Week in Review

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Week in Review

08/16/2014

For the week 8/11-8/15

Edition 801

Washington and Wall Street

One overriding theme of this column for now 15 ½ years has been to explore the geopolitical issues that could threaten overall investor sentiment and thus change financial market dynamics.

Or, as I heard Ian Bremmer, president of Eurasia Group, put it on CNBC Friday, “Geopolitical tensions are underappreciated until they have to be appreciated.”

Never was this more applicable than today, where tensions between Russia and Ukraine reached a boiling point, while the Islamic State (ISIS) is roiling Syria and Iraq, and threatens the likes of Lebanon and Jordan.

Let alone the ongoing negotiations over Iran’s nuclear program, Israel’s war with Hamas, and a China that is building up a military that will directly threaten American supremacy in the waters of the Pacific, let alone its neighbors.

But the Russia / Ukraine situation, covered in detail below, has an immediate economic component that is already impacting Europe’s economies and could increasingly pose issues for U.S. corporations, even as China plays its none too subtle trade card with the U.S. as well. These are the first shots in a war of a different kind that I find as depressing as the shooting version.

“While it lasted, globalization was a beguiling tale we told ourselves about the future. The world is interconnected and therefore getting not just richer but more peaceful. The technologies of international capitalism – outsourcing, insourcing, offshoring – would not only make the world’s businesses more profitable, they would make people less quarrelsome. We would play chess online with Indians, and thus become more like them. We would buy software from China, and thus never go to war with them. Even better, once they started trading, India and China would never go to war with each other.

“At the height of this optimism, the ‘McDonald’s theory of international relations’ was a thing one heard about quite frequently. The idea was that no country with a McDonald’s restaurant would ever go to war with another country with a McDonald’s restaurant, because in order to have a McDonald’s restaurant you had to be thoroughly integrated into the global economy, and if you were integrated into the global economy you would never attack another one of its members. This theory of ‘McPeace’ was exploded, literally, by the U.S. bombardment of Belgrade, the city that in 1988 had opened the first McDonald’s restaurant in the whole of what was about to become the ex-communist bloc. But the hope that it might be true somehow lingered.

“This week, as Russia, a country with more than 400 McDonald’s, ramps up its attack on Ukraine, a country with more than 70 McDonald’s, I think we can finally now declare the McPeace theory officially null and void. Indeed, the future of McDonald’s in Russia, which once seemed so bright – remember the long lines in Moscow for Big Macs? – has itself grown dim. In July, the Russian consumer protection agency sued McDonald’s for supposedly violating health regulations. This same consumer protection agency also banned Georgian wine and mineral water ‘for sanitary reasons’ before the 2008 Russian-Georgian war, and it periodically lashes out at Lithuanian cheese, Polish meat and other politically unacceptable products as well.”

It got worse. Russia banned all U.S., European, Canadian, Australian and Japanese agricultural products and, as Ms. Applebaum writes, “globalization suddenly began to unravel a lot faster than anybody imagined.”

“Western sanctions on Russia were deliberately designed to target a small number of people in the financial and energy sectors. Russia’s food sanctions will hit a lot of large and small companies, mostly in Europe, but they will also affect almost everyone in Russia....

“In other words, a large country that contains internationally traded companies has decided it prefers a territorial war with one of its neighbors to full membership in the international economic system. A large country that contains plenty of people educated in global economics has also decided it can accept higher food prices in the name of national honor. It is not only possible to reject the ‘win-win’ mantra of globalization in favor of different values and another sort of politics, it is happening right now. And if it can happen in Russia, it can happen elsewhere, too.”

Like China. Ask Cisco Systems, Microsoft, Qualcomm. Yes, it’s depressing. For those who understand, it’s gnawing at you. If you’re the CEO of a large U.S. multi-national you certainly ‘get it.’ You’re not about to invest in some of these countries, if the host will even take your call. The New World Order is unraveling before our eyes.

In the latest Fox News poll, President Obama scored poorly on foreign policy. 74% think Obama hasn’t been tough enough on Russia, including 65% of Democrats, while only 31% of voters approve of how Obama is handling the situation in Ukraine.

More voters say the administration has “not been supportive enough” of Israel (38%) than think it has been “too supportive” (18%).

Regarding Iraq, 37% approve of the job Obama is doing, 52% disapprove.

Thomas Friedman of the New York Times interviewed President Obama and asked him if things would have been better had we armed the secular Syrian rebels early or kept U.S. troops in Iraq?

“The fact is, said the president, in Iraq a residual U.S. troop presence would never have been needed had the Shiite majority there not ‘squandered an opportunity’ to share power with Sunnis and Kurds. ‘Had the Shia majority seized the opportunity to reach out to the Sunnis and the Kurds in a more effective way, [and not] passed legislation like de-Baathification,’ no outside troops would have been necessary. Absent their will to do that, our troops sooner or later would have been caught in the crossfire, he argued.

“With ‘respect to Syria,’ said the president, the notion that arming the rebels would have made a difference has ‘always been a fantasy. This idea that we could provide some light arms or even more sophisticated arms to what was essentially an opposition made up of former doctors, farmers, pharmacists and so forth, and that they were going to be able to battle not only a well-armed state but also a well-armed state backed by Russia, backed by Iran, a battle-hardened Hizbullah, that was never in the cards.’”

As for ISIS, the president said it has “very little appeal to ordinary Sunnis.” But “they’re filling a vacuum, and the question for us has to be not simply how we counteract them militarily but how are we going to speak to a Sunni majority in that area...that, right now, is detached from the global economy.”

No, Mr. President. Instead of wowing your dinner guests in Hollywood with your intellect, it’s about action before ISIS beheads another 1,000, or 10,000.

Friedman asked Obama if Iran was being helpful? “I think what the Iranians have done,” said the president, “is to finally realize that a maximalist position by the Shias inside of Iraq is, over the long term, going to fail. And that’s, by the way, a broader lesson for every country: You want 100 percent, and the notion that the winner really does take it all, all the spoils. Sooner or later that government’s going to break down.”

So Hillary Clinton did an interview with the Atlantic’s Jeffrey Goldberg and she discussed the “failure” that resulted from the decision to keep the U.S. on the sidelines during the first phase of the Syrian uprising.

“The failure to help build up a credible fighting force of the people who were the originators of the protests against Assad – there were Islamists, there were secularist, there was everything in the middle – the failure to do that left a big vacuum, which the jihadists have now filled,” Clinton said.

And.... “One of the reasons why I worry about what’s happening in the Middle East right now is because of the breakout capacity of jihadist groups that can affect Europe, can affect the United States,” she said. “Jihadist groups are governing territory. They will never stay there, though. They are driven to expand. Their raison d’etre is to be against the West, against the Crusaders, against the fill-in-the-blank – and we all fit into one of these categories. How do we try to contain that? I’m thinking a lot about containment, deterrence, and defeat.”

As I discuss further below, Hillary did herself no favors with her base with this interview, but she was more of a realist than our golfer-in-chief.

Turning to the U.S. economy, July retail sales were highly disappointing, unchanged (up 0.1% ex-autos), and up just 3.7% the past 12 months. It’s about still stagnant incomes and consumers remaining very cautious.

The caution was best displayed in some of the earnings reports from the retailers. Wal-Mart, for one, saw flat U.S. same-store sales for its recent quarter, while lowering guidance again.

July industrial production rose 0.4%, slightly better than expected.

And the economy, read consumer, is catching a break with lower oil prices, which I detail below, and you all know gasoline prices act like a tax. Either a tax hike or a tax cut, depending on the direction.

Nonetheless, Federal Reserve official Stanley Fischer, No. 2 to Chair Janet Yellen, was rather somber in remarks at a conference in Stockholm.

In noting the weak recovery and how it could simply be further fallout from the financial crisis and the recession, Fischer said, “it is also possible that the underperformance reflects a more structural, longer-term shift in the global economy.”

“Year after year, we have had to explain from midyear on why the global growth rate has been lower than predicted as little as two quarters back,” he said. “This slowing is broad-based, with performance in emerging Asia, importantly China, stepping down sharply from the post-crisis surge, to rates significantly below the average pace in the decade before the crisis.”

As the New York Times’ Nelson D. Schwartz also noted, Fischer “warned of three pronounced headwinds that have held back growth in the United States: a still anemic housing market, cuts in federal government spending and weaker global growth that reduced demand for American exports.”

But all this caution means the Fed is less likely to be in a rush to raise interest rates and Wall Street likes that.

Europe and Asia

There were further signs this week of major weakness in the eurozone. The flash GDP for the euro-18 was flat vs. the first quarter, when it had risen just 0.2%. Annualized, the rate of growth in the eurozone is 0.7%, down from the prior quarter’s 0.9% pace. The Russia / Ukraine crisis is weighing on business sentiment across much of the continent.

Germany saw growth decline 0.2% in Q2 over Q1, and is now up just 1.3% on an annualized basis, while an index of investor confidence hit a 2-year low. Remember, Germany represents over ¼ of all output in the eurozone.

France reported its second consecutive quarter of flat economic activity (up 0.1% annualized). The full-year growth projection here was lowered to 0.5%. France also said it will now exceed its deficit target of 4% of GDP, which it had agreed to with the European Commission; France having already been given more than a few passes, the EC having a 3% target for all nations.

Italy, as reported last week, is back in recession, the government in paralysis, as Prime Minister Matteo Renzi offered tax cuts for low-income workers but no matching spending cuts. Reminder, Italy has a government debt load that is over 130% of GDP.

Spain reported solid growth of 0.6% in the quarter and is now running at 1.2% for the 12 months, but inflation fell 0.4% in July. Not good.

Ditto Portugal, where consumer prices fell 0.7% in July, year over year.

Greece’s GDP fell only 0.2% vs. a year ago, but this was the 24th straight quarter of contraction, though better than Q1’s 1.1% decline. At least April-June was the smallest contraction since Q3 2008. Retail sales were down 8.5% in June. Industrial production down 6.7% in July.

At least Greek tourism is up 16.5% this year when measuring arrivals. Tourism accounts for 17% of government revenues.

In non-euro U.K., the unemployment rate for the three months to June fell to 6.4%, though average wages were down 0.2% year over year.

Back to the eurozone as a whole, industrial production fell 0.3% in June over May when a rise of 0.3% was expected. July inflation rose just 0.4% in a preliminary estimate, far below the European Central Bank’s target of 2.0%.

And then you have bond yields, which in light of faltering growth and zero inflation, continued to plummet, whether warranted or not.

The German 10-year bund closed the week at a stupefying 0.95%. France’s 10-year set a record at 1.34%. The Netherlands’ was at 1.13%. Spain a record 2.39% and Italy a record low 2.58%. 

Finally, I’ve been touching on the subject of anti-Semitism. USA TODAY had a report from Europe, quoting the president of the Representative Council of French Jewish Institutions, Roger Cukierman, who spoke of three consecutive weekends of pro-Palestinian demonstrations that turned into anti-Semitic attacks across France.

“This is the worst violence we have had in 15 years. The Palestinian cause has created a new wave of anti-Semitism. Historically in France, anti-Semitism has been on an individual level, but now it is on a mass level, this is a new phenomenon.”

For over 15 years my position on Israel has been consistent. I have been against the constant expansion of the settlements in the West Bank, for example, but my support for Israel, overall, has been unstinting.

That said, I understand those who have a different view, as long as it doesn’t include support for terrorists like Hamas, and, in a twisted way, it’s support for Hamas, and not understanding the organization, that is fueling the wave of anti-Semitism in Europe. If you say you support the Palestinian cause, and believe Israel has been disproportionate in its response to Hamas’ rocket fire, here are the facts.

This isn’t about the Palestinian Authority. Israel’s war is not with them. It’s about a band of terrorists who not only seek Israel’s destruction, but who spend the citizens of Gaza’s money on intricate tunnel works rather than on the public infrastructure, and why for the life of me the people in Gaza don’t revolt against this misuse of their money I’ll never know.

Jeffrey Goldberg wrote the following the other day for Defense One.

Mr. Goldberg notes up front, “I supported a ceasefire early in this war precisely because I believed that the Israeli government had not thought through its strategic goals, or the methods for achieving those goals.

“While it is true that Hamas is expert at getting innocent Palestinians killed, it has made it very plain, in word and deed, that it would rather kill Jews. The following blood-freezing statement is from the group’s charter: ‘The Islamic Resistance Movement aspires to the realization of Allah’s promise, no matter how long that should take. The Prophet, Allah bless him and grant him salvation, has said: ‘The day of judgment will not come until Muslims fight the Jews (killing the Jews), when the Jews will hide behind stones and trees. The stones and trees will say ‘O Muslims, O Abdulla, there is a Jew behind me, come and kill him.’

“This is a frank and open call for genocide, embedded in one of the most thoroughly anti-Semitic documents you’ll read this side of the Protocols of the Elders of Zion. Not many people seem to know that Hamas’ founding document is genocidal. Sometimes, the reasons for this lack of knowledge are benign; other times, as the New Yorker’s Philip Gourevitch argues in his recent dismantling of Rashid Khalidi’s apologia for Hamas, this ignorance is a direct byproduct of a decision to mask evidence of Hamas’ innate theocratic fascism.

“The historian of totalitarianism Jeffrey Herf, in an article on the American Interest website, places the Hamas charter in context:

“[T]he Hamas Covenant of 1988 notably replaced the Marxist-Leninist conspiracy theory of world politics with the classic anti-Semitic tropes of Nazism and European fascism, which the Islamists had absorbed when they collaborated with the Nazis during World War II. That influence is apparent in Article 22, which asserts that ‘supportive forces behind the enemy’ have amassed great wealth: ‘With their money, they took control of the world media, news agencies, the press, publishing houses, broadcasting stations, and others. With their money, they stirred revolutions in various parts of the world with the purpose of achieving their interests and reaping the fruit therein. With their money, they took control of the world media. They were behind the French Revolution, the Communist revolution and most of the revolutions we heard and hear about here and there. With their money, they formed secret societies, such as Freemason, Rotary Clubs, the Lions and others in different parts of the world for the purpose of sabotaging societies and achieving Zionist interests. With their money they were able to control imperialistic countries and instigate them to colonize many countries in order to enable them to exploit their resources and spread corruption there.’

“The above paragraph of Article 22 could have been taken, almost word for word, from Nazi Germany’s anti-Jewish propaganda texts and broadcasts.”

Mr. Goldberg points to a recent post by Sam Harris, “the atheist intellectual, who is opposed, as a matter of ideology, to the existence of Israel as a Jewish state (or to any country organized around a religion), but who for practical reasons supports its continued existence as a haven for an especially persecuted people, and also as a not-particularly religious redoubt in a region of the world deeply affected by religious fundamentalism. Referring not only to the Hamas charter, Harris writes that, ‘The discourse in the Muslim world about Jews is utterly shocking.’”

For weeks I have watched one Hamas spokesman after another on the likes of CNN’s Jake Tapper and Wolf Blitzer in their afternoon programs and I’m amazed by their stupidity. They never have an argument that holds water. Not even close. It’s downright laughable, were it not so dangerous.

But the anti-Semitism in Europe will grow. Israel doesn’t always help its own cause, I grant you. There is much discussion there, and elsewhere these days about the state being brought up on war crimes for some of the bombings in Gaza. This will be used as a pretext for further violent protests, of this you can be sure. 

By the way, I’m a member of a local Lions club. I never knew we were some secret society. Of our 50 active members, about four are Jews and we do great work in the community.

Hillary Clinton weighed in on anti-Semitism in her interview with Jeffrey Goldberg for The Atlantic.

“It is striking...that you have more than 170,000 people dead in Syria. ...You have Russia massing battalions – Russia, that actually annexed and is occupying part of a U.N. member-state – and I fear that it will do even more to prevent the incremental success of the Ukrainian government to take back its own territory, other than Crimea. More than 1,000 people have been killed in Ukraine on both sides, not counting the [Malaysia Airlines] plane, and yet we do see this enormous international reaction against Israel, and Israel’s right to defend itself, and the way Israel has to defend itself. This reaction is uncalled for and unfair.”

Clinton continued: “You can’t ever discount anti-Semitism, especially with what’s going on in Europe today. There are more demonstrations against Israel by an exponential amount than there are against Russia seizing part of Ukraine and shooting down a civilian airliner. So there’s something else at work here than what you see on TV.” 

Turning to Asia...in China, industrial production in July was up 9% year over year, in line with expectations. Retail sales rose 12.2%, less than expected. And fixed-asset investment was up 17% for the period January thru July, which looks good but was deemed disappointing.

Lending also slowed dramatically in July, owing to the weakening property market, to the lowest level since October 2008.  

Consumer prices, though, rose only 2.3% last month, well below the government’s 3.5% target, giving the central bank room to maneuver, while producer (factory gate) prices fell for a 29th straight month, down 0.9%, which is far from good.

However, the 0.9% pace is better than it has been and it could be a sign overcapacity is easing and some pricing power returning.

In Japan, there was nothing good this week. Second-quarter GDP came in down 6.8% on an annualized basis. While this was slightly better than the consensus 7.1%, first-quarter growth was revised down from up 6.7% to up 6.1%.

Remember, sales were pushed forward in the first quarter because of the April consumption tax hike, which then everyone knew would do a number on GDP in Q2.

But originally, the government thought GDP would decline only 3% when they were contemplating how 2014 would play out given the 3% tax increase from 5% to 8%.

What it all means is that going back to mid-2013, the past 12 months have seen little overall change in the Japanese economy. 

So it’s about the third quarter now, with those numbers coming out in mid-November. Prime Minister Shinzo Abe needs to see a strong rebound in economic activity because by year end, he has to decide on whether or not to proceed with a further consumption tax hike from 8% to 10% in October 2015. [The tax hikes were long planned to show world financial markets that Japan can deal with its humongous government debt load.]

Growth in Q3 is now projected to be up 2.9%. But exports fell 1.8% in Q2, just announced, and a figure on machine orders this week came in far less than expected. Add in the fact wages aren’t rising fast enough and hitting the Q3 target seems like a tall task.

Street Bytes

--Despite the geopolitical turmoil, stocks rose a second straight week with the Dow Jones tacking on 0.7% to 16662, getting back into positive territory for the year in the process. The S&P 500 rose 1.2% and Nasdaq gained 2.2%.

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.41% 10-yr. 2.34% 30-yr. 3.13%

The 10-year hit 2.31% on Friday on the reports from Ukraine.

Producer prices in the month of July were up just 0.1%, in line with expectations, and up 0.2% ex-food and energy. For the 12 months, the PPI was up 1.7%, up 1.6% on core.

--The World Health Organization said the Ebola outbreak appears to be “vastly underestimated,” as the death toll now exceeds 1,100.

“WHO is coordinating a massive scaling up of the international response,” it said in a statement.

Two people in Nigeria have died after drinking a salt solution rumored to prevent Ebola, even as the health minister has said otherwise.

A second leading Sierra Leone doctor died of the virus, another big blow there. He was apparently infected while seeing a patient at the country’s leading hospital. Understand this is a place with few qualified doctors and now it is without its top two.

As I first wrote weeks ago, Ebola is also about the economies in the impact zone as much as the human toll, and this week one New York-based consultant, Teneo Intelligence, said economic growth in Liberia, Sierra Leone and Guinea could fall as much as 2 percentage points. [Antony Sguazzin / Bloomberg]

There are also new reports of growing food shortages in these three nations, owing to the disruption in the flow of goods due to the virus.

--The 18 states that are responsible for 91% of the nation’s corn have experienced super growing conditions this summer; adequate rain fell when the shoots emerged, and then not a lot of high heat.

So corn prices have fallen 15% in 2014, after plunging 40% last year. Soybean prices have also cratered. This week the U.S. Department of Agriculture said the country’s farmers will harvest 14.03 billion bushels of corn and 3.82 billion bushels of soybeans, both the largest on record. Farmers in Iowa, the country’s largest corn and second biggest soybean producer, are forecast to harvest 2.44 billion bushels of corn and 502 million bushels of soybeans.

The USDA said corn stockpiles before the start of the harvest in 2015 will be 1.8 billion bushels, more than double two years earlier. Soybean stockpiles will more than triple.

With the above in mind, farmland values in the Midwest were stagnant in the second quarter, according to the Federal Reserve’s district reports. The USDA last February also estimated farm income in the country would sink 27% this year to $95.8 billion, the lowest since 2010. Last year’s total of $130.5 billion was the highest since 1973 on an inflation-adjusted basis.

--Related to the above, Deere & Co. reported its fiscal third-quarter farm-equipment sales fell 11% from a year ago, as the company launched sales incentives to deal with rising inventories of used tractors and harvesting combines. Deere reduced its forecasts for farm equipment in the U.S. and Canada. In crisis-racked Eastern Europe, Deere would only say sales will be “down significantly.”

Construction and forestry machinery revenue rose 19% vs. year ago.

--According to the National Association of Realtors, the median price for existing single-family homes in the second quarter rose 4.4% from a year earlier to $212,400, the smallest annual gain in two years after double-digit growth in 2013. Median prices rose in 70% of the 173 metro areas tracked by the NAR.

Four of the five most expensive housing markets in the second quarter were in California. 

San Jose $899,500
San Francisco $769,600
Anaheim-Santa Ana $691,900
Honolulu $678,500
San Diego $504,200

--Home sales plunged in Southern California in the month of July, down 12.4% from a year earlier, according to research firm CoreLogic DataQuick. Sales in this critical six-county region have declined since October as would-be buyers struggle with sky-high prices, as you can see from the above in two of the top five.

--Oil prices, as alluded to earlier, have been hit by falling demand, even as geopolitical tensions threatened output. The International Energy Agency lowered its demand forecast for 2014, citing weaker-than-expected second-quarter economic growth in developed countries, as well as a drop in stockpiling in China. Certainly Europe’s latest economic figures bear this out.

The IEA reported an increase of 1.4 million barrels in oil supplies for the week ended Aug. 8, when a decline had been expected.

--Meanwhile, Kinder Morgan, which runs 80,000 miles of oil and gas pipelines in North America, plans to spend $44 billion to buy out outside investors in its various companies – Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners – in what would be the second-biggest deal in the energy sector, after Exxon’s $74.5 billion purchase of Mobil in 1999.

Founder Richard Kinder promised to raise Kinder Morgan’s dividend by 16% next year and by 10% per annum for the rest of the decade.

--JCPenney reported same-store sales increased 6.0% in the quarter ended Aug. 2, the third consecutive quarter of growth as it continues a comeback from its near demise. Penney is clearly gaining market share from the likes of Macy’s, with net sales of $2.80 billion compared to $2.66 billion in the second quarter of 2013. The company is still losing money, however, with an operating loss of $70 million.

--Speaking of Macy’s, its shares were hit when the department store chain cut its full-year sales forecasts. The company missed on earnings and revenues, with U.S. same-store sales flat in the quarter, while overall revenues rose 3.3%. Profits did rise 4%, but the increase wasn’t what the Street expected.

Macy’s chairman and CEO Terry Lundgren said: “We are approaching the second half of 2014 with confident optimism...tempered with the reality that many customers still are not feeling comfortable about spending more in an uncertain economic environment.”

--Kohl’s did a better job of managing expectations, with earnings and revenues beating what analysts forecast, even as same-store sales declined 1.2% and overall revenues were down 1.1%.

--Cisco Systems announced a fresh round of job cuts that will hit 6,000 workers, taking the total cuts to 18,000 in the last three years.

The networking equipment giant said business was continuing to contract sharply in developing countries, following revelations about U.S. internet surveillance by Edward Snowden.

Despite the headcount reductions, though, the total number of employees has actually risen around 3,000 due to acquisitions and other investments.

At least sales to enterprise customers in the U.S., the U.K. and Germany rose by more than 10%. Overall revenue, though, fell 0.5% and the company sees slim to no growth in the current quarter.

It did still report net income of $2.25 billion for the quarter ended July 26.

--Chinese ecommerce giant Alibaba Group Holding Ltd. is preparing for its U.S. IPO in September, but now the Securities and Exchange Commission is going to examine the offering a little more closely after Alibaba announced it uncovered possible accounting flaws at its Alibaba Pictures Group unit, a Hong Kong-listed media company.

Personally, I wouldn’t touch Alibaba, but then I’m biased.

--Consumer Reports called Tesla’s Model S sedan “the best” it ever tested last year, but further tests show the Model S has more than its share of glitches.

“Car nut or not, EV fan or not, everyone has raved about this car, impressed with its smoothness, effortless glide, and clever, elegant simplicity. In that time, it’s also displayed a few quirks – some unique to Tesla,” the magazine wrote in a blog post Monday.

There were problems with the center screen going blank prior to its annual service at 12,000 miles, automatic-retracting door handles that were “occasionally reluctant to emerge,” making it difficult to open the doors. A front trunk lid that didn’t respond to the release.

Some of these would be more than an annoyance, especially if you weren’t near a service center.

--Coca-Cola upped its investment in energy drink marketer Monster Beverage to 17%, which Coke said it could eventually increase to 25%, as Coke’s carbonated soft-drink business continues to decline while Monster’s energy drink business expands. Coke needs growth. Carbonated beverages account for more than 70% of its sales volume, even as it has attempted to diversify into juices, bottled water, Powerade and Keurig Green Mountain coffees.

--Atlantic City’s Revel Casino Hotel will shut down Sept. 10 after failing to find a buyer in bankruptcy court, just two years after the $2.4 billion casino opened. It never turned a profit.  3,100 will lose their jobs.

AC started the year with 12 casinos and will be down to eight by the fall. Just a disaster. Online gambling, introduced recently in New Jersey, has also fallen far short of expectations.

Just what is going to go into the four hulking structures that are to be abandoned is another issue.

--The U.K.’s busiest airport, Heathrow, said passenger numbers hit a record high in July, which bolsters its request for a third runway. Passenger traffic with China rose 10.4% last month vs. July 2013.

--Travel alert...regular Newark Airport user Jimbo tells me the delays at Terminal A’s security lines have tripled with the recent imposition of new measures. If you don’t have TSA clearance or at least Premier Access, “you need to add an hour to your passage.”

--Speaking of tips, a new study by researchers at Cal-Berkeley and the Economic Policy Institute, a liberal think tank, reveals nearly 15% of the nation’s 2.4 million waiters and waitresses live in poverty, compared with about 7% of all workers, and of course their numbers are increasing, with restaurant jobs up 13% since 2009.

Some restaurants are beginning to replace tipping with a service charge used to pay higher wages and benefits to all staff. Other restaurants are experimenting in prohibiting tipping and instead starting employees at an hourly wage of, say, $12, with increases after one year.

--Chuck Todd is replacing David Gregory on “Meet the Press,” with Gregory leaving the network in yet another messy move by NBC, a la Ann Curry’s departure.

“Meet the Press” has fallen to third place from first among Sunday’s political talk shows, with Gregory having taken over for Tim Russert in 2008, following Russert’s death.

Todd will become moderator beginning Sept. 7. Gregory won’t even be given the opportunity to say goodbye to his audience.

A high-ranking insider told the New York Daily News, “There’s no reason for it, for them to allow him to be disparaged and brutalized in the media is reprehensible. It’s disgusting and uncalled for.”

The source said NBC was afraid Gregory would create another Ann Curry situation, after Curry’s weepy goodbye from ‘Today’ in 2012.

Foreign Affairs

Iraq: First the good news. Prime Minister Nouri al-Maliki, under immense pressure from both the United States and Iran, as well as various factions inside his country to step down, announced he was doing so on Thursday, ending his legal challenge to the nomination of his replacement, Haider al-Abadi, a member of Maliki’s own Shiite party; Abadi having been chosen by Iraq’s president on Monday.

With Abadi at his side, Maliki said in a nationally televised address:

“I will not be a reason for the spilling of one drop of blood. I say to you, oh people, I do not want any position. My position is your confidence in me, and there is no more sophisticated or honorable position.”

Abadi has 30 days from the time of his appointment to form a new government, during which time Maliki will remain as a caretaker leader and commander in chief of the military.

Abadi is seen as a moderate Shiite with a chance of improving ties with Sunnis, thus some cause for optimism in U.S. dealings with Sunnis in Anbar.

Meanwhile, ISIS seized a town about 70 miles north of Baghdad as it seeks to broaden its front with Kurdish Peshmerga fighters.

As for the situation with the Yazidis and the thousands that fled to Mount Sinjar in northern Iraq, despite claims by President Obama that the siege of Mount Sinjar had been broken and the crisis effectively over, Yazidi leaders on Thursday said tens of thousands remained on the mountain in desperate conditions.

Wednesday, the U.S. military said a team of 18 Marines and Special Forces soldiers had completed an assessment of conditions there and found most of the Yazidis had successfully escaped, and the remaining numbers were in the low thousands.

American officials then said this meant further airstrikes and humanitarian airdrops were no longer required in that immediate area and that “an evacuation mission is far less likely,” in the words of a Pentagon spokesman.

Thursday, President Obama, speaking from Martha’s Vineyard, declared: “The bottom line is the situation on the mountain has greatly improved and Americans should be proud....We do not expect there to be an additional operation to get people off the mountain.”

An Iraqi parliament member and Yazidi leader injured in the crash of a helicopter delivering aid to the mountain, said she believed 70,000 to 80,000 remained trapped on parts of the mountain. Vian Dakhil’s assessment was supported by United Nations humanitarian officials, “who on Thursday were unequivocal that there remained a major crisis among the Yazidis on Mount Sinjar.” [Rod Nordland / New York Times]

Late Friday, we learned at least 80 Yazidi were slaughtered by ISIS in an attack on a village 30 miles from Sinjar, as confirmed by various sources, including the Kurds.

ISIS is consolidating its hold over a third of Syria, and now has roots in almost a third of Iraq, while probing Kurdistan in the east and Lebanon in the west.

Yet President Obama appears prepared to mount a limited, “discreet” military campaign; an amazing disconnect between the administration’s dire warnings, including Attorney General Eric Holder’s on the homeland security front, and the limits placed on the U.S. military.

President Obama has continually said: “American combat troops will not be returning to fight in Iraq, because there’s no American military solution to the larger crisis in Iraq.”

“ISIS is feeding on the grievances of two communities. The first is Syria’s Sunni majority which feels abandoned by the West in the rebellion to topple Bashar al-Assad’s regime and has been beaten back with the help of Iran and its allies. The jihadi group is also exploiting the rage of Iraq’s Sunni minority, pushed aside by increasingly sectarian Shia rule since the 2003 U.S.-led invasion. The group is positioning itself as the only Sunni force able to break the Shia Arab axis built by Tehran from Baghdad to Beirut in the past decade.”

As for the Saudi role in all this (as well as Turkey’s), it’s complicated.

“Saudi Arabia...never resigned itself to the Shia takeover in Iraq, and devoted its efforts to bloodying Iran by helping to topple the Assads, Tehran’s Arab allies in Syria. It is unclear to what extent, if any, this policy funneled money to Sunni radicals. But groups such as ISIS received funding from Saudi sympathizers, as well as Saudi volunteers. Although the kingdom has banned this the damage has been done.

“Turkey allowed jihadi volunteers to cross its border to fight in Syria and served as a hub for rebel forces. Persistent though unconfirmed reports placed Hakan Fidan, the Turkish intelligence chief and right-hand man of Recep Tayyip Erdogan, the prime minister elected president last Sunday, at the heart of this operation.”

--ISIS not only seized five oil fields and Iraq’s biggest dam, but it has also overrun large areas in five of Iraq’s most fertile provinces, where the U.N. estimates around 40% of its wheat is grown.

“Now they’re helping themselves to grain stored in government silos, milling it and distributing the flour on the local market, an Iraqi official told Reuters. ISIS has even tried to sell smuggled wheat back to the government to finance a war effort marked by extreme violence and brutality....

“ ‘Now is the worst time for food insecurity since the sanctions and things are getting worse,’ said Fadel al-Zubi, the U.N. Food and Agriculture Organization representative for Iraq.

“While Iraq faces no immediate food shortages, the longer term outlook is deeply uncertain.

“Hasan Nusayif al-Tamimi, head of an independent nationwide union of farmers’ cooperatives, said the militants were intimidating any producers who tried to resist.”

--Regarding the Mosul Dam, should ISIS decide to blow it up, or should it collapse from neglect,* there is the potential for a 20-meter (60- to 65-feet) high wall of water that would race downstream to flood Mosul. As one senior U.S. official told the Wall Street Journal, “You cannot run away fast enough.”

*A 2006 report by the U.S. Army Corps of Engineers called the Mosul Dam “the most dangerous dam in the world.” [Nour Malas / Wall Street Journal]

--The governor of Iraq’s Anbar province in the Sunni heartland has signed on with the U.S. for support against ISIS, including air support, according to Reuters.

“The disaster in Iraq had deepened and crystallized over the past 10 days. Terrorist forces of the Islamic State of Iraq and al-Sham, or ISIS, seized the Mosul Dam, the country’s largest and most important source of hydroelectric power, and overran several more cities in northern Iraq, including Sinjar. ISIS pushed back the Kurdish Peshmerga forces, exposing the gravity of one more corrupt decision by Prime Minister Nouri al-Maliki – his egregious failure to arm the Kurds so they could at least defend themselves.

“We now see how unwise the U.S. policy was to trust Mr. Maliki, who resigned Thursday after eight years of misrule. But that should have come as no surprise. Middle East leaders warned us that Mr. Maliki’s rank sectarianism and close ties to Tehran could divide Iraq and draw the country into a catastrophe.

“Mr. Maliki’s failure to unify Iraq’s diverse populations is the chief cause of the current crisis, but Washington bears some blame for not taking timely action that could have limited this summer’s chaos. The Obama administration could have maintained a limited military training presence in Iraq after 2011; could have acted in Syria last year when the chemical weapons ‘red line’ was crossed; and could have insisted that Mr. Maliki arm the Kurds. But what matters more is what the U.S. can do now....

“Mr. Abadi must restore relations between Baghdad and Iraq’s Kurdish and Sunni populations. Without unity of command and effort, the fight against ISIS will fail. Repairing Mr. Maliki’s breaches may require strategic concessions such as allowing the Kurds to keep Kirkuk and permitting the Sunnis to form their own region under the constitution....

“Iraq must promptly implement, with U.S. and international support, a robust and coherent battle strategy to destroy ISIS....

“The crisis in Iraq is several orders of magnitude worse than those we faced in 1991 or at any time since the 2003 invasion. The U.S. – and our allies in Europe and the Middle East – must help Prime Minister-designate Abadi save Iraq. The consequences of failure are too great to opt out.

“For the Iraqi people who hope for peace, for all the U.S. service personnel who made such heroic sacrifices in Iraq over the past 23 years, and for U.S. national security, this is the right thing to do.”

“The new U.S. military operation in Iraq appears to have been successful thus far in its limited aims....

“The U.S. mission nevertheless remains both open-ended and lacking in clear strategic objectives. Mr. Obama said air strikes would continue to defend Irbil and Baghdad, where U.S. personnel are stationed; he also said additional operations not involving combat troops could be undertaken to protect vulnerable populations. But he gave no indication of a broader campaign to reduce the reach of the Islamic State, which now controls a New England-sized territory across Iraq and Syria, including the major city of Mosul, five oil fields and Iraq’s largest dam.

“The limits Mr. Obama has placed on U.S. action make little sense in the context of this extremist entity and the interconnected conflicts across the region. Mr. Obama was right to rescue the tiny Yazidi minority, which was threatened with genocide, but why not also defend Syrians and Lebanese under threat of massacre by the Islamic State? It’s a vital U.S. interest to protect Kurdistan, a relatively stable and pro-Western enclave, but it’s also critical that moderate Syrian opposition forces under siege in Aleppo not be destroyed by the Islamic State or the regime of Syrian President Bashar al-Assad.

“Mr. Obama still lacks an integrated policy for Iraq and Syria, though the Islamic State cannot be defeated unless it is attacked in both countries....

“If the Islamic State and the Assad regime can be defeated or at least placed on the defensive, political solutions that address the Sunni-Shiite conflict in Iraq and Syria, Kurdish aspirations for self-determination and the protection of minority groups will come more easily. The idea that Iraqis will somehow solve these problems independently of Syria and with minimal U.S. support is a convenient but dangerous illusion.”

“Forces allied to Daesh [Ed. another name for the Islamic State, or ISIS, or ISIL] are already setting up another enclave in Yemen and a third one in Libya near to the Egyptian border.

“The Islamic State’s allies already control chunks of territory in Somalia, Afghanistan, the Central African Republic, Mali and Nigeria. They have sleeping cells in Latin America, Western Europe, the Balkans and in several Arab countries.

“An archipelago of terror is taking shape around the world. The fight in and over Iraq will determine its future.

“If we don’t fight this small war now, even if in a ‘discreet’ manner, we may have to return to fighting a much bigger war across the globe.”

Masoud Barzani, president of Kurdistan / Washington Post

“Today the people of Kurdistan and Iraq are threatened by a fanatical and barbaric terrorist organization that wishes to dominate the Middle East. We are resolved to defeat this threat with the help of the United States and our friends around the world.

“There can be no overstating how perilous the situation is. The terrorist blitzkrieg of the Islamic State has swept from Syria into Iraq, with its goal of conquering and controlling a large swath of the world. While some of its more distant aspirations may be beyond its grasp, Iraq and other parts of the Middle East and Central Asia are not.

“The slaughter and destruction in Syria and parts of Iraq are the unvarnished template of what can be expected in any part of the world where they will rule....

“(Now) that the terrorists have become an operating military force, this is no longer a political crisis; it is a security crisis, and the world must act to prevent genocide and the slaughter of innocents. Any position held by the terrorists should immediately be considered a target, not just those around Irbil and Mount Sinjar. This fight will have to be waged by the civilized world at some stage.   The longer the delay, the more difficult the fight will become....

“Every religion, state and community must voice its support for civilization and humanity. And those countries with capacity to help – first and foremost the United States – must understand that this is an urgent danger and act accordingly. We must stop the terrorists now. With air support and military equipment, we can.”

Russia / Ukraine: As the New York Times’ Peter Baker put it the other day:

“The president orders his military into action in a war-torn country to protect a vulnerable population, authorizing strikes in service of a humanitarian mission. That was President Obama on (Aug. 7). But it could be President Vladimir V. Putin of Russia in the not-too-distant future.

“Never mind the deep differences between the wars consuming Iraq and Ukraine. If Mr. Putin ultimately decides to send Russian armed forces across the border, analysts say he now has one more pretext. Just as Mr. Obama says he is trying to protect Yazidis and Kurds threatened by Sunni Muslim extremists, Mr. Putin may argue he wants to protect Russian speakers from Ukrainian fascists.”

A column of armored vehicles and military trucks crossed the border from Russia into Ukraine on Thursday, while a separate, larger convoy of 270 Russian trucks, which Moscow has claimed are carrying only aid for the besieged areas of Donetsk and Luhansk, lurked nearby.

Regarding the move into Ukraine at an obscure crossing by the smaller convoy, it was the first time this was witnessed by Western journalists. Some of the trucks in the convoy bore Russian military plates, and did not seem to be associated with the far larger aid convoy, as reported by the Daily Telegraph.

On Friday, Kiev claimed to have destroyed part of the convoy, which convulsed the financial markets for a spell. Moscow denied this was the case.

Later, Russia’s defense secretary told his U.S. counterpart, Chuck Hagel, that there are no military personnel in the aid convoy, which we’re learning must first go through a cumbersome customs process before entering Ukraine in the first place.

Russian President Vladimir Putin said in a speech in Yalta on the Crimea peninsula, Thursday, that he wanted “to stop bloodshed in Ukraine as soon as possible,” adding, “The situation is becoming more dramatic by the day. The country has immersed itself in bloody chaos, a fratricidal conflict.” Putin said Russians should avoid a rift with the West over Ukraine and “build our country, not fence it off from the outside world.” [Daily Telegraph]

Kiev sees Putin’s calls as nonsense, and the aid convoy a possible covert invasion.

NATO Secretary General Anders Fogh Rasmussen said: “We see a continuous flow of weapons and fighters from Russia into eastern Ukraine, and it is a clear demonstration of continued Russian involvement in [its] destabilization.” [BBC News]

Residents of Luhansk have been without electricity and running water for weeks. The situation in Donetsk is not much better. Under a previous agreement, the aid was to be brought into Ukraine at a border crossing near Kharkiv, outside the conflict zone, with the International Committee of the Red Cross overseeing a handover. But that agreement collapsed, and so the convoy instead headed to rebel-controlled territory.

Meanwhile, separatists denied their military commander, Igor Strelkov, had been badly injured in battle, though at week’s end it was possible the initial report of this was true. It was announced Strelkov had resigned.

The U.N. said this week the death toll in the conflict was 2,086, with more than half of them in the past two weeks.

--A shelling of a high-security prison on the outskirts of Donetsk sparked a riot in which 106 inmates escaped. About a third were recaptured.

--Russia’s state-controlled energy giant Rosneft asked the Russian government for a $42 billion loan to deal with the impact of economic sanctions. The head of Rosneft is Igor Sechin, a good friend of Putin’s, but one I maintain could yet topple Vlad the Impaler. The reason for the huge request is the sanctions have hit Rosneft’s ability to raise funds.

--A new poll of Russians from the respected Levada Center revealed 82 percent said they would vote for Putin if an election were held today, compared with 29 percent who said so back in January. 85 percent approve of Putin’s activities, such as in Ukraine.

Israel / Gaza: The latest cease-fire has been holding, but reports say Hamas leader Khaled Mashaal is preventing a long-term truce between Israel and the Palestinians. According to Israeli television reports and officials, a long-term deal could have already been reached, but Mashaal “was and remains the source of friction that is torpedoing a deal.”

Mashaal resides in Qatar and remains in disagreement with some Hamas leaders in Gaza.

Egyptian and Palestinian sources have said Israel agreed to tentatively allow some supplies into Gaza to relax curbs on the cross-border movement of people and goods, but stumbling blocks remain, including Palestinian demands for a Gaza seaport and reconstruction of an airport. Israel would expand fishing limits it imposes on Gaza fishermen. [Jerusalem Post]

But regarding U.S.-Israeli relations, a front page Wall Street Journal story claimed the U.S. halted a shipment of air-to-ground missiles to Israel last month during Israel’s offensive in Gaza, after Israel requested “through military-to-military channels a large number of Hellfire missiles.”

But the Pentagon immediately put the shipment on hold, with top officials at the White House instructing all defense agencies they must consult with the White House before agreeing to any Israeli request.

The relationship between President Obama and Prime Minister Netanyahu could not be worse, with the White House disturbed by what it saw as Israel’s “heavy-handed battlefield tactics,” as reported by the Journal.

Separately, Saudi Foreign Minister Prince Saud al-Faisal said some worrisome things at a meeting of the Organization of Islamic Cooperation, the world’s largest Muslim body, on the situation in Gaza.

“Israel has to realize peace is the only solution for its survival. As we see it, Israel does not shy away from taking its terror to any level, with total disregard to any laws, rules, religious edicts or humanitarian considerations to achieve its goals.

“Its only objective is to uproot the Palestinian existence wherever it is.”

Later, at a news conference, Prince Saud said: “Israel does not have a right of self-defense as an occupier. There is no rule under international law that says an occupier has a right of self-defense. For any country to take that position shows bad intentions towards the region and bad intentions towards peace in the region.

“I don’t think it’s fair to equate the actions of Hamas and Israel, either in scale or in substance. How can you say that Israel has a right to defend itself when it is the occupier and you do not give the same right to Hamas?” [Jerusalem Post]

All Arab states, as well as Hamas, have said they are willing to make peace with Israel after it withdraws from all lands it occupied in the 1967 Middle East war.

Of course the United States would say Prince Saud, and the kingdom, are key allies in the region.

On the other side, Israeli Foreign Minister Avigdor Liberman [Ed. some spell it Lieberman, as I have in the past; this is the Israeli press spelling] told the Jerusalem Post in an interview:

“In order to make a diplomatic process possible, we have to get rid of Hamas. As long as Hamas is strong on the ground, controls Gaza, and is popular in Judea and Samaria, a diplomatic process is simply impossible.”

Liberman also does not believe Palestinian Authority President Mahmoud Abbas has any legitimacy.

Former Israeli president Shimon Peres challenged the international community to forcefully express its opposition to Hamas’ presence in Gaza and to disarm it.

“The world needs to decide whether it’s ready for a terrorist state in Gaza or not.

“Reconciling with terrorism in Gaza will be a tragedy for the Middle East and the entire world.”

In reference to the Israeli withdrawal from Gaza in 2005, as well as the removal of settlers from the Strip, Peres said:

“Gaza could have developed and thrived. We don’t understand why Hamas chose the path of terrorism and rockets on innocent Israeli citizens over the path of peace and prosperity for the Palestinian people.”

Syria: Regime forces captured a fiercely contested suburb of Damascus after five months of heavy fighting, activists and state media said. It was the latest setback for rebels around the capital, thus strengthening President Bashar Assad’s once shaky hold on the capital. Government forces were aided by Hizbullah in defeating terrorists from the Nusra Front. The town of Mliha was reduced to rubble.

But in the far northeast, regime troops have not been able to beat back an advance by ISIS, which according to the Daily Star has seized several more military bases and killed hundreds of soldiers and pro-government fighters.

Meanwhile, Syria’s Western-aligned opposition group, the Syrian National Coalition, issued an appeal for immediate U.S. military assistance to stop what it said was a two-pronged attack by ISIS and Assad’s fighters in the divided city of Aleppo. Many of the Syrian National Coalition (or Free Syrian Army) appear to be switching sides to fight with ISIS.

Some rebel commanders believe a loss of Aleppo would spell the end of their revolt.

Lebanon: The government approved a $1 billion Saudi grant to modernize security services in their fight against terrorism. Former Prime Minister Saad Hariri, who returned the other day after 3 ½ years of self-imposed exile, will oversee the disbursement of the arms and equipment.

One thing seems certain. The Saudi support, coupled with Hariri’s physical presence back in the country, will strengthen the army’s cohesion in its fight against terrorists.

But at least 36 Army troops and security forces were captured by ISIS in the recent battle over the border town of Arsal, and efforts to free them have been complicated by the arrest of 43 jihadists, i.e., a prisoner exchange would seem to be less likely as the Lebanese prosecutor said he was going forward with the case against the 43.

Iran: As part of her interview with Jeffrey Goldberg, Hillary Clinton commented on Iran and its nuclear ambitions.

Goldberg: It seems that you’ve shifted your position on Iran’s nuclear ambitions....you’ve taken a fairly maximalist position – little or no enrichment for Iran. Are you taking a harder line than your former colleagues in the Obama administration are taking on this matter?

Clinton: It’s a consistent line. I’ve always been in the camp that held that they did not have a right to enrichment. Contrary to their claim, there is no such thing as a right to enrich. This is absolutely unfounded. There is no such right. I am well aware that I am not at the negotiating table anymore, but I think it’s important to send a signal to everybody who is there that there cannot be a deal unless there is a clear set of restrictions on Iran. The preference would be no enrichment. The potential fallback position would be such little enrichment that they could not break out. So, little or no enrichment has always been my position.

[Clinton goes on to acknowledge, though, that Ayatollah Khamenei wants 190,000 centrifuges as well as the right to enrich.]

Speaking of Khamenei, while he said on Wednesday that talks with the P5+1 would continue, addressing Foreign Ministry officials, Khamenei also criticized the U.S.

“Some pretended that if we sit down with Americans at the negotiating table, many of the problems will be resolved. We knew that won’t be the case but developments in the past year proved this reality once again. Americans not only didn’t reduce animosity but increased sanctions. 

Turkey: Outgoing Prime Minister Erdogan will switch offices after he took 52% of the vote in the nation’s first direct presidential election. Erdogan is now seeking to make the position far more powerful, instead of the ceremonial post it has long been, but as prime minister since 2003, he was barred from standing for another term and thus sought this route to maintain control.

Erdogan proclaimed: “I will not be the president of only those who voted for me, I will be the president of 77 million.

“Today the national will won once again, today democracy won once again. Those who didn’t vote for me won as much as those who did, those who don’t like me won as much as those who do.” [BBC News]

Erdogan is to be inaugurated Aug. 28 and then we’ll see what happens.

Afghanistan: Right after I posted last week, I learned the country’s two presidential candidates had once again endorsed a political agreement paving the way for a broad-based government. Ashraf Ghani and Abdullah Abdullah had previously agreed to this, but opponents inside their respective camps tried to scuttle it during the initial audit of the June 14 election that both had accepted.

The goal is for a new government to succeed President Hamid Karzai by end of the month, though the two sides still haven’t agreed on exactly how power would be shared.

Egypt: In the latest move against the Muslim Brotherhood, an Egyptian administrative court dissolved the Freedom and Justice Party and ordered its assets liquidated. The move comes ahead of parliamentary elections expected later this year and prevents the Brotherhood from trying to rejoin politics.

Pakistan: As tens of thousands of Pakistanis held anti-government protests on the way to the capital, Islamabad, on Friday, gunshots hit the vehicle of former cricket star and opposition political leader Imran Khan as he led his supporters through the eastern city of Gujranwala. Khan was not injured.

Brazil: A presidential candidate, Eduardo Campos, was one of seven people killed in a private plane crash in bad weather in the coastal city of Santos on Wednesday, changing the outlook for the October election.

Campos was third in the polls, but the business-friendly leftist was expected to gain ground once his television campaign got underway. 

President Dilma Rousseff is still the favorite to win, but her popularity continues to wane.

Random Musings

President Obama’s overall job approval is 42%, while 49% disapprove. The previous month it was 42-52.

43% approve of his handling of the economy, 51% disapprove. On healthcare the split is 42-53. And on immigration it’s 33% approve, 57% disapprove.

“Everyone knew that Mrs. Clinton would have to detach herself politically from Mr. Obama, an increasingly unpopular president. But she was his secretary of state for four years, so the distancing would have to be done with some deftness and delicacy, and deeper into the election cycle, not now. Instead, it was done with blunt force....

“Just as remarkable, by throwing down this gauntlet Mrs. Clinton starts an argument within her party that might have been inevitable but certainly could have been delayed and, with pleas for unity, softened. By starting the argument now she gives time, space and reason for a progressive Democratic opponent to arise....

“The tone and content of Mrs. Clinton’s remarks seem to assume a Democratic Party base that is or will prove to be in broad agreement with her hawkishness.

“But is that the feeling of a major portion of the Democratic Party base right now?”

So the door is open for Massachusetts Sen. Elizabeth Warren, a favorite of populists.

“Yes, Mrs. Clinton is the favorite; yes, she has the money, the clout, the stature, fame and relationships. But she’s no populist, and populism is rising.”

--Friday, Texas Gov. Rick Perry was indicted on abuse-of-power charges related to his veto of funding for investigators charged with upholding the integrity of state lawmakers. It’s all about the Travis County District Attorney’s Office, the Democratic D.A., Rosemary Lehmberg, her drunk driving arrest, and Perry threatening to veto funding for her office unless she stepped down, which she refused to do after serving a jail sentence.

--New Jersey Gov. Chris Christie conceded at a town hall meeting this week that he’s thinking about running for president and will make a decision sometime after the November elections.

--Last week in my opening I mentioned how exposed our electrical grid is and this week, R. James Woolsey and Peter Vincent Pry (both of whom served in the CIA, Woolsey as director, with both also experts on the threat to our grid) said some of the following in a Wall Street Journal op-ed.

“In a recent letter to investors, billionaire hedge-fund manager Paul Singer warned that an electromagnetic pulse, or EMP, is ‘the most significant threat’ to the U.S. and our allies in the world. He’s right. Our food and water supplies, communications, banking, hospitals, law enforcement, etc., all depend on the electric grid. Yet until recently little attention has been paid to the ease of generating EMPs by detonating a nuclear weapon in orbit above the U.S., and thus bringing our civilization to a cold, dark halt.

“Recent declassification of EMP studies by the U.S. government has begun to draw attention to this dire threat. Rogue nations such as North Korea (and possibly Iran) will soon match Russia and China and have the primary ingredients for an EMP attack: simple ballistic missiles such as Scuds that could be launched from a freighter near our shores; space-launch vehicles able to loft low-earth-orbit satellites; and simple low-yield nuclear weapons that can generate gamma rays and fireballs.

“The much neglected 2004 and 2008 reports by the congressional EMP Commission – only now garnering increased public attention – warn that ‘terrorists or state actors that possess relatively unsophisticated missiles armed with nuclear weapons may well calculate that, instead of destroying a city or a military base, they may gain the greatest political-military utility from one or a few such weapons by using them – or threatening their use – in an EMP attack.’

“The EMP Commission reports that: ‘China and Russia have considered limited nuclear-attack options that, unlike their Cold War plans, employ EMP as the primary or sole means of attack.’ The report further warns that: ‘Designs for variants of such weapons may have been illicitly trafficked for a quarter-century.’”

Russia, for example, long ago designed an orbiting nuclear warhead resembling a satellite, which could be exploded over North America, destroying much of the grid with a single explosion.

“What would a successful EMP attack look like? The EMP Commission, in 2008, estimated that within 12 months of a nationwide blackout, up to 90% of the U.S. population could possibly perish from starvation, disease and societal breakdown.”

Back in 2009, former Secretaries of Defense William Perry and James Schlesinger concurred with the findings of the EMP Commission and urged immediate action.

The cost to protect the national electric grid, according to the Commission, would only be about $2 billion and last year President Obama signed an executive order to guard critical infrastructure against cyberattacks. “But so far this administration doesn’t seem to grasp the urgency of the EMP threat.”

Some in Congress, though, have sponsored legislation to address the issue, but it’s currently held up in House committees or has not been brought up for a vote yet.

As Woolsey and Pry conclude: “What is lacking in Washington is a sense of urgency.”

“Although the Ebola virus might remain mostly confined to West Africa, it has infected the Western imagination. This eruption of uncontrolled nature into what developed nations consider serene modernity is more disturbing to the emotional serenity of multitudes than it is threatening to their physical health....

“Nowadays, so many terrible deeds are reflexively called terrorism that the term is becoming a classification that no longer classifies. Remember, terrorists are in the terror business, the essence of which is random horror.

“A nuclear weapon in a terrorist’s hands would be a nightmare, but not necessarily the worst such. The scientific infrastructure for the manufacture of such a weapon is expensive and complex, and the means of delivering it to a target can be, too. A biological weapon can be delivered by a terrorist carrying a vial of smallpox in his pocket.”

Mr. Will talks of a 13-day simulation of a bioterrorism attack called “Dark Winter,” which was a 13-day simulation of a release of smallpox in Oklahoma City, Philadelphia and Atlanta, that was conducted in June 2001. Smallpox has a fatality rate of about 30 percent.

“Dark Winter concluded that a smallpox virus released in those three cities would reach 25 states and at least 10 other countries within two weeks, bringing unprecedented panic with it....

“Amid this month’s commemorations of the 100th anniversary of the beginning of history’s most calamitous man-made event, World War I, remember its ending: A worldwide influenza pandemic arose from wartime conditions. It began in 1918 and killed more people in a year (about 50 million) than the war killed (about 16 million, military and civilian) in four years. Nature, Ebola reminds us, remains a creative danger.”

--And this on a different terror threat...from an editorial in the Washington Post.

“You probably haven’t noticed, but the sun has been more restless lately. Scientists have been predicting an upswing in volatile solar behavior, resulting in ‘space weather’ that poses a surprisingly dangerous threat to modern society. A big ‘coronal mass ejection’ is one of the least commonly discussed natural hazards humanity faces, but experts warn that ‘everything that plugs into a wall socket’ could be at risk if the products of one hit the planet.

“The danger is not hypothetical. A huge coronal mass ejection hit the Earth in 1859, inducing dangerous sparks in telegraph offices, some of which burned to the ground...but humans now rely much more on vast, interconnected electricity grids. A lesser solar event in 1989 knocked out electric power to millions in Quebec. Because humans don’t have extensive experience with large-scale geomagnetic storms in the age of ubiquitous electric power, predicting exactly how one would play out is tough. Still, a National Academy of Sciences study warned in 2009 that the costs could be staggering, ending electric power to millions, permanently damaging power-grid equipment, costing up to $2 trillion during the first year of recovery – and taking four to 10 years to fully rebuild. Even access to basic necessities such as potable water and toilet facilities could be limited because a big coronal mass ejection could knock out the electric pumps that drive public water systems.”

The odds of any one of the three in the next 20-30 years is uncomfortably high.

[Yet another reason why us Mets fans are also increasingly impatient.]

--Dr. Ben Carson had an interesting answer in U.S. News Weekly to the question, “Let’s say you’re the president. What would you do?”

Carson: “First, I would have a talk with Congress. I would charge it with simplifying the tax code and making it fair. I would also emphasize that we are not going to raise the debt ceiling ever again. We’re going to reduce the government by attrition. Thousands of people are going to retire each year. We’re not going to replace them. And in four to five years, the government would be down to the size that it needs to be. We will begin to look at how we can use our technology to become an informed populace again, the way we can use virtual classrooms and things of that nature.  I would get the NASA program off the ground because enormous numbers of inventions came out of NASA, things that we use every day. And you know we need to bring the innovative spirit back to America.”

It seems a certainty Carson is going to throw his hat in the ring for 2016, though some say he would do it just to help jack up future speaking fees.

--Missouri Gov. Jay Nixon put the state highway patrol in charge of Ferguson, Missouri, after five nights of violence, following the shooting of 18-year-old Michael Brown last Saturday; tapping a highway patrol captain with strong ties to the local community, and it worked, at least for now. 

On Thursday, President Obama said there was no excuse for violence against police, or for law enforcement to use excessive force against peaceful protesters.

Thursday night, the police walked among the crowd without body armor or batons in sight.

Police initially refused to release the name of the shooter, saying such a step could endanger the officer and his family. Friday they did, along with a video showing Brown having been involved in an alleged earlier strong-armed robbery at a convenience store.

But the clashes in Ferguson have led to a debate over the militarization of many police forces, which has come about as a result of 9/11 and federal grants meant to beef up counterterrorism programs.

As the Wall Street Journal reported, from 2003 to 2012, for example, “a single Department of Homeland Security grant program allotted more than $80 million to the St. Louis area to pay for equipment and training.”

“The Ferguson police must prevent rioting and looting and protect their own safety, though it is reasonable to wonder when law enforcement became a paramilitary operation. The sniper rifles, black armored convoys and waves of tear gas deployed across Ferguson neighborhoods are jarring in a free society.”

--A new study published in the New England Journal of Medicine suggested that cutting back on sodium too much may actually pose health hazards, which flies in the face of current guidelines from the likes of the World Health Organization and the American Heart Association that set daily sodium targets well below the average daily U.S. consumption.

The new study, featured on the front page of the Wall Street Journal, Thursday, tracked more than 100,000 people in 17 countries over an average of more than two years and “found that those who consumed fewer than 3,000 milligrams of sodium a day had a 27% higher risk of death or a serious event such as a heart attack or stroke in that period than those whose intake was estimated at 3,000 to 6,000 milligrams. Risk of death or other major events increased with intake above 6,000 milligrams.”  [Ron Winslow / Wall Street Journal]

The WHO and AHA, by comparison, recommend daily sodium intake of between 1,500 and 2,300 milligrams or lower.

The AHA had issues with the way the study was conducted and said it lacked confidence in the findings.

My pet peeve is soup and frozen food. Let us add the salt. I just looked at a few cans of regular soup and a can is generally around 1,400 mg of sodium. Frozen food around 1,200.

The American Heart Association, by contrast, recommends less than 1,500 mg. a day.

--According to a report by the Great Barrier Reef Maine Park Authority, the outlook is poor. 

“Even with the recent management initiatives to reduce threats and improve resilience, the overall outlook for the Great Barrier Reef has worsened since 2009 and is expected to further deteriorate.”

Some progress has been made in reducing the amounts of pollutants entering the world’s largest coral structure, and the report did highlight that some species were making a comeback after years of decline, such as humpback whales and saltwater crocodiles.

But ocean acidification was “likely to have far-reaching consequences in the decades to come.” [BBC News]

“While 61 percent of 300 people asked by pest-control company Orkin would drop their forks at the sight of a cockroach, it’s the lowly fly that presents more of a health hazard.

“Yet only 3 percent said the presence of a fly would make them stop eating.

“ ‘Many restaurant patrons may not be aware that houseflies are twice as filthy as cockroaches,’ Orkin entomologist and Technical Services Director Ron Harrison, Ph.D., said in a statement announcing the results of the survey. ‘It’s important that everyone understands the magnitude of the health threats flies pose so that they can help prevent the transmission of dangerous diseases and bacteria.’”

According to the Mayo Clinic, diseases carried by flies are typhoid, cholera and dysentery.

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

Gold closed at $1306
Oil $97.35

Returns for the week 8/11-8/15

Dow Jones +0.7% [16662...17138 closing high]
S&P 500 +1.2% [1955...1987 closing high]
S&P MidCap +1.2%
Russell 2000 +0.9%
Nasdaq +2.2% [4464]

Returns for the period 1/1/14-8/15/14

Dow Jones +0.5%
S&P 500   +5.8%
S&P MidCap +4.0%
Russell 2000 -1.9%
Nasdaq +6.9%

Bulls 46.4
Bears 16.2 [Source: Investors Intelligence]

Have a great week. 

**I am doing a greatly abbreviated WIR next week from Ireland, posted at some point on Saturday. This is one of my trips that is not conducive to work.

Brian Trumbore

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