China is focusing on investment, but not exactly the broad-based stimulus of 2008-09. Instead they are trying to target specific industries for growth and bank lending, encouraged by the government, has been rising considerably.

In other China economic news, electricity generation was flat in June compared to June 2011, industrial production was up 9.5% in June, continuing a trend of slower growth with this indicator, retail sales rose 13.5% last month, exports were up just 11.3% while June imports rose only 6.3% vs. a year earlier when 11% import growth was expected, and China’s car sales rose 9% in June, which was better than expected, though sales were fueled by the rush to beat limits on auto registrations in some big cities that are attempting to limit the number of cars on the road and thus better handle congestion and air pollution.

Lastly, and importantly, consumer prices rose 2.2% last month, well below the government’s target of 4%, as overall food prices increased 3.8% (they rose 6.4% in May) while pork, the key staple, fell 12% over 2011; all of which leaves the government room for more aggressive easing of monetary policy should they see fit to do so.

Back to the U.S., the Federal Reserve’s minutes from its June meeting were released and among the drags on the economy were “slow growth or even contraction in some major foreign economies, ongoing and prospective fiscal tightening in the United States, modest growth in household income, and – despite some recent signs of improvement – continued weakness in the housing sector.”

Recently, Fed Chairman Ben Bernanke said the bank was “prepared to do what’s necessary” to stoke growth and the Fed’s next Open Market Committee meeting is July 31-August 1 (with another Sept. 12-13). I thought with the election coming up that the Fed would have taken any last action by now so as not to appear too political ahead of the November vote. There would be an uproar if the Fed did something radical in September (not that they really have any radical policy tools left), so it seems like the upcoming gathering is when the Fed could perhaps announce it is determined to hold rates near zero until 2015, rather than the late 2014 pronouncement of theirs, but otherwise, outside of a little more bond-buying, they’ve essentially used up their bullets.

On the federal budget front, the deficit for June was $59.7 billion, taking the nine-month fiscal year total to $904.2 billion, which is down from $970.5 billion in the same period last year, though we’re on target for a fourth consecutive $1 trillion plus deficit by end of September. Revenues rose 4.2 percent in June from the same month in 2011, but spending jumped 9.3 percent. Individual income tax receipts rose 3.1 percent while corporate receipts jumped 31 percent.

According to the Tax Policy Center, a nonpartisan research group, “If Congress does nothing on tax cuts championed by former President George W. Bush, 82.9 percent of U.S. households would face tax increases averaging $3,701.

President Obama called on Republicans to approve a one-year extension of tax cuts for families earning less than $250,000 a year, while Republicans, and some Democrats, want the current rates extended for all income levels, but nothing is happening before November and I’m not going to waste any time here on it; except to say that to call anyone living in New York City making $250,000 “rich” is beyond absurd, as Democratic New York Sen. Charles Schumer has himself observed.

Meanwhile, August is going to be one hairy month. I’m just convinced something happens on the Iran front and the debt-ceiling debate will re-emerge in some fashion. Or maybe Bashar Assad uses chemical weapons on his own people, forcing the world to finally respond.

---

Finally, regarding the Libor scandal, last week I wrote I was “sick of the apologists” who acted like it was all no big deal. First a refresher course, courtesy of The Economist.

“For Libor, a borrowing rate is set daily by a panel of banks for ten currencies and for 15 maturities. The most important of these, three-month dollar Libor, is supposed to indicate what a bank would pay to borrow dollars for three months from other banks at 11am on the day it is set. The dollar rate is fixed each day by taking estimates from a panel, currently comprising 18 banks, of what they think they would have to pay to borrow if they needed money. The top four and bottom four estimates are then discarded, and Libor is the average of those left. The submissions of all the participants are published, along with each day’s Libor fix.

“In theory, Libor is supposed to be a pretty honest number because it is assumed, for a start, that banks play by the rules and give truthful estimates. The market is also sufficiently small that most banks are presumed to know what the others are doing. In reality, the system is rotten. First, it is based on banks’ estimates, rather than the actual prices at which banks have lent to or borrowed from one another. ‘There is no reporting of transactions, no one really knows what’s going on in the market,’ says a former senior trader closely involved in setting Libor at a large bank. ‘You have this vast overhang of financial instruments that hang their own fixes off a rate that doesn’t actually exist.’

“A second problem is that those involved in setting the rates have often had every incentive to lie, since their banks stood to profit or lose money depending on the level at which Libor was set each day….

“In the case of Barclays, two very different sorts of rate fiddling have emerged. The first sort, and the one that has raised the most ire, involved groups of derivatives traders at Barclays and several other unnamed banks trying to influence the final Libor fixing to increase profits (or reduce losses) on their derivative exposures. The sums involved might have been huge…. Risibly, Bob Diamond, its chief executive who resigned on July 3rd as a result of the scandal, retorted in a memo to staff that ‘on the majority of days, no requests were made at all’ to manipulate the rate.   This was rather like an adulterer saying that he was faithful on most days.”

Simon Johnson / New York Times…MIT professor and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

“In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.

“This is a big mistake, in terms of the economics at stake and the likely political impact.

“The behavior at Barclays has all the hallmarks of fraud – intentional deception for personal gain, causing significant damage to others….

“Barclays could not have manipulated those rates by themselves…Rather, some Barclays employees colluded with people at other banks in a way that, over a period of years, moved Libor rates up and down, depending on what would favor the trading positions of the people and organizations involved….

“Once the global financial crisis began to bite, there appears to have been a more systematic manipulation of Libor reporting by Barclays’ management in a particular direction – downward, to make it seem that the bank was healthier and therefore able to borrow from other banks at a cheaper rate.

“George Osborne, Britain’s chancellor of the Exchequer (the equivalent position to the secretary of the Treasury) and a Conservative Party member, said recently, ‘Fraud is a crime in ordinary business; why shouldn’t it be so in banking?’ The answer, of course, is that fraud is not allowed in any well-run country.

“Anyone who takes personal responsibility seriously should want all those involved to be held accountable – to the full extent of the law in all jurisdictions. Anything that lets individuals escape consequences will further undermine the legitimacy that underpins all markets. Bankers should be leading the charge to clean up their industry.

“Nevertheless, five arguments put forward in the last 10 days, singly or collectively, attempt to provide some sort of cover for what happened at Barclays. None of these arguments have any merit.

“First, it is argued that this kind of cheating around Libor has been going on for a long time. This may be true, but it is a sad and lame excuse that is unlikely to get anyone off. The bigger question must be: Is the financial sector crooked at its core? Statements about a pattern of behavior only strengthen the case that incentives, culture and organizations are all badly broken at the heart of the world’s financial system.

“Second, it is asserted that ‘everyone does it.’ This is not any kind of defense – try it next time you are accused of fraud. But the perception that many people could be involved is part of the reason why this scandal has legs….

“There are three United States banks involved in Libor panels: JPMorgan Chase, Bank of America and Citigroup. Are they also implicated in some aspect of rigging interest rates and therefore securities prices?...

“Third, Libor-rigging is defended as a ‘victimless crime.’ This is untrue. Traders at Barclays and other banks gained from this series of manipulations, so someone else lost. That may have been investors, who received lower returns than they would have otherwise. Or it may have been borrowers, who paid higher interest rates and related costs than would have been necessary in an honest market….Some local governments have also lost heavily….

“Fourth, some contend that it is the regulators’ responsibility and fault that there was cheating on Libor. It is certainly the cases that there was regulatory capture at work – that is, officials in Britain, the United States and perhaps elsewhere should have been paying closer attention….

“Big banks work long and hard and lobby at many levels to push regulators toward paying less attention.

“Fifth, the weakest argument is, ‘It was only a few basis points, here and there’ (where a basis point is a hundredth of a percentage point, i.e., 0.01 percent). Either the Libor reporting process and, consequently, the pricing of derivatives has been corrupted by a criminal conspiracy, or it has not. There is no ‘just a little’ in this context for the enormous global securities market….

“Power corrupts, and financial market power has completely corrupted financial markets. Barclays and the other global megabanks involved in fixing Libor have brought their own industry very low – completely destroying the legitimacy on which sensible financial intermediation needs to be based.

“Who trusts a banker at this point? The collateral damage is enormous.”

Lastly, the New York Times first reported that current Treasury Secretary Timothy Geithner, then running the Federal Reserve Bank of New York in the midst of the 2008 financial crisis, reached out to top British authorities, questioning the integrity of the benchmark reporting process, but reforms he outlined weren’t carried out and Barclays continued its illegal activity, for which the bank was eventually forced to pay a fine of $450 million to American and British authorities. 

Street Bytes

--Stocks finished mixed on the week, thanks to a big rally on Friday that was precipitated by the ‘not disastrous’ GDP news out of China plus solid earnings reports from JPMorgan Chase and Wells Fargo.

The Dow Jones ended up adding five points (0.0%) to finish at 12777, while the S&P 500 gained 0.2% and Nasdaq fell 1.0%.

As for JPMorgan, it said the bad trade first dismissed by CEO Jamie Dimon as a “tempest in a teapot” had cost the bank $5.8 billion (which may eventually reach $7 billion), almost triple the original estimate of $2 billion, and the bank said in a statement, “E-mails, voice tapes and other documents, supplemented by interviews” were “suggestive of trader intent not to mark positions where they believed they could execute. Traders may have been seeking to avoid showing full amount of losses.” No evidence was provided to support the allegations. The Justice Department and the FBI began an investigation in May of the bank’s trading losses. In addition the SEC and Commodity Futures Trading Commission are doing their own probes.

I mean to tell ya, JPM is crawling with Feds!!!

But…the stock rose smartly because the bank also reported net income, despite all its issues, of $4.96 billion, better than expected, though down from $5.43 billion a year ago. Revenue fell 17% from 2011 as well.

JPMorgan also announced it was clawing back compensation from some of the London-based managers involved in the big loss, while the former head of the CIO unit is forfeiting about two years of compensation.

Meanwhile, Wells Fargo & Co. reported a 17% increase in its second-quarter profit as the largest U.S. home lender posted mortgage banking income of $2.9 billion, up from $1.6 billion a year ago. Overall second-quarter net income was $4.6 billion.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.24% 10-yr. 1.49% 30-yr. 2.57%

The 10- and 30-year bonds were back down near their all-time lows of 6/1; 1.44% and 2.51%, respectively, on global slowdown fears.

The data on June producer prices was released, up 0.1%, more than expected, with the core, ex-food and energy, up 0.2%. Year-over-year the PPI is up 0.7%, 2.6% on core.

--Eurozone industrial production rose 0.6% in May over April, but this is still down 2.8% from May 2011.

--French carmaker Peugeot Citroen announced it will lay off 8,000 jobs and close an assembly plant outside Paris as first-half sales fell 13% amid a “profound crisis” in its eurozone markets. Another plant in western France will shed 1,400 of 5,600 it employs there [3,000 being lost in Paris] and another 3,600 jobs across all facilities in France.

Last November Peugeot announced a headcount reduction of 6,000…so it’s 14,000 total.

--Germany’s exports jumped 3.9% in May from April, when they fell 1.7%.

--Britain’s unemployment rate in May was 8.2%.

--After 18 years of negotiations, Russia’s parliament voted Tuesday to ratify the country’s accession to the World Trade Organization. Russia will now have to dismantle its protectionist policies, but the flipside is they might attract more foreign investment if there is a feeling the rules will be obeyed.

U.S. companies, however, will be at a competitive disadvantage because of trade sanctions against Russia, and the old Soviet Union, going back to the 1974 Jackson-Vanik law. Once Russia joins the WTO, the United States is in violation of the WTO’s rules due to Jackson-Vanik, resulting in unfavorable terms for doing business with Moscow.

--Indian industrial output rebounded 2.4% in May from a year earlier, after a revised 0.9% decline in April. Encouraging, but just one month. 

--Singapore’s second-quarter GDP fell 1.1% over the first-quarter.

--Australia’s unemployment rate in June ticked up to 5.2% from 5.1%.

--As reported by David Lazarus of the Los Angeles Times, “A survey of 500 top Wall Street executives by the law firm Labaton Sucharow found that 24% believe that professional money people need to engage in unethical or illegal behavior to be successful.”

Jordan Thomas, chair of Labaton Sucharow’s whistle-blower representation practice said, “When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk.”

Ain’t that the truth.

--The Commodity Futures Trading Commission charged broker Peregrine Financial Group and its owner, Russell Wasendorf, of running a $200 million fraud in a case that exploded overnight with the failed attempt by Mr. Wasendorf to commit suicide on Monday. The CFTC, which obviously failed in its supervision of Peregrine, said the company kept only $5.1 million in a customer account they falsely said held more than $220 million. On Friday, Wasendorf was charged by U.S. prosecutors with making false statements to regulators and carrying out his fraud for more than two decades.

Last year it was MF Global that collapsed, leaving a $1.6 billion hole in customer accounts. After MF blew up, Russ Wasendorf Jr., Mr. Wasendorf’s son and Peregrine’s president, wrote about the “sanctity of customer-segregated account balances” in a letter to customers on Peregrine’s web site.

Some in Congress are wondering just how it is that after MF Global, something like Peregrine could still happen.

--Former Barclays CEO Bob Diamond was accused by members of parliament in the U.K. of lying and indeed the facts seem to show that he did when he gave his testimony the prior week; specifically denying knowledge of a letter a U.K. regulator sent to outgoing chairman Marcus Agius, warning the bank was practicing an “aggressive” interpretation of rules and “unhelpful spin.” MPs said Diamond had shown a “cavalier attitude” to their committee and treated it with contempt.

--PIMCO’s Bill Gross, who runs the world’s biggest bond fund, is forecasting growth in the U.S. of about 1.5% a year for at least the next 10 years. Oh joy.

--Editorial / Wall Street Journal

“After the California city of Stockton declared bankruptcy last month, politicians and credit raters assured investors that municipal bonds were still safe and that the city’s insolvency presented no systemic risk. Does that script sound familiar? In reality, expensive labor agreements are threatening municipalities across the U.S., though the people who should be most concerned are taxpayers.

“On Tuesday the city council of San Bernardino, a city of about 210,000 in California’s Inland Empire, authorized Chapter 9 municipal bankruptcy. The city is running a $45 million deficit on a $130 million budget and didn’t have enough cash to pay its vendors or workers. As in Stockton, tax revenues have plummeted in recent years due to high home foreclosure and unemployment rates while labor costs have exploded.

“Since its biggest creditors – workers and retirees – have been unwilling to renegotiate contracts and benefits, the city has had to cut its workforce by 20% in the last four years. The unions’ idea of a concession is allowing newly hired public safety officers to retire with 90% of their highest salary at age 55 instead of 50….

“Unfortunately, the city probably won’t be able to use bankruptcy to modify retirement benefits. When the Bay Area city of Vallejo declared bankruptcy in 2008, the California Public Employees’ Retirement System threatened litigation if city leaders attempted to restructure pensions. San Bernardino bondholders may therefore have to take a larger haircut. The bankruptcy should underscore to investors that tax-exempt municipal bonds aren’t without risk.

“Ultimately, however, the biggest victims of the city’s fiscal crisis are taxpayers. Despite paring public services, the city projects $45 million annual deficits for the next five years. Since further service reductions could endanger public safety and cause an exodus of residents, the city manager and its director of finance suggest that the city explore raising revenues. Their recent budget analysis recommends increasing the property transfer tax by nearly 500%.”

--The U.S. Department of agriculture named 1,000 counties in 26 states as natural-disaster areas, the biggest such declaration ever owing to the drought in the Midwest.

When it comes to the corn crop, about 40% is in good or excellent condition as of July 8, the lowest for this time of years since a drought in 1988.

I was constantly checking the radar loops in the Midwest last weekend and I’m very curious to see how Kansas, for one, holds up because parts of the state got meaningful precipitation. But key spots such as southern Illinois and southern Indiana continued to receive little. 

--The National Oceanic and Atmospheric Administration (NOAA) found the first half of 2012 was the warmest for the Lower 48 States in records dating to 1895. 28 states, all east of the Rocky Mountains, had a record warm first six months of the year. Only Washington State recorded a cooler-than-average first half of 2012. June, though, was ‘only’ the 14th warmest in 118 years of records.

The 12 months thru June was also the warmest ever.

--A study from the Climate Change Research Institute at Oregon State University concluded that the severe heat afflicting Texas last year was impacted by global warming, 20 times as likely as it would have been in the 1960s. But, when examining the devastating floods in Thailand, the same researchers said global warming played no role.

Separately, the Arctic continued to warm more rapidly than the planet as a whole in 2011, scientists reported, and sea ice in the Arctic was the second-lowest level in the historical record.

One researcher at the National Oceanic and Atmospheric Administration said his research showed that the rainfall deficits in Texas were unrelated to global warming.

Many on the pro side of the debate admit their research was hastily prepared.

--For the first time in more than two decades (1988), Iraq’s crude production topped Iran’s in June, according to OPEC, 2.984 million barrels to 2.963 mbd.

Saudi Arabia pumped 9.89 mbd last month.

--In a fee-fixing case that had dragged on for seven years, Visa and Mastercard and major U.S. banks agreed to a $7.25 billion settlement with retailers, with $6 billion going to the stores and an agreement to reduce swipe fees for eight months, valued at $1.2 billion.

--On Monday, July 3, Duke Energy closed its merger with Progress Energy, a $32 billion deal, including debt, originally struck 18 months ago. William D. Johnson, the head of Progress, was to be the CEO of the combined operation but on the day the merger went through, Duke’s board put Duke CEO Jim Rogers in charge, offering that Johnson had resigned “by mutual agreement.”

Needless to say, this past week, Rogers’ first meeting with Progress employees was a tense one and it seems Duke Energy was incredibly reckless with its shareholders because now it risks action by the utility regulators it will be going before for all manner of approvals in the future, including on rates. It was these same regulators who signed off on the merger with the understanding that William Johnson was to run the new company. The combined operation represents the largest electric utility in the United States with 7.1 million customers and more than 29,000 employees in the Southeast and Midwest.

Meanwhile, it is still unclear what triggered the coup within hours of the deal’s closing.

--The Gartner Group projects that global technology spending will rise about 3 percent from 2011. Global personal-computer shipments, though, slipped 0.1% in the second quarter, a seventh straight period of anemic or no growth. Hewlett-Packard remains the No. 1 PC seller, followed by Lenovo Group and Acer, which edged out Dell for the third spot.

--Yahoo reported 450,000 user names were stolen by hackers on July 11, specifically by a group called D33Ds. Yahoo’s board was expected to approve interim-CEO Ross Levinsohn as permanent chief but held off on doing so.

--A look at the first half of the year on Broadway showed year over year increases of at least 9.8% each month.

--NBC’s “Today” show brought Savannah Guthrie out of the bullpen but looking at the first two days there was no relief as preliminary data shows ABC’s “Good Morning America” leading “Today” with 4.425 million viewers Monday and 4.326 million Tuesday to “Today’s” 4.069 and 4.175 million for the two days.

Of course it’s absurd to judge Ms. Guthrie after just two shows but I use this as an example of how competitive these two have become and how desperate NBC is to reverse the slide, quickly. Some are now questioning if Ann Curry was ever the problem, Curry being jettisoned after just one year.

But now “Today” has the Olympics.

--Speaking of the Olympics, you’re seeing more and more stories about how the weather could be awful in London, this after the wettest second quarter there since records began in 1910, with July bringing flash floods thus far.

Actually, London on an annual basis receives far less rain than New York or Paris, but as the Washington Post’s Anthony Faiola notes, “its rainy rap comes from frequently overcast skies that more often drizzle than pour buckets, with its fast-moving weather tending to push strong storms through the urban area relatively quickly.”

Heck, everyone will just adapt. But on the security front, there is chaos as private security firm G4S failed to recruit enough guards, so the Brits are rushing in over three thousand troops who recently returned from Afghanistan and a military camp is being set up. This is unsettling.

--Inflation Alert: New York City’s Taxi & Limousine Commission approved a 17% fare increase for yellow cabs, giving drivers their first raise since 2006.

So this story hit on Thursday and I so happened to be in the City that day, taking a cab, and I asked my guy if he was happy. “Yes, but my owner immediately jacked up his lease fee!” 

Now I read a little on the topic since then and I’m not sure fleet owners were allowed to do this yet, but the economics of driving a cab in New York always fascinated me. The pay raise supposedly means a cabbie can now take home an average of $160 after a 12-hour shift, up from $130, according to the T&L commission Chairman David Yassky. Drivers pay a fleet owner about $120 to $130 a day for use of a cab. [Crain’s New York Business]

--Regarding the personal portfolio position of mine in Fujian, China, I have been holding off on saying anything because, frankly, there is zero to add other than that by all accounts from various sources, the company is doing fine (though I imagine having normal economic-related issues given it’s in a cyclical business and China’s in the midst of a slowdown).

I have taken one step to notify a certain agency and I’m giving them a few weeks to respond. In the meantime I’m just reporting the news from there as I see it, unbiased. At some point down the road my tone is likely to change.

--When I saw the Fourth of July fireworks glitch in San Diego, the one where the 20-minute show went up in about 15 seconds, I had no idea a company about ten minutes from my home in New Jersey was responsible, Garden State Fireworks.

As reported by USA TODAY, the company blamed a software glitch but imagine the co-owner watching a live stream of the fiasco. He said his reaction was “not good.”

Garden State Fireworks is the largest and oldest American manufacturer of display fireworks, a company founded in the late 19th century by Augustine Santore, an apprentice of the master fireworker serving under Italy’s King Victor Emmanuel II.

The San Diego show was one of about 150 the company was doing the week of the Fourth. Garden State is looking to do a free show for the city to make it up to them but these take months to plan.

--According to the United Nations’ food agency, by 2018, the salmon on your plate likely will have originated from a fish farm rather than the wild…make that gross fish farms. Aquaculture is expected to soar 33% over the next decade.

Last year, 90.4 million tons of fish were caught while 63.6 million tons were raised and the 50/50 mark is to be passed around 2018.

The Food and Agriculture Organization, however, says aquaculture is vulnerable to outbreaks of disease.

Fish farming has actually declined in North America but is booming in Brazil and China. [Tiffany Hsu / Los Angeles Times]

--Finally, from Peter Allen of the Irish Independent:

“French cows are enjoying up to two bottles of high quality wine every day as farmers attempt to produce the best beef in Europe.

“The extraordinary development has seen a ‘Vinbovin’ label of meat established which is already being championed by some of the best restaurants in Paris.”

The cows were initially fed the wine in a mix of barley, hay and grapes.

“It soon became clear that they were ‘happy cows’ who ended up producing an exceptionally succulent meat.”

Instead of just going “Mooo,” the cows went “Oui oui!” and “Tres bon!”

Foreign Affairs

Iran: A book making waves in both Iran and Israel, co-authored by an Israeli intelligence expert and a CBS News reporter, claims Mossad was responsible for the deaths of five Iranian scientists in the last five years, which isn’t a surprise, but the authors claim the killers were of Persian Jewish heritage and operated out of a series of safehouses that have been in existence for decades in Tehran and elsewhere. The book is helping fuel paranoia in Iran.

As for the nuclear weapons program talks, more technical level discussions are to take place in Istanbul on July 24, which is ludicrous, while the head of Britain’s MI6 spy agency said Iran is likely to obtain a nuclear weapon by 2014.

“The Iranians are determinedly going down a path to master all aspects of nuclear weapons; all the technologies they need. It’s equally clear that Israel and the United States would face huge dangers if Iran were to become a nuclear weapon state,” said Sir John Sawers. Sir John is crediting covert MI6 operations with preventing Iran from developing nuclear weapons earlier. Without intervention, he says, Iran may have gone nuclear as early as 2008.

Separately, the Pentagon issued a report that “Iran has boosted the lethality and effectiveness of existing (missile) systems by improving accuracy and developing new payloads,” including for their submarines.

Syria: In the latest massacre, the worst yet, helicopter gunships and tanks (both Russian-made) attacked a village in central Syria, Taramseh, and “obliterated” it, with at least 220 killed, according to opposition groups. Video began to emerge showing the slaughter, with Russia now under intense pressure as well as the Syrian government. Pathetic UN and Arab League envoy Kofi Anna said “I am shocked and appalled.” Someone please show Mr. Annan the exit.

The massacre in Houla in May claimed about 110 lives. Prior to this episode, an estimated 17,300 had died in the Syrian uprising, including 4,300 members of the security forces.

Taramseh is a predominantly Sunni village. Recall that Syria is ruled by the Alawites, who are an offshoot of Shiite Islam.

And you know those chemical weapons stockpiles I began talking about right after the beginning of the uprising? The Wall Street Journal reported on Friday that “Syria has begun moving parts of its vast arsenal…out of storage facilities…in a development that has alarmed many in Washington.” Is Assad going to use the stockpiles of sarin nerve agent and mustard gas against his own people? Is Assad just trying to hide them better? Or is he going to give some of them away?

Syria denies their WMD have been moved.

Assad did suffer a big blow when his Ambassador to Iraq defected and joined the revolt. Nawaf al-Fares, in a statement to al-Jazeera, said: “I announce my resignation as Syrian Ambassador to Iraq as I also declare my defection from the Syrian Baath party. I urge all honest members of this party to follow my path because the regime has turned it into an instrument to kill people and their aspiration to freedom. I also declare from this moment that I have joined the ranks of the revolution.”

Lebanon: The violence in Syria once again spilled across the Lebanese border with Syrian forces shelling a Lebanese village, killing at least two as Assad’s forces went after rebels seeking refuge in Lebanon, according to residents. Of course it’s innocents who are then killed.

Recall that Hizbullah runs the government in Lebanon these days and they are Shiite, as is their benefactor in Syria, Assad. But there are strong Sunni elements in Lebanon, witness the Hariri family that has produced two recent prime ministers, the Hariris also being allies of Saudi Arabia.

So it’s tribal, in both Syria and Lebanon. The Lebanese Army has vowed to beef up its forces on the northern border.

But as for former Prime Minister Saad Hariri, who said after Hizbullah won the last election and gained control of the government that he would lead the opposition, he has been hiding out in France for more than a year now and it’s time he returned home instead of bitching from exile; this week about the government’s silence in the face of the border escalation.

“It shows total disrespect for the lives of our citizens and our sovereignty,” he tweeted, according to the Daily Star.

Tweeted? Go home and lead, Mr. Hariri.

Egypt: President Mohamed Morsi took office on June 30 and immediately attempted to call back the nation’s parliament, which had been dissolved by the military council prior to the presidential election. So parliament reconvened for an hour on Tuesday, basically to prove it could, and then Egypt’s Higher Constitutional Court affirmed the role of the military to dissolve the body.

But on Wednesday, Morsi said he wanted talks with the judiciary and political powers to defuse the crisis and then he flew to Saudi Arabia for the start of his first foreign trip, where Morsi told the Saudis, in veiled terms, that Egypt would support their country should it have any issues with Iran, and that Morsi wasn’t looking to “export” Egypt’s revolution; reassurance for the Saudis and its Gulf allies.

Meanwhile, no one seems to know just who will write a new constitution. The military maintains it can appoint a constitution-writing body if the one picked by a new parliament doesn’t pass muster. The power struggle is on. This is going to be a multi-year process.

Israel: With attention focused on Iran and its nuclear weapons program, no doubt the Palestinian issue has been pushed to the back burner, but this week President Shimon Peres spoke out against West Bank settlements, stating that they jeopardize the state’s Jewish identity.

“Israeli settlements in territories densely populated with Arabs, which followed their attack on us, can lead to a threatening demographic change. It places a Jewish majority in the State of Israel at risk. Without a Jewish majority it is doubtful if the state will remain Jewish.”

A government report this week stated that Israel did not occupy the West Bank and that it had a right under international law to build settlements there.

The U.S. reiterated its opposition to Israeli settlement activity and does not agree with the report’s conclusions. I agree with Washington’s take.

On a different matter, former Prime Minister Ehud Olmert was cleared of the most serious corruption charges against him, including fraud, but convicted on a lesser count of breach of trust. This was all part of a five-year inquiry that drove Olmert from office in 2009 and eventually led to Prime Minister Netanyahu’s return to power.

Libya: The two-stage election process appears to have elected a mostly pro-West government though I’ve yet to see final results. Ultimately, a 200-seat parliament will have to come up with the country’s leadership, which will pit Islamists against Western-leaning parties. For now, in Tripoli and revolution stronghold Benghazi, it appears former rebel prime minister Mahmoud Jibril was winning more than half the seats.

Charles Krauthammer / Washington Post

“Post-revolutionary Libya appears to have elected a relatively moderate pro-Western government. Good news, but tentative because Libya is less a country than an oil well with a long beach and myriad tribes. Popular allegiance to a central national authority is weak. Yet even if the government of Mahmoud Jibril is able to rein in the militias and establish a functioning democracy, it will be the Arab Spring exception. Consider:

“Tunisia and Morocco, the most Westernized of all Arab countries, elected Islamist governments. Moderate, to be sure, but Islamist still. Egypt, the largest and most influential, has experienced an Islamist sweep. The Muslim Brotherhood didn’t just win the presidency. It won nearly half the seats in parliament, while more openly radical Islamists won 25 percent. Combined, they command more than 70 percent of parliament – enough to control the writing of a constitution (which is why the generals hastily dissolved parliament).

“As for Syria, if and when Bashar al-Assad falls, the Brotherhood will almost certainly inherit power. Jordan could well be next.   And the Brotherhood’s Palestinian wing (Hamas) already controls Gaza.

“What does this mean? That the Arab Spring is a misnomer. This is an Islamist ascendancy, likely to dominate Arab politics for a generation….

“The only thing we can be sure of today…is that Arab nationalism is dead and Islamism is its successor. This is what the Arab Spring has wrought. The beginning of wisdom is facing that difficult reality.”

Afghanistan: Last weekend, the United States designated Afghanistan as its newest “major non-NATO ally,” which amounts to a major political statement of support and is part of a process to solidify a long-term defense cooperation agreement following U.S. combat troop withdrawal in 2014. Essentially the declaration streamlines purchases of American equipment and easier export control regulations. Others in this category include Australia, Israel and Japan. But also Pakistan.

On Sunday, six U.S. servicemen were killed in a single IED attack in eastern Afghanistan. 

[And as I go to post, Saturday morning, there is word of a suicide bomb attack that took out a key Afghan commander among the 20 victims. It was at the commander’s daughter’s wedding.]

Russia: At least 172 died in flash flooding last weekend in southern Russia, the town of Krymsk by the Black Sea, and President Vladimir Putin is feeling the heat as it’s clear local officials failed to deliver any kind of warning to the people amid what some said were fairly normal downpours. The people believe water was released from a local reservoir but Putin and investigators said that while there were some releases, this wasn’t what caused the disaster. The people smell a cover-up.

Separately, the Duma, or parliament, “adopted new rules that make it possible for the Kremlin to fine or otherwise punish any non-governmental organization (NGO) that accepts foreign money and engages in ‘political activities’ (definition left deliberately vague).” [Wall Street Journal]

All of the NGOs need foreign money to survive, so Putin is trying to kill them. As an op-ed piece by Victor Davidoff in the Moscow Times noted, Putin is simply following the model established by his hero, Yuri Andropov, head of the KGB and Putin’s boss when he was serving in the secret police. Andropov was known for arresting dissidents and harassing human rights groups. Part of the new legislation adopted by the Duma is a prison term of two years for an NGO’s failure to register as a “foreign agent.” Once you’re registered, then you are prohibited from most political activity.

There is absolutely zero reason to be optimistic about anything in Russia these days.

Romania: Recall this dysfunctional place is a member of the European Union and EU officials are expressing dismay at a soft coup taking place as President Traian Basescu faces impeachment and a national referendum on the topic July 29. The move is being orchestrated by the country’s new leftists prime minister, Victor Ponta. Germany is strongly condemning the process, with a government spokesman saying it is “unacceptable when a European Union country infringes the fundamental principles of rule of law.”

Ponta is also battling with the nation’s highest court, plus, an academic panel has concluded that he plagiarized large sections of his doctoral dissertation.

China: Secretary of State Hillary Clinton warned Beijing that its approach to territorial disputes in the South China Sea was a recipe for “confrontation.” With half of global ship-borne trade passing through these waters, “No nation can fail to be concerned by the increase in tensions, the uptick in confrontational rhetoric, and disagreements over resource exploitation,” said Clinton at a regional summit in Cambodia.

Speaking of rhetoric, I posted an editorial from a Chinese government mouthpiece on my “Hot Spots” link that is more than a bit disturbing, essentially saying it is time for China to show a little muscle and not allow the likes of Vietnam and the Philippines to claim various island chains as their own; that the time for diplomacy has run its course.  This is certainly a sleeper global flashpoint.

North Korea: The place was abuzz as pictures emerged of a rather attractive young woman at leader Kim Jong-Un’s side and after a few days, South Korean intelligence sources said the woman was an old lover and a formerly married pop star, Hyon Song-woi, who a few years back was the lead singer for the Bochonbo Electronic Music Band, topping charts with hits such as “Footsteps of Soldiers,” “I love Pyongyang” and “Excellent HorseLike Lady.” Really.

According to the New York Daily News, Kim Jong Il ordered his son to end a relationship he was having with Hyon, and then Hyon married an army officer.

Well, Dad dies and Kim Jong Un rekindled the relationship. No word on whether the army officer is still alive, this being North Korea, after all.

Nigeria: Just another week of death and destruction in this hellhole. A truck carrying fuel ran off into a ditch, people gathered, as they always do in these situations, to scoop up fuel that is spilled, and then the tanker explodes…in this case killing at least 95.

Last weekend, suspected Islamists (and/or Muslim herdsmen of a particular ethnic group) attacked various Christian villages, killing at least 56. Then the next day, two politicians were ambushed and killed as they were on their way to attend a mass burial for the victims.

Random Musings

--Dan Balz / Washington Post

“President Obama’s bus tour through Ohio and Pennsylvania late last week offered a striking look at the evolution of a president. In 2008, Obama used soaring rhetoric and personal biography to talk about binding together a red-blue nation. His message today is about the urgent need to defeat a stubborn opposition party in order to move the country forward.

“Four years ago, Obama used themes of hope and change to suggest that he could bring a new politics to Washington. He was open to the idea that, as he sometimes put it, the solutions to the country’s problems were somewhere between the rhetoric and visions of both parties. His goal, he said, was to help guide the country, through his leadership, to that imagined golden mean while sticking to his principles.

“Today, the battle-scarred president who has met almost uniform resistance from the Republicans sees the world differently, or so it seems from the way he talked in Ohio and Pennsylvania. At nearly every stop, he made it clear that he sees November in the starkest of terms and that there can be but one winner. He asked supporters to help deliver a victory in November that would carry a message that his vision is superior to that of the Republicans.”

Back on the night he won the 2008 Iowa caucuses that launched him toward the White House, Obama said:

“You came together as Democrats, Republicans and independents to stand up and say that we are one nation. We are one people…You said the time has come to move beyond the bitterness and pettiness and anger that’s consumed Washington, to end the political strategy that’s been all about division, and instead make it about addition; to build a coalition for change that stretches through red states and blue states.”

As Balz says, sure, there was more to his message in 2008, and he ran his share of negative ads against John McCain, “But what resonated most was the aspirational side of his message. The country could meet its challenges only one way – together. Contrast that with the way he talked about the election…in a park in Parma, Ohio. ‘There are two fundamentally different visions about how we move the country forward,’ he said. ‘And the great thing about our democracy is you get to be the tiebreaker.’”

--In a new Washington Post/ABC News poll, President Obama and Mitt Romney are tied at 47. About nine in 10 Republicans support Romney and nine in 10 Democrats support Obama. 74% are “definitely” supporting Obama or Romney, and 12% say it is unlikely that they will switch from one to the other, making the race settled for essentially nine in 10.

Obama receives an overall approval rating of 47% in this survey.

On the healthcare issue, since the Supreme Court’s recent 5-4 vote to uphold the key component, 42% approve of the decision and 44% oppose it. “But in a significant change, the legislation is now viewed less negatively that it was before the ruling. In the new survey, 47% support the law and 47% oppose it. In April, 39% backed it and 53% opposed it.”

--But in a Pew Research Center poll, when registered voters were asked who would be better at handling the economy, President Obama suddenly has a 50-43 lead despite the miserable jobs data. Yet another sign of just what an awful campaign Mitt Romney is running.

--In a USA TODAY/Gallup Poll, “Among swing-state voters who say the (campaign) ads have changed their minds about a candidate, rather than just confirmed what they already thought, 76% now support the president vs. 16% favoring Romney.”

In the poll of the 12 battleground states (CO, FL, IA, MI, NV, NH, NM, NC, OH, PA, VA and WI), Obama leads Romney 47-45. [Obama leads 48-44 in the rest of the U.S.]

--Military Times took a look at five key battleground states and the impact military-affiliated populations – active-duty and reserve component troops, veterans, retirees, defense civilian employees and their families – could have in them when looking at the 2008 election, using Gallup and Reuters’ surveys.

Colorado: Obama 53.5% McCain 44.9% [Military voters: 13.3%]
Florida: Obama 50.9% McCain 48.4% [MV: 12.2%]
North Carolina: Obama 49.9% McCain 49.5% [MV: 13.8%]
Ohio: Obama 51.2% McCain 47.2% [MV: 10.8%]
Virginia: Obama 52.7% McCain 46.4% [MV: 17.1%]

As Military Times puts it, “If the last two elections were about winning over the soccer moms or Joe the Plumber and small-business owners, this one could be about winning the military vote.

“President Obama saw that potential almost four years ago. Ever since taking office, he has courted military families and veterans with outreach efforts and programs to help support families, improve spouse employment and deliver better benefits to veterans.”

Frank Newport, Gallup’s editor in chief, notes that veterans make up about 13% of the population, bigger even than the Hispanic voting bloc. Polling of veterans thus far in this cycle is highly inconclusive.

--Romney raised $106 million in June, $35 million more than Obama.   Romney and the Republican National Committee have an estimated $160 million cash in the bank, with Obama and the Dems holding about $140 million.

--Mitt Romney did the right thing in addressing the NAACP’s annual convention, even though he was booed and hissed at with comments like, “If you want a president who will make things better in the African American community, you are looking at him.”

And, “I believe that if you understood who I truly am in my heart, and if it were possible to fully communicate what I believe is in the real, enduring best interest of African American families, you would vote for me for president. I want you to know that if I did not believe that my policies and my leadership would help families of color – and families of any color – more than the policies and leadership of President Obama, I wouldn’t be running for president.”

Heck, the unemployment rate for African Americans is now 14.4%, vs. the nationwide overall rate of 8.2%.

Here’s the thing African Americans should be asking themselves. What has Barack Obama done for me? And what is shocking to yours truly is the fact that you can’t recall one single visit Obama has made into a classic, inner city area (excluding maybe D.C.), to even just shoot hoops with the kids on a playground, or to shoot the breeze with gang members. Or go to a prison and talk to inmates.

He hasn’t done a single thing that could be called bold when it comes to Minority America. He blows into a town, has a well-choreographed outing at a factory or school, grabs something at a diner, but never really gets involved, like walking through a distressed neighborhood in downtown Detroit.

Of course a lot of presidents haven’t done things like I just suggested, but this was the guy 95% of Black America voted for, thinking he would then represent them, when in truth he couldn’t care less about ‘em as he takes their votes for granted.

That said, there is no way in this particular cycle Republicans are improving on the 5% they received in 2008. 

--John Podhoretz / New York Post

“So we have come to this: President Obama is now treating not raising taxes as though it were the same as providing a tax cut. Gene Sperling, his top economic adviser, even dared to refer to Obama’s proposal yesterday of a partial one-year extension of the Bush rates as a ‘tax break.’

“Up is down, 2+2=5. Leave a rate intact and it’s the same as cutting taxes. No wonder the White House believed not buying a health-care policy should be considered an economic activity to be taxed and penalized.

“Action, inaction; what’s the difference? In one case, you’re being a bad citizen and deserve to get slammed. In the other, you’re being a wonderful president and deserve to get re-elected.

“People often describe such logic as Orwellian, but in truth, you have to go back to the comedienne Gracie Allen for such a priceless example of corkscrew thinking.”

--Peggy Noonan / Wall Street Journal…on the topic of Condoleezza Rice as Mitt Romney’s running mate.

“Speaking the other day to a gathering of businesspeople from across the country, I mentioned the subdued nature of the election and my thoughts as to its reasons. I was surprised to get no push-back afterward, even from political enthusiasts, only agreement.

“But the news: When conversation turned to the vice presidential nominee, I said we all know the names of those being considered, spoke of a few, and then said Condoleezza Rice might be a brilliant choice.

“Here spontaneous applause burst forth.

“Consider: A public figure of obvious and nameable accomplishment whose attainments can’t be taken away from her. Washington experience – she wouldn’t be learning on the job. Never run for office but no political novice. An academic, but not ethereal or abstract. A woman in a year when Republicans aren’t supposed to choose a woman because of what is now called the 2008 experience – so the choice would have a certain boldness. A black woman in a campaign that always threatens to take on a painful racial overlay. A foreign-policy professional acquainted with everyone who’s reigned or been rising the past 20 years.

“I should add here the look on the faces of the people who were applauding.   They looked surprised by their own passion. Actually they looked relieved, like a campaign was going on and big things might happen and maybe it could get kind of…exciting.”

--Democratic Illinois Congressman Jesse Jackson Jr. finally disclosed he is suffering from a “mood disorder” after four weeks of silence and absence from his job. His own Democratic leadership has had it with Jackson’s antics and past allegations and the guy should be forced to resign immediately. As Rep. Steny Hoyer, the No. 2 Democrat in the House, said Wednesday:

“People get sick, and when people get sick, they miss work. Everybody in America understands that.  But I think the family would be well advised to give his constituents as much information as is appropriate.”

Jackson still has a pending House Ethics Committee investigation to deal with, focusing on allegations he was raising money for disgraced then-Illinois Gov. Rod Blagojevich in order to secure Barack Obama’s vacated U.S. Senate seat.

--New Jersey Republican Gov. Chris Christie, in a speech at the Brookings Institute, a liberal Washington think tank, on the topic of President Obama’s push to send states another round of stimulus to hire teachers, firefighters and police.

“Please don’t send me any more money to hire more public employees. Please don’t. I’ve got plenty as it is, and I don’t need any more, and they’re expensive! I have the highest property taxes in America to begin with. Where’s this money going to come from to pay these folks afterwards?”

--I’ve been writing over the years that Americans need to be more upset with some of our military leadership and Utah Republican Congressman Jason Chaffetz, chairman of the House Oversight and Government Reform’s Subcommittee on National Security, is fuming that two U.S. Army generals delayed an investigation of chronic abuse at a military hospital in Afghanistan in order to protect President Obama from embarrassment before the 2010 midterms elections, military whistleblowers have told House investigators. 

CNN had a story the other day on this hospital, which the American taxpayer spent $100 million on, and it’s beyond belief the pictures of abuse, with Afghan staff abusing patients – denying them care, beating them, demanding bribes for food.

The two U.S. generals overseeing the facility are Brig. Gen. Gary Patton and Lt. Gen. William Caldwell. Col. Schuyler Geller, a retired Air Force doctor, told CNN that Patton ordered a delay of the investigation until after the 2010 midterm vote.

“He says, ‘But we don’t want to put that request in right now because there is an upcoming general election and we wouldn’t want this to leak out.” Geller told CNN Lt. Gen. Caldwell, Patton’s superior officer, was “angry” at the prospect of launching the investigation before the 2010 midterm. I saw the interview with Geller…he seemed more than credible.

Chaffetz has invited Geller and other witnesses to testify about the matter before his subcommittee on July 24.

--New York City has suddenly had a spate of shootings and killings and Police Commissioner Ray Kelly blasted community leaders in predominantly minority neighborhoods for being “shockingly silent” about violent crime.

“Some of them are very willing to attack the Police Department, but not willing to take on the big issue, which is crime happening in their own neighborhood. They should, number one, acknowledge the problem – acknowledge the problem exists. Don’t just beat up on the Police Department.”

So the community leaders got all upset, saying the real problem was lack of jobs, too many firearms, etc., but fail to address the real topic, in Kelly’s words, that “96% of the shooting victims in this city are black or Latino.”

Editorial / New York Post

“Yet when was the last time black or Latino leaders organized a serious demonstration against a gun culture of the sort that resulted in 77 firearm casualties over the July 4 holiday?

“Of course there are too many guns.

“Of course there are not enough jobs.

“Now what?

“Kelly’s stop-and-frisk initiative has its limits.   But it’s a coherent, professionally run effort to rid the streets of guns – rather than just complain about them.

“And yet Father’s Day weekend was devoted to a massive ‘silent march’ in protest of – stop-and frisk!

“Amazing.

“No wonder Kelly is frustrated.

“The commissioner says community leaders need to be working with local precinct and borough commanders – ‘but they’ve got to want to do it.’

“It’s just bizarre that those who presume to lead the communities so grievously afflicted by gun violence can’t bring themselves coherently to condemn the culture that produces it.

“Not until, for example, they organize a ‘silent march’ against violent crime that advocates specific solutions – like active cooperation with the NYPD – will they have earned the right to be taken seriously.

“Don’t hold your breath.”

--Interesting study by Tourism Concern, a British charity, regarding the disproportionate use of fresh water by tourists in developing world destinations, which exacerbates poverty and helps spread disease.

For example, researchers found in some resort villages in Zanzibar (islands off the coast of Tanzania), locals used, on average, 93.2 liters of water a day, but the average daily consumption per room in a five-star hotel was 3,195 liters! Good lord. Even in less luxurious guesthouses it was 686 liters a day. [Guardian / Sydney Morning Herald]

--Yes, that was pretty stupid that Ralph Lauren opted to have the U.S. Olympic team uniforms manufactured in China, not the United States, and the company managed to unite Congress for one or two days. Plus berets? Really?

--A study by the online journal BMJ Open says sitting down for more than three hours a day can take two years off your life, even if you’re physically active and refrain from dangerous habits like smoking.   Watching TV for more than two hours a day can decrease life expectancy by another 1.4 years. The researchers for the study say you should stand as much as possible.

Let’s see…I work at my desk about 16 hours a day and I have the TV on virtually the entire time so I have…carry the one…subtract….uh oh….

---

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

God bless America.
---

Gold closed at $1592
Oil, $87.10

Returns for the week 7/9-7/13

Dow Jones +0.0% [12777]
S&P 500 +0.2% [1356]
S&P MidCap -0.5%
Russell 2000 -0.8%
Nasdaq -1.0% [2908]

Returns for the period 1/1/12-7/13/12

Dow Jones +4.6%
S&P 500 +7.9%
S&P MidCap +7.2%
Russell 2000 +8.1%
Nasdaq +11.6%

Bulls 44.7
Bears 24.5..unch [Source: Investors Intelligence]

Have a great week. I appreciate your support.

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Brian Trumbore



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Week in Review

07/14/2012

For the week 7/9-7/13

[Posted 6:00 AM ET]

Europe, China and the United States

It’s earnings season and a slew of U.S.-based companies have already warned about their performance in the second quarter before releasing actual results; most in one form or another blaming Europe and/or China.   Warren Buffett got into the act in an interview with CNBC, saying that when it comes to Europe, “things are starting to slip pretty fast.”

It seems everyone who may have been fairly optimistic in the first quarter, as was Buffett, noticed a significant decline in activity the latter part of the second. 

Such as Cummins Engine, which warned its Q2 revenues will fall below initial expectations, citing falling demand for U.S. trucks and weakening conditions overseas.  Chipmaker Advanced Micro Devices said it saw an unexpected decline in Q2 sales, citing China and Europe. Alcoa’s sales were down, Ford Motor’s sales in Europe fell 10% in the first half, United Technologies’ CEO said: “Clearly the situation in Europe has gotten a lot worse than what we expected.” Printer maker Lexmark warned on Friday and its shares collapsed in talking about a “weaker than expected demand environment, particularly in Europe,” and Dave Cote, CEO of Honeywell, a major industrial, told the Financial Times: “We are being much more careful on hiring and investment around the world, because this is not a time to be out in front with your commitments. We are well-prepared for another global recession, if we get one.”

This last statement should be the most worrisome to the Obama administration with an election less than four months away.

So let’s look at Europe. The governor of the Bank of England, Sir Mervyn King, said of the eurozone debt crisis:

“There is a great black cloud of uncertainty hanging over businesses all around the world. The result is, until they know how this situation is going to be resolved, they are holding back from investment and spending.” [See David Cote]

This week Moody’s cut Italy’s debt rating to two levels above junk and the yield on the Italian 10-year bond rose back above 6%. The ratings agency said Italy was now “more likely to experience greater credit losses than anticipated, and Spain’s own funding challenges are greater than previously recognized.

“Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets.

“Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.”

As to the two rescue funds, the European Financial Stability Facility and the European Stability Mechanism, Moody’s said “there is a limit to the extent to which these support mechanisms can be used to backstop such a large, systemically important sovereign” debtor such as Italy.

The International Monetary Fund said Italy would be in recession at least another year as investors withdraw money and banks face rising bad loans. Prime Minister Mario Monti said a Spain-type bank bailout wasn’t needed, but he needs bailout funds from the EFSF and ESM to buy government bonds to keep rates low. 

And while Monti said he won’t run after his term expires in 2013, former Prime Minister Silvio Berlusconi continues to plot a comeback.

In Spain, Prime Minster Mariano Rajoy hailed a decision by eurozone finance ministers to help Spain shore up its banks. Last weekend ministers agreed to Spain’s earlier request for up to 100 billion euros and Rajoy declared:

“If we had not done what we have done in the past five months, the proposal would have been a bailout of the kingdom of Spain.”

But then we learned the actual bailout conditions and they are quite different from what was offered up for public consumption following the June 28-29 EU summit. The document reads:

“Banks and their shareholders will take losses before state aid measures are granted and ensure loss absorption of equity and hybrid capital instruments [preferred shares] to the full extent possible.”

As the Financial Times points out, Spanish banks have 67 billion euro of preferred share-like debt outstanding, much of which was sold to retail investors as savings products. No way these same investors know what is about to hit them.

The agreement to recapitalize the banks, including a first payment of 30 billion euro, is to be formalized July 20 with further funds dispersed following an independent review of the banks’ needs which is to be completed in September.

And remember how this aid wasn’t to add to Spain’s national debt? Now we’ve learned the funds will be funneled through Spain’s existing bank bailout fund, “Frob,” so it will indeed add to the debt.

But, we’re told, once EU leaders reach agreement on a new eurozone banking supervisor, such loans will go directly to troubled banks…but there it is again. You need the banking supervisor first and as I’ve been writing the past two weeks, and is reiterated below, that just isn’t happening in 2012.

Every week, or after every one of the 19 major summits during the crisis, you just have to wait 24 or 48 hours to be able to shoot all kinds of holes in these supposed agreements that are going to save the day.

Meanwhile, Finland is demanding collateral for any funds loaned to Spain, just as the Fins did before contributing to Greece’s second bailout package. Finance Minister Jutta Urpilainen said, “The collateral talks with Spain are ongoing and the timetable is challenging.”

At least Prime Minister Rajoy pushed through an $80 billion austerity program with tax hikes and spending cuts in return for the EU granting Spain an extra year to get its house in some semblance of order, but all manner of groups, including Spain’s miners, clashed with police in Madrid.

As for Germany, Chancellor Angela Merkel was forced to clarify just what she agreed to at the last summit as her country’s politicians are afraid they face surging costs as a result of the bailouts. The Bundesbank, for example, has “loans” to other EMU central banks of 729 billion euro as of June. This goes to the heart of the pooled bank debt issue, which Germans are vehemently against but some politicians see a world where they are getting sucked into it regardless. Total sovereign debt in the EU is said to be 23 trillion euro.

Germany’s Federal Constitutional Court is providing its own roadblock in failing to rule on whether the European Stability Mechanism is compatible with the country’s constitution.

All the while Europe’s north-south divide grows ever wider and the political backlashes on all sides, in all countries, are coming fast and furious.

Wolfgang Munchau / Financial Times

“The politics of the euro rescue has crossed an important threshold in Germany. A narrow majority is still in favor of the euro, but a majority is against further rescues. A group of 160 economists, led by Hans-Werner Sinn, president of the Ifo economics institute, last week published a manifesto against a banking union. It was full of sound and fury, but the importance of this document is that it reflects a consensus view.

“Angela Merkel’s answer was revealing. She told them that there is nothing to worry about. The banking union was about joint supervision, she said. There will be no joint deposit insurance. She has a very different understanding of a banking union than the European Central Bank. At most, I expect this new banking union to cover the 25 largest banks, and leave those cajas and Landesbanken in national control. This is like an alcoholic who promises to drink only the better cognacs from now on.

“The banking union that is required is the one Germany will not accept: central regulation and supervision, a common restructuring fund and common deposit insurance. It would take years to create. If done properly, it would require a change of national constitutions and European treaties, if only to redefine the role of the ECB. It is sheer madness to make crisis resolution contingent on the success of what would be the biggest European integration exercise in history.”

And remember how Ireland was said to be close to the day when they could restructure their bank debt through the ESM, thus taking the debt off the government’s books as early as October?

That was contingent on Ireland continuing to see recovery in its economy and instead first-quarter GDP fell 1.1% with GDP now estimated to rise just 0.5% in 2012, if that. So the EU is telling Ireland, ‘perhaps we’ll wait a spell before cutting you guys a break.’ If the economy tumbles back into recession, the deal is off. [It doesn’t matter that Q4 2011 performance was revised upward to growth of 1.1%.]

Editorial / The Economist

“(The June summit) delivered rather less than the market rally suggested. In theory, the agreement promises to break the self-reinforcing link between weak governments and weak banks. In practice that will not happen until the European Central Bank is put in charge of euro-area banking supervision, which may take a lot longer than the planned six months. Before then a deal stitched together in the bleary hours could well snag on legal difficulties about redefining the permanent fund’s remit without changing the treaty that set it up, or on political objections in smaller northern economies – Finland, for example, doesn’t like the idea of using rescue funds to buy government bonds in secondary markets. Meanwhile, Greece has lost none of its capacity to cause trouble, as a new, weak government tries to extract concessions from creditor nations.

“All of which means yet more uncertainty and more harm to the global economy.”

Turning to China, there was a slew of data this week, the most highly anticipated number being second-quarter GDP, which came in up 7.6%, a tick below expectations and down from Q1’s 8.1%, as well as the lowest reading since 2009. Now many doubt the veracity of the number but the government forecast 7.5% for all of 2012 so it seemed natural that Beijing would continue to massage the data as the country faces a critical leadership change beginning in the fall.

Premier Wen Jiabao said prior to the GDP release that “The economy is running at a generally stable pace, but there is still huge pressure for it to go downward.” But on the issue of the housing market, Wen said, “It is a crucial time for the controls over the property market. The controls have to be continued. And it will be long-term policy to curb speculation in the property market.”

Instead, China is focusing on investment, but not exactly the broad-based stimulus of 2008-09. Instead they are trying to target specific industries for growth and bank lending, encouraged by the government, has been rising considerably.

In other China economic news, electricity generation was flat in June compared to June 2011, industrial production was up 9.5% in June, continuing a trend of slower growth with this indicator, retail sales rose 13.5% last month, exports were up just 11.3% while June imports rose only 6.3% vs. a year earlier when 11% import growth was expected, and China’s car sales rose 9% in June, which was better than expected, though sales were fueled by the rush to beat limits on auto registrations in some big cities that are attempting to limit the number of cars on the road and thus better handle congestion and air pollution.

Lastly, and importantly, consumer prices rose 2.2% last month, well below the government’s target of 4%, as overall food prices increased 3.8% (they rose 6.4% in May) while pork, the key staple, fell 12% over 2011; all of which leaves the government room for more aggressive easing of monetary policy should they see fit to do so.

Back to the U.S., the Federal Reserve’s minutes from its June meeting were released and among the drags on the economy were “slow growth or even contraction in some major foreign economies, ongoing and prospective fiscal tightening in the United States, modest growth in household income, and – despite some recent signs of improvement – continued weakness in the housing sector.”

Recently, Fed Chairman Ben Bernanke said the bank was “prepared to do what’s necessary” to stoke growth and the Fed’s next Open Market Committee meeting is July 31-August 1 (with another Sept. 12-13). I thought with the election coming up that the Fed would have taken any last action by now so as not to appear too political ahead of the November vote. There would be an uproar if the Fed did something radical in September (not that they really have any radical policy tools left), so it seems like the upcoming gathering is when the Fed could perhaps announce it is determined to hold rates near zero until 2015, rather than the late 2014 pronouncement of theirs, but otherwise, outside of a little more bond-buying, they’ve essentially used up their bullets.

On the federal budget front, the deficit for June was $59.7 billion, taking the nine-month fiscal year total to $904.2 billion, which is down from $970.5 billion in the same period last year, though we’re on target for a fourth consecutive $1 trillion plus deficit by end of September. Revenues rose 4.2 percent in June from the same month in 2011, but spending jumped 9.3 percent. Individual income tax receipts rose 3.1 percent while corporate receipts jumped 31 percent.

According to the Tax Policy Center, a nonpartisan research group, “If Congress does nothing on tax cuts championed by former President George W. Bush, 82.9 percent of U.S. households would face tax increases averaging $3,701.

President Obama called on Republicans to approve a one-year extension of tax cuts for families earning less than $250,000 a year, while Republicans, and some Democrats, want the current rates extended for all income levels, but nothing is happening before November and I’m not going to waste any time here on it; except to say that to call anyone living in New York City making $250,000 “rich” is beyond absurd, as Democratic New York Sen. Charles Schumer has himself observed.

Meanwhile, August is going to be one hairy month. I’m just convinced something happens on the Iran front and the debt-ceiling debate will re-emerge in some fashion. Or maybe Bashar Assad uses chemical weapons on his own people, forcing the world to finally respond.

---

Finally, regarding the Libor scandal, last week I wrote I was “sick of the apologists” who acted like it was all no big deal. First a refresher course, courtesy of The Economist.

“For Libor, a borrowing rate is set daily by a panel of banks for ten currencies and for 15 maturities. The most important of these, three-month dollar Libor, is supposed to indicate what a bank would pay to borrow dollars for three months from other banks at 11am on the day it is set. The dollar rate is fixed each day by taking estimates from a panel, currently comprising 18 banks, of what they think they would have to pay to borrow if they needed money. The top four and bottom four estimates are then discarded, and Libor is the average of those left. The submissions of all the participants are published, along with each day’s Libor fix.

“In theory, Libor is supposed to be a pretty honest number because it is assumed, for a start, that banks play by the rules and give truthful estimates. The market is also sufficiently small that most banks are presumed to know what the others are doing. In reality, the system is rotten. First, it is based on banks’ estimates, rather than the actual prices at which banks have lent to or borrowed from one another. ‘There is no reporting of transactions, no one really knows what’s going on in the market,’ says a former senior trader closely involved in setting Libor at a large bank. ‘You have this vast overhang of financial instruments that hang their own fixes off a rate that doesn’t actually exist.’

“A second problem is that those involved in setting the rates have often had every incentive to lie, since their banks stood to profit or lose money depending on the level at which Libor was set each day….

“In the case of Barclays, two very different sorts of rate fiddling have emerged. The first sort, and the one that has raised the most ire, involved groups of derivatives traders at Barclays and several other unnamed banks trying to influence the final Libor fixing to increase profits (or reduce losses) on their derivative exposures. The sums involved might have been huge…. Risibly, Bob Diamond, its chief executive who resigned on July 3rd as a result of the scandal, retorted in a memo to staff that ‘on the majority of days, no requests were made at all’ to manipulate the rate.   This was rather like an adulterer saying that he was faithful on most days.”

Simon Johnson / New York Times…MIT professor and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

“In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.

“This is a big mistake, in terms of the economics at stake and the likely political impact.

“The behavior at Barclays has all the hallmarks of fraud – intentional deception for personal gain, causing significant damage to others….

“Barclays could not have manipulated those rates by themselves…Rather, some Barclays employees colluded with people at other banks in a way that, over a period of years, moved Libor rates up and down, depending on what would favor the trading positions of the people and organizations involved….

“Once the global financial crisis began to bite, there appears to have been a more systematic manipulation of Libor reporting by Barclays’ management in a particular direction – downward, to make it seem that the bank was healthier and therefore able to borrow from other banks at a cheaper rate.

“George Osborne, Britain’s chancellor of the Exchequer (the equivalent position to the secretary of the Treasury) and a Conservative Party member, said recently, ‘Fraud is a crime in ordinary business; why shouldn’t it be so in banking?’ The answer, of course, is that fraud is not allowed in any well-run country.

“Anyone who takes personal responsibility seriously should want all those involved to be held accountable – to the full extent of the law in all jurisdictions. Anything that lets individuals escape consequences will further undermine the legitimacy that underpins all markets. Bankers should be leading the charge to clean up their industry.

“Nevertheless, five arguments put forward in the last 10 days, singly or collectively, attempt to provide some sort of cover for what happened at Barclays. None of these arguments have any merit.

“First, it is argued that this kind of cheating around Libor has been going on for a long time. This may be true, but it is a sad and lame excuse that is unlikely to get anyone off. The bigger question must be: Is the financial sector crooked at its core? Statements about a pattern of behavior only strengthen the case that incentives, culture and organizations are all badly broken at the heart of the world’s financial system.

“Second, it is asserted that ‘everyone does it.’ This is not any kind of defense – try it next time you are accused of fraud. But the perception that many people could be involved is part of the reason why this scandal has legs….

“There are three United States banks involved in Libor panels: JPMorgan Chase, Bank of America and Citigroup. Are they also implicated in some aspect of rigging interest rates and therefore securities prices?...

“Third, Libor-rigging is defended as a ‘victimless crime.’ This is untrue. Traders at Barclays and other banks gained from this series of manipulations, so someone else lost. That may have been investors, who received lower returns than they would have otherwise. Or it may have been borrowers, who paid higher interest rates and related costs than would have been necessary in an honest market….Some local governments have also lost heavily….

“Fourth, some contend that it is the regulators’ responsibility and fault that there was cheating on Libor. It is certainly the cases that there was regulatory capture at work – that is, officials in Britain, the United States and perhaps elsewhere should have been paying closer attention….

“Big banks work long and hard and lobby at many levels to push regulators toward paying less attention.

“Fifth, the weakest argument is, ‘It was only a few basis points, here and there’ (where a basis point is a hundredth of a percentage point, i.e., 0.01 percent). Either the Libor reporting process and, consequently, the pricing of derivatives has been corrupted by a criminal conspiracy, or it has not. There is no ‘just a little’ in this context for the enormous global securities market….

“Power corrupts, and financial market power has completely corrupted financial markets. Barclays and the other global megabanks involved in fixing Libor have brought their own industry very low – completely destroying the legitimacy on which sensible financial intermediation needs to be based.

“Who trusts a banker at this point? The collateral damage is enormous.”

Lastly, the New York Times first reported that current Treasury Secretary Timothy Geithner, then running the Federal Reserve Bank of New York in the midst of the 2008 financial crisis, reached out to top British authorities, questioning the integrity of the benchmark reporting process, but reforms he outlined weren’t carried out and Barclays continued its illegal activity, for which the bank was eventually forced to pay a fine of $450 million to American and British authorities. 

Street Bytes

--Stocks finished mixed on the week, thanks to a big rally on Friday that was precipitated by the ‘not disastrous’ GDP news out of China plus solid earnings reports from JPMorgan Chase and Wells Fargo.

The Dow Jones ended up adding five points (0.0%) to finish at 12777, while the S&P 500 gained 0.2% and Nasdaq fell 1.0%.

As for JPMorgan, it said the bad trade first dismissed by CEO Jamie Dimon as a “tempest in a teapot” had cost the bank $5.8 billion (which may eventually reach $7 billion), almost triple the original estimate of $2 billion, and the bank said in a statement, “E-mails, voice tapes and other documents, supplemented by interviews” were “suggestive of trader intent not to mark positions where they believed they could execute. Traders may have been seeking to avoid showing full amount of losses.” No evidence was provided to support the allegations. The Justice Department and the FBI began an investigation in May of the bank’s trading losses. In addition the SEC and Commodity Futures Trading Commission are doing their own probes.

I mean to tell ya, JPM is crawling with Feds!!!

But…the stock rose smartly because the bank also reported net income, despite all its issues, of $4.96 billion, better than expected, though down from $5.43 billion a year ago. Revenue fell 17% from 2011 as well.

JPMorgan also announced it was clawing back compensation from some of the London-based managers involved in the big loss, while the former head of the CIO unit is forfeiting about two years of compensation.

Meanwhile, Wells Fargo & Co. reported a 17% increase in its second-quarter profit as the largest U.S. home lender posted mortgage banking income of $2.9 billion, up from $1.6 billion a year ago. Overall second-quarter net income was $4.6 billion.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.24% 10-yr. 1.49% 30-yr. 2.57%

The 10- and 30-year bonds were back down near their all-time lows of 6/1; 1.44% and 2.51%, respectively, on global slowdown fears.

The data on June producer prices was released, up 0.1%, more than expected, with the core, ex-food and energy, up 0.2%. Year-over-year the PPI is up 0.7%, 2.6% on core.

--Eurozone industrial production rose 0.6% in May over April, but this is still down 2.8% from May 2011.

--French carmaker Peugeot Citroen announced it will lay off 8,000 jobs and close an assembly plant outside Paris as first-half sales fell 13% amid a “profound crisis” in its eurozone markets. Another plant in western France will shed 1,400 of 5,600 it employs there [3,000 being lost in Paris] and another 3,600 jobs across all facilities in France.

Last November Peugeot announced a headcount reduction of 6,000…so it’s 14,000 total.

--Germany’s exports jumped 3.9% in May from April, when they fell 1.7%.

--Britain’s unemployment rate in May was 8.2%.

--After 18 years of negotiations, Russia’s parliament voted Tuesday to ratify the country’s accession to the World Trade Organization. Russia will now have to dismantle its protectionist policies, but the flipside is they might attract more foreign investment if there is a feeling the rules will be obeyed.

U.S. companies, however, will be at a competitive disadvantage because of trade sanctions against Russia, and the old Soviet Union, going back to the 1974 Jackson-Vanik law. Once Russia joins the WTO, the United States is in violation of the WTO’s rules due to Jackson-Vanik, resulting in unfavorable terms for doing business with Moscow.

--Indian industrial output rebounded 2.4% in May from a year earlier, after a revised 0.9% decline in April. Encouraging, but just one month. 

--Singapore’s second-quarter GDP fell 1.1% over the first-quarter.

--Australia’s unemployment rate in June ticked up to 5.2% from 5.1%.

--As reported by David Lazarus of the Los Angeles Times, “A survey of 500 top Wall Street executives by the law firm Labaton Sucharow found that 24% believe that professional money people need to engage in unethical or illegal behavior to be successful.”

Jordan Thomas, chair of Labaton Sucharow’s whistle-blower representation practice said, “When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk.”

Ain’t that the truth.

--The Commodity Futures Trading Commission charged broker Peregrine Financial Group and its owner, Russell Wasendorf, of running a $200 million fraud in a case that exploded overnight with the failed attempt by Mr. Wasendorf to commit suicide on Monday. The CFTC, which obviously failed in its supervision of Peregrine, said the company kept only $5.1 million in a customer account they falsely said held more than $220 million. On Friday, Wasendorf was charged by U.S. prosecutors with making false statements to regulators and carrying out his fraud for more than two decades.

Last year it was MF Global that collapsed, leaving a $1.6 billion hole in customer accounts. After MF blew up, Russ Wasendorf Jr., Mr. Wasendorf’s son and Peregrine’s president, wrote about the “sanctity of customer-segregated account balances” in a letter to customers on Peregrine’s web site.

Some in Congress are wondering just how it is that after MF Global, something like Peregrine could still happen.

--Former Barclays CEO Bob Diamond was accused by members of parliament in the U.K. of lying and indeed the facts seem to show that he did when he gave his testimony the prior week; specifically denying knowledge of a letter a U.K. regulator sent to outgoing chairman Marcus Agius, warning the bank was practicing an “aggressive” interpretation of rules and “unhelpful spin.” MPs said Diamond had shown a “cavalier attitude” to their committee and treated it with contempt.

--PIMCO’s Bill Gross, who runs the world’s biggest bond fund, is forecasting growth in the U.S. of about 1.5% a year for at least the next 10 years. Oh joy.

--Editorial / Wall Street Journal

“After the California city of Stockton declared bankruptcy last month, politicians and credit raters assured investors that municipal bonds were still safe and that the city’s insolvency presented no systemic risk. Does that script sound familiar? In reality, expensive labor agreements are threatening municipalities across the U.S., though the people who should be most concerned are taxpayers.

“On Tuesday the city council of San Bernardino, a city of about 210,000 in California’s Inland Empire, authorized Chapter 9 municipal bankruptcy. The city is running a $45 million deficit on a $130 million budget and didn’t have enough cash to pay its vendors or workers. As in Stockton, tax revenues have plummeted in recent years due to high home foreclosure and unemployment rates while labor costs have exploded.

“Since its biggest creditors – workers and retirees – have been unwilling to renegotiate contracts and benefits, the city has had to cut its workforce by 20% in the last four years. The unions’ idea of a concession is allowing newly hired public safety officers to retire with 90% of their highest salary at age 55 instead of 50….

“Unfortunately, the city probably won’t be able to use bankruptcy to modify retirement benefits. When the Bay Area city of Vallejo declared bankruptcy in 2008, the California Public Employees’ Retirement System threatened litigation if city leaders attempted to restructure pensions. San Bernardino bondholders may therefore have to take a larger haircut. The bankruptcy should underscore to investors that tax-exempt municipal bonds aren’t without risk.

“Ultimately, however, the biggest victims of the city’s fiscal crisis are taxpayers. Despite paring public services, the city projects $45 million annual deficits for the next five years. Since further service reductions could endanger public safety and cause an exodus of residents, the city manager and its director of finance suggest that the city explore raising revenues. Their recent budget analysis recommends increasing the property transfer tax by nearly 500%.”

--The U.S. Department of agriculture named 1,000 counties in 26 states as natural-disaster areas, the biggest such declaration ever owing to the drought in the Midwest.

When it comes to the corn crop, about 40% is in good or excellent condition as of July 8, the lowest for this time of years since a drought in 1988.

I was constantly checking the radar loops in the Midwest last weekend and I’m very curious to see how Kansas, for one, holds up because parts of the state got meaningful precipitation. But key spots such as southern Illinois and southern Indiana continued to receive little. 

--The National Oceanic and Atmospheric Administration (NOAA) found the first half of 2012 was the warmest for the Lower 48 States in records dating to 1895. 28 states, all east of the Rocky Mountains, had a record warm first six months of the year. Only Washington State recorded a cooler-than-average first half of 2012. June, though, was ‘only’ the 14th warmest in 118 years of records.

The 12 months thru June was also the warmest ever.

--A study from the Climate Change Research Institute at Oregon State University concluded that the severe heat afflicting Texas last year was impacted by global warming, 20 times as likely as it would have been in the 1960s. But, when examining the devastating floods in Thailand, the same researchers said global warming played no role.

Separately, the Arctic continued to warm more rapidly than the planet as a whole in 2011, scientists reported, and sea ice in the Arctic was the second-lowest level in the historical record.

One researcher at the National Oceanic and Atmospheric Administration said his research showed that the rainfall deficits in Texas were unrelated to global warming.

Many on the pro side of the debate admit their research was hastily prepared.

--For the first time in more than two decades (1988), Iraq’s crude production topped Iran’s in June, according to OPEC, 2.984 million barrels to 2.963 mbd.

Saudi Arabia pumped 9.89 mbd last month.

--In a fee-fixing case that had dragged on for seven years, Visa and Mastercard and major U.S. banks agreed to a $7.25 billion settlement with retailers, with $6 billion going to the stores and an agreement to reduce swipe fees for eight months, valued at $1.2 billion.

--On Monday, July 3, Duke Energy closed its merger with Progress Energy, a $32 billion deal, including debt, originally struck 18 months ago. William D. Johnson, the head of Progress, was to be the CEO of the combined operation but on the day the merger went through, Duke’s board put Duke CEO Jim Rogers in charge, offering that Johnson had resigned “by mutual agreement.”

Needless to say, this past week, Rogers’ first meeting with Progress employees was a tense one and it seems Duke Energy was incredibly reckless with its shareholders because now it risks action by the utility regulators it will be going before for all manner of approvals in the future, including on rates. It was these same regulators who signed off on the merger with the understanding that William Johnson was to run the new company. The combined operation represents the largest electric utility in the United States with 7.1 million customers and more than 29,000 employees in the Southeast and Midwest.

Meanwhile, it is still unclear what triggered the coup within hours of the deal’s closing.

--The Gartner Group projects that global technology spending will rise about 3 percent from 2011. Global personal-computer shipments, though, slipped 0.1% in the second quarter, a seventh straight period of anemic or no growth. Hewlett-Packard remains the No. 1 PC seller, followed by Lenovo Group and Acer, which edged out Dell for the third spot.

--Yahoo reported 450,000 user names were stolen by hackers on July 11, specifically by a group called D33Ds. Yahoo’s board was expected to approve interim-CEO Ross Levinsohn as permanent chief but held off on doing so.

--A look at the first half of the year on Broadway showed year over year increases of at least 9.8% each month.

--NBC’s “Today” show brought Savannah Guthrie out of the bullpen but looking at the first two days there was no relief as preliminary data shows ABC’s “Good Morning America” leading “Today” with 4.425 million viewers Monday and 4.326 million Tuesday to “Today’s” 4.069 and 4.175 million for the two days.

Of course it’s absurd to judge Ms. Guthrie after just two shows but I use this as an example of how competitive these two have become and how desperate NBC is to reverse the slide, quickly. Some are now questioning if Ann Curry was ever the problem, Curry being jettisoned after just one year.

But now “Today” has the Olympics.

--Speaking of the Olympics, you’re seeing more and more stories about how the weather could be awful in London, this after the wettest second quarter there since records began in 1910, with July bringing flash floods thus far.

Actually, London on an annual basis receives far less rain than New York or Paris, but as the Washington Post’s Anthony Faiola notes, “its rainy rap comes from frequently overcast skies that more often drizzle than pour buckets, with its fast-moving weather tending to push strong storms through the urban area relatively quickly.”

Heck, everyone will just adapt. But on the security front, there is chaos as private security firm G4S failed to recruit enough guards, so the Brits are rushing in over three thousand troops who recently returned from Afghanistan and a military camp is being set up. This is unsettling.

--Inflation Alert: New York City’s Taxi & Limousine Commission approved a 17% fare increase for yellow cabs, giving drivers their first raise since 2006.

So this story hit on Thursday and I so happened to be in the City that day, taking a cab, and I asked my guy if he was happy. “Yes, but my owner immediately jacked up his lease fee!” 

Now I read a little on the topic since then and I’m not sure fleet owners were allowed to do this yet, but the economics of driving a cab in New York always fascinated me. The pay raise supposedly means a cabbie can now take home an average of $160 after a 12-hour shift, up from $130, according to the T&L commission Chairman David Yassky. Drivers pay a fleet owner about $120 to $130 a day for use of a cab. [Crain’s New York Business]

--Regarding the personal portfolio position of mine in Fujian, China, I have been holding off on saying anything because, frankly, there is zero to add other than that by all accounts from various sources, the company is doing fine (though I imagine having normal economic-related issues given it’s in a cyclical business and China’s in the midst of a slowdown).

I have taken one step to notify a certain agency and I’m giving them a few weeks to respond. In the meantime I’m just reporting the news from there as I see it, unbiased. At some point down the road my tone is likely to change.

--When I saw the Fourth of July fireworks glitch in San Diego, the one where the 20-minute show went up in about 15 seconds, I had no idea a company about ten minutes from my home in New Jersey was responsible, Garden State Fireworks.

As reported by USA TODAY, the company blamed a software glitch but imagine the co-owner watching a live stream of the fiasco. He said his reaction was “not good.”

Garden State Fireworks is the largest and oldest American manufacturer of display fireworks, a company founded in the late 19th century by Augustine Santore, an apprentice of the master fireworker serving under Italy’s King Victor Emmanuel II.

The San Diego show was one of about 150 the company was doing the week of the Fourth. Garden State is looking to do a free show for the city to make it up to them but these take months to plan.

--According to the United Nations’ food agency, by 2018, the salmon on your plate likely will have originated from a fish farm rather than the wild…make that gross fish farms. Aquaculture is expected to soar 33% over the next decade.

Last year, 90.4 million tons of fish were caught while 63.6 million tons were raised and the 50/50 mark is to be passed around 2018.

The Food and Agriculture Organization, however, says aquaculture is vulnerable to outbreaks of disease.

Fish farming has actually declined in North America but is booming in Brazil and China. [Tiffany Hsu / Los Angeles Times]

--Finally, from Peter Allen of the Irish Independent:

“French cows are enjoying up to two bottles of high quality wine every day as farmers attempt to produce the best beef in Europe.

“The extraordinary development has seen a ‘Vinbovin’ label of meat established which is already being championed by some of the best restaurants in Paris.”

The cows were initially fed the wine in a mix of barley, hay and grapes.

“It soon became clear that they were ‘happy cows’ who ended up producing an exceptionally succulent meat.”

Instead of just going “Mooo,” the cows went “Oui oui!” and “Tres bon!”

Foreign Affairs

Iran: A book making waves in both Iran and Israel, co-authored by an Israeli intelligence expert and a CBS News reporter, claims Mossad was responsible for the deaths of five Iranian scientists in the last five years, which isn’t a surprise, but the authors claim the killers were of Persian Jewish heritage and operated out of a series of safehouses that have been in existence for decades in Tehran and elsewhere. The book is helping fuel paranoia in Iran.

As for the nuclear weapons program talks, more technical level discussions are to take place in Istanbul on July 24, which is ludicrous, while the head of Britain’s MI6 spy agency said Iran is likely to obtain a nuclear weapon by 2014.

“The Iranians are determinedly going down a path to master all aspects of nuclear weapons; all the technologies they need. It’s equally clear that Israel and the United States would face huge dangers if Iran were to become a nuclear weapon state,” said Sir John Sawers. Sir John is crediting covert MI6 operations with preventing Iran from developing nuclear weapons earlier. Without intervention, he says, Iran may have gone nuclear as early as 2008.

Separately, the Pentagon issued a report that “Iran has boosted the lethality and effectiveness of existing (missile) systems by improving accuracy and developing new payloads,” including for their submarines.

Syria: In the latest massacre, the worst yet, helicopter gunships and tanks (both Russian-made) attacked a village in central Syria, Taramseh, and “obliterated” it, with at least 220 killed, according to opposition groups. Video began to emerge showing the slaughter, with Russia now under intense pressure as well as the Syrian government. Pathetic UN and Arab League envoy Kofi Anna said “I am shocked and appalled.” Someone please show Mr. Annan the exit.

The massacre in Houla in May claimed about 110 lives. Prior to this episode, an estimated 17,300 had died in the Syrian uprising, including 4,300 members of the security forces.

Taramseh is a predominantly Sunni village. Recall that Syria is ruled by the Alawites, who are an offshoot of Shiite Islam.

And you know those chemical weapons stockpiles I began talking about right after the beginning of the uprising? The Wall Street Journal reported on Friday that “Syria has begun moving parts of its vast arsenal…out of storage facilities…in a development that has alarmed many in Washington.” Is Assad going to use the stockpiles of sarin nerve agent and mustard gas against his own people? Is Assad just trying to hide them better? Or is he going to give some of them away?

Syria denies their WMD have been moved.

Assad did suffer a big blow when his Ambassador to Iraq defected and joined the revolt. Nawaf al-Fares, in a statement to al-Jazeera, said: “I announce my resignation as Syrian Ambassador to Iraq as I also declare my defection from the Syrian Baath party. I urge all honest members of this party to follow my path because the regime has turned it into an instrument to kill people and their aspiration to freedom. I also declare from this moment that I have joined the ranks of the revolution.”

Lebanon: The violence in Syria once again spilled across the Lebanese border with Syrian forces shelling a Lebanese village, killing at least two as Assad’s forces went after rebels seeking refuge in Lebanon, according to residents. Of course it’s innocents who are then killed.

Recall that Hizbullah runs the government in Lebanon these days and they are Shiite, as is their benefactor in Syria, Assad. But there are strong Sunni elements in Lebanon, witness the Hariri family that has produced two recent prime ministers, the Hariris also being allies of Saudi Arabia.

So it’s tribal, in both Syria and Lebanon. The Lebanese Army has vowed to beef up its forces on the northern border.

But as for former Prime Minister Saad Hariri, who said after Hizbullah won the last election and gained control of the government that he would lead the opposition, he has been hiding out in France for more than a year now and it’s time he returned home instead of bitching from exile; this week about the government’s silence in the face of the border escalation.

“It shows total disrespect for the lives of our citizens and our sovereignty,” he tweeted, according to the Daily Star.

Tweeted? Go home and lead, Mr. Hariri.

Egypt: President Mohamed Morsi took office on June 30 and immediately attempted to call back the nation’s parliament, which had been dissolved by the military council prior to the presidential election. So parliament reconvened for an hour on Tuesday, basically to prove it could, and then Egypt’s Higher Constitutional Court affirmed the role of the military to dissolve the body.

But on Wednesday, Morsi said he wanted talks with the judiciary and political powers to defuse the crisis and then he flew to Saudi Arabia for the start of his first foreign trip, where Morsi told the Saudis, in veiled terms, that Egypt would support their country should it have any issues with Iran, and that Morsi wasn’t looking to “export” Egypt’s revolution; reassurance for the Saudis and its Gulf allies.

Meanwhile, no one seems to know just who will write a new constitution. The military maintains it can appoint a constitution-writing body if the one picked by a new parliament doesn’t pass muster. The power struggle is on. This is going to be a multi-year process.

Israel: With attention focused on Iran and its nuclear weapons program, no doubt the Palestinian issue has been pushed to the back burner, but this week President Shimon Peres spoke out against West Bank settlements, stating that they jeopardize the state’s Jewish identity.

“Israeli settlements in territories densely populated with Arabs, which followed their attack on us, can lead to a threatening demographic change. It places a Jewish majority in the State of Israel at risk. Without a Jewish majority it is doubtful if the state will remain Jewish.”

A government report this week stated that Israel did not occupy the West Bank and that it had a right under international law to build settlements there.

The U.S. reiterated its opposition to Israeli settlement activity and does not agree with the report’s conclusions. I agree with Washington’s take.

On a different matter, former Prime Minister Ehud Olmert was cleared of the most serious corruption charges against him, including fraud, but convicted on a lesser count of breach of trust. This was all part of a five-year inquiry that drove Olmert from office in 2009 and eventually led to Prime Minister Netanyahu’s return to power.

Libya: The two-stage election process appears to have elected a mostly pro-West government though I’ve yet to see final results. Ultimately, a 200-seat parliament will have to come up with the country’s leadership, which will pit Islamists against Western-leaning parties. For now, in Tripoli and revolution stronghold Benghazi, it appears former rebel prime minister Mahmoud Jibril was winning more than half the seats.

Charles Krauthammer / Washington Post

“Post-revolutionary Libya appears to have elected a relatively moderate pro-Western government. Good news, but tentative because Libya is less a country than an oil well with a long beach and myriad tribes. Popular allegiance to a central national authority is weak. Yet even if the government of Mahmoud Jibril is able to rein in the militias and establish a functioning democracy, it will be the Arab Spring exception. Consider:

“Tunisia and Morocco, the most Westernized of all Arab countries, elected Islamist governments. Moderate, to be sure, but Islamist still. Egypt, the largest and most influential, has experienced an Islamist sweep. The Muslim Brotherhood didn’t just win the presidency. It won nearly half the seats in parliament, while more openly radical Islamists won 25 percent. Combined, they command more than 70 percent of parliament – enough to control the writing of a constitution (which is why the generals hastily dissolved parliament).

“As for Syria, if and when Bashar al-Assad falls, the Brotherhood will almost certainly inherit power. Jordan could well be next.   And the Brotherhood’s Palestinian wing (Hamas) already controls Gaza.

“What does this mean? That the Arab Spring is a misnomer. This is an Islamist ascendancy, likely to dominate Arab politics for a generation….

“The only thing we can be sure of today…is that Arab nationalism is dead and Islamism is its successor. This is what the Arab Spring has wrought. The beginning of wisdom is facing that difficult reality.”

Afghanistan: Last weekend, the United States designated Afghanistan as its newest “major non-NATO ally,” which amounts to a major political statement of support and is part of a process to solidify a long-term defense cooperation agreement following U.S. combat troop withdrawal in 2014. Essentially the declaration streamlines purchases of American equipment and easier export control regulations. Others in this category include Australia, Israel and Japan. But also Pakistan.

On Sunday, six U.S. servicemen were killed in a single IED attack in eastern Afghanistan. 

[And as I go to post, Saturday morning, there is word of a suicide bomb attack that took out a key Afghan commander among the 20 victims. It was at the commander’s daughter’s wedding.]

Russia: At least 172 died in flash flooding last weekend in southern Russia, the town of Krymsk by the Black Sea, and President Vladimir Putin is feeling the heat as it’s clear local officials failed to deliver any kind of warning to the people amid what some said were fairly normal downpours. The people believe water was released from a local reservoir but Putin and investigators said that while there were some releases, this wasn’t what caused the disaster. The people smell a cover-up.

Separately, the Duma, or parliament, “adopted new rules that make it possible for the Kremlin to fine or otherwise punish any non-governmental organization (NGO) that accepts foreign money and engages in ‘political activities’ (definition left deliberately vague).” [Wall Street Journal]

All of the NGOs need foreign money to survive, so Putin is trying to kill them. As an op-ed piece by Victor Davidoff in the Moscow Times noted, Putin is simply following the model established by his hero, Yuri Andropov, head of the KGB and Putin’s boss when he was serving in the secret police. Andropov was known for arresting dissidents and harassing human rights groups. Part of the new legislation adopted by the Duma is a prison term of two years for an NGO’s failure to register as a “foreign agent.” Once you’re registered, then you are prohibited from most political activity.

There is absolutely zero reason to be optimistic about anything in Russia these days.

Romania: Recall this dysfunctional place is a member of the European Union and EU officials are expressing dismay at a soft coup taking place as President Traian Basescu faces impeachment and a national referendum on the topic July 29. The move is being orchestrated by the country’s new leftists prime minister, Victor Ponta. Germany is strongly condemning the process, with a government spokesman saying it is “unacceptable when a European Union country infringes the fundamental principles of rule of law.”

Ponta is also battling with the nation’s highest court, plus, an academic panel has concluded that he plagiarized large sections of his doctoral dissertation.

China: Secretary of State Hillary Clinton warned Beijing that its approach to territorial disputes in the South China Sea was a recipe for “confrontation.” With half of global ship-borne trade passing through these waters, “No nation can fail to be concerned by the increase in tensions, the uptick in confrontational rhetoric, and disagreements over resource exploitation,” said Clinton at a regional summit in Cambodia.

Speaking of rhetoric, I posted an editorial from a Chinese government mouthpiece on my “Hot Spots” link that is more than a bit disturbing, essentially saying it is time for China to show a little muscle and not allow the likes of Vietnam and the Philippines to claim various island chains as their own; that the time for diplomacy has run its course.  This is certainly a sleeper global flashpoint.

North Korea: The place was abuzz as pictures emerged of a rather attractive young woman at leader Kim Jong-Un’s side and after a few days, South Korean intelligence sources said the woman was an old lover and a formerly married pop star, Hyon Song-woi, who a few years back was the lead singer for the Bochonbo Electronic Music Band, topping charts with hits such as “Footsteps of Soldiers,” “I love Pyongyang” and “Excellent HorseLike Lady.” Really.

According to the New York Daily News, Kim Jong Il ordered his son to end a relationship he was having with Hyon, and then Hyon married an army officer.

Well, Dad dies and Kim Jong Un rekindled the relationship. No word on whether the army officer is still alive, this being North Korea, after all.

Nigeria: Just another week of death and destruction in this hellhole. A truck carrying fuel ran off into a ditch, people gathered, as they always do in these situations, to scoop up fuel that is spilled, and then the tanker explodes…in this case killing at least 95.

Last weekend, suspected Islamists (and/or Muslim herdsmen of a particular ethnic group) attacked various Christian villages, killing at least 56. Then the next day, two politicians were ambushed and killed as they were on their way to attend a mass burial for the victims.

Random Musings

--Dan Balz / Washington Post

“President Obama’s bus tour through Ohio and Pennsylvania late last week offered a striking look at the evolution of a president. In 2008, Obama used soaring rhetoric and personal biography to talk about binding together a red-blue nation. His message today is about the urgent need to defeat a stubborn opposition party in order to move the country forward.

“Four years ago, Obama used themes of hope and change to suggest that he could bring a new politics to Washington. He was open to the idea that, as he sometimes put it, the solutions to the country’s problems were somewhere between the rhetoric and visions of both parties. His goal, he said, was to help guide the country, through his leadership, to that imagined golden mean while sticking to his principles.

“Today, the battle-scarred president who has met almost uniform resistance from the Republicans sees the world differently, or so it seems from the way he talked in Ohio and Pennsylvania. At nearly every stop, he made it clear that he sees November in the starkest of terms and that there can be but one winner. He asked supporters to help deliver a victory in November that would carry a message that his vision is superior to that of the Republicans.”

Back on the night he won the 2008 Iowa caucuses that launched him toward the White House, Obama said:

“You came together as Democrats, Republicans and independents to stand up and say that we are one nation. We are one people…You said the time has come to move beyond the bitterness and pettiness and anger that’s consumed Washington, to end the political strategy that’s been all about division, and instead make it about addition; to build a coalition for change that stretches through red states and blue states.”

As Balz says, sure, there was more to his message in 2008, and he ran his share of negative ads against John McCain, “But what resonated most was the aspirational side of his message. The country could meet its challenges only one way – together. Contrast that with the way he talked about the election…in a park in Parma, Ohio. ‘There are two fundamentally different visions about how we move the country forward,’ he said. ‘And the great thing about our democracy is you get to be the tiebreaker.’”

--In a new Washington Post/ABC News poll, President Obama and Mitt Romney are tied at 47. About nine in 10 Republicans support Romney and nine in 10 Democrats support Obama. 74% are “definitely” supporting Obama or Romney, and 12% say it is unlikely that they will switch from one to the other, making the race settled for essentially nine in 10.

Obama receives an overall approval rating of 47% in this survey.

On the healthcare issue, since the Supreme Court’s recent 5-4 vote to uphold the key component, 42% approve of the decision and 44% oppose it. “But in a significant change, the legislation is now viewed less negatively that it was before the ruling. In the new survey, 47% support the law and 47% oppose it. In April, 39% backed it and 53% opposed it.”

--But in a Pew Research Center poll, when registered voters were asked who would be better at handling the economy, President Obama suddenly has a 50-43 lead despite the miserable jobs data. Yet another sign of just what an awful campaign Mitt Romney is running.

--In a USA TODAY/Gallup Poll, “Among swing-state voters who say the (campaign) ads have changed their minds about a candidate, rather than just confirmed what they already thought, 76% now support the president vs. 16% favoring Romney.”

In the poll of the 12 battleground states (CO, FL, IA, MI, NV, NH, NM, NC, OH, PA, VA and WI), Obama leads Romney 47-45. [Obama leads 48-44 in the rest of the U.S.]

--Military Times took a look at five key battleground states and the impact military-affiliated populations – active-duty and reserve component troops, veterans, retirees, defense civilian employees and their families – could have in them when looking at the 2008 election, using Gallup and Reuters’ surveys.

Colorado: Obama 53.5% McCain 44.9% [Military voters: 13.3%]
Florida: Obama 50.9% McCain 48.4% [MV: 12.2%]
North Carolina: Obama 49.9% McCain 49.5% [MV: 13.8%]
Ohio: Obama 51.2% McCain 47.2% [MV: 10.8%]
Virginia: Obama 52.7% McCain 46.4% [MV: 17.1%]

As Military Times puts it, “If the last two elections were about winning over the soccer moms or Joe the Plumber and small-business owners, this one could be about winning the military vote.

“President Obama saw that potential almost four years ago. Ever since taking office, he has courted military families and veterans with outreach efforts and programs to help support families, improve spouse employment and deliver better benefits to veterans.”

Frank Newport, Gallup’s editor in chief, notes that veterans make up about 13% of the population, bigger even than the Hispanic voting bloc. Polling of veterans thus far in this cycle is highly inconclusive.

--Romney raised $106 million in June, $35 million more than Obama.   Romney and the Republican National Committee have an estimated $160 million cash in the bank, with Obama and the Dems holding about $140 million.

--Mitt Romney did the right thing in addressing the NAACP’s annual convention, even though he was booed and hissed at with comments like, “If you want a president who will make things better in the African American community, you are looking at him.”

And, “I believe that if you understood who I truly am in my heart, and if it were possible to fully communicate what I believe is in the real, enduring best interest of African American families, you would vote for me for president. I want you to know that if I did not believe that my policies and my leadership would help families of color – and families of any color – more than the policies and leadership of President Obama, I wouldn’t be running for president.”

Heck, the unemployment rate for African Americans is now 14.4%, vs. the nationwide overall rate of 8.2%.

Here’s the thing African Americans should be asking themselves. What has Barack Obama done for me? And what is shocking to yours truly is the fact that you can’t recall one single visit Obama has made into a classic, inner city area (excluding maybe D.C.), to even just shoot hoops with the kids on a playground, or to shoot the breeze with gang members. Or go to a prison and talk to inmates.

He hasn’t done a single thing that could be called bold when it comes to Minority America. He blows into a town, has a well-choreographed outing at a factory or school, grabs something at a diner, but never really gets involved, like walking through a distressed neighborhood in downtown Detroit.

Of course a lot of presidents haven’t done things like I just suggested, but this was the guy 95% of Black America voted for, thinking he would then represent them, when in truth he couldn’t care less about ‘em as he takes their votes for granted.

That said, there is no way in this particular cycle Republicans are improving on the 5% they received in 2008. 

--John Podhoretz / New York Post

“So we have come to this: President Obama is now treating not raising taxes as though it were the same as providing a tax cut. Gene Sperling, his top economic adviser, even dared to refer to Obama’s proposal yesterday of a partial one-year extension of the Bush rates as a ‘tax break.’

“Up is down, 2+2=5. Leave a rate intact and it’s the same as cutting taxes. No wonder the White House believed not buying a health-care policy should be considered an economic activity to be taxed and penalized.

“Action, inaction; what’s the difference? In one case, you’re being a bad citizen and deserve to get slammed. In the other, you’re being a wonderful president and deserve to get re-elected.

“People often describe such logic as Orwellian, but in truth, you have to go back to the comedienne Gracie Allen for such a priceless example of corkscrew thinking.”

--Peggy Noonan / Wall Street Journal…on the topic of Condoleezza Rice as Mitt Romney’s running mate.

“Speaking the other day to a gathering of businesspeople from across the country, I mentioned the subdued nature of the election and my thoughts as to its reasons. I was surprised to get no push-back afterward, even from political enthusiasts, only agreement.

“But the news: When conversation turned to the vice presidential nominee, I said we all know the names of those being considered, spoke of a few, and then said Condoleezza Rice might be a brilliant choice.

“Here spontaneous applause burst forth.

“Consider: A public figure of obvious and nameable accomplishment whose attainments can’t be taken away from her. Washington experience – she wouldn’t be learning on the job. Never run for office but no political novice. An academic, but not ethereal or abstract. A woman in a year when Republicans aren’t supposed to choose a woman because of what is now called the 2008 experience – so the choice would have a certain boldness. A black woman in a campaign that always threatens to take on a painful racial overlay. A foreign-policy professional acquainted with everyone who’s reigned or been rising the past 20 years.

“I should add here the look on the faces of the people who were applauding.   They looked surprised by their own passion. Actually they looked relieved, like a campaign was going on and big things might happen and maybe it could get kind of…exciting.”

--Democratic Illinois Congressman Jesse Jackson Jr. finally disclosed he is suffering from a “mood disorder” after four weeks of silence and absence from his job. His own Democratic leadership has had it with Jackson’s antics and past allegations and the guy should be forced to resign immediately. As Rep. Steny Hoyer, the No. 2 Democrat in the House, said Wednesday:

“People get sick, and when people get sick, they miss work. Everybody in America understands that.  But I think the family would be well advised to give his constituents as much information as is appropriate.”

Jackson still has a pending House Ethics Committee investigation to deal with, focusing on allegations he was raising money for disgraced then-Illinois Gov. Rod Blagojevich in order to secure Barack Obama’s vacated U.S. Senate seat.

--New Jersey Republican Gov. Chris Christie, in a speech at the Brookings Institute, a liberal Washington think tank, on the topic of President Obama’s push to send states another round of stimulus to hire teachers, firefighters and police.

“Please don’t send me any more money to hire more public employees. Please don’t. I’ve got plenty as it is, and I don’t need any more, and they’re expensive! I have the highest property taxes in America to begin with. Where’s this money going to come from to pay these folks afterwards?”

--I’ve been writing over the years that Americans need to be more upset with some of our military leadership and Utah Republican Congressman Jason Chaffetz, chairman of the House Oversight and Government Reform’s Subcommittee on National Security, is fuming that two U.S. Army generals delayed an investigation of chronic abuse at a military hospital in Afghanistan in order to protect President Obama from embarrassment before the 2010 midterms elections, military whistleblowers have told House investigators. 

CNN had a story the other day on this hospital, which the American taxpayer spent $100 million on, and it’s beyond belief the pictures of abuse, with Afghan staff abusing patients – denying them care, beating them, demanding bribes for food.

The two U.S. generals overseeing the facility are Brig. Gen. Gary Patton and Lt. Gen. William Caldwell. Col. Schuyler Geller, a retired Air Force doctor, told CNN that Patton ordered a delay of the investigation until after the 2010 midterm vote.

“He says, ‘But we don’t want to put that request in right now because there is an upcoming general election and we wouldn’t want this to leak out.” Geller told CNN Lt. Gen. Caldwell, Patton’s superior officer, was “angry” at the prospect of launching the investigation before the 2010 midterm. I saw the interview with Geller…he seemed more than credible.

Chaffetz has invited Geller and other witnesses to testify about the matter before his subcommittee on July 24.

--New York City has suddenly had a spate of shootings and killings and Police Commissioner Ray Kelly blasted community leaders in predominantly minority neighborhoods for being “shockingly silent” about violent crime.

“Some of them are very willing to attack the Police Department, but not willing to take on the big issue, which is crime happening in their own neighborhood. They should, number one, acknowledge the problem – acknowledge the problem exists. Don’t just beat up on the Police Department.”

So the community leaders got all upset, saying the real problem was lack of jobs, too many firearms, etc., but fail to address the real topic, in Kelly’s words, that “96% of the shooting victims in this city are black or Latino.”

Editorial / New York Post

“Yet when was the last time black or Latino leaders organized a serious demonstration against a gun culture of the sort that resulted in 77 firearm casualties over the July 4 holiday?

“Of course there are too many guns.

“Of course there are not enough jobs.

“Now what?

“Kelly’s stop-and-frisk initiative has its limits.   But it’s a coherent, professionally run effort to rid the streets of guns – rather than just complain about them.

“And yet Father’s Day weekend was devoted to a massive ‘silent march’ in protest of – stop-and frisk!

“Amazing.

“No wonder Kelly is frustrated.

“The commissioner says community leaders need to be working with local precinct and borough commanders – ‘but they’ve got to want to do it.’

“It’s just bizarre that those who presume to lead the communities so grievously afflicted by gun violence can’t bring themselves coherently to condemn the culture that produces it.

“Not until, for example, they organize a ‘silent march’ against violent crime that advocates specific solutions – like active cooperation with the NYPD – will they have earned the right to be taken seriously.

“Don’t hold your breath.”

--Interesting study by Tourism Concern, a British charity, regarding the disproportionate use of fresh water by tourists in developing world destinations, which exacerbates poverty and helps spread disease.

For example, researchers found in some resort villages in Zanzibar (islands off the coast of Tanzania), locals used, on average, 93.2 liters of water a day, but the average daily consumption per room in a five-star hotel was 3,195 liters! Good lord. Even in less luxurious guesthouses it was 686 liters a day. [Guardian / Sydney Morning Herald]

--Yes, that was pretty stupid that Ralph Lauren opted to have the U.S. Olympic team uniforms manufactured in China, not the United States, and the company managed to unite Congress for one or two days. Plus berets? Really?

--A study by the online journal BMJ Open says sitting down for more than three hours a day can take two years off your life, even if you’re physically active and refrain from dangerous habits like smoking.   Watching TV for more than two hours a day can decrease life expectancy by another 1.4 years. The researchers for the study say you should stand as much as possible.

Let’s see…I work at my desk about 16 hours a day and I have the TV on virtually the entire time so I have…carry the one…subtract….uh oh….

---

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

God bless America.
---

Gold closed at $1592
Oil, $87.10

Returns for the week 7/9-7/13

Dow Jones +0.0% [12777]
S&P 500 +0.2% [1356]
S&P MidCap -0.5%
Russell 2000 -0.8%
Nasdaq -1.0% [2908]

Returns for the period 1/1/12-7/13/12

Dow Jones +4.6%
S&P 500 +7.9%
S&P MidCap +7.2%
Russell 2000 +8.1%
Nasdaq +11.6%

Bulls 44.7
Bears 24.5..unch [Source: Investors Intelligence]

Have a great week. I appreciate your support.

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Brian Trumbore