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08/04/2012

For the week 7/28-8/3

[Posted 6:00 AM ET]

The Eurozone Debt Crisis, Wall Street and the U.S. Economy

Thursday, July 26, European Central Bank President Mario Draghi said: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” Markets staged a spectacular two-day rally in response as they awaited Draghi’s more formal announcement on Thursday, Aug. 2.

On Aug. 2, with high expectations for action, Draghi said the crisis was worsening and the ECB was ready to help countries facing high borrowing costs (i.e., Spain and Italy) by buying their debt at lower rates than on the open markets.

“What we have expressed is guidance, and strong guidance, about strong measures which will be completed in the coming weeks.”

‘Coming weeks?! We can’t wait weeks! And where are the details?!’   So on Thursday, the markets sold off, with Spain’s stock market down 4.9% and Italy’s 4.2% (as well as 2%+ declines in Paris and Frankfurt), while the yield on the Spanish 10-year soared back to 7.15%.

But in a classic case of my dictum ‘wait 24 hours,’ upon further reflection traders, both in Europe and the U.S. (I’ll explain the latter in a moment) decided that finally…finally…there was a real bailout plan in the works and so on Friday, Euro stocks reversed their previous day’s losses, and then some, with Spain and Italy rallying 6% apiece and the Spanish and Italian debt markets rallying as well. [Frankfurt and Paris saw stock market gains of 3.9% and 4.4%, respectively.]

Currently, the European bailout fund – the EFSF (European Financial Stability Facility) – and the coming sister fund – the ESM (European Stability Mechanism) – require any country seeking help to submit to monitoring and a promise to carry out certain measures such as raising taxes and cutting spending in order to qualify. It’s the giving up of sovereignty (monitoring) that has been the no-go for Spain, even after they asked for 100 billion euro to bailout their banks. On Friday, Spanish Prime Minister Mariano Rajoy said he would do what was right for his country as he contemplated whether to ask for a full bailout, and thus accept the loss of sovereignty.

Mario Draghi said, “First of all governments need to go to the EFSF; the ECB cannot replace governments.” Draghi also offered his plan would target short-term rates.

As a result, the yield on Spain’s two-year note, which is more important than my constant focus on the 10-year in terms of immediate funding needs, plunged below 4% on Friday, and near 3% for Italy. This is good.

The euro, which had traded down to $1.21 right after Draghi’s press conference, finished the week at nearly $1.24, a sign of easing tensions and the fall in short-term rates in Spain and Italy (and not any news out of the U.S., as I saw more than one report incorrectly put it).

But while Draghi said the ECB and other parties were working on a plan to enact over the coming weeks, in his press conference on Thursday, the central bank president singled out Bundesbank President Jens Weidmann for being the only policy maker (of 23 on the ECB’s council) to object to the ECB’s proposal to re-enter bond markets. The ECB can’t act without the Bundesbank’s support so part of the rally on Friday was the feeling that a compromise was in the works.

Heretofore, German ECB officials have been adamantly against bond buying because it blurred the line between monetary and fiscal policy and allowed governments to relax on the fiscal discipline front.

So we now wait a few weeks, with potentially little news, until September, which is a highly critical month because on Sept. 12, Germany’s supreme court will rule on the constitutionality of the ESM, which is to be the permanent euro rescue fund. Until then, the EFSF is the only rescue vehicle and after taking into consideration Spain’s 100 billion request for its banks, there is only about 150 billion euro left.

Ah, but there is another little issue left for August and that is Greece and a 3.2 billion euro payment due the ECB on Aug. 20.   “Cash reserves are almost zero,” a Greek finance official announced this week. “It is risky to say until when [they will last] but we are certainly on the brink." Greece’s next bailout installment of 31.5 billion euro is slated for September, assuming their current audit by the troika (IMF, ECB and EC) receives a passing grade. 

German finance minister Wolfgang Schauble has dismissed talk of further aid for Greece, blasting Athens for not implementing its austerity program, while a new poll in Germany has 51% of the people believing that their country would be better off leaving the euro, so you can see the still mounting political pressure on Chancellor Angela Merkel and her fragile coalition.

So, no, European leaders really shouldn’t take August off and rest up for September because there is still much work to be done today. Greece’s future in the eurozone remains on a knife’s edge. Its survival is basically dependent on some kind of debt forgiveness program from eurozone governments and imagine how that would go down politically, especially in the northern tier.

Lastly, you have the issue of the current state of the eurozone economy, which is kind of important, don’t you think?

The latest eurozone unemployment rate is 11.2% for the month of June (Spain is at 24.8%), which is the same as May’s rate, while the PMI data on manufacturing for the region came in at 44 for July, down from 45.1 in June, and obviously still in major contraction zone. The PMI in Germany was just 43, while some are actually saying there is good news from Spain (42.3 vs. 41.1 in June) and Greece (41.9 vs. 40.1 in June). [Ireland’s rose from 53.1 to 53.9…I’ll be drinking a pint to this in about three weeks when I head back over there.]

Non-euro Britain’s July PMI was down to 45.4 as, post-Olympics, there is fear of a triple-dip recession down the road.

Some opinion…

Otmar Issing (former executive board member of the ECB) / Financial Times

“ ‘Recent history, and not just that of Germany, teaches us that the idea of sustaining an economic and monetary union over time without political union is a fallacy.’ Has former German chancellor Helmut Kohl, who gave this warning in 1991, been proven right by the eurozone crisis? Should Europe now seek political union?

“Forming such a union implies nothing less than the end of the nation state. A European government would have to be created with powers of taxation and public spending, a corresponding European parliament and so on. There are powerful arguments why ‘Europe’ – whatever this means and how many countries might be included – should have this ambition. However, to base the argument for integration primarily on saving monetary union is anything but convincing.  And it is more than strange when foreign politicians and experts are pressing eurozone states to give up national sovereignty, out of fear that a collapse of monetary union might have severe consequences for their economies….

“But, independent of any answer to these questions, political union is impossible to achieve within a few years. It cannot be a means of crisis management. And here comes the dangerous part: any proposals, for example, to extend the amount and scope of financial support mechanisms premised on further integration in the future. Promising later action against requests for more money now does not look like a credible strategy – quite the opposite. This approach would severely undermine the idea of establishing political union.

“Take eurozone bonds, which would lead to higher interest rates for government bonds in countries of (so far) good reputation in financial markets. The implicit transfer of taxpayers’ money would be a violation of the fundamental democratic principle of no taxation without representation. This is true for all forms of debt mutualization. This is hardly the proper way to create a democratic European Union…..

“Political union is not the solution….

“Is the collapse of the eurozone therefore unavoidable? This is a risk that can no longer be denied but there is a viable alternative. The eurozone is based on treaties and commitments that were unfortunately broken time and again with the consequence of a deep loss of credibility. Can confidence be restored? A monetary union of sovereign states cannot function without the principle of no bailout, which means that every country is responsible for its policies. Financial assistance must be based on strict conditionality and be given at interest rates that do not undermine the will to reform. As such, monetary union could survive without political union.”

Mohamed El-Erian / Bloomberg News

“The three central bank meetings this week – the Bank of England, the European Central Bank and the Federal Reserve – made very good cases for additional stimulus measures, though they failed to specify what these would be.

“Equities and certain bonds that had surged on the basis of last week’s verbal assurances by central bankers and political leaders sold off. There was no panic given central bankers’ promises to do more in the future should additional action be needed. This is what the standard narrative has been.

“But it misses important context, and there is more at play here. The unfortunate reality is that, unlike during the financial crisis of 2008 and 2009, central banks can’t be the saviors this time around for a struggling global economy. Other government entities, with better-suited policy tools, need to step up to the plate….

“Yes, central banks may be part of the solution, but increasingly they will play a smaller and smaller role. The tools they have available are losing their firepower. The burden is now on other policy makers and the political leadership. Only they have the tools that can address the fundamental problems of too little growth, too much debt in the wrong places, and too little private capital being channeled to investment and other productive activities.

“To solve Europe’s crisis and the world’s intensifying economic malaise – just witness the downturn in manufacturing – policy makers and their political bosses need to address issues of competitiveness, fiscal reform, and the retooling and retraining of the labor force….

“Of course, none of this will happen until political leaders abandon their tactical, incremental and partial approaches for issues that require strategic, coordinated and comprehensive responses. Unfortunately, in today’s polarized world, the prospects of this are far from reassuring.”

Stephen King / Financial Times

“The eurozone crisis may have started out as a fiscal crisis but it is now most definitely also a monetary crisis. The eurozone’s monetary system has begun to fragment. No longer is the European Central Bank able to set interest rates for the eurozone as a whole. Paranoia about an eventual eurozone break-up has persuaded financial institutions – with some encouragement from national regulators – to keep their money at home. So, the cross-border interbank market is more or less shut and peripheral nations are suffering….

“All this begs the obvious question: if the ECB is doing the right thing – or at least planning to – why did investors take fright as its press conference drew to a close?

“Five explanations stand out. First, the ECB’s proposals are very much a work in progress: the instant gratification investors hoped for – and which they thought Mr. Draghi had promised last week – didn’t materialize. Second, ECB help appears contingent on actions from others: in Mr. Draghi’s words ‘the adherence of governments to their commitments and the fulfillment by the EFSF/ESM of their role are necessary conditions.’ Third, even with a bond-buying program, there is no guarantee of economic success. The U.S. and U.K. experience in recent years, after all, has hardly been encouraging; both are one again hitting economic brick walls. Fourth, it is blindingly obvious that the Bundesbank is not on board.

“Lastly, even if Mr. Draghi has correctly identified the nature of his monetary problem, that won’t be enough to solve the eurozone’s difficulties. The transmission mechanism is certainly worth fixing. But anyone who’s owned an unreliable car will surely agree that fixing the transmission mechanism alone provides no guarantee that the journey can be completed.”

The U.S. Outlook

Earlier in the week, prior to the ECB’s statements, the Federal Reserve Bank wrapped up a two-day meeting and Ben Bernanke’s Open Market Committee failed to take any further steps a la more quantitative easing, opting to wait for a little more data, such as Friday’s employment report for the month of July.

The Fed was no doubt also waiting to see what Mario Draghi would do. The Open Market Committee’s statement read in part:

“The committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

The Fed also noted that “economic activity decelerated somewhat over the first half of this year,” and that “growth in employment has been slow in recent months.”

Bernanke and Co. next meet on Sept. 12-13, which is far too close to the election for some of us if they plan on doing something, though on the other hand, a lot of us would just like the Fed to go away, seeing as how they have totally screwed savers and the end result has been a rally in stocks but a putrid economy. I’ve long argued the short-term funds rate should be 2%...more than low enough to spur economic activity but a rate by which the elderly could receive $2,000 on a $100,000 in savings, which buys a lot of food, movie tickets, or a little trip somewhere.

Back to employment, the non-farm payroll data for July showed the U.S. economy added 163,000 jobs, far better than expected (closer to 100,000 being the projection), but the unemployment rate ticked up to 8.3% from 8.2% on a declining labor force. Despite July’s gains, the last three months the average is just 105,000.

So Republicans can talk about 41 consecutive months with an unemployment rate above 8%, while Democrats will try to hang their hat on the fact the economy is at least adding, not losing jobs, and the private sector added 172,000 last month.

But let’s be serious. The only number that the average American cares about is the rate of 8.3%, plus we all know the real one, including those underemployed, is far higher.

Couple the labor data with last week’s 1.5% figure on GDP for the second quarter and it remains a bleak picture, even if stocks continue to rally.

In other news on the data front, the manufacturing PMI for the month of July came in at 49.8, another month of contraction, while June construction spending was up 0.4% and June factory orders were down 0.5%. [The Chicago PMI, however, was solid, 53.7.] The PMI on the service sector was an OK 52.6.   Personal consumption for June was once again unchanged, not good.

As for the second quarter earnings season, we are witnessing the third straight quarter of decelerating profit growth while the outlook for the third and fourth quarters continues to worsen, with the latest forecast for the third for the companies in the S&P 500 being a decline of about 0.4% from the year-earlier quarter, according to Thomson Reuters.

Economist Robert Samuelson had the following take on the current environment from his perch at the Washington Post.

“Just as ‘irrational exuberance’ drove the economic boom, so the bust is sustained by an almost-pathological and self-fulfilling pessimism. The unspoken faith in economics – that governments could prevent another Great Depression and ensure that recessions, though unavoidable, are limited – has given way to profound skepticism.”

Such as…

“What good are lower interest rates if lenders impose such tight conditions that credit doesn’t flow or potential borrowers won’t assume added debt? Rates on 30-year mortgages are already 3.5 percent.

“The real obstacles to a vigorous recovery are compounded by this shrunken confidence in the power of economics. The dangers – resumed recession or deflation – arise from their interaction. Low confidence will subvert recovery; an aborted recovery will subvert confidence. Whoever wins in November will face this cycle. His challenge will be to break it.”

Regarding the issue of the “fiscal cliff,” the combination of tax hikes and deep spending cuts that is to hit at the start of next year without congressional action, interesting piece in the Washington Post by Zachary A. Goldfarb concerning the fact that, “By law, all but the smallest companies must notify their workforce at least 60 days in advance when they know of specific job cuts that are likely to happen.”

Needless to say, this could be bad news for the White House; big layoff announcements just prior to the election. But the Labor Department said Monday it would be “inappropriate” for contractors to send out such large-scale dismissal notices in light of the uncertainty on whether or not the cuts will actually occur.

Republicans countered the White House is playing politics. Virginia is a key battleground state after all, and Lockheed Martin, with more than 20,000 workers in the Washington area, “has said it may notify more than 100,000 employees of potential layoffs ahead of the election. Lockheed said Monday that it is reviewing the new guidance.” [Goldfarb] Other large defense contractors haven’t decided how they’ll proceed come end of September.

Finally, on Wednesday I was watching the market open at 9:30 a.m. as I do every morning (before doing errands and taking a jog…in case you were curious what I do with my day after waking up at 4:30) and one of the stocks on my screen is a rare earths minerals play, Molycorp, MCP. I’ve never owned this one but it’s normally a good bellwether for a number of sectors and it’s also incredibly volatile but by 9:32 Wednesday something was very wrong, especially given no news for the company. The stock was plunging on mammoth volume. Sure enough, around 10:00 a.m. we learned that MCP wasn’t the only issue suffering a similar fate, both on the upside and downside. Huge volatility and volume with no explanation.

Then we found out that computers at market maker Knight Capital Group Inc. (KCG) went haywire and flooded the market with tons of unintended trades on up to 150 different issues. Knight had been rushing to develop a computer program so it could take advantage of a new venue at the New York Stock Exchange but didn’t test it out properly. The result was a $440 million loss to Knight, swamping its cash reserves, and by week’s end it was struggling to survive.   The shares of KCG went from $10.38 Wednesday morning to nearly $2.25 on Thursday before finishing the week at $4.00 on word it had received a credit line and was negotiating a full if not partial sale of its operations. [At least that’s the latest as I go to post.]

More importantly, it was yet another black eye for America’s markets, the third such high-profile debacle in about five months, including the BATS Global Markets (an electronic trading platform) pulled offering in March and Facebook in May; all three caused by computer programs that had not been tested out properly prior to launch.  

In some respects, while the overall market averages weren’t impacted, Wednesday’s s---storm reminded many of the May 2010 flash crash; an event for which we still haven’t been given a definitive explanation.

But by week’s end, many market participants were saying Knight’s problems weren’t enough to sap investor confidence any further, though of course it does. Sure, I understand the Average Joe has no clue, nor cares, about what happened, but a lot of Above Average Joes will…and do understand that it is yet another example of how the market processes are getting increasingly out of control, especially when you weigh the impact of “dark pools” and high-frequency trading; neither of which is even remotely beneficial when it comes to the greater good…and it’s about time Wall Street started thinking about that.

Of course Wall Street is a casino…I’ve said that for over a decade. As a good friend of mine who plays the market fairly extensively commented the other day, he’s going to play more blackjack, where he feels he has better odds. Whether it’s computer errors, high-frequency traders, or corporate managements riddled with corruption and false information, the deck is truly stacked against the little guy.

Oh there are still lots of opportunities out there. But you’ve got to do your homework and/or employ a good financial advisor and yet often that is not even enough. [I’m involved in a personal issue concerning this last point myself.]

It was kind of ironic that the Knight trading debacle hit a day or two after PIMCO’s Bill Gross came out with his August investment outlook (pimco.com) and while it’s not exactly apples to apples, Gross trumpeted:

“The cult of equity is dying. Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors’ impressions of ‘stocks for the long run’ or any run have mellowed as well.”

You all know the story on returns since the late 1990s, after all, and if you believe the U.S. economy is basically going to be stuck in neutral for a long time to come, as PIMCO believes, then you’re looking at returns on both stocks and bonds of about 1-2%, which is a rather depressing thought.

Gross says: “The commonsensical conclusion is clear: If financial assets no longer work for you at a rate far and above the rate of true wealth creation, then you must work longer for your money, suffer a haircut on your existing holdings and entitlements, or both.”

I would just add forget investment returns. There’s little reason to be optimistic about anything in the world going forward.

Now who wants a beer? I’m buying. But I’ve had a tough stretch so all I can offer is domestic.

Street Bytes

--Owing to Friday’s rally of about 2% for the blue chips and Nasdaq, the major averages eked out gains for the full week, with the Dow Jones up 0.2% to close at 13096, a three-month high, while the S&P 500 added 0.4% and Nasdaq tacked on 0.3%. But small- and mid-cap stocks finished down.

--U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.24% 10-yr. 1.56% 30-yr. 2.64%

After rallying on the earlier feeling Europe’s problems were not being solved, Treasuries finished unchanged on the week with the better tone from across the pond and the U.S. jobs data.

--In the FOMC’s statement this week it offered that “Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.”

That was then…this is now, FOMC. Energy prices more than likely bottomed in June, while see below on food prices.

--Turning to Asian economic news: China’s official manufacturing PMI came in at 50.1 for July vs. 50.2 for June, barely avoiding contraction, as Premier Wen Jiabao said “Downward pressure is still relatively big.” The service sector PMI was better at 55.6, but this was down from 56.7 in June.

In Japan, the July manufacturing PMI came in at a far lower than expected 47.9, not good, while South Korea’s industrial production reading for June was down and exports fell 8.8% in July from a year earlier. Finally, Taiwan cut its GDP forecast for the year to 2% from 3% as GDP declined in Q2.

--As a result of the drought, the price of beef could actually drop over the coming weeks as some farmers sell off their livestock because they can’t afford the feed. But then prices will rise (or soar) down the road, with most expecting a big hike around the Christmas/New Year’s holidays as demand outweighs supply. The U.S. Department of Agriculture said the nation’s cattle herd numbered 97.8 million as of July 1 – the lowest inventory since it began the count in 1973.

Cattlemen liquidating today could be forced out of business because it takes 2-3 years to breed and raise a herd for market.

The drought now impacts 63% of the contiguous U.S., and a coalition of meat and poultry producers has asked the EPA to waive federal mandates requiring petroleum blenders to use corn-based ethanol. It is beyond absurd the government has not as yet done this.

[Corn hit a record $8.20 on July 31.]

--July auto sales were a little punk as General Motors and Ford were the victims of a decline in rental car fleet sales. Overall, the industry reported sales of 1.15 million vehicles for the month, or up 8.9% from the same period a year ago. This compares to the 14.8% increase the industry recorded the first half of the year.

GM saw sales drop 6% (with sales to rental car fleets plunging 41%). Ford’s sales declined 4%. But Chrysler’s rose 13%.

Toyota’s sales rose 26%, Honda’s surged 45% and Nissan’s climbed 16%, though the year-over-year comparisons for these are skewed by the tsunami and manufacturing and supply issues in 2011.

Volkswagen reported a 27% increase in sales.

--The S&P/Case-Shiller home price index rose 2.2% in May as all 20 of the largest metropolitan areas it tracks posted gains over April. 12 of the 20 now have prices higher than they did a year ago. [Atlanta, on the other hand, is down 14.5% year-over-year.]

--Shares of Facebook at one point this week were nearly a full 50% below the $38 offering price. What’s worse, through the end of the year, some 2 billion company shares could hit the market as various “lock-up” dates expire. Aside from employee dreams of riches being wiped out, U.S. and California tax revenues will suffer. California, for example, had projected $1.5 billion in revenue from Facebook and it will now be “hundreds of millions of dollars” less, as the state’s Legislative Analysts’ Office warned this week (depending on the stock’s performance the balance of the year of course).

Mark Zuckerberg, however, cashed in $1.15 billion of his personal stake on the IPO.

Facebook admitted that 83 million of its so-called 955 million users are fakes (spam, pets, false profiles). This is a higher percentage than the company has previously admitted. And boy I can relate to the following from a New York Post article by Garett Sloane.

“The false accounts issue surfaced almost simultaneously with a gripe from a music startup, Limited Run, which claimed 80 percent of traffic it received through ads bought on Facebook is from ‘bots’ – computers clicking on ads.”

I had this issue long ago when I was running ad campaigns and suddenly traffic from the likes of Uruguay was spiking. It was click-through fraud and I reported on this long before the mass media caught onto the problem.

Separately, two other social media plays, Zynga and Groupon, have collapsed. Zynga is below $3 vs. its $10 IPO price last year, while Groupon is at $6.50, down from its initial price of $20.

--Meanwhile, LinkedIn shares jumped after revenue surged 90 percent to $228.2 million for the quarter. The stock has more than doubled since coming public at $45 last year, now $108.

--Royal Bank of Scotland Group PLC said its first-half net loss widened to $3.09 billion. The bank also warned of future losses as a result of several lawsuits that will emerge from the Libor scandal.

--Deutsche Bank AG announced it was cutting 1,900 jobs, with 1,500 of them coming out of investment banking.

--BP reported a surprising loss of $1.4 billion for the second quarter as it took a huge $4.8 billion write-down on refineries and shale gas assets in the U.S. Stripping out the charges, earnings were still far below expectations. Oil production in the U.S., for example, was down a whopping 25% compared with a year earlier, the culprit being the lack of a full recovery in BP’s Gulf of Mexico fields post oil spill. Total charges resulting from the Deepwater Horizon disaster are now $38 billion.

--Shares in Japanese television maker Sharp fell 30% after warning full year losses will be $3.2 billion, or about eight times larger than earlier estimated. Good grief. The company is going to be laying off 5,000. “The domestic and Chinese demand for liquid crystal display televisions fell at a faster pace than expected.”

Separately, shares in Sony are at their lowest level in three decades as it too suffers from slowing demand for its consumer products. Sony slashed sales targets for its TVs, cameras and personal computers.

Get this. Sony was worth over $120 billion in 2000 and is now worth about $12 billion. Sony is slashing another 10,000 jobs (after cuts in 2005 and 2008 of about 30,000 combined).

Lastly, on the Japanese electronics side, Panasonic reported a profit owing to aggressive previous cost-cutting, but revenues declined 6%.

--According to a report by IDC, Apple’s iPad commands more than two-thirds of the global tablet market. 25 million tablets were sold worldwide in the second quarter, up 33.6% from the first.

By the way, according to the Electric Power Research Institute, the annual cost to charge an iPad is just $1.36. By comparison, a desktop PC adds up to $28.21 and a refrigerator runs you $65.72. [New York Post]

--The Apple vs. Samsung patent-infringement trial kicked off this week. This will be huge. It is expected to take about a month. Both have been lobbing grenades against each other, with Apple accusing Samsung of “slavishly” copying many aspects of the iPhone.

--SAP agreed to pay arch-rival Oracle at least $436 million in compensation and legal fees to cover its long-running dispute over SAP’s illegal access by one of its subsidiaries to Oracle’s computer systems. But Oracle is still attempting to have the original jury award of $1.3 billion reinstated.

Earlier in the week, Hewlett-Packard won a breach of contract suit against Oracle that could lead to damages of more than $1 billion.

And Oracle lost a copyright claim against Google over the latter’s Android operating system.

--Monsanto was awarded $1 billion in damages in a patent infringement trial against DuPont in a case revolving around Monsanto’s patented Roundup Ready “seed chipping” invention.

--The IRS announced identity fraud could cost the government $26 billion in illegal refund checks…$5 billion for 2011 and an estimated $21 billion in coming years. The IRS identified 940,000 fraudulent returns last year claiming $6.5 billion in refunds, but there were potentially another 1.5 million undetected cases of thieves seeking refunds after assuming the identity of a dead person, child or someone else who normally wouldn’t file a return.

As the AP reported: “In one example, investigators found a single address in Lansing, Mich., that was used to file 2,137 separate tax returns. The IRS issued more than $3.3 million in refunds to that address.”

The Treasury Department’s inspector general said “We found multiple reasons for the IRS’ inability to detect billions of dollars in fraud.” In another instance, hundreds of refunds were deposited into the same bank account.

--The U.S. Postal Service failed to make a $5.5 billion payment toward employee benefits as it continues to move forward with eliminating 13,000 rural branches. Many of these will still operate a few hours a day, however. In North and South Dakota, about 3/4s of all post offices are on the cutback list.   The USPS says the cutbacks will result in savings of $500 million a year. It lost $5.1 billion in 2011, and faces a loss of $14.1 billion this year.

--The Treasury Department said on Friday that it expected to raise $5 billion from a sale of shares in AIG, cutting the government’s stake in the company to 55 percent. The shares, some of which are being bought by the insurer, are priced at $30.50, below Friday’s closing price of $31.34. The price of $30.50 is above the $28.72 the government needs to break even on its investment. [Reuters]

--The above-mentioned Molycorp had one interesting week. After the Knight trading debacle of Wednesday, it announced disappointing earnings and the stock cratered all over again.

--NASA doled out over $1 billion to three companies (Sierra Nevada Corp., Space Exploration Technologies (SpaceX) and Boeing for development of craft for the eventual resumption of manned spaceflight. 

--Gen. Keith Alexander, head of the National Security Agency and the U.S. Cyber Command, said attacks against U.S. infrastructure increased seventeen fold from 2009 to 2011. On a scale of 1 to 10, he said, American preparedness for a large-scale cyber-attack is “around a 3.” [Los Angeles Times]

--Jesse Eisinger / New York Times

“As every frustrated American knows, no major banking executive has gone to prison or has been fined any significant amount in the aftermath of the financial crisis.

“But what’s astonishing is that Wall Street bankers seem not to have paid any social cost either. They sit on corporate and nonprofit boards and attend functions and galas. They remain top Wall Street executives, or even serve as regulators. The nation’s prominent op-ed pages, talk shows and conferences seek their opinions. If you are rich, you must be intelligent. Your views must be worthwhile, never mind the track record.”

So true. Mr. Eisinger points to the case of Sandy Weill, the recent embrace of which “sets a new standard for reputation rehabilitation.”

“Sandy Weill was a deal maker who aspired to more. He had a vision to create a financial supermarket….

“And it didn’t work.

“Mr. Weill’s only unambiguous success was to make himself enormously rich.

“By the mid-2000s, Citigroup was a flop.”

No matter…Sandy had his cash.

--According to Lebanon’s hotel association, this summer has been the worst tourism season since the civil war ended in 1990 owing to the conflict in Syria; Syria being Lebanon’s only land access route for tourism and exports. Tourism in Beirut, accessible through the airport, has held its own but seaside resorts outside the city have seen occupancy plunge more than 50%.

--Chick-fil-A recorded record sales on Wednesday, “Chick-fil-A Appreciation Day,” as supporters of the company president (including special correspondent Mark R.) turned out in droves following his statement that the family-run chain supports only a “family unit” of a man and a woman. Others, both gay and straight, are now boycotting the restaurant. I’m still waiting for a KFC outlet to open up near my home, to be perfectly honest.

--Early television audiences for NBC and the Olympics were 30% higher than forecast. NBC now projects they will make a small profit on the Games.

--From Bloomberg News:

“Stockton, California, Police Chief Tom Morris was supposed to bring stability to law enforcement when he was appointed to the job four years ago.

“He lasted eight months and left the now-bankrupt city at age 52 with an annual pension that pays more than $204,000 – the third of four chiefs who stayed in the position for less than three years and retired at an average of 92% of their final salaries.”

Just in case you were wondering why Stockton filed for bankruptcy protection on June 28. Falling revenues and fixed costs like these outrageous deals.

--As of Tuesday, NBC’s “Today” had not beaten ABC’s “Good Morning America” in the ratings once since Savannah Guthrie took over for Ann Curry.

Foreign Affairs

Syria: While Syria’s second city, Aleppo, the commercial center, came under increasing fire, and the battle for Damascus continues, CIA paramilitaries are in Syria, directing some rebel units while others are in Turkey on the border trying to ensure that arms from Saudi Arabia and Qatar are funneled to the rebels and not al-Qaeda types.   At the same time, Britain has vowed to step up its “non-military” aid to the opposition forces so it all adds up to one conclusion:

Diplomacy is dead…best summed up by the resignation of Kofi Annan as UN special envoy

In announcing his intention to resign end of the month, Annan, who I’ve consistently called a “joke” and “pathetic” in this space (and obviously rightfully so), spelled out for the first time that Bashar al-Assad must go, while noting:

“Only a united international community can succeed in compelling both sides to engage a peaceful political transition. But a political process is difficult if not impossible while all sides – within and without Syria – see opportunities to advance their narrow agendas by military means. International division means support for proxy agendas and the fuelling of violent competition on the ground.”

In an op-ed for the Financial Times, Annan added:

“A conflagration threatens an explosion in the region that could affect the rest of the world. But it takes leadership to compromise to overcome the destructive lure of national rivalries. Joint action requires bilateral and collective efforts by all countries with influence over the actors on the ground in Syria, to press upon the parties that a political solution is essential.

“For Russia, China and Iran this means they must take concerted efforts to persuade Syria’s leadership to change course and embrace a political transition, realizing the current government has lost all legitimacy.”

Whatever…though Annan was right in talking of proxy agendas because the U.S. and Britain have now, through their support of the rebels, lined up opposite Russia and China who are against any kind of outside aid.

The facts on the ground are such that at least 200,000 have fled Aleppo, while there is growing evidence Assad’s forces are attempting to carve out an Alawite chunk of territory.

It’s also true that jihadists are flooding in, according to the Times of London, including from North Africa, Britain and the Caucuses, and not necessarily on the rebels side, either. They want Syria to descend further into chaos.

Tragically for Syria’s future, the top business people who would fuel reconstruction at some point are throwing in the towel in droves.

Editorial / Washington Post

“(Annan’s) failed mission offers vital lessons for the future. The first is one that Mr. Annan should know well: He learned it in the 1990s conflict in the former Yugoslavia. Then as now, the leading powers were initially hesitant to use military force. Then as now, U.N. personnel were sent to a battlefield and proved ineffective in the face of evil. After the worst massacre in postwar European history, by Bosnian Serbs at Srebrenica, Mr. Annan wrote a searing retrospective for the United Nations. He declared that ‘when peacekeeping operations are used as a substitute for…political consensus they are likely to fail.’ He added, ‘The job simply cannot be done.’

“These words are just as valid today as when Mr. Annan wrote them in 1999. The U.N. Security Council sent unarmed monitors into an intensifying war zone in Syria without a consensus of the leading powers to back them up. It was wishful thinking to believe that Mr. Assad would be coaxed into retirement by a divided council. For way too long, the Obama administration – eager to avoid more decisive action – clung to unrealistic hopes that Annan’s plan would work….

“Now that diplomacy has utterly failed to stop (Assad), it is time for the Obama administration to consider measures that stand a real chance of accelerating his downfall – beginning with greater material support for the opposition.”

Iran / Israel: Early in the week, Israeli Prime Minister Benjamin Netanyahu gave a rare series of interview to the four major television outlets in Israel, wherein he reminded the people that in democracies the political echelon decides on issues of war and peace and the professional echelon carries out those decisions.

“That is the way it has always been, and will always be,” he said in one interview, pointing to 1981, when former prime minister Menachem Begin chose to attack the nuclear reactor in Iraq despite opposition at the time from Mossad and military intelligence.

While Netanyahu said he had not yet made up his mind on attacking Iran, he sees “the regime of the ayatollahs declaring what it has etched on its banner – to destroy us. It is working to destroy us, and is preparing atom bombs to destroy us. As much as it is dependent on me, I will not let that happen.”

Netanyahu also reiterated that regardless of the public support both President Obama and Mitt Romney have given Israel, he “will not leave in the hands of others, not even our best friends, matters concerning our fate.” [Jerusalem Post]

The next day, with U.S. Defense Secretary Leon Panetta in Israel, Netanyahu said, “Right now the Iranian regime believes that the international community does not have the will to stop its nuclear program.”

Netanyahu told Panetta: “You yourself said a few months ago that when all else fails, America will act. But these declarations have also not yet convinced the Iranians to stop their program. This must change, and it must change quickly because time to resolve this issue peacefully is running out.” [BBC News]

For his part, Panetta, on behalf of the White House, is virtually begging Israel not to act…yet. Like until after November. There are signs, after all, the oil embargo on Iran is working well, like to the tune of $133 million a day in lost revenue, according to Bloomberg News. That’s good. And on Friday, the secretary of Iran’s powerful Guardian Council said the country was in the midst of an “economic crisis.” 

But there is also no evidence this is going to force Iran to back down on the nuke issue. Netanyahu on countless occasions has called the sanctions “useless” in this regard.

Israeli Defense Secretary Ehud Barak, who also met with Panetta, said, “We have clearly something to lose by this stretch of time on which sanctions and diplomacy take place because the Iranians are moving forward.”

Barak also addressed whether clocks on the nuclear standoff were “ticking at different speeds” in Washington and Tel Aviv. Barak said: “That’s correct, this is a well-known fact.”

India: The double power failures here, the first impacting 350 million people, the second a full 670 million (the largest blackout in human history), were catastrophic in terms of India’s financial future. While each one lasted from generally 12 to 24 hours, the impact on foreign business investment, for one, will last at least a decade, I imagine. For a supposed rising economic power, the failures were a huge embarrassment.

As reported by the New York Times’ Jim Yardley and Gardiner Harris:

“(India’s) power generation capacity…has not kept pace with growth. Demand outpaced supply by 10.2 percent in March, government statistics show.

“In recent years, India’s government has set ambitious goals for expanding power generation capacity, and while new plants have come online, many more have faced delays, whether because of bureaucratic entanglements, environmental concerns or other problems. India depends on coal for more than half of its power generation, but production has barely increased, with some power plants idled for lack of coal.

“Many analysts have long predicted that India’s populist politics were creating an untenable situation in the power sector because the government is selling electricity at prices lower than the cost of generating it. India’s public distribution utilities are now in deep debt, which makes it harder to encourage investment in the power sector. Tuesday’s blackout struck some analysts as evidence of a system in distress.”

I’ll say.

From the Washington Post:

“Most Indian consumers receive heavily subsidized electricity, while farmers get free power, supposedly to pump groundwater to irrigate their land. But officials say much of the free power is illegally diverted to factories. That has left the grid overburdened and electricity-distribution companies heavily in debt.”

I spent a month here in 1985, working for the Bombay Oil Co., which had nothing to do with oil but was about spices. I don’t include this one on the list for the site because that only pertains to where I’ve been since I started StocksandNews.  But I’m guessing where I spent much of my time, Cochin, the infrastructure is just as bad as it was 27 years ago. And it was horrid. [Great local food and beer, however…it’s when I switched to an American dish, my last week, that I thought I was going to die of food poisoning.]

Egypt: The country’s new prime minister and his Cabinet were sworn in on Thursday. The Cabinet includes several members of the outgoing military government and mainly technocrats, though the Muslim Brotherhood has four ministries, including the key “information minister” post. Field Marshall Hussein Tantawi retains the defense minister position he held under Hosni Mubarak.

Egypt hasn’t been in the news much the past two weeks or so, but in reading the Daily Star I saw this:

“In a sign of chaos, one person was shot to death by police Thursday when a crowd of hundreds went on a rampage against a luxury hotel on the Nile River in central Cairo. The crowd threw firebombs at the hotel, smashed its lobby and set fire to 10 cars….

“The incident was sparked when residents of the slum who had been hired by the hotel for protection tried to get into the hotel to collect payments owed to them.”

So, if you were thinking, ‘Hey, haven’t heard much from Egypt recently. Must mean good news. Honey, let’s book that trip there we’ve been meaning to take.” Think again. 

Russia: British Prime Minister David Cameron weighed in on Russia’s Pussy Riot punk band trial in discussions with President Vladimir Putin in London. Cameron told Putin the world was watching in urging Putin to address human rights concerns. Pussy Riot faces seven years in jail on blasphemy charges for performing in Moscow’s Christ the Savior Cathedral. I’ve been there a few times, a gorgeous place, and it was blasphemous! But I’d charge them a fine…not lock them up.

I agree with an op-ed in the Moscow Times by Georgy Bovt that one party that is hurt in all this is the Russian Orthodox Church, which looks very small in the eyes of the educated class. Nationalists, on the other hand, back the hardline stance.

But Mr. Bovt notes “(Pussy Riot) is being de facto tried for violating ‘religious statutes’ that do not even exist in the Criminal Code and have no place in a country that is defined as secular in the Constitution.”

At last word, Putin was strongly hinting the punishment would be light.

But the penalty for popular blogger Alexey Navalny may not be so light. Navalny has spent five years exposing systemic corruption and was at the forefront of protests following the rigged parliamentary election.

This week, however, he was accused of embezzlement, a crime carrying a sentence of up to ten years. It’s a totally trumped up charge (an allegation he organized the theft of extensive timber holdings…like an entire forest), which he was cleared of three years ago. This is the case to follow, more so than Pussy Riot….though I don’t deny the latter is important too.

Meanwhile, commenting on Afghanistan, President Putin said:

“It is regrettable that many participants in this operation are thinking about how to pull out of there. They took up this burden and should carry it to the end. If there is no order in Afghanistan, it will not be calm on our southern borders. The current [Afghan] leadership will have difficulties keeping the situation under control. NATO member states are present there, and are performing this function. We need to help them [NATO]. We should not be fighting there again. Let them sit there and fight.” [Moscow Times]

Moscow has helped by allowing transit across its territory.

Afghanistan: Speaking of this hellhole, the Wall Street Journal’s Nathan Hodge reported:

“Inspectors from a U.S. government watchdog agency discovered that several American-funded border police bases in Afghanistan have been largely abandoned or left unoccupied, raising questions about the coming hand-over of security duties to local forces.”

It’s so pathetic that three of four bases looked at, each built to house 93 border police personnel, “were either unoccupied or weren’t used for the intended purposes.”

The bases in question are on the border with Pakistan. Very reassuring. The construction contract for the four was also $19 million.

North Korea: Pyongyang once again announced on Tuesday it would expand its nuclear weapons resources “to counter U.S. hostility with stronger nuclear deterrence.” The government also said new leader Kim Jong Un would not change the North’s stance toward South Korea.

But in an official statement published by the government on Friday, as well as in an earlier meeting with a Chinese official, Kim said, “Developing the economy and improving livelihoods, so that the Korean people lead happy and civilized lives, is the goal the Workers’ Party is struggling toward.”

Interesting. His father hardly ever championed the economy.

Romania: President Traian Basescu escaped impeachment Monday when a referendum on his removal fell short of the 50% voter turnout threshold needed to oust him, despite 87% of those who did make it to the polls voting in favor of impeachment.

But, only 46% of the people overall voted as in the end Basescu urged his supporters not to go to the polls, seeing this as the easier way to avoid ouster.

His rival, Prime Minister Victor Ponta, who called for the referendum, hinted he wouldn’t give up the fight; this as Ponta has an ongoing plagiarism scandal to deal with.

France: President Francois Hollande made good on a campaign pledge to make the nation’s wealthiest pay up to 75% income tax; 75% on earnings over $1.24 million a year (one million euro), up from a previous marginal rate of 48%.

Random Musings

--If you are a supporter of Mitt Romney, you aren’t going to the like the latest polling data of three key battleground states from a Quinnipiac/CBS/New York Times survey.

President Obama has a 6-piont lead over Romney in both Ohio and Florida, and an 11-point (!) lead in Pennsylvania. 

No candidate since John F. Kennedy in 1960 has won the White House without taking at least two of these three.

This has been a pretty consistent pattern. The president and Romney are neck-and-neck in virtually every national poll, but Obama is taking the vast majority of the 8 to 12 states that really matter.

The above poll also showed that by margins of 58%-37% in Florida, 60%-37% in Ohio and 62%-34% in Pennsylvania, likely voters said they favored Obama’s plan to raise taxes on earnings above $250,000 a year.

--At least there is further evidence Romney is doing well among troops and veterans. In a Rasmussen survey, 59% of them favor Romney vs. just 35% for Obama. However, when polling civilians with family members in uniform, it’s 46-44 Romney.

--From Jesse Washington / AP…on race relations under President Obama.

“Shortly before the 2008 election, 56 percent of Americans surveyed by the Gallup organization said that race relations would improve if Obama were elected.   One day after his victory, 70 percent said race relations would improve and only 10 percent predicted they would get worse.”

The good feeling didn’t last long.

“By July 2009, the black Harvard professor Henry Louis Gates was arrested for yelling at a white police officer who questioned whether Gates had broken into his own home. Asked to comment, Obama said he didn’t know all the facts, but Gates was a personal friend and the officer had acted ‘stupidly.’

“The uproar was immediate. Obama acknowledged afterward, ‘I could’ve calibrated those words differently.’…

“An October 2009 Gallup poll showed a large drop in racial optimism since the election, with 41 percent of respondents saying that race relations had improved under Obama. Thirty-five percent said there was no change and 22 percent said race relations were worse….

“By the fall of 2010, Republicans had triumphed in the midterm elections and made history by electing Hispanic and Indian-American governors in New Mexico, South Carolina, and Nevada. Two black Republicans also went to Congress, from South Carolina and Florida.

“Less than a year later, an August 2011 Gallup poll showed a further decline in racial optimism: 35 percent said race relations had improved due to Obama’s election, 41 percent said no change, and 23 percent said things were worse….

“This April, in a poll by the National Journal and the University of Phoenix, 33 percent felt race relations were getting better, 23 percent said they were getting worse, and 42 percent said they were staying about the same.

“So where are we now?

“Four years after Obama smashed the nation’s highest racial barrier…the nation is uncertain about the meaning of a black president.”

--Let me say up front that I do not feel Mitt Romney’s trip to Britain, Israel and Poland will mean a thing come November, despite the numerous gaffes.

But it was “news,” and received much criticism so I’ve put together some of it, including foreign press reaction. Just understand I have never been a Romney fan and am even less so these days. He also has a pathetic staff…a bunch of clowns. That said, you know who I’m voting for, but that’s more because there isn’t a viable third party candidate.

I also have to note the comment of Leslie Gelb, a senior fellow at the Council on Foreign Relations, to the Wall Street Journal: “I’ve never seen an election where less attention was paid to foreign affairs.”

It’s driven me up the wall.

Some of the following is a little brutal…but then it’s only fair play after what I’ve relayed or written about President Obama.

Rod Liddle / Sunday Times (of London)

“Laugh now – pay later. Incredible as it may seem, there is still a perfectly good chance of Mitt Romney becoming the next president of the United States, leader of the free world, finger on the button, etc. And then where will we all be?

“You were probably still thanking the Lord Jesus Christ that Sarah Palin was out of the running, not to mention that gay-strangling orange-faced loon Michele Bachmann. And then suddenly onto the stage stamps Mormon Mitt, in his size 12 boots: you took your eye off the ball and he snuck through.

“Have you ever seen the film Being There, in which Peter Sellers plays a vacuous imbecile who through a series of misunderstandings ends up poised to become president? Don’t watch it now, it will chill you to the marrow: it could happen. Don’t forget that half the people who are allowed to vote over there think Forrest Gump was a documentary.

“Romney’s hilarious ‘charm offensive’ to these islands began with an interview in which he offered the opinion that the special relationship between America and Britain was predicated upon a ‘shared Anglo-Saxon heritage – the White House does not appreciate that shared heritage.’ Now stop me if I’m wrong, but I think the subtext of that was Mitt telling us: ‘Look, I may be a halfwit, but at least I’m not black.’ Certainly that’s how a good many Americans took it.

“From there, things got worse for Mitt and his mouth. In an interview with an American news program he cast doubt upon our ability to hold a successful Olympics.

“Now, okay, fair enough – you and I can do that, because we’re not on a charm offensive to anyone except perhaps our mother-in-law. But you don’t do it just before you’re about to curry favor with the man who, effectively, is the steward of those Games – our prime minister.

“ ‘I just don’t know how well it’s going to turn out,’ Mitt said, shaking his head gravely – and immediately estranged virtually the whole of Britain, not least David Cameron. There was a certain acidity evident in Cameron’s response to this gaffe. He said it was quite complicated organizing the Olympics in an enormous city such as London, rather than on a vast saltpan devoid of sentient life and where everyone was called Bubba and had 12 wives, or something….

“Mitt must have had a quick crisis meeting with his advisers because he began to row back on the stuff about how useless Britain was. But he didn’t row in a manner that would bring him much glory if he were participating in, say, the coxless fours. Of course Britain was ready for the Olympic Games, he opined.

“And then to crawl his way back up the national sphincter still further, he announced, to some surprise, that he was himself a ‘guy from Great Britain.’ Perhaps as a consequence of some arcane mix-up after the war of independence, Detroit remains to this day part of our country.   That must be it, because that’s where Mitt was born. And his dad was born in Mexico – a place that has never, to my knowledge, been a part of Great Britain. Nor is Utah, which is where his good ol’ granddaddy was born.

“He also told us all that he had ‘married a Welsh girl,’ a reference to his wife Ann who comes from that famous settlement in the Rhondda valley called Bloomfield Hills, Michigan.

“Magnificent, all of it. Having then breached protocol by revealing he had been briefed by our security services (please God don’t let them have told him anything important, or it’ll be blurted out on his ‘charm offensive’ to Iran), he forgot the name of Ed Miliband and referred to him instead by the slightly awkward title of ‘Mr. Leader.’

“I suppose we should enjoy him while we can before the fear takes over.”

Alexandra Frean / The Times (of London)

“Mitt Romney’s attempts to transform a gaffe-prone international tour with a solemn tribute to Poland’s economic revival were overshadowed yesterday after one of his aides told reporters to ‘kiss my ass.’

“The outburst came on the final day of a week-long trip during which the presumptive Republican presidential candidate has managed to insult the entire British nation with tactless remarks about London’s lack of preparedness for the Olympics, and outraged Palestinians by appearing to criticize their culture.

“The latest embarrassment took the form of an outburst by Mr. Romney’s traveling press secretary, Rick Gorka, to reporters who tried to ask Mr. Romney questions as he left the Tomb of the Unknown Soldier in Warsaw after paying his respects to Poland’s war dead.

“Infuriated at journalists for shouting out questions at what he described as ‘a holy site for the Polish people,’ Mr. Gorka resorted to some pretty unholy language to try to get them to stop, saying: ‘Kiss my ass…Show some respect.’ He then told one reporter to ‘Shove it.’

“Mr. Romney, who has answered only three questions from the traveling press corps during his week-long overseas trip, ignored the incident. But the damage was done. Coverage of a speech in which he criticized President Putin of Russia for curtailing freedoms, extolled Poland’s free market approach to the economy and thanked the Poles for standing shoulder to shoulder with America in Iraq and Afghanistan was drowned out by media commentary on Mr. Gorka’s remarks, even though he later apologized to reporters.

“Mr. Romney’s foreign trip was intended to demonstrate his ability to handle foreign affairs and to provide leadership on the international stage. Instead his seeming lack of sensitivity about the importance of context and setting has created opportunity after opportunity for his Democratic opponents to question his preparedness to become leader of the free world.”

But wait…there’s more!

Maureen Dowd / New York Times

“The true measure of how inglorious the trip was? Senior Romney strategist Stuart Stevens assured the press how glorious the trip was.

“He took the cascade of chuckleheaded moments and tried to plant the crazy idea in our brains that they were a mark of Romney’s steadfast character.

“ ‘He has a tendency to speak his mind and to say what he believes,’ Stevens said, ‘and whenever you do that, there will be those that disagree with you, and there will be those that agree with you.’”

Oh brother. What a jerk.

“Romney himself tried the same silly spin with ABC News, telling David Muir when asked about the damaging headlines: ‘You know, I tend to tell people what I actually believe, and referring to the comments that were made in the media is something which I felt was an honest reflection of what was being concerned, or what was concerning folks.’

“That quote is alarming on two levels: First, Romney never seems to say what he actually believes, and, second, he doesn’t seem to actually speak English.

“Mitt’s foray showed some new colors, as he intended, but they were not flattering ones. We now know how little he knows about the world, how really slow on his feet he is, what meager social and political agility he has.

“Wherever he went, whatever situation he was in, he remained frozen in himself. It was reminiscent of the stinging review of an Oscar Wilde lecture by Ambrose Bierce, who wrote that Wilde was a ‘gawky gowk’ who ‘wanders about posing as a statue of himself.’….

“Barack Obama created a character called Barack Obama, a remote, superior sort who comes down from the mountaintop during campaigns to assure us that he’s just like us.

“Romney is not on the mountaintop. He’s here, mingling among us, present but absent. A fence wrapped around a wall.

“Stuart Stevens is right when he says it’s easy to imagine Romney in the White House. I can visualize him right now, lapidary and frozen, in the Rose Garden. A statue of himself.”

Look, I was going to give the other side, such as a Wall Street Journal editorial that defended Romney in his calling Jerusalem the capital of Israel, because it is, but for decades this issue, from the U.S. standpoint, is to be part of any final negotiations with the Palestinians.

The bottom line is this. Mitt Romney made a total ass of himself on the trip. His campaign has been awful.

--Former Vice President Dick Cheney told ABC News that John McCain made a “mistake” when he picked Sarah Palin to be his No. 2 in 2008. “That one,” Cheney said, “I don’t think was well handled.”

Yup, sure wasn’t, Dick.

“I like Governor Palin. I’ve met her. I know her…Attractive candidate. But based on her background – she’d only been governor for, what, two years – I don’t think she passed that test…of being ready to take over,” said Cheney. “And I think that was a mistake.”

--Ted Cruz, a Tea Partier, defeated Lt. Gov. and Republican establishment candidate David Dewhurst in the Texas Republican Senate primary on Tuesday by a whopping 14 points. Dewhurst had the backing of Gov. Rick Perry among others. Cruz has a helluva background; Princeton-Harvard Law, clerked for Chief Justice William Rehnquist, Texas Solicitor General…and now he’ll likely join reformers in the U.S. Senate such as Utah’s Mike Lee, Kentucky’s Rand Paul, South Carolina’s Jim DeMint, Pennsylvania’s Pat Toomey and Florida’s Marco Rubio.

--I wrote up the following before I caught NBC Nightly News on Thursday, which led with this story (save for Olympic news items). 

A catastrophic disaster was avoided on Tuesday in the skies over Reagan National Airport as three US Airways commuter jets carrying a combined 192 passengers and crew came within seconds of colliding “after confused air traffic controllers launched two outbound flights directly at another plane coming in to land,” according to the FAA, as reported by Ashley Halsey III of the Washington Post.

The issue was a rapid change in the weather Tuesday afternoon which had flights flying north to land on National’s main runway, suddenly redirected to rout them to a southerly approach due to an approaching storm.

Controllers at the center in Warrenton who reversed the flow communicated the plan to the control tower at National. But then the National tower didn’t pass the new instructions on to everyone they needed to.

As Ms. Halsey writes:

“As a result, an incoming flight that had been cleared to land was flying head-on at two planes that had just taken off. The inbound plane and the first of the outbound planes were closing the 1.4 miles between them at a combined speed of 436 mph, a rate that meant they were about 1.2 seconds from impact when the tower controller recognized her mistake….

“ ‘Are you with me?’ the tower controller asked the inbound pilot, checking to see whether he was turned to her radio frequency. When the pilot acknowledged her, she ordered him to make an abrupt turn to the south to avoid the other two planes.

“ ‘We were cleared [for landing] at the river there,’ the pilot said after breaking off the approach northwest of the airport. ‘What happened?’

“After a pause, the controller said, ‘Stand by, we’re trying to figure this out.’

“As she directed him to make a loop around the airport for a second landing attempt the pilot cautioned: ‘We really don’t have enough fuel here for this. We have to get on the ground pretty quick.’”

The FAA and NTSB denied on Thursday any passengers were actually in danger. Of course they’d say that. 

Reagan National has had quite a few controller mistakes over the years. Someday we won’t be so lucky.

--The Ebola outbreak in Uganda that has killed at least 16 is troubling, to say the least, while scientists in the U.S. have identified a new strain of virus in harbor seals that could impact human health down the road.

The H3N8 flu has been associated with the deaths of 162 harbor seals in New England last year and researchers say it could have evolved from bird flu, which has been the exact concern for years…that bird flu would evolve in unexpected ways.

--Niall Ferguson / Newsweek:

“Last Saturday I listened with fascination as a panel of tech titans debated the question: ‘Will science and technology produce more dramatic changes in solving the world’s major problems over the next 25 years than have been produced over the last 25 years?’

“They all thought so…We heard that within the next 25 years, it will be possible to take 1,000-mile journeys by being fired through tubes. We also heard that biotechnology will deliver genetic ‘photocopies’ of human organs that need replacing. And we were promised genetically engineered bugs, capable of excreting clean fuel. The only note of pessimism came from an eminent neuroscientist, who conceded that a major breakthrough in the prevention of brain degeneration was unlikely in the next quarter century.

“For a historian, all this techno-optimism is hard to swallow. The harsh reality, as far as I can see, is that the next 25 years (2013-2038) are highly unlikely to see more dramatic changes than science and technology produced in the last 25 (1987-2012)….

“The breakthroughs in medical science we can expect as a result of the successful aping of the human genome probably will result in further extensions of the average lifespan. But if we make no commensurate advances in neuroscience – if we succeed only in protracting the life of the body, but not the mind – we will simply increase the number of dependent elderly….

“More and faster information is not good in itself. Knowledge is not always the cure. And network effects are not always positive.”

--We note the passing of the great military historian, John Keegan, 78. Among his classic works is 1993’s “A History of Warfare,” and the Brit wrote extensively of the American Civil War, concluding in part that the seminal battles were not necessarily Gettysburg or Vicksburg, but rather less heralded places such as Wilson’s Creek, Mo., and Perryville, Ky.

--Crime expert James Alan Fox of Northeastern University said on PBS’ “Newshour” that there are two dozen mass murders a year in America (4 or more deaths) and this hasn’t changed in the last 35 years.

--Britain still has the best national anthem. And they are playing a really crappy version of the U.S. one in London. It’s like two keys too high! C’mon. Who picked this? Mitt?

--Here’s hoping Olympian Gabby Douglas can somehow have an impact on our nation’s youth…think urban variety. At least get them exercising, and out of the clutches of the gangs.

--What a job by USA Swimming!

--Back when I was growing up during the Cold War, we all loved beating the Soviet Union in Olympic competition.

But now we have a new reason to want to beat the crap out of Russia and China…they’re stealing our business secrets through all their cyberattacks. Let alone the number they have done, and can do in the future, on both the Pentagon and our infrastructure.

And here comes the denial of service assault on moi!!!

--After watching the NBC commercials for their fall lineup, I have one guarantee. “Animal Practice” will be pulled after four shows. Anyone watching even a minute of this is hereby fined $20.

--Finally, cross your fingers for good news Sunday evening as the Mars vehicle Curiosity is slated for landing on the Red Planet, with the latest from NASA being it will be close to a bulls-eye for hitting its target. As Doug McCuistion, head of the Mars project put it, “We are about to land a small compact car on the surface with a trunk-load of instruments. This is a pretty amazing feat getting ready to happen. It’s exciting, it’s daring – but it’s fantastic.”

By the way, there is a 13-minute lag in communications between Mars and Earth so real-time intervention is impossible, like when we see an army of Martians streaming down the hill, it will be too late to save Curiosity.

---

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

God bless America.
---

Gold closed at $1606
Oil, $91.33…had been down but rallied on Friday’s better economic outlook. Still say in the end, the next few months, it’s about Iran. Hey, I’m up on my bet ($84), anyway.

Returns for the week 7/30-8/3

Dow Jones +0.2% [13096]
S&P 500   +0.4% [1390]
S&P MidCap -0.5%
Russell 2000 -0.9%
Nasdaq +0.3% [2967]

Returns for the period 1/1/12-8/3/12

Dow Jones +7.2%
S&P 500 +10.6%
S&P MidCap +7.5%
Russell 2000 +6.4%
Nasdaq +13.9%

Bulls  39.4
Bears 27.7 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Dr. Bortrum has posted a new column…talkin’ Big Bang.

Brian Trumbore



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-08/04/2012-      
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Week in Review

08/04/2012

For the week 7/28-8/3

[Posted 6:00 AM ET]

The Eurozone Debt Crisis, Wall Street and the U.S. Economy

Thursday, July 26, European Central Bank President Mario Draghi said: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” Markets staged a spectacular two-day rally in response as they awaited Draghi’s more formal announcement on Thursday, Aug. 2.

On Aug. 2, with high expectations for action, Draghi said the crisis was worsening and the ECB was ready to help countries facing high borrowing costs (i.e., Spain and Italy) by buying their debt at lower rates than on the open markets.

“What we have expressed is guidance, and strong guidance, about strong measures which will be completed in the coming weeks.”

‘Coming weeks?! We can’t wait weeks! And where are the details?!’   So on Thursday, the markets sold off, with Spain’s stock market down 4.9% and Italy’s 4.2% (as well as 2%+ declines in Paris and Frankfurt), while the yield on the Spanish 10-year soared back to 7.15%.

But in a classic case of my dictum ‘wait 24 hours,’ upon further reflection traders, both in Europe and the U.S. (I’ll explain the latter in a moment) decided that finally…finally…there was a real bailout plan in the works and so on Friday, Euro stocks reversed their previous day’s losses, and then some, with Spain and Italy rallying 6% apiece and the Spanish and Italian debt markets rallying as well. [Frankfurt and Paris saw stock market gains of 3.9% and 4.4%, respectively.]

Currently, the European bailout fund – the EFSF (European Financial Stability Facility) – and the coming sister fund – the ESM (European Stability Mechanism) – require any country seeking help to submit to monitoring and a promise to carry out certain measures such as raising taxes and cutting spending in order to qualify. It’s the giving up of sovereignty (monitoring) that has been the no-go for Spain, even after they asked for 100 billion euro to bailout their banks. On Friday, Spanish Prime Minister Mariano Rajoy said he would do what was right for his country as he contemplated whether to ask for a full bailout, and thus accept the loss of sovereignty.

Mario Draghi said, “First of all governments need to go to the EFSF; the ECB cannot replace governments.” Draghi also offered his plan would target short-term rates.

As a result, the yield on Spain’s two-year note, which is more important than my constant focus on the 10-year in terms of immediate funding needs, plunged below 4% on Friday, and near 3% for Italy. This is good.

The euro, which had traded down to $1.21 right after Draghi’s press conference, finished the week at nearly $1.24, a sign of easing tensions and the fall in short-term rates in Spain and Italy (and not any news out of the U.S., as I saw more than one report incorrectly put it).

But while Draghi said the ECB and other parties were working on a plan to enact over the coming weeks, in his press conference on Thursday, the central bank president singled out Bundesbank President Jens Weidmann for being the only policy maker (of 23 on the ECB’s council) to object to the ECB’s proposal to re-enter bond markets. The ECB can’t act without the Bundesbank’s support so part of the rally on Friday was the feeling that a compromise was in the works.

Heretofore, German ECB officials have been adamantly against bond buying because it blurred the line between monetary and fiscal policy and allowed governments to relax on the fiscal discipline front.

So we now wait a few weeks, with potentially little news, until September, which is a highly critical month because on Sept. 12, Germany’s supreme court will rule on the constitutionality of the ESM, which is to be the permanent euro rescue fund. Until then, the EFSF is the only rescue vehicle and after taking into consideration Spain’s 100 billion request for its banks, there is only about 150 billion euro left.

Ah, but there is another little issue left for August and that is Greece and a 3.2 billion euro payment due the ECB on Aug. 20.   “Cash reserves are almost zero,” a Greek finance official announced this week. “It is risky to say until when [they will last] but we are certainly on the brink." Greece’s next bailout installment of 31.5 billion euro is slated for September, assuming their current audit by the troika (IMF, ECB and EC) receives a passing grade. 

German finance minister Wolfgang Schauble has dismissed talk of further aid for Greece, blasting Athens for not implementing its austerity program, while a new poll in Germany has 51% of the people believing that their country would be better off leaving the euro, so you can see the still mounting political pressure on Chancellor Angela Merkel and her fragile coalition.

So, no, European leaders really shouldn’t take August off and rest up for September because there is still much work to be done today. Greece’s future in the eurozone remains on a knife’s edge. Its survival is basically dependent on some kind of debt forgiveness program from eurozone governments and imagine how that would go down politically, especially in the northern tier.

Lastly, you have the issue of the current state of the eurozone economy, which is kind of important, don’t you think?

The latest eurozone unemployment rate is 11.2% for the month of June (Spain is at 24.8%), which is the same as May’s rate, while the PMI data on manufacturing for the region came in at 44 for July, down from 45.1 in June, and obviously still in major contraction zone. The PMI in Germany was just 43, while some are actually saying there is good news from Spain (42.3 vs. 41.1 in June) and Greece (41.9 vs. 40.1 in June). [Ireland’s rose from 53.1 to 53.9…I’ll be drinking a pint to this in about three weeks when I head back over there.]

Non-euro Britain’s July PMI was down to 45.4 as, post-Olympics, there is fear of a triple-dip recession down the road.

Some opinion…

Otmar Issing (former executive board member of the ECB) / Financial Times

“ ‘Recent history, and not just that of Germany, teaches us that the idea of sustaining an economic and monetary union over time without political union is a fallacy.’ Has former German chancellor Helmut Kohl, who gave this warning in 1991, been proven right by the eurozone crisis? Should Europe now seek political union?

“Forming such a union implies nothing less than the end of the nation state. A European government would have to be created with powers of taxation and public spending, a corresponding European parliament and so on. There are powerful arguments why ‘Europe’ – whatever this means and how many countries might be included – should have this ambition. However, to base the argument for integration primarily on saving monetary union is anything but convincing.  And it is more than strange when foreign politicians and experts are pressing eurozone states to give up national sovereignty, out of fear that a collapse of monetary union might have severe consequences for their economies….

“But, independent of any answer to these questions, political union is impossible to achieve within a few years. It cannot be a means of crisis management. And here comes the dangerous part: any proposals, for example, to extend the amount and scope of financial support mechanisms premised on further integration in the future. Promising later action against requests for more money now does not look like a credible strategy – quite the opposite. This approach would severely undermine the idea of establishing political union.

“Take eurozone bonds, which would lead to higher interest rates for government bonds in countries of (so far) good reputation in financial markets. The implicit transfer of taxpayers’ money would be a violation of the fundamental democratic principle of no taxation without representation. This is true for all forms of debt mutualization. This is hardly the proper way to create a democratic European Union…..

“Political union is not the solution….

“Is the collapse of the eurozone therefore unavoidable? This is a risk that can no longer be denied but there is a viable alternative. The eurozone is based on treaties and commitments that were unfortunately broken time and again with the consequence of a deep loss of credibility. Can confidence be restored? A monetary union of sovereign states cannot function without the principle of no bailout, which means that every country is responsible for its policies. Financial assistance must be based on strict conditionality and be given at interest rates that do not undermine the will to reform. As such, monetary union could survive without political union.”

Mohamed El-Erian / Bloomberg News

“The three central bank meetings this week – the Bank of England, the European Central Bank and the Federal Reserve – made very good cases for additional stimulus measures, though they failed to specify what these would be.

“Equities and certain bonds that had surged on the basis of last week’s verbal assurances by central bankers and political leaders sold off. There was no panic given central bankers’ promises to do more in the future should additional action be needed. This is what the standard narrative has been.

“But it misses important context, and there is more at play here. The unfortunate reality is that, unlike during the financial crisis of 2008 and 2009, central banks can’t be the saviors this time around for a struggling global economy. Other government entities, with better-suited policy tools, need to step up to the plate….

“Yes, central banks may be part of the solution, but increasingly they will play a smaller and smaller role. The tools they have available are losing their firepower. The burden is now on other policy makers and the political leadership. Only they have the tools that can address the fundamental problems of too little growth, too much debt in the wrong places, and too little private capital being channeled to investment and other productive activities.

“To solve Europe’s crisis and the world’s intensifying economic malaise – just witness the downturn in manufacturing – policy makers and their political bosses need to address issues of competitiveness, fiscal reform, and the retooling and retraining of the labor force….

“Of course, none of this will happen until political leaders abandon their tactical, incremental and partial approaches for issues that require strategic, coordinated and comprehensive responses. Unfortunately, in today’s polarized world, the prospects of this are far from reassuring.”

Stephen King / Financial Times

“The eurozone crisis may have started out as a fiscal crisis but it is now most definitely also a monetary crisis. The eurozone’s monetary system has begun to fragment. No longer is the European Central Bank able to set interest rates for the eurozone as a whole. Paranoia about an eventual eurozone break-up has persuaded financial institutions – with some encouragement from national regulators – to keep their money at home. So, the cross-border interbank market is more or less shut and peripheral nations are suffering….

“All this begs the obvious question: if the ECB is doing the right thing – or at least planning to – why did investors take fright as its press conference drew to a close?

“Five explanations stand out. First, the ECB’s proposals are very much a work in progress: the instant gratification investors hoped for – and which they thought Mr. Draghi had promised last week – didn’t materialize. Second, ECB help appears contingent on actions from others: in Mr. Draghi’s words ‘the adherence of governments to their commitments and the fulfillment by the EFSF/ESM of their role are necessary conditions.’ Third, even with a bond-buying program, there is no guarantee of economic success. The U.S. and U.K. experience in recent years, after all, has hardly been encouraging; both are one again hitting economic brick walls. Fourth, it is blindingly obvious that the Bundesbank is not on board.

“Lastly, even if Mr. Draghi has correctly identified the nature of his monetary problem, that won’t be enough to solve the eurozone’s difficulties. The transmission mechanism is certainly worth fixing. But anyone who’s owned an unreliable car will surely agree that fixing the transmission mechanism alone provides no guarantee that the journey can be completed.”

The U.S. Outlook

Earlier in the week, prior to the ECB’s statements, the Federal Reserve Bank wrapped up a two-day meeting and Ben Bernanke’s Open Market Committee failed to take any further steps a la more quantitative easing, opting to wait for a little more data, such as Friday’s employment report for the month of July.

The Fed was no doubt also waiting to see what Mario Draghi would do. The Open Market Committee’s statement read in part:

“The committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

The Fed also noted that “economic activity decelerated somewhat over the first half of this year,” and that “growth in employment has been slow in recent months.”

Bernanke and Co. next meet on Sept. 12-13, which is far too close to the election for some of us if they plan on doing something, though on the other hand, a lot of us would just like the Fed to go away, seeing as how they have totally screwed savers and the end result has been a rally in stocks but a putrid economy. I’ve long argued the short-term funds rate should be 2%...more than low enough to spur economic activity but a rate by which the elderly could receive $2,000 on a $100,000 in savings, which buys a lot of food, movie tickets, or a little trip somewhere.

Back to employment, the non-farm payroll data for July showed the U.S. economy added 163,000 jobs, far better than expected (closer to 100,000 being the projection), but the unemployment rate ticked up to 8.3% from 8.2% on a declining labor force. Despite July’s gains, the last three months the average is just 105,000.

So Republicans can talk about 41 consecutive months with an unemployment rate above 8%, while Democrats will try to hang their hat on the fact the economy is at least adding, not losing jobs, and the private sector added 172,000 last month.

But let’s be serious. The only number that the average American cares about is the rate of 8.3%, plus we all know the real one, including those underemployed, is far higher.

Couple the labor data with last week’s 1.5% figure on GDP for the second quarter and it remains a bleak picture, even if stocks continue to rally.

In other news on the data front, the manufacturing PMI for the month of July came in at 49.8, another month of contraction, while June construction spending was up 0.4% and June factory orders were down 0.5%. [The Chicago PMI, however, was solid, 53.7.] The PMI on the service sector was an OK 52.6.   Personal consumption for June was once again unchanged, not good.

As for the second quarter earnings season, we are witnessing the third straight quarter of decelerating profit growth while the outlook for the third and fourth quarters continues to worsen, with the latest forecast for the third for the companies in the S&P 500 being a decline of about 0.4% from the year-earlier quarter, according to Thomson Reuters.

Economist Robert Samuelson had the following take on the current environment from his perch at the Washington Post.

“Just as ‘irrational exuberance’ drove the economic boom, so the bust is sustained by an almost-pathological and self-fulfilling pessimism. The unspoken faith in economics – that governments could prevent another Great Depression and ensure that recessions, though unavoidable, are limited – has given way to profound skepticism.”

Such as…

“What good are lower interest rates if lenders impose such tight conditions that credit doesn’t flow or potential borrowers won’t assume added debt? Rates on 30-year mortgages are already 3.5 percent.

“The real obstacles to a vigorous recovery are compounded by this shrunken confidence in the power of economics. The dangers – resumed recession or deflation – arise from their interaction. Low confidence will subvert recovery; an aborted recovery will subvert confidence. Whoever wins in November will face this cycle. His challenge will be to break it.”

Regarding the issue of the “fiscal cliff,” the combination of tax hikes and deep spending cuts that is to hit at the start of next year without congressional action, interesting piece in the Washington Post by Zachary A. Goldfarb concerning the fact that, “By law, all but the smallest companies must notify their workforce at least 60 days in advance when they know of specific job cuts that are likely to happen.”

Needless to say, this could be bad news for the White House; big layoff announcements just prior to the election. But the Labor Department said Monday it would be “inappropriate” for contractors to send out such large-scale dismissal notices in light of the uncertainty on whether or not the cuts will actually occur.

Republicans countered the White House is playing politics. Virginia is a key battleground state after all, and Lockheed Martin, with more than 20,000 workers in the Washington area, “has said it may notify more than 100,000 employees of potential layoffs ahead of the election. Lockheed said Monday that it is reviewing the new guidance.” [Goldfarb] Other large defense contractors haven’t decided how they’ll proceed come end of September.

Finally, on Wednesday I was watching the market open at 9:30 a.m. as I do every morning (before doing errands and taking a jog…in case you were curious what I do with my day after waking up at 4:30) and one of the stocks on my screen is a rare earths minerals play, Molycorp, MCP. I’ve never owned this one but it’s normally a good bellwether for a number of sectors and it’s also incredibly volatile but by 9:32 Wednesday something was very wrong, especially given no news for the company. The stock was plunging on mammoth volume. Sure enough, around 10:00 a.m. we learned that MCP wasn’t the only issue suffering a similar fate, both on the upside and downside. Huge volatility and volume with no explanation.

Then we found out that computers at market maker Knight Capital Group Inc. (KCG) went haywire and flooded the market with tons of unintended trades on up to 150 different issues. Knight had been rushing to develop a computer program so it could take advantage of a new venue at the New York Stock Exchange but didn’t test it out properly. The result was a $440 million loss to Knight, swamping its cash reserves, and by week’s end it was struggling to survive.   The shares of KCG went from $10.38 Wednesday morning to nearly $2.25 on Thursday before finishing the week at $4.00 on word it had received a credit line and was negotiating a full if not partial sale of its operations. [At least that’s the latest as I go to post.]

More importantly, it was yet another black eye for America’s markets, the third such high-profile debacle in about five months, including the BATS Global Markets (an electronic trading platform) pulled offering in March and Facebook in May; all three caused by computer programs that had not been tested out properly prior to launch.  

In some respects, while the overall market averages weren’t impacted, Wednesday’s s---storm reminded many of the May 2010 flash crash; an event for which we still haven’t been given a definitive explanation.

But by week’s end, many market participants were saying Knight’s problems weren’t enough to sap investor confidence any further, though of course it does. Sure, I understand the Average Joe has no clue, nor cares, about what happened, but a lot of Above Average Joes will…and do understand that it is yet another example of how the market processes are getting increasingly out of control, especially when you weigh the impact of “dark pools” and high-frequency trading; neither of which is even remotely beneficial when it comes to the greater good…and it’s about time Wall Street started thinking about that.

Of course Wall Street is a casino…I’ve said that for over a decade. As a good friend of mine who plays the market fairly extensively commented the other day, he’s going to play more blackjack, where he feels he has better odds. Whether it’s computer errors, high-frequency traders, or corporate managements riddled with corruption and false information, the deck is truly stacked against the little guy.

Oh there are still lots of opportunities out there. But you’ve got to do your homework and/or employ a good financial advisor and yet often that is not even enough. [I’m involved in a personal issue concerning this last point myself.]

It was kind of ironic that the Knight trading debacle hit a day or two after PIMCO’s Bill Gross came out with his August investment outlook (pimco.com) and while it’s not exactly apples to apples, Gross trumpeted:

“The cult of equity is dying. Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors’ impressions of ‘stocks for the long run’ or any run have mellowed as well.”

You all know the story on returns since the late 1990s, after all, and if you believe the U.S. economy is basically going to be stuck in neutral for a long time to come, as PIMCO believes, then you’re looking at returns on both stocks and bonds of about 1-2%, which is a rather depressing thought.

Gross says: “The commonsensical conclusion is clear: If financial assets no longer work for you at a rate far and above the rate of true wealth creation, then you must work longer for your money, suffer a haircut on your existing holdings and entitlements, or both.”

I would just add forget investment returns. There’s little reason to be optimistic about anything in the world going forward.

Now who wants a beer? I’m buying. But I’ve had a tough stretch so all I can offer is domestic.

Street Bytes

--Owing to Friday’s rally of about 2% for the blue chips and Nasdaq, the major averages eked out gains for the full week, with the Dow Jones up 0.2% to close at 13096, a three-month high, while the S&P 500 added 0.4% and Nasdaq tacked on 0.3%. But small- and mid-cap stocks finished down.

--U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.24% 10-yr. 1.56% 30-yr. 2.64%

After rallying on the earlier feeling Europe’s problems were not being solved, Treasuries finished unchanged on the week with the better tone from across the pond and the U.S. jobs data.

--In the FOMC’s statement this week it offered that “Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.”

That was then…this is now, FOMC. Energy prices more than likely bottomed in June, while see below on food prices.

--Turning to Asian economic news: China’s official manufacturing PMI came in at 50.1 for July vs. 50.2 for June, barely avoiding contraction, as Premier Wen Jiabao said “Downward pressure is still relatively big.” The service sector PMI was better at 55.6, but this was down from 56.7 in June.

In Japan, the July manufacturing PMI came in at a far lower than expected 47.9, not good, while South Korea’s industrial production reading for June was down and exports fell 8.8% in July from a year earlier. Finally, Taiwan cut its GDP forecast for the year to 2% from 3% as GDP declined in Q2.

--As a result of the drought, the price of beef could actually drop over the coming weeks as some farmers sell off their livestock because they can’t afford the feed. But then prices will rise (or soar) down the road, with most expecting a big hike around the Christmas/New Year’s holidays as demand outweighs supply. The U.S. Department of Agriculture said the nation’s cattle herd numbered 97.8 million as of July 1 – the lowest inventory since it began the count in 1973.

Cattlemen liquidating today could be forced out of business because it takes 2-3 years to breed and raise a herd for market.

The drought now impacts 63% of the contiguous U.S., and a coalition of meat and poultry producers has asked the EPA to waive federal mandates requiring petroleum blenders to use corn-based ethanol. It is beyond absurd the government has not as yet done this.

[Corn hit a record $8.20 on July 31.]

--July auto sales were a little punk as General Motors and Ford were the victims of a decline in rental car fleet sales. Overall, the industry reported sales of 1.15 million vehicles for the month, or up 8.9% from the same period a year ago. This compares to the 14.8% increase the industry recorded the first half of the year.

GM saw sales drop 6% (with sales to rental car fleets plunging 41%). Ford’s sales declined 4%. But Chrysler’s rose 13%.

Toyota’s sales rose 26%, Honda’s surged 45% and Nissan’s climbed 16%, though the year-over-year comparisons for these are skewed by the tsunami and manufacturing and supply issues in 2011.

Volkswagen reported a 27% increase in sales.

--The S&P/Case-Shiller home price index rose 2.2% in May as all 20 of the largest metropolitan areas it tracks posted gains over April. 12 of the 20 now have prices higher than they did a year ago. [Atlanta, on the other hand, is down 14.5% year-over-year.]

--Shares of Facebook at one point this week were nearly a full 50% below the $38 offering price. What’s worse, through the end of the year, some 2 billion company shares could hit the market as various “lock-up” dates expire. Aside from employee dreams of riches being wiped out, U.S. and California tax revenues will suffer. California, for example, had projected $1.5 billion in revenue from Facebook and it will now be “hundreds of millions of dollars” less, as the state’s Legislative Analysts’ Office warned this week (depending on the stock’s performance the balance of the year of course).

Mark Zuckerberg, however, cashed in $1.15 billion of his personal stake on the IPO.

Facebook admitted that 83 million of its so-called 955 million users are fakes (spam, pets, false profiles). This is a higher percentage than the company has previously admitted. And boy I can relate to the following from a New York Post article by Garett Sloane.

“The false accounts issue surfaced almost simultaneously with a gripe from a music startup, Limited Run, which claimed 80 percent of traffic it received through ads bought on Facebook is from ‘bots’ – computers clicking on ads.”

I had this issue long ago when I was running ad campaigns and suddenly traffic from the likes of Uruguay was spiking. It was click-through fraud and I reported on this long before the mass media caught onto the problem.

Separately, two other social media plays, Zynga and Groupon, have collapsed. Zynga is below $3 vs. its $10 IPO price last year, while Groupon is at $6.50, down from its initial price of $20.

--Meanwhile, LinkedIn shares jumped after revenue surged 90 percent to $228.2 million for the quarter. The stock has more than doubled since coming public at $45 last year, now $108.

--Royal Bank of Scotland Group PLC said its first-half net loss widened to $3.09 billion. The bank also warned of future losses as a result of several lawsuits that will emerge from the Libor scandal.

--Deutsche Bank AG announced it was cutting 1,900 jobs, with 1,500 of them coming out of investment banking.

--BP reported a surprising loss of $1.4 billion for the second quarter as it took a huge $4.8 billion write-down on refineries and shale gas assets in the U.S. Stripping out the charges, earnings were still far below expectations. Oil production in the U.S., for example, was down a whopping 25% compared with a year earlier, the culprit being the lack of a full recovery in BP’s Gulf of Mexico fields post oil spill. Total charges resulting from the Deepwater Horizon disaster are now $38 billion.

--Shares in Japanese television maker Sharp fell 30% after warning full year losses will be $3.2 billion, or about eight times larger than earlier estimated. Good grief. The company is going to be laying off 5,000. “The domestic and Chinese demand for liquid crystal display televisions fell at a faster pace than expected.”

Separately, shares in Sony are at their lowest level in three decades as it too suffers from slowing demand for its consumer products. Sony slashed sales targets for its TVs, cameras and personal computers.

Get this. Sony was worth over $120 billion in 2000 and is now worth about $12 billion. Sony is slashing another 10,000 jobs (after cuts in 2005 and 2008 of about 30,000 combined).

Lastly, on the Japanese electronics side, Panasonic reported a profit owing to aggressive previous cost-cutting, but revenues declined 6%.

--According to a report by IDC, Apple’s iPad commands more than two-thirds of the global tablet market. 25 million tablets were sold worldwide in the second quarter, up 33.6% from the first.

By the way, according to the Electric Power Research Institute, the annual cost to charge an iPad is just $1.36. By comparison, a desktop PC adds up to $28.21 and a refrigerator runs you $65.72. [New York Post]

--The Apple vs. Samsung patent-infringement trial kicked off this week. This will be huge. It is expected to take about a month. Both have been lobbing grenades against each other, with Apple accusing Samsung of “slavishly” copying many aspects of the iPhone.

--SAP agreed to pay arch-rival Oracle at least $436 million in compensation and legal fees to cover its long-running dispute over SAP’s illegal access by one of its subsidiaries to Oracle’s computer systems. But Oracle is still attempting to have the original jury award of $1.3 billion reinstated.

Earlier in the week, Hewlett-Packard won a breach of contract suit against Oracle that could lead to damages of more than $1 billion.

And Oracle lost a copyright claim against Google over the latter’s Android operating system.

--Monsanto was awarded $1 billion in damages in a patent infringement trial against DuPont in a case revolving around Monsanto’s patented Roundup Ready “seed chipping” invention.

--The IRS announced identity fraud could cost the government $26 billion in illegal refund checks…$5 billion for 2011 and an estimated $21 billion in coming years. The IRS identified 940,000 fraudulent returns last year claiming $6.5 billion in refunds, but there were potentially another 1.5 million undetected cases of thieves seeking refunds after assuming the identity of a dead person, child or someone else who normally wouldn’t file a return.

As the AP reported: “In one example, investigators found a single address in Lansing, Mich., that was used to file 2,137 separate tax returns. The IRS issued more than $3.3 million in refunds to that address.”

The Treasury Department’s inspector general said “We found multiple reasons for the IRS’ inability to detect billions of dollars in fraud.” In another instance, hundreds of refunds were deposited into the same bank account.

--The U.S. Postal Service failed to make a $5.5 billion payment toward employee benefits as it continues to move forward with eliminating 13,000 rural branches. Many of these will still operate a few hours a day, however. In North and South Dakota, about 3/4s of all post offices are on the cutback list.   The USPS says the cutbacks will result in savings of $500 million a year. It lost $5.1 billion in 2011, and faces a loss of $14.1 billion this year.

--The Treasury Department said on Friday that it expected to raise $5 billion from a sale of shares in AIG, cutting the government’s stake in the company to 55 percent. The shares, some of which are being bought by the insurer, are priced at $30.50, below Friday’s closing price of $31.34. The price of $30.50 is above the $28.72 the government needs to break even on its investment. [Reuters]

--The above-mentioned Molycorp had one interesting week. After the Knight trading debacle of Wednesday, it announced disappointing earnings and the stock cratered all over again.

--NASA doled out over $1 billion to three companies (Sierra Nevada Corp., Space Exploration Technologies (SpaceX) and Boeing for development of craft for the eventual resumption of manned spaceflight. 

--Gen. Keith Alexander, head of the National Security Agency and the U.S. Cyber Command, said attacks against U.S. infrastructure increased seventeen fold from 2009 to 2011. On a scale of 1 to 10, he said, American preparedness for a large-scale cyber-attack is “around a 3.” [Los Angeles Times]

--Jesse Eisinger / New York Times

“As every frustrated American knows, no major banking executive has gone to prison or has been fined any significant amount in the aftermath of the financial crisis.

“But what’s astonishing is that Wall Street bankers seem not to have paid any social cost either. They sit on corporate and nonprofit boards and attend functions and galas. They remain top Wall Street executives, or even serve as regulators. The nation’s prominent op-ed pages, talk shows and conferences seek their opinions. If you are rich, you must be intelligent. Your views must be worthwhile, never mind the track record.”

So true. Mr. Eisinger points to the case of Sandy Weill, the recent embrace of which “sets a new standard for reputation rehabilitation.”

“Sandy Weill was a deal maker who aspired to more. He had a vision to create a financial supermarket….

“And it didn’t work.

“Mr. Weill’s only unambiguous success was to make himself enormously rich.

“By the mid-2000s, Citigroup was a flop.”

No matter…Sandy had his cash.

--According to Lebanon’s hotel association, this summer has been the worst tourism season since the civil war ended in 1990 owing to the conflict in Syria; Syria being Lebanon’s only land access route for tourism and exports. Tourism in Beirut, accessible through the airport, has held its own but seaside resorts outside the city have seen occupancy plunge more than 50%.

--Chick-fil-A recorded record sales on Wednesday, “Chick-fil-A Appreciation Day,” as supporters of the company president (including special correspondent Mark R.) turned out in droves following his statement that the family-run chain supports only a “family unit” of a man and a woman. Others, both gay and straight, are now boycotting the restaurant. I’m still waiting for a KFC outlet to open up near my home, to be perfectly honest.

--Early television audiences for NBC and the Olympics were 30% higher than forecast. NBC now projects they will make a small profit on the Games.

--From Bloomberg News:

“Stockton, California, Police Chief Tom Morris was supposed to bring stability to law enforcement when he was appointed to the job four years ago.

“He lasted eight months and left the now-bankrupt city at age 52 with an annual pension that pays more than $204,000 – the third of four chiefs who stayed in the position for less than three years and retired at an average of 92% of their final salaries.”

Just in case you were wondering why Stockton filed for bankruptcy protection on June 28. Falling revenues and fixed costs like these outrageous deals.

--As of Tuesday, NBC’s “Today” had not beaten ABC’s “Good Morning America” in the ratings once since Savannah Guthrie took over for Ann Curry.

Foreign Affairs

Syria: While Syria’s second city, Aleppo, the commercial center, came under increasing fire, and the battle for Damascus continues, CIA paramilitaries are in Syria, directing some rebel units while others are in Turkey on the border trying to ensure that arms from Saudi Arabia and Qatar are funneled to the rebels and not al-Qaeda types.   At the same time, Britain has vowed to step up its “non-military” aid to the opposition forces so it all adds up to one conclusion:

Diplomacy is dead…best summed up by the resignation of Kofi Annan as UN special envoy

In announcing his intention to resign end of the month, Annan, who I’ve consistently called a “joke” and “pathetic” in this space (and obviously rightfully so), spelled out for the first time that Bashar al-Assad must go, while noting:

“Only a united international community can succeed in compelling both sides to engage a peaceful political transition. But a political process is difficult if not impossible while all sides – within and without Syria – see opportunities to advance their narrow agendas by military means. International division means support for proxy agendas and the fuelling of violent competition on the ground.”

In an op-ed for the Financial Times, Annan added:

“A conflagration threatens an explosion in the region that could affect the rest of the world. But it takes leadership to compromise to overcome the destructive lure of national rivalries. Joint action requires bilateral and collective efforts by all countries with influence over the actors on the ground in Syria, to press upon the parties that a political solution is essential.

“For Russia, China and Iran this means they must take concerted efforts to persuade Syria’s leadership to change course and embrace a political transition, realizing the current government has lost all legitimacy.”

Whatever…though Annan was right in talking of proxy agendas because the U.S. and Britain have now, through their support of the rebels, lined up opposite Russia and China who are against any kind of outside aid.

The facts on the ground are such that at least 200,000 have fled Aleppo, while there is growing evidence Assad’s forces are attempting to carve out an Alawite chunk of territory.

It’s also true that jihadists are flooding in, according to the Times of London, including from North Africa, Britain and the Caucuses, and not necessarily on the rebels side, either. They want Syria to descend further into chaos.

Tragically for Syria’s future, the top business people who would fuel reconstruction at some point are throwing in the towel in droves.

Editorial / Washington Post

“(Annan’s) failed mission offers vital lessons for the future. The first is one that Mr. Annan should know well: He learned it in the 1990s conflict in the former Yugoslavia. Then as now, the leading powers were initially hesitant to use military force. Then as now, U.N. personnel were sent to a battlefield and proved ineffective in the face of evil. After the worst massacre in postwar European history, by Bosnian Serbs at Srebrenica, Mr. Annan wrote a searing retrospective for the United Nations. He declared that ‘when peacekeeping operations are used as a substitute for…political consensus they are likely to fail.’ He added, ‘The job simply cannot be done.’

“These words are just as valid today as when Mr. Annan wrote them in 1999. The U.N. Security Council sent unarmed monitors into an intensifying war zone in Syria without a consensus of the leading powers to back them up. It was wishful thinking to believe that Mr. Assad would be coaxed into retirement by a divided council. For way too long, the Obama administration – eager to avoid more decisive action – clung to unrealistic hopes that Annan’s plan would work….

“Now that diplomacy has utterly failed to stop (Assad), it is time for the Obama administration to consider measures that stand a real chance of accelerating his downfall – beginning with greater material support for the opposition.”

Iran / Israel: Early in the week, Israeli Prime Minister Benjamin Netanyahu gave a rare series of interview to the four major television outlets in Israel, wherein he reminded the people that in democracies the political echelon decides on issues of war and peace and the professional echelon carries out those decisions.

“That is the way it has always been, and will always be,” he said in one interview, pointing to 1981, when former prime minister Menachem Begin chose to attack the nuclear reactor in Iraq despite opposition at the time from Mossad and military intelligence.

While Netanyahu said he had not yet made up his mind on attacking Iran, he sees “the regime of the ayatollahs declaring what it has etched on its banner – to destroy us. It is working to destroy us, and is preparing atom bombs to destroy us. As much as it is dependent on me, I will not let that happen.”

Netanyahu also reiterated that regardless of the public support both President Obama and Mitt Romney have given Israel, he “will not leave in the hands of others, not even our best friends, matters concerning our fate.” [Jerusalem Post]

The next day, with U.S. Defense Secretary Leon Panetta in Israel, Netanyahu said, “Right now the Iranian regime believes that the international community does not have the will to stop its nuclear program.”

Netanyahu told Panetta: “You yourself said a few months ago that when all else fails, America will act. But these declarations have also not yet convinced the Iranians to stop their program. This must change, and it must change quickly because time to resolve this issue peacefully is running out.” [BBC News]

For his part, Panetta, on behalf of the White House, is virtually begging Israel not to act…yet. Like until after November. There are signs, after all, the oil embargo on Iran is working well, like to the tune of $133 million a day in lost revenue, according to Bloomberg News. That’s good. And on Friday, the secretary of Iran’s powerful Guardian Council said the country was in the midst of an “economic crisis.” 

But there is also no evidence this is going to force Iran to back down on the nuke issue. Netanyahu on countless occasions has called the sanctions “useless” in this regard.

Israeli Defense Secretary Ehud Barak, who also met with Panetta, said, “We have clearly something to lose by this stretch of time on which sanctions and diplomacy take place because the Iranians are moving forward.”

Barak also addressed whether clocks on the nuclear standoff were “ticking at different speeds” in Washington and Tel Aviv. Barak said: “That’s correct, this is a well-known fact.”

India: The double power failures here, the first impacting 350 million people, the second a full 670 million (the largest blackout in human history), were catastrophic in terms of India’s financial future. While each one lasted from generally 12 to 24 hours, the impact on foreign business investment, for one, will last at least a decade, I imagine. For a supposed rising economic power, the failures were a huge embarrassment.

As reported by the New York Times’ Jim Yardley and Gardiner Harris:

“(India’s) power generation capacity…has not kept pace with growth. Demand outpaced supply by 10.2 percent in March, government statistics show.

“In recent years, India’s government has set ambitious goals for expanding power generation capacity, and while new plants have come online, many more have faced delays, whether because of bureaucratic entanglements, environmental concerns or other problems. India depends on coal for more than half of its power generation, but production has barely increased, with some power plants idled for lack of coal.

“Many analysts have long predicted that India’s populist politics were creating an untenable situation in the power sector because the government is selling electricity at prices lower than the cost of generating it. India’s public distribution utilities are now in deep debt, which makes it harder to encourage investment in the power sector. Tuesday’s blackout struck some analysts as evidence of a system in distress.”

I’ll say.

From the Washington Post:

“Most Indian consumers receive heavily subsidized electricity, while farmers get free power, supposedly to pump groundwater to irrigate their land. But officials say much of the free power is illegally diverted to factories. That has left the grid overburdened and electricity-distribution companies heavily in debt.”

I spent a month here in 1985, working for the Bombay Oil Co., which had nothing to do with oil but was about spices. I don’t include this one on the list for the site because that only pertains to where I’ve been since I started StocksandNews.  But I’m guessing where I spent much of my time, Cochin, the infrastructure is just as bad as it was 27 years ago. And it was horrid. [Great local food and beer, however…it’s when I switched to an American dish, my last week, that I thought I was going to die of food poisoning.]

Egypt: The country’s new prime minister and his Cabinet were sworn in on Thursday. The Cabinet includes several members of the outgoing military government and mainly technocrats, though the Muslim Brotherhood has four ministries, including the key “information minister” post. Field Marshall Hussein Tantawi retains the defense minister position he held under Hosni Mubarak.

Egypt hasn’t been in the news much the past two weeks or so, but in reading the Daily Star I saw this:

“In a sign of chaos, one person was shot to death by police Thursday when a crowd of hundreds went on a rampage against a luxury hotel on the Nile River in central Cairo. The crowd threw firebombs at the hotel, smashed its lobby and set fire to 10 cars….

“The incident was sparked when residents of the slum who had been hired by the hotel for protection tried to get into the hotel to collect payments owed to them.”

So, if you were thinking, ‘Hey, haven’t heard much from Egypt recently. Must mean good news. Honey, let’s book that trip there we’ve been meaning to take.” Think again. 

Russia: British Prime Minister David Cameron weighed in on Russia’s Pussy Riot punk band trial in discussions with President Vladimir Putin in London. Cameron told Putin the world was watching in urging Putin to address human rights concerns. Pussy Riot faces seven years in jail on blasphemy charges for performing in Moscow’s Christ the Savior Cathedral. I’ve been there a few times, a gorgeous place, and it was blasphemous! But I’d charge them a fine…not lock them up.

I agree with an op-ed in the Moscow Times by Georgy Bovt that one party that is hurt in all this is the Russian Orthodox Church, which looks very small in the eyes of the educated class. Nationalists, on the other hand, back the hardline stance.

But Mr. Bovt notes “(Pussy Riot) is being de facto tried for violating ‘religious statutes’ that do not even exist in the Criminal Code and have no place in a country that is defined as secular in the Constitution.”

At last word, Putin was strongly hinting the punishment would be light.

But the penalty for popular blogger Alexey Navalny may not be so light. Navalny has spent five years exposing systemic corruption and was at the forefront of protests following the rigged parliamentary election.

This week, however, he was accused of embezzlement, a crime carrying a sentence of up to ten years. It’s a totally trumped up charge (an allegation he organized the theft of extensive timber holdings…like an entire forest), which he was cleared of three years ago. This is the case to follow, more so than Pussy Riot….though I don’t deny the latter is important too.

Meanwhile, commenting on Afghanistan, President Putin said:

“It is regrettable that many participants in this operation are thinking about how to pull out of there. They took up this burden and should carry it to the end. If there is no order in Afghanistan, it will not be calm on our southern borders. The current [Afghan] leadership will have difficulties keeping the situation under control. NATO member states are present there, and are performing this function. We need to help them [NATO]. We should not be fighting there again. Let them sit there and fight.” [Moscow Times]

Moscow has helped by allowing transit across its territory.

Afghanistan: Speaking of this hellhole, the Wall Street Journal’s Nathan Hodge reported:

“Inspectors from a U.S. government watchdog agency discovered that several American-funded border police bases in Afghanistan have been largely abandoned or left unoccupied, raising questions about the coming hand-over of security duties to local forces.”

It’s so pathetic that three of four bases looked at, each built to house 93 border police personnel, “were either unoccupied or weren’t used for the intended purposes.”

The bases in question are on the border with Pakistan. Very reassuring. The construction contract for the four was also $19 million.

North Korea: Pyongyang once again announced on Tuesday it would expand its nuclear weapons resources “to counter U.S. hostility with stronger nuclear deterrence.” The government also said new leader Kim Jong Un would not change the North’s stance toward South Korea.

But in an official statement published by the government on Friday, as well as in an earlier meeting with a Chinese official, Kim said, “Developing the economy and improving livelihoods, so that the Korean people lead happy and civilized lives, is the goal the Workers’ Party is struggling toward.”

Interesting. His father hardly ever championed the economy.

Romania: President Traian Basescu escaped impeachment Monday when a referendum on his removal fell short of the 50% voter turnout threshold needed to oust him, despite 87% of those who did make it to the polls voting in favor of impeachment.

But, only 46% of the people overall voted as in the end Basescu urged his supporters not to go to the polls, seeing this as the easier way to avoid ouster.

His rival, Prime Minister Victor Ponta, who called for the referendum, hinted he wouldn’t give up the fight; this as Ponta has an ongoing plagiarism scandal to deal with.

France: President Francois Hollande made good on a campaign pledge to make the nation’s wealthiest pay up to 75% income tax; 75% on earnings over $1.24 million a year (one million euro), up from a previous marginal rate of 48%.

Random Musings

--If you are a supporter of Mitt Romney, you aren’t going to the like the latest polling data of three key battleground states from a Quinnipiac/CBS/New York Times survey.

President Obama has a 6-piont lead over Romney in both Ohio and Florida, and an 11-point (!) lead in Pennsylvania. 

No candidate since John F. Kennedy in 1960 has won the White House without taking at least two of these three.

This has been a pretty consistent pattern. The president and Romney are neck-and-neck in virtually every national poll, but Obama is taking the vast majority of the 8 to 12 states that really matter.

The above poll also showed that by margins of 58%-37% in Florida, 60%-37% in Ohio and 62%-34% in Pennsylvania, likely voters said they favored Obama’s plan to raise taxes on earnings above $250,000 a year.

--At least there is further evidence Romney is doing well among troops and veterans. In a Rasmussen survey, 59% of them favor Romney vs. just 35% for Obama. However, when polling civilians with family members in uniform, it’s 46-44 Romney.

--From Jesse Washington / AP…on race relations under President Obama.

“Shortly before the 2008 election, 56 percent of Americans surveyed by the Gallup organization said that race relations would improve if Obama were elected.   One day after his victory, 70 percent said race relations would improve and only 10 percent predicted they would get worse.”

The good feeling didn’t last long.

“By July 2009, the black Harvard professor Henry Louis Gates was arrested for yelling at a white police officer who questioned whether Gates had broken into his own home. Asked to comment, Obama said he didn’t know all the facts, but Gates was a personal friend and the officer had acted ‘stupidly.’

“The uproar was immediate. Obama acknowledged afterward, ‘I could’ve calibrated those words differently.’…

“An October 2009 Gallup poll showed a large drop in racial optimism since the election, with 41 percent of respondents saying that race relations had improved under Obama. Thirty-five percent said there was no change and 22 percent said race relations were worse….

“By the fall of 2010, Republicans had triumphed in the midterm elections and made history by electing Hispanic and Indian-American governors in New Mexico, South Carolina, and Nevada. Two black Republicans also went to Congress, from South Carolina and Florida.

“Less than a year later, an August 2011 Gallup poll showed a further decline in racial optimism: 35 percent said race relations had improved due to Obama’s election, 41 percent said no change, and 23 percent said things were worse….

“This April, in a poll by the National Journal and the University of Phoenix, 33 percent felt race relations were getting better, 23 percent said they were getting worse, and 42 percent said they were staying about the same.

“So where are we now?

“Four years after Obama smashed the nation’s highest racial barrier…the nation is uncertain about the meaning of a black president.”

--Let me say up front that I do not feel Mitt Romney’s trip to Britain, Israel and Poland will mean a thing come November, despite the numerous gaffes.

But it was “news,” and received much criticism so I’ve put together some of it, including foreign press reaction. Just understand I have never been a Romney fan and am even less so these days. He also has a pathetic staff…a bunch of clowns. That said, you know who I’m voting for, but that’s more because there isn’t a viable third party candidate.

I also have to note the comment of Leslie Gelb, a senior fellow at the Council on Foreign Relations, to the Wall Street Journal: “I’ve never seen an election where less attention was paid to foreign affairs.”

It’s driven me up the wall.

Some of the following is a little brutal…but then it’s only fair play after what I’ve relayed or written about President Obama.

Rod Liddle / Sunday Times (of London)

“Laugh now – pay later. Incredible as it may seem, there is still a perfectly good chance of Mitt Romney becoming the next president of the United States, leader of the free world, finger on the button, etc. And then where will we all be?

“You were probably still thanking the Lord Jesus Christ that Sarah Palin was out of the running, not to mention that gay-strangling orange-faced loon Michele Bachmann. And then suddenly onto the stage stamps Mormon Mitt, in his size 12 boots: you took your eye off the ball and he snuck through.

“Have you ever seen the film Being There, in which Peter Sellers plays a vacuous imbecile who through a series of misunderstandings ends up poised to become president? Don’t watch it now, it will chill you to the marrow: it could happen. Don’t forget that half the people who are allowed to vote over there think Forrest Gump was a documentary.

“Romney’s hilarious ‘charm offensive’ to these islands began with an interview in which he offered the opinion that the special relationship between America and Britain was predicated upon a ‘shared Anglo-Saxon heritage – the White House does not appreciate that shared heritage.’ Now stop me if I’m wrong, but I think the subtext of that was Mitt telling us: ‘Look, I may be a halfwit, but at least I’m not black.’ Certainly that’s how a good many Americans took it.

“From there, things got worse for Mitt and his mouth. In an interview with an American news program he cast doubt upon our ability to hold a successful Olympics.

“Now, okay, fair enough – you and I can do that, because we’re not on a charm offensive to anyone except perhaps our mother-in-law. But you don’t do it just before you’re about to curry favor with the man who, effectively, is the steward of those Games – our prime minister.

“ ‘I just don’t know how well it’s going to turn out,’ Mitt said, shaking his head gravely – and immediately estranged virtually the whole of Britain, not least David Cameron. There was a certain acidity evident in Cameron’s response to this gaffe. He said it was quite complicated organizing the Olympics in an enormous city such as London, rather than on a vast saltpan devoid of sentient life and where everyone was called Bubba and had 12 wives, or something….

“Mitt must have had a quick crisis meeting with his advisers because he began to row back on the stuff about how useless Britain was. But he didn’t row in a manner that would bring him much glory if he were participating in, say, the coxless fours. Of course Britain was ready for the Olympic Games, he opined.

“And then to crawl his way back up the national sphincter still further, he announced, to some surprise, that he was himself a ‘guy from Great Britain.’ Perhaps as a consequence of some arcane mix-up after the war of independence, Detroit remains to this day part of our country.   That must be it, because that’s where Mitt was born. And his dad was born in Mexico – a place that has never, to my knowledge, been a part of Great Britain. Nor is Utah, which is where his good ol’ granddaddy was born.

“He also told us all that he had ‘married a Welsh girl,’ a reference to his wife Ann who comes from that famous settlement in the Rhondda valley called Bloomfield Hills, Michigan.

“Magnificent, all of it. Having then breached protocol by revealing he had been briefed by our security services (please God don’t let them have told him anything important, or it’ll be blurted out on his ‘charm offensive’ to Iran), he forgot the name of Ed Miliband and referred to him instead by the slightly awkward title of ‘Mr. Leader.’

“I suppose we should enjoy him while we can before the fear takes over.”

Alexandra Frean / The Times (of London)

“Mitt Romney’s attempts to transform a gaffe-prone international tour with a solemn tribute to Poland’s economic revival were overshadowed yesterday after one of his aides told reporters to ‘kiss my ass.’

“The outburst came on the final day of a week-long trip during which the presumptive Republican presidential candidate has managed to insult the entire British nation with tactless remarks about London’s lack of preparedness for the Olympics, and outraged Palestinians by appearing to criticize their culture.

“The latest embarrassment took the form of an outburst by Mr. Romney’s traveling press secretary, Rick Gorka, to reporters who tried to ask Mr. Romney questions as he left the Tomb of the Unknown Soldier in Warsaw after paying his respects to Poland’s war dead.

“Infuriated at journalists for shouting out questions at what he described as ‘a holy site for the Polish people,’ Mr. Gorka resorted to some pretty unholy language to try to get them to stop, saying: ‘Kiss my ass…Show some respect.’ He then told one reporter to ‘Shove it.’

“Mr. Romney, who has answered only three questions from the traveling press corps during his week-long overseas trip, ignored the incident. But the damage was done. Coverage of a speech in which he criticized President Putin of Russia for curtailing freedoms, extolled Poland’s free market approach to the economy and thanked the Poles for standing shoulder to shoulder with America in Iraq and Afghanistan was drowned out by media commentary on Mr. Gorka’s remarks, even though he later apologized to reporters.

“Mr. Romney’s foreign trip was intended to demonstrate his ability to handle foreign affairs and to provide leadership on the international stage. Instead his seeming lack of sensitivity about the importance of context and setting has created opportunity after opportunity for his Democratic opponents to question his preparedness to become leader of the free world.”

But wait…there’s more!

Maureen Dowd / New York Times

“The true measure of how inglorious the trip was? Senior Romney strategist Stuart Stevens assured the press how glorious the trip was.

“He took the cascade of chuckleheaded moments and tried to plant the crazy idea in our brains that they were a mark of Romney’s steadfast character.

“ ‘He has a tendency to speak his mind and to say what he believes,’ Stevens said, ‘and whenever you do that, there will be those that disagree with you, and there will be those that agree with you.’”

Oh brother. What a jerk.

“Romney himself tried the same silly spin with ABC News, telling David Muir when asked about the damaging headlines: ‘You know, I tend to tell people what I actually believe, and referring to the comments that were made in the media is something which I felt was an honest reflection of what was being concerned, or what was concerning folks.’

“That quote is alarming on two levels: First, Romney never seems to say what he actually believes, and, second, he doesn’t seem to actually speak English.

“Mitt’s foray showed some new colors, as he intended, but they were not flattering ones. We now know how little he knows about the world, how really slow on his feet he is, what meager social and political agility he has.

“Wherever he went, whatever situation he was in, he remained frozen in himself. It was reminiscent of the stinging review of an Oscar Wilde lecture by Ambrose Bierce, who wrote that Wilde was a ‘gawky gowk’ who ‘wanders about posing as a statue of himself.’….

“Barack Obama created a character called Barack Obama, a remote, superior sort who comes down from the mountaintop during campaigns to assure us that he’s just like us.

“Romney is not on the mountaintop. He’s here, mingling among us, present but absent. A fence wrapped around a wall.

“Stuart Stevens is right when he says it’s easy to imagine Romney in the White House. I can visualize him right now, lapidary and frozen, in the Rose Garden. A statue of himself.”

Look, I was going to give the other side, such as a Wall Street Journal editorial that defended Romney in his calling Jerusalem the capital of Israel, because it is, but for decades this issue, from the U.S. standpoint, is to be part of any final negotiations with the Palestinians.

The bottom line is this. Mitt Romney made a total ass of himself on the trip. His campaign has been awful.

--Former Vice President Dick Cheney told ABC News that John McCain made a “mistake” when he picked Sarah Palin to be his No. 2 in 2008. “That one,” Cheney said, “I don’t think was well handled.”

Yup, sure wasn’t, Dick.

“I like Governor Palin. I’ve met her. I know her…Attractive candidate. But based on her background – she’d only been governor for, what, two years – I don’t think she passed that test…of being ready to take over,” said Cheney. “And I think that was a mistake.”

--Ted Cruz, a Tea Partier, defeated Lt. Gov. and Republican establishment candidate David Dewhurst in the Texas Republican Senate primary on Tuesday by a whopping 14 points. Dewhurst had the backing of Gov. Rick Perry among others. Cruz has a helluva background; Princeton-Harvard Law, clerked for Chief Justice William Rehnquist, Texas Solicitor General…and now he’ll likely join reformers in the U.S. Senate such as Utah’s Mike Lee, Kentucky’s Rand Paul, South Carolina’s Jim DeMint, Pennsylvania’s Pat Toomey and Florida’s Marco Rubio.

--I wrote up the following before I caught NBC Nightly News on Thursday, which led with this story (save for Olympic news items). 

A catastrophic disaster was avoided on Tuesday in the skies over Reagan National Airport as three US Airways commuter jets carrying a combined 192 passengers and crew came within seconds of colliding “after confused air traffic controllers launched two outbound flights directly at another plane coming in to land,” according to the FAA, as reported by Ashley Halsey III of the Washington Post.

The issue was a rapid change in the weather Tuesday afternoon which had flights flying north to land on National’s main runway, suddenly redirected to rout them to a southerly approach due to an approaching storm.

Controllers at the center in Warrenton who reversed the flow communicated the plan to the control tower at National. But then the National tower didn’t pass the new instructions on to everyone they needed to.

As Ms. Halsey writes:

“As a result, an incoming flight that had been cleared to land was flying head-on at two planes that had just taken off. The inbound plane and the first of the outbound planes were closing the 1.4 miles between them at a combined speed of 436 mph, a rate that meant they were about 1.2 seconds from impact when the tower controller recognized her mistake….

“ ‘Are you with me?’ the tower controller asked the inbound pilot, checking to see whether he was turned to her radio frequency. When the pilot acknowledged her, she ordered him to make an abrupt turn to the south to avoid the other two planes.

“ ‘We were cleared [for landing] at the river there,’ the pilot said after breaking off the approach northwest of the airport. ‘What happened?’

“After a pause, the controller said, ‘Stand by, we’re trying to figure this out.’

“As she directed him to make a loop around the airport for a second landing attempt the pilot cautioned: ‘We really don’t have enough fuel here for this. We have to get on the ground pretty quick.’”

The FAA and NTSB denied on Thursday any passengers were actually in danger. Of course they’d say that. 

Reagan National has had quite a few controller mistakes over the years. Someday we won’t be so lucky.

--The Ebola outbreak in Uganda that has killed at least 16 is troubling, to say the least, while scientists in the U.S. have identified a new strain of virus in harbor seals that could impact human health down the road.

The H3N8 flu has been associated with the deaths of 162 harbor seals in New England last year and researchers say it could have evolved from bird flu, which has been the exact concern for years…that bird flu would evolve in unexpected ways.

--Niall Ferguson / Newsweek:

“Last Saturday I listened with fascination as a panel of tech titans debated the question: ‘Will science and technology produce more dramatic changes in solving the world’s major problems over the next 25 years than have been produced over the last 25 years?’

“They all thought so…We heard that within the next 25 years, it will be possible to take 1,000-mile journeys by being fired through tubes. We also heard that biotechnology will deliver genetic ‘photocopies’ of human organs that need replacing. And we were promised genetically engineered bugs, capable of excreting clean fuel. The only note of pessimism came from an eminent neuroscientist, who conceded that a major breakthrough in the prevention of brain degeneration was unlikely in the next quarter century.

“For a historian, all this techno-optimism is hard to swallow. The harsh reality, as far as I can see, is that the next 25 years (2013-2038) are highly unlikely to see more dramatic changes than science and technology produced in the last 25 (1987-2012)….

“The breakthroughs in medical science we can expect as a result of the successful aping of the human genome probably will result in further extensions of the average lifespan. But if we make no commensurate advances in neuroscience – if we succeed only in protracting the life of the body, but not the mind – we will simply increase the number of dependent elderly….

“More and faster information is not good in itself. Knowledge is not always the cure. And network effects are not always positive.”

--We note the passing of the great military historian, John Keegan, 78. Among his classic works is 1993’s “A History of Warfare,” and the Brit wrote extensively of the American Civil War, concluding in part that the seminal battles were not necessarily Gettysburg or Vicksburg, but rather less heralded places such as Wilson’s Creek, Mo., and Perryville, Ky.

--Crime expert James Alan Fox of Northeastern University said on PBS’ “Newshour” that there are two dozen mass murders a year in America (4 or more deaths) and this hasn’t changed in the last 35 years.

--Britain still has the best national anthem. And they are playing a really crappy version of the U.S. one in London. It’s like two keys too high! C’mon. Who picked this? Mitt?

--Here’s hoping Olympian Gabby Douglas can somehow have an impact on our nation’s youth…think urban variety. At least get them exercising, and out of the clutches of the gangs.

--What a job by USA Swimming!

--Back when I was growing up during the Cold War, we all loved beating the Soviet Union in Olympic competition.

But now we have a new reason to want to beat the crap out of Russia and China…they’re stealing our business secrets through all their cyberattacks. Let alone the number they have done, and can do in the future, on both the Pentagon and our infrastructure.

And here comes the denial of service assault on moi!!!

--After watching the NBC commercials for their fall lineup, I have one guarantee. “Animal Practice” will be pulled after four shows. Anyone watching even a minute of this is hereby fined $20.

--Finally, cross your fingers for good news Sunday evening as the Mars vehicle Curiosity is slated for landing on the Red Planet, with the latest from NASA being it will be close to a bulls-eye for hitting its target. As Doug McCuistion, head of the Mars project put it, “We are about to land a small compact car on the surface with a trunk-load of instruments. This is a pretty amazing feat getting ready to happen. It’s exciting, it’s daring – but it’s fantastic.”

By the way, there is a 13-minute lag in communications between Mars and Earth so real-time intervention is impossible, like when we see an army of Martians streaming down the hill, it will be too late to save Curiosity.

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

God bless America.
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Gold closed at $1606
Oil, $91.33…had been down but rallied on Friday’s better economic outlook. Still say in the end, the next few months, it’s about Iran. Hey, I’m up on my bet ($84), anyway.

Returns for the week 7/30-8/3

Dow Jones +0.2% [13096]
S&P 500   +0.4% [1390]
S&P MidCap -0.5%
Russell 2000 -0.9%
Nasdaq +0.3% [2967]

Returns for the period 1/1/12-8/3/12

Dow Jones +7.2%
S&P 500 +10.6%
S&P MidCap +7.5%
Russell 2000 +6.4%
Nasdaq +13.9%

Bulls  39.4
Bears 27.7 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Dr. Bortrum has posted a new column…talkin’ Big Bang.

Brian Trumbore