Week in Review

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Week in Review

05/25/2013

For the week 5/20-5/24

Wall Street and Washington

Stocks fell after a terrific 4-week run and it was mostly about the Federal Reserve and mixed messages from the congressional testimony of Chairman Ben Bernanke, the comments of one of his lieutenants, and some of the discussion contained in the minutes of the Fed’s last Open Market Committee meeting, April 30-May 1.

First, Federal Reserve Bank of New York President William Dudley said in an interview with Bloomberg that when it comes to the Fed’s $85 billion a month bond-buying program, QE3, policy makers will know in three to four months whether the economy is healthy enough to overcome federal budget cuts and allow the central bank to begin reducing record stimulus.

Chairman Bernanke told the Joint Economic Committee of Congress that the economy remains hampered by high unemployment and government spending cuts, so raising interest rates or reducing asset purchases too soon would endanger the recovery.

“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.” Monetary policy, Bernanke said, was providing “significant benefits.”

Back to Dudley, he said the goal of Fed policy is “really about achieving escape velocity. When are we going to have an economy where everything is sort of self-reinforcing, and when the jobs generate income, the income generates demand, demand generates more employment? I don’t think we’re quite there yet.”

Back to Bernanke, the stock market reversed on Wednesday during his Q&A with Congress because he said the Fed could “step down” (taper) the pace of asset purchases in the next few meetings if the labor market continues to improve and “we have confidence that that is going to be sustained.”

Back to Dudley, though, he said that once a decision is made to begin withdrawing stimulus, “we certainly want to do it in a way that it’s not abrupt, it’s not shocking. We want to make sure that the markets don’t overreact to our first move in terms of dialing down the rate of asset purchases, or later on actually starting to raise short-term interest rates.”

Well, the bottom line is it’s all about the coming jobs reports, including the weekly jobless claims numbers, and the June 18-19 meeting is looming as a critical one if economic reports heading into it show “evidence of sufficiently strong and sustained growth,” according to the Fed minutes of April 30-May 1.

The minutes read in part: “A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth.”

But the Fed is concerned that the first move to reduce the amount of Treasury and mortgage securities purchases from the current $85 billion monthly pace could cause a mini rout in the markets because it could be interpreted as the first step in ending the program altogether, so the Fed is doing all it can to try to convince investors it won’t go from $85 billion to zero, and, further, let’s say it went from $85 billion to $75 billion. If the economy then began to suffer anew, the Fed could very well go back to $85 billion, or even higher.

Nonetheless, the markets being what they are, volatility like we had on Wednesday will no doubt be the order of the day anytime Bernanke and Co. hint at changing the existing program. 

Meanwhile, there was some economic news. April existing and new-home sales were strong, with the median price on the former the highest since Aug. 2008, while new home prices are now at a record level.

April durable goods orders (big-ticket items) were up a solid 3.3% after a big drop in March. And the weekly jobless claims figure was 340,000, down from the prior week’s 363,000.

But on the topic of one of the Washington scandals...

“Why didn’t Congress know earlier that the Internal Revenue Service had targeted conservative groups for special scrutiny? In days of hearings, lawmakers have tried to get a satisfactory answer from witnesses under oath. They haven’t succeeded.

“According to a Treasury Department inspector general’s report, Lois Lerner, a mid-level IRS manager, learned in 2011 that her division had flagged applications for tax-exempt status that had come from organizations with ‘tea party’ and similar terms in their titles. She told her employees to stop, which they did, but then they resumed some months later. When members of Congress later asked questions about the scrutiny some conservative groups were getting, why didn’t she reveal this history?

“Lawmakers say that Ms. Lerner, who was placed on administrative leave Thursday, had plenty of opportunity. Leaders of the House Oversight and Government Reform Committee, for example, claim that in a May 4, 2012, letter to them, she defended the questioning of tea-party applicants whom the agency had singled out. Yet, they also point out, we now know that, in an internal review that very month, the IRS deemed seven demands it had made of applicants as irrelevant or unnecessary. The inspector general, meanwhile, reports that by April 25, 2012, Ms. Lerner’s senior technical adviser had already found a list of questions the IRS has been asking to be inappropriate. On Wednesday, Ms. Lerner insisted she hadn’t done anything wrong, then refused to testify, citing her Fifth Amendment right against self-incrimination.”

House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) said Thursday he wants Lerner to come back before his committee to face more questions, but he is waiting for recommendations from congressional lawyers before calling Lerner again.

In her opening statement, Lerner told the committee: “I have not done anything wrong. I have not broken any laws, I have not violated any IRS rules or regulations, and I have not provided false information to this or any other congressional committee.”

House Speaker John Boehner said: “Today is a new day, which means that we’re sure to get a new story from the White House on the IRS scandal. What is most troubling in this White House is that the lights are on but there doesn’t seem to be anybody at home. The IRS systematically violated the rights of Americans for almost two years. Treasury Department knew about this last year, and the White House was made aware of it last month, yet no one – no one thought that they should tell the president. Fairly inconceivable to me.”

“ ‘I don’t know.’ ‘I don’t remember.’ ‘I’m not familiar with that detail.’ ‘It’s not my precise area.’ ‘I’m not familiar with that letter.’

“These are quotes from the Internal Revenue Service officials who testified this week before the House and Senate. That is the authentic sound of stonewalling, and from the kind of people who run Washington in the modern age – smooth, highly credentialed and unaccountable. They’re surrounded by legal and employment protections, they know how to parse a careful response, they know how to blur the essential point of a question in a blizzard of unconnected factoids. They came across as people arrogant enough to target Americans for abuse and harassment and think they’d get away with it.

“So what did we learn the past week, and what are the essentials to keep in mind?

“We learned the people who ran and run the IRS are not going to help Congress find out what happened in the IRS. We know we haven’t gotten near the bottom of the political corruption of that agency. We do not know who ordered the targeting of conservative groups and individuals, or why, or exactly when it began. We don’t know who executed the orders or directives. We do not know the full scope or extent of the scandal. We don’t know, for instance, how many applicants for tax-exempt status were abused.

“We know the IRS commissioner wasn’t telling the truth in March 2012, when he testified: ‘There’s absolutely no targeting.’ We have learned that Lois Lerner lied when she claimed she had spontaneously admitted the targeting in a Q-and-A at a Washington meeting....

“We know that Lois Lerner this week announced she’d done nothing wrong, and then took the Fifth.

“And we know Jay Leno, grown interestingly fearless, said of the new IRS commissioner, ‘They’re called ‘acting commissioner’ because you have to act like the scandal doesn’t involve the White House.’....

“(If) what happened at the IRS is not stopped now – if the internal corruption within it is not broken – it will never stop, and never be broken. The American people will never again be able to have the slightest confidence in the revenue-gathering arm of their government. And that, actually, would be tragic.”

“You’ve heard of the ‘fog of war.’ Well, now we’ve got the fog of ObamaCare. The controversial Affordable Care Act (ACA) has so many moving parts that it’s hard to know how its implementation is proceeding. In 2014, many uninsured are supposed to get coverage either through insurance exchanges, where they can buy subsidized policies if their incomes are less than four times the federal poverty line, or through an expanded Medicaid. The trouble is that 20 or more states may reject the Medicaid expansion, and the exchanges aren’t yet finished. Much is unknown.

“It’s not just that the ACA’s plumbing is still under construction. Millions of Americans are perplexed. An April poll by the Kaiser Family Foundation found that one-fifth of respondents didn’t think the ACA was still in force – they thought it had been repealed by Congress or struck down by the Supreme Court. About half the respondents didn’t know how the law affects them personally. President Obama recently called the confusion exaggerated. For the nearly 85 percent of Americans with insurance from large employers or Medicare and Medicaid, there would be little change, Obama said.

“That’s probably true. But it still leaves a sizable enclave of ignorance – mainly among workers for small and medium-size firms and today’s uninsured. Under the ACA, companies with more than 50 full-time workers are required to provide insurance or pay a fine (now called a tax) of $2,000 per employee (the first 30 are excluded from the tax). Part-time workers, defined as those who work fewer than 30 hours a week, aren’t counted. And uninsured individuals are required to buy insurance or face a tax penalty that begins at $95 in 2014 and increases to $695 in 2016. How will these requirements work? Will smaller companies add insurance or drop it? Will uninsured individuals buy subsidized coverage in the exchanges or pay the tax?”

Yup, when it comes to ObamaCare, we’re still just getting started.

Lastly, on a totally unrelated topic, President Obama is hosting Chinese President Xi Jinping for a two-day casual summit in California, June 7-8. Cyberattacks, North Korea, Syria/Iran and lack of cooperation in the U.N., and territorial disputes in the South China and East China seas will be among the topics on the agenda, you can be sure.

But I will be cutting a video beforehand addressing another topic...financial transparency when it comes to Chinese companies who raised capital in the U.S. and have now gone ‘dark’.

The flash composite Purchasing Managers Index for both manufacturing and services in the eurozone for the month of May came in at 47.7, up from 46.9. While any improvement is welcomed, as Chris Williamson, chief economist at Markit Economics, which puts out the survey, said, “Recovery remains a long way off still and...policy makers need to do more to stem the downturn and revive growth.”

Purchasing managers reported a 22nd successive month of decline in new orders.

Germany’s composite rose to 49.9, but France’s remained unchanged at a putrid 44.3.

In Italy, there were mass protests in Rome calling on new Prime Minister Enrico Letta to scrap austerity measures and focus on job creation, but Letta is instead focusing on tax reform and repealing a property tax enacted by his predecessor, Mario Monti; all of which is part of the deal Letta had to cut with former prime minister Silvio Berlusconi in order to win his support when the new governing coalition was formed.

China and Japan

An HSBC preliminary reading on China’s PMI for May came in at 49.6, down from April’s 50.4, the first time in seven months the figure was below the 50 dividing line between growth and contraction.

Also, home prices in April rose in 68 of 70 Chinese cities, year over year, as government efforts to avert a property bubble continue to fall short.

Plus China has a bigger macro issue. Wages are rising sharply, 14% last year for urban private company staff, and this is hurting China’s competitiveness. [Think Bangladesh and the clothing industry.]

In Japan, until Thursday, the Nikkei stock index had risen 75% in about six months since it became clear Shinzo Abe was going to be elected as Japan’s new prime minister. The Nikkei was up about 46% this year alone as Abe, with the assistance of the Bank of Japan, initiated his stimulus program.

But Japan’s April exports were up a less than expected 3.8%, with exports to the European Union down 3.5% (up 15% to the U.S.), and there were sudden concerns whether government actions to reignite growth will really bear fruit, let alone the above-noted China PMI didn’t augur well for future Japanese exports there.

At the same time, the interest rate on the 10-year Japanese government bond (JGB) rose to 1.00%. That’s all? you might be thinking. Yeah, but it’s quite a percentage move from a recent low of about 0.45% and since most of Japan’s massive debt load is owned by domestic investors, especially banks and insurance companies, this was cause for concern.

Plus, understand that about one-quarter of Japan’s national budget is interest payments on government debt.

Add it all up, plus throw in a lot of recent hot money and record trading volume, and the Nikkei fell 7.3% on Thursday.

Street Bytes

--Stocks fell, as noted above, with the Dow Jones losing 0.3% to 15303, while both the S&P 500 and Nasdaq fell 1.1%. The Dow did rise a 19th straight Tuesday, which is rather weird at this point. 

Shares in Dow component Hewlett-Packard rose 17% on Thursday after reporting earnings that were better than expected, even as revenues fell 10%! ‘Personal systems’ (PCs, notebooks) declined 20%. So it’s a shrinking business, but CEO Meg Whitman is a straight shooter and the Street likes that. Otherwise, retailers took it on the chin, with Target reporting same-store sales fell in the quarter, while some of the specialty clothing retailers got pummeled due to the awful spring weather.   

I also have to note that when it comes to the overall market, Goldman Sachs issued a new bullish forecast, calling for the S&P to close the year at 1750, and 2100 by yearend 2015. The index sits at 1649, after hitting 1687 earlier in the week.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.25% 10-yr. 2.01% 30-yr. 3.17%

--Taiwan lowered its 2013 GDP forecast from 3.6% to 2.4%. The island’s industrial output fell for a third month in April as exports weakened.

--Researchers at the University of Hong Kong have found that the H7N9 bird flu virus can be transmitted not only through close contact but by airborne exposure. They are also concerned the bird flu may combine with the swine flu and mutate into a new virus strain.

There have been 131 confirmed human infections and 36 deaths, according to the World Health Organization, but the virus does seem to have been brought under control.

In fact there is very good news...no new confirmed cases since May 8.

[The flu outbreak has cost China’s poultry industry more than $65 billion.]

--Staples Inc. is a good barometer of economic activity. Sales in Europe at stores open more than a year fell 3% in the quarter ended May 4. Overall, sales abroad slumped 13%, hurt by weakness in Europe and Australia and some store closures.

--Speaking of Australia, Ford Motor shocked many Down Under in announcing it would close its local car manufacturing plants in 2016 after almost nine decades in the country. At least 1,200 jobs will be lost as a result.

“We came to this only after thoroughly reviewing our business and exhausting all other alternatives. Over the last few years, we’ve taken significant steps to restructure our business and to be profitable and sustainable, including reducing production in November of last year. Despite these efforts, our locally made products continue to be unprofitable, while our imported products are profitable.

“In the search to improve scale and competitiveness, we explored what export opportunities might be available to us. But we’re still faced with the fact that our cost structure in Australia remained uncompetitive.

“Our costs are double that of Europe, and nearly four times Ford in Asia.”

That says it all. And what worries the Aussies more is the domino effect on the supply chain. [Sydney Morning Herald]

--Christine Lagarde, the head of the International Monetary Fund, faced fraud charges over claims she squandered over $500 million of French taxpayers’ money in an illegal deal involving financier Bernard Tapie when she was Finance Minister, between 2007 and 2011. I said months ago Lagarde would be forced to resign her IMF post as a result of this case, though the current finance minister is supporting her.

And then late Friday, a French court stopped short of making her an official suspect, so it’s unlikely she’ll be brought to trial.

--Four senior executives of the hedge fund SAC Capital Advisors received subpoenas to testify before a grand jury as part of the government’s investigation into insider trading at the firm. Owner/billionaire Steven Cohen was previously served with one. This case has been going on for years and I don’t blame SAC for being more than a bit torqued off at this point. On May 17, SAC informed its investors it was no longer cooperating with the investigation. Aside from four guilty pleas from former SAC traders, earlier this year, SAC agreed to pay a $616 million penalty to resolve two civil insider trading actions brought against it related to trading in various stocks.

--Procter & Gamble announced that CEO Bob McDonald is stepping down and will be replaced by predecessor A.G. Lafley, who was CEO from 2000 to 2009. Lafley took over P&G at a time of crisis and engineered a turnaround, including a $57 billion acquisition of Gillette in 2005 and a focus on emerging markets. But profitability began to flag during McDonald’s tenure, leading to activist investor Bill Ackman taking a stake in the company and agitating for change. Shares in P&G rose $3.20 on the news.

--Yahoo Inc. paid $1.1 billion for Tumblr, a trendy social blogging service. The deal was questioned because Tumblr only has $13 million in revenue, but 100 million users. Yahoo CEO Marissa Mayer is attempting to make her company relevant to the younger generation.

--According to a Pew Research Center survey, 24% of online teens now use Twitter, up from 16% in 2011, and higher than the 16% of online adults who use the site.

94% of teens say they maintain a Facebook profile, while 81% say it is the social media site they use most often.

But the same teens say having a Facebook account is often viewed as an obligation or burden, with newer services, like Twitter and Instagram, increasingly more appealing.

--Apple CEO Tim Cook was called to appear before the U.S. Senate’s Permanent Subcommittee on Investigations and defend the tech giant’s tax practices, following the disclosure his company has paid no corporate income taxes on tens of billions of dollars in overseas income during the past four years.

Sen. Carl Levin (D-Mich.), said, “Apple has sought the Holy Grail of tax avoidance. Apple is exploiting an absurdity, one that we have not seen other companies use.”

Cook countered: “There’s no shifting going on...We pay all the taxes we owe, every single dollar.”

As the Wall Street Journal reported: “Apple used technicalities in Irish and American tax law to pay little or no corporate taxes on at least $74 billion over the past four years, according to the Senate panel’s findings. The investigation found no evidence that Apple did anything illegal. Aides to the subcommittee said they have never seen a company use a subsidiary that didn’t owe corporate income taxes to any country.

“Apple didn’t dispute that entities it set up didn’t pay corporate taxes but denied they were designed to avoid taxes. The company said it pays local taxes on overseas earnings and U.S. taxes on investment income generated at its Irish subsidiaries.

“The company pointed to the ‘extraordinary’ amount of corporate income taxes it pays – $6 billion in 2012 – and said its U.S. effective federal cash tax rate was 30.5% last year, not much below the 35% statutory rate.”

--Jamie Dimon retained his chairman title to go along with the CEO position after a bruising shareholder battle. A proposal to install an independent chairman was soundly beaten, garnering just 32.2% of votes, down from roughly 40% in support of a similar measure last year.

--According to a study by the Center for Economic and Policy Research, 23% of Americans have no paid vacation days, with U.S. law not making provisions for paid holidays, while others, such as Austria (13 paid holidays), Canada (9) and France (30 paid vacation days, and one paid holiday) do.

Actually, the U.S. is the only advanced economy that does not require employers to provide paid vacation days.

--The damage from the Moore, Oklahoma tornado could exceed $2 billion.

--United Continental Holdings Inc. completed the first U.S. commercial flight of a Boeing 787 Dreamliner since the planes were grounded in January. United is the sole U.S. operator of the 787 and is the fifth to resume such flights of the eight carriers currently using the jetliner.

--I have a good friend at Workday, a leader in enterprise cloud applications for human resources and finance, so I note they just reported for the quarter ended April 30 and total revenues rose 61% from year ago levels. As Ronald Reagan would have said...not bad, not bad at all. Kick butt, Jimbo.

--Inspectors from Guangzhou’s Food and Drug Administration have found that nearly half the rice and rice products on sale in Guangzhou contain too much cadmium, a toxin and carcinogen that can damage the kidneys.

--A study by the Irish government found that one in every seven people on the dole have never worked a single day in their lives. Said one politico, “these disturbingly shocking figures require a full investigation.”

--I forgot to give a shout out to a few folks last time. A few weeks ago I was rear-ended, sitting at an intersection, by a kid who had his ear buds in and was rather distracted. But the service I received from his insurance company, Liberty Mutual, was outstanding. Enterprise rent-a-car was also outstanding, with Liberty and Enterprise working it out seamlessly so that I never shelled out a cent.

The best, though, was Summit Truck & Auto Body here in my hometown. Jeff was super to work with.

So, knowing I have lots of local readers, and knowing more of us will be rear-ended, or worse, as the numbers of distracted drivers continues to soar, go to Summit Truck & Auto Body for all your repair needs.

Foreign Affairs

Iran: Former president and opposition-backed Akbar Hashemi Rafsanjani and President Mahmoud Ahmadinejad’s hand-picked successor, Esfandiar Rahim-Mashaei, were both banned from next month’s presidential election by the Guardian Council, which vetted the nearly 700 candidates, winnowing down the list to eight, all deemed to be hardliners and loyal to Supreme Leader Ayatollah Khamenei. Saeed Jalili, the chief nuclear negotiator, is seen as the leading contender.

Rafsanjani was viewed by hardliners as a threat because he backed the 2009 opposition Green Movement, which alleged the presidential elections that year were rigged. But after a fallout with Khamenei, the Supreme Leader reappointed Rafsanjani to the important Expediency Council.

Several prominent figures, including Ayatollah Khomeini’s daughter, have appealed to Khamenei to reverse the Guardian Council’s decision, and indeed, in the past, Khamenei has done so. It just isn’t expected this time, particularly in the case of Mashaei.

Rafsanjani said he would not contest his disqualification, but did write on an opposition website, “I don’t think the country could have been run worse....I don’t want to stoop to their propaganda and attacks but ignorance is troubling. They don’t understand what they’re doing.”

For his part, Ahmadinejad said he would take up the issue with Khamenei directly. Or maybe not.

“A day after their candidate was barred from next month’s presidential election, supporters of Iranian President Mahmoud Ahmadinejad were being rounded up across the country.

“According to the official Islamic Republic News Agency (Irna), which is controlled by Ahmadinejad’s faction, the crackdown has hit civil servants, media people, businessmen, politicians and even mullahs. Irna also reported this week that scores of Web sites controlled by pro-Ahmadinejad groups have been filtered or totally blocked by the security forces.”

Separately, the International Atomic Energy Agency issued a new report on Iran’s nuclear activities and said that since February, Iran has added more than 520 advanced-design centrifuges, capable of producing five times the amount of enriched uranium as the first-generation models. Iran now has 700 of the new centrifuges, with a goal of installing 3,100 of them at Natanz.

But, the IAEA also notes that Iran is seemingly limiting its growth of 20% enriched uranium, which can then easily be upgraded to bomb-grade fuel, in order to remain below Israel’s “red line.” 

Cliff Kupchan of the Eurasia Group told the Los Angeles Times, “Supreme Leader Ali Khamenei seeks a calm international and domestic backdrop for the June 14 election. He was probably very insistent that this report not set off much controversy.”

I don’t disagree with this take. The only problem is we now know a hardliner is going to win.

Lastly, there were a number of reports that Iran is directly targeting U.S. utilities, centering its cyberwarfare activities on looking for ways to seize control of energy operating systems. If Tehran was to succeed, a targeted nuclear response would be in order.

Syria: The Assad government agreed to participate in a conference on the country’s future proposed by Russia and the United States, slated for Geneva in about two weeks. But details, including who will speak for the opposition, are still up in the air, let alone the fact the opposition doesn’t want any of Assad’s representatives taking part.

Regarding significant recent battlefield advances by the Syrian military against the rebels, Secretary of State John Kerry said the gains are “very temporary” and do not signal that the government is gaining the upper hand.

Kerry couldn’t be more wrong. He condemned Hizbullah’s participation, acknowledging their contribution to the fight on the side of Assad, but then doesn’t draw the right conclusion. Hizbullah’s role could be decisive.

Kerry did warn the U.S. was prepared to accelerate its support to the opposition if Assad does not negotiate “in good faith” during the talks next month and added if the Geneva peace process fails:

“There will be more foreign fighters, there will be more extremists, there will be more danger to the volatility of the region. There may be more ‘ethnic cleansing,’ more massacres. Syria may break up into different parts. Nobody will benefit from that continued struggle.”

As for Hizbullah, it reportedly suffered over 30 dead in fighting for the strategic town of Qusair, a rebel stronghold Assad forces are looking to recapture.

Meanwhile, the Assad regime has put its most advanced missiles on standby with orders to hit Tel Aviv if Israel launches another raid on its territory. The Tishreen missile can carry a half-ton payload, is extremely accurate and, according to Uzi Rubin, Israel’s leading missile expert, “cause serious harm.” Rubin said Syria has large stocks of Tishreens and, for one, could hit Israel’s main Ben-Gurion airport.

Should Israel strike Syria again in an attempt to keep weapons out of the hands of Hizbullah that they would transfer to Lebanon, Assad will have little choice but to retaliate.

Finally, Sen. John McCain said some of the following regarding White House inaction in Syria.

“For this administration to sit idly by and watch these events unfold, is writing a shameful chapter in American history. The longer this conflict goes on, the more unstable the region will be.”

McCain said the administration’s reliance on the Geneva conference was “optimistic to the point of fantasy,” adding that each time the U.S. has upped its assistance to rebels, Iran and Russia have responded with new aid to Assad.

“Isn’t it Orwellian that we are relying on a conference headed by the United States and Russia, while Russia is shipping sophisticated missiles to Bashar al-Assad?” McCain asked.

Lebanon: The conflict in Syria has more than spilled over into Lebanon, with battles between supporters and opponents of Syrian President Assad in the nation’s second city, Tripoli, claiming at least 24 lives this week, wounding over 200. It’s devolved into full-scale civil war there.

One incident in Beirut and that place could explode, too, as I’ve long warned. 

Lebanon is also now home to 2,500 new refugees from the conflict in the Syrian city of Qusair.

Iraq: Speaking of spillover, some of the sectarian violence in Iraq the past few weeks can be directly attributed to the Sunni-Shia conflict in Syria. Over 230 Iraqis died during one five-day period.

North Korea: A top North Korean envoy visiting China said Pyongyang would “accept the proposal” by Chinese officials to open up dialogue, possibly on its nuclear program. No one should hold their breath.

Earlier, North Korea fired six short-range missiles into the sea off its eastern coast over a span of three days.   While this testing goes on all the time, what concerns the South Korean Defense Ministry is they believe one of the tests may have been of a new artillery piece.

And if you really want to be scared out of your wits, former CIA director R. James Woolsey and Peter Vincent Pry had an op-ed in the Wall Street Journal on the progress North Korea is making on the ballistic missile front.

“Since 2006, North Korea has had at least three apparently successful nuclear tests and orbited a satellite, thus fulfilling the basic technological needs for an intercontinental ballistic missile that can deliver a nuclear warhead against the U.S. ....

“North Korea needs only one ICBM capable of delivering a single nuclear warhead in order to pose an existential threat to the U.S. The Congressional Electromagnetic Pulse Commission, the Congressional Strategic Posture Commission and several other U.S. government studies have established that detonating a nuclear weapon high above any part of the U.S. mainland would generate a catastrophic electromagnetic pulse.

“An EMP attack would collapse the electric grid and other infrastructure that depends on it – communications, transportation, banking and finance, food and water – necessary to sustain modern civilization and the lives of 300 million Americans.

“EMP effects can be made more powerful and more catastrophic by using an Enhanced Radiation Warhead. This is a low-yield nuclear weapon designed not to create a devastating explosion, but to emit large amounts of radiation, including the gamma rays that generate the EMP effect that fries electronics.

“The EMP Commission warns that, ‘Certain types of relatively low-yield nuclear weapons can be employed to generate potentially catastrophic EMP effects over wide geographic areas, and designs for variants of such weapons may have been illicitly trafficked for a quarter-century.’ An EMP attack could plunge our electricity-powered civilization into a blackout lasting months or years.”

So between this threat and Iran’s attempts to hack into our power grid, always sleep with one eye open.

China: A BBC World Service poll of over 26,000 people in 25 nations found that views on China’s influence have deteriorated sharply to the lowest level since the poll began in 2005, with positive views falling eight points to 42% and negative views rising eight points to 39%. In France, the negative perception of China has risen to 68%, 67% in Spain. In Australia, the positive/negative ratio of 61-29 reversed dramatically to just 36% positive and 55% negative.

The Japanese response was the most negative among the countries surveyed, with only 5% holding positive views of China and 64% holding negative ones.

Well, that’s rather telling. Then again, just 17% of Chinese have a positive view of Japan, 74% viewing it negatively.

Only one in five Chinese have a positive view of the U.S., and 57% have a negative view of Americans.

Separately, authorities in the U.S. brought criminal charges against three New York University researchers, alleging they conspired to take bribes from Chinese medical and research outfits for details about NYU research into magnetic resonance imaging technology. One of those arrested, Yudong Zhu, was also charged with falsifying records in connection with a $4 million grant he received from the National Institutes of Health. The three defendants worked at the NYU Langone Medical Center.

Prosecutors have brought several recent criminal cases against defendants accused of stealing trade secrets from the likes of Motorola, GM and Dow Chemical and then providing them to Chinese companies.

Lastly, David E. Sanger and Nicole Perlroth of the New York Times reported the cyberunit of the People’s Liberation Army has resumed their hacking activities after being silent for three months amid evidence they had stolen data from American companies and government agencies.

That would be Unit 61398, “whose well-guarded 12-story headquarters on the edge of Shanghai became the symbol of Chinese cyberpower....

“It is not clear precisely who has been affected by the latest attacks. Mandiant, a private security company that helps companies and government agencies defend themselves from hackers, said the attacks had resumed but would not identify the targets, citing agreements with its clients. But it did say the victims were many of the same ones the unit had attacked before....

“Mandiant said that the Chinese hackers had stopped their attacks after they were exposed in February and removed their spying tools from the organizations they had infiltrated. But over the past two months, they have gradually begun attacking the same victims from new servers and have reinserted many of the tools that enable them to seek out data without detection.”

Pakistan: Gunmen killed a senior female leader of Pakistan’s Tehreek-e-Insaf party (PTI) headed by former cricket star Imran Khan.

Khan blamed the MQM, which has a stranglehold on political power in Karachi but is headed by a man, Altaf Hussain, who leads his party from exile in England. Khan thus also holds the British government responsible, saying he had warned British officials about Hussain after his open threats directed against PTI workers and leaders. The British police were flooded with complaints following a speech Hussain gave that many Pakistanis felt was an incitement to violence against his political rivals.

Britain: So knowing the preceding, what happened on a London street this week shouldn’t be surprising. The U.K. is home to thousands of terrorists and Islamists, including those that carried out the barbaric killing of British soldier and Afghan war vet Lee Rigby, hacked to death in broad daylight. The two killers were known to security services but were not deemed to be planning an attack. Two others were arrested.

Video footage of the aftermath of the attack was taken on a mobile phone by a man who was on his way to a job interview.  The black man with a cleaver and a knife in his bloodstained hands talked calmly to the camera while the body of his victim lied in the road behind him.

“We swear by almighty Allah we will never stop fighting you unless you leave us alone,” he says. “You people will never be safe...The only reason we’ve done this is because Muslims are dying by British soldiers every day. This is an eye for an eye, a tooth for a tooth. I apologize that women had to witness this today but in our lands women have to see the same. You people will never be safe, remove your Government, they don’t care about you.”

France: In another shocking story, Dominique Venner, an award-winning far-right historian, pulled out a shotgun and shot himself through the mouth beside the main altar at the Notre-Dame de Paris cathedral. Far-right party leader Marine Le Pen called Venner’s suicide a “political act,” aimed at “waking up the people of France.”

In a blog written before he took his life, Venner criticized a new law legalizing gay marriage.

Le Pen added, “it is in life and hope that France will renew and save itself.”

For those of you who have been to Notre-Dame, you know it wouldn’t be too difficult to conceal a weapon in a shoulder bag.

The cathedral is celebrating its 850th anniversary. It was the first suicide in decades, and while people have jumped to their deaths from the twin towers, it is believed to be the first time someone killed themselves at the altar, according to the rector.

Venezuela: The National Assembly backed a plan to import 39 million rolls of toilet paper, along with funding for the purchase of toothpaste and soap.

Random Musings

--In a major win for both parties, and, one hopes, immigrants, the Senate Judiciary Committee approved a broad overhaul of the immigration laws on a bipartisan vote, 13-5, which augers well for the bill to eventually gain President Obama’s signature.

To gain the approval of Republicans, however, an amendment granting protection for same-sex couples was not included. 

South Carolina Rep. Sen. Lindsay Graham, a member of the group of eight senators who drafted the original bill, summed up the feelings of most in his party.

“You’ve got me on immigration. You don’t have me on marriage. If you want to keep me on immigration, let’s stay on immigration.”

A group of 111 conservative economists, the American Action Forum, called on Congress to approve the immigration overhaul, highlighting the potential economic benefits.

But it all moves to the Senate floor in June with solid overall support from the public. However, the bill needs 60 votes to clear the Senate. Thus, it needs far more support to get some kind of momentum heading into the House.

In a new Washington Post/ABC News poll, 58% of all Americans support a so-called “path to citizenship” that offers those currently living in the United States illegally a way to achieve legal status if they pay a fine and meet other requirements. The Senate bill includes a 13-year pathway to citizenship, but only after payment of a fine and any back taxes owed. [Dan Balz and Jon Cohen / Washington Post]

52% of Republicans oppose the bill, and those in opposition have the biggest problem with backing a citizenship path.

Get over it, my fellow Republicans...unless you want to just keep losing the presidency. Remember, just 27% of Hispanic voters supported Mitt Romney.

--President Obama announced a change in his counterterrorism strategy, saying he would place restrictions on drone attacks.

In a speech at the National Defense University in Washington, Obama said he would continue ordering drone strikes to stop potential terrorist attacks, but strikes will only be authorized against militants who pose “a continuing, imminent threat,” instead of “a significant threat”...the previous standard.

Also, before the United States acts, “there must be a near-certainty that no civilians will be killed or injured,” according to a senior administration official.

Obama called again for Congress to help close Guantanamo Bay, a promise of over five years he has yet to fulfill. The president said he would lift the moratorium on transferring Guantanamo’s Yemeni detainees to their home country,

Obama also said the country is at a crossroads in its counterterrorism fight: “We must define the nature and scope of this struggle, or else it will define us. We have to be mindful of James Madison’s warning that ‘No nation could preserve its freedom in the midst of continual warfare.’ Neither I, nor any president, can promise the total defeat of terror. We will never erase the evil that lies in the hearts of some human beings, nor stamp out every danger to our open society. What we can do – what we must do – is dismantle networks that pose a direct danger, and make it less likely for new groups to gain a foothold, all while maintaining the freedoms and ideals that we defend.”

On Wednesday, the Obama administration acknowledged it has killed four Americans in overseas operations since 2009, including Anwar al-Awlaki.

“The president gave a speech today on our defense posture that was schizophrenic and unrelated to reality. He promised to continue the war on terrorism, yet said nothing about slashing defense spending. He ridiculed his predecessor on civil liberties, but with zero political support and no game plan for those who can’t be tried, proposed to send Guantanamo Bay prison camp detainees to the homeland. (How many times must Congress say no?) What was missing was a comprehensive understanding of our enemy – jihadism. And he incorrectly indicated that we contribute to our own woes (‘has become a symbol around the world for an America that flouts the rule of law’).”

Rubin selected the 10 worst portions of the speech...one of which is:

“ ‘There have been no large-scale attacks on the United States, and our homeland is more secure.’ Is Boston not large-scale enough for him? Does Fort Hood not count? In fact, we’ve been attacked multiple times on his watch. Are American diplomatic facilities technically American soil? Those have been repeatedly attacked, and four Americans were killed, including, for the first time in 30 years, an ambassador. Later Obama conceded, ‘From Yemen to Iraq, from Somalia to North Africa, the threat today is more diffuse, with al-Qaeda’s affiliates in the Arabian Peninsula, AQAP, the most active in plotting against our homeland. And while none of AQAP’s efforts approach the scale of 9/11, they have continued to plot acts of terror, like the attempt to blow up an airplane on Christmas Day in 2009.’ So maybe not that safe after all....

“The speech was not all bad. He defended the use of drones overseas to kill terrorists. And he told us finally what sort of extremists the enemy is (not extreme environmentalists, for certain). He also reassured us that even after Boston we won’t deport people without evidence. Otherwise, virtually everything was confused or misleading. More than that, he revealed he has no idea what he’s doing.”

“Every day brings new revelations about who knew what about the IRS targeting conservative groups during President Obama’s re-election campaign, but the overall impression is of a vast federal bureaucracy run amok. While the White House continues to peddle the story of a driverless train wreck, taxpayers are being treated to a demonstration of the dangers of an unwieldy and unaccountable administrative state. Look, Ma, no hands!...

“If the scandal is showing anything, it is that the White House has a bizarre notion of accountability in the federal government. President Obama’s former senior adviser, David Axelrod, told MSNBC recently that his guy was off the hook on the IRS scandal because ‘part of being President is there’s so much beneath you that you can’t know because the government is so vast.’

“In other words, the bigger the federal government grows, the less the President is responsible for it.”

“It is never good for an administration when a front-page newspaper article about an ongoing controversy begins as follows: ‘The White House offered a new account Monday of how and when it learned...’ That’s what readers of The Post awoke to on Tuesday. In trying to contain the controversy and protect President Obama, White House officials have only added to questions about what happened....

“At a minimum, according to some officials who served in past administrations, someone, presumably the chief of staff, would give the president a quiet heads-up about something as charged as political malfeasance at the IRS. Not because the president could or should do anything to interfere with the investigation, but as a warning to be prepared. And to be able to answer the question of what the president knew and when.”

--Republican Senate Minority Leader Mitch McConnell / Washington Post

“Revelations about the Internal Revenue Service targeting conservative groups have raised important questions about the Obama administration’s commitment to the First Amendment. Yet there is ample evidence to suggest that the culture of intimidation in which these tactics were allowed to flourish goes well beyond one agency or a few rogue employees.

“For years, administration officials have used the power of the federal government to isolate their opponents. Meanwhile, the unionized employees who populate the IRS and other agencies across the country routinely take their cues from union bosses, whose political donations and speeches show their support for the White House. When it comes to rewarding friends and punishing enemies, the IRS is not alone....

“The First Amendment was not written to protect popular speech. It was written to protect speech that was not popular. The moment we lose sight of that, we betray the principle of equal justice that lies at the heart of our system. We can hope the president and all who do the work of government have relearned that lesson in recent days, but we can’t count on that. The American people need to remain vigilant against any effort by the powerful to stifle speech – and do everything they can to prevent it.”

--In a new Washington Post-ABC News poll, President Obama’s approval rating was 51%, holding steady in the face of the IRS, Benghazi and Justice Department/AP scandals.

56% see the IRS action as a deliberate effort to harass the targeted conservative groups; 31% describe it as an administrative mistake.

A CNN/ORC International survey has President Obama with a 53% approval rating, higher than the 51% he recorded in CNN’s last poll, conducted in early April (but within the margin of error).

More than seven in 10 say that the targeting by the IRS of tea party and other conservative groups was unacceptable.

--The Justice Department seized a trove of information about Fox News correspondent James Rosen in an effort to aid a leak investigation – including tracking the reporter’s movements in and out of the State Department. The feds obtained Rosen’s phone records at his State Department desk, as well as his cellphone, while also looking at his personal e-mails.

Rosen was targeted because of a 2009 story, published on Fox News’ web site, that revealed U.S. intelligence issued official warnings that Pyongyang would likely respond to U.S. sanctions with additional nuclear tests. The FBI maintains a State Department official, Jim-Woo Kim, leaked “top secret” information.

A Fox News executive said, “We are outraged to learn today that James Rosen was named a criminal co-conspirator for simply doing his job as a reporter. In fact, it is downright chilling. We will unequivocally defend his right to operate as a member of what up until now has always been a free press.” [Geoff Earle / New York Post]

“As with the AP subpoenas, this search is overbroad and has a potentially chilling effect on reporters....At least in the AP case, the subpoena was for past phone logs during a defined period. The message is that anyone who publishes a story the Administration dislikes can be targeted for email searches that could expose personal secrets.”

--Karl Rove / Wall Street Journal...on White House senior adviser Dan Pfeiffer’s appearances on last Sunday’s talk shows.

“Mr. Pfeiffer was quick to blame others. The CIA, he claimed, was responsible for the deceptive talking points that credited a ‘protest’ for the Benghazi attacks. The agency removed all references to terror and al Qaeda, not the White House or State Department. Mr. Pfeiffer reserved his real venom for Republicans, whom he accused of ‘playing politics,’ with 21 references to ‘partisan fishing expeditions, trumped up hearings,’ ‘political hit jobs’ and the like.

“Mr. Pfeiffer spun his way through the Sunday talk shows, but his performance won’t get the White House past the controversies.”

--The Boy Scouts of America national council voted to approve a resolution that will allow openly gay youth, but not gay adult leaders, to participate in the group. This is not the end of this issue.

--Former Democratic Congressman Anthony Weiner decided that the city of New York so desperately needed him, he’s running for mayor to replace Michael Bloomberg.

The people of New York can be such idiots, he actually has a shot, especially with $4.8 million in his war chest. 

You need 40% to avoid a runoff and he is second in the polls with 15% to Christine Quinn’s 28%, according to the latest Quinnipiac survey. Bill Thompson, the only black candidate, who also has Latino support, is at 10%.

But Weiner polls well among minorities too. In fact, Weiner gets 20% of the black vote in the Quinnipiac poll to Thompson’s 13%. Weiner also polls 14% of the Hispanic vote to Quinn’s 25% (and Thompson’s 8%).

“A cheap regimen of vitamins in use for decades is seen by scientists as a way to delay the start of Alzheimer’s disease and dementia, a goal that prescription drugs have failed to achieve.

“Drugmakers including Bristol-Myers Squibb Co., Pfizer Inc. and Eli Lilly & Co. have spent billions of dollars on ineffective therapies in a so-far fruitless effort to come up with an effective treatment for dementia and Alzheimer’s.

“Now, in the latest of a steady drumbeat of research that suggests diet, exercise and socializing remain patients’ best hope, a study published today in the Proceedings of the National Academy of Sciences shows that vitamins B6 and B12 combined with folic acid slowed atrophy of gray matter in brain areas affected by Alzheimer’s disease.”

--A new report mandated by Congress summarizes hundreds of studies conducted over the past decade into declines in amphibians and finds that even in national parks, thought to be islands of conservation, amphibians are dying off far faster than previously thought. Aside from habitat destruction, a fungal syndrome is the leading cause. [Kind of similar to the cancer-like fungus killing off the bats.]

--A universal sentiment from last Saturday’s Preakness was, ‘That was the worst ride I’ve ever seen.’

--A-hole of the week...former IRS Commissioner Douglas Shulman, who couldn’t remember what he was doing at the White House 118 times, except for an Easter Egg roll.

--Finally, I was watching NBC’s Brian Williams interview the mayor of Moore, Oklahoma, and Williams made a snarky comment along the lines of, ‘It’s safe to say Moore isn’t an upscale community.’ It was incredibly demeaning, totally inappropriate under any circumstances, and if I were the mayor, I would have decked the anchor.

I am very familiar with Oklahoma and have friends there. Also, way back in the summer of 1978, I sold books door-to-door in the state, with my first two weeks being in Shawnee, where the first deadly twister hit last weekend. My first sale was actually on the Shawnee Indian Reservation (I don’t think it’s known as that today).

I was in Oklahoma, and later Kansas, for over 12 weeks and one thing I remember was it being 100 degrees 21 straight days, so I was really going door-to-door for water. No tornadoes that summer. In fact I remember it raining like all of two days, one of which was in Maud, when my partner and I thought we’d hit this former oil boom town for a change of pace.

You weren’t supposed to drink, working for the Southwestern Book Company, but the only day all summer that I did was in Maud, when Mike and I, realizing there were no sales to be had in town, found this trailer that was converted into a bar. An ex-Marine was the bartender and a hooker was in the back and the first thing the bartender said, seeing Mike and I with our umbrellas, was, “You aren’t from around here, are you?”

The place had a juke box and it seemed to play just one song, “Luckenbach, Texas,” which had been No. 1 for the great Waylon Jennings the year before.

Geezuz, I just looked it up. Waylon has been gone over 11 years already!

Needless to say, every time I hear “Luckenbach, Texas” I think of that trailer bar. Long-time readers will recall after Shawnee I headed to Ponca City, where I spent 8 weeks in Gladys Harney’s home. 

What a great woman Gladys was. Years ago I went back to Ponca City just to find out what happened to her. We had written each other long after I graduated, when communication suddenly stopped, so I walked into this senior center in town and was happy to hear Gladys had died peacefully; no long, drawn out illness.

Sorry for rambling, but there are some special people in Oklahoma, like my farmer friends in the Panhandle, who God literally steered me to. [Heck, I talked to a local pastor and he told me which family I could help, so that’s as close to God as you can get most days.]

I’m sure what struck many of you this week with the tragedy in Moore was the same thing that hit me in watching the coverage. It was awesome how many of the school kids said they loved their teachers...and talk about heroes. Those women we saw interviewed later, the teachers, were the best of America. And the children’s parents seem to be doing a pretty good job with their kids, too.

That’s what upset me about Brian Williams’ insensitive comment on the material wealth, or lack thereof, of Moore.   There’s obviously a richness and generosity in spirit, even as you recognize many will opt to leave after three big ones in 14 years.

So we wish the good people of Moore, and Shawnee, the best. You are a shining example for the rest of us.

Pray for the men and women of our armed forces...and all the fallen we remember this Memorial Day.

Gold closed at $1386
Oil, $94.15

Returns for the week 5/20-5/24

Dow Jones -0.3% [15303]
S&P 500 -1.1% [1649]
S&P MidCap -1.9%
Russell 2000 -1.2%
Nasdaq -1.1% [3459]

Returns for the period 1/1/13-5/24/13

Dow Jones +16.8%
S&P 500 +15.7%
S&P MidCap +16.4%
Russell 2000 +15.9%
Nasdaq +14.6%

Bulls 55.2
Bears 18.8 [Source: Investors Intelligence...once again, a huge spread between the two which normally signals trouble...unless it doesn’t.]

Nightly Review video schedule...Tues. thru Thurs., posted around 5:30 PM ET, subject to the vagaries of YouTube.

For new readers, I do have an iPad app.

Brian Trumbore

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