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08/18/2012

For the week 8/13-8/17

[Posted 6:00 AM ET]

Europe, Washington and Wall Street

Let’s start out with the latest on the economy in Europe and the eurozone. Eurostat issued its preliminary data on GDP and it was worse than putrid. For the 17 nations that make up the eurozone, growth contracted 0.2% in the second quarter over the first. [Minus 0.7% on an annualized basis.] This after a flat pace in the first. There is no doubt the figure for the current quarter will be negative, thus the eurozone, and the 27-nation European Union as a whole (which also fell 0.2% in Q2), are back in recession.

Much was made of the fact Germany was up 0.3%, a tick better than expected, but when the final stats come in it could very well be revised down. Confidence is shot and the people know the crisis is knocking on their doors.

France’s GDP was exactly unchanged for a third straight quarter…I’d say that is flatlining, wouldn’t you? But consider the fact France hasn’t implemented any real austerity measures yet, and it must. Plus unemployment is 10%. And President Hollande just raised taxes on the wealthy. The future is bleak.

As for the basket cases…Italy’s GDP in Q2 fell 0.7% (2.9% on an annualized basis), Spain fell 0.4% (1.7% ann.), Portugal dropped 1.2%, Belgium 0.6% and Greece declined at an annualized rate of 6.2%. [Data was not available on Ireland.]

The biggest shocker may have been Finland, which had been hanging in there. Its economy declined, quarter over quarter, 1.0%. That is a very worrisome sign for the entire EU.

[Two nations had positive GDP of 0.2%, Q2 over Q1…Austria and the Netherlands.]

And looking ahead to 2013, an ECB survey of economists pegged eurozone GDP at 0.6%; hardly the stuff of recoveries and an ameliorating debt crisis.

Back to Greece, the new government of Prime Minister Antonis Samaras, which is very shaky and could fall at any minute all over again, will be seeking a 2-year extension on its austerity program in meetings next week with Angela Merkel and Francois Hollande. Germany has said no more loans for Greece. I can’t imagine they will like the idea of a further extension.

Supposedly, Greece is making a 3 billion debt payment on Aug. 20, to be covered by short-term debt, but then the issue is the next 31.5 billion euro ($39 billion) installment that is part of the second bailout. Greece must implement further cuts to pensions and public-sector wages before the Troika (IMF, ECB, and EC) approves it and that just doesn’t seem possible.

Jack Ewing of the New York Times had a good piece on Friday concerning the eurozone’s future and hurtling back into recession.

“(By) some measures the downturn has been under way for years.

“With the exception of Germany, none of Europe’s biggest economies have returned to the level of economic output they had at the beginning of 2008, before the subprime mortgage crisis in the United States spread across the Atlantic, according to calculations by two U.S. economists, Peter Rupert and Thomas F. Cooley.

“The figures suggest that Europe is already well into what could become a lost decade – a period of pernicious stagnation and wasted potential that could have lasting effects on ordinary citizens.

“Economic growth not realized represents investments in education that were never made, research that was never financed, businesses that failed and careers that ended too early or never got off the ground.

“ ‘There are larger implications that people don’t think about,’ said Mr. Rupert, a professor of economics at the University of California, Santa Barbara. ‘There is a huge decline in human capital.’”

I’d add it also leads to virulent extremism.

Jack Ewing quotes economist Carl B. Weinberg of High Frequency Economics.

“This is more than just a regular business cycle. I can’t think of a time in the postwar period in any major industrial countries where we have had a downturn resume before the previous cycle was over.”

German Chancellor Merkel, fresh off her vacation, flew to Ottawa for an elk meat barbecue hosted by Canadian Prime Minister Stephen Harper and in between bites, with elk juices dripping down her chin (OK…I’m embellishing this a bit…just kind of hungry, you understand….), Merkel reiterated she backed European Central Bank President Mario Draghi and his probable sovereign bond-buying plan, but only with conditions, as the ECB itself says it will call for, meaning the likes of Spain and Italy will have to ask for a bailout and give up some sovereignty through ECB monitoring and the implementation of austerity and structural reform.

Merkel told reporters in Ottawa, after dabbing the meat juices from her chin, that “Obviously time is pressing” on stamping out the debt crisis, though “on many of these issues we feel we’re on the right track.” Euro-area policy makers “feel committed to do everything we can to maintain the common currency.” [Tony Czuczka and Patrick Donahue / Bloomberg]

But aside from the fact the German parliament can put a kibosh to Draghi’s plans, let alone the German supreme court on Sept. 12, check out the comments from Finland, where the Daily Telegraph’s Ambrose Evans-Pritchard interviewed some leading figures.

“ ‘We have to face openly the possibility of a euro breakup,’ said Erkki Tuomioja, the country’s veteran foreign minister and a member of the Social Democratic Party, one of six that make up the country’s coalition government.

“ ‘It is not something that anybody – even the True Finns [eurosceptic party] – are advocating in Finland, let alone the government. But we have to be prepared,’ he said.

“ ‘Our officials, like everybody else and like every general staff, have some sort of operational plan for any eventuality.’

“Mr. Tuomioja’s intervention is the bluntest warning to date by a senior eurozone minister….

“ ‘(There) is a consensus that a eurozone breakup would cost more in the short-run or medium-run than managing the crisis.’….

“The coalition government is on thin ice as voters peel away to eurosceptic parties. The True Finns shattered the political order in last year’s election with 19 percent support. ‘Taxpayers here are extremely angry,’ said Timo Soini, the True Finn leader.

“ ‘There are no rules on how to leave the euro but it is only a matter of time. Either the south or the north will break away because this currency straitjacket is causing misery for millions and destroying Europe’s future.

“ ‘It is a total catastrophe. We are going to run out of money the way we are going. But nobody in Europe wants to be first to get out of the euro and take all the blame,’ he said.

“Like other member states, Finland has a veto that could be used to block any new bailout measures. However, unlike some states, its parliament would have to approve each future measure of the eurozone rescue, including a full bailout of Spain.”

The Economist (Aug. 11) on Greece…

“Most worryingly of all is the economy’s inability to grow. For as long as the threat of a euro exit hangs over Greece, credit will be scarce, foreign capital will stay away and investment will stall. As fiscal tightening forces down wages and demand, so the economy will shrink. Even if the government manages to cut planned spending and introduce a new property tax as promised, a shrinking economy will make it miss its targets – opening the door to eurozone demands for yet more austerity.

“Recession will eat away at the center parties in Greece and at the nation’s institutions. Syriza, an opposition hard-left alliance, stands every chance of gaining support. So does the far right, including the neo-fascist Golden Dawn, which has sympathizers among the police. As you gaze out at parliament from the office of the finance minister, the outer glass pocked by a bullet-hole from some forgotten demo in Syntagma Square below, the grim prospect is of a hard-left government vying against hard-right law-enforcement. Already, large Greek firms are guarding against a Syriza victory by exploring how to move their listings abroad. Who can blame them?”

The Economist (Aug. 11)

“Even if (the ECB gets the issue of seniority) right, there is an awful lot that could derail (central bank bond-buying). For one thing, nothing is likely to happen until September 12 when the German constitutional court is due to rule on the legality of the euro area’s permanent rescue fund. That date also matters because it is when Dutch voters go to the polls. If the Dutch follow the Finns in voting in large numbers for an anti-euro party, that would either increase resistance among creditor countries to using the bailout funds, or mean even tougher conditions for debtor countries.

“A reluctance in both Italy and Spain to sign up for a bailout is already an obstacle. For if there is rescue fatigue in northern Europe, there is reform fatigue in southern Europe, with electorates increasingly hostile to austerity programs that appear to be leading to deeper recessions.

“What’s more, Mr. Draghi’s plan has not won over Jens Weidmann, the president of Germany’s Bundesbank. Mr. Draghi knows that Germans revere their central bank; he also knows that it is Germany that underwrites the euro. That could mean that any bond purchases made by the ECB will be smaller than the markets are expecting. Mr. Draghi is proving to be as adroit a diplomat and politician as he is a central banker. But since he must offer both succor to debtor countries and reassurances to creditors, he has worryingly little room for maneuver.”

Washington and Wall Street

The data on the U.S. economy was solid this week. Benign news on the inflation front, detailed below, a strong retail sales figure for July, up 0.8% vs. expectations of just 0.3%; a better than expected number for July industrial production, up 0.6%, and a good figure for the leading economic indicators index for July, up 0.4%. But July housing starts were below expectations and earnings were mixed, with Cisco Systems, Target and Home Depot beating, but Deere and Wal-Mart falling short.

This coming week we have more on housing and a reading on durable goods that will be important in helping determine if the second quarter was the bottom in data (of course we need to see Aug. and Sept., too, but I’m just playing along with the bulls…trying to fake them out…our secret).

And then the following week the focus is all Bernanke, all the time, as the Fed Chairman gears up for his Aug. 31 speech in Jackson Hole where he will spell out some kind of policy change, virtually everyone assumes. Some of the Fed’s “hawks” have been speaking out, as the Wall Street Journal’s Jon Hilsenrath reported, with regional Fed presidents Charles Plosser and Richard Fisher calling for the Fed to hold off on additional action to stimulate the economy because its impact would be limited. Plosser, the president of the Federal Reserve Bank of Philadelphia, said in an interview with the Journal regarding further Fed action:

“I’m very dubious. There are diminishing returns to these actions. The evidence is not strong that somehow more [bond purchases] are going to help the unemployment rate move faster to where we’d like it to be. I don’t see that there’s much benefit.”

Dallas Fed President Richard Fisher, in another WSJ interview, said businesses have ample access to cheap credit “and are reluctant to borrow, hire and invest for other reasons, including concerns about regulation and taxes. With those uncertainties holding back business, he said, ‘I don’t see any virtue to further quantitative easing.’” [Hilsenrath]

Paul Wiseman of the AP had an extensive look at the U.S. economy…in part…

“The recession that ended three years ago this summer has been followed by the feeblest economic recovery since the Great Depression.

“Since World War II, 10 U.S. recessions have been followed by a recovery that lasted at least three years. An Associated Press analysis shows that by just about any measure, the one that began in June 2009 is the weakest.

“The ugliness goes well beyond unemployment, which at 8.3 percent is the highest this long after a recession ended.

“Economic growth has never been weaker in a postwar recovery.   Consumer spending has never been so slack. Only once has job growth been slower.

“More than in any other post-World War II recovery, people who have jobs are hurting: Their paychecks have fallen behind inflation.”

Growth…America’s GDP has grown 6.8% from the April-June quarter of 2009 through the same quarter this year, “the slowest in the first three years of a postwar recovery.   GDP grew an average of 15.5% in the first three years of the eight other comebacks analyzed.” [The AP ignores the 1945-48 recovery because the numbers were so skewed by World War II.]

Consumers…Consumer spending has grown just 6.5% since the recession ended, vs. an average of 14%.

Jobs…The economy has replaced 46% of the lost jobs since the recession. “In the previous eight recoveries, the economy had regained more than 350% of the jobs lost, on average.”

Mr. Wiseman goes on and on. Expect some of these stats in Republican campaign ads, and/or in the presidential and vice presidential debates.

On the issue of the deficit…

Erskine Bowles [of Simpson-Bowles fame] / Washington Post (Star-Ledger)

“Obama and Romney recognize that debt reduction starts with reducing long-term spending….

“But real deficit reduction – cutting the deficit by at least $4 trillion over the next decade to stabilize the debt and get it on a downward path as a percentage of gross domestic product – won’t happen without sweeping tax reform. This year, our broken tax code will give away more in loopholes - $1.3 trillion – than it collects in income taxes. That’s nuts, especially when most of the tax code’s backdoor spending goes to benefit well-off folks like me.

“This month, Romney said his tax reform proposal is ‘very similar to the Simpson-Bowles plan.’ How I wish it were. I will be the first to cheer if Romney decides to embrace our plan. Unfortunately, the numbers say otherwise: His reform plan leaves too many tax breaks in place and, as a result, does nothing to reduce the debt.

‘The ‘zero plan’ our commission recommended offered both parties an appealing bargain: lower tax rates for everyone in return for sweeping reductions in tax loopholes of every stripe. Taxpayers and the economy would benefit from a vastly simpler tax code, and getting rid of loopholes would produce more than $1 trillion of the $4 trillion needed in deficit reduction…

“Over the next four years, the United States will need to do much more to address its long-term debt than either party has been willing to do. This fall, the American people deserve a serious national debate about our debt, not easy promises. To avoid the most predictable economic crisis in history, we must let the numbers do the talking.”

Finally, the world is in an incredibly dangerous moment in history right now. The Middle East is on the verge of blowing sky high into a far wider spasm of violence than we’ve been witnessing in the likes of Syria. And to those believing the European debt crisis is close to being resolved, they’re simply nuts.

Plus it’s clear the lack of leadership in America today, from both sides of the political aisle, is on the verge of dragging us into the sewer. I am not changing my tune one iota. Before the year is out, there will be a Crash.

Street Bytes

--The incredibly stupid equity rally continued…now six straight weeks of gains for the Dow Jones and S&P 500 (five straight for Nasdaq) based solely on the expectation of some kind of  stimulative action on the part of the Fed and a rescue plan out of the ECB that has the full support of the likes of Germany. The Dow Jones added another 0.5% to 13275, while the S&P 500 gained 0.9% and Nasdaq 1.8%. Both the Dow and S&P are just shy of highs set back in Dec. 2007 and May 2008, respectively.

But I’m not going to say the rally in Apple shares to a record high of $648, up from the $530 level of May 17/18 and up 60% for the year, isn’t warranted based on the fundamentals.

Trading volume, incidentally, has been beyond pathetic and thus becomes meaningful because you can’t draw too much from the daily price moves. At least for the month of August in particular, Bill Gross’ remark about the death of the ‘cult of equities’ is spot on. Not necessarily that equities can’t from time to time provide a nice shot to the ol’ portfolio, but so many of us have been severely damaged by the Nasdaq and real estate bubbles, as well as the financial crisis that we are in essence still shell-shocked…and that feeling doesn’t go away for a long time, let alone the deleveraging process continues apace.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.29% 10-yr. 1.81% 30-yr. 2.93%

The inflation data was mixed for the month of July. The producer price index came in a little hotter, up 0.3%; up 0.4% ex-food and energy, but for the 12 months the figures are up 0.5% and 2.5%, respectively. Consumer prices were unchanged when a slight uptick was forecast, and up 0.1% on the core. For the last 12 months, the CPI figures are up 1.4% and 2.1%.

--Vale of Brazil, the world’s biggest iron-ore producer, said of China that there are “early signals of recovery” but you are not going to see 10-12% growth rates again. “The golden years are gone.”

The National Development and Reform Commission (NDRC), a top government economic planning agency, set China’s total coal output for this year at 3.65 billion tons, an increase of just 3.7% over a year ago. The growth rate for coal production the prior two years was 8.6% and 9%, respectively, according to Reuters. Just a further sign of softening demand.

Premier Wen Jiabao said easing inflation allows for more policy flexibility, probably in terms of further bank reserve cuts, while foreign direct investment fell 8.7% from a year earlier. Wen also said, “We have the conditions and capabilities, and will be sure to fulfill this year’s economic and social development targets.” But he “warned that the foundation for economic stabilization is still unstable, and that economic hardships may continue for some time.”

--Japan’s second quarter GDP rose only 0.3%, much lower than expected.

--Britain’s unemployment rate dropped to 8% in June, though this was probably due to hiring for the Olympics, while July retail sales rose 0.3%. The key will be to see how the data lines up come September and October, post-Olympics.

--There’s a future explosive issue developing in Britain as the government has told train operators they can raise fares by an average of 3% above the July retail prices index, which was up a higher than expected 3.2%, plus, they can tack on an extra 5% on some ticket prices as long as they are balanced by cuts elsewhere…so 11% on some routes, or hundreds of pounds more for commuters who are seeing no wage increases or actual cuts in pay. The fare increases would go into effect next January, from what I understand. It’s not like the rail system there is known for good service, either, “a crappy network” as one rider told the London Times. I mean picture that some commuters into London will be paying about $150 a week, or as one lobbyist for the public put it, “With the economy flatlining, this is untenable.” At the same time, 20,000 jobs in the rail industry are at risk under austerity proposals. It’s the kind of issue that if not handled better could bring down the government.

--Unemployment rates rose in 44 states in the month of July, the most to show an increase in more than three years. They rose in nine considered battleground states, according to Christopher S. Rugaber of the AP. In Nevada the rate rose to 12% from 11.6% in June, though still better than the 13.8% of a year earlier. Michigan’s increased to 9% from 8.5% two months earlier.

--Shares in Facebook dropped to a record low of $19.87 at the close on Thursday, the first day early investors were allowed to sell their holdings following the May IPO at $38, and then fell further to finish the week at $19.05, 50% off the IPO level. The 6.3% drop on Thursday was the largest one-day post-lock-up decline among the 20 biggest IPOs since January 2011, according to Bloomberg.

Thursday’s freed up shares represent 14% of the 1.91 billion that will become available for sale in the coming nine months so constant pressure on the stock until this all clears. The next big dates come between Oct. 15 and Nov. 13, when restraints are lifted on about 240 million shares. Then on Nov. 14, you have 1.2 billion shares that can trade. Some of the largest early investors were able to sell on Thursday.

The Wall Street Journal reported that earlier this month, CEO Mark Zuckerberg conceded it may be “painful” to watch the share price, even as he sought to buck up morale. Employees are still unable to sell, except for Zuckerberg and a few others who can sell in November. Zuckerberg’s fortune has declined from $19 billion to about $10 billion, including the $1 billion he banked with the IPO. Chief operating officer Sheryl Sandberg has seen her $1.6 billion windfall decline to $850 million, with the shares paying out only if she stays with the company.

--Cisco Systems, the world’s largest maker of computer networking equipment, came through with earnings that barely exceeded Street expectations but after a string of disappointments, the results were celebrated and shares rose. Investors were encouraged that the company increased its quarterly dividend 75% to 14 cents, up from 8 cents.

Cisco has always been a bellwether for the global economy and CEO John Chambers said he saw improvement in the U.S., though it was “way too early to call this a trend.” Orders were strong in Asia, especially China, he said, but continued to fall in Europe with no end to this trend in sight. Revenue was up 4% over year ago levels. The shares rallied from $17.35 to $19.05 in the two days after the announcement.

--Deere & Co. cut its view for the year after fiscal third-quarter earnings missed Wall Street’s expectations, as the company voiced concerns the drought in the U.S. Midwest will undermine sales of Deere’s tractors and harvesting combines. Sales had soared for five years, but now there is caution. Some international markets are also soft.

I heard from my farmer friends in the Oklahoma Panhandle the other day and Eugene said of the high feed prices, “I have been in this business long enough to know that from time to time things get out of balance. Anyone producing meat, milk or eggs is having a very difficult time and just hope we can hang on until things get back in balance.”

But he is a special guy, with a great family, so of course he finished his letter with, “Although the dry weather has produced some challenges…Life is good on the farm.” 

--Home Depot reported fiscal second-quarter earnings rose 12%, better than expected, though sales growth was light. Same-store sales rose 2.6% in the U.S. Warm weather in the first-quarter did pull sales from the second.

--Staples Inc.’s fiscal second-quarter earnings fell 32% and the shares fell 13% to the lowest level since 2003 as the largest office-supply chain in the U.S. also lowered full-year guidance. Chairman and CEO Ron Sargent said sales trends in North America were softer than expected, down 2.7%. Same-store sales in Europe fell a whopping 9%.

Now I’ve been told I am easily my local chain’s biggest customer as I buy a ton of paper and ink, which are two sectors the company said are suffering. I actually have a personal shopper, located in Canada, who calls me every quarter but it just hit me, I haven’t heard from Joanne for quite some time so I’m guessing she was a victim of job cuts.

--Sears Holdings Corp. reported sales declined more than expected for its fiscal second quarter, with same-store sales down 3.7% (2.9% at the Sears chain and 4.7% at sister discounter Kmart). Sears reported a loss of $132 million for the quarter, compared with $146 million a year earlier.

--Standard Chartered reached a quick settlement with New York State’s Department of Financial Services, which had accused it of doing business with Iranian customers in violation of U.S. sanctions. StanChart claimed it was “overwhelmingly” in line and that the transactions “relating to Iran” that were not compliant totaled a mere $14 million. StanChart then agreed to settle for $340 million as well as accept increased regulatory supervision. Seeing as how the bank had a pre-tax profit of $3.9 billion in the first half, an easy deal for the institution to accept.

[The $340 million will go directly into the New York DFS and then into the state government’s general fund.]

--The median home price in Southern California hit its highest point in nearly four years last month, $306,000, according to DataQuick, up 8.1% from July 2011. It’s still amazing that the median peaked at $505,000 in July 2007. It’s been clear for a few months now that a bottom is definitely in place, it’s just how much will the current momentum carry prices? 

--Shares in Groupon took a big hit and the shares are now down about 80% from the IPO price of $26 last year to $4.75 as the company reported revenues below the Street’s expectations, though not a big miss, as investors just believe growth is slowing.   CEO Andrew Mason blamed challenges in Europe in part for lowering guidance.

--Google plans to cut about 4,000 jobs at its Motorola Mobility Holdings Inc. unit, or 20% of the total staff at a company it acquired earlier this year.

--The World Gold Council said demand for gold dropped 7% in the second quarter owing to economic fears in India and China, who between them represent 45% of the jewelry and investment demand.

--Editorial / The Economist…on high-frequency trading…

“This newspaper seldom finds itself on the side of restraining either technology or markets. But in this case [Ed. after the Knight Capital debacle] there is a doubt whether the returns justify the risk. Society needs a stock market to allocate capital efficiently, rewarding the best companies with higher share prices. But high-frequency traders are not making decisions based on a company’s future prospects; they are seeking to profit from tiny changes in price. They might as well be trading baseball cards. The liquidity benefits of such trading are all very well, but that liquidity can evaporate at times of stress. And although high-frequency trading may make markets less volatile in normal times, it may add to the turbulence at the worst possible moment.”

--Atlantic City’s July casino revenue was down 9.5% from a year ago, continuing a losing streak dating back to November 2006, when the first casino opened in Pennsylvania. The newest casino in A.C., Revel, continues to see improving revenues but even they admitted they are not where they’d like to be after the first four months.

The biggest money-making casino, Borgata, said a single gambler was responsible for about half the casino’s 16% decline from a year earlier. This fellow won $5 million in a single hot streak over a weekend. Congratulations, Mystery Gambler! That’s great.

--Former College Football Hall of Fame inductee Jim Donnan, who coached at Marshall University and the Univ. of Georgia before becoming a television commentator at ESPN, was charged by the SEC with running an $80 million Ponzi scheme whose victims included other college coaches and former players. One unidentified player supposedly invested $800,000 with Donnan after being told Donnan’s company, GLC Limited, bought leftover or damaged merchandise from retailers and resold it to discount retailers. Donnan and his partner promised returns of 50% to 380%. Only $12 million of $80 million raised went to buying actual merchandise.

--And Baseball Hall of Famer Eddie Murray, one of only three to collect both 3,000 hits and 500 home runs, agreed to pay $358,000 to settle an insider-trading case with the SEC, one involving former Orioles teammate Doug DeCinces. DeCinces and three others settled with the SEC last year, DeCinces agreeing to pay a whopping $3.3 million.

--In more than 60 years of recordkeeping, July had the fewest number of tornadoes in the U.S., just 24. Before this the record low was 73. This after the mid-April outbreak made it look like we’d set a record for 2012.

--NBC’s coverage of the London Olympics was the “most-watched television event in U.S. history,” according to the network.   More than 219 million watched the Games on its networks, compared to the 215 million who tuned in for the 2008 Beijing Olympics.

You know what I just realized? I was watching the closing ceremonies and entertained by the musical acts (and thoroughly irritated they cut away before the end for that new sitcom, “Animal Practice,” that I’ve told you will last no more than four episodes, before returning for The Who’s finale), saw a list of the performers the next morning and thought how did I miss Ray Davies, and just learned NBC cut him out! How the [heck] can you cut out the Kinks’ great Ray Davies?!

--Last week I talked about Wendy’s in Japan offering Lobster and Caviar Burgers and then in The Economist I learned that Japan has a mini-crisis on its hands with a shortage of eel, considered a delicacy there, due to overfishing. [Drenched in sweet sauce and served on a bed of rice.] I didn’t realize eel is rich in vitamins, protein and calcium.

But did you know eels “spawn only once in a lifetime, in a complex and still little-understood cycle”? Geezuz, no wonder they look so miserable.

Foreign Affairs

Iran / Israel: Many Israeli citizens shopped for new gas masks this week as the rhetoric from Israeli leaders picked up in intensity. Statements from Prime Minister Benjamin Netanyahu were accompanied by civil defense measures and the appointment of a new Home Front Defense minister.

Deputy foreign minister Danny Ayalon told Israel Radio that the P5+1 (the five permanent members of the UN Security Council plus Germany negotiating with Iran) should “declare today that the talks have failed.” Give Iran just a few “weeks, and not more than that,” Ayalon said, and if Iran has not halted its nuclear program by then, “it will be clear that all options are on the table.”

Israeli Defense Minister Ehud Barak, in acknowledging the challenges in an attack, also said, “I believe that it is inestimably more complicated, inestimably more dangerous, inestimably more complex, and inestimably more expensive in terms of human life and resources to deal with a nuclear Iran in the future.”

Barak added:

“The prime minister, defense minister and foreign minister hold responsibility (for determining how the nation should address the danger of Iran’s nuclear weapons program). A decision (to attack Iran), once one is needed, will be made by the government of Israel, not by groups of citizens or editorials.”

Tehran’s Foreign Ministry spokesman said, “In our calculations, we aren’t taking these claims very seriously because we see them as hollow and baseless. Even if some officials in the illegitimate regime (Israel) want to carry out such a stupid action, there are those inside (the Israeli government) who won’t allow it because they know they would suffer very severe consequences from such an act,” he said. [Jerusalem Post]

Iranian Supreme Leader Ayatollah Ali Khamenei said Wednesday that he was confident “the fake Zionist (regime) will disappear from the landscape of geography,” an Iranian news agency reported. “The light of hope will shine on the Palestinian issue, and this Islamic land will certainly be returned to the Palestinian nation.”

On Friday, Iranian President Mahmoud Ahmadinejad branded Israel a “tumor.”

In a speech, Ahmadinejad referred to Israel as a western “tool to dominate the Middle East” and an “insult to all humanity.”

“Today, Israel and the Zionist entity are against the preservation of all human rights and human dignity…The Zionist regime and the Zionists are a cancerous tumor. Even if one cell of them is left in one inch of (Palestinian) land, in the future this story (of Israel’s existence) will repeat.”

Also on Friday, Hizbullah leader Sheikh Nasrallah said his group possessed rockets capable of killing “tens of thousands” of Israelis. 

Speaking of Iran’s response should Israel attack, Nasrallah said, “Iran is powerful and courageous” and it’s response to any assault would be “huge and lightning.” [Bloomberg]

I agree with David Makovsky, director of research at the Washington Institute for Near East Policy who told Bloomberg News that Israelis “believe there’s a closing window of opportunity and they also believe politically it’s far more complex if they wait until after November to strike. I think they’re concerned that if they attack during a lame-duck period they have a lot more uncertainty about American reaction,” he said.

Netanyahu will act. He believes a raid will not rally the Iranian people around the regime and instead could lead to its downfall, and he believes it is worth setting back the program, even if it’s only for one or two years.

David Rothkopf / Foreign Policy

“(The) reasons to attack are clearly growing more compelling for Israeli leaders, uniting them on this issue to a greater degree than at any time in the recent past. Diplomacy doesn’t seem to be working. The Iranian nuclear program continues moving closer to weapons capability. And the Iranians themselves have matched their rhetoric about the annihilation of Israel with direct support for attacks on its people, like the suicide-bomb murder of five Israeli tourists in Bulgaria, which U.S. officials have linked to Iran.”

David Feith / Wall Street Journal

“The United States doesn’t want Israel taking military action against Iran’s nuclear program, and top officials have been traveling to Jerusalem this summer to make their case in person. Any attack would be dangerous and premature, they say, because Iran is suffering under crippling sanctions, the world is united against Tehran as never before, and all options remain on the table.

“The problem is that every one of these points is false or misleading….

“The Israelis believe that a nuclear-capable Iran – one with sufficient fissile material and weapons technology to be able to build a bomb in a few weeks – is as threatening to the international order as an Iran with an actual weapon. Either circumstance, Israel fears, would allow the mullahs to carry out future adventurism under the protection of a credible nuclear deterrent. Any response to Hizbullah terrorism or to the murder of diplomats at Washington restaurants would have to consider that Tehran could retaliate with nukes.

“This helps explain why a 2010 U.S. sanctions law committed Washington to doing ‘everything possible…to prevent Iran from acquiring a nuclear weapons capability.’ But you wouldn’t know that from the Obama administration. Instead, we get Defense Secretary Leon Panetta pledging that America ‘will not allow Iran to develop a nuclear weapon, period.’

“That sounds tough and unequivocal, but it says nothing about an Iranian nuclear capability. As such, it suggests to Iran’s mullahs that as long as they don’t parade a bomb through downtown Tehran, they can expand their nuclear program without crossing any American red lines. That’s good if the priority is to avoid confrontation in the next few months; it’s bad if you want to stop Iran from ever wielding a nuclear deterrent.”

As for the Hizbullah threat, U.S. State Department counter-terrorism coordinator Daniel Benjamin said, “Our assessment is that Hizbullah and Iran will both continue to maintain a heightened level of terrorist activity and operations in the near future. Hizbullah maintains a presence in Europe and its recent activities demonstrate that it is not constrained by concerns about collateral damage or political fallout that could result from conducting operations there…We assess that Hizbullah could attack in Europe or elsewhere at any time with little or no warning.” [Mr. Benjamin should have emphasized Latin America as a target rich area, too, with Hizbullah having a large presence there.]

Syria: The intensity of the civil war seems to grow by the day as hundreds were reported to have been killed in just the past few days. The prime minister who defected, Riad Hijab, claims the Bashar Assad regime is near collapse and that it controls just 30% of the country, which is accurate, but Assad obviously has enough loyalists to call on in the army.

The London Times reported that the CIA has been limiting the supplies of weapons and ammunition reaching rebel forces because of ongoing concerns the arms will end up in the hands of al-Qaeda and other terrorists.

William Perry, former defense secretary under President Bill Clinton, warned that if America continued to sit on its hands, “we’ll be in no position to influence the post-Assad government.” Perry has recommended that the U.S. impose a no-fly, no-drive zone in northern Syria.

President Obama just wants the war to stay out of the American public’s mindset until after the first week in November, though the administration accused Hizbullah and Iran’s Revolutionary Guards Quds Force of supporting the Syrian army. In Lebanon, Hizbullah leader Nasrallah is a big supporter of Assad’s.

Editorial / Wall Street Journal

“Syrians trying to liberate their country from Bashar Assad can be forgiven for thinking they’re part of an existential play. They could call it ‘Waiting for Barack’ – waiting specifically for U.S. Election Day, when President Obama might finally decide to do something serious to help.

“Secretary of State Hillary Clinton continued the Samuel Beckett diplomacy on the weekend, visiting Istanbul and announcing that Turkey and the U.S. will study a range of new policy options, including the imposition of a no-fly zone over Syrian territory. ‘Our intelligence services, our military have very important responsibilities and roles to play so we are going to be setting up a working group to do exactly that,’ she said.

“Well, there you are…Eighteen months after the uprising began, more than 20,000 deaths and a quarter-million refugees later, the Obama Administration has set up ‘a working group.’…

“The truth is that everyone knows, most of all Assad and his patrons in Tehran and Moscow, that Mr. Obama has decided to put the world on hold until after November 6. Israel is supposed to do nothing about Iran, and Syria’s rebels are supposed to hunker down and survive, in order to let Mr. Obama keep assuring Americans that ‘the tide of war is receding.’ On the contrary, thanks in part to Mr. Obama’s calculated abdication, Middle East tension and turmoil are rising.”

Fouad Ajami / Wall Street Journal

“The sight of Hillary Clinton cutting a rug on the dance floor this week in South Africa gives away the moral obtuseness of America’s chief diplomat. That image will tell the people of the besieged Syrian city of Aleppo, under attack by a merciless regime, all they need to know about the heartlessness of U.S. foreign policy.

“True authority over foreign affairs has been vested in the White House, and for that matter, in the Obama campaign apparatus. All the great decisions on foreign policy – Iraq and Afghanistan, the struggle raging in Syria, the challenge posed by the Iranian regime – have been subjugated to the needs of the campaign. All that is left for Mrs. Clinton is the pomp and ceremony and hectic travel schedule….

“This is foreign policy trivialized.”

[On the issue of Syria and its stockpiles of chemical and biological weapons, it would take tens of thousands of troops to lock them down. Volunteers?]

Lebanon: I have long warned this nation is a powder keg waiting to blow and this week, if you weren’t convinced of this before, you saw growing evidence a new civil war could be in the offing owing to the spread of violence from the Syrian conflict next door. I thought one of the more significant events of the week was Air France diverting a flight that was scheduled to go from Paris to Beirut (the route I used to take) to Amman because of growing violence and tension in Beirut. Imagine being on that flight. Hizbullah and various ‘families’ have been blockading the main airport road into Beirut (which goes through a Hizbullah neighborhood), while Gulf states Qatar, Saudi Arabia, UAE, Bahrain and Kuwait explicitly told their citizens to leave Beirut immediately.

Lebanese Shiite gunmen kidnapped more than 20 people on Wednesday alone in retaliation for the Syrian rebels taking a suspected member of Hizbullah in Damascus. A Turkish businessman arrived in Beirut on Wednesday and was kidnapped near the airport. If you are from a country backing the uprising against Assad, you are a target. It was Wednesday evening that Air France made its move.

Understand that during Lebanon’s 1975-90 civil war, the country was divided along Sunni, Shiite, Druse and Christian lines, with far more families and sects split off from these four main groups. I’ve seen how in Beirut it was neighborhood vs. neighborhood and there are signs there today it is only a matter of time before there is a similar conflict.

A senior political source told the Daily Star on Thursday:

“What happened today is a clear indication that we are at the brink of major chaos in Lebanon. The storm in Syria has reached Lebanon now and there is no going back.”

The paper reported the Meqdad clan, which hails from Bekaa (think Baalbek) kidnapped over 30 men it said were members or supporters of the Free Syrian Army in retaliation for the abduction of one of its kin. This is no ordinary ‘family.’ They have their own armed wing, shown on television the other day, armed to the teeth. A security source told the Daily Star:

“Dealing with [the Baalbek] clans is a highly subtle endeavor,” with the clans following classic tribal feuds and vendettas. The clans also don’t always cooperate with Hizbullah. Oh, and how big is the Meqdad clan? Try 17,000.

The dysfunctional Lebanese government and military is powerless. Picture the army doesn’t have the guts to try and break up the blockades of the main road to the airport.

Egypt: President Mohamed Morsi shocked his country, and the United States, among others, in orchestrating a soft coup; removing Field Marshal Mohammed Hussein Tantawi, the country’s long-time military chief, and his deputy, Lt. Gen. Sami Anan, who were “retired,” along with other military leaders, as Morsi replaced them with a younger group. Tantawi and Anan were then awarded medals two days later in a sign that they stepped down without protest.

It was a dramatic move and Morsi at the same time reclaimed political powers the Supreme Council of the Armed Forces had taken away. Morsi now believes he has the authority to play a major role in writing the constitution, though Egypt’s high court will have a lot to say about this.

What concerns the U.S. and others is the fact Morsi’s Muslim Brotherhood dominated government has begun cracking down on media criticism.

Morsi said in a speech on Sunday that his decisions to force the early retirement of the generals were not meant to “embarrass” the military or its leaders but rather he was acting in “the best interests of this nation.”

“Today, this nation returns – this people returns – with its blessed revolution. Support me strongly, so we can move to a better future.” [Sydney Morning Herald / New York Times]

Now all we can do is sit back and watch.

Afghanistan: Last week I wrote of three U.S. soldiers being killed in the latest attack by members of the Afghan security forces and then hours later we learned there were another three killed in similar fashion, among eight total coalition forces killed in a 48-hour period ending last Saturday. Then yesterday, Friday, we learned of another two Americans killed by a soldier in an Afghan uniform.

[Last weekend, an Afghan policeman turned his gun on his own, killing 10 Afghan officers.]

This is a huge crisis for the U.S. and NATO. Afghan security forces have killed more than 80 American and NATO service members since 2007, but one respected authority cited by Paul Sperry of the Hoover Institution puts it at closer to 200. Sperry says there is evidence the Pentagon is hiding the true tally of the so-called green-on-blue attacks. As Sperry writes in the New York Post:

“Take the case of Marine Lance Cpl. Edward J. Dycus, who died earlier this year from a gunshot wound while serving in Afghanistan. In his official death announcement, the Pentagon said Dycus died ‘while conducting combat operations.’

“In fact, an Afghan soldier shot the 22-year-old Marine in the back of the head while standing guard at an Afghan-U.S. base. The Pentagon made no mention of the treachery in the notice it released to the public.”

On Friday we also learned a U.S. military helicopter crashed during a firefight with insurgents, killing seven Americans and four Afghans. The Taliban probably shot it down.

At least 28 Americans have been killed this month and over 220 this year.

Elsewhere in the country, 48 were killed in a wave of suicide bombings, as many as 14 in the city of Zaranj near the Iranian border.

Pakistan: The Taliban attacked a Pakistani military base where nuclear weapons might be stored, though there is no reason to believe the weapons themselves weren’t secure the whole time during an assault that left one Pakistani soldier dead and eight insurgents. It is the third such attack against a major Pakistani military facility in as many years. [Elaine M. Grossman / Global Security Newswire]

Washington estimates Pakistan has 90 or more nuclear warheads.

Russia: In a disgraceful verdict and sentencing, three members of Russian punk band Pussy Riot were convicted of “hooliganism motivated by religious hatred” and sentenced to two years each. Judge Marina Syrova said the women had “crudely undermined social order” during their action in February when they did a punk prayer as a political protest against the Russian Orthodox Church’s support of President Vladimir Putin at Christ the Savior Cathedral in Moscow (a most beautiful spot). 

The U.S., European Union and various rights groups immediately condemned the sentences and even the Russian Orthodox Church called for clemency, saying in a statement:

“Without doubting the legitimacy of the court ruling, we ask the state authorities to show mercy for the convicted within the framework of the law in the hopes that they will refrain from repeating their sacrilegious acts.”

I am on record as saying the act was indeed blasphemous, but simply worthy of a fine. Prosecutors were seeking a three-year jail sentence. As one of the defendants, Nadezhda Tolokonnikova, 22, said through her lawyer on Twitter the day before the verdict:

“Our imprisonment serves as a clear and unambiguous sign that freedom is being taken away from the entire country.”

It most definitely is, and Pussy Riot is far from being the only ones detained and brutally harassed. As the Los Angeles Times’ Sergei L. Loiko wrote, Maria Baronova, 28, is one such victim.

“On a day in early June when only her nanny was home, masked police officers armed with submachine guns climbed onto the balcony of Baronova’s fifth-floor apartment and threatened to break down the door.

“When the nanny opened the door, Baronova said, they threw her on the floor face down and ransacked the apartment, taking four computers, part of the family archive and even ultrasound images from Baronova’s pregnancy.

“Police broke into opposition leader Ilya Yashin’s apartment the same day. When he arrived home, he said, he found the furniture broken and everything turned inside out, his computers and other personal items missing.”

But the opposition has been unable to build up a unified movement. We’ll see how much the Pussy Riot case galvanizes them going forward.

I stick by my prediction Vladimir Putin doesn’t last the year.

China: State media issued a stark warning over a dispute in the East China Sea, this time warning Japan over interfering in the Diaoyus, known as the Senkakus in Japan. The People’s Daily said China was prepared to take action to defend its sovereignty. Japan had arrested Chinese activists on the island. But on Friday, Japan defused the crisis by deporting the 14.

Separately, the verdict in the murder trial of the wife of Bo Xilai will be delivered on Monday. Gu Kailai confessed to the murder of British businessman Neil Heywood. Bo, once thought to be a candidate for top leadership, has not been seen in public since his wife was implicated in Heywood’s murder.

North Korea: A top leader of the Kim Jong Un regime met with both President Hu Jintao and Premier Wen Jiabao on Friday, after Beijing and Pyongyang reached agreement on developing two trade zones near the Chinese border, further signs of a strengthening relationship after Kim took over from his father. President Hu praised “the friendly relations between China and North Korea.”

Earlier, it has been reported, China warned North Korea against carrying out any new extended-distance missile tests or nuclear weapons tests until Beijing concluded its leadership change, according to the Washington Times and Global Security Newswire. If true this is very significant since it would put off any tests until October or later it would seem.

Global Security Newswire also reports that an analysis by the Washington-based Institute for Science and International Security concludes North Korea could possess nearly 50 atomic bombs, in various forms, within a few years if no curbs are placed on its nuclear activities. The ISIS analysis was by David Albright, certainly one of the more respected men in his field, along with Christina Walrond. Should this ever become the case, knock off a few thousand points on your Dow Jones forecast….and sleep with one eye open.

South Africa: Police killed at least 35 armed miners who charged them at a Lonmin PLC platinum mine, Thursday, in one of the worst cases of violence since the end of the apartheid era.   The Sowetan newspaper editorialized that the violence “awaken us to the reality of the time bomb that has stopped ticking – it has exploded. Africans are pitted against each other…fighting for a bigger slice of the mineral wealth of the country. In the end the war claims the very poor African – again.”

The situation erupted after police failed to get striking workers to hand over their weapons, from machetes to guns. Previously, in the six-day standoff, two police officers had been hacked to death. On Thursday, though, the strikers rushed the police, as vivid video taken on the scene shows, and the mostly black police had little choice but to open fire.

France: Riots broke out in the usually calm northern city of Amiens, forcing President Hollande to interrupt his holiday and giving his opponents ammunition, claiming the new president was soft on crime. France’s suburbs have always simmered in discontent, with drugs and staggering unemployment ever prevalent. Most of those rioting are immigrants from North Africa, such as Algeria and Tunisia.   There were also extensive clashes among gangs in Toulouse in recent days. Marine Le Pen’s National Front will benefit from the unrest.

Britain / Ecuador: WikiLeaks founder Julian Assange was granted asylum by Ecuador and remains holed up in their embassy in London. William Hague, Britain’s foreign secretary, vowed to block any attempt by Assange to leave the country. Additionally, Sweden is upset at Ecuador’s action as it seeks to have him extradited to face allegations of rape and sexual assault. Hague strongly hinted Britain could seize Assange from within the embassy, which led Ecuadorean President Correa to claim Britain was “terrorizing” his country. Hague, though, spoke without consulting the vacationing David Cameron.

Assange is expected to make a statement to the media and supporters from the steps of the embassy on Sunday.

Random Musings

--Peggy Noonan / Wall Street Journal

“Both campaigns are afraid of being serious, of really grappling with the things Americans rightly fear. But there’s no safety in not being serious. It only leaves voters wondering if you’re even capable of seriousness. Letting them wonder that is a mistake.”

Then came Mitt Romney’s selection of Paul Ryan. I’ve always admired and liked the congressman, especially for his guts in tackling the entitlement issue. I thought Romney’s decision was enlightened. It certainly shook things up.

But if Romney is going to run with Ryan, he has to support Ryan’s Medicare plan and Romney is already running away from it! So I’m like, what the hell did you pick him for then?!

Plus, in a classic case of my adage “wait 24 hours,” now we’ve learned that Ryan requested stimulus cash and earmarks for his district despite denying he ever did so.

In a statement on Thursday upon being confronted with the evidence, Ryan said:

“After having these letters called to my attention I checked into them, and they were treated as constituent service requests in the same way matters involving Social Security or Veterans Affairs are handled. This is why I didn’t recall the letters earlier. But they should have been handled differently, and I take responsibility for that.”

Well, heck, Congressman. It doesn’t matter if it was an innocent mistake…it’s perfect fodder for the Democrats’ campaign ads targeting those remaining 8% who are undecided.

I don’t know. It’s just really depressing.

--In a new Gallup Poll, Mitt Romney leads President Obama, 47% to 45%, among registered voters; this in surveys taken after Wisconsin Congressman Paul Ryan was tabbed as Romney’s running mate. There was no apparent bounce, however, as the 47-45 margin was essentially the same as in a previous Gallup daily tracking poll. But Gallup says Romney could get a delayed bounce, which is how I’d view it.

--In a Washington Post/ABC News poll after Paul Ryan’s selection, 38% of all Americans expressed favorable views of the candidate, 33% negative ones.

Opinion on the Ryan Selection…all sides

Editorial / Wall Street Journal

“Vice Presidential choices rarely sway electoral outcomes, but they do reveal something about the men who make the choices. As Mr. Romney’s first presidential-level decision, the selection speaks well of his governing potential. He broke free of the stereotype that he is a cautious technocrat by picking Mr. Ryan, a man who has offered reforms that the country needs but are feared by the GOP’s consultant class and much of his own party.

“Mr. Romney is signaling that he realizes he needs a mandate if he is elected, which means putting his reform ideas before the American people for a clear endorsement. He is treating the public like grown-ups, in contrast to President Obama’s focus on divisive and personal character attacks.

“The Ryan choice also suggests that Mr. Romney understands that to defeat Mr. Obama he’ll have to do more than highlight the President’s economic failures. He must also show Americans that he has a tangible, specific reform agenda that will produce faster growth and rising incomes.

“Mr. Ryan is well equipped to help him promote such an agenda….

“In 2011, Mr. Ryan won the battle inside the House GOP to take on entitlements, including Medicare. The budget showed the courage of Republican reform convictions and helped smoke out Mr. Obama’s insincerity on spending cuts and budget reform….

“In his remarks on Saturday in Norfolk, Mr. Ryan also hit on what is likely to be an emerging Romney theme: leadership that tells Americans the truth. ‘We will honor you, our fellow citizens, by giving you the right and opportunity to make the choice,’ he said.   ‘What kind of country do we want to have? What kind of people do we want to be?’

“The underlying assumption is that at this moment of declining real incomes and national self-doubt, Americans won’t fall for the same old easy demagoguery. They want to hear serious ideas debated seriously. The contrast couldn’t be greater with a President who won’t run on his record and has offered not a single idea for a second term.

“In choosing Mr. Ryan, Mr. Romney is betting that Americans know how much trouble their country is in, and that they will reward the candidate who pays them the compliment of offering solutions that match the magnitude of the problems.”

Jacob Weisberg / Financial Times

“Given the options he had left himself, this was probably the best choice for Mr. Romney to make. Mr. Ryan stands for a clear proposition – the radical scaling back of the federal government’s social commitments – and through his pick, Mr. Romney now represents that as well. Usually, a vice-presidential candidate scrambles to fall into line with the top of the ticket. In this case, it is Mr. Romney who will, not for the first time, adjust his views.   Instead of attacking Barack Obama for cutting Medicare, Mr. Romney must now charge him, as Mr. Ryan does, with not cutting it enough….[Ed. Romney thus far has not done so.]

“Mr. Ryan’s presence on the ticket makes this a better and more interesting election.   It forces the debate the country needs to have about entitlement spending and ensures that the remaining months will be more than an argument about whose negative ads are more disgusting.

“It is hard to see it, however, as improving Republican chances. Until now, Mr. Romney has been a poor candidate running a clumsy campaign, which pointed towards losing a winnable race. Mr. Ryan changes that narrative, but only by reframing the election the way Mr. Obama’s team wishes to, as a choice between two visions of the social contract as opposed to a referendum on Mr. Obama’s economic performance. Instead of teasing out the implications of Mr. Romney’s tax cuts, Mr. Obama can now directly challenge Mr. Ryan’s stated positions in favor of privatizing social security and turning Medicare into a voucher program. Florida, a must-win state for Mr. Romney, just moved closer to Mr. Obama’s column.”

Editorial / New York Post

“It’s undeniable that, with Ryan as his No. 2, Mitt Romney’s campaign will offer voters a stark choice: Will America be a nation of unaffordable, ever-escalating entitlements, government control of the economy and inevitable anemic growth?

“Or will it return to a course that encourages and rewards the entrepreneurial spirit, that frees Americans to make their own choices and take risks, that unleashes the drive toward prosperity that made the nation great?

“Romney took a big risk himself by naming Ryan yesterday. But he did the nation a favor by making the choice between him and Obama clear.

“For that alone, he deserves kudos.

“As for the coming debate – bring it on!”

Michael Goodwin / New York Post

“Ryan’s plan isn’t perfect, yet it is a courageous and necessary starting point. But he can’t change the political dynamic alone. It falls to Romney, and that’s a problem.

“Nearing the end of his second national race, he still doesn’t seem prepared for the life he has chosen. He reacts to attacks on his background and wealth as if he is surprised.

“But rival Republicans Newt Gingrich and Rick Perry made the mud bombs Obama is throwing. If Romney was expecting a more honest campaign from the president, he’s guilty of political malpractice.

“The mere fact that Obama is able to successfully distort Romney’s record to independent voters reflects Romney’s failure to define himself first – a violation of Politics 101.

“Meanwhile, Obama knows what he is about. He acts without honor or scruples and does not suffer inhibitions about damaging the Oval Office. He will do what it takes to win.

“Romney is a better man than that, but nice guys often do finish last.  Paul Ryan can help, but if the nation is to be convinced to fire the first black president, Mitt Romney will have to do the convincing.”

Ruth Marcus / Washington Post

“Romney needs independents in Virginia, suburban women in Colorado, seniors in Florida.  It’s not a question of whether Ryan will help him woo these voters; it’s a matter of whether Ryan – especially once the Obama campaign and associated super PACs get through with him – will make that even harder.

“On the plus side, Ryan is smart, engaging, charismatic, young. He’s got good chemistry with Romney. He’s serious and committed without being off-putting or intractably partisan. Democrats who’ve worked with Ryan like and respect him.

“But selecting him as veep doesn’t make sense. It undercuts several aspects of the Romney narrative.

“Romney is the outside Washington candidate – now running with a sitting member of a body with a 12 percent approval rating. He’s the private sector fix-it guy – now with a career politician.

“Most important, the choice of Ryan pushes against what has been the central theory of Romney’s campaign: make it less of a choice between himself and Obama and more of a referendum on the incumbent president and the languishing economy.”

S.E. Cupp / New York Daily News

“For me…Ryan has always been the best choice. He’s unafraid to tackle third-rail issues like entitlement reform. He presented a controversial budget that made sweeping cuts to social programs that were tough but necessary. He’s become a national figure not because of kooky things he’s said on the conservative convention circuit, but because of his economic policies. And he’s a devout Catholic who represents social conservatives unapologetically but without rancor.

“Romney’s perceived anemia, when it comes to taking tough positions and then defending them unapologetically, gets a shot of iron from Ryan, who has been unafraid to make bold proposals and then stand by them.

“But in addition to the policy implications and social values that Ryan now ascribes to the Romney campaign, the pick also says to voters that Romney can be gutsy and confident. That intangible boosts Romney’s campaign in a way that no other vice-presidential candidate would have. Ryan is, in short, just what Romney needed. And it’s incredibly reassuring to see that Mitt Romney had the confidence to pick him….

“(Conservatives) from the far-right to the moderate middle know today that candidate Romney wants his campaign to be a referendum on President Obama’s economic policies and big government. And they know today that Romney isn’t afraid to get his hands a little dirty.”

Charles Krauthammer / Washington Post

“The Democrats’ Mediscare barrage is already in full swing. Paul Ryan, it seems, is determined to dispossess Grandmother, then toss her over a cliff. If the charge is not successfully countered, good-bye Florida.

“Republicans have a twofold answer. First, hammer home that their Medicare plan affects no one over 55, let alone 65. Second, go on offense. Point out that President Obama cuts Medicare by $700 billion to finance Obamacare.

“It’s a sweet judo throw: Want to bring up Medicare, supposedly our weakness? Fine. But now you’ve got to debate Obamacare, your weakness – and explain why you are robbing Granny’s health care to pay for your pet project.”

Editorial / Washington Post

“The best thing about Mitt Romney’s choice of Wisconsin Republican Paul Ryan to be his running mate is that it offers the chance to transform what has been a dismally substance-free campaign into a serious clash of ideas. The energetic, likable House Budget Committee chairman has made himself into the party’s leading thinker on the fiscal and budgetary matters that will confront the next president. We have differed sharply with Mr. Ryan’s policy proposals, which would cut far too deeply into an already fraying social safety net and raise too little revenue to support the needs of an aging society. But Mr. Ryan has demonstrated a willingness to tackle third-rail issues from Social Security…to Medicare….

“Bold is not normally a word associated with Mr. Romney, but this is a bold – perhaps even foolhardy – choice. The clash of ideas will inevitably be distilled into a 30-second caricature of Mr. Ryan’s plans, no doubt targeted to Florida seniors who would be exempt from the proposed Medicare changes. Indeed, Mr. Obama has already used his opponent’s support of the Ryan budget as a campaign cudgel…Mr. Ryan’s contrasting vision, laid out most usefully in his January 2010 ‘Roadmap for America’s Future,’ decries an ‘expanding culture of dependency’ on government programs. ‘By this means,’ Mr. Ryan wrote, ‘government increasingly dictates how Americans live their lives. The process suffocates individual initiative and transforms self-reliance into a vice and government dependency into a virtue.’ This dark assessment mischaracterizes the much-diminished nature of the modern safety net, but it illustrates the passion underlying Mr. Ryan’s policy views.

“Mr. Romney’s selection of a running mate sharpens the portrait of the kind of president he wants to be. It underscores the stark choice facing voters in November.”

--Mitt Romney said of Barack Obama that he is a man seething with animosity and power lust and that the president’s campaign “is all about division and attack and hatred,” adding at a separate stop, Obama is an angry man who “will do or say anything to get elected.”

At a rally on Tuesday, Romney said:

“This is what an angry and desperate presidency looks like. President Obama knows better, promised better, and America deserves better.   His campaign strategy is to smash America apart and then try to cobble together 51 percent of the pieces. If an American president wins that way, we all lose….Mr. President, take your campaign of division and anger and hate back to Chicago and let us get about rebuilding and reuniting America.”

An Obama campaign spokesman, Ben LaBolt, responded in a statement:

“Governor Romney’s comments tonight seemed unhinged, and particularly strange coming at a time when he’s pouring tens of millions of dollars into negative ads that are demonstrably false.” [Philip Rucker and Amy Gardner / Washington Post]

--Vice President Joe Biden told a crowd of largely black supporters that Republicans wanted to “unchain Wall Street,” adding “They’re going to put y’all back in chains.”

The president defended Biden, saying his running mate was only talking about how consumers won’t be protected if Wall Street reforms are repealed.

“In no sense was he trying to connote something other than that,” Obama said.

Appearing on Wolf Blitzer’s “Situation Room” on CNN, former Virginia Democratic Gov. Douglas Wilder blasted Biden for his comment, calling on the vice president to “cool it, back up” and apologize for making a mistake.

Appearing before Wilder was Artur (sic) Davis, the former four-term Democratic congressman from Alabama who recently turned Republican. Davis is perhaps best known for seconding Obama’s nomination at the Democratic National Convention in 2008, when he served as an Obama campaign co-chairman.

Davis said Biden was propagating “racial viciousness” when he said Mitt Romney’s regulatory policies would “put y’all back in chains.” Davis, who is black, said the comment smacked of a type of divisiveness all too common in the South.

“It brought back memories for me,” he told Wolf. “It brought back memories of these Democratic politicians in the South who think they can go before crowds and say one thing and nobody else will hear it, and they’ll somehow get a cheer in the room and that they can blithely go on about their business.”

Davis called Biden’s words insulting.

“It’s a divisive tactic that’s insulting to African Americans. It’s insulting to the American people. It’s insulting to the legacy that he used to build up as an orator who used to know how to inspire people instead of strike fear in people’s heart.”

[Davis has been given a speaking slot at the Republican Convention.]

Rudy Giuliani on Wednesday questioned Joe Biden’s “mental capacity” to lead. “I mean this guy just isn’t bright. He’s never been bright. He isn’t bright. And people think, ‘Well, he just talks a little too much.’ Actually, he’s just not very smart….I mean, there’s a real fear if, God forbid, he ever had to be entrusted with the presidency, whether he really has the mental capacity to handle it.”

John Podhoretz / New York Post

“President Obama’s answer on Wednesday to a question about his running mate claiming Republicans are going to put ‘y’all back in chains’ was a classic bit of soothing presidential palaver.

“ ‘I don’t think you or anybody who’s been watching the campaign would say that in any way we have tried to divide the country,’ he said about a moment in which Joe Biden had done precisely that.

“The president’s answer has the quality of the adulterer caught in bed with another woman who says to his wife, ‘Who you gonna believe? Me or your lying eyes?’”

--President Obama on Medicare: “I have strengthened Medicare,” saying his administration proposed “reforms that will not touch your Medicare benefits, not by a dime.” Romney and Ryan, on the other hand, according to the president, want to “turn Medicare into a voucher program,” while his approach had extended the life of Medicare by a decade. “Their plan ends Medicare as we know it,” said Obama.

--Mitt Romney, addressing the income tax issue, said on Thursday, “I did go back and look at my taxes, and over the past 10 years I never paid less than 13 percent. I think the most recent year is 13.6 or something like that. So I paid taxes every single year.” Which only allowed Democrats to say, “So prove it.”

--Robert J. Samuelson / Washington Post

“Judging by the political reaction, you’d think that Paul Ryan’s budget takes a meat ax to Medicare and threatens economic havoc for the elderly. Just the opposite is true: The Ryan budget spares older people from almost any change or sacrifice – and that’s the problem. We have (and, to be fair, this is mainly the doing of Democrats and their intellectual apologists) made those 65 and over into a politically protected class, of which nothing is expected and everything is given.

“It is impossible to have an honest debate about the budget – and government’s size and role – unless this changes, because aiding the elderly is now the main thing the federal government does. If you remove that, fearing a backlash from the 50 million or so Social Security and Medicare recipients, you condemn yourself to bad choices: (a) you can’t deal with deficits, which may crowd out productive investment and risk a financial crisis; (b) you must dramatically squeeze the rest of government, including the social safety net, defense and research; or (c) you must raise taxes sharply, which may further slow the economy….

“There are two Ryans: what I call the good Ryan and the bad Ryan. Probably more than anyone in Washington, the good Ryan has highlighted long-term deficits’ potential harm to our children and grandchildren. The bad Ryan has fashioned an unrealistic and undesirable budget by trying to accommodate both liberal dogma (don’t cut Social Security and Medicare benefits) and conservative dogma (don’t raise taxes).   Any sensible plan must do both.

“Governed by these constraints, Ryan’s budget would:

“ (1) Impose no cuts in Social Security – that’s 20 percent of federal spending off the table.

“ (2) Delay any major change in Medicare until 2023, when recipients could choose either a voucher plan or ‘traditional’ Medicare – that’s another 16 percent of spending unaddressed for a decade.

“ (3) Convert the federal share of Medicaid (federal-state health insurance for the poor) into a block grant to states, and then increase the grant annually at a lower rate than at present.

“ (4) Increase most other federal spending, including defense, only by inflation after 2023 – a formula that makes no allowance for population growth and could lead to ‘real’ cuts because wages and compensation typically outpace inflation.

“ (5) Hold taxes at 19 percent of GDP after 2025, just above the 18 percent average of the past 40 years.

“ (6) Reduce deficits but not balance the budget until 2040.

“This budget would have devastating consequences.  Increasing non-Social Security and health spending only at the rate of inflation would gradually shrink most other federal programs. (From 2011 to 2030, these other programs would decline by more than half, from 12.5 percent of GDP to 5.75 percent, projects the CBO).  Defense cuts could verge on unilateral disarmament. States and localities would suffer as the value of federal grants, including Medicaid, shriveled. The FBI, the National Institutes of Health and other federal agencies would be starved.

“By contrast, the elderly would be mainly spared….Despite this, President Obama warns that Republicans ‘would end Medicare as we know it.’ Liberal pundits say Republicans would ‘kill’ Medicare. It is this cynical fear-mongering that poisons debate. One reason Democrats won’t change Social Security and Medicare is that defending them is so politically rewarding. This, as much as Republican tax intransigence, underlies the stalemate.”

--Editorial / Washington Post

“On the same trip to Virginia (where earlier Vice President Biden uttered his ‘going to put y’all back in chains’ comment), Biden wandered into the Coffee Break Café in Stuart. According to the White House pool report, when a diner there said, ‘I’m glad you all are not talking about doing anything with Social Security,’ Mr. Biden responded: ‘Hey, by the way, let’s talk about Social Security. Number one, I guarantee you, flat guarantee you, there will be no changes in Social Security. I flat guarantee you.’

“Why is this so depressing? Because, as Mr. Biden knows, Social Security is going broke. If ‘no changes’ are made, then by 2033 the program will not be able to pay benefits as promised….

“Now, here’s the really depressing part: Everyone agrees that fixing Social Security is the easy one – far easier than reining in Medicare, Medicaid and other health-care costs. Tweak the inflation calculator and moderately raise the income limit for applying the payroll tax, and you can shore up Social Security with no harm to the safety net….

“By contrast, the vice president’s hearty assurances, like so much in this campaign, will make even more difficult the governing decisions that become more expensive and more painful with every year of delay.”

--The Romney campaign has tabbed New Jersey Gov. Chris Christie to be convention keynote speaker, the perfect choice, and Sen. Marco Rubio of Florida to introduce Romney. Sen. Rick Santorum and Sen. Rand Paul will also be given slots, as well as Condoleezza Rice. But no Sarah Palin.

One thing we know. Christie’s speech will not be dull. With the Republican National Convention starting Aug. 27, it seems Christie would speak the next day, Tuesday, followed by Paul Ryan on Wednesday and then Romney on Thursday.

--An analysis by USA TODAY of congressional records since 1947 show that the 112th Congress, covering 2011-12, is “the least productive two-year gathering on Capitol Hill since the end of World War II.”

Thus far, only 151 bills (90 in 2011, 61 in 2012) have been passed. “The only other year in which Congress failed to pass at least 125 laws was 1995.” [Susan Davis / USA TODAY]

USA TODAY has the tally of bills passed for each year and it’s pretty astounding. Like 638 in 1956 and 620 in 1958. My main man Ike was president then. Some say these were pretty good times in America. One has to be fair, however, and admit they weren’t the best of times for African-Americans in many parts of the country.

--It’s funny the contrast…Paul Ryan is so comfortable in his own skin. Mitt Romney incredibly uncomfortable.

--Lolita C. Baldor of the Associated Press:

“The four-star general who headed U.S. Africa Command used military vehicles to shuttle his wife shopping and to spas, and billed the government for a refueling stop overnight in Bermuda, where the couple stayed in a $750 suite, a Defense Department investigation has found.

“A 99-page report details excessive unauthorized spending and travel costs for Gen. William ‘Kip’ Ward, including lengthy stays at lavish hotels for Ward, his wife and his staff members, and the use of five-vehicle motorcades when he traveled to Washington….

“During one 11-day trip to Washington, Ward spent one day visiting wounded soldiers, had a 90-minute meeting on another day and a State Department meeting on a third day but billed the Pentagon more than $129,000 to cover the daily hotel and other costs for him, his wife and 13 civilian and military staff.”

What a freakin’ dirtball. The military’s highest levels are filled with guys like this, as I’ve done my best to pass on over the years. Cue Ike’s “military-industrial complex” speech. 

--Chelsea Clinton, in her first real interview for Vogue magazine, said that she might run for elected office someday.

“Before my mom’s campaign, I would have said no,” said Chelsea.   But her mother’s entrance into politics led her to change her mind.

“I believe that engaging in the political process is part of being a good person.”

Oh brother.

--I employed my ‘wait 24 hours’ doctrine last time in not commenting on the plagiarism incident involving columnist Fareed Zakaria. As the Wall Street Journal’s Bret Stephens observed, “Why couldn’t he have added the words, ‘As the New Yorker’s Jill Lepore wrote…’?”

But I also agree with Stephens who writes:

“I will give Mr. Zakaria this: He anchors one of the few shows (on CNN) that treats foreign policy seriously, that aims for an honest balance of views, and that doesn’t treat its panelists as props for an egomaniacal host. He’s also one of the few prominent liberals I know who’s capable of treating an opposing point of view as something other than a slur on human decency.

“In my book, that makes him a good man who’s made a mistake. No similar compliment can be paid to the schadenfreude brigades now calling for his head.”

And upon further review, TIME and CNN are bringing Zakaria back shortly.

--The City of Dallas, Texas, declared a health emergency as the West Nile virus continues to spread, killing at least 16 in the state and 28 nationwide, the last I saw. The U.S. is experiencing its biggest spike in West Nile cases since 2004 and it’s only going to get worse through the early fall.

--Finally, a special thank you to Tom Brokaw for his terrific documentary on the Battle for Britain last Saturday night during the Olympics coverage. Totally appropriate, needed, and I hope the young people in the television audience stayed with it. How many times have I said “There are no Churchills in the world today”? Mr. Brokaw’s piece was further proof of that. A leader for the times and a people that rose to the challenge unlike any others in the history of mankind. God Save the Queen.

---

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

God bless America.
---

Gold closed at $1619
Oil, $96.01

Returns for the week 8/13-8/17

Dow Jones +0.5% [13275]
S&P 500 +0.9% [1418]
S&P MidCap +1.6%
Russell 2000 +2.3%
Nasdaq +1.8% [3076]

Returns for the period 1/1/12-8/17/12

Dow Jones +8.7%
S&P 500 +12.8%
S&P MidCap +11.2%
Russell 2000 +10.7%
Nasdaq +18.1%

Bulls 43.6
Bears 26.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

*Next time I’m really not sure when I’m posting. I’m heading to Ireland in a few days and it’s not a trip that is conducive for work (think golf and pints). I’ll post an abbreviated review from there on Sat. or Sun. morning.

Brian Trumbore



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Week in Review

08/18/2012

For the week 8/13-8/17

[Posted 6:00 AM ET]

Europe, Washington and Wall Street

Let’s start out with the latest on the economy in Europe and the eurozone. Eurostat issued its preliminary data on GDP and it was worse than putrid. For the 17 nations that make up the eurozone, growth contracted 0.2% in the second quarter over the first. [Minus 0.7% on an annualized basis.] This after a flat pace in the first. There is no doubt the figure for the current quarter will be negative, thus the eurozone, and the 27-nation European Union as a whole (which also fell 0.2% in Q2), are back in recession.

Much was made of the fact Germany was up 0.3%, a tick better than expected, but when the final stats come in it could very well be revised down. Confidence is shot and the people know the crisis is knocking on their doors.

France’s GDP was exactly unchanged for a third straight quarter…I’d say that is flatlining, wouldn’t you? But consider the fact France hasn’t implemented any real austerity measures yet, and it must. Plus unemployment is 10%. And President Hollande just raised taxes on the wealthy. The future is bleak.

As for the basket cases…Italy’s GDP in Q2 fell 0.7% (2.9% on an annualized basis), Spain fell 0.4% (1.7% ann.), Portugal dropped 1.2%, Belgium 0.6% and Greece declined at an annualized rate of 6.2%. [Data was not available on Ireland.]

The biggest shocker may have been Finland, which had been hanging in there. Its economy declined, quarter over quarter, 1.0%. That is a very worrisome sign for the entire EU.

[Two nations had positive GDP of 0.2%, Q2 over Q1…Austria and the Netherlands.]

And looking ahead to 2013, an ECB survey of economists pegged eurozone GDP at 0.6%; hardly the stuff of recoveries and an ameliorating debt crisis.

Back to Greece, the new government of Prime Minister Antonis Samaras, which is very shaky and could fall at any minute all over again, will be seeking a 2-year extension on its austerity program in meetings next week with Angela Merkel and Francois Hollande. Germany has said no more loans for Greece. I can’t imagine they will like the idea of a further extension.

Supposedly, Greece is making a 3 billion debt payment on Aug. 20, to be covered by short-term debt, but then the issue is the next 31.5 billion euro ($39 billion) installment that is part of the second bailout. Greece must implement further cuts to pensions and public-sector wages before the Troika (IMF, ECB, and EC) approves it and that just doesn’t seem possible.

Jack Ewing of the New York Times had a good piece on Friday concerning the eurozone’s future and hurtling back into recession.

“(By) some measures the downturn has been under way for years.

“With the exception of Germany, none of Europe’s biggest economies have returned to the level of economic output they had at the beginning of 2008, before the subprime mortgage crisis in the United States spread across the Atlantic, according to calculations by two U.S. economists, Peter Rupert and Thomas F. Cooley.

“The figures suggest that Europe is already well into what could become a lost decade – a period of pernicious stagnation and wasted potential that could have lasting effects on ordinary citizens.

“Economic growth not realized represents investments in education that were never made, research that was never financed, businesses that failed and careers that ended too early or never got off the ground.

“ ‘There are larger implications that people don’t think about,’ said Mr. Rupert, a professor of economics at the University of California, Santa Barbara. ‘There is a huge decline in human capital.’”

I’d add it also leads to virulent extremism.

Jack Ewing quotes economist Carl B. Weinberg of High Frequency Economics.

“This is more than just a regular business cycle. I can’t think of a time in the postwar period in any major industrial countries where we have had a downturn resume before the previous cycle was over.”

German Chancellor Merkel, fresh off her vacation, flew to Ottawa for an elk meat barbecue hosted by Canadian Prime Minister Stephen Harper and in between bites, with elk juices dripping down her chin (OK…I’m embellishing this a bit…just kind of hungry, you understand….), Merkel reiterated she backed European Central Bank President Mario Draghi and his probable sovereign bond-buying plan, but only with conditions, as the ECB itself says it will call for, meaning the likes of Spain and Italy will have to ask for a bailout and give up some sovereignty through ECB monitoring and the implementation of austerity and structural reform.

Merkel told reporters in Ottawa, after dabbing the meat juices from her chin, that “Obviously time is pressing” on stamping out the debt crisis, though “on many of these issues we feel we’re on the right track.” Euro-area policy makers “feel committed to do everything we can to maintain the common currency.” [Tony Czuczka and Patrick Donahue / Bloomberg]

But aside from the fact the German parliament can put a kibosh to Draghi’s plans, let alone the German supreme court on Sept. 12, check out the comments from Finland, where the Daily Telegraph’s Ambrose Evans-Pritchard interviewed some leading figures.

“ ‘We have to face openly the possibility of a euro breakup,’ said Erkki Tuomioja, the country’s veteran foreign minister and a member of the Social Democratic Party, one of six that make up the country’s coalition government.

“ ‘It is not something that anybody – even the True Finns [eurosceptic party] – are advocating in Finland, let alone the government. But we have to be prepared,’ he said.

“ ‘Our officials, like everybody else and like every general staff, have some sort of operational plan for any eventuality.’

“Mr. Tuomioja’s intervention is the bluntest warning to date by a senior eurozone minister….

“ ‘(There) is a consensus that a eurozone breakup would cost more in the short-run or medium-run than managing the crisis.’….

“The coalition government is on thin ice as voters peel away to eurosceptic parties. The True Finns shattered the political order in last year’s election with 19 percent support. ‘Taxpayers here are extremely angry,’ said Timo Soini, the True Finn leader.

“ ‘There are no rules on how to leave the euro but it is only a matter of time. Either the south or the north will break away because this currency straitjacket is causing misery for millions and destroying Europe’s future.

“ ‘It is a total catastrophe. We are going to run out of money the way we are going. But nobody in Europe wants to be first to get out of the euro and take all the blame,’ he said.

“Like other member states, Finland has a veto that could be used to block any new bailout measures. However, unlike some states, its parliament would have to approve each future measure of the eurozone rescue, including a full bailout of Spain.”

The Economist (Aug. 11) on Greece…

“Most worryingly of all is the economy’s inability to grow. For as long as the threat of a euro exit hangs over Greece, credit will be scarce, foreign capital will stay away and investment will stall. As fiscal tightening forces down wages and demand, so the economy will shrink. Even if the government manages to cut planned spending and introduce a new property tax as promised, a shrinking economy will make it miss its targets – opening the door to eurozone demands for yet more austerity.

“Recession will eat away at the center parties in Greece and at the nation’s institutions. Syriza, an opposition hard-left alliance, stands every chance of gaining support. So does the far right, including the neo-fascist Golden Dawn, which has sympathizers among the police. As you gaze out at parliament from the office of the finance minister, the outer glass pocked by a bullet-hole from some forgotten demo in Syntagma Square below, the grim prospect is of a hard-left government vying against hard-right law-enforcement. Already, large Greek firms are guarding against a Syriza victory by exploring how to move their listings abroad. Who can blame them?”

The Economist (Aug. 11)

“Even if (the ECB gets the issue of seniority) right, there is an awful lot that could derail (central bank bond-buying). For one thing, nothing is likely to happen until September 12 when the German constitutional court is due to rule on the legality of the euro area’s permanent rescue fund. That date also matters because it is when Dutch voters go to the polls. If the Dutch follow the Finns in voting in large numbers for an anti-euro party, that would either increase resistance among creditor countries to using the bailout funds, or mean even tougher conditions for debtor countries.

“A reluctance in both Italy and Spain to sign up for a bailout is already an obstacle. For if there is rescue fatigue in northern Europe, there is reform fatigue in southern Europe, with electorates increasingly hostile to austerity programs that appear to be leading to deeper recessions.

“What’s more, Mr. Draghi’s plan has not won over Jens Weidmann, the president of Germany’s Bundesbank. Mr. Draghi knows that Germans revere their central bank; he also knows that it is Germany that underwrites the euro. That could mean that any bond purchases made by the ECB will be smaller than the markets are expecting. Mr. Draghi is proving to be as adroit a diplomat and politician as he is a central banker. But since he must offer both succor to debtor countries and reassurances to creditors, he has worryingly little room for maneuver.”

Washington and Wall Street

The data on the U.S. economy was solid this week. Benign news on the inflation front, detailed below, a strong retail sales figure for July, up 0.8% vs. expectations of just 0.3%; a better than expected number for July industrial production, up 0.6%, and a good figure for the leading economic indicators index for July, up 0.4%. But July housing starts were below expectations and earnings were mixed, with Cisco Systems, Target and Home Depot beating, but Deere and Wal-Mart falling short.

This coming week we have more on housing and a reading on durable goods that will be important in helping determine if the second quarter was the bottom in data (of course we need to see Aug. and Sept., too, but I’m just playing along with the bulls…trying to fake them out…our secret).

And then the following week the focus is all Bernanke, all the time, as the Fed Chairman gears up for his Aug. 31 speech in Jackson Hole where he will spell out some kind of policy change, virtually everyone assumes. Some of the Fed’s “hawks” have been speaking out, as the Wall Street Journal’s Jon Hilsenrath reported, with regional Fed presidents Charles Plosser and Richard Fisher calling for the Fed to hold off on additional action to stimulate the economy because its impact would be limited. Plosser, the president of the Federal Reserve Bank of Philadelphia, said in an interview with the Journal regarding further Fed action:

“I’m very dubious. There are diminishing returns to these actions. The evidence is not strong that somehow more [bond purchases] are going to help the unemployment rate move faster to where we’d like it to be. I don’t see that there’s much benefit.”

Dallas Fed President Richard Fisher, in another WSJ interview, said businesses have ample access to cheap credit “and are reluctant to borrow, hire and invest for other reasons, including concerns about regulation and taxes. With those uncertainties holding back business, he said, ‘I don’t see any virtue to further quantitative easing.’” [Hilsenrath]

Paul Wiseman of the AP had an extensive look at the U.S. economy…in part…

“The recession that ended three years ago this summer has been followed by the feeblest economic recovery since the Great Depression.

“Since World War II, 10 U.S. recessions have been followed by a recovery that lasted at least three years. An Associated Press analysis shows that by just about any measure, the one that began in June 2009 is the weakest.

“The ugliness goes well beyond unemployment, which at 8.3 percent is the highest this long after a recession ended.

“Economic growth has never been weaker in a postwar recovery.   Consumer spending has never been so slack. Only once has job growth been slower.

“More than in any other post-World War II recovery, people who have jobs are hurting: Their paychecks have fallen behind inflation.”

Growth…America’s GDP has grown 6.8% from the April-June quarter of 2009 through the same quarter this year, “the slowest in the first three years of a postwar recovery.   GDP grew an average of 15.5% in the first three years of the eight other comebacks analyzed.” [The AP ignores the 1945-48 recovery because the numbers were so skewed by World War II.]

Consumers…Consumer spending has grown just 6.5% since the recession ended, vs. an average of 14%.

Jobs…The economy has replaced 46% of the lost jobs since the recession. “In the previous eight recoveries, the economy had regained more than 350% of the jobs lost, on average.”

Mr. Wiseman goes on and on. Expect some of these stats in Republican campaign ads, and/or in the presidential and vice presidential debates.

On the issue of the deficit…

Erskine Bowles [of Simpson-Bowles fame] / Washington Post (Star-Ledger)

“Obama and Romney recognize that debt reduction starts with reducing long-term spending….

“But real deficit reduction – cutting the deficit by at least $4 trillion over the next decade to stabilize the debt and get it on a downward path as a percentage of gross domestic product – won’t happen without sweeping tax reform. This year, our broken tax code will give away more in loopholes - $1.3 trillion – than it collects in income taxes. That’s nuts, especially when most of the tax code’s backdoor spending goes to benefit well-off folks like me.

“This month, Romney said his tax reform proposal is ‘very similar to the Simpson-Bowles plan.’ How I wish it were. I will be the first to cheer if Romney decides to embrace our plan. Unfortunately, the numbers say otherwise: His reform plan leaves too many tax breaks in place and, as a result, does nothing to reduce the debt.

‘The ‘zero plan’ our commission recommended offered both parties an appealing bargain: lower tax rates for everyone in return for sweeping reductions in tax loopholes of every stripe. Taxpayers and the economy would benefit from a vastly simpler tax code, and getting rid of loopholes would produce more than $1 trillion of the $4 trillion needed in deficit reduction…

“Over the next four years, the United States will need to do much more to address its long-term debt than either party has been willing to do. This fall, the American people deserve a serious national debate about our debt, not easy promises. To avoid the most predictable economic crisis in history, we must let the numbers do the talking.”

Finally, the world is in an incredibly dangerous moment in history right now. The Middle East is on the verge of blowing sky high into a far wider spasm of violence than we’ve been witnessing in the likes of Syria. And to those believing the European debt crisis is close to being resolved, they’re simply nuts.

Plus it’s clear the lack of leadership in America today, from both sides of the political aisle, is on the verge of dragging us into the sewer. I am not changing my tune one iota. Before the year is out, there will be a Crash.

Street Bytes

--The incredibly stupid equity rally continued…now six straight weeks of gains for the Dow Jones and S&P 500 (five straight for Nasdaq) based solely on the expectation of some kind of  stimulative action on the part of the Fed and a rescue plan out of the ECB that has the full support of the likes of Germany. The Dow Jones added another 0.5% to 13275, while the S&P 500 gained 0.9% and Nasdaq 1.8%. Both the Dow and S&P are just shy of highs set back in Dec. 2007 and May 2008, respectively.

But I’m not going to say the rally in Apple shares to a record high of $648, up from the $530 level of May 17/18 and up 60% for the year, isn’t warranted based on the fundamentals.

Trading volume, incidentally, has been beyond pathetic and thus becomes meaningful because you can’t draw too much from the daily price moves. At least for the month of August in particular, Bill Gross’ remark about the death of the ‘cult of equities’ is spot on. Not necessarily that equities can’t from time to time provide a nice shot to the ol’ portfolio, but so many of us have been severely damaged by the Nasdaq and real estate bubbles, as well as the financial crisis that we are in essence still shell-shocked…and that feeling doesn’t go away for a long time, let alone the deleveraging process continues apace.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.29% 10-yr. 1.81% 30-yr. 2.93%

The inflation data was mixed for the month of July. The producer price index came in a little hotter, up 0.3%; up 0.4% ex-food and energy, but for the 12 months the figures are up 0.5% and 2.5%, respectively. Consumer prices were unchanged when a slight uptick was forecast, and up 0.1% on the core. For the last 12 months, the CPI figures are up 1.4% and 2.1%.

--Vale of Brazil, the world’s biggest iron-ore producer, said of China that there are “early signals of recovery” but you are not going to see 10-12% growth rates again. “The golden years are gone.”

The National Development and Reform Commission (NDRC), a top government economic planning agency, set China’s total coal output for this year at 3.65 billion tons, an increase of just 3.7% over a year ago. The growth rate for coal production the prior two years was 8.6% and 9%, respectively, according to Reuters. Just a further sign of softening demand.

Premier Wen Jiabao said easing inflation allows for more policy flexibility, probably in terms of further bank reserve cuts, while foreign direct investment fell 8.7% from a year earlier. Wen also said, “We have the conditions and capabilities, and will be sure to fulfill this year’s economic and social development targets.” But he “warned that the foundation for economic stabilization is still unstable, and that economic hardships may continue for some time.”

--Japan’s second quarter GDP rose only 0.3%, much lower than expected.

--Britain’s unemployment rate dropped to 8% in June, though this was probably due to hiring for the Olympics, while July retail sales rose 0.3%. The key will be to see how the data lines up come September and October, post-Olympics.

--There’s a future explosive issue developing in Britain as the government has told train operators they can raise fares by an average of 3% above the July retail prices index, which was up a higher than expected 3.2%, plus, they can tack on an extra 5% on some ticket prices as long as they are balanced by cuts elsewhere…so 11% on some routes, or hundreds of pounds more for commuters who are seeing no wage increases or actual cuts in pay. The fare increases would go into effect next January, from what I understand. It’s not like the rail system there is known for good service, either, “a crappy network” as one rider told the London Times. I mean picture that some commuters into London will be paying about $150 a week, or as one lobbyist for the public put it, “With the economy flatlining, this is untenable.” At the same time, 20,000 jobs in the rail industry are at risk under austerity proposals. It’s the kind of issue that if not handled better could bring down the government.

--Unemployment rates rose in 44 states in the month of July, the most to show an increase in more than three years. They rose in nine considered battleground states, according to Christopher S. Rugaber of the AP. In Nevada the rate rose to 12% from 11.6% in June, though still better than the 13.8% of a year earlier. Michigan’s increased to 9% from 8.5% two months earlier.

--Shares in Facebook dropped to a record low of $19.87 at the close on Thursday, the first day early investors were allowed to sell their holdings following the May IPO at $38, and then fell further to finish the week at $19.05, 50% off the IPO level. The 6.3% drop on Thursday was the largest one-day post-lock-up decline among the 20 biggest IPOs since January 2011, according to Bloomberg.

Thursday’s freed up shares represent 14% of the 1.91 billion that will become available for sale in the coming nine months so constant pressure on the stock until this all clears. The next big dates come between Oct. 15 and Nov. 13, when restraints are lifted on about 240 million shares. Then on Nov. 14, you have 1.2 billion shares that can trade. Some of the largest early investors were able to sell on Thursday.

The Wall Street Journal reported that earlier this month, CEO Mark Zuckerberg conceded it may be “painful” to watch the share price, even as he sought to buck up morale. Employees are still unable to sell, except for Zuckerberg and a few others who can sell in November. Zuckerberg’s fortune has declined from $19 billion to about $10 billion, including the $1 billion he banked with the IPO. Chief operating officer Sheryl Sandberg has seen her $1.6 billion windfall decline to $850 million, with the shares paying out only if she stays with the company.

--Cisco Systems, the world’s largest maker of computer networking equipment, came through with earnings that barely exceeded Street expectations but after a string of disappointments, the results were celebrated and shares rose. Investors were encouraged that the company increased its quarterly dividend 75% to 14 cents, up from 8 cents.

Cisco has always been a bellwether for the global economy and CEO John Chambers said he saw improvement in the U.S., though it was “way too early to call this a trend.” Orders were strong in Asia, especially China, he said, but continued to fall in Europe with no end to this trend in sight. Revenue was up 4% over year ago levels. The shares rallied from $17.35 to $19.05 in the two days after the announcement.

--Deere & Co. cut its view for the year after fiscal third-quarter earnings missed Wall Street’s expectations, as the company voiced concerns the drought in the U.S. Midwest will undermine sales of Deere’s tractors and harvesting combines. Sales had soared for five years, but now there is caution. Some international markets are also soft.

I heard from my farmer friends in the Oklahoma Panhandle the other day and Eugene said of the high feed prices, “I have been in this business long enough to know that from time to time things get out of balance. Anyone producing meat, milk or eggs is having a very difficult time and just hope we can hang on until things get back in balance.”

But he is a special guy, with a great family, so of course he finished his letter with, “Although the dry weather has produced some challenges…Life is good on the farm.” 

--Home Depot reported fiscal second-quarter earnings rose 12%, better than expected, though sales growth was light. Same-store sales rose 2.6% in the U.S. Warm weather in the first-quarter did pull sales from the second.

--Staples Inc.’s fiscal second-quarter earnings fell 32% and the shares fell 13% to the lowest level since 2003 as the largest office-supply chain in the U.S. also lowered full-year guidance. Chairman and CEO Ron Sargent said sales trends in North America were softer than expected, down 2.7%. Same-store sales in Europe fell a whopping 9%.

Now I’ve been told I am easily my local chain’s biggest customer as I buy a ton of paper and ink, which are two sectors the company said are suffering. I actually have a personal shopper, located in Canada, who calls me every quarter but it just hit me, I haven’t heard from Joanne for quite some time so I’m guessing she was a victim of job cuts.

--Sears Holdings Corp. reported sales declined more than expected for its fiscal second quarter, with same-store sales down 3.7% (2.9% at the Sears chain and 4.7% at sister discounter Kmart). Sears reported a loss of $132 million for the quarter, compared with $146 million a year earlier.

--Standard Chartered reached a quick settlement with New York State’s Department of Financial Services, which had accused it of doing business with Iranian customers in violation of U.S. sanctions. StanChart claimed it was “overwhelmingly” in line and that the transactions “relating to Iran” that were not compliant totaled a mere $14 million. StanChart then agreed to settle for $340 million as well as accept increased regulatory supervision. Seeing as how the bank had a pre-tax profit of $3.9 billion in the first half, an easy deal for the institution to accept.

[The $340 million will go directly into the New York DFS and then into the state government’s general fund.]

--The median home price in Southern California hit its highest point in nearly four years last month, $306,000, according to DataQuick, up 8.1% from July 2011. It’s still amazing that the median peaked at $505,000 in July 2007. It’s been clear for a few months now that a bottom is definitely in place, it’s just how much will the current momentum carry prices? 

--Shares in Groupon took a big hit and the shares are now down about 80% from the IPO price of $26 last year to $4.75 as the company reported revenues below the Street’s expectations, though not a big miss, as investors just believe growth is slowing.   CEO Andrew Mason blamed challenges in Europe in part for lowering guidance.

--Google plans to cut about 4,000 jobs at its Motorola Mobility Holdings Inc. unit, or 20% of the total staff at a company it acquired earlier this year.

--The World Gold Council said demand for gold dropped 7% in the second quarter owing to economic fears in India and China, who between them represent 45% of the jewelry and investment demand.

--Editorial / The Economist…on high-frequency trading…

“This newspaper seldom finds itself on the side of restraining either technology or markets. But in this case [Ed. after the Knight Capital debacle] there is a doubt whether the returns justify the risk. Society needs a stock market to allocate capital efficiently, rewarding the best companies with higher share prices. But high-frequency traders are not making decisions based on a company’s future prospects; they are seeking to profit from tiny changes in price. They might as well be trading baseball cards. The liquidity benefits of such trading are all very well, but that liquidity can evaporate at times of stress. And although high-frequency trading may make markets less volatile in normal times, it may add to the turbulence at the worst possible moment.”

--Atlantic City’s July casino revenue was down 9.5% from a year ago, continuing a losing streak dating back to November 2006, when the first casino opened in Pennsylvania. The newest casino in A.C., Revel, continues to see improving revenues but even they admitted they are not where they’d like to be after the first four months.

The biggest money-making casino, Borgata, said a single gambler was responsible for about half the casino’s 16% decline from a year earlier. This fellow won $5 million in a single hot streak over a weekend. Congratulations, Mystery Gambler! That’s great.

--Former College Football Hall of Fame inductee Jim Donnan, who coached at Marshall University and the Univ. of Georgia before becoming a television commentator at ESPN, was charged by the SEC with running an $80 million Ponzi scheme whose victims included other college coaches and former players. One unidentified player supposedly invested $800,000 with Donnan after being told Donnan’s company, GLC Limited, bought leftover or damaged merchandise from retailers and resold it to discount retailers. Donnan and his partner promised returns of 50% to 380%. Only $12 million of $80 million raised went to buying actual merchandise.

--And Baseball Hall of Famer Eddie Murray, one of only three to collect both 3,000 hits and 500 home runs, agreed to pay $358,000 to settle an insider-trading case with the SEC, one involving former Orioles teammate Doug DeCinces. DeCinces and three others settled with the SEC last year, DeCinces agreeing to pay a whopping $3.3 million.

--In more than 60 years of recordkeeping, July had the fewest number of tornadoes in the U.S., just 24. Before this the record low was 73. This after the mid-April outbreak made it look like we’d set a record for 2012.

--NBC’s coverage of the London Olympics was the “most-watched television event in U.S. history,” according to the network.   More than 219 million watched the Games on its networks, compared to the 215 million who tuned in for the 2008 Beijing Olympics.

You know what I just realized? I was watching the closing ceremonies and entertained by the musical acts (and thoroughly irritated they cut away before the end for that new sitcom, “Animal Practice,” that I’ve told you will last no more than four episodes, before returning for The Who’s finale), saw a list of the performers the next morning and thought how did I miss Ray Davies, and just learned NBC cut him out! How the [heck] can you cut out the Kinks’ great Ray Davies?!

--Last week I talked about Wendy’s in Japan offering Lobster and Caviar Burgers and then in The Economist I learned that Japan has a mini-crisis on its hands with a shortage of eel, considered a delicacy there, due to overfishing. [Drenched in sweet sauce and served on a bed of rice.] I didn’t realize eel is rich in vitamins, protein and calcium.

But did you know eels “spawn only once in a lifetime, in a complex and still little-understood cycle”? Geezuz, no wonder they look so miserable.

Foreign Affairs

Iran / Israel: Many Israeli citizens shopped for new gas masks this week as the rhetoric from Israeli leaders picked up in intensity. Statements from Prime Minister Benjamin Netanyahu were accompanied by civil defense measures and the appointment of a new Home Front Defense minister.

Deputy foreign minister Danny Ayalon told Israel Radio that the P5+1 (the five permanent members of the UN Security Council plus Germany negotiating with Iran) should “declare today that the talks have failed.” Give Iran just a few “weeks, and not more than that,” Ayalon said, and if Iran has not halted its nuclear program by then, “it will be clear that all options are on the table.”

Israeli Defense Minister Ehud Barak, in acknowledging the challenges in an attack, also said, “I believe that it is inestimably more complicated, inestimably more dangerous, inestimably more complex, and inestimably more expensive in terms of human life and resources to deal with a nuclear Iran in the future.”

Barak added:

“The prime minister, defense minister and foreign minister hold responsibility (for determining how the nation should address the danger of Iran’s nuclear weapons program). A decision (to attack Iran), once one is needed, will be made by the government of Israel, not by groups of citizens or editorials.”

Tehran’s Foreign Ministry spokesman said, “In our calculations, we aren’t taking these claims very seriously because we see them as hollow and baseless. Even if some officials in the illegitimate regime (Israel) want to carry out such a stupid action, there are those inside (the Israeli government) who won’t allow it because they know they would suffer very severe consequences from such an act,” he said. [Jerusalem Post]

Iranian Supreme Leader Ayatollah Ali Khamenei said Wednesday that he was confident “the fake Zionist (regime) will disappear from the landscape of geography,” an Iranian news agency reported. “The light of hope will shine on the Palestinian issue, and this Islamic land will certainly be returned to the Palestinian nation.”

On Friday, Iranian President Mahmoud Ahmadinejad branded Israel a “tumor.”

In a speech, Ahmadinejad referred to Israel as a western “tool to dominate the Middle East” and an “insult to all humanity.”

“Today, Israel and the Zionist entity are against the preservation of all human rights and human dignity…The Zionist regime and the Zionists are a cancerous tumor. Even if one cell of them is left in one inch of (Palestinian) land, in the future this story (of Israel’s existence) will repeat.”

Also on Friday, Hizbullah leader Sheikh Nasrallah said his group possessed rockets capable of killing “tens of thousands” of Israelis. 

Speaking of Iran’s response should Israel attack, Nasrallah said, “Iran is powerful and courageous” and it’s response to any assault would be “huge and lightning.” [Bloomberg]

I agree with David Makovsky, director of research at the Washington Institute for Near East Policy who told Bloomberg News that Israelis “believe there’s a closing window of opportunity and they also believe politically it’s far more complex if they wait until after November to strike. I think they’re concerned that if they attack during a lame-duck period they have a lot more uncertainty about American reaction,” he said.

Netanyahu will act. He believes a raid will not rally the Iranian people around the regime and instead could lead to its downfall, and he believes it is worth setting back the program, even if it’s only for one or two years.

David Rothkopf / Foreign Policy

“(The) reasons to attack are clearly growing more compelling for Israeli leaders, uniting them on this issue to a greater degree than at any time in the recent past. Diplomacy doesn’t seem to be working. The Iranian nuclear program continues moving closer to weapons capability. And the Iranians themselves have matched their rhetoric about the annihilation of Israel with direct support for attacks on its people, like the suicide-bomb murder of five Israeli tourists in Bulgaria, which U.S. officials have linked to Iran.”

David Feith / Wall Street Journal

“The United States doesn’t want Israel taking military action against Iran’s nuclear program, and top officials have been traveling to Jerusalem this summer to make their case in person. Any attack would be dangerous and premature, they say, because Iran is suffering under crippling sanctions, the world is united against Tehran as never before, and all options remain on the table.

“The problem is that every one of these points is false or misleading….

“The Israelis believe that a nuclear-capable Iran – one with sufficient fissile material and weapons technology to be able to build a bomb in a few weeks – is as threatening to the international order as an Iran with an actual weapon. Either circumstance, Israel fears, would allow the mullahs to carry out future adventurism under the protection of a credible nuclear deterrent. Any response to Hizbullah terrorism or to the murder of diplomats at Washington restaurants would have to consider that Tehran could retaliate with nukes.

“This helps explain why a 2010 U.S. sanctions law committed Washington to doing ‘everything possible…to prevent Iran from acquiring a nuclear weapons capability.’ But you wouldn’t know that from the Obama administration. Instead, we get Defense Secretary Leon Panetta pledging that America ‘will not allow Iran to develop a nuclear weapon, period.’

“That sounds tough and unequivocal, but it says nothing about an Iranian nuclear capability. As such, it suggests to Iran’s mullahs that as long as they don’t parade a bomb through downtown Tehran, they can expand their nuclear program without crossing any American red lines. That’s good if the priority is to avoid confrontation in the next few months; it’s bad if you want to stop Iran from ever wielding a nuclear deterrent.”

As for the Hizbullah threat, U.S. State Department counter-terrorism coordinator Daniel Benjamin said, “Our assessment is that Hizbullah and Iran will both continue to maintain a heightened level of terrorist activity and operations in the near future. Hizbullah maintains a presence in Europe and its recent activities demonstrate that it is not constrained by concerns about collateral damage or political fallout that could result from conducting operations there…We assess that Hizbullah could attack in Europe or elsewhere at any time with little or no warning.” [Mr. Benjamin should have emphasized Latin America as a target rich area, too, with Hizbullah having a large presence there.]

Syria: The intensity of the civil war seems to grow by the day as hundreds were reported to have been killed in just the past few days. The prime minister who defected, Riad Hijab, claims the Bashar Assad regime is near collapse and that it controls just 30% of the country, which is accurate, but Assad obviously has enough loyalists to call on in the army.

The London Times reported that the CIA has been limiting the supplies of weapons and ammunition reaching rebel forces because of ongoing concerns the arms will end up in the hands of al-Qaeda and other terrorists.

William Perry, former defense secretary under President Bill Clinton, warned that if America continued to sit on its hands, “we’ll be in no position to influence the post-Assad government.” Perry has recommended that the U.S. impose a no-fly, no-drive zone in northern Syria.

President Obama just wants the war to stay out of the American public’s mindset until after the first week in November, though the administration accused Hizbullah and Iran’s Revolutionary Guards Quds Force of supporting the Syrian army. In Lebanon, Hizbullah leader Nasrallah is a big supporter of Assad’s.

Editorial / Wall Street Journal

“Syrians trying to liberate their country from Bashar Assad can be forgiven for thinking they’re part of an existential play. They could call it ‘Waiting for Barack’ – waiting specifically for U.S. Election Day, when President Obama might finally decide to do something serious to help.

“Secretary of State Hillary Clinton continued the Samuel Beckett diplomacy on the weekend, visiting Istanbul and announcing that Turkey and the U.S. will study a range of new policy options, including the imposition of a no-fly zone over Syrian territory. ‘Our intelligence services, our military have very important responsibilities and roles to play so we are going to be setting up a working group to do exactly that,’ she said.

“Well, there you are…Eighteen months after the uprising began, more than 20,000 deaths and a quarter-million refugees later, the Obama Administration has set up ‘a working group.’…

“The truth is that everyone knows, most of all Assad and his patrons in Tehran and Moscow, that Mr. Obama has decided to put the world on hold until after November 6. Israel is supposed to do nothing about Iran, and Syria’s rebels are supposed to hunker down and survive, in order to let Mr. Obama keep assuring Americans that ‘the tide of war is receding.’ On the contrary, thanks in part to Mr. Obama’s calculated abdication, Middle East tension and turmoil are rising.”

Fouad Ajami / Wall Street Journal

“The sight of Hillary Clinton cutting a rug on the dance floor this week in South Africa gives away the moral obtuseness of America’s chief diplomat. That image will tell the people of the besieged Syrian city of Aleppo, under attack by a merciless regime, all they need to know about the heartlessness of U.S. foreign policy.

“True authority over foreign affairs has been vested in the White House, and for that matter, in the Obama campaign apparatus. All the great decisions on foreign policy – Iraq and Afghanistan, the struggle raging in Syria, the challenge posed by the Iranian regime – have been subjugated to the needs of the campaign. All that is left for Mrs. Clinton is the pomp and ceremony and hectic travel schedule….

“This is foreign policy trivialized.”

[On the issue of Syria and its stockpiles of chemical and biological weapons, it would take tens of thousands of troops to lock them down. Volunteers?]

Lebanon: I have long warned this nation is a powder keg waiting to blow and this week, if you weren’t convinced of this before, you saw growing evidence a new civil war could be in the offing owing to the spread of violence from the Syrian conflict next door. I thought one of the more significant events of the week was Air France diverting a flight that was scheduled to go from Paris to Beirut (the route I used to take) to Amman because of growing violence and tension in Beirut. Imagine being on that flight. Hizbullah and various ‘families’ have been blockading the main airport road into Beirut (which goes through a Hizbullah neighborhood), while Gulf states Qatar, Saudi Arabia, UAE, Bahrain and Kuwait explicitly told their citizens to leave Beirut immediately.

Lebanese Shiite gunmen kidnapped more than 20 people on Wednesday alone in retaliation for the Syrian rebels taking a suspected member of Hizbullah in Damascus. A Turkish businessman arrived in Beirut on Wednesday and was kidnapped near the airport. If you are from a country backing the uprising against Assad, you are a target. It was Wednesday evening that Air France made its move.

Understand that during Lebanon’s 1975-90 civil war, the country was divided along Sunni, Shiite, Druse and Christian lines, with far more families and sects split off from these four main groups. I’ve seen how in Beirut it was neighborhood vs. neighborhood and there are signs there today it is only a matter of time before there is a similar conflict.

A senior political source told the Daily Star on Thursday:

“What happened today is a clear indication that we are at the brink of major chaos in Lebanon. The storm in Syria has reached Lebanon now and there is no going back.”

The paper reported the Meqdad clan, which hails from Bekaa (think Baalbek) kidnapped over 30 men it said were members or supporters of the Free Syrian Army in retaliation for the abduction of one of its kin. This is no ordinary ‘family.’ They have their own armed wing, shown on television the other day, armed to the teeth. A security source told the Daily Star:

“Dealing with [the Baalbek] clans is a highly subtle endeavor,” with the clans following classic tribal feuds and vendettas. The clans also don’t always cooperate with Hizbullah. Oh, and how big is the Meqdad clan? Try 17,000.

The dysfunctional Lebanese government and military is powerless. Picture the army doesn’t have the guts to try and break up the blockades of the main road to the airport.

Egypt: President Mohamed Morsi shocked his country, and the United States, among others, in orchestrating a soft coup; removing Field Marshal Mohammed Hussein Tantawi, the country’s long-time military chief, and his deputy, Lt. Gen. Sami Anan, who were “retired,” along with other military leaders, as Morsi replaced them with a younger group. Tantawi and Anan were then awarded medals two days later in a sign that they stepped down without protest.

It was a dramatic move and Morsi at the same time reclaimed political powers the Supreme Council of the Armed Forces had taken away. Morsi now believes he has the authority to play a major role in writing the constitution, though Egypt’s high court will have a lot to say about this.

What concerns the U.S. and others is the fact Morsi’s Muslim Brotherhood dominated government has begun cracking down on media criticism.

Morsi said in a speech on Sunday that his decisions to force the early retirement of the generals were not meant to “embarrass” the military or its leaders but rather he was acting in “the best interests of this nation.”

“Today, this nation returns – this people returns – with its blessed revolution. Support me strongly, so we can move to a better future.” [Sydney Morning Herald / New York Times]

Now all we can do is sit back and watch.

Afghanistan: Last week I wrote of three U.S. soldiers being killed in the latest attack by members of the Afghan security forces and then hours later we learned there were another three killed in similar fashion, among eight total coalition forces killed in a 48-hour period ending last Saturday. Then yesterday, Friday, we learned of another two Americans killed by a soldier in an Afghan uniform.

[Last weekend, an Afghan policeman turned his gun on his own, killing 10 Afghan officers.]

This is a huge crisis for the U.S. and NATO. Afghan security forces have killed more than 80 American and NATO service members since 2007, but one respected authority cited by Paul Sperry of the Hoover Institution puts it at closer to 200. Sperry says there is evidence the Pentagon is hiding the true tally of the so-called green-on-blue attacks. As Sperry writes in the New York Post:

“Take the case of Marine Lance Cpl. Edward J. Dycus, who died earlier this year from a gunshot wound while serving in Afghanistan. In his official death announcement, the Pentagon said Dycus died ‘while conducting combat operations.’

“In fact, an Afghan soldier shot the 22-year-old Marine in the back of the head while standing guard at an Afghan-U.S. base. The Pentagon made no mention of the treachery in the notice it released to the public.”

On Friday we also learned a U.S. military helicopter crashed during a firefight with insurgents, killing seven Americans and four Afghans. The Taliban probably shot it down.

At least 28 Americans have been killed this month and over 220 this year.

Elsewhere in the country, 48 were killed in a wave of suicide bombings, as many as 14 in the city of Zaranj near the Iranian border.

Pakistan: The Taliban attacked a Pakistani military base where nuclear weapons might be stored, though there is no reason to believe the weapons themselves weren’t secure the whole time during an assault that left one Pakistani soldier dead and eight insurgents. It is the third such attack against a major Pakistani military facility in as many years. [Elaine M. Grossman / Global Security Newswire]

Washington estimates Pakistan has 90 or more nuclear warheads.

Russia: In a disgraceful verdict and sentencing, three members of Russian punk band Pussy Riot were convicted of “hooliganism motivated by religious hatred” and sentenced to two years each. Judge Marina Syrova said the women had “crudely undermined social order” during their action in February when they did a punk prayer as a political protest against the Russian Orthodox Church’s support of President Vladimir Putin at Christ the Savior Cathedral in Moscow (a most beautiful spot). 

The U.S., European Union and various rights groups immediately condemned the sentences and even the Russian Orthodox Church called for clemency, saying in a statement:

“Without doubting the legitimacy of the court ruling, we ask the state authorities to show mercy for the convicted within the framework of the law in the hopes that they will refrain from repeating their sacrilegious acts.”

I am on record as saying the act was indeed blasphemous, but simply worthy of a fine. Prosecutors were seeking a three-year jail sentence. As one of the defendants, Nadezhda Tolokonnikova, 22, said through her lawyer on Twitter the day before the verdict:

“Our imprisonment serves as a clear and unambiguous sign that freedom is being taken away from the entire country.”

It most definitely is, and Pussy Riot is far from being the only ones detained and brutally harassed. As the Los Angeles Times’ Sergei L. Loiko wrote, Maria Baronova, 28, is one such victim.

“On a day in early June when only her nanny was home, masked police officers armed with submachine guns climbed onto the balcony of Baronova’s fifth-floor apartment and threatened to break down the door.

“When the nanny opened the door, Baronova said, they threw her on the floor face down and ransacked the apartment, taking four computers, part of the family archive and even ultrasound images from Baronova’s pregnancy.

“Police broke into opposition leader Ilya Yashin’s apartment the same day. When he arrived home, he said, he found the furniture broken and everything turned inside out, his computers and other personal items missing.”

But the opposition has been unable to build up a unified movement. We’ll see how much the Pussy Riot case galvanizes them going forward.

I stick by my prediction Vladimir Putin doesn’t last the year.

China: State media issued a stark warning over a dispute in the East China Sea, this time warning Japan over interfering in the Diaoyus, known as the Senkakus in Japan. The People’s Daily said China was prepared to take action to defend its sovereignty. Japan had arrested Chinese activists on the island. But on Friday, Japan defused the crisis by deporting the 14.

Separately, the verdict in the murder trial of the wife of Bo Xilai will be delivered on Monday. Gu Kailai confessed to the murder of British businessman Neil Heywood. Bo, once thought to be a candidate for top leadership, has not been seen in public since his wife was implicated in Heywood’s murder.

North Korea: A top leader of the Kim Jong Un regime met with both President Hu Jintao and Premier Wen Jiabao on Friday, after Beijing and Pyongyang reached agreement on developing two trade zones near the Chinese border, further signs of a strengthening relationship after Kim took over from his father. President Hu praised “the friendly relations between China and North Korea.”

Earlier, it has been reported, China warned North Korea against carrying out any new extended-distance missile tests or nuclear weapons tests until Beijing concluded its leadership change, according to the Washington Times and Global Security Newswire. If true this is very significant since it would put off any tests until October or later it would seem.

Global Security Newswire also reports that an analysis by the Washington-based Institute for Science and International Security concludes North Korea could possess nearly 50 atomic bombs, in various forms, within a few years if no curbs are placed on its nuclear activities. The ISIS analysis was by David Albright, certainly one of the more respected men in his field, along with Christina Walrond. Should this ever become the case, knock off a few thousand points on your Dow Jones forecast….and sleep with one eye open.

South Africa: Police killed at least 35 armed miners who charged them at a Lonmin PLC platinum mine, Thursday, in one of the worst cases of violence since the end of the apartheid era.   The Sowetan newspaper editorialized that the violence “awaken us to the reality of the time bomb that has stopped ticking – it has exploded. Africans are pitted against each other…fighting for a bigger slice of the mineral wealth of the country. In the end the war claims the very poor African – again.”

The situation erupted after police failed to get striking workers to hand over their weapons, from machetes to guns. Previously, in the six-day standoff, two police officers had been hacked to death. On Thursday, though, the strikers rushed the police, as vivid video taken on the scene shows, and the mostly black police had little choice but to open fire.

France: Riots broke out in the usually calm northern city of Amiens, forcing President Hollande to interrupt his holiday and giving his opponents ammunition, claiming the new president was soft on crime. France’s suburbs have always simmered in discontent, with drugs and staggering unemployment ever prevalent. Most of those rioting are immigrants from North Africa, such as Algeria and Tunisia.   There were also extensive clashes among gangs in Toulouse in recent days. Marine Le Pen’s National Front will benefit from the unrest.

Britain / Ecuador: WikiLeaks founder Julian Assange was granted asylum by Ecuador and remains holed up in their embassy in London. William Hague, Britain’s foreign secretary, vowed to block any attempt by Assange to leave the country. Additionally, Sweden is upset at Ecuador’s action as it seeks to have him extradited to face allegations of rape and sexual assault. Hague strongly hinted Britain could seize Assange from within the embassy, which led Ecuadorean President Correa to claim Britain was “terrorizing” his country. Hague, though, spoke without consulting the vacationing David Cameron.

Assange is expected to make a statement to the media and supporters from the steps of the embassy on Sunday.

Random Musings

--Peggy Noonan / Wall Street Journal

“Both campaigns are afraid of being serious, of really grappling with the things Americans rightly fear. But there’s no safety in not being serious. It only leaves voters wondering if you’re even capable of seriousness. Letting them wonder that is a mistake.”

Then came Mitt Romney’s selection of Paul Ryan. I’ve always admired and liked the congressman, especially for his guts in tackling the entitlement issue. I thought Romney’s decision was enlightened. It certainly shook things up.

But if Romney is going to run with Ryan, he has to support Ryan’s Medicare plan and Romney is already running away from it! So I’m like, what the hell did you pick him for then?!

Plus, in a classic case of my adage “wait 24 hours,” now we’ve learned that Ryan requested stimulus cash and earmarks for his district despite denying he ever did so.

In a statement on Thursday upon being confronted with the evidence, Ryan said:

“After having these letters called to my attention I checked into them, and they were treated as constituent service requests in the same way matters involving Social Security or Veterans Affairs are handled. This is why I didn’t recall the letters earlier. But they should have been handled differently, and I take responsibility for that.”

Well, heck, Congressman. It doesn’t matter if it was an innocent mistake…it’s perfect fodder for the Democrats’ campaign ads targeting those remaining 8% who are undecided.

I don’t know. It’s just really depressing.

--In a new Gallup Poll, Mitt Romney leads President Obama, 47% to 45%, among registered voters; this in surveys taken after Wisconsin Congressman Paul Ryan was tabbed as Romney’s running mate. There was no apparent bounce, however, as the 47-45 margin was essentially the same as in a previous Gallup daily tracking poll. But Gallup says Romney could get a delayed bounce, which is how I’d view it.

--In a Washington Post/ABC News poll after Paul Ryan’s selection, 38% of all Americans expressed favorable views of the candidate, 33% negative ones.

Opinion on the Ryan Selection…all sides

Editorial / Wall Street Journal

“Vice Presidential choices rarely sway electoral outcomes, but they do reveal something about the men who make the choices. As Mr. Romney’s first presidential-level decision, the selection speaks well of his governing potential. He broke free of the stereotype that he is a cautious technocrat by picking Mr. Ryan, a man who has offered reforms that the country needs but are feared by the GOP’s consultant class and much of his own party.

“Mr. Romney is signaling that he realizes he needs a mandate if he is elected, which means putting his reform ideas before the American people for a clear endorsement. He is treating the public like grown-ups, in contrast to President Obama’s focus on divisive and personal character attacks.

“The Ryan choice also suggests that Mr. Romney understands that to defeat Mr. Obama he’ll have to do more than highlight the President’s economic failures. He must also show Americans that he has a tangible, specific reform agenda that will produce faster growth and rising incomes.

“Mr. Ryan is well equipped to help him promote such an agenda….

“In 2011, Mr. Ryan won the battle inside the House GOP to take on entitlements, including Medicare. The budget showed the courage of Republican reform convictions and helped smoke out Mr. Obama’s insincerity on spending cuts and budget reform….

“In his remarks on Saturday in Norfolk, Mr. Ryan also hit on what is likely to be an emerging Romney theme: leadership that tells Americans the truth. ‘We will honor you, our fellow citizens, by giving you the right and opportunity to make the choice,’ he said.   ‘What kind of country do we want to have? What kind of people do we want to be?’

“The underlying assumption is that at this moment of declining real incomes and national self-doubt, Americans won’t fall for the same old easy demagoguery. They want to hear serious ideas debated seriously. The contrast couldn’t be greater with a President who won’t run on his record and has offered not a single idea for a second term.

“In choosing Mr. Ryan, Mr. Romney is betting that Americans know how much trouble their country is in, and that they will reward the candidate who pays them the compliment of offering solutions that match the magnitude of the problems.”

Jacob Weisberg / Financial Times

“Given the options he had left himself, this was probably the best choice for Mr. Romney to make. Mr. Ryan stands for a clear proposition – the radical scaling back of the federal government’s social commitments – and through his pick, Mr. Romney now represents that as well. Usually, a vice-presidential candidate scrambles to fall into line with the top of the ticket. In this case, it is Mr. Romney who will, not for the first time, adjust his views.   Instead of attacking Barack Obama for cutting Medicare, Mr. Romney must now charge him, as Mr. Ryan does, with not cutting it enough….[Ed. Romney thus far has not done so.]

“Mr. Ryan’s presence on the ticket makes this a better and more interesting election.   It forces the debate the country needs to have about entitlement spending and ensures that the remaining months will be more than an argument about whose negative ads are more disgusting.

“It is hard to see it, however, as improving Republican chances. Until now, Mr. Romney has been a poor candidate running a clumsy campaign, which pointed towards losing a winnable race. Mr. Ryan changes that narrative, but only by reframing the election the way Mr. Obama’s team wishes to, as a choice between two visions of the social contract as opposed to a referendum on Mr. Obama’s economic performance. Instead of teasing out the implications of Mr. Romney’s tax cuts, Mr. Obama can now directly challenge Mr. Ryan’s stated positions in favor of privatizing social security and turning Medicare into a voucher program. Florida, a must-win state for Mr. Romney, just moved closer to Mr. Obama’s column.”

Editorial / New York Post

“It’s undeniable that, with Ryan as his No. 2, Mitt Romney’s campaign will offer voters a stark choice: Will America be a nation of unaffordable, ever-escalating entitlements, government control of the economy and inevitable anemic growth?

“Or will it return to a course that encourages and rewards the entrepreneurial spirit, that frees Americans to make their own choices and take risks, that unleashes the drive toward prosperity that made the nation great?

“Romney took a big risk himself by naming Ryan yesterday. But he did the nation a favor by making the choice between him and Obama clear.

“For that alone, he deserves kudos.

“As for the coming debate – bring it on!”

Michael Goodwin / New York Post

“Ryan’s plan isn’t perfect, yet it is a courageous and necessary starting point. But he can’t change the political dynamic alone. It falls to Romney, and that’s a problem.

“Nearing the end of his second national race, he still doesn’t seem prepared for the life he has chosen. He reacts to attacks on his background and wealth as if he is surprised.

“But rival Republicans Newt Gingrich and Rick Perry made the mud bombs Obama is throwing. If Romney was expecting a more honest campaign from the president, he’s guilty of political malpractice.

“The mere fact that Obama is able to successfully distort Romney’s record to independent voters reflects Romney’s failure to define himself first – a violation of Politics 101.

“Meanwhile, Obama knows what he is about. He acts without honor or scruples and does not suffer inhibitions about damaging the Oval Office. He will do what it takes to win.

“Romney is a better man than that, but nice guys often do finish last.  Paul Ryan can help, but if the nation is to be convinced to fire the first black president, Mitt Romney will have to do the convincing.”

Ruth Marcus / Washington Post

“Romney needs independents in Virginia, suburban women in Colorado, seniors in Florida.  It’s not a question of whether Ryan will help him woo these voters; it’s a matter of whether Ryan – especially once the Obama campaign and associated super PACs get through with him – will make that even harder.

“On the plus side, Ryan is smart, engaging, charismatic, young. He’s got good chemistry with Romney. He’s serious and committed without being off-putting or intractably partisan. Democrats who’ve worked with Ryan like and respect him.

“But selecting him as veep doesn’t make sense. It undercuts several aspects of the Romney narrative.

“Romney is the outside Washington candidate – now running with a sitting member of a body with a 12 percent approval rating. He’s the private sector fix-it guy – now with a career politician.

“Most important, the choice of Ryan pushes against what has been the central theory of Romney’s campaign: make it less of a choice between himself and Obama and more of a referendum on the incumbent president and the languishing economy.”

S.E. Cupp / New York Daily News

“For me…Ryan has always been the best choice. He’s unafraid to tackle third-rail issues like entitlement reform. He presented a controversial budget that made sweeping cuts to social programs that were tough but necessary. He’s become a national figure not because of kooky things he’s said on the conservative convention circuit, but because of his economic policies. And he’s a devout Catholic who represents social conservatives unapologetically but without rancor.

“Romney’s perceived anemia, when it comes to taking tough positions and then defending them unapologetically, gets a shot of iron from Ryan, who has been unafraid to make bold proposals and then stand by them.

“But in addition to the policy implications and social values that Ryan now ascribes to the Romney campaign, the pick also says to voters that Romney can be gutsy and confident. That intangible boosts Romney’s campaign in a way that no other vice-presidential candidate would have. Ryan is, in short, just what Romney needed. And it’s incredibly reassuring to see that Mitt Romney had the confidence to pick him….

“(Conservatives) from the far-right to the moderate middle know today that candidate Romney wants his campaign to be a referendum on President Obama’s economic policies and big government. And they know today that Romney isn’t afraid to get his hands a little dirty.”

Charles Krauthammer / Washington Post

“The Democrats’ Mediscare barrage is already in full swing. Paul Ryan, it seems, is determined to dispossess Grandmother, then toss her over a cliff. If the charge is not successfully countered, good-bye Florida.

“Republicans have a twofold answer. First, hammer home that their Medicare plan affects no one over 55, let alone 65. Second, go on offense. Point out that President Obama cuts Medicare by $700 billion to finance Obamacare.

“It’s a sweet judo throw: Want to bring up Medicare, supposedly our weakness? Fine. But now you’ve got to debate Obamacare, your weakness – and explain why you are robbing Granny’s health care to pay for your pet project.”

Editorial / Washington Post

“The best thing about Mitt Romney’s choice of Wisconsin Republican Paul Ryan to be his running mate is that it offers the chance to transform what has been a dismally substance-free campaign into a serious clash of ideas. The energetic, likable House Budget Committee chairman has made himself into the party’s leading thinker on the fiscal and budgetary matters that will confront the next president. We have differed sharply with Mr. Ryan’s policy proposals, which would cut far too deeply into an already fraying social safety net and raise too little revenue to support the needs of an aging society. But Mr. Ryan has demonstrated a willingness to tackle third-rail issues from Social Security…to Medicare….

“Bold is not normally a word associated with Mr. Romney, but this is a bold – perhaps even foolhardy – choice. The clash of ideas will inevitably be distilled into a 30-second caricature of Mr. Ryan’s plans, no doubt targeted to Florida seniors who would be exempt from the proposed Medicare changes. Indeed, Mr. Obama has already used his opponent’s support of the Ryan budget as a campaign cudgel…Mr. Ryan’s contrasting vision, laid out most usefully in his January 2010 ‘Roadmap for America’s Future,’ decries an ‘expanding culture of dependency’ on government programs. ‘By this means,’ Mr. Ryan wrote, ‘government increasingly dictates how Americans live their lives. The process suffocates individual initiative and transforms self-reliance into a vice and government dependency into a virtue.’ This dark assessment mischaracterizes the much-diminished nature of the modern safety net, but it illustrates the passion underlying Mr. Ryan’s policy views.

“Mr. Romney’s selection of a running mate sharpens the portrait of the kind of president he wants to be. It underscores the stark choice facing voters in November.”

--Mitt Romney said of Barack Obama that he is a man seething with animosity and power lust and that the president’s campaign “is all about division and attack and hatred,” adding at a separate stop, Obama is an angry man who “will do or say anything to get elected.”

At a rally on Tuesday, Romney said:

“This is what an angry and desperate presidency looks like. President Obama knows better, promised better, and America deserves better.   His campaign strategy is to smash America apart and then try to cobble together 51 percent of the pieces. If an American president wins that way, we all lose….Mr. President, take your campaign of division and anger and hate back to Chicago and let us get about rebuilding and reuniting America.”

An Obama campaign spokesman, Ben LaBolt, responded in a statement:

“Governor Romney’s comments tonight seemed unhinged, and particularly strange coming at a time when he’s pouring tens of millions of dollars into negative ads that are demonstrably false.” [Philip Rucker and Amy Gardner / Washington Post]

--Vice President Joe Biden told a crowd of largely black supporters that Republicans wanted to “unchain Wall Street,” adding “They’re going to put y’all back in chains.”

The president defended Biden, saying his running mate was only talking about how consumers won’t be protected if Wall Street reforms are repealed.

“In no sense was he trying to connote something other than that,” Obama said.

Appearing on Wolf Blitzer’s “Situation Room” on CNN, former Virginia Democratic Gov. Douglas Wilder blasted Biden for his comment, calling on the vice president to “cool it, back up” and apologize for making a mistake.

Appearing before Wilder was Artur (sic) Davis, the former four-term Democratic congressman from Alabama who recently turned Republican. Davis is perhaps best known for seconding Obama’s nomination at the Democratic National Convention in 2008, when he served as an Obama campaign co-chairman.

Davis said Biden was propagating “racial viciousness” when he said Mitt Romney’s regulatory policies would “put y’all back in chains.” Davis, who is black, said the comment smacked of a type of divisiveness all too common in the South.

“It brought back memories for me,” he told Wolf. “It brought back memories of these Democratic politicians in the South who think they can go before crowds and say one thing and nobody else will hear it, and they’ll somehow get a cheer in the room and that they can blithely go on about their business.”

Davis called Biden’s words insulting.

“It’s a divisive tactic that’s insulting to African Americans. It’s insulting to the American people. It’s insulting to the legacy that he used to build up as an orator who used to know how to inspire people instead of strike fear in people’s heart.”

[Davis has been given a speaking slot at the Republican Convention.]

Rudy Giuliani on Wednesday questioned Joe Biden’s “mental capacity” to lead. “I mean this guy just isn’t bright. He’s never been bright. He isn’t bright. And people think, ‘Well, he just talks a little too much.’ Actually, he’s just not very smart….I mean, there’s a real fear if, God forbid, he ever had to be entrusted with the presidency, whether he really has the mental capacity to handle it.”

John Podhoretz / New York Post

“President Obama’s answer on Wednesday to a question about his running mate claiming Republicans are going to put ‘y’all back in chains’ was a classic bit of soothing presidential palaver.

“ ‘I don’t think you or anybody who’s been watching the campaign would say that in any way we have tried to divide the country,’ he said about a moment in which Joe Biden had done precisely that.

“The president’s answer has the quality of the adulterer caught in bed with another woman who says to his wife, ‘Who you gonna believe? Me or your lying eyes?’”

--President Obama on Medicare: “I have strengthened Medicare,” saying his administration proposed “reforms that will not touch your Medicare benefits, not by a dime.” Romney and Ryan, on the other hand, according to the president, want to “turn Medicare into a voucher program,” while his approach had extended the life of Medicare by a decade. “Their plan ends Medicare as we know it,” said Obama.

--Mitt Romney, addressing the income tax issue, said on Thursday, “I did go back and look at my taxes, and over the past 10 years I never paid less than 13 percent. I think the most recent year is 13.6 or something like that. So I paid taxes every single year.” Which only allowed Democrats to say, “So prove it.”

--Robert J. Samuelson / Washington Post

“Judging by the political reaction, you’d think that Paul Ryan’s budget takes a meat ax to Medicare and threatens economic havoc for the elderly. Just the opposite is true: The Ryan budget spares older people from almost any change or sacrifice – and that’s the problem. We have (and, to be fair, this is mainly the doing of Democrats and their intellectual apologists) made those 65 and over into a politically protected class, of which nothing is expected and everything is given.

“It is impossible to have an honest debate about the budget – and government’s size and role – unless this changes, because aiding the elderly is now the main thing the federal government does. If you remove that, fearing a backlash from the 50 million or so Social Security and Medicare recipients, you condemn yourself to bad choices: (a) you can’t deal with deficits, which may crowd out productive investment and risk a financial crisis; (b) you must dramatically squeeze the rest of government, including the social safety net, defense and research; or (c) you must raise taxes sharply, which may further slow the economy….

“There are two Ryans: what I call the good Ryan and the bad Ryan. Probably more than anyone in Washington, the good Ryan has highlighted long-term deficits’ potential harm to our children and grandchildren. The bad Ryan has fashioned an unrealistic and undesirable budget by trying to accommodate both liberal dogma (don’t cut Social Security and Medicare benefits) and conservative dogma (don’t raise taxes).   Any sensible plan must do both.

“Governed by these constraints, Ryan’s budget would:

“ (1) Impose no cuts in Social Security – that’s 20 percent of federal spending off the table.

“ (2) Delay any major change in Medicare until 2023, when recipients could choose either a voucher plan or ‘traditional’ Medicare – that’s another 16 percent of spending unaddressed for a decade.

“ (3) Convert the federal share of Medicaid (federal-state health insurance for the poor) into a block grant to states, and then increase the grant annually at a lower rate than at present.

“ (4) Increase most other federal spending, including defense, only by inflation after 2023 – a formula that makes no allowance for population growth and could lead to ‘real’ cuts because wages and compensation typically outpace inflation.

“ (5) Hold taxes at 19 percent of GDP after 2025, just above the 18 percent average of the past 40 years.

“ (6) Reduce deficits but not balance the budget until 2040.

“This budget would have devastating consequences.  Increasing non-Social Security and health spending only at the rate of inflation would gradually shrink most other federal programs. (From 2011 to 2030, these other programs would decline by more than half, from 12.5 percent of GDP to 5.75 percent, projects the CBO).  Defense cuts could verge on unilateral disarmament. States and localities would suffer as the value of federal grants, including Medicaid, shriveled. The FBI, the National Institutes of Health and other federal agencies would be starved.

“By contrast, the elderly would be mainly spared….Despite this, President Obama warns that Republicans ‘would end Medicare as we know it.’ Liberal pundits say Republicans would ‘kill’ Medicare. It is this cynical fear-mongering that poisons debate. One reason Democrats won’t change Social Security and Medicare is that defending them is so politically rewarding. This, as much as Republican tax intransigence, underlies the stalemate.”

--Editorial / Washington Post

“On the same trip to Virginia (where earlier Vice President Biden uttered his ‘going to put y’all back in chains’ comment), Biden wandered into the Coffee Break Café in Stuart. According to the White House pool report, when a diner there said, ‘I’m glad you all are not talking about doing anything with Social Security,’ Mr. Biden responded: ‘Hey, by the way, let’s talk about Social Security. Number one, I guarantee you, flat guarantee you, there will be no changes in Social Security. I flat guarantee you.’

“Why is this so depressing? Because, as Mr. Biden knows, Social Security is going broke. If ‘no changes’ are made, then by 2033 the program will not be able to pay benefits as promised….

“Now, here’s the really depressing part: Everyone agrees that fixing Social Security is the easy one – far easier than reining in Medicare, Medicaid and other health-care costs. Tweak the inflation calculator and moderately raise the income limit for applying the payroll tax, and you can shore up Social Security with no harm to the safety net….

“By contrast, the vice president’s hearty assurances, like so much in this campaign, will make even more difficult the governing decisions that become more expensive and more painful with every year of delay.”

--The Romney campaign has tabbed New Jersey Gov. Chris Christie to be convention keynote speaker, the perfect choice, and Sen. Marco Rubio of Florida to introduce Romney. Sen. Rick Santorum and Sen. Rand Paul will also be given slots, as well as Condoleezza Rice. But no Sarah Palin.

One thing we know. Christie’s speech will not be dull. With the Republican National Convention starting Aug. 27, it seems Christie would speak the next day, Tuesday, followed by Paul Ryan on Wednesday and then Romney on Thursday.

--An analysis by USA TODAY of congressional records since 1947 show that the 112th Congress, covering 2011-12, is “the least productive two-year gathering on Capitol Hill since the end of World War II.”

Thus far, only 151 bills (90 in 2011, 61 in 2012) have been passed. “The only other year in which Congress failed to pass at least 125 laws was 1995.” [Susan Davis / USA TODAY]

USA TODAY has the tally of bills passed for each year and it’s pretty astounding. Like 638 in 1956 and 620 in 1958. My main man Ike was president then. Some say these were pretty good times in America. One has to be fair, however, and admit they weren’t the best of times for African-Americans in many parts of the country.

--It’s funny the contrast…Paul Ryan is so comfortable in his own skin. Mitt Romney incredibly uncomfortable.

--Lolita C. Baldor of the Associated Press:

“The four-star general who headed U.S. Africa Command used military vehicles to shuttle his wife shopping and to spas, and billed the government for a refueling stop overnight in Bermuda, where the couple stayed in a $750 suite, a Defense Department investigation has found.

“A 99-page report details excessive unauthorized spending and travel costs for Gen. William ‘Kip’ Ward, including lengthy stays at lavish hotels for Ward, his wife and his staff members, and the use of five-vehicle motorcades when he traveled to Washington….

“During one 11-day trip to Washington, Ward spent one day visiting wounded soldiers, had a 90-minute meeting on another day and a State Department meeting on a third day but billed the Pentagon more than $129,000 to cover the daily hotel and other costs for him, his wife and 13 civilian and military staff.”

What a freakin’ dirtball. The military’s highest levels are filled with guys like this, as I’ve done my best to pass on over the years. Cue Ike’s “military-industrial complex” speech. 

--Chelsea Clinton, in her first real interview for Vogue magazine, said that she might run for elected office someday.

“Before my mom’s campaign, I would have said no,” said Chelsea.   But her mother’s entrance into politics led her to change her mind.

“I believe that engaging in the political process is part of being a good person.”

Oh brother.

--I employed my ‘wait 24 hours’ doctrine last time in not commenting on the plagiarism incident involving columnist Fareed Zakaria. As the Wall Street Journal’s Bret Stephens observed, “Why couldn’t he have added the words, ‘As the New Yorker’s Jill Lepore wrote…’?”

But I also agree with Stephens who writes:

“I will give Mr. Zakaria this: He anchors one of the few shows (on CNN) that treats foreign policy seriously, that aims for an honest balance of views, and that doesn’t treat its panelists as props for an egomaniacal host. He’s also one of the few prominent liberals I know who’s capable of treating an opposing point of view as something other than a slur on human decency.

“In my book, that makes him a good man who’s made a mistake. No similar compliment can be paid to the schadenfreude brigades now calling for his head.”

And upon further review, TIME and CNN are bringing Zakaria back shortly.

--The City of Dallas, Texas, declared a health emergency as the West Nile virus continues to spread, killing at least 16 in the state and 28 nationwide, the last I saw. The U.S. is experiencing its biggest spike in West Nile cases since 2004 and it’s only going to get worse through the early fall.

--Finally, a special thank you to Tom Brokaw for his terrific documentary on the Battle for Britain last Saturday night during the Olympics coverage. Totally appropriate, needed, and I hope the young people in the television audience stayed with it. How many times have I said “There are no Churchills in the world today”? Mr. Brokaw’s piece was further proof of that. A leader for the times and a people that rose to the challenge unlike any others in the history of mankind. God Save the Queen.

---

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

God bless America.
---

Gold closed at $1619
Oil, $96.01

Returns for the week 8/13-8/17

Dow Jones +0.5% [13275]
S&P 500 +0.9% [1418]
S&P MidCap +1.6%
Russell 2000 +2.3%
Nasdaq +1.8% [3076]

Returns for the period 1/1/12-8/17/12

Dow Jones +8.7%
S&P 500 +12.8%
S&P MidCap +11.2%
Russell 2000 +10.7%
Nasdaq +18.1%

Bulls 43.6
Bears 26.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

*Next time I’m really not sure when I’m posting. I’m heading to Ireland in a few days and it’s not a trip that is conducive for work (think golf and pints). I’ll post an abbreviated review from there on Sat. or Sun. morning.

Brian Trumbore