Week in Review

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Week in Review

09/14/2013

For the week 9/9-9/13

[Posted 9:00 AM ET...Friday...As I knew I would be out of touch all Friday, I posted this far earlier than normal. Return and yield data added Sat. AM]

Syria, Washington and Wall Street

Ironically, just last week I reviewed what I had written in this space exactly one year ago with regards to Syria and the difficulty in removing its chemical weapons; how it would take “tens of thousands” of troops to secure Syria’s vast stockpiles...and how such a force didn’t exist.

Then three days later, this past Monday, Secretary of State John Kerry made an offhand remark about Bashar Assad needing to remove his WMDs, but that Kerry knew he wouldn’t do so, when the Russians jumped all over it and suddenly came up with a proposal to remove same.

President Obama was left scrambling, having assured the American people he was going to give a national address on Tuesday to explain his reasoning for seeking Congress’ authorization to launch a military strike on Syria for its use of WMDs on its own people, Aug. 21.

But support in Congress was melting away, with at least six polls I saw revealing the same. 60% of the American people were against military action, about 20% were for, and 20% undecided.

Obama then went ahead with a speech befitting his incoherent foreign policy, or as Fox News’ Brit Hume succinctly put it, “a speech in search of a purpose,” asking for authorization to strike while at the same time canceling the votes to do so.

Destroying Assad’s chemical stockpile, in the words of Amy Smithson, a chemical-weapons analyst, would “be a gargantuan task for the inspectors to mothball production, install padlocks, inventory the bulk agent as well as the munitions. Then a lot of it has to be destroyed – in a war zone.”

A U.N. weapons inspector with experience in Iraq told the New York Times, “We’re talking boots on the ground. We’re not talking about just putting someone at the gate. You have to have layers of security.”

A 2012 Defense Department estimate concluded it could take in excess of 75,000 military personnel to secure Syria’s chemical weapons.

Meanwhile, as I go to post, Secretary Kerry is meeting with his Russian counterpart, Sergei Lavrov, in Geneva and the talks are not going well. Russia has said any implied U.S. military action is unacceptable.

For his part, Bashar Assad, feeling his oats, said he would not turn over his weapons as long as the United States is arming the rebels (which the CIA is finally doing in a very small way after months of broken promises).

The Wall Street Journal reported on Friday that elite Syrian military units “have been moving stocks of poison gases and munitions to as many as 50 sites to make them harder for the U.S. to track, according to American and Middle Eastern officials.”

Republican Senator Bob Corker (Tenn.), said President Obama is a “diminished figure on Capitol Hill....he’s not comfortable as commander-in-chief.”

President Barack Obama...address to the nation, Tuesday

“It’s too early to tell whether this offer will succeed, and any agreement must verify that the Assad regime keeps its commitments. But this initiative has the potential to remove the threat of chemical weapons without the use of force, particularly because Russia is one of Assad’s strongest allies.”

“Recent events surrounding Syria have prompted me to speak directly to the American people and their political leaders. It is important to do so at a time of insufficient communication between our societies.

“Relations between us have passed through different stages. We stood against each other during the cold war. But we were also allies once, and defeated the Nazis together. The universal international organization – the United Nations – was then established to prevent such devastation from ever happening again....

“The potential strike by the United States against Syria, despite strong opposition from many countries and major political and religious leaders, including the pope, will result in more innocent victims and escalation, potentially spreading the conflict far beyond Syria’s borders. A strike would increase violence and unleash a new wave of terrorism. It could undermine multilateral efforts to resolve the Iranian nuclear problem and the Israeli-Palestinian conflict and further destabilize the Middle East and North Africa. It could throw the entire system of international law and order out of balance.

“Syria is not witnessing a battle for democracy, but an armed conflict between government and opposition in a multireligious country. There are few champions of democracy in Syria. But there are more than enough Qaeda fighters and extremists of all stripes battling the government....

“From the outset, Russia has advocated peaceful dialogue enabling Syrians to develop a compromise plan for their own future. We are not protecting the Syrian government, but international law. We need to use the United Nations Security Council and believe that preserving law and order in today’s complex and turbulent world is one of the few ways to keep international relations from sliding into chaos. The law is still the law, and we must follow it whether we like it or not. Under current international law, force is permitted only in self-defense or by the decision of the Security Council. Anything else is unacceptable under the United Nations Charter and would constitute an act of aggression.

“No one doubts that poison gas was used in Syria. But there is every reason to believe it was used not by the Syrian Army, but by opposition forces, to provoke intervention by their powerful foreign patrons, who would be siding with the fundamentalists. Reports that militants are preparing another attack – this time against Israel – cannot be ignored.

“It is alarming that military intervention in internal conflicts in foreign countries has become commonplace for the United States. Is it in America’s long-term interest? I doubt it. Millions around the world increasingly see America not as a model of democracy but as relying solely on brute force, cobbling coalitions together under the slogan ‘you’re either with us or against us.’

“But force has proved ineffective and pointless. Afghanistan is reeling, and no one can say what will happen after international forces withdraw. Libya is divided into tribes and clans. In Iraq the civil war continues, with dozens killed each day. In the United States, many draw an analogy between Iraq and Syria, and ask why their government would want to repeat recent mistakes.

“No matter how targeted the strikes or how sophisticated the weapons, civilian casualties are inevitable, including the elderly and children, whom the strikes are meant to protect.

“The world reacts by asking: if you cannot count on international law, then you must find other ways to ensure your security. Thus a growing number of countries seek to acquire weapons of mass destruction. This is logical: if you have the bomb, no one will touch you. We are left with talk of the need to strengthen nonproliferation, when in reality this is being eroded.

“We must stop using the language of force and return to the path of civilized diplomatic and political settlement.

“A new opportunity to avoid military action has emerged in the past few days. The United States, Russia and all members of the international community must take advantage of the Syrian government’s willingness to place its chemical arsenal under international control for subsequent destruction. Judging by the statements of President Obama, the United States sees this as an alternative to military action.....

“If we can avoid force against Syria, this will improve the atmosphere in international affairs and strengthen mutual trust. It will be our shared success and open the door to cooperation on other critical issues.

“My working and personal relationship with President Obama is marked by growing trust. I appreciate this. I carefully studied his address to the nation on Tuesday. And I would rather disagree with a case he made on American exceptionalism, stating that the United States’ policy is ‘what makes America different. It’s what makes us exceptional.’ It is extremely dangerous to encourage people to see themselves as exceptional, whatever the motivation. There are big countries and small countries, rich and poor, those with long democratic traditions and those still finding their way to democracy. Their policies differ, too. We are all different, but when we ask for the Lord’s blessings, we must not forget that God created us equal.”

“Putin knows better than most what pre-emptive strikes against neighbors can do.

“After all, this is the same man who launched military strikes against Georgia and Chechnya.

“Did he seek ratification from the U.N. before launching those strikes? No, he did not.

“In fact, in 1999 he also took to the pages of the New York Times and wrote another op-ed piece in which he sought to explain his actions for getting Russia involved in the first Chechen conflict.

“Then Russian Prime Minister, Putin wrote: ‘No Government can stand idly by when terrorism strikes. It is the solemn duty of all governments to protect their citizens from danger.’

“And while Moscow may believe that the wars with Chechnyan separatists were ‘internal conflicts,’ the wider international communities and human rights bodies would beg to differ.

“But most importantly – should Putin have a veto on how the world deals with security threats?

“Obama lunged at the Russian offer yesterday, we can surmise, because he never wanted to attack Syria unilaterally and because he was going to suffer an excruciating loss in one or both houses of Congress. Russia would present something, we’d respond, Russia would stall and so on. The White House figured this could go on for weeks, after which everyone will have moved on to other topics. But the delay depended upon the perception, however thin, that the Russian offer was serious. And there is the rub.

“Less than 24 hours after the president’s address, the chemical give-back plan has been debunked again and again and again. Informed liberal pundits and the New York Times concurred: Even in peacetime, verifiable and complete WMD disarmament is almost impossible to achieve. (Keep this in mind, by the way, for the Iran debate.)

“The president surely knew all this. He simply and cynically thought it would take longer for everyone else to figure it out. But virtually everyone is proverbially declaring the emperor has no clothes. Obama supporters should pause for a moment to consider how irresponsible and craven their hero is to use a gimmick he and everyone else know is bunk to avoid doing what he said was essential to do (strike Syria).”

“Sometimes a president does not have a communications problem. Sometimes a president has a reality problem.

“President Obama’s speech to the nation on Syria was premised on the denial of reality. He claimed that the Russian/Syrian initiative resulted from the ‘credible threat of U.S. military action.’ In fact, it filled a vacuum of presidential credibility. Obama had been isolated within the G-20 and abandoned by our closest ally, Britain. Americans overwhelmingly disapproved of a military strike for which the president clearly had no stomach. Obama was on the verge of the most devastating congressional foreign policy repudiation since the Senate voted 49-35 against entering the League of Nations in 1920.

“Vladimir Putin offered Obama an escape, which he gratefully took. But there are implicit costs. A U.S. military strike – something Putin thought inevitable just a few weeks ago – is off. Russia’s Syrian client, Bashar al-Assad, stays in power. The Syrian opposition is effectively hung out to dry. Russia gains a position of influence in the Middle East it has not held since Anwar Sadat threw the Soviets out of Egypt. This allows Moscow to supply proxies such as Syria and Iran with weapons while positioning itself as the defender of international law and peace. Iran sees that the United States is a reluctant power, with a timid and polarized legislature, that can easily be deflected from action by transparent maneuvers.

“(Obama’s) resulting message was boldly mixed. Assad is a moral monster – who is now our partner in negotiations. The consequences would be terrible ‘if we fail to act’ – which now seems the most likely course. America ‘doesn’t do pinpricks’ – especially when it does not do anything. ‘The burdens of leadership are often heavy’ – unless they are not assumed....

“I am relieved that President Obama was given a reprieve from a devastating rejection by Congress, which would have wounded the presidency itself. We should hope (against hope) that a negotiation with Putin, Assad and the U.N. Security Council to establish international control of the world’s third-largest chemical weapons stockpile in the middle of a civil war is successful. And Congress should seek ways to strengthen Obama’s hand in negotiations.

“But this remains a sad moment for the United States. We have seen a Putin power play, based on a Kerry gaffe, leading to a face-saving presidential retreat – and this was apparently the best of the available options.”

“Russian President Vladimir Putin may be crude, but he knows how to exploit weakness. And he’s sure acting like he has spotted an easy mark in President Obama.

“That’s the way to read Wednesday’s report in the Moscow business daily Kommersant that the Russian President plans to offer Tehran a sophisticated mobile anti-aircraft missile system, along with a second nuclear reactor, at a meeting of the Shanghai Cooperation Organization that begins Friday. To rub it in, Mr. Putin also took to the op-ed pages of the New York Times to tout Russia as a champion of ‘international law’ and ‘peaceful dialogue,’ denounce U.S. military interventions and scold Mr. Obama for speaking of American exceptionalism.....

“Humiliating, isn’t it? You wouldn’t know it by listening to the Obama Administration and its media allies spin Syria as the smartest U.S. diplomacy since Henry Kissinger opened China....

“The offer to supply Iran with missiles and reactors is particularly rich, given that Russian cooperation on Iran was supposed to be the main selling point of Mr. Obama’s first-term Russia reset – worth its price, we were told, in abandoned missile-defense projects, betrayed Central European allies and a reduced U.S. nuclear arsenal.”

“Remember the big game is still ahead of us. Assad’s ally, Iran, is watching very carefully. If Obama’s Syrian red line, already painfully pink, winds up watered down to nothing, Tehran will assume that it has nothing to worry about in its nuke pursuit.

“Also, U.S. failure to stop Assad would all but force Israel – which remains determined to prevent Iran from reaching nuclear capability – to act on its own.

“Ending Syria’s chemical threat without having to fire a shot is a nice little day-dream. But America needs to wake up, because the end game here isn’t merely being bogged down in endless diplomacy, compromising the ideals Obama so eloquently talked about Tuesday night. If not cut short, this sideshow could well lead us to a much uglier and wider Mideast war.”

“A consensus assessment of the past week’s events could easily form around Oliver Hardy’s famous lament to the compulsive bumbler Stan Laurel: ‘Here’s another nice mess you’ve gotten us into!’

“In the interplay between Barack Obama and John Kerry, it’s not obvious which one is Laurel and which one is Hardy. But diplomatic slapstick is not funny. No one wants to live in a Laurel and Hardy presidency. In a Laurel and Hardy presidency, red lines vanish, shots across the bow are world balloons, and a display of U.S. power with the whole world watching is going to be ‘unbelievably small.’

“The past week was a perfect storm of American malfunction. Colliding at the center of a serious foreign-policy crisis was Barack Obama’s manifest skills deficit, conservative animosity toward Mr. Obama, Republican distrust of his leadership, and the reflexive opportunism of politicians from Washington to Moscow.

“It is Barack Obama’s impulse to make himself and whatever is in his head the center of attention. By now, we are used to it. But this week he turned himself, the presidency and the United States into a spectacle. We were alternately shocked and agog at these events. Now the sobering-up has to begin....

“Syria looks lost. The question now is whether anyone who participated in the fiasco, from left to right, will adjust to avoid a repeat when the next crisis comes.

“The president himself needs somehow to look beyond his own instinct on foreign policy. It’s just not enough. The administration badly needs a formal strategic vision. Notwithstanding her piece of Benghazi, National Security Advisor Susan Rice, who gave a surprisingly tough speech Monday on the failure of the U.N. process and America’s role now, may be the insider to start shaping a post-Syria strategy. Somebody has to do it. Conservative critics can carp for three years, which will dig the hole deeper, or contribute to a way forward.

“Allowing this week to become the status quo is unthinkable. A 40-month run of Laurel and Hardy’s America will endanger everyone.”

(American) credibility has taken a battering, Russia has played a consummate diplomatic hand and the regime of Bashar Assad has emerged more secure than at any point since Mr. Obama first alighted on chemical weapons use as a threshold for military intervention.

“Mr. Obama and his allies have this consolation: he has avoided the humiliation of losing a vote in Congress on the use of force in Syria, and he has bought time. Even so, there is no time to lose. The Western alliance that has served as a bulwark of global security since 1941 is telegraphing an almost casual willingness to relinquish the role. Mr. Obama, David Cameron and Francois Hollande have days, not weeks, to regroup, learn the lessons of their recent blunders and act to prevent a geopolitical disaster.....

“There is a real possibility that a Syrian leader whom Mr. Obama called on to step down more than two years ago will still be in power when America elects its next president. Mr. Obama’s task now is to enforce the international norm against chemical weapons use, but also to show that his pronouncements on behalf of the world’s only democratic superpower have some meaning. He must set a deadline for Syria to fulfill its pledges and stick to it. If it fails to do so he must be prepared to strike Syria with or without U.N. and Congressional support. The Assad regime is on undeserved parole. If and when the terms of its parole are broken, the penalty must be swift and severe.”

Israeli Prime Minister Benjamin Netanyahu, at a naval ceremony in Haifa, discussed how dozens and sometimes hundreds of innocent people were being killed on a daily basis just across Israel’s border.

“Some of them were murdered by chemical weapons. That is a horrible crime, a crime against humanity. Now what needs to be ensured is that the Syrian regime’s chemical weapons will be dismantled and the world will ensure that anyone who uses weapons of mass destruction will pay a price.

“The message Syria receives will resonate very strongly in Iran,” he stressed.

Netanyahu added that Israel must always be able to defend itself, by itself, against any threat.

“He twisted the knife and gloated, which was an odd and self-indulgent thing to do when he was winning. Vladimir Putin, in his essay in the New York Times, may even to some degree have overplayed his hand, though that won’t matter much immediately.... In any case, the steely-eyed geopolitical strategist has reminded us that he’s also the media-obsessed operator who plays to his base back home by tranquilizing bears, wrestling alligators and riding horses shirtless, like Yul Brynner in ‘Taras Bulba.’

“Clearly he is looking at President Obama and seeing weakness, lostness, lack of popularity....

“Still, in general, Mr. Putin made a better case in the piece against a U.S. military strike than the American president has for it. And he did so, in a way, by getting to the left of the president, who he implies is insufficiently respectful to international bodies. Mr. Putin was candid about his primary anxiety – a spillover from Syria that could threaten Russian stability....

“One thing is certain. Mr. Putin’s essay was not Nikita Khrushchev slamming his shoe on the desk at the U.N. and saying, ‘We will bury you!’ Those were bad days. We’ll see, in retrospect, what these days are. It’s not a cold war between the U.S. and Russia, and it’s not a hot one, but there’s a new chill in the air, isn’t there?”

“The president of the United States takes to the airwaves to urgently persuade the nation to pause before doing something it has no desire to do in the first place.

“Strange. And it gets stranger still. That ‘strike Syria, maybe’ speech begins with a heart-rending account of children consigned to a terrible death by a monster dropping poison gas. It proceeds to explain why such behavior must be punished. It culminates with the argument that the proper response – the most effective way to uphold fundamental norms, indeed human decency – is a flea bite: something ‘limited,’ ‘targeted’ or, as so memorably described by Secretary of State John Kerry, ‘unbelievably small.’

“The mind reels, but there’s more. We must respond – but not yet. This ‘Munich moment’ (Kerry again) demands first a pause to find accommodation with that very same toxin-wielding monster, by way of negotiations with his equally cynical, often shirtless, Kremlin patron bearing promises.

“The promise is to rid Syria of its chemical weapons. The negotiations are open-ended. Not a word from President Obama about any deadline or ultimatum. And utter passivity: Kerry said hours earlier that he awaited the Russian proposal.

“Why? The administration claims (preposterously, but no matter) that Obama has been working on this idea with Putin at previous meetings. Moreover, the idea was first publicly enunciated by Kerry, even though his own State Department immediately walked it back as a slip of the tongue....

“As for the peace process, it has about zero chance of disarming Damascus. We’ve spent nine years disarming an infinitely smaller arsenal in Libya – in conditions of peace – and we’re still finding undeclared stockpiles.

“Yet consider what’s happened over the last month. Assad uses poison gas on civilians and is branded, by the United States above all, a war criminal. Putin, covering for the war criminal, is exposed, isolated, courting pariah status.

“And now? Assad, far from receiving punishment of any kind, goes from monster to peace partner. Putin bestrides the world stage, playing dealmaker. He’s welcomed by America as a constructive partner. Now a world statesman, he takes to the New York Times to blame American interventionist arrogance – a.k.a. ‘American exceptionalism’ – for inducing small states to acquire WMDs in the first place.

“And Obama gets to slink away from a Syrian debacle of his own making. Such are the fruits of a diplomacy of epic incompetence.”

For a week where I need to keep the economic commentary to a minimum due to time constraints, I picked a good one. Next week is the biggie. The decisive, some believe, Federal Reserve Open Market Committee meeting, Sept. 17-18. Will Ben Bernanke and his Band of Merry Pranksters finally begin to cut back on their $85 billion monthly buy program of Treasuries and mortgage-backed securities? Maybe $10 billion? $20 billion a month? Nothing until October, or later? Certainly the Fed can point to the recent upwardly revised figure on GDP for the second quarter if it wants to say the U.S. economy is now on a solid growth trajectory, plus it can point to recent multi-year highs on the ISM figures for both manufacturing and the service sector. It can also point to a roaring auto sector at multi-year production highs.

But housing, owing to rising mortgage rates, with a 30-year fixed this week at 4.80% vs. 3.30% last spring is helping to apply the brakes on new-home buying. The Mortgage Bankers Association said Wednesday that mortgage applications had dropped 13.5% in the week ended Sept. 6 from the previous week. Adjusted for the Labor Day holiday, the data reflected a 20% drop in refinancing, the volume for which is expected to fall from $1.2 trillion in 2012 to less than $400 billion in 2014, which would be the lowest level for refinancing since 2000. [Wall Street Journal]

Certainly Wall Street has taken notice, with thousands of employees in the mortgage sector being laid off (3,000 at Wells Fargo & Co. alone since July; 2,100 at Bank of America in late August; 15,000 at JPMorgan Chase by end of 2014...you get the picture).

Housing and autos have been the keys to the recovery. One leg is shaky, especially if rates were to continue to rise as seems a certainty if the Fed went into taper mode. They certainly wouldn’t go down.

And by its own admission, the Fed is loath to cut back on the stimulus when the job picture, while better, is far from great.

As an editorial in the Wall Street Journal pointed out when it comes to the labor market:

“Labor force participation essentially measures the share of the country that finds it rewarding enough to seek or get a job. It’s one measure of workers’ confidence that they can find a job that pays enough to make it worthwhile.... The rate peaked at 67.3% in 2000. It fell with the bursting of the tech bubble, rose amid the Bush expansion to as high as 66.4% in January 2007, and had fallen to 65.7% by the formal end of the recession in June 2009.

“Defying modern economic history, the rate has continued to decline during this expansion and has now reached levels last seen in the Carter Presidency (63.2%). If the participation rate merely returned to what it was at the end of the recession, nearly four million more Americans would be collecting a paycheck. And if those who have stopped looking for work were counted as unemployed, the jobless rate would be closer to 10%.”

So I look at the above and it’s why I weigh on the side of continued Fed caution, perhaps for just one more month. I’ve said ‘no taper’ and I’m sticking to it. [Reminder...I wish the Fed never did QE3...the federal funds rate should be 2%, not zero...but just guessing here as to next week’s move.]

One other issue the Fed also has to weigh now. Congress. Specifically, the House of Representatives, which was to vote this week on a continuing resolution (CR) that would have kept government open through Dec. 15 at current spending levels to buy more time for coming up with a longer-term budget and debt ceiling solution.

But the vote was postponed until next week over the issue of Obamacare and the insistence of some in the Republican caucus that it be defunded as part of a CR, which the Democratic-controlled Senate would block or the president would veto.

At least the House recess scheduled for the week of Sept. 23 has been postponed to allow for more time to come up with at least short-term solutions to the budget deadline, Sept. 30, and the debt ceiling, with the government facing default around Oct. 18. House Speaker John Boehner insists the budget and the debt ceiling be linked. The White House says no.

Bottom line, further uncertainty, and I have to believe Ben Bernanke is putting this into his calculus for whether to hold off on tapering at least another month.

Lastly, as the Journal opined, government revenues are up $284 billion or 13% for the fiscal year through August vs. the prior period. This is good. Individual income tax payments, payroll taxes, corporate tax revenues, all up substantially. We needed more revenue to begin to whittle down the massive budget deficit and it is indeed declining, owing also to discipline on the spending side through the sequester.

But the Journal then asks the right question of President Obama: “Why are you insisting on another tax increase when you’ve already received a $284 billion raise this year?”

I’ll have a full analysis of the budget situation next month when the fiscal year wraps up, and how it’s clear most in Congress want to take the easy way out, seeing as the deficit is coming down, but how unless they address entitlements it will skyrocket anew in the very near future, led by ‘interest expense,’ from the current $240 billion to in excess of $750 billion by 2022 under a normalized interest rate scenario, which we are headed for come hell or high water.

Europe and Asia

After a slew of positive economic data that buttressed the argument the eurozone had bottomed and was poised for at least lackluster growth, industrial production declined a worse than expected 1.5% in July from June, including a fall of 2.3% in Germany, -0.6% in France and -1.1% in Italy. Spain eked out a 0.1% increase, while Greece plunged another 2.8%. [The UK was unchanged.]

So this is not good and points to European Central Bank President Mario Draghi’s recent caution.

Also, in Italy the government lowered its GDP number for the second quarter to -0.3%, with consumer spending off 0.4% for Q2.

The Bank of France estimated GDP will rise only 0.2% in Q3 and is reducing its 2014 growth forecast from 1.2% to 0.9%. The budget deficit for this year was also revised upward.

In the UK, the unemployment rate dropped to 7.7%, though the Bank of England said interest rates would not be raised until the figure hits 7.0%.

Greece’s Prime Minister Samaras said the country’s six years of recession will end next year, with GDP shrinking 3.8% in 2013 after a decline of 6.4% in 2012. But the jobless rate for June rose to 27.9%! [The youth rate remains above 60%.]

And remember Cyprus? As it deals with the terms of its recent bailout, GDP tanked 5.9% in the second quarter over last year, and is expected to fall 8.7% in 2013, 3.9% next year.

But of course these days it’s really still all about the German election, Sept. 22. Some of the polls show the race tightening though everyone expects German Chancellor Angela Merkel to remain in place. It’s about issues such as further aid to Greece, which the German populous is clearly against. 

This week a European Central Bank Governing Council member, Luc Coene, said, “It’s clear that we are not yet at the end of the Greek problem. We will need to make further efforts, certainly once, perhaps twice more. [i.e., two more bailouts, potentially.]

“There is an improvement but it is very slow. Naturally the economic base of Greece is extremely small and it will take a lot of time gradually to put it back in order....

“The problem at the start was about the willingness of other countries to help. This has been resolved by the governments and also by the ECB.”

Not forever, though, if the Germans have anything to do with it.

Meanwhile, the International Monetary Fund pressed again this week for a banking union, with a single supervisor and pooled national resources to rescue banks. This has been talked about for years, and I’ve written a ton on it, but it will be shocking if there is any resolution by the middle of 2014, which would mean implementation, maybe, in 2015. Heaven forbid there is another crisis in the meantime.

Germany has voiced its objections to the creation of a single authority, arguing it would require a new European treaty that would take years to agree to.

And while Germany largely calls the shots in the eurozone, I loved some of the following comments from the Financial Times’ Gideon Rachman.

“The sheer triviality of the German election campaign is a tribute to the success of the country. Only a nation that is secure and prosperous could afford to have a political debate that is so focused on the little things in life. ‘It’s funny,’ says one of Chancellor Angela Merkel’s senior advisers, ‘foreigners want to know what the German election will mean for the Middle East or for the future of Europe. But we are debating ‘veggie day’ and road tolls.’

“While the U.S., Britain and France are agonizing about intervention in Syria, there is no agonizing in Germany. A large majority of the electorate wants to stay out of the conflict – and all of the big political parties agree. The moral issue that has divided Germans this election is not chemical weapons, but vegetarianism. The Green party’s proposal that public canteens should stop serving meat, one day a week, has stirred up an impassioned debate about whether politicians have the right to get between Germans and their sausages.

“This smallness of the German political debate is peculiar for a nation that is the fourth-largest economy in the world – and the biggest political and economic power in Europe. But a large part of Ms. Merkel’s appeal seems to be her ability to persuade Germans that she can protect them from the harshness of the world beyond their borders....

“The current turmoil in the Middle East shows no sign of provoking Germany to rethink its global role. On the contrary, Germans seem to be even more convinced that they are on the right course. In that context, staging a national debate on vegetarianism is oddly appropriate. When it comes to global security, Germany is a vegetarian nation, in a world that is still full of carnivores.”

Switching gears, the economic news out of China has been decent recently, with August exports up 7.2% from a year earlier, better than expected, while imports were up 7%, slightly worse than forecast. The consumer price index came in at just 2.6% for August, well below the government’s target of 3.5%, while producer prices declined only 1.6%, better than past readings and a sign the manufacturing sector is stabilizing.

Additionally, industrial production for August rose 10.4% from a year earlier, retail sales increased 13.4% and fixed asset investment rose 20.3%, all better than the prior month’s pace and better than expected.

Electricity output rose 13.4% in August, another solid indicator of activity and a strong number, but, while some jumped all over this figure as a sign of a robust recovery, they conveniently ignored the fact that August was one of the hottest months on record in China and air conditioners were humming. So I’d discount this figure and focus on September’s number as a better, smoother indicator.

Add it all up, though, and the government’s goal of GDP output for 2013 of around 7.5% is doable.

Premier Li Keqiang, who is in charge of the economy under China’s power structure, made a number of statements this week.

“We can no longer afford to continue with the old model of high consumption and high investment. Instead, we must take a holistic approach in pursuing steady growth, structural readjustment and further reform.” Writing in the Financial Times, Li stressed reform needed to be the “driving force” for growth.

The International Monetary Fund has warned that an excessive reliance on investment and an increasing dependence on debt threaten China’s long-term development.

Standard & Poor’s continues to downgrade many of China’s smokestack companies owing to the emphasis on services over heavy industry. A managing director for S&P out of Hong Kong told the South China Morning Post, “The number of defaults in the corporate space will increase over the next six to 12 months.

In Japan, the government revised second-quarter GDP upward to 3.8% on an annualized basis from Q1. It had initially been estimated at 2.6%. And now with Tokyo winning the 2020 Summer Olympic Games (more on this below), that will provide a shot in the arm as well.

Prime Minister Shinzo Abe is to rule on increasing the sales tax next April from 5% to 8% (and then to 10% in 2015) by October 1, but with many in his party concerned at the impact of such a large increase on the recovery, Abe is exploring plans for an offsetting economic stimulus to maintain growth as the government tries to break the back of 15 years of deflation and stagnation.

Japan must go through with the sales tax to send the message to the rest of the world it is serious about reining in its massive debt load, which is about twice the nation’s annual economic output and is the biggest in the world.

Street Bytes

--U.S. Treasury Yields

6-mo. 0.02% 2-yr. 0.43% 10-yr. 2.88% 30-yr. 3.83%

--Taiwan’s exports grew 3.6% in August from a year earlier, a good sign for the region. Exports to China also rose 3.6%, better than July’s 1.1% pace.

--India’s government cut its growth outlook for the current financial year to 5.3% from an earlier projection of 6.4%.

--Twitter announced plans to go public at a date to be determined, probably December, say some. The seven-year-old company will be mounting the most highly anticipated IPO since Facebook. But Twitter is going to do its best to keep the offering low-key. For starters, Twitter’s filing with the SEC does not require it to release detailed financials until three weeks before the “road show” for investors. According to insiders, the company currently generates revenue of about $650 million. Goldman Sachs will be the lead underwriter.

--Shares in Apple fell $36 on Tues. and Wed. ($505 to $469) after the company announced the introduction of two new phones, the iPhone 5C and iPhone 5S, and analysts expressed their discontent; primarily over the pricing strategy. Specifically, analysts were wondering why the price point on the cheaper model was still too high to increase penetration in emerging markets, such as China. And, why was there no agreement with China Mobile, as had been predicted.

Apple is still expected to announce an agreement with China Mobile down the road, but the cheaper iPhone 5C was listed on Apple’s China website for $733 without a contract and the monthly income of an average Beijing resident is something like $730, according to the China Daily.

Basically, the iPhone 5C comes in only $100 less than the iPhone 5S. In most markets the 5C costs $550, only $100 less than the 5S. Many analysts were looking for $300 to $400 that would help the company against lower-cost competition, so Apple’s pricing move, in the words of one analyst representative of many, is a “head scratcher.”

The iPhone 5S, the more expensive jobbie, features a faster processor called A7, and a chip called M7 that will have sensors that enable the iPhone to support smarter health and fitness apps. It will also enable Julian Assange to track your every movement from his bunker in the Ecuadorean Embassy in London.

--Upcoming holiday purchases of tablets such as the iPad and Kindle Fire will drive shipments of portable gadgets above PCs for the first time in the fourth quarter, according to IDC. This comes just three years after Apple launched its iPad, which reinvigorated the tablet market.

--Verizon sold a record $49 billion worth of bonds amid strong investor demand, as the telecom raises capital to finance its $130 billion acquisition of the 45% stake in Verizon Wireless it does not already own.

The group sold its 10-year bond at a yield of 5.19%, about 60 basis points higher than its existing debt for that maturity, which was a major attraction for investors. Orders for the paper reached $100 billion.

Apple held the previous debt record of $17 billion in April. The Verizon bonds were certainly attractive for U.S. pension funds, insurance companies and the like, desperate for yield, let alone individual investors. The underwriting fees generated, upwards of $500 million, is a boon for the 11 banks marketing the paper.

[The Wall Street Journal reported that PIMCO and BlackRock Inc. purchased more than a quarter of the Verizon deal, $13 billion.]

--Congratulations to Facebook, whose shares hit an all-time high this week, surpassing $45, the intraday high on the stock’s first trading day in May 2012, with the IPO being priced at $38, before it famously crashed to $17.50 last September before the recovery. CEO Mark Zuckerberg’s efforts on the mobile side appear to be taking off, with mobile making up 41% of ad revenue in the second quarter.

--JPMorgan Chase is adding $1.5 billion to its legal reserves this quarter as it faces a slew of federal investigations and lawsuits, from energy trading to bribery of Chinese officials, to mortgage-backed securitizations.

Last month, JPMorgan said in a filing that its legal liabilities could be $6.8 billion greater than what it already reserved for. The bank now says it faces six separate investigations from the Justice Department.

--If you were yearning for a day when the airlines began to roll back some of their fees, you can forget it. Those fees and passenger charges generated $27.1 billion for airlines around the world in 2012. This figure is a 20% increase over that collected by 50 carriers in 2011.

United Airlines led all carriers in fee revenue with $5.4 billion, followed by Delta Air Lines with $2.6 billion and American with $2 billion.

--Activist investor Carl Icahn is giving up the ghost on his attempt to break the $24.8 billion buyout of Dell Inc., telling Dell’s shareholders Monday it would be “almost impossible to win the battle” against CEO Michael Dell and his private-equity partner. But Icahn will walk away with $70 million in profit.

--Real-estate maven Sam Zell remains highly cautious on the sector.

“We’re dealing with a world that’s dramatically more volatile, and that requires more caution and care than before.”

--Southern California home prices were flat in August, unchanged from July and June.

--A study in USA TODAY looked at the states with the highest percentages of all-cash home purchases. No. 1 is Florida at 65.8% for July. Institutional investment made up a large part of total sales, at over 14% of all purchases here. In Tampa Bay, institutional investors bought 22% of all homes sold that month. International buyers are a key for the Miami market, with cash sales there accounting for 69% of all purchases.

--From the Financial Times: “Pension funds and other big U.S. groups invested $65 billion in European stocks in the first six months of 2013, the highest in 36 years over that time period.”

--Former FBI Director Louis Freeh, who has been investigating the claims process in the Deepwater Horizon / Gulf oil spill disaster, said the administrator’s office paying claims for compensation under BP’s settlement for victims has suffered from “pervasive conflicts of interest” and improper and unethical conduct by some of its senior staff.

While Freeh’s independent investigation concluded there was no reason to stop paying “honest and legitimate claims,” he concluded there was “ample evidence that three attorneys worked together to corrupt a settlement process, written and administered in good faith.” Freeh recommended that the attorneys be investigated by the Department of Justice for possible law violations. BP has long claimed there were improper claims.

--Suicides increased by 45% during the first four years of the Greek financial crisis, according to a health group in the country this week, which also warned that there were indications of a further “very large rise” in the past two years. The Athens-based group Klimaka’s figures were for the period 2007-2011, and thus it is speaking to 2012 and 2013.

--According to an analysis by economists at Cal Berkeley and the Paris School of Economics, the top 1% of earners in the U.S. pulled in 19.3% of total household income in 2012*, which is their biggest slice of total income in more than 100 years. The richest Americans haven’t claimed this large of a slice of total wealth since 1927, when the group claimed 18.7%.

The top 10% of earners took in more than half of all income, the highest recorded level ever.

*USA TODAY pegs the figure at 19.3%; a New York Times story calls it 22.5% for 2012.

The Times story by Annie Lowrey also notes: “The new data shows that incomes for the top 1 percent of earners declined about 36 percent during the recession, and rebounded 31 percent in the recovery. The incomes of the other 99 percent plunged about 12 percent in the recession and have barely grown since then, on aggregate. Thus, the 1 percent have captured about 95 percent of the income gains since the recession ended.”

--Nearly one-sixth of the U.S. population is on food stamps, according to Agriculture Department data.

--McDonald’s is introducing a steak option to its breakfast sandwiches for an extra $1.

Meanwhile, the company’s August same-store sales rose 1.9% in August, with Europe up 3.3% year over year, an encouraging note. In the U.S., revenues rose just 0.2%, and they fell 0.5% in the Asia Pacific, Middle East and Africa.

--Jaguar Land Rover is creating 1,700 jobs at its plant in the UK. This is good.

--A top court in China has introduced sentences of up to three years for libelous posts. If it is forwarded more than 500 times or viewed more than 5,000 times, the author could land in jail for up to three years.

The legal move comes as the Communist Party ramps up its campaign to rein in the Internet following President Xi Jinping’s call to “seize the ground of new media.”

--Gambling revenue in Macau rose 17.6% in August year on year. [I forgot to report this last time...it being a favorite China barometer of mine.]

--Robert R. Taylor, the inventor of liquid soap pumped from a plastic bottle, died. He was 77.

Taylor created Softsoap, the first mass-marketed liquid soap, but this was just one of his many successful ventures; others including Obsession, a fragrance he developed with Calvin Klein.

But back to Softsoap, the problem Taylor faced was that it was easy to copy his idea. It wasn’t patentable.

But in a book by business professors Adam M. Brandenburger and Barry Nalebuff, “Co-Opetition,” Taylor and the small Minnesota company he founded, Minnetonka Corp., “bet-the-company” by secretly “ordering 100 million of the little plastic pumps that were at the time used to dispense various lotions. That tied up a full year’s production of the pumps’ only manufacturers, giving Taylor time to establish his brand without rivals. In 1987, a few years after the soap giants caught up, he sold Softsoap to Colgate-Palmolive for $61 million.” [Steve Chawkins / Los Angeles Times]

“Worthington belonged to the pantheon of TV pitchmen who understood instinctively that consumers don’t want to buy something from you. They want to like you.”

Worthington was one of the first to use all kinds of gimmicks, all focused on selling you a car. He had 29 dealerships, mostly in Southern California and the Southwest.

If you need a better car, go see Cal
For the best deal by far, go see Cal
If you want your payments low
If you want to save some dough
Go see Cal
Go see Cal
Go see Cal

As David Lazarus wrote: “It ain’t Shakespeare. But then again, Shakespeare wasn’t hell-bent on moving inventory off the lot.”

--I love Dominos Pizza’s new ad campaign... ‘ No one invents anything without pizza...’ referencing all the inventions through the years, the long nights of the idea kings, ordering up pizza for sustenance. ‘No one’s coming up with a world-changing idea over halibut.’

--Talk about a bummer. Little Centre College in Danville, Ky., announced a gift of $250 million about two months ago, but now the A. Eugene Brockman Charitable Trust has withdrawn it. The gift, one of the largest of its kind in U.S. history, consisted of stock in Universal Computer Systems Holding Inc. but was dependent on a recapitalization of the company, which operates as Reynolds & Reynolds Co. It’s complicated and relates to a $4.3 billion debt deal that was pulled. [Wall Street Journal]

--New Jersey Gov. Chris Christie is endorsing a plan to extend PATH service to Newark Liberty International Airport, which would be a big benefit to lower Manhattan PATH riders, who would be able to take the line all the way to Newark Airport and transfer to the Air Train to travel to the airport’s terminals. This is big.

“Under CEO Larry Ellison’s watch, the technology company Oracle paid nearly $200 million to resolve allegations that it overcharged the federal government. That amount, however, pales in comparison to the compensation Ellison has taken home for his work at Oracle.

“Between 1993 and 2012, Ellison earned roughly $1.8 billion, which averages out to more than $29,000 per hour, according to data compiled by the Institute for Policy Studies. In a recent report, the IPS examined the compensation of Ellison and hundreds of other CEOs and found that large numbers of them took home some of the highest salaries in the business world despite having major stains on their records. ‘Our analysis reveals widespread poor performance within America’s elite CEO circles. Chief executives performing poorly – and blatantly so – have consistently populated the ranks of our nation’s top-paid CEOs over the last two decades,’ the report, titled ‘Bailed Out, Booted, Busted: A 20-Year Review of America’s Top-Paid CEOs,’ observes.”

--Team New Zealand has a sizable lead in the America’s Cup races in San Francisco over Oracle Team USA. Go Kiwis!

--I don’t have time to get into the five-year anniversary of the financial crisis but I will be posting something by mid-week on my “Wall Street History” link that I will also reference here next time.

--Finally, we note the passing of one of the more colorful people in Wall Street history, Joe Granville, 90.

Granville, long ago, moved markets through his investor newsletter and became one of the key market timers of his day. In early 1981, Granville sent word to “sell everything” and the result was a 2.4% decline in the Dow Jones on record volume at the time. Just days earlier he had predicted the market was headed “straight up.”

He was an incredible showman for his era, drumming up subscribers for his newsletter at seminars featuring chimps and bikini-clad assistants.

Granville wasn’t always right, though; far from it. After his success in the early 80s, his recommendations lost more than 20% annually over a 25-year period ended in 2005, according to the Hulbert Financial Digest. But Granville kept publishing right up until his death.

Foreign Affairs, cont’d...

Iran: According to reports, the White House and Iran’s new leadership are inching towards direct talks with a goal of easing tensions over Iran’s nuclear program. As I noted last week, President Hasan Rohani is scheduled to address the United Nations General Assembly on Sept. 24, and its possible U.S. officials will meet with him at that time on an informal basis. They should.

Any direct diplomatic talks, though, would be the first in 34 years. Mohammad Zarif, the new foreign minister who is also now in charge of Iran’s nuclear negotiating team, was a popular diplomat at the U.N. from 2002 to 2007.

But the United States must determine in any direct consultations just what Iran’s intentions are, and quickly. We can’t have Tehran continue with its brilliant stall game as the centrifuges, many increasingly new ones, spin their deadly magic.

Egypt: The Egyptian army mounted a large operation in the Sinai in an attempt to gain control of the lawless North of the peninsula, a few kilometers from the Gaza Strip. At least 31 were killed or injured the first day, Saturday. Previously the army reportedly killed 15 militants. The operation is one of the biggest in Egypt’s modern history. One of the goals is to squeeze the door to Gaza shut, which is knocking Hamas for a loop. As you can imagine, the Israeli and Egyptian armies are cooperating in this venture, with Israeli politicians praising Egypt; Hamas among other things being aligned closely with Egypt’s Muslim Brotherhood.

The Egyptian army has vowed to create a buffer zone hundreds of yards wide between the two sides on the Gaza border, which would replicate the no-man’s land that separates Gaza from Israel.

And on Thursday, the interim president extended the state of emergency by two months, citing security conditions.

Russia: Opposition leader and former mayoral hopeful Alexei Navalny announced Wednesday that he would submit 951 separate complaints of voting violations to the Moscow City Elections Commission on Thursday. Navalny is attempting a legal appeal to achieve a vote recount from last weekend’s Moscow mayoral election that saw him emerge with a surprisingly strong 27%. Navalny said there might come a time when he’ll tell his supporters to take to the streets to achieve political goals.

According to the official results, former Putin advisor Sergei Sobyanin won 51.37% of the vote, which allowed him to avoid a runoff. Navalny claims the figure should have been 49.47, the difference being “take-home ballots.” Navalny also claimed soldiers voted even though they were not registered in the city.

Of course all eyes are on the Kremlin, Navalny only allowed to run because he is out on appeal of his trumped-up corruption conviction in July.

“The response to Mr. Navalny’s appeal of his conviction and five-year prison term is due to be announced soon, and the Kremlin knows that a jail term risks creating a political martyr. A suspended sentence, which includes a ban on elected office, may be coming. But nothing the Kremlin does can diminish Mr. Navalny’s achievement of showing that when given a real democratic choice, millions of Russians will reject Putinism.”

“Russian elections in the Putin era have been mostly a charade, with rules and popular media tilted heavily in favor of officially sanctioned candidates. Mr. Navalny – brash, charismatic, savvy to social media and modern campaign tactics and possessed of an immigrant-bashing nationalistic streak – is the first opposition politician to have rattled Mr. Putin’s personal authority.

“Mr. Sobyanin tried to put the best face on the results, saying the election was the fairest and cleanest in Moscow’s history. If that was the case, then the Kremlin’s hold on power could be shakier than anyone understood. Just imagine how Mr. Navalny might have fared at the ballot had the playing field been level.”

North Korea: As reported by the experts at the U.S.-Korea Institute, at Johns Hopkins University, which follows Pyongyang’s nuclear program, new satellite images suggest the country is resuming production of plutonium at the Yongbyon complex, after reaching an agreement six years ago with the Bush administration to dismantle it. Should this be the case, the North would be able to add to its nuclear arsenal of a suspected 6 to 8 weapons.

A Russian source told the Interfax news agency that Yongbyon is in a “nightmarish state.” “Our main concern is linked to a very likely man-made disaster as a consequence. For the Korean peninsula this could entail terrible consequences, if not a man-made catastrophe.”

The problem is the plant is based on “a design dating back to the 1950s.” [Global Security Newswire]

Separately, North and South Korea agreed to restart operations at the shuttered Kaesong industrial zone, which has been closed since April amid soaring tensions between the two. Recall, 123 South Korean factories there employ more than 50,000 North Koreans and it’s a big source of hard currency for the Pyongyang government.

Japan: The coastguard has been on high alert over the bitter dispute between Tokyo and Beijing involving islands in the East China Sea that Japan nationalized a year ago. Tokyo said it had not ruled out stationing officials there (the Senkakus – Diaoyus to the Chinese), whereupon Beijing issued a statement that warned Japan “must be prepared to bear the consequences of this provocation.

Meanwhile, Tokyo won the right to host the 2020 Olympics over Istanbul and Madrid. Given Spain’s financial issues, it would have been incredibly stupid for Madrid to host an Olympics, while there is too much political uncertainty in holding the Games in Istanbul, though that would have been fun in less stressful times.

Tokyo billed itself as the safe choice, with Prime Minister Abe vowing the distressed Fukushima nuclear plant wouldn’t be an issue.

But Chinese state-run media, in congratulating Tokyo, said the event’s success would depend on Japan recognizing its second world war aggression.

“Japan should learn how to behave,” the Global Times editorialized.

China: I have written that I predict the government will be brought down by the environmental crisis in the country more than anything else. Yes, I know it sounds far-fetched. But the government announced on Thursday that it is committed to reducing air pollution in Beijing and other major cities by as much as 25%.

Watch the increasing stories over the coming months, as I’ve reported on the initial ones, of how those of means are giving up. And how those from overseas are turning down ‘opportunities’ to work there.

It’s a dead country. Dead soil. Dead water. A hopelessly corrupt leadership with zero values.

Australia: The opposition coalition led by conservative Tony Abbott crushed the governing Labor party in an election that returns the Liberal-National alliance to power for the first time in six year. The coalition took 91 seats to Labor’s 55.

Mr. Abbott has three very attractive daughters and while I know the Aussie voter is a sophisticated type, their presence didn’t hurt. 

OK, Aussie voters were more concerned with the economy, the issue of asylum seekers and the environment. Regarding the last topic, Abbott has described climate change science as “absolute crap” and made a priority of scrapping the Labor Party’s carbon tax.

India: Violence between Hindus and Muslims in northern Uttar Pradesh state claimed at least 31 lives. It all started when a teenage Hindu girl complained to her family that she’d been verbally harassed by a Muslim teenager. The girl’s brother and cousin then went to the boy’s home and shot him dead. 

But as Mark Magnier of the Los Angeles Times reported, “Passions were further inflamed when a video was circulated a few days later showing two men being lynched – in fact, it was reportedly video shot in Pakistan in 2010 – leading to growing violence in neighboring villages, massive demonstrations, armed street battles and inflammatory speeches by local politicians. Police said rumors spread by mobile phones and social media made the situation worse.”

Belgium: As many of you are aware, this nation is divided, if not formally, at least informally, between French-speaking southern Wallonia and the northern Dutch-speaking Flanders region. There are times when the government ceases to function because of disputes between the two.

But now there is a different kind of dispute. The two are at each other’s throats over China’s loan of two giant pandas.

Of course pandas are a reliable draw for visitors and these two are to be housed in a zoo in Wallonia, but Belgium’s oldest and most well-known zoo is in Antwerp in northern Flanders, and the folks there are torqued off. Antwerp zoo officials note they had a panda couple in the 1980s and have the necessary infrastructure.

Random Musings

“The years since war came to America in the form of airlines deployed as missiles have taught the world two lessons about al-Qaeda and its offshoots: if confronted head-on, they can be marginalized. If not, they will spread, recruit and grow. It is always worth updating Western tactics in this confrontation. By the same token it is far too soon to disengage from the power struggles that jihadism continues to fuel across the Middle East.

“Five months ago President Obama gave what the White House billed as a landmark speech on American foreign and security policy. It set out an optimistic vision of a United States that spent more on diplomacy and aid and less on defense; that would tackle terrorism with the twin stilettos of intelligence and drones rather than the sledgehammer of invading armies; and would ‘pivot’ away from the old battlefields of Europe and the Levant to newer challenges of East Asia.

“The speech was written by Ben Rhodes, a young adviser to the President, who said afterwards: ‘We’d like to leave office with a foreign policy that is not necessarily consumed with a militia controlling a piece of desert.’ By that time the new doctrine was fast becoming the new reality. The Obama Administration had proclaimed the end of wars in Iraq and Afghanistan, ordered defense cuts and relinquished its traditional leadership role in world affairs, with Libya as its template.

“In Libya, Britain and France picked up the gauntlet. Otherwise, Europe has done little to fill the leadership vacuum left by an America in retreat. NATO’s smaller members failed to play meaningful roles in its mission in Afghanistan. Since the financial crash, defense budgets have been cut from a low base across the EU, and the idea of a coherent European military capability to complement that of the United States in defense of Western values remains a fantasy.

“The world would be a safer, simpler place without the nihilism of jihad, but wishing it does not make it so. The West would have had to confront militant Islam in all its guises even if al-Qaeda had not pulled off its spectacular on 9/11. Twelve years on, Mr. Obama clearly shares President James Madison’s dread of ‘continual warfare,’ as any human leader would. But he and his European passengers must deal with the world as they find it – and it is not out of 9/11’s shadow yet.”

--Prior to President Obama’s speech on Tuesday, a CNN/ORC International survey showed the president’s approval rating on the job he’s doing on foreign policy was at an all-time low, 40%. It had been 54% in January. Only 31% of the public approves of the job he is doing on Syria.

Obama’s overall approval rating stands at 45% in this poll, unchanged from the last survey in June. 

78% disapprove of the job Congress is doing.

--As I go to post, Democrat Bill de Blasio appears to have clinched the primary for mayor of New York in taking the required 40% needed to avoid a runoff election, in this case with Bill Thompson, who finished second.

De Blasio received 40.2% to Thompson’s 26.1%. City Council speaker Christine Quinn finished a disappointing third with just 15.5% after being the original front runner, while disgraced Anthony Weiner got a mighty 4.9% and finished fifth behind John Liu.

On the Republican side, Joe Lhota, the former chairman of the Metropolitan Transportation Authority and favorite of Rudy Giuliani, defeated billionaire John Catsimatidis, 52.5% to 40.7%.

Lhota, aside from having Giuliani’s support, is a vocal supporter of the policies of Mayor Michael Bloomberg, including a tough approach to crime-fighting.

De Blasio vows to break from the Bloomberg era, which I’ve said would be an unmitigated disaster for New York. De Blasio’s entire campaign has been about class warfare and race.

I’ve written on more than one occasion that voters in New York can be total idiots and they showed themselves to be so in the case of de Blasio. Incredibly, or not so, given their lack of intelligence, they fell for his campaign that focused on the fact he was married to a black woman and has a son with a big Afro. If it wasn’t so serious, it would be comical.

Yes, while Democrats outnumber Republicans in New York by six to one, the city has not elected a Democratic mayor since David Dinkins in 1989. But the makeup of the city has changed even more, to the favor of Democrats.

De Blasio wants to tax the rich to pay for universal prekindergarten, though one wonders just how many New Yorkers understand that any tax increase must be approved by Albany and that is highly unlikely.

Prior to the vote, Lee Miringoff, Director of The Marist College Institute for Public Opinion, said of de Blasio, “His campaign is being fueled by Democratic voters’ dislike of extending term limits, the policy of stop and frisk, and of course, the Dante effect.”

--Mayor Bloomberg was quoted in New York magazine as saying of de Blasio that his campaign was about “class warfare and racist.”

Bloomberg, when asked to clarify, said, “Well, no, no. I mean he’s making an appeal using his family to gain support.”

Referring to the use of de Blasio’s son Dante, Bloomberg said, “I think it’s pretty obvious to anyone watching what he’s been doing. I do not think he himself is racist. It’s comparable to me pointing out that I’m Jewish in attracting the Jewish vote.”

“The next mayor of New York City may owe his teenage son a huge bump in allowance – because if any one thing can be said to have changed the dynamic in the disastrous Democratic primary race this year, it was a television commercial starring the remarkably winsome Dante de Blasio, sporting the biggest Afro since Cleopatra Jones. [Ed. I would have said since the ABA’s Darnell Hillman.]....

“On July 15, according to the pollster.com average, de Blasio was in fourth place at 15.4%, more than 8 points off City Council Speaker Christine Quinn’s lead....

“The common explanation (why de Blasio surged after) is because he’s the most liberal candidate in the field, and his campaign has been dedicated thematically to the war between the haves and the have-nots in New York City....

“But there’s some reason to be skeptical that this is the story in the 2013 Democratic mayoral primary in New York City.

“For while de Blasio is the ‘most liberal,’ the truth is that there is very little real ideological space between him and Quinn, or Bill Thompson, or John Liu....

“You don’t know who the kid with the ‘fro is when he begins to speak in his soft, surprisingly deep voice about how de Blasio will end stop-and-frisk, has the ‘guts to really break with the Bloomberg years’ and will raise taxes on the rich. He’ll be a mayor for ‘every New Yorker,’ Dante concludes, ‘and I’d say that even if he weren’t my dad.’

“The 30-second spot makes no point whatever about Dante being biracial, even though it’s clearly intended to show the African-American community that de Blasio has a black son....

“This is, without question, one of the best political ads of the past 20 years – a perfect blend of the personal and political. It began running on Aug. 8. De Blasio was on the rise before then, but he gained a full 10 points on the pollster.com chart in the three weeks after its appearance.

“In an underwhelming race dominated by politically tentative and overly cautious candidates, a race that was derailed for a month by a sex-tainted clown, the Dante ad was a breakout moment. No one else had one. Give that kid an MVP award.”

[Ed. I noted the effectiveness of the Dante ad in this space for a first time on Aug. 17.]

Editorial / Wall Street Journal...on the rise of de Blasio

“The paradox of this progressive revival is that it bids to upend 20 years of successful conservative reform and centrist governance. Rudy Giuliani won in 1993 by explicitly challenging the failing results of liberal-union politics, and Michael Bloomberg has followed in the last 12 years by opening more of the city to development, further reducing crime under Police Commissioner Ray Kelly, and trying to reform K-12 education. Their very success has made it possible for New Yorkers to forget the city’s precipitous descent in the previous decades.

“Mr. Lhota will be a big underdog in a city with six times more Democrats than Republicans, but his one chance is to remind voters how interest-group liberalism almost ruined New York and that his policies can continue the city’s revival. The rich can afford to choose safe neighborhoods and private schools. The people who have to live with higher crime, failing public schools and deteriorating services are the poor and middle class.”

--In New York’s highly publicized comptroller’s race, thankfully Scott Stringer defeated Eliot Spitzer in the Democratic primary, 52-48. Stringer is a basic politician and that’s fine. I’d like to think he understands what a comptroller does. 

Spitzer, on the other hand, wanted to use the position to become czar. It’s telling that both Spitzer and Weiner’s wives abandoned their husbands down the stretch; Spitzer’s wife making it clear the day he announced she would not be part of his future plans.

Weiner’s wife, Huma, I’m sure wishes she never made her initial public appearance in support of the pervert, seeing as her future lies with Hillary Clinton.

For his part, following his concession speech, Weiner flipped the bird at journalists as he drove away.

Back to Stringer, give the guy credit. He had to fight tooth and nail to pass Spitzer who had a huge early lead.

--For the record, I just have to note some final polls ahead of Tuesday’s primary vote in New York. 

Quinnipiac University’s poll had Stringer ahead of Spitzer 50-43. A Marist College survey had Spitzer leading Stringer, 47-45.

In the mayoral race, the last Quinnipiac survey had de Blasio ahead of Thompson 39-25, with Quinn at 18. Damn good, Quinnipiac. [Margin of error on this one was 3.5 percentage points.]

An NBC 4 New York/Wall Street Journal/Marist poll had de Blasio at 36%, with Quinn and Thompson at 20%.

--According to the latest Rutgers-Eagleton poll of New Jersey voters, Democrat Cory Booker has a crushing 64-29 lead over Republican challenger Steve Lonegan for the Senate seat left vacant by the death of Sen. Frank Lautenberg. The special election between these two is Oct. 16. I hope the PTA at the school where I go to vote finally holds a freakin’ bake sale. It’s been years since I could vote and pick up some fresh snickerdoodles at the same time and it’s beginning to really tick me off.

--George Will in his Washington Post column on the wonder of Hillary Clinton.

“Clinton’s accomplishments are no less impressive than those of many who have sought, and some who have won, the presidency. But the disproportion between the thinness of her record and the ardor of her advocates suggests that her gender is much of her significance.

“That contemporary feminism is thin gruel is apparent in the fact that it has found its incarnation in a woman who married her way to the upper reaches of American politics. There her wandering husband rewarded her remarkable loyalty by allowing her the injurious opportunity to produce a health-care proposal so implausible that a Democratic-controlled Congress (56 to 44 in the Senate, 256 to 178 in the House) would not bring it to a vote. Still, the world’s oldest political party might not allow a contest to mar the reverent awarding to her of its next nomination.”

“Republicans seem destined not for a staid coronation but for an invigorating brawl, and brawling is Chris Christie’s forte, even his hobby. Americans sometimes vote for the opposite of what has disappointed or wearied them, so they might want to replace Barack Obama, who is elegant but hesitant, with someone who is conspicuously neither....

“There can, however, come a point at which the way a politician acts becomes an act, a revival of vaudeville, and a caricature discordant with the demands of the highest offices. Christie, appearing recently on a sports talk radio program, erupted like Vesuvius when asked about a New York sportswriter who had criticized Christie’s friend Rex Ryan, coach of the New York Jets:

“ ‘Idiot. The guy’s a complete idiot. Self-consumed, underpaid reporter... The only reason he’s empowered is because we’re spending all this time this morning talking about Manish Mehta, who, by the way, I couldn’t pick out of a lineup, and no Jet fan really gives a damn about Manish Mehta.’

“Mehta’s tabloid, the Daily News, filled a page with the worlds, ‘Who you calling an idiot, fatso!’ Great fun. But who wants to call the person ‘Mr. President’ who calls a sportswriter an ‘idiot’?....

“He should heed another politician who had a flair for fighting. ‘Being powerful,’ Margaret Thatcher said, ‘is like being a lady. If you have to tell people you are, you aren’t.’”

I stand by my opinion that some New York voters are idiots.

--In Colorado, the state senate president and a second lawmaker, both Democrats, were recalled after their votes to require universal background checks for gun purchases and ban large-capacity ammunition magazines. So gun control advocates vs. advocates for gun ownership. New York Mayor Bloomberg contributed $350,000 into the election in support of the two Democrats, while the National Rifle Association was expected to spend $500,000 on mailings, phone banks and TV ads.

--So I’m reading The Economist and came across this blurb on state lawmakers and their pay, which I have to admit I’ve given little thought to.

California pays its legislators a hefty $90,526 a year, though at least there are ‘only’ 120 of them for 38 million residents. Pennsylvania, with a third as many people as California, has more than twice as many state legislators and pays them $83,801 a year. Three bills have been introduced that would reduce the size and cost of the legislature there.

But then you have New Hampshire. It has a whopping 424 legislators, but they work part-time for $100 a year. In New Mexico, they work for nothing.

In Texas, Montana, Nevada and North Dakota they meet only every second year, with annual pay of well under $10,000 in each of the four.

--In an exclusive interview with ABC’s George Stephanopoulos, former Deputy Chief of Mission in Libya, Gregory Hicks, who had a brief phone conversation with U.S. Ambassador Chris Stevens before the line went dead at the consulate in Benghazi, later told Stephanopoulos, for “This Week,” that he didn’t understand why more military resources were not sent to Benghazi after he notified State Department officials in Washington that the consulate was under attack.

“I don’t know exactly what was available... And I still don’t quite understand why...they couldn’t fly aircraft over to Benghazi,” Hicks said.

That has been my point all along. And forever is the point that should be pursued.

--The Vatican appears to be opening the door to the possibility of married priests, with the No. 2, Archbishop Pietro Parolin, declaring the priestly vow of celibacy derived from an age-old rule but was not necessarily Catholic dogma.

“It’s not a dogma of the Church and it can be discussed because it’s an ecclesiastical tradition. It is a great challenge for the Pope because he has a mission to unite and all these decisions must be taken in a way that unites the Church, rather than dividing it.”

Pope Francis selected Parolin to become No. 2 (officially next month) so he is fully aware of the latter’s thoughts. Back in 2012, in an interview, Francis said, “Catholic ministers chose celibacy little by little. Up until 1100, some chose it and some did not. After, the East followed the tradition of non-celibacy as personal choice, while the West went the opposite way. It is a matter of discipline, not of faith. It can change. Personally, it never crossed my mind to marry,” he said. {London Times]

There will be no changes any time soon, but most Catholics have to love what they’ve seen from Francis thus far. He has called for a renewal of the original mission of the church, a “poor Church for the poor,” and he’s willing to listen.

--Whenever I visit my friends on the island of Yap in Micronesia, I’m confronted with a disgusting habit of theirs...the chewing of betel nut, which is grown on the island.

Betel nut is like an acorn, but it is also a mild narcotic. 

What’s disgusting is that chewing it turns your mouth and teeth all red and of course you are constantly spitting out the juice.

I bring the topic up because I saw a piece this week in the South China Morning Post about the spread of betel nut use in China. The problem is, now the medical evidence is out and it’s not good. Betel nut causes oral cancer, just like chewing tobacco.

Users, though, just don’t know how dangerous it is. In China it’s marketed as a stimulant and it’s popular among long-haul truckers who prefer chewing betel nut to drinking caffeine.

The Taiwan Cancer Society has published brochures explaining that betel nuts contain arecoline, which can lead to cancer. According to a medical expert on the island, addicts are 28 times more likely to get oral cancer than people who do not consume them.

--Uh oh... A Seamount in the Northwest Pacific Ocean may be the largest volcano on earth, and could rival the largest in the solar system – the mighty Olympus Mons on Mars – oceanographers say.

“Tamu Massif, a well-known seamount off Japan, turns out to be one continuous shield volcano, about the size of the U.S. state of New Mexico, said geophysicist William Sager, lead author of a study published online in the journal Nature Geoscience.”

Tamu was formed about 145 million years ago, long before Barack Obama became a community organizer.

--Finally, the Voyager 1 spacecraft has become the first man-made object to exit the solar system, a gigantic achievement for NASA. I mean we’re talking this little probe, with computers that had 240,000 times less memory than a low-end iPhone, left Earth 36 years ago.

Voyager stopped sending home photos in 1990, to conserve energy, but before then sent back never-before-seen images of Jupiter and Saturn.

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

God bless America.

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Gold closed at $1308
Oil, $108.221

Returns for the week 9/9-9/13

Dow Jones  +3.0%  [15376]
S&P 500  +2.0%  [1687]
S&P MidCap  +2.6%
Russell 2000  +2.4%
Nasdaq  +1.7%   [3726]

Returns for the period 1/1/13-9/13/13

Dow Jones  +17.3%
S&P 500   +18.4%
S&P MidCap  +20.5%
Russell 2000  +24.1%
Nasdaq  +23.3%

Bulls 37.1
Bears 22.7 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Next time, a word on what I’m doing on the social media front.

Brian Trumbore

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