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09/22/2012

For the week 9/17-9/21

[Posted 11:00 PM ET, Friday…one time only]

Europe, Washington and Wall Street

The markets in Europe and the U.S. have been able to rally the past few weeks largely because of perceived short-term stability in Europe, as well as the aggressive monetary policies pursued by the European Central Bank and the Federal Reserve. This coming week could be another important one as there are rumors that Spain may accept a bailout, or a rescue plan under the guise of being a bailout, if it can work out an economic reform program. There are all kinds of details yet to be revealed, including just how much aid we are talking, given that the banking situation in Spain continues to grow worse by the hour, but there is no denying the markets are expecting a bailout of some sorts, with Spain able to auction off 10-year paper at a rate of 5.70% this week, still too high but far better than the 6.70% it was forced to pay in August. Spain also sold 12-month paper at 2.83%.

But Spain’s bad bank debt rose to the highest level since the central bank began keeping track in 1962, 9.9% of total loans and up from 9.4% just the month before, and the bank “jog” I wrote of the other day continues apace with deposits fleeing Spain’s financial institutions.

Prime Minister Mariano Rajoy is desperate to avoid a bailout with severe conditionality so that’s what the negotiations with the ECB and European Union are over. What would be demanded, knowing that Rajoy has said he refuses to cut pensions (though pensions could be frozen for a year at significant savings to the government)?

One thing we do know. One of Spain’s 17 autonomous regions, Catalonia (think Barcelona) is clamoring to secede, as its leader, Artur Mas said this week.

“The people and society of Catalonia are on the move, as we have seen on Sept. 11, and not willing to accept that our future will be gray when it could be more brilliant.”

Hundreds of thousands marched in a pro-independence rally on 9/11, the anniversary of a Catalan defeat at the hands of the Spanish army in 1714.

Catalonia represents one-fifth of Spain’s economic output and wants a new tax revenue redistribution plan, which Rajoy refuses to grant. Of course this is a political nightmare for Madrid at this time. Just last month, Catalonia asked for $6.5 billion in emergency aid in order to meet its debt obligations because like the other regions it can’t access the private market.

Meanwhile, strikes and protests have been spreading over the severity of austerity programs being implemented not just in Spain, but also Portugal (for a first time) and once again Greece.

In Portugal the protests were against further salary cuts and increases in social security contributions, while in Greece, doctors have been the latest to go on strike as the government wrestles over 11.5 billion euro in further budget cuts to unlock the 31.5 billion euro tranche of aid as part of Greek Bailout II, with the troika (ECB, European Commission and IMF) still to decide in October following a final report on the country’s finances.

Back to the deposit flight from European banks, according to data compiled by Bloomberg, a total of $425 billion was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31. A like amount has been deposited at lenders in seven countries considered the core of the eurozone, such as Germany and France. 

This is ripping the eurozone further apart, a division between north and south, with the southern tiers’ companies not being able to access needed credit for growth (let alone the mess in Eastern Europe I’ve written of).

As for the eurozone economy, the September PMI on manufacturing came in at 46, up from 45.1 in August. [A combined services/manufacturing index reading was 45.9 vs. 46.3 in August.] France’s Sept. PMI fell to 42.6!

You also have this ongoing issue of a new banking union and the role of the supervisor, who is supposed be in place by January but there is no way this timetable will be reached with all 27 EU parliaments needing to approve it all. According to last June’s agreement, only when a single supervisor is agreed upon can eurozone banks receive direct assistance without increasing the sovereign’s debt load. So you can see we have a long way to go here, despite some temporary happy talk.

Turning to Washington and Wall Street

Stocks registered fractional losses on the week as the euphoria over the Federal Reserve’s and European Central Bank’s easing and/or bond-buying programs faded. There is also still simply too much uncertainty when weighing Europe and China in particular. Regarding the latter, a flash estimate on manufacturing by HSBC for September came in at 47.8 vs. 47.6 in August, so still slowdown mode. Tensions between China and Japan (discussed below) didn’t help either given their important trade relationship. Japan’s overall exports for August plummeted 5.8% from a year earlier, with exports to China down 9.9%. Japan’s imports also fell 5.4%, which points to weak domestic demand.

And while the situation in the U.S. is better than Europe, or the trends in China and Japan, the weekly jobless claims figures, now solidly back in the 380,000 range, certainly don’t point to any improvement on the labor front. It also doesn’t help that U.S.-China trade tensions are simmering anew as it is too easy for both President Obama and Mitt Romney to bash the Chinese in the last weeks of the campaign. Both China and the U.S. filed complaints against each other with the World Trade Organization this week. Just remember the U.S. exports $104 billion in goods to China and this was up 13% in 2011 over 2010. That’s a lot of jobs.

In announcing earnings this week, FedEx CEO Fred Smith said on his conference call that some China observers “completely underestimate” the impact of slowing exports despite the country’s domestic stimulus efforts, with Smith blaming “policy choices” in the U.S., China and Europe for causing global trade to decelerate.

Rail giant Norfolk Southern also warned that its earnings for the third quarter wouldn’t be as good as the Street is expecting owing to falling delivery demand in the U.S.

But at least the news on the housing front continued to be OK. Housing starts for August were up but a little shy of expectations, while existing home sales were better than projected with the median home price at $187,400…up 9.5% over a year ago. Builder confidence is also at its highest level since 2006.

And the price of crude took a header, but this is both good and bad. It’s nice for drivers that oil dropped $6 this week, which if it stuck would eventually translate to a small decline at the pumps, but it also signals poor global demand. Saudi Arabia did pledge to keep output high to try and prevent the price from spiking back up and adding to the economic malaise. And of course you have the Iranian issue.

To sum it all up, though, OECD Secretary General Angel Gurria told Reuters that the world economy is at its most fragile since the 2008-09 financial crisis and decelerating trade patterns are largely to blame, plus he cited the dangers of the territorial row between China and Japan in the East China Sea.

“Trade had the potential of getting us out of the hole. It looked good, it was gathering speed after a drop in 2009 and now again it is ebbing, it’s stalling,” Gurria said. “That is affecting our capacity for the relaunch, for the recovery.”

“Trade doesn’t happen by itself,” he added. “Trade is inspired and promoted by companies in countries with certain policies. What was created in decades can very easily be dismantled by short-sighted protectionist policies. We have to fight protectionism with everything we’ve got.”

Street Bytes

--As alluded to, stocks finished down but just slightly after two robust weeks. The Dow Jones lost just 14 points, 0.1%, to close at 13579, while the S&P 500 lost 0.4% and Nasdaq declined all of four points, 0.1%.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.26% 10-yr. 1.75% 30-yr. 2.94%

The long end of the curve rallied anew (yields fell) with the realization the global economy remains very soft.

--Mohamed El-Erian of PIMCO had some interesting thoughts on the Fed’s recent moves, QE3, or QE Infinity, in an op-ed for the Financial Times. In part….

“Is the U.S. experiencing a ‘reverse Volcker moment’ in which low and stable inflation gets subordinated to other economic objectives? Markets seem to hint this and an increasing number of central banks in the rest of the world appear concerned about it.

“It is now over 30 years since Paul Volcker came into the U.S. Federal Reserve and unambiguously put crushing inflation at the top of his agenda. What followed was a period of price stability – by the middle of the last decade, many people had bought into the concept of ‘the great moderation’ and the ‘Goldilocks’ economy (not too hot, not too cold)….

“This may now be in the process of changing. There is a growing sense among some that today’s Fed would not only tolerate higher inflation but may also be wishing it – if not already targeting it.

“The immediate catalyst is, of course, the central bank’s recent actions and statements. Four merit particular mention: the extension to mid-2015 of the forward guidance language on rock-bottom interest rates; the further ballooning of the Fed’s balance sheet through the commitment to open-ended purchases of securities; clear signals that such an unprecedented expansionary monetary policy stance will continue well into the economic recovery; and, related to all this, a subtle evolution of the official inflation narrative….

“The average American does not worry much today about inflation judging from the allocation of their investment and retirement assets, price setting, and how wage settlements are negotiated. This could well be on the verge of evolving if the Fed is indeed in the midst of engineering a reverse Volcker moment.”

--More than 2 million people pre-ordered Apple’s iPhone 5, smashing records, and you had the usual lines at Apple stores on Friday as the new model became available. Apple is projected to ship 8-10 million by September 29; potentially 50 million by Christmas.

But I loved competitor Samsung’s commercial on those waiting in line for Apple’s product, needlessly so, if you listen to them.

--The median annual household income dropped by 1.3% to $50,502 in 2011, according to the Census Bureau.

--Bank of America is accelerating its cost-cutting plan, looking to jettison 16,000 by year end. BofA will thus probably have a smaller workforce than JPMorgan Chase, Citigroup and Wells Fargo & Co.

CEO Brian Moynihan is looking to fulfill an overall workforce reduction target of 30,000 one year early. Between 2011 and 2012, about 375 branches will also be closed.

--Kohl’s is hiring 52,000 seasonal workers, up more than 10% from last year.

--In a sign of tightening purse strings at the Pentagon, Northrup Grumman Corp. said it is preparing to trim its workforce by 600 in Southern California, home to most of Northrop’s 21,000 employees in its aerospace division. Cuts in the defense budget of anywhere from $450 billion to $600 billion over the next decade are on the table.

With the “fiscal cliff’ and “sequestration” looming, the Aerospace Industries Assn., a trade group, estimates 1 million jobs of all kinds could be lost nationwide, 126,000 in California. [Los Angeles Times]

--American Airlines is a total mess these days, cancelling hundreds of flights as it deals with its bankruptcy proceedings. There has been an increasing amount of maintenance calls filed by flight crews and a surge in pilots calling in sick. The airline also reportedly sent out 11,000 layoff notices as part of previously announced cost-cutting measures.

--From the Irish Independent:

“It is the ultimate sign of our dramatic transformation from boom to bust.

“A Co. Meath cattle farmer has bought back an 8.5-acre site from a developer for just 60,000 euro only seven years after selling it himself for close to 1.5 million….

“At an auction in Navan, (David) Gilsenan was one of just two bidders as he snapped up land that he himself had sold for a fortune in the Celtic Tiger years.”

I assume Mr. Gilsenan is buying the first round tonight.

--New York City will pay out a record $735 million on settlements or court awards in thousands of personal injury, property damage, and contract dispute lawsuits for the fiscal year ending next June, as reported by Bloomberg Businessweek. The state has no cap on municipal liability or civil damages.

With this in mind, Mayor Michael Bloomberg announced that city agencies need to slash spending to the tune of $2 billion over the next 18 months as New York faces a projected $2.5 billion budget shortfall for the fiscal year beginning July 1.

--Bill Gates remains the richest American, according to Forbes’ annual survey, with a net worth estimated at $66 billion. Warren Buffett remains in second at $46 billion. Mayor Bloomberg moved up to the ten slot at $25 billion.

--Oracle’s Larry Ellison is third on the Forbes list. This week his company reported an 11% increase in profits but revenue fell 2%. For the current quarter, the software giant is projecting revenue will be flat to up 4%.

--Verizon reached an agreement with unions representing 45,000 workers on a new four-year deal that will increase their pay 8% while requiring them to pay more for their health coverage. The unions were able to preserve the current pension plan for existing workers, though it will change for new hires.

--AT&T CEO Randall L. Stephenson is on a personal crusade to get people to stop texting while driving; having had a close friend cause an accident while doing same. I’ve long resigned myself to the fact I’ll die crossing the street…hit by someone blowing through a stop sign while texting. That or I’ll be killed by a bear while jogging, the first such recorded fatality in New Jersey history.

--So I never check my Facebook page, which I only have because of the business, but in glancing at it the other day, under “Employers” for me it has Allianz Global Investors. Well I never worked for Allianz, having left PIMCO before Allianz acquired it.

So I thought, who the heck changed this? I then went in and changed it back to PIMCO Funds. Facebook then automatically changes it back to Allianz, the bastards!

This is incredibly deceiving, for starters, and frankly illegal. I am not trying to say I ever worked at Allianz! 

--The Japanese government, after saying it would phase out nuclear power by 2040, one week later backed off amid intense pressure from business groups dependent on reliable power.

--According to an investigation by The Times of London, more than 2,000 Britons living in Monaco are costing the UK some $1.5 billion a year in lost tax revenue. For example, 533 directors of UK companies have registered addresses in Monaco, and control 1,302 firms.

--If you’re thinking of traveling to Iceland, go now. The government is looking to increase the VAT on accommodation, restaurant meals and tourist attractions, which makes no sense. 

Iceland attracted 210,000 overseas travelers in 1997 and nearly 600,000 last year. In 2007, the government halved the VAT from 14% to 7% and tax receipts from tourism rose. But now it is looking to increase it from 7% to 25.5%.

--The U.S. seafood catch reached a 17-year high last year, with commercial fishermen hauling in 10.1 billion pounds of fish valued at $5.3 billion, according to the National Oceanic and Atmospheric Administration.

New Bedford, Mass., was the leading port by dollar value owing to scallops.

Americans ate an average of 15 pounds of seafood per person in 2011. 91% of the seafood we eat is imported.

And if you ever order or buy Chilean Sea Bass, trust me…it ain’t no sea bass. It’s crappy.

Foreign Affairs

Iran: As the United States, Britain, France and a number of Middle Eastern states held the largest naval exercises in memory in the Gulf this week, Iran launched a submarine and destroyer. It’s the former that is worrisome to some.  The subs that Iran has are vessels originally built in Russia in the early 1990s, so modern enough to cause real havoc at a time of Iran’s choosing.

Eliot A. Cohen / Washington Post

“Do the Iranians fear Obama? Why should they when, apparently, they can attempt to assassinate the Saudi ambassador to the United States in our nation’s capital and suffer no penalty? Why should anyone – other than terrorists targeted easily by drones or commandos – fear us?

“The administration’s passivity on Iran is echoed in Syria. After reinstating our ambassador to Damascus in return for precisely nothing, we watched as peaceful protests turned to violently suppressed demonstrations, then to revolt and now to civil war. Tens of thousands of Syrians have been slaughtered, hundreds of thousands have fled; war licks at Lebanon, Turkey, Iraq and Jordan, and it may metastasize in many ways and directions. Meanwhile, U.S. officials have fantasy plans for a post-Assad regime over which we will have no influence because we played only a negligible role in helping it succeed.

“Why is this the Obama administration’s record? Perhaps the president and his aides are declinists, who think of the United States as too weak to act; perhaps they are indifferent; perhaps they are merely incompetent. In any event, this president will leave his successor a country that is considerably less secure than it was when he took the oath of office.”

Egypt: As reported by the Washington Post, no new aid is likely to be approved for Cairo until after the presidential election. Even supporters of aid, such as Republican Sen. Bob Corker (Tenn.) say the response to the storming of the U.S. embassy here is “unacceptable.”

Meanwhile, the Coptic Christian community in Egypt, about 10% of the nation’s population, fears a new wave of repression after a member of the church produced the controversial video. And with Egypt’s economy collapsing (think tourism), the Copts will be an easy target. The Salafists are calling for the alliance with Washington to be scrapped altogether, but as one Copt told the London Times, “What are they talking about? The economy is collapsing and they want to take us back to the early Islamic age.”

Separately, President Mohammed Mursi warned Tehran that relations between the two were being harmed by Iran’s support for Damascus.

Syria: Iran’s foreign minister Salehi called for “a simultaneous halt in clashes and violence by the sides in Syria [and] insisted on a peaceful solution without foreign intervention and a halt to financial, military and training support for the Syrian opposition.” [Daily Star] Of course that would maintain the status quo for Bashar Assad, which is Iran’s goal. 

There were major clashes between government and rebel forces on the border with Turkey this week and Turkey is getting dangerously close to reacting militarily.

Also, there are growing reports Syria is test firing systems that would be used for its chemical weapons’ stockpile. According to a report in Der Spiegel, Iranian Revolutionary Guard officers witnessed the testing. The former head of Syria’s WMD efforts, who defected three months ago, told The London times that the Syrian regime has plans to use chemical weapons on its own people.

Israel: Prime Minister Benjamin Netanyahu turned up the heat on the White House another few degrees by appearing on various Sunday shows such as “Meet the Press,” warning that Iran was just six to seven months away from being able to build a nuclear bomb. Netanyahu continued to urge the Obama administration to establish red lines and spell out specific limits Iran must not cross.

“You have to place that red line before them now, before it’s too late,” adding, “I’m not going to be drawn into the American election. What’s guiding my statements is not the American political calendar but the Iranian nuclear calendar.”

But two days earlier, U.S. Defense Secretary Leon Panetta said, “The fact is [that] presidents of the United States, prime ministers of Israel or any other country – leaders of these countries don’t have, you know, a bunch of little red lines that determine their decisions…Red lines are kind of political arguments that are used to try to put people in a corner.” [Jerusalem Post]

The left-leaning Israeli daily, Haaretz, said Netanyahu “interfered, grossly, vulgarly and unreservedly in the campaign.” Opposition leader Shaul Mofaz taunted Netanyahu in a parliamentary debate. “Who do you fear more – (Iranian President Mahmoud) Ahmadinejad or Obama? Which regime is more important to overthrow – the one in Washington, or in Tehran?” 

Incidentally, Jewish voters in the U.S. support President Obama over Mitt Romney, 70-25, according to a Gallup poll, which is the same as this point in the 2008 election cycle when Obama was ahead of John McCain 69-25.

And needless to say, Palestinians were none too pleased at Mitt Romney’s comments in the now famous May donor video as in the same tape he belittled the “47 percent,” he told donors that Palestinians are “committed to the destruction and elimination of Israel” and have “no interest whatsoever in establishing peace, and that the pathway to peace is almost unthinkable to accomplish.”

Romney added, “You hope for some degree of stability, but you recognize that this is going to remain an unsolved problem. And we kick the ball down the field and hope that ultimately, somehow, something will happen and resolve it.”

Chief Palestinian negotiator Saeb Erekat responded, “No one stands to gain more from peace with Israel than Palestinians and no one stands to lose more in the absence of peace than Palestinians.”

Meanwhile, the Palestinian Authority is dealing with an economy that is sliding and a banking system that has essentially lost all access to credit as there has been a sharp fall in donor money, especially from the Arab world. There have been mass protests in both the West Bank and Gaza against the PA.

Lebanon: On Sunday, Pope Benedict XVI held Mass for 300,000 worshippers in Beirut. Earlier he addressed young people of all faiths, with Benedict telling them, “Together with the young Christians, you are the future of this fine country and of the Middle East in general. Seek to build it up together! And when you are older, continue to live in unity and harmony with Christians.” Benedict’s three days in the country were highly important, and he was well-received, but no sooner had he left than Hizbullah leader Sheikh Nasrallah called for protests across the country on Monday to denounce the anti-Muhammad film and 500,000 responded in Beirut, which is more than a bit disconcerting. Nasrallah himself, in a rare public appearance (fear of being assassinated by Israel), addressed the crowd for 15 minutes, saying in part:

“The world should know that our anger is not a passing thing…This is the start of a serious campaign that must continue all over the Muslim world in defense of the prophet of God. As long as there’s blood in us, we will not remain silent over insults against our prophet.” [Daily Star]

And the New York Times had a piece titled “A Void for Sunnis in Lebanon” that began, “As spillover from the civil war in Syria continues to unsettle Lebanon, the prolonged absence of Saad Hariri, the country’s former prime minister and leader of its Sunni community, has created a political vacuum of sorts, as his influence has declined and new voices have emerged.”

How many times have I said that Hariri must return to Beirut instead of hiding out in Paris? He is making a huge mistake in not doing so.

Afghanistan: What a disaster. Four American soldiers and two Brits were killed within 24 hours last weekend in insider attacks, while eight South African aviation workers and four Afghans were killed in a suicide attack in Kabul that featured a female bomber. We also learned that the Taliban attack of about a week ago that killed two U.S. soldiers at Camp Bastion, where Prince Harry is based, did in excess of $150 million in damage as the Taliban took out six Harrier jets, damaged two others, 3 refueling stations and six aircraft hangars.

But as a result of the “green on blue” insider attacks, which have killed at least 51 NATO soldiers this year, NATO announced it was reducing joint patrols between its forces and Afghans, which in the eyes of some represents a symbolic retreat and a tremendous victory for the Taliban. It will also cause resentment among Afghan soldiers and police that they are being abandoned, which in turn could lead to even more insider incidents. There is no way this can’t be damaging and a major erosion of trust between the two sides.

Following is some commentary on the foreign policy situation in general.

Niall Ferguson / Newsweek

“Here’s what happens to American presidents who look to be loved in the Middle East. In 2008, the year Obama won the presidency with his pledge to end George W. Bush’s wars, 75% of Egyptians had an unfavorable opinion of the United States. Today it’s 79%. Four years ago, that was the percentage of Jordanians with a negative view of the U.S. Now it’s 86%.

“ ‘It is much safer to be feared than loved,’ Machiavelli teaches us. Today America is neither. Consider the wider ramifications of the Middle Eastern crisis. Revolutions have succeeded, with halfhearted American support, in Egypt, Libya, and Tunisia. Among the beneficiaries have been staunch anti-American organizations like the Muslim Brotherhood. The United States continues to give Egypt more than $1 billion a year in aid, roughly the price of the two attack submarines the Egyptians are buying from Germany. The country was once America’s ally. Last week the president conceded it is now neither our enemy nor our friend….

“Maybe you think George Bush’s invasion of Iraq was a mistake, though it gave that country democracy, showed Arabs that dictators can be toppled, and turned an enemy into a potential ally. But consider the consequences of this president’s decision to pull out of Iraq. Two months ago, at least 100 Iraqis perished in a wave of bombings and shootings by al-Qaeda in Iraq, which aims to overthrow the Shia-led government of Nouri al-Maliki. Last week the country’s Sunni vice president was sentenced to death. Meanwhile, Kurdistan is acting like an independent state (or, rather, a satellite of Turkey). Iraq is falling apart.

“As for Syria, while Obama fiddles, its cities burn in a civil war that could soon eclipse Lebanon’s in the 1980s.

“The president who was once a foreign-policy neophyte now makes much of his experience. That claim depends heavily on a program of targeted assassination that liberals would have denounced if it had been pursued by his predecessor.”

Charles Krauthammer / Washington Post

“It’s now three years since (Obama’s) Cairo speech. Look around. The Islamic world is convulsed with an explosion of anti-Americanism. From Tunisia to Lebanon, American schools, businesses and diplomatic facilities set ablaze. A U.S. ambassador and three others murdered in Benghazi. The black flag of Salafism, of which al-Qaeda is a prominent element, raised over our embassies in Tunisia, Egypt, Yemen and Sudan.

“The administration, staggered and confused, blames it all on a 14-minute trailer for a film no one has seen and may not even exist.

“What else can it say? Admit that its doctrinal premises were supremely naïve and its policies deeply corrosive to American influence?

“Religious provocations are endless. Resentment about the five-century decline of the Islamic world is a constant. What’s new – the crucial variable – is the unmistakable sound of a superpower in retreat….

“ ‘It’s time,’ declared Obama to wild applause at his convention, ‘to do some nation-building right here at home.’ He’d already announced a strategic pivot from the Middle East to the Pacific. Made possible because ‘the tide of war is receding.’

“Nonsense. From the massacres in Nigeria to the charnel house that is Syria, violence has, if anything, increased. What is receding is Obama’s America….

“Islamists rise across North Africa from Mali to Egypt. Iran repeatedly defies U.S. demands on nuclear enrichment, then, as a measure of its contempt for what America thinks, openly admits that its Revolutionary Guards are deployed in Syria. Russia, after arming Assad, warns America to stay out, while the secretary of state delivers vapid lectures about Assad ‘meeting’ his international ‘obligations.’ The Gulf states beg America to act on Iran; Obama strains mightily to restrain…Israel….

“A foreign policy in epic collapse. And, by the way, Vladimir Putin just expelled the U.S. Agency for International Development from Russia. Another thank you from another recipient of another grand Obama ‘reset.’”

John Podhoretz / New York Post

“What does it mean when the president and the president’s press secretary contradict each other? Yesterday, Obama spokesman Jay Carney said of the murder of four Americans in Libya last week: ‘It is, I think, self-evident that what happened in Benghazi was a terrorist attack.’

“A few minutes later, appearing on the Spanish-language network Univision, the president himself replied to a question about whether the attack was premeditated by saying, ‘We don’t know yet. We’re going to continue to investigate this.’

“Which one of these guys didn’t get the memo?....

“Why on earth did the administration (initially) choose to peddle the insulting, ludicrous, head-scratching fiction that an attack featuring all kinds of al-Qaeda signatures wasn’t an attack in the first place?”

Fouad Ajami / Wall Street Journal

“Until last Tuesday’s deadly attack on our consulate in Benghazi, it was the fashion of Mr. Obama and his lieutenants to proclaim that the tide of war is receding. But we can’t declare a unilateral end to our troubles, nor can we avert our gaze from the disorder that afflicts the societies of the Greater Middle East.

“A Muslim world that can take to the streets, as far away as Jakarta, in protest against a vulgar film depiction of the Prophet Muhammad – yet barely call up a crowd on behalf of a Syrian population that has endured unspeakable hell at the hands of the dictator Bashar al-Assad – is in need of self-criticism and repair. We do these societies no favor if we leave them to the illusion that they can pass through the gates of the modern world carrying those ruinous ideas.

“Yet the word in Washington is that we must pull back from those troubled Arab and Muslim lands. The grand expectations that Mr. Obama had for Afghanistan have largely been forgotten. The Taliban are content to wait us out, secure in the knowledge that, come 2014, we and our allies will have quit the place. And neighboring Pakistan, a nuclear-armed country with 170 million people, is written off as a hotbed of extremism.

“Meanwhile, Syria burns and calls for help, but the call goes unanswered. The civil war there has become a great Sunni-Shiite schism. Lebanon teeters on the edge. More important, trouble has spilled into Turkey. The Turks have come to resent the American abdication and the heavy burden the Syrian struggle has imposed on them. In contrast, the mullahs in Iran have read the landscape well and are determined to sustain the Assad dictatorship.

“Our foreign policy has been altered, as never before, to fit one man’s electoral needs. We hear from the presidential handlers only what they want us to believe about the temper of distant lands. It was only yesterday that our leader, we are told, had solved the riddle of our position in the world.

“Give him your warrant, the palace guard intone, at least until the next election. In tales of charismatic, chosen leaders, it is always, and only, about the man at the helm.”

China: President-in-waiting, and current vice president, Xi Jinping, appeared at the Association of Southeast Asian Nations (Asean) trade fair and sought to reassure Southeast Asian leaders that his country wanted only peaceful relations with them, noting China’s own prosperity depended on this.

“The more progress China makes in development and the closer its links with the region and the world, the more important it is for the country to have a stable regional environment and a peaceful international environment.”

Referring to the current dispute in the East China Sea between China and Japan, Xi said:

“We are firm in safeguarding China’s sovereignty, security and territorial integrity and are committed to resolving differences with neighbors concerning territorial land, territorial sea and maritime rights and interests peacefully through friendly negotiations.”

Earlier, Xi and other Chinese officials met with Defense Secretary Leon Panetta, telling him that the Obama administration should focus more on diplomacy and less threatening forms of American power than a defense buildup in the region, the “rebalancing” the White House has been talking of for some time.

Panetta said Xi seemed “very healthy and very engaged” following his mystery disappearance for about two weeks amidst all kinds of rumors concerning his health.

As for the territorial disputes between China, Japan and the others in the region, Panetta said that Washington takes no position and wants to see the issues solved peacefully, but China can’t help but be concerned when it sees Washington and Tokyo enhancing their already solid relationship and levels of cooperation on defense matters.

For example, in Tokyo, Panetta announced that Washington planned to place a sophisticated anti-missile radar system in southern Japan to defend against North Korean missiles. Of course China hears this and knows the anti-missile system could be used to degrade the effectiveness of their ballistic-missile arsenal.

As for the mass protests across China over the dispute involving the Senkaku islands (Diaoyu to Chinese), by week’s end the situation was improving but the anti-Japanese protests were intense and caused a great deal of damage to physical property as well as the relationship between the two peoples, as extremists on both sides said their respective governments were not dealing harshly enough with the attacks on their sovereignty. [Taiwan also claims the same islands, by the way.]

Some of the banners and chants in China were rather unpleasant, such as “Return our islands! Japanese devils get out! For the respect of the motherland, we must go to war with Japan.”

A migrant worker in Beijing told a Reuters reporter: “We’ve always hated Japan. Japan invaded China and killed a lot of Chinese. We will never forget.”

The influential Chinese daily, the Global Times, opined:

“China should be confident about strategically overwhelming Japan.”

But as many also observed, including a professor from the Chinese Academy of Governance, Beijing “must not underestimate the risk that the spasm of nationalist sentiment and blind patriotism can be turned against the government…if it continues to be seen as weak in dealing with Japan.” Another commentator told the South China Morning Post that the central government, in fanning nationalism to divert public dissatisfaction about domestic issues, “is playing with fire.” A second professor said, “Things will get complicated when the disputes are mixed with internal social problems, such as corruption.”

The amount of trade between Japan and China is $345 billion; China shipped $148.3 billion in goods to Japan last year, the fourth-largest market for China, while China is Japan’s largest for exports, $194.6 billion in 2011. Foreign direct investment by companies from Japan surged 19% in the first seven months of 2012 vs. a year earlier.

But while Japan was forced to temporarily shut down some of its facilities in China, and while the animosity between the two is bound to linger, depending on any resolution of the East China Sea dispute, a similar dustup in 2005 over school textbooks led to mass protests in Chinese cities but imports from Japan still surged the following year.

On a different issue, the plight of princeling politician Bo Xilai, the Chinese government appears to have cleared a path for criminal proceedings against him after he was mentioned in the official account of a murder committed by his wife, Gu Kailai. Apparently, Bo belted his police chief in the face after he told Bo that Gu was “highly suspected” of murdering British businessman Neil Heywood. It was the first public acknowledgement of Bo since he was suspended from the Politburo in April.

Russia: Prime Minister Dmitry Medvedev and President Vladimir Putin exchanged harsh words this week as Putin seeks to eviscerate the reforms Medvedev attempted to put through when he was president. Putin also told the United States Agency for International Development it had an October 1 deadline to end its financial support for pro-democracy, public health and other programs in the country, as the Kremlin seeks to crack down on what it calls interference in its internal affairs.

Senator John McCain said: “The Russian government’s decision to end all U.S.A.I.D. activities in the country is an insult to the United States and a finger in the eye of the Obama administration, which has consistently trumpeted the alleged success of its so-called reset policy toward Moscow.”

Last weekend, an estimated 30-50,000 turned out for anti-Putin protests in Moscow, though the figure was less than the 100,000 that took part in the first protests last winter.

Random Musings

--From day one I’ve been saying Mitt Romney was running a dreadful campaign and had a bunch of dolts as advisers. After this past week’s revelations, I rest my case.

--Mitt Romney: “There are 47% of the people who will vote for the president no matter what. There are 47% who are with him, who are dependent upon government, who believe that they are victims, who believe that government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it.”

49% of the U.S. population does indeed receive some kind of federal benefits, including Social Security and Medicare, according to Census Bureau data. Just over a third receive benefits based on financial need, such as food stamps.

26% of the U.S. population received Medicaid.
16% Social Security.
16% Food stamps.
15% Medicare.

--According to the AP, 62% of Obama voters work, including the 10% only working part time. A fourth are retired.

56% have household incomes above the U.S. median of $50,000.

--David Brooks / New York Times

“In 1980, about 30% of Americans received some form of government benefits. Today, as Nicholas Eberstadt of the American Enterprise Institute has pointed out, about 49% do.

“In 1960, government transfers to individuals totaled $24 billion. By 2010, that total was 100 times as large. Even after adjusting for inflation, entitlement transfers to individuals have grown by more than 700% over the last 50 years. This spending surge, Eberstadt notes, has increased faster under Republican administrations than Democratic ones.

“There are sensible conclusions to be drawn from these facts. You could say that the entitlement state is growing at an unsustainable rate and will bankrupt the country. You could also say that America is spending way too much on health care for the elderly and way too little on young families and investments in the future…

“(But Romney’s above comment) suggests a few things. First, it suggests that he really doesn’t know much about the country he inhabits. Who are these freeloaders? Is it the Iraq war veteran who goes to the V.A.? Is it the student getting a loan to go to college? Is it the retiree on Social Security or Medicare?

“It suggests that Romney doesn’t know much about the culture of America. Yes, the entitlement state has expanded, but America remains one of the hardest-working nations on Earth. Americans work longer hours than just about anyone else. Americans believe in work more than almost any other people. Ninety-two percent say that hard work is the key to success, according to a 2009 Pew Research Survey….

“The people who receive the disproportionate share of government spending are not big-government lovers. They are Republicans. They are senior citizens. They are white men with high school degrees….

“Sure, there are some government programs that cultivate patterns of dependency in some people. I’d put federal disability payments and unemployment insurance in this category. But, as a description of America today, Romney’s comment is a country-club fantasy. It’s what self-satisfied millionaires say to each other. It reinforces every negative view people have about Romney.

“Personally, I think he’s a kind, decent man who says stupid things because he is pretending to be something he is not – some sort of cartoonish government-hater. But it scarcely matters. He’s running a depressingly inept presidential campaign. Mr. Romney, your entitlement reform ideas are essential, but when will the incompetence stop?”

Editorial / Financial Times

“Finally, there are Mr. Romney’s damage limitation skills, which now almost invariably make a bad situation worse. Monday night was no exception. At a hastily arranged 10pm press conference, a visibly exhausted Mr. Romney said his 47% remarks had been ‘not elegantly stated’ and ‘off the cuff.’ But he refused to disavow his portrayal of almost half his fellow Americans as amoral dependents on government largesse. In reality, almost every working American pays social security taxes, petrol taxes, sales taxes and many other forms of tax. And most adult Americans work or are looking for work, often having to fall back on multiple part-time jobs. One in two households earn less than $50,000 a year. Some of them are swing voters….

“Whichever way you look at it, Mr. Romney’s campaign is in trouble. It is possible for a politician to insult some of the people some of the time and get away with it. To insult half the people indefinitely looks like a poor bet.”

Charles Krauthammer on “The O’Reilly Factor”:

“The problem is the actual words are not even accurate…The way he put it is the worst possible way.”

Peggy Noonan / Wall Street Journal

“He’s got seven weeks. He’s just had two big flubs. On the Mideast he seemed like a political opportunist, not big and wise but small and tinny. It mattered because the crisis was one of those moments when people look at you and imagine you as president.

“Then his comments released last night and made four months ago at the private fundraiser in Boca Raton, Fla. Mr. Romney has relearned what four years ago Sen. Barack Obama learned: There’s no such thing as private when you’re a candidate with a mic. There’s someone who doesn’t like you in that audience. There’s someone with a cellphone. Mr. Obama’s clinger comments became famous in 2008 because when people heard what he’d said, they thought, ‘That’s the real him, that’s him when he’s talking to his friends.’….

Romney needs to get serious here. Or, he can keep typing out his stray thoughts with Stuart Stevens, who’s sold himself as a kind of mad genius. I get the mad part.

“Wake this election up. Wade into the crowd, wade into the fray, hold a hell of a rally in an American city – don’t they count anymore? A big, dense city with skyscrapers like canyons, crowds and placards, and yelling….

“Be serious and fight….

“But an intervention is needed.”

--According to an AP/GfK poll, Obama is favored by 52% of Americans vs. just 37% for Romney. But…among those most likely to vote, Obama is supported by 47%, Romney 46%.

Obama has a 52% approval rating in this one, significant, while 42% now believe the country is headed in the right direction, vs. low- to mid-30s over the summer.

--A Gallup poll of registered voters has the race tied at 47-47.

--However, a Wall Street Journal/NBC News poll of three battleground states has President Obama leading Romney by 8 points in Iowa, and five in Colorado and Wisconsin. This is on top of earlier WSJ/NBC polls showing Romney trailing in Florida (49-44), Ohio (50-43) and Virginia (49-44).

A new USA TODAY/Gallup Poll of Swing States, though, completed Monday night, shows Romney down by only two points to Obama, 48-46.

[Separately, the first WSJ/NBC poll has Obama with a 50% job approval and a 50-45 lead, nationwide, among likely voters.]

--Peggy Noonan / Wall Street Journal…quoting Republican pollster, corporate strategist, Steve Lombardo of Edelman public relations in Washington, who worked with Romney in 2008 but has no affiliation this time.

“How did we get here? What can turn it around (for Romney)?

“ 1. Mr. Romney came out of the primaries ‘a damaged political persona.’

“ 2. The Democrats defined Mr. Romney ‘before he had a chance to define himself.’ His campaign failed in ‘not doing a substantial positive media buy to explain who Mitt Romney is and what kind of president he might be.’

“ 3. ‘Perceptions of the economy are improving.’ Unemployment is high, but the stock market has improved, bringing 401(K)s with it.

“ 4.  Obama’s approval ratings are up five to six points since last year. He is now at roughly 49% approval, comparable to where President Bush was in 2004.

“ 5. ‘The president had a strong convention and Romney a weak one.’…

“ 7. The ‘47%’ comment didn’t help, but Mr. Romney’s Libya statement was a critical moment. Team Romney did not know ‘the most basic political tenet of a foreign crisis: when there is an international incident in which America is attacked, voters in this country will (at least in the short term) rally around the flag and the President. Always. It is stunning that Team Romney failed to recognize this.’”

--Editorial / Financial Times

“Mr. Romney was elected Governor of Massachusetts as a Republican and was chosen as his party’s nominee to be president. He is in other words an accomplished politician. Why then does he make so many unforced political errors?

“A sympathetic explanation for these mistakes is that the Republican faces a hostile media, ready to make the most of his stumbles. And there is something in this. But as even Paul Ryan, Mr. Romney’s running mate, described the latest remarks as ‘obviously inarticulate,’ it is not merely liberal bias to describe his statements as blunders and ask why he makes them.

“The problem is deeper than carelessness with words. It is that Mr. Romney has not decided, deep down, who he really is. He is a highly successful businessman and a competent administrator. His record inspires confidence that he would be a capable executive who might get a grip on the U.S. budget deficit and prove a competent manager of the Administration. He is a very recognizable figure historically – an East Coast moderate from a family with a proud political history. In this respect, he reminds some who meet him of the older George Bush.

“(But) in order to rally the Republican base, retain the support of other party leaders and raise money, Mr. Romney feels he needs to be more strident, echoing mainstream Republican rhetoric and presenting himself as an anti-governmental radical….

“Mr. Romney’s comments about victim culture and dependency were not merely inept, therefore, but also inauthentic. And perhaps this was not a coincidence. The error that Mr. Romney made – a sweeping comment about those who do not pay tax – is not one that President Reagan would have made, because Mr. Reagan was more comfortable in his own skin….

“The challenger must find a way to articulate (his message) while staying true to himself. And his aides must allow him to do so. Let Romney be Romney.”

--William Kristol / The Weekly Standard

“The message (to the Romney campaign) is simple: Explain how ghastly the prospect of four more years of Obama really is. And explain the course that a Romney-Ryan administration will follow, and how those new policies will lead to national recovery. Enough about the last four years. Obama’s mistakes as president are pretty clear. Tell us about the next four years. Tell us about the choices ahead, not the failures behind. Tell us about the full spectrum of choices we face. Make a case for your presidency, not just against the current president.

“It really isn’t enough – it actually diminishes the substance of this election – to say, as you did in your acceptance speech, ‘President Obama promised to begin to slow the rise of the oceans and heal the planet. My promise is to help you and your family.’ No, please. We and our families would like you to help our country.”

--In key battleground state Virginia, according to a Washington Post survey, Obama holds a 19-point lead over Romney among likely female voters. Among men, Romney leads by six.

--The jobless rate in August rose in five of 10 battleground states – Wisconsin, New Hampshire, Iowa, North Carolina and Nevada. The rate dropped in Colorado and New Mexico and was unchanged from July in Ohio, Florida and Virginia.

The jobless rate rose in North Carolina to 9.7% and in Nevada to 12.1%, the highest in the nation.

--As noted in the Washington Post, for much of the year, Mitt Romney had an 8- to 17-point lead over the president on the issue of who was better able to handle the deficit. But the latest Post/ABC News poll shows Romney’s lead on this critical issue is down to three points. [And  before the ‘47%’ video comments.]

--The Romney campaign released a summary of his 2011 tax returns (his and three affiliated trusts) which shows he paid an effective rate of 14.1% on $13.7 million in income in 2011. Romney only claimed deductions for $2.5 million of his $4 million in charitable contributions.

The campaign also said it will release a letter from PricewaterhouseCoopers LLP, which will summarize his filings for the past 20 years, during which his average effective federal tax rate was 20.2% and the lowest rate he paid in that period was 13.7%.

--In the race for the Senate, just last week I wrote of how in Massachusetts, Republican Senator Scott Brown was ahead of his Democratic challenger Elizabeth Warren, but two surveys since have Warren back in the lead. 

But wait…now a Univ. of Massachusetts Lowell/Boston Herald poll has Brown in front by six!

Republicans are facing stiff challenges in Indiana, Ohio and Florida where they had hoped to pick up the latter two and retain the retiring Dick Lugar’s seat in Indiana.

In Virginia, the same above mentioned Post poll has Democrat Tim Kaine ahead of former Republican Sen. George Allen, 51-43. This is the retiring Dem. Sen. James Webb’s seat.

--New Jersey’s unemployment rate is at a three-decade high, 9.9%; this as Gov. Chris Christie boasts of a “Jersey Comeback.” But there do seem to be some legitimate discrepancies in the “official” numbers. A payroll survey of employers shows a gain of 50,000 jobs in the past year, compared with a loss of 47,000 in the household survey. Nonetheless, not good for the Governor, who is looking more and more like a Macy’s Thanksgiving Day Parade balloon. I forget what the wind restrictions are.

--George Will / Washington Post…on this incredibly stupid presidential campaign.

“In Egypt, Libya and elsewhere, the crumbling of old regimes and hierarchies has ignited complex sectarian and tribal power struggles in which some participants find anti-Americanism useful. None of the people involved – some cunning, some deranged – take their cues from utterances by America’s president. So it was passing strange for Rich Williamson, former assistant secretary of state and current Romney adviser, to say, regarding the Egypt and Libya attacks, ‘There’s a pretty compelling story that if you had a President Romney, you’d be in a different situation.’

“Childlike credulity about presidents’ abilities to subdue turbulent portions of the world by projecting ‘strength,’ or to ‘manage’ the domestic economy, encourages political infantilism. This manifests itself in people seeking in public figures attributes pertinent only to private life.

“A recent Washington Post/ABC News poll asked respondents to say which presidential candidate ‘would you prefer to have take care of you if you were sick’ and which ‘would you rather invite to dinner at your home.’ What is depressing about these questions is not that they miss the point of presidential elections nowadays but that they seem to touch the electorate’s erogenous zones….

“An attractive aspect of Romney as a candidate is how endearingly unsuited he is to politics in an era when ‘friend’ has become a verb. Would that he could just say this:

“ ‘I am not running to be your friend, because I hope you pick your friends from among people you actually know and for reasons unrelated to politics.  And I will not insult your intelligence by claiming to feel your pain, which really is yours. Neither will I tell you that as president I would pacify distant mobs. I am running just to make government somewhat less destructive, to partially ameliorate the country’s largest afflictions and to make the world a bit less dangerous….

“ ‘If you want a president who is the center of a government-centered society, pick the other fellow. If you endorse a dependency agenda – more and more dependent in more and more ways on a government fewer and fewer are paying for – vote for the other party. If you do not share my opponent’s horror about being mostly on your own in the pursuit of happiness that you define on your own, give me a try. If it doesn’t work out, you can fire me in four years.’

“Someday, someone is going to seek the presidency by demystifying it. Many voters will be astonished by, and even be grateful for, the novelty of being addressed as adults.”

--From Kristen A. Lee / New York Daily News…on an Obama campaign appearance in New York this week.

“President Obama told a well-dressed group of donors at Jay-Z’s 40/40 Club on Tuesday night that he isn’t so different from the hip hop power couple hosting his $40,000 per plate fundraiser.

“Referring to Jay-Z and Beyonce as ‘Jay and Bey,’ Obama said they all ‘remember what it’s like not having anything, and we know people who were just as talented as us that didn’t get the same break, the same chance.’

“ ‘We understand that…those of us who have been blessed with success and been able to work through those doors of opportunity, we don’t slam the door behind us. We prop it open,’ the president said.”

Oh brother. Just shoot me.

--But wait…Monica Lewinsky is coming out with a tell-all book that will reveal her secret love letters to Bill Clinton! And, as the New York Daily News reports, “His penchant for kinky sex.”

This is the kind of serious chatter we so desperately need prior to this historic election in November.

One pal of Lewinsky’s supposedly told the National Enquirer that Lewinsky plans to describe his “insatiable desire for three-way sex, orgies and the use of sex toys of all kinds.”

Lewinsky will also supposedly recount how Clinton referred to wife Hillary as a “cold fish” and “laughed” about their “non-existent sex life.”

I’m thinking smoked salmon.

--The U.S. Justice Department said it had found no evidence that Attorney General Eric Holder knew about the “Fast and Furious” gun-smuggling operation in Mexico, however, the internal review recommended 14 employees be disciplined, including Lanny Breuer, who leads the department’s criminal division. The 471-page report concluded the operation was “seriously flawed and supervised irresponsibly.”

The inspector general added that Holder did not know of the operation until Congress began asking questions about it. At least two officials named have already stepped down.

Holder said, “It is unfortunate that some were so quick to make baseless accusations before they possessed the facts.”

But Republican Congressman Darrell Issa, who leads the House oversight committee responsible for the proceedings against Holder, said that it was time for the president to “step in and provide accountability for officials at both the Dept. of Justice and ATF who failed to do their jobs. Attorney General Holder has clearly known about these unacceptable failures yet has failed to take appropriate action for over a year and a half.”

Issa is right.

--So the Chicago teachers’ strike is over and the district is $6 billion in debt; made worse by another $295 million in new salary increases. A Wall Street Journal article added:

“(The) city’s required annual pension payment will rise next year to $648 million from $196 million this year…”

So what does it all mean? 1,000 to 2,000 teacher layoffs, that much seems a certainty.

--The Arctic sea ice melt hit a modern day record (vs. 4 million years ago) as it reached its lowest point last Sunday, according to the National Snow and Ice Data Center. [I want a job with the National Sunny and Mild Data Center, personally.] Only 24% of the Arctic’s surface was covered by sea ice, with the previous low in 2007, 29%. This is happening at a much greater rate than the last major UN study on the climate, also in ’07, projected.

But before we go crazy, the sea is rising at about a foot a century. Seeing as I don’t live on one of those Pacific atolls that are totally screwed, and having only about 24 years left in my life, assuming I’m not plowed under by a texter or killed by a bear, it’s your problem, not mine.

[Being selfish…another free feature of StocksandNews.com.]

--Folks talk of the “Harry Potter” series’ impact on getting kids, and adults, to read, but for my generation it was all about “The Hobbit” and “The Lord of the Rings” trilogy. This week marked the 75th anniversary of the publishing of J.R.R. Tolkiens’s great tale.

“In a hole in the ground there lived a Hobbit.”

I can’t wait for the Dec. 14 release of Peter Jackson’s “The Hobbit: An Unexpected Journey.”

And today, Sept. 22nd, is both Bilbo and Frodo Baggins’ birthday!

I will toast the two this weekend with some hearty grog.

---

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

God bless America.
---

Gold closed at $1778
Oil, $92.89

Returns for the week 9/17-9/21

Dow Jones -0.1% [13579]
S&P 500 -0.4% [1460]
S&P MidCap -2.0%
Russell 2000 -1.1%
Nasdaq -0.1% [3179]

Returns for the period 1/1/12-9/21/12

Dow Jones +11.1%
S&P 500 +16.1%
S&P MidCap +14.4%
Russell 2000 +15.5%
Nasdaq +22.1%

Bulls 54.2…approaching danger levels
Bears 24.5 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

New computer with greater speed…check.
Super-duper Panasonic camcorder…check.
[Your editor is slowly gearing up for the launch of his nightly newscast…Oct. 15 or 22. He also knows it will be very shaky initially.]

Brian Trumbore



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Week in Review

09/22/2012

For the week 9/17-9/21

[Posted 11:00 PM ET, Friday…one time only]

Europe, Washington and Wall Street

The markets in Europe and the U.S. have been able to rally the past few weeks largely because of perceived short-term stability in Europe, as well as the aggressive monetary policies pursued by the European Central Bank and the Federal Reserve. This coming week could be another important one as there are rumors that Spain may accept a bailout, or a rescue plan under the guise of being a bailout, if it can work out an economic reform program. There are all kinds of details yet to be revealed, including just how much aid we are talking, given that the banking situation in Spain continues to grow worse by the hour, but there is no denying the markets are expecting a bailout of some sorts, with Spain able to auction off 10-year paper at a rate of 5.70% this week, still too high but far better than the 6.70% it was forced to pay in August. Spain also sold 12-month paper at 2.83%.

But Spain’s bad bank debt rose to the highest level since the central bank began keeping track in 1962, 9.9% of total loans and up from 9.4% just the month before, and the bank “jog” I wrote of the other day continues apace with deposits fleeing Spain’s financial institutions.

Prime Minister Mariano Rajoy is desperate to avoid a bailout with severe conditionality so that’s what the negotiations with the ECB and European Union are over. What would be demanded, knowing that Rajoy has said he refuses to cut pensions (though pensions could be frozen for a year at significant savings to the government)?

One thing we do know. One of Spain’s 17 autonomous regions, Catalonia (think Barcelona) is clamoring to secede, as its leader, Artur Mas said this week.

“The people and society of Catalonia are on the move, as we have seen on Sept. 11, and not willing to accept that our future will be gray when it could be more brilliant.”

Hundreds of thousands marched in a pro-independence rally on 9/11, the anniversary of a Catalan defeat at the hands of the Spanish army in 1714.

Catalonia represents one-fifth of Spain’s economic output and wants a new tax revenue redistribution plan, which Rajoy refuses to grant. Of course this is a political nightmare for Madrid at this time. Just last month, Catalonia asked for $6.5 billion in emergency aid in order to meet its debt obligations because like the other regions it can’t access the private market.

Meanwhile, strikes and protests have been spreading over the severity of austerity programs being implemented not just in Spain, but also Portugal (for a first time) and once again Greece.

In Portugal the protests were against further salary cuts and increases in social security contributions, while in Greece, doctors have been the latest to go on strike as the government wrestles over 11.5 billion euro in further budget cuts to unlock the 31.5 billion euro tranche of aid as part of Greek Bailout II, with the troika (ECB, European Commission and IMF) still to decide in October following a final report on the country’s finances.

Back to the deposit flight from European banks, according to data compiled by Bloomberg, a total of $425 billion was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31. A like amount has been deposited at lenders in seven countries considered the core of the eurozone, such as Germany and France. 

This is ripping the eurozone further apart, a division between north and south, with the southern tiers’ companies not being able to access needed credit for growth (let alone the mess in Eastern Europe I’ve written of).

As for the eurozone economy, the September PMI on manufacturing came in at 46, up from 45.1 in August. [A combined services/manufacturing index reading was 45.9 vs. 46.3 in August.] France’s Sept. PMI fell to 42.6!

You also have this ongoing issue of a new banking union and the role of the supervisor, who is supposed be in place by January but there is no way this timetable will be reached with all 27 EU parliaments needing to approve it all. According to last June’s agreement, only when a single supervisor is agreed upon can eurozone banks receive direct assistance without increasing the sovereign’s debt load. So you can see we have a long way to go here, despite some temporary happy talk.

Turning to Washington and Wall Street

Stocks registered fractional losses on the week as the euphoria over the Federal Reserve’s and European Central Bank’s easing and/or bond-buying programs faded. There is also still simply too much uncertainty when weighing Europe and China in particular. Regarding the latter, a flash estimate on manufacturing by HSBC for September came in at 47.8 vs. 47.6 in August, so still slowdown mode. Tensions between China and Japan (discussed below) didn’t help either given their important trade relationship. Japan’s overall exports for August plummeted 5.8% from a year earlier, with exports to China down 9.9%. Japan’s imports also fell 5.4%, which points to weak domestic demand.

And while the situation in the U.S. is better than Europe, or the trends in China and Japan, the weekly jobless claims figures, now solidly back in the 380,000 range, certainly don’t point to any improvement on the labor front. It also doesn’t help that U.S.-China trade tensions are simmering anew as it is too easy for both President Obama and Mitt Romney to bash the Chinese in the last weeks of the campaign. Both China and the U.S. filed complaints against each other with the World Trade Organization this week. Just remember the U.S. exports $104 billion in goods to China and this was up 13% in 2011 over 2010. That’s a lot of jobs.

In announcing earnings this week, FedEx CEO Fred Smith said on his conference call that some China observers “completely underestimate” the impact of slowing exports despite the country’s domestic stimulus efforts, with Smith blaming “policy choices” in the U.S., China and Europe for causing global trade to decelerate.

Rail giant Norfolk Southern also warned that its earnings for the third quarter wouldn’t be as good as the Street is expecting owing to falling delivery demand in the U.S.

But at least the news on the housing front continued to be OK. Housing starts for August were up but a little shy of expectations, while existing home sales were better than projected with the median home price at $187,400…up 9.5% over a year ago. Builder confidence is also at its highest level since 2006.

And the price of crude took a header, but this is both good and bad. It’s nice for drivers that oil dropped $6 this week, which if it stuck would eventually translate to a small decline at the pumps, but it also signals poor global demand. Saudi Arabia did pledge to keep output high to try and prevent the price from spiking back up and adding to the economic malaise. And of course you have the Iranian issue.

To sum it all up, though, OECD Secretary General Angel Gurria told Reuters that the world economy is at its most fragile since the 2008-09 financial crisis and decelerating trade patterns are largely to blame, plus he cited the dangers of the territorial row between China and Japan in the East China Sea.

“Trade had the potential of getting us out of the hole. It looked good, it was gathering speed after a drop in 2009 and now again it is ebbing, it’s stalling,” Gurria said. “That is affecting our capacity for the relaunch, for the recovery.”

“Trade doesn’t happen by itself,” he added. “Trade is inspired and promoted by companies in countries with certain policies. What was created in decades can very easily be dismantled by short-sighted protectionist policies. We have to fight protectionism with everything we’ve got.”

Street Bytes

--As alluded to, stocks finished down but just slightly after two robust weeks. The Dow Jones lost just 14 points, 0.1%, to close at 13579, while the S&P 500 lost 0.4% and Nasdaq declined all of four points, 0.1%.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.26% 10-yr. 1.75% 30-yr. 2.94%

The long end of the curve rallied anew (yields fell) with the realization the global economy remains very soft.

--Mohamed El-Erian of PIMCO had some interesting thoughts on the Fed’s recent moves, QE3, or QE Infinity, in an op-ed for the Financial Times. In part….

“Is the U.S. experiencing a ‘reverse Volcker moment’ in which low and stable inflation gets subordinated to other economic objectives? Markets seem to hint this and an increasing number of central banks in the rest of the world appear concerned about it.

“It is now over 30 years since Paul Volcker came into the U.S. Federal Reserve and unambiguously put crushing inflation at the top of his agenda. What followed was a period of price stability – by the middle of the last decade, many people had bought into the concept of ‘the great moderation’ and the ‘Goldilocks’ economy (not too hot, not too cold)….

“This may now be in the process of changing. There is a growing sense among some that today’s Fed would not only tolerate higher inflation but may also be wishing it – if not already targeting it.

“The immediate catalyst is, of course, the central bank’s recent actions and statements. Four merit particular mention: the extension to mid-2015 of the forward guidance language on rock-bottom interest rates; the further ballooning of the Fed’s balance sheet through the commitment to open-ended purchases of securities; clear signals that such an unprecedented expansionary monetary policy stance will continue well into the economic recovery; and, related to all this, a subtle evolution of the official inflation narrative….

“The average American does not worry much today about inflation judging from the allocation of their investment and retirement assets, price setting, and how wage settlements are negotiated. This could well be on the verge of evolving if the Fed is indeed in the midst of engineering a reverse Volcker moment.”

--More than 2 million people pre-ordered Apple’s iPhone 5, smashing records, and you had the usual lines at Apple stores on Friday as the new model became available. Apple is projected to ship 8-10 million by September 29; potentially 50 million by Christmas.

But I loved competitor Samsung’s commercial on those waiting in line for Apple’s product, needlessly so, if you listen to them.

--The median annual household income dropped by 1.3% to $50,502 in 2011, according to the Census Bureau.

--Bank of America is accelerating its cost-cutting plan, looking to jettison 16,000 by year end. BofA will thus probably have a smaller workforce than JPMorgan Chase, Citigroup and Wells Fargo & Co.

CEO Brian Moynihan is looking to fulfill an overall workforce reduction target of 30,000 one year early. Between 2011 and 2012, about 375 branches will also be closed.

--Kohl’s is hiring 52,000 seasonal workers, up more than 10% from last year.

--In a sign of tightening purse strings at the Pentagon, Northrup Grumman Corp. said it is preparing to trim its workforce by 600 in Southern California, home to most of Northrop’s 21,000 employees in its aerospace division. Cuts in the defense budget of anywhere from $450 billion to $600 billion over the next decade are on the table.

With the “fiscal cliff’ and “sequestration” looming, the Aerospace Industries Assn., a trade group, estimates 1 million jobs of all kinds could be lost nationwide, 126,000 in California. [Los Angeles Times]

--American Airlines is a total mess these days, cancelling hundreds of flights as it deals with its bankruptcy proceedings. There has been an increasing amount of maintenance calls filed by flight crews and a surge in pilots calling in sick. The airline also reportedly sent out 11,000 layoff notices as part of previously announced cost-cutting measures.

--From the Irish Independent:

“It is the ultimate sign of our dramatic transformation from boom to bust.

“A Co. Meath cattle farmer has bought back an 8.5-acre site from a developer for just 60,000 euro only seven years after selling it himself for close to 1.5 million….

“At an auction in Navan, (David) Gilsenan was one of just two bidders as he snapped up land that he himself had sold for a fortune in the Celtic Tiger years.”

I assume Mr. Gilsenan is buying the first round tonight.

--New York City will pay out a record $735 million on settlements or court awards in thousands of personal injury, property damage, and contract dispute lawsuits for the fiscal year ending next June, as reported by Bloomberg Businessweek. The state has no cap on municipal liability or civil damages.

With this in mind, Mayor Michael Bloomberg announced that city agencies need to slash spending to the tune of $2 billion over the next 18 months as New York faces a projected $2.5 billion budget shortfall for the fiscal year beginning July 1.

--Bill Gates remains the richest American, according to Forbes’ annual survey, with a net worth estimated at $66 billion. Warren Buffett remains in second at $46 billion. Mayor Bloomberg moved up to the ten slot at $25 billion.

--Oracle’s Larry Ellison is third on the Forbes list. This week his company reported an 11% increase in profits but revenue fell 2%. For the current quarter, the software giant is projecting revenue will be flat to up 4%.

--Verizon reached an agreement with unions representing 45,000 workers on a new four-year deal that will increase their pay 8% while requiring them to pay more for their health coverage. The unions were able to preserve the current pension plan for existing workers, though it will change for new hires.

--AT&T CEO Randall L. Stephenson is on a personal crusade to get people to stop texting while driving; having had a close friend cause an accident while doing same. I’ve long resigned myself to the fact I’ll die crossing the street…hit by someone blowing through a stop sign while texting. That or I’ll be killed by a bear while jogging, the first such recorded fatality in New Jersey history.

--So I never check my Facebook page, which I only have because of the business, but in glancing at it the other day, under “Employers” for me it has Allianz Global Investors. Well I never worked for Allianz, having left PIMCO before Allianz acquired it.

So I thought, who the heck changed this? I then went in and changed it back to PIMCO Funds. Facebook then automatically changes it back to Allianz, the bastards!

This is incredibly deceiving, for starters, and frankly illegal. I am not trying to say I ever worked at Allianz! 

--The Japanese government, after saying it would phase out nuclear power by 2040, one week later backed off amid intense pressure from business groups dependent on reliable power.

--According to an investigation by The Times of London, more than 2,000 Britons living in Monaco are costing the UK some $1.5 billion a year in lost tax revenue. For example, 533 directors of UK companies have registered addresses in Monaco, and control 1,302 firms.

--If you’re thinking of traveling to Iceland, go now. The government is looking to increase the VAT on accommodation, restaurant meals and tourist attractions, which makes no sense. 

Iceland attracted 210,000 overseas travelers in 1997 and nearly 600,000 last year. In 2007, the government halved the VAT from 14% to 7% and tax receipts from tourism rose. But now it is looking to increase it from 7% to 25.5%.

--The U.S. seafood catch reached a 17-year high last year, with commercial fishermen hauling in 10.1 billion pounds of fish valued at $5.3 billion, according to the National Oceanic and Atmospheric Administration.

New Bedford, Mass., was the leading port by dollar value owing to scallops.

Americans ate an average of 15 pounds of seafood per person in 2011. 91% of the seafood we eat is imported.

And if you ever order or buy Chilean Sea Bass, trust me…it ain’t no sea bass. It’s crappy.

Foreign Affairs

Iran: As the United States, Britain, France and a number of Middle Eastern states held the largest naval exercises in memory in the Gulf this week, Iran launched a submarine and destroyer. It’s the former that is worrisome to some.  The subs that Iran has are vessels originally built in Russia in the early 1990s, so modern enough to cause real havoc at a time of Iran’s choosing.

Eliot A. Cohen / Washington Post

“Do the Iranians fear Obama? Why should they when, apparently, they can attempt to assassinate the Saudi ambassador to the United States in our nation’s capital and suffer no penalty? Why should anyone – other than terrorists targeted easily by drones or commandos – fear us?

“The administration’s passivity on Iran is echoed in Syria. After reinstating our ambassador to Damascus in return for precisely nothing, we watched as peaceful protests turned to violently suppressed demonstrations, then to revolt and now to civil war. Tens of thousands of Syrians have been slaughtered, hundreds of thousands have fled; war licks at Lebanon, Turkey, Iraq and Jordan, and it may metastasize in many ways and directions. Meanwhile, U.S. officials have fantasy plans for a post-Assad regime over which we will have no influence because we played only a negligible role in helping it succeed.

“Why is this the Obama administration’s record? Perhaps the president and his aides are declinists, who think of the United States as too weak to act; perhaps they are indifferent; perhaps they are merely incompetent. In any event, this president will leave his successor a country that is considerably less secure than it was when he took the oath of office.”

Egypt: As reported by the Washington Post, no new aid is likely to be approved for Cairo until after the presidential election. Even supporters of aid, such as Republican Sen. Bob Corker (Tenn.) say the response to the storming of the U.S. embassy here is “unacceptable.”

Meanwhile, the Coptic Christian community in Egypt, about 10% of the nation’s population, fears a new wave of repression after a member of the church produced the controversial video. And with Egypt’s economy collapsing (think tourism), the Copts will be an easy target. The Salafists are calling for the alliance with Washington to be scrapped altogether, but as one Copt told the London Times, “What are they talking about? The economy is collapsing and they want to take us back to the early Islamic age.”

Separately, President Mohammed Mursi warned Tehran that relations between the two were being harmed by Iran’s support for Damascus.

Syria: Iran’s foreign minister Salehi called for “a simultaneous halt in clashes and violence by the sides in Syria [and] insisted on a peaceful solution without foreign intervention and a halt to financial, military and training support for the Syrian opposition.” [Daily Star] Of course that would maintain the status quo for Bashar Assad, which is Iran’s goal. 

There were major clashes between government and rebel forces on the border with Turkey this week and Turkey is getting dangerously close to reacting militarily.

Also, there are growing reports Syria is test firing systems that would be used for its chemical weapons’ stockpile. According to a report in Der Spiegel, Iranian Revolutionary Guard officers witnessed the testing. The former head of Syria’s WMD efforts, who defected three months ago, told The London times that the Syrian regime has plans to use chemical weapons on its own people.

Israel: Prime Minister Benjamin Netanyahu turned up the heat on the White House another few degrees by appearing on various Sunday shows such as “Meet the Press,” warning that Iran was just six to seven months away from being able to build a nuclear bomb. Netanyahu continued to urge the Obama administration to establish red lines and spell out specific limits Iran must not cross.

“You have to place that red line before them now, before it’s too late,” adding, “I’m not going to be drawn into the American election. What’s guiding my statements is not the American political calendar but the Iranian nuclear calendar.”

But two days earlier, U.S. Defense Secretary Leon Panetta said, “The fact is [that] presidents of the United States, prime ministers of Israel or any other country – leaders of these countries don’t have, you know, a bunch of little red lines that determine their decisions…Red lines are kind of political arguments that are used to try to put people in a corner.” [Jerusalem Post]

The left-leaning Israeli daily, Haaretz, said Netanyahu “interfered, grossly, vulgarly and unreservedly in the campaign.” Opposition leader Shaul Mofaz taunted Netanyahu in a parliamentary debate. “Who do you fear more – (Iranian President Mahmoud) Ahmadinejad or Obama? Which regime is more important to overthrow – the one in Washington, or in Tehran?” 

Incidentally, Jewish voters in the U.S. support President Obama over Mitt Romney, 70-25, according to a Gallup poll, which is the same as this point in the 2008 election cycle when Obama was ahead of John McCain 69-25.

And needless to say, Palestinians were none too pleased at Mitt Romney’s comments in the now famous May donor video as in the same tape he belittled the “47 percent,” he told donors that Palestinians are “committed to the destruction and elimination of Israel” and have “no interest whatsoever in establishing peace, and that the pathway to peace is almost unthinkable to accomplish.”

Romney added, “You hope for some degree of stability, but you recognize that this is going to remain an unsolved problem. And we kick the ball down the field and hope that ultimately, somehow, something will happen and resolve it.”

Chief Palestinian negotiator Saeb Erekat responded, “No one stands to gain more from peace with Israel than Palestinians and no one stands to lose more in the absence of peace than Palestinians.”

Meanwhile, the Palestinian Authority is dealing with an economy that is sliding and a banking system that has essentially lost all access to credit as there has been a sharp fall in donor money, especially from the Arab world. There have been mass protests in both the West Bank and Gaza against the PA.

Lebanon: On Sunday, Pope Benedict XVI held Mass for 300,000 worshippers in Beirut. Earlier he addressed young people of all faiths, with Benedict telling them, “Together with the young Christians, you are the future of this fine country and of the Middle East in general. Seek to build it up together! And when you are older, continue to live in unity and harmony with Christians.” Benedict’s three days in the country were highly important, and he was well-received, but no sooner had he left than Hizbullah leader Sheikh Nasrallah called for protests across the country on Monday to denounce the anti-Muhammad film and 500,000 responded in Beirut, which is more than a bit disconcerting. Nasrallah himself, in a rare public appearance (fear of being assassinated by Israel), addressed the crowd for 15 minutes, saying in part:

“The world should know that our anger is not a passing thing…This is the start of a serious campaign that must continue all over the Muslim world in defense of the prophet of God. As long as there’s blood in us, we will not remain silent over insults against our prophet.” [Daily Star]

And the New York Times had a piece titled “A Void for Sunnis in Lebanon” that began, “As spillover from the civil war in Syria continues to unsettle Lebanon, the prolonged absence of Saad Hariri, the country’s former prime minister and leader of its Sunni community, has created a political vacuum of sorts, as his influence has declined and new voices have emerged.”

How many times have I said that Hariri must return to Beirut instead of hiding out in Paris? He is making a huge mistake in not doing so.

Afghanistan: What a disaster. Four American soldiers and two Brits were killed within 24 hours last weekend in insider attacks, while eight South African aviation workers and four Afghans were killed in a suicide attack in Kabul that featured a female bomber. We also learned that the Taliban attack of about a week ago that killed two U.S. soldiers at Camp Bastion, where Prince Harry is based, did in excess of $150 million in damage as the Taliban took out six Harrier jets, damaged two others, 3 refueling stations and six aircraft hangars.

But as a result of the “green on blue” insider attacks, which have killed at least 51 NATO soldiers this year, NATO announced it was reducing joint patrols between its forces and Afghans, which in the eyes of some represents a symbolic retreat and a tremendous victory for the Taliban. It will also cause resentment among Afghan soldiers and police that they are being abandoned, which in turn could lead to even more insider incidents. There is no way this can’t be damaging and a major erosion of trust between the two sides.

Following is some commentary on the foreign policy situation in general.

Niall Ferguson / Newsweek

“Here’s what happens to American presidents who look to be loved in the Middle East. In 2008, the year Obama won the presidency with his pledge to end George W. Bush’s wars, 75% of Egyptians had an unfavorable opinion of the United States. Today it’s 79%. Four years ago, that was the percentage of Jordanians with a negative view of the U.S. Now it’s 86%.

“ ‘It is much safer to be feared than loved,’ Machiavelli teaches us. Today America is neither. Consider the wider ramifications of the Middle Eastern crisis. Revolutions have succeeded, with halfhearted American support, in Egypt, Libya, and Tunisia. Among the beneficiaries have been staunch anti-American organizations like the Muslim Brotherhood. The United States continues to give Egypt more than $1 billion a year in aid, roughly the price of the two attack submarines the Egyptians are buying from Germany. The country was once America’s ally. Last week the president conceded it is now neither our enemy nor our friend….

“Maybe you think George Bush’s invasion of Iraq was a mistake, though it gave that country democracy, showed Arabs that dictators can be toppled, and turned an enemy into a potential ally. But consider the consequences of this president’s decision to pull out of Iraq. Two months ago, at least 100 Iraqis perished in a wave of bombings and shootings by al-Qaeda in Iraq, which aims to overthrow the Shia-led government of Nouri al-Maliki. Last week the country’s Sunni vice president was sentenced to death. Meanwhile, Kurdistan is acting like an independent state (or, rather, a satellite of Turkey). Iraq is falling apart.

“As for Syria, while Obama fiddles, its cities burn in a civil war that could soon eclipse Lebanon’s in the 1980s.

“The president who was once a foreign-policy neophyte now makes much of his experience. That claim depends heavily on a program of targeted assassination that liberals would have denounced if it had been pursued by his predecessor.”

Charles Krauthammer / Washington Post

“It’s now three years since (Obama’s) Cairo speech. Look around. The Islamic world is convulsed with an explosion of anti-Americanism. From Tunisia to Lebanon, American schools, businesses and diplomatic facilities set ablaze. A U.S. ambassador and three others murdered in Benghazi. The black flag of Salafism, of which al-Qaeda is a prominent element, raised over our embassies in Tunisia, Egypt, Yemen and Sudan.

“The administration, staggered and confused, blames it all on a 14-minute trailer for a film no one has seen and may not even exist.

“What else can it say? Admit that its doctrinal premises were supremely naïve and its policies deeply corrosive to American influence?

“Religious provocations are endless. Resentment about the five-century decline of the Islamic world is a constant. What’s new – the crucial variable – is the unmistakable sound of a superpower in retreat….

“ ‘It’s time,’ declared Obama to wild applause at his convention, ‘to do some nation-building right here at home.’ He’d already announced a strategic pivot from the Middle East to the Pacific. Made possible because ‘the tide of war is receding.’

“Nonsense. From the massacres in Nigeria to the charnel house that is Syria, violence has, if anything, increased. What is receding is Obama’s America….

“Islamists rise across North Africa from Mali to Egypt. Iran repeatedly defies U.S. demands on nuclear enrichment, then, as a measure of its contempt for what America thinks, openly admits that its Revolutionary Guards are deployed in Syria. Russia, after arming Assad, warns America to stay out, while the secretary of state delivers vapid lectures about Assad ‘meeting’ his international ‘obligations.’ The Gulf states beg America to act on Iran; Obama strains mightily to restrain…Israel….

“A foreign policy in epic collapse. And, by the way, Vladimir Putin just expelled the U.S. Agency for International Development from Russia. Another thank you from another recipient of another grand Obama ‘reset.’”

John Podhoretz / New York Post

“What does it mean when the president and the president’s press secretary contradict each other? Yesterday, Obama spokesman Jay Carney said of the murder of four Americans in Libya last week: ‘It is, I think, self-evident that what happened in Benghazi was a terrorist attack.’

“A few minutes later, appearing on the Spanish-language network Univision, the president himself replied to a question about whether the attack was premeditated by saying, ‘We don’t know yet. We’re going to continue to investigate this.’

“Which one of these guys didn’t get the memo?....

“Why on earth did the administration (initially) choose to peddle the insulting, ludicrous, head-scratching fiction that an attack featuring all kinds of al-Qaeda signatures wasn’t an attack in the first place?”

Fouad Ajami / Wall Street Journal

“Until last Tuesday’s deadly attack on our consulate in Benghazi, it was the fashion of Mr. Obama and his lieutenants to proclaim that the tide of war is receding. But we can’t declare a unilateral end to our troubles, nor can we avert our gaze from the disorder that afflicts the societies of the Greater Middle East.

“A Muslim world that can take to the streets, as far away as Jakarta, in protest against a vulgar film depiction of the Prophet Muhammad – yet barely call up a crowd on behalf of a Syrian population that has endured unspeakable hell at the hands of the dictator Bashar al-Assad – is in need of self-criticism and repair. We do these societies no favor if we leave them to the illusion that they can pass through the gates of the modern world carrying those ruinous ideas.

“Yet the word in Washington is that we must pull back from those troubled Arab and Muslim lands. The grand expectations that Mr. Obama had for Afghanistan have largely been forgotten. The Taliban are content to wait us out, secure in the knowledge that, come 2014, we and our allies will have quit the place. And neighboring Pakistan, a nuclear-armed country with 170 million people, is written off as a hotbed of extremism.

“Meanwhile, Syria burns and calls for help, but the call goes unanswered. The civil war there has become a great Sunni-Shiite schism. Lebanon teeters on the edge. More important, trouble has spilled into Turkey. The Turks have come to resent the American abdication and the heavy burden the Syrian struggle has imposed on them. In contrast, the mullahs in Iran have read the landscape well and are determined to sustain the Assad dictatorship.

“Our foreign policy has been altered, as never before, to fit one man’s electoral needs. We hear from the presidential handlers only what they want us to believe about the temper of distant lands. It was only yesterday that our leader, we are told, had solved the riddle of our position in the world.

“Give him your warrant, the palace guard intone, at least until the next election. In tales of charismatic, chosen leaders, it is always, and only, about the man at the helm.”

China: President-in-waiting, and current vice president, Xi Jinping, appeared at the Association of Southeast Asian Nations (Asean) trade fair and sought to reassure Southeast Asian leaders that his country wanted only peaceful relations with them, noting China’s own prosperity depended on this.

“The more progress China makes in development and the closer its links with the region and the world, the more important it is for the country to have a stable regional environment and a peaceful international environment.”

Referring to the current dispute in the East China Sea between China and Japan, Xi said:

“We are firm in safeguarding China’s sovereignty, security and territorial integrity and are committed to resolving differences with neighbors concerning territorial land, territorial sea and maritime rights and interests peacefully through friendly negotiations.”

Earlier, Xi and other Chinese officials met with Defense Secretary Leon Panetta, telling him that the Obama administration should focus more on diplomacy and less threatening forms of American power than a defense buildup in the region, the “rebalancing” the White House has been talking of for some time.

Panetta said Xi seemed “very healthy and very engaged” following his mystery disappearance for about two weeks amidst all kinds of rumors concerning his health.

As for the territorial disputes between China, Japan and the others in the region, Panetta said that Washington takes no position and wants to see the issues solved peacefully, but China can’t help but be concerned when it sees Washington and Tokyo enhancing their already solid relationship and levels of cooperation on defense matters.

For example, in Tokyo, Panetta announced that Washington planned to place a sophisticated anti-missile radar system in southern Japan to defend against North Korean missiles. Of course China hears this and knows the anti-missile system could be used to degrade the effectiveness of their ballistic-missile arsenal.

As for the mass protests across China over the dispute involving the Senkaku islands (Diaoyu to Chinese), by week’s end the situation was improving but the anti-Japanese protests were intense and caused a great deal of damage to physical property as well as the relationship between the two peoples, as extremists on both sides said their respective governments were not dealing harshly enough with the attacks on their sovereignty. [Taiwan also claims the same islands, by the way.]

Some of the banners and chants in China were rather unpleasant, such as “Return our islands! Japanese devils get out! For the respect of the motherland, we must go to war with Japan.”

A migrant worker in Beijing told a Reuters reporter: “We’ve always hated Japan. Japan invaded China and killed a lot of Chinese. We will never forget.”

The influential Chinese daily, the Global Times, opined:

“China should be confident about strategically overwhelming Japan.”

But as many also observed, including a professor from the Chinese Academy of Governance, Beijing “must not underestimate the risk that the spasm of nationalist sentiment and blind patriotism can be turned against the government…if it continues to be seen as weak in dealing with Japan.” Another commentator told the South China Morning Post that the central government, in fanning nationalism to divert public dissatisfaction about domestic issues, “is playing with fire.” A second professor said, “Things will get complicated when the disputes are mixed with internal social problems, such as corruption.”

The amount of trade between Japan and China is $345 billion; China shipped $148.3 billion in goods to Japan last year, the fourth-largest market for China, while China is Japan’s largest for exports, $194.6 billion in 2011. Foreign direct investment by companies from Japan surged 19% in the first seven months of 2012 vs. a year earlier.

But while Japan was forced to temporarily shut down some of its facilities in China, and while the animosity between the two is bound to linger, depending on any resolution of the East China Sea dispute, a similar dustup in 2005 over school textbooks led to mass protests in Chinese cities but imports from Japan still surged the following year.

On a different issue, the plight of princeling politician Bo Xilai, the Chinese government appears to have cleared a path for criminal proceedings against him after he was mentioned in the official account of a murder committed by his wife, Gu Kailai. Apparently, Bo belted his police chief in the face after he told Bo that Gu was “highly suspected” of murdering British businessman Neil Heywood. It was the first public acknowledgement of Bo since he was suspended from the Politburo in April.

Russia: Prime Minister Dmitry Medvedev and President Vladimir Putin exchanged harsh words this week as Putin seeks to eviscerate the reforms Medvedev attempted to put through when he was president. Putin also told the United States Agency for International Development it had an October 1 deadline to end its financial support for pro-democracy, public health and other programs in the country, as the Kremlin seeks to crack down on what it calls interference in its internal affairs.

Senator John McCain said: “The Russian government’s decision to end all U.S.A.I.D. activities in the country is an insult to the United States and a finger in the eye of the Obama administration, which has consistently trumpeted the alleged success of its so-called reset policy toward Moscow.”

Last weekend, an estimated 30-50,000 turned out for anti-Putin protests in Moscow, though the figure was less than the 100,000 that took part in the first protests last winter.

Random Musings

--From day one I’ve been saying Mitt Romney was running a dreadful campaign and had a bunch of dolts as advisers. After this past week’s revelations, I rest my case.

--Mitt Romney: “There are 47% of the people who will vote for the president no matter what. There are 47% who are with him, who are dependent upon government, who believe that they are victims, who believe that government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it.”

49% of the U.S. population does indeed receive some kind of federal benefits, including Social Security and Medicare, according to Census Bureau data. Just over a third receive benefits based on financial need, such as food stamps.

26% of the U.S. population received Medicaid.
16% Social Security.
16% Food stamps.
15% Medicare.

--According to the AP, 62% of Obama voters work, including the 10% only working part time. A fourth are retired.

56% have household incomes above the U.S. median of $50,000.

--David Brooks / New York Times

“In 1980, about 30% of Americans received some form of government benefits. Today, as Nicholas Eberstadt of the American Enterprise Institute has pointed out, about 49% do.

“In 1960, government transfers to individuals totaled $24 billion. By 2010, that total was 100 times as large. Even after adjusting for inflation, entitlement transfers to individuals have grown by more than 700% over the last 50 years. This spending surge, Eberstadt notes, has increased faster under Republican administrations than Democratic ones.

“There are sensible conclusions to be drawn from these facts. You could say that the entitlement state is growing at an unsustainable rate and will bankrupt the country. You could also say that America is spending way too much on health care for the elderly and way too little on young families and investments in the future…

“(But Romney’s above comment) suggests a few things. First, it suggests that he really doesn’t know much about the country he inhabits. Who are these freeloaders? Is it the Iraq war veteran who goes to the V.A.? Is it the student getting a loan to go to college? Is it the retiree on Social Security or Medicare?

“It suggests that Romney doesn’t know much about the culture of America. Yes, the entitlement state has expanded, but America remains one of the hardest-working nations on Earth. Americans work longer hours than just about anyone else. Americans believe in work more than almost any other people. Ninety-two percent say that hard work is the key to success, according to a 2009 Pew Research Survey….

“The people who receive the disproportionate share of government spending are not big-government lovers. They are Republicans. They are senior citizens. They are white men with high school degrees….

“Sure, there are some government programs that cultivate patterns of dependency in some people. I’d put federal disability payments and unemployment insurance in this category. But, as a description of America today, Romney’s comment is a country-club fantasy. It’s what self-satisfied millionaires say to each other. It reinforces every negative view people have about Romney.

“Personally, I think he’s a kind, decent man who says stupid things because he is pretending to be something he is not – some sort of cartoonish government-hater. But it scarcely matters. He’s running a depressingly inept presidential campaign. Mr. Romney, your entitlement reform ideas are essential, but when will the incompetence stop?”

Editorial / Financial Times

“Finally, there are Mr. Romney’s damage limitation skills, which now almost invariably make a bad situation worse. Monday night was no exception. At a hastily arranged 10pm press conference, a visibly exhausted Mr. Romney said his 47% remarks had been ‘not elegantly stated’ and ‘off the cuff.’ But he refused to disavow his portrayal of almost half his fellow Americans as amoral dependents on government largesse. In reality, almost every working American pays social security taxes, petrol taxes, sales taxes and many other forms of tax. And most adult Americans work or are looking for work, often having to fall back on multiple part-time jobs. One in two households earn less than $50,000 a year. Some of them are swing voters….

“Whichever way you look at it, Mr. Romney’s campaign is in trouble. It is possible for a politician to insult some of the people some of the time and get away with it. To insult half the people indefinitely looks like a poor bet.”

Charles Krauthammer on “The O’Reilly Factor”:

“The problem is the actual words are not even accurate…The way he put it is the worst possible way.”

Peggy Noonan / Wall Street Journal

“He’s got seven weeks. He’s just had two big flubs. On the Mideast he seemed like a political opportunist, not big and wise but small and tinny. It mattered because the crisis was one of those moments when people look at you and imagine you as president.

“Then his comments released last night and made four months ago at the private fundraiser in Boca Raton, Fla. Mr. Romney has relearned what four years ago Sen. Barack Obama learned: There’s no such thing as private when you’re a candidate with a mic. There’s someone who doesn’t like you in that audience. There’s someone with a cellphone. Mr. Obama’s clinger comments became famous in 2008 because when people heard what he’d said, they thought, ‘That’s the real him, that’s him when he’s talking to his friends.’….

Romney needs to get serious here. Or, he can keep typing out his stray thoughts with Stuart Stevens, who’s sold himself as a kind of mad genius. I get the mad part.

“Wake this election up. Wade into the crowd, wade into the fray, hold a hell of a rally in an American city – don’t they count anymore? A big, dense city with skyscrapers like canyons, crowds and placards, and yelling….

“Be serious and fight….

“But an intervention is needed.”

--According to an AP/GfK poll, Obama is favored by 52% of Americans vs. just 37% for Romney. But…among those most likely to vote, Obama is supported by 47%, Romney 46%.

Obama has a 52% approval rating in this one, significant, while 42% now believe the country is headed in the right direction, vs. low- to mid-30s over the summer.

--A Gallup poll of registered voters has the race tied at 47-47.

--However, a Wall Street Journal/NBC News poll of three battleground states has President Obama leading Romney by 8 points in Iowa, and five in Colorado and Wisconsin. This is on top of earlier WSJ/NBC polls showing Romney trailing in Florida (49-44), Ohio (50-43) and Virginia (49-44).

A new USA TODAY/Gallup Poll of Swing States, though, completed Monday night, shows Romney down by only two points to Obama, 48-46.

[Separately, the first WSJ/NBC poll has Obama with a 50% job approval and a 50-45 lead, nationwide, among likely voters.]

--Peggy Noonan / Wall Street Journal…quoting Republican pollster, corporate strategist, Steve Lombardo of Edelman public relations in Washington, who worked with Romney in 2008 but has no affiliation this time.

“How did we get here? What can turn it around (for Romney)?

“ 1. Mr. Romney came out of the primaries ‘a damaged political persona.’

“ 2. The Democrats defined Mr. Romney ‘before he had a chance to define himself.’ His campaign failed in ‘not doing a substantial positive media buy to explain who Mitt Romney is and what kind of president he might be.’

“ 3. ‘Perceptions of the economy are improving.’ Unemployment is high, but the stock market has improved, bringing 401(K)s with it.

“ 4.  Obama’s approval ratings are up five to six points since last year. He is now at roughly 49% approval, comparable to where President Bush was in 2004.

“ 5. ‘The president had a strong convention and Romney a weak one.’…

“ 7. The ‘47%’ comment didn’t help, but Mr. Romney’s Libya statement was a critical moment. Team Romney did not know ‘the most basic political tenet of a foreign crisis: when there is an international incident in which America is attacked, voters in this country will (at least in the short term) rally around the flag and the President. Always. It is stunning that Team Romney failed to recognize this.’”

--Editorial / Financial Times

“Mr. Romney was elected Governor of Massachusetts as a Republican and was chosen as his party’s nominee to be president. He is in other words an accomplished politician. Why then does he make so many unforced political errors?

“A sympathetic explanation for these mistakes is that the Republican faces a hostile media, ready to make the most of his stumbles. And there is something in this. But as even Paul Ryan, Mr. Romney’s running mate, described the latest remarks as ‘obviously inarticulate,’ it is not merely liberal bias to describe his statements as blunders and ask why he makes them.

“The problem is deeper than carelessness with words. It is that Mr. Romney has not decided, deep down, who he really is. He is a highly successful businessman and a competent administrator. His record inspires confidence that he would be a capable executive who might get a grip on the U.S. budget deficit and prove a competent manager of the Administration. He is a very recognizable figure historically – an East Coast moderate from a family with a proud political history. In this respect, he reminds some who meet him of the older George Bush.

“(But) in order to rally the Republican base, retain the support of other party leaders and raise money, Mr. Romney feels he needs to be more strident, echoing mainstream Republican rhetoric and presenting himself as an anti-governmental radical….

“Mr. Romney’s comments about victim culture and dependency were not merely inept, therefore, but also inauthentic. And perhaps this was not a coincidence. The error that Mr. Romney made – a sweeping comment about those who do not pay tax – is not one that President Reagan would have made, because Mr. Reagan was more comfortable in his own skin….

“The challenger must find a way to articulate (his message) while staying true to himself. And his aides must allow him to do so. Let Romney be Romney.”

--William Kristol / The Weekly Standard

“The message (to the Romney campaign) is simple: Explain how ghastly the prospect of four more years of Obama really is. And explain the course that a Romney-Ryan administration will follow, and how those new policies will lead to national recovery. Enough about the last four years. Obama’s mistakes as president are pretty clear. Tell us about the next four years. Tell us about the choices ahead, not the failures behind. Tell us about the full spectrum of choices we face. Make a case for your presidency, not just against the current president.

“It really isn’t enough – it actually diminishes the substance of this election – to say, as you did in your acceptance speech, ‘President Obama promised to begin to slow the rise of the oceans and heal the planet. My promise is to help you and your family.’ No, please. We and our families would like you to help our country.”

--In key battleground state Virginia, according to a Washington Post survey, Obama holds a 19-point lead over Romney among likely female voters. Among men, Romney leads by six.

--The jobless rate in August rose in five of 10 battleground states – Wisconsin, New Hampshire, Iowa, North Carolina and Nevada. The rate dropped in Colorado and New Mexico and was unchanged from July in Ohio, Florida and Virginia.

The jobless rate rose in North Carolina to 9.7% and in Nevada to 12.1%, the highest in the nation.

--As noted in the Washington Post, for much of the year, Mitt Romney had an 8- to 17-point lead over the president on the issue of who was better able to handle the deficit. But the latest Post/ABC News poll shows Romney’s lead on this critical issue is down to three points. [And  before the ‘47%’ video comments.]

--The Romney campaign released a summary of his 2011 tax returns (his and three affiliated trusts) which shows he paid an effective rate of 14.1% on $13.7 million in income in 2011. Romney only claimed deductions for $2.5 million of his $4 million in charitable contributions.

The campaign also said it will release a letter from PricewaterhouseCoopers LLP, which will summarize his filings for the past 20 years, during which his average effective federal tax rate was 20.2% and the lowest rate he paid in that period was 13.7%.

--In the race for the Senate, just last week I wrote of how in Massachusetts, Republican Senator Scott Brown was ahead of his Democratic challenger Elizabeth Warren, but two surveys since have Warren back in the lead. 

But wait…now a Univ. of Massachusetts Lowell/Boston Herald poll has Brown in front by six!

Republicans are facing stiff challenges in Indiana, Ohio and Florida where they had hoped to pick up the latter two and retain the retiring Dick Lugar’s seat in Indiana.

In Virginia, the same above mentioned Post poll has Democrat Tim Kaine ahead of former Republican Sen. George Allen, 51-43. This is the retiring Dem. Sen. James Webb’s seat.

--New Jersey’s unemployment rate is at a three-decade high, 9.9%; this as Gov. Chris Christie boasts of a “Jersey Comeback.” But there do seem to be some legitimate discrepancies in the “official” numbers. A payroll survey of employers shows a gain of 50,000 jobs in the past year, compared with a loss of 47,000 in the household survey. Nonetheless, not good for the Governor, who is looking more and more like a Macy’s Thanksgiving Day Parade balloon. I forget what the wind restrictions are.

--George Will / Washington Post…on this incredibly stupid presidential campaign.

“In Egypt, Libya and elsewhere, the crumbling of old regimes and hierarchies has ignited complex sectarian and tribal power struggles in which some participants find anti-Americanism useful. None of the people involved – some cunning, some deranged – take their cues from utterances by America’s president. So it was passing strange for Rich Williamson, former assistant secretary of state and current Romney adviser, to say, regarding the Egypt and Libya attacks, ‘There’s a pretty compelling story that if you had a President Romney, you’d be in a different situation.’

“Childlike credulity about presidents’ abilities to subdue turbulent portions of the world by projecting ‘strength,’ or to ‘manage’ the domestic economy, encourages political infantilism. This manifests itself in people seeking in public figures attributes pertinent only to private life.

“A recent Washington Post/ABC News poll asked respondents to say which presidential candidate ‘would you prefer to have take care of you if you were sick’ and which ‘would you rather invite to dinner at your home.’ What is depressing about these questions is not that they miss the point of presidential elections nowadays but that they seem to touch the electorate’s erogenous zones….

“An attractive aspect of Romney as a candidate is how endearingly unsuited he is to politics in an era when ‘friend’ has become a verb. Would that he could just say this:

“ ‘I am not running to be your friend, because I hope you pick your friends from among people you actually know and for reasons unrelated to politics.  And I will not insult your intelligence by claiming to feel your pain, which really is yours. Neither will I tell you that as president I would pacify distant mobs. I am running just to make government somewhat less destructive, to partially ameliorate the country’s largest afflictions and to make the world a bit less dangerous….

“ ‘If you want a president who is the center of a government-centered society, pick the other fellow. If you endorse a dependency agenda – more and more dependent in more and more ways on a government fewer and fewer are paying for – vote for the other party. If you do not share my opponent’s horror about being mostly on your own in the pursuit of happiness that you define on your own, give me a try. If it doesn’t work out, you can fire me in four years.’

“Someday, someone is going to seek the presidency by demystifying it. Many voters will be astonished by, and even be grateful for, the novelty of being addressed as adults.”

--From Kristen A. Lee / New York Daily News…on an Obama campaign appearance in New York this week.

“President Obama told a well-dressed group of donors at Jay-Z’s 40/40 Club on Tuesday night that he isn’t so different from the hip hop power couple hosting his $40,000 per plate fundraiser.

“Referring to Jay-Z and Beyonce as ‘Jay and Bey,’ Obama said they all ‘remember what it’s like not having anything, and we know people who were just as talented as us that didn’t get the same break, the same chance.’

“ ‘We understand that…those of us who have been blessed with success and been able to work through those doors of opportunity, we don’t slam the door behind us. We prop it open,’ the president said.”

Oh brother. Just shoot me.

--But wait…Monica Lewinsky is coming out with a tell-all book that will reveal her secret love letters to Bill Clinton! And, as the New York Daily News reports, “His penchant for kinky sex.”

This is the kind of serious chatter we so desperately need prior to this historic election in November.

One pal of Lewinsky’s supposedly told the National Enquirer that Lewinsky plans to describe his “insatiable desire for three-way sex, orgies and the use of sex toys of all kinds.”

Lewinsky will also supposedly recount how Clinton referred to wife Hillary as a “cold fish” and “laughed” about their “non-existent sex life.”

I’m thinking smoked salmon.

--The U.S. Justice Department said it had found no evidence that Attorney General Eric Holder knew about the “Fast and Furious” gun-smuggling operation in Mexico, however, the internal review recommended 14 employees be disciplined, including Lanny Breuer, who leads the department’s criminal division. The 471-page report concluded the operation was “seriously flawed and supervised irresponsibly.”

The inspector general added that Holder did not know of the operation until Congress began asking questions about it. At least two officials named have already stepped down.

Holder said, “It is unfortunate that some were so quick to make baseless accusations before they possessed the facts.”

But Republican Congressman Darrell Issa, who leads the House oversight committee responsible for the proceedings against Holder, said that it was time for the president to “step in and provide accountability for officials at both the Dept. of Justice and ATF who failed to do their jobs. Attorney General Holder has clearly known about these unacceptable failures yet has failed to take appropriate action for over a year and a half.”

Issa is right.

--So the Chicago teachers’ strike is over and the district is $6 billion in debt; made worse by another $295 million in new salary increases. A Wall Street Journal article added:

“(The) city’s required annual pension payment will rise next year to $648 million from $196 million this year…”

So what does it all mean? 1,000 to 2,000 teacher layoffs, that much seems a certainty.

--The Arctic sea ice melt hit a modern day record (vs. 4 million years ago) as it reached its lowest point last Sunday, according to the National Snow and Ice Data Center. [I want a job with the National Sunny and Mild Data Center, personally.] Only 24% of the Arctic’s surface was covered by sea ice, with the previous low in 2007, 29%. This is happening at a much greater rate than the last major UN study on the climate, also in ’07, projected.

But before we go crazy, the sea is rising at about a foot a century. Seeing as I don’t live on one of those Pacific atolls that are totally screwed, and having only about 24 years left in my life, assuming I’m not plowed under by a texter or killed by a bear, it’s your problem, not mine.

[Being selfish…another free feature of StocksandNews.com.]

--Folks talk of the “Harry Potter” series’ impact on getting kids, and adults, to read, but for my generation it was all about “The Hobbit” and “The Lord of the Rings” trilogy. This week marked the 75th anniversary of the publishing of J.R.R. Tolkiens’s great tale.

“In a hole in the ground there lived a Hobbit.”

I can’t wait for the Dec. 14 release of Peter Jackson’s “The Hobbit: An Unexpected Journey.”

And today, Sept. 22nd, is both Bilbo and Frodo Baggins’ birthday!

I will toast the two this weekend with some hearty grog.

---

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

God bless America.
---

Gold closed at $1778
Oil, $92.89

Returns for the week 9/17-9/21

Dow Jones -0.1% [13579]
S&P 500 -0.4% [1460]
S&P MidCap -2.0%
Russell 2000 -1.1%
Nasdaq -0.1% [3179]

Returns for the period 1/1/12-9/21/12

Dow Jones +11.1%
S&P 500 +16.1%
S&P MidCap +14.4%
Russell 2000 +15.5%
Nasdaq +22.1%

Bulls 54.2…approaching danger levels
Bears 24.5 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

New computer with greater speed…check.
Super-duper Panasonic camcorder…check.
[Your editor is slowly gearing up for the launch of his nightly newscast…Oct. 15 or 22. He also knows it will be very shaky initially.]

Brian Trumbore