Week in Review

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Week in Review

08/15/2015

For the week 8/10-8/14

Washington and Wall Street

I think everyone would like to take the month of August off, as much of the world seems to do. I was sure hoping to have a few slow news weeks before things heat up big time in September; with Congress voting on the Iran nuclear deal by Sept. 17, Chinese President Xi Jinping’s visit (which should be a tension convention, if President Obama will let it be), renewed budget negotiations (though this seems headed to a three- or four-month short-term spending patch of some kind to get past the Oct. 1 deadline), the annual U.N. General Assembly and its cast of characters out of the board-game Clue, and the Pope’s visit.

But August always brings something out of left field and this time it was China’s decision to devalue its currency, which I’ll get into in a moment but, for now, it roiled global markets some and injected more uncertainty into what the U.S. Federal Reserve will do come its own important September deliberations.

However, if you just looked at this week’s economic data, there should be little doubt the Fed will move next month to hike interest rates.

First we had a report on July retail sales which were strong, as forecast, up 0.6%, 0.4% ex-autos, but just as importantly, June’s figures were revised upwards so maybe second-quarter growth will inch up as well when the second reading on same is released.

July industrial production also came in up 0.6%, and this was twice the projected rate.

But because of the China move, the president of the New York Federal Reserve Bank, William Dudley, said it was too early to assess the impact and thus he hinted the Open Market Committee may need to remain on hold a bit more.

On the other hand, Dennis Lockhart, the president of the Atlanta Fed, said in a speech: “The economy has made great gains and is approaching an acceptable normal. Policy should shortly acknowledge this reality. The Fed took extraordinary policy measures in response to extraordinary economic conditions. Conditions are no longer extraordinary....

“As the Committee approaches what I consider a historic decision, I am not expecting the data signals to point uniformly in the same direction. I don’t need this. I’m prepared to see mixed data.”

Lockhart also emphasized what everyone already knows. Once the Fed acts it will do so deliberately. A quarter-point hike in September and then maybe a fraction of that in December, at best.

Separately, there was some further good news on the budget front. The Treasury Department said Wednesday that revenue for the 12-month period ended July was nearly 9% higher than the year-earlier level, while spending is up 6%.

Since the start of the fiscal year in October, the deficit is $428 billion through July, down from $460 billion at this time last year.

Europe and Asia

We caught a little break on the Greek debt crisis, or so it seems, as the Greek parliament approved a draft third bailout after an all-nighter, the vote being 222 for, 64 against with 11 abstentions. Prime Minister Alexis Tsipras got help from the opposition as expected, knowing many within his own Syriza party had already voiced their extreme displeasure over Tsipras’ giving into the creditors’ demands, when it was Syriza that won the election last winter because they were the party that wanted to stand up to Germany, the ECB, EC and IMF. As it turned out, 31 of the 149 Syriza MPs voted against, which was less than expected, but the abstentions were all Syriza members.

Instead, Tsipras convinced the vast majority that the agreement, which requires further tax hikes and spending cuts in exchange for fresh loans, was the only way to go...Greece’s third rescue package in five years.

The eurozone finance ministers then approved the 86bn euro deal late Friday, so, assuming the required national parliaments approve the package, the aid can be disbursed before a scheduled 3.2bn euro debt payment to the European Central Bank is due on Aug. 20.

Had Greece defaulted, the ECB would in turn have halted emergency funding of Greece’s crippled banks.

As for Tsipras’ future, it appears he’ll call for snap elections in September to cement his authority as his approval rating among the Greek people remains high.

But even with eurozone approval, this doesn’t mean Greece is finally out of the woods.

Many among the creditors’ group are still voicing serious concerns about Greece’s ability to repay its debt, which is expected to peak at 200% of GDP next year, far worse than forecast until just recently. This also exceeds the IMF’s long-held target of 120% before it put its own money on the line. The Germans, in particular, are very leery, and, once again, you’ll hear lots of talk over whether Greece can implement the reforms it is promising the creditors.

Aside from pension reform (and tax collection), the biggest immediate issue is the hoped for 50bn euro privatization fund that is expected to help fund bank recapitalization, which is needed to get the economy really cranking again. [Though of course the last thing Socialists are known for is privatizing anything.] Remember, while some of the numbers I discuss below were better than expected regarding the Greek economy, economic activity has still largely seized up.

And regarding giving Greece softer loan terms for its debt, this is exactly what the creditors don’t want to do because it opens up a can of worms...as in others, like Ireland, would have every right to demand better terms for their own debt since they played by the rules when they needed help, while the German government would have to convince its own people, who are largely footing Greece’s bill, that it’s in their best interests to do so.

German Chancellor Angela Merkel had urged early in the week for the creditors to take their time and not rush into a deal with Greece that wasn’t sustainable, but Wednesday she welcomed the “constructive” approach, while withholding final judgement.

But here’s the bottom line...the sad part, particularly for the Greek people, is the deal they are getting from the creditors is essentially the same one they could have had eight months ago if they had had better leadership at the top. Instead, the Greek people, while largely deserving it, frankly, suffered even further pain.

On the economic front for the eurozone as a whole, a flash reading on second-quarter GDP came in at 0.3%, down from the 0.4% pace of the first quarter and an annualized rate of 1.3%...still very soft.

Germany was 0.4% (1.8% annualized), France was depressingly unchanged (1.0% ann.), down from a solid 0.7% Q1 pace, and Italy was 0.2% (0.5% ann.), which while in line with projections just further points out the fragility of Europe’s third-largest economy.

Back to Greece, it reported GDP rose 0.8% in the second quarter over the first when a contraction was expected. Q1 was also revised to flat from down. The official forecast was that Greece would contract 2%+ this year.

But before Greeks get too giddy, this was through June 30 and remember, severe capital controls went into effect on July 1, while you’ve already seen that godawful purchasing managers index figure of 30.2 on manufacturing for July. Ergo, Q3 will reflect an economy back in the dumper, even if tourism has been resilient.

Two other eurozone items, courtesy of Eurostats... industrial production for June was down 0.4% over May, while a flash reading on July inflation for the eurozone pegged it at the same annualized pace as June’s, up 0.2%, hardly near the ECB’s 2.0% target. [Greece’s July price index remained in deflation mode, -1.3%.]

To sum up, when looking at the eurozone economy as a whole, it isn’t exactly off to the races, and now you have this China currency devaluation, which impacts Europe more than the U.S. in that 40% of European GDP is exports and China’s move is designed to grow their exports, which hurts Europe’s manufacturers.

So on to China. To set the scene you need to know the government released a ton of economic data prior to Tuesday’s move to devalue the yuan (renminbi).

Consumer prices for July rose only 1.6%, when the government wants to see this at 3%. Producer, or factory-gate prices, were down a whopping 5.4% (year over year), a 40th straight month of declines for this critical barometer.

China’s exports for July were down 8.3% on weaker global demand, while imports fell 8.1%, a ninth month in a row. [Exports to the EU fell 12% in July from a year earlier, they were down 13% to Japan, and down 1.35% to the U.S.]

Industrial production last month rose 6%, year over year, but this was less than forecast, while retail sales rose 10.5% and fixed-asset investment increased 11.2% for the first seven months of 2015, the slowest rate of growth for this metric since 2000.

The raw numbers on these last three look good, but they are nowhere near the boom-time figures when the economy was supposedly growing 10%+ and there was a spanking new airport every few miles, or so it seemed.

Additionally, two different readings on China car sales for July were awful, down 2.5% by one measure (different ‘associations’ issued the numbers), and down 6.6% according to another; the slowest annualized rates in 17 months. One example of the danger for U.S. automakers, Ford’s China sales fell 6% year on year last month.

About the only good news in the past week was residential property sales apparently rose 3% in the first seven months of the year, which is better than recent readings.

But you add all this up and China’s economy is looking rather sickly.

Well, call it coincidence or not, but the fact is all the above data came out before the central bank opted to devalue its currency by about 4%, in roughly 2% increments, Tuesday and Wednesday, roiling global markets, before the central bank kept things relatively stable Thursday and Friday at its new yuan peg. Tuesday’s move was the largest since the modern exchange-rate system was introduced in 1994 and the Commerce Ministry came right out and said it was about boosting exports.

Friday, the central bank issued a rare statement, saying there was no basis for further depreciation in the yuan given strong economic fundamentals, which seems a crock but these days the government is doing everything it can to stabilize its own markets, first and foremost, so the watchword is ‘jawboning.’

Of course devaluing means Chinese products are less expensive overseas, so U.S. politicians were among those saying Beijing was unfairly supporting its exporters.

And while the People’s Bank of China (PBOC) was trying to convince markets this was a “one-off” move, Reuters reported that “powerful voices within government were pushing for the yuan to go still lower, suggesting pressure for an overall devaluation of almost 10 percent.”

But at the same time, while politicians bitch, China’s move was a market-oriented one and this is what western governments have wanted it to do, allow the market to determine where the yuan should be priced, not Beijing. However, the devaluation only fans criticisms that China’s policy has been one-dimensional...anything to help exporters.

The PBOC said the country’s strong economic environment, sustained trade surplus, sound fiscal position and deep foreign exchange reserves provided “strong support” to the exchange rate.

At the same time, though, it was an admission Beijing has failed to re-engineer the economy to one that is more balanced, with stronger domestic consumption.

The International Monetary Fund, however, was pleased by the PBOC’s moves.

“Greater exchange rate flexibility is important for China as it strives to give market-forces a decisive role in the economy and is rapidly integrating into global financial markets. We believe that China can, and should, aim to achieve an effectively floating exchange rate system within two to three years.”

But when it came to China’s competitors, especially those in the region, there were thoughts of a currency war. The likes of South Korea and Australia have been depreciating their currencies to chase export volumes themselves. But a country like South Korea has to be careful how much it depreciates its own, the won, because it could lead to capital flight. It’s a balancing act.

Opinion...from the Lex column in the Financial Times:

“It may just have been bad timing. China’s announcement of a looser renminbi peg came only a few days after a downbeat report on exports. So when the renminbi news hit, there was a common shocked response: China’s economy must be much weaker than we thought.

“This reading took hold despite the availability of another explanation: China is keen that the IMF add the renminbi to the list of reserve currencies. This requires that it be more market-driven; the loosening was a step in that direction.

“Why is it even possible to regard the peg as an economic indicator? The conventional answer is simple and cynical: you can’t trust the official economic numbers, so you have little choice but to read into official pronouncements and actions.

“China’s official GDP growth figure does look suspiciously stable. And plenty of other official figures have been telling a scary story for some months now. Rail freight volumes have been falling, by at least one official measure, since early last year. Electricity production first gave a frighteningly weak reading last summer. Cement output went negative in March. Housing starts have been deep in the red throughout 2015.

“These data series are all volatile and, of course, are much easier to read retrospectively. All the same, many of them tell a similar story – which makes one wonder why the news of the last week has constituted a shock.

“Big, prominent companies have also been making dreary noises about operations in China for some time. Yum Brands has been reporting double-digit declines in same-store sales in China restaurants even as its supply scandals receded into the past. Hershey cut targets on weak China growth two months ago. Then reports arrived that Audi’s sales growth in China would be negative. United Technologies reported sharp declines in its Chinese elevator and air conditioner businesses in July, too.

“Optimistic investors have looked to China for so long that it may have become less stressful to dismiss weak (and unusually unequivocal) data than be cautioned by it – the latest instance of a timeless phenomenon.”

A few notes on Japan...producer prices fell 3% in July, year on year, the most in 4 ½ years, while machine orders were up 16.6% in June, which sounds good, but this is down from May’s 19.3%. Month-on-mouth, machine orders fell 7.9% in June over May.

The Japanese Central Bank has also been dumping U.S. Treasuries as the Fed prepares to hike rates. And it’s been selling German bunds and the most French sovereign debt on record since 2005.

Street Bytes

--Stocks registered marginal gains, with the Dow Jones up 0.6% to 17477, while the S&P 500 added 0.7% and Nasdaq all of five points, 0.1%.

Bonds were little changed on the week, ditto eurozone paper.

Producer prices for July came in as expected, up 0.2%, up 0.4% ex-food and energy. For the 12 months, the PPI is down 0.8%, but up 0.6% on core.

--On Friday, U.S. oil prices hit a 6 ½-year low of $41.35, a level last seen in March 2009, which was essentially the bottom in the financial crisis, though we didn’t know this at the time. Crude finished the week at $42.50 (as measured by WTI).

Questions over China’s oil demand are at the forefront, even as there has been continued strong supply from the U.S. and OPEC and now you have the probability of an extra one million barrels a day coming from Iran.

So growing supply and weak economic fundamentals spell lower prices.

Earlier, the International Energy Agency (IEA) said global oil supplies outstripped demand in the second quarter by a whopping 3m barrels a day, the most since 1998. In its monthly oil market report, the IEA said it sees the supply overhang persisting into next year with global inventories rising further before eventually reversing.

--The U.S. Federal Reserve Bank of Chicago issued a report on farmland values and they were flat to lower in much of the Midwest and Great Plains. The two biggest U.S. corn producing states, Iowa and Illinois, both declined on a yearly basis for at least the fourth consecutive quarter, but values in Indiana and Michigan rose a bit.

I may have more on this next time as I’m headed to Iowa this week. For now, corn and wheat prices, among other crops, have been getting slammed amid a report from the U.S. Agriculture Department on Wednesday that U.S. farmers could produce the third-largest corn crop ever.

--Cisco Systems beat earnings expectations on the top and bottom line; always like to see this company do well, plus it’s a good barometer for a number of reasons. The main thing I care about, revenues, were up 3.9%, which is solid these days for a company this big, including 7% in the Americas, and new CEO Chuck Robbins hinted the company would accelerate its acquisition and disposal strategies. 

While the overall revenue growth was solid, sales to emerging markets were, however, down 2% and sales to Brazil, Russia, India, China and Mexico declined 7%. At least revenues in China fell only 3%, after plummeting 20% the prior quarter.

--As I note below, I can’t imagine the expense of the Tianjin, China disaster, but imagine the lawsuits if something like that occurred here? In just one case this week, as I read in the Los Angeles Times, Bumble Bee Foods agreed to pay $6 million for violating worker safety rules, which resulted in the death of a plant worker “who was trapped inside an industrial pressure cooker that had been turned on.” It is the largest known payout in a criminal case involving workplace violations in California.

But of the $6 million, the family receives $1.5 million. $3 million goes to replace outdated tuna ovens that had required workers to go inside. The other $1.5 million goes to the DA’s Environmental Enforcement Fund and to pay for fines, penalties and court costs.

Back to the victim, he walked inside the 35-foot-long oven that sterilizes the cans of tuna and his co-workers, who didn’t know he was inside, closed the door and turned the oven on. Temperatures rose to 270 degrees. The safety managers were each charged with three felonies.

--The disaster in Tianjin is having a large ripple effect on commodities producers as the port is a major destination for material into China. For example, most Australian miners land their products there and iron ore futures have been rising as a result.

But, globally, China’s surprise devaluation of the renminbi has hammered U.S., U.K. and eurozone companies long dependent on business from China, including automakers, miners and luxury goods producers, let alone the commodities’ outfits who’ve been hammered all year amid falling domestic demand from China as the economy slumps.

The question now is whether the Chinese government’s move will help boost growth and demand.

--Taiwan’s electronics giant Foxconn is investing about $5 billion over the next five years to build a manufacturing facility in western India, one of the largest foreign investments in Indian corporate history.

Foxconn, which is a contract maker of Apple’s iPhone and iPads, is looking to diversify away from its main Chinese operations, where it is being hit by rising wages. The company is vowing to employ up to 1 million workers in India. It is currently the largest private sector employer in China.

--Taiwan smartphone maker HTC announced it would cut 15% of its staff due to falling sales. HTC once had 10% of the smartphone market and this has shriveled to 2%.

--China’s Lenovo Group will lay off 10% of white-collar staff after sales of Motorola handsets fell by a third. Lenovo had acquired the money-losing brand for $3 billion on the hopes it could turn it around. The company will be cutting 3,200 non-manufacturing jobs.

--Chinese e-commerce giant Alibaba saw its shares fall sharply as the company missed revenue expectations in the second quarter. The slowdown in China is hurting.

I said when this company first went public that I wouldn’t touch it for a variety of reasons, including transparency. I also felt the government could have an adverse impact on it at some future date.

Alibaba founder Jack Ma has always said the company is focused on the long term, and sales did rise 28%, but then the company authorized a $4 billion share buyback program over two years to boost the stock.

Plus that 28% growth is a sharp decline from 45 and 40 percent in the prior two quarters. 

--Last weekend Warren Buffett’s Berkshire Hathaway reported a 37% drop in second-quarter profit to $4bn vs. year ago levels. Berkshire owns large stakes in the likes of Coca-Cola, Wells Fargo, IBM and American Express.

So then two days later, Berkshire announced its largest-ever acquisition, metal parts manufacturer Precision Castparts, in a deal worth more than $37 billion. Buffett has long said he had his “elephant gun” ready as the company sat on $67 billion in cash as of June 30, and he’s putting it to work. It needs these kinds of deals to spur profit growth.

Precision Castparts makes products used in airplanes, for one; literally nuts and bolts.

--Kraft Heinz Co., which counts Berkshire Hathaway as its largest shareholder, is eliminating 2,500 jobs in the U.S. and Canada under its new management, including 700 in Northfield, Illinois, the long-time home of Kraft. Kraft Foods previously said it was moving its headquarters to smaller space in a Chicago office tower.

Kraft and Heinz merged in July in a deal orchestrated by Buffett and Brazil’s 3G Capital.

--Google changed its operating structure and announced it would become part of a holding company called Alphabet. Alphabet will house the main Google businesses such as search, maps and YouTube, along with businesses managed separately like Nest and investing arms such as Google Ventures. Larry Page will become the CEO of Alphabet. Sergey Brin will be the president and Eric Schmidt will become executive chairman.

Sundar Pichai, currently a senior vice president of products, will be the Google CEO. Ruth Porat will retain the chief financial officer title for both Google and Alphabet.

Page and Brin are seeking to reinvigorate the company and give operating divisions more leeway to make their own decisions. It should also increase transparency into how much money is being spent on various ventures

The shares will continue to trade on the Nasdaq under the symbols ‘GOOG’ and ‘GOOGL.’

--Struggling Twitter signed a multiyear partnership with the NFL to deliver video and other content to fans on a daily basis, expanding an existing relationship.

--Russia’s Gazprom reported profits rose 71% in ruble terms in the first quarter (it’s a little late with this stuff), but profits fell in dollar terms. Sales to Europe, its most important market, fell 16%.

The Russian economy ministry recently reported a 13% drop in production for Gazprom in the first half of the year. Tepid growth in Europe, as well as mild winter weather has impacted results for the gas giant.

--Meanwhile, the Russian economy contracted 4.6% in the second quarter from a year earlier after a 2.2% decline in the prior three months, as reported by the Federal Statistics Service in Moscow. That’s what you call a deep recession, sports fans.

Tumbling commodities prices are hammering Russia. At the same time, inflation in July was running at 15.6% because of the declining ruble, though this has been stabilizing of late.

--Copper prices hit $2.3075 a pound on Monday, the lowest since July 2009, before finishing the week at $2.35. China accounts for about 40% of global demand and consumption is slowing at the same time supplies are rising.

--In a sweeping securities fraud and computer crime case, federal prosecutors and the Securities Exchange Commission unveiled what they said was a long-running scheme to profit from insider trading, such as on yet-to-be-released corporate earnings reports and mergers and acquisitions.

The scheme spanned the U.S. and Ukraine and involved the alleged hacking of business news wire services. A foreign-based hacking network apparently downloaded more than 150,000 press releases for traders in the U.S. and overseas, including Moscow, Paris and Malta. In all, the scheme netted $100 million, according to the SEC’s complaint.

--McDonald’s continues to struggle mightily. This week it announced it was closing 184 restaurants across the U.S., while opening just 125. The last time the company contracted was in 1970.

The company’s same-store sales have fallen or remained flat 13 consecutive months.

McDonald’s earlier announced it was shuttering 700 locations around the world, with a large number of these being in Japan and China, as well as the U.S.

--As McDonald’s struggles, you have competitors such as Shake Shack that are kicking butt. The Shak reported same-store sales rose 12.9% and the company’s earnings were better than expected.

But the shares remain vastly over-valued by any standard so after shooting up to $75 on the news, they finished the week at $55.

Shake Shack does still see mid- to high-single digit same-Shack sales growth and it expects at least 12 new domestic company-operated Shacks in 2016 and beyond.

--Time Warner Inc.’s HBO announced a five-year deal to make the next five seasons of Sesame Street exclusive to HBO and its new online-only service, HBO Now. The shows will be available for free to PBS and its member stations nine months later. Brilliant move.

--According to a survey by the insurance company Allianz Global Assistance, 56% of Americans say they haven’t taken a vacation in the last 12 months.

Last year a survey by the U.S. Travel Assn. found that 40% of Americans who were questioned said they put off vacation because they didn’t want to return to a mountain of work. [Hugo Martin / Los Angeles Times]

--The U.S. Postal Service narrowed its third-quarter loss to $586 million from last year’s $1.96 billion. Owing to increased focus on shipping and packages, revenue rose 11% to about $3.6 billion, with postal workers delivering 127 million more packages than during last year’s fiscal Q3.

But there were higher labor costs associated with all those deliveries and total compensation and benefits rose 3%.

--Macy’s Inc. cut its forecast for sales growth this year to zero as the retailer missed both on earnings and revenues for the second quarter. Sales fell 2.6% overall, while sales at existing stores fell 2.1%.

Macy’s had been hoping for 2% sales growth in 2015. The shares were slammed in response.

--Department store operator Kohl’s Corp. also reported lower-than-expected same-store sales for the second quarter, up only 0.1 percent.

--But Nordstrom’s results beat the Street and its comp-store sales rose a very solid 4.9 percent.

--The Environmental Protection Agency sure botched an operation at a Colorado Mine, which closed the Animas River for a spell. The EPA unleashed a chemical brew that caused levels of arsenic and other metals to spike in the river that is key to a part of southwestern Colorado, including the city of Durango.

By week’s end, at least the water was clearing up, though the long-term impacts are not known.

--California’s drought has been a big economic story the past few years and now the strengthening El Nino in the Pacific is set to become a story of a different kind, as the National Weather Service’s Climate Prediction Center is predicting the potential for a “Godzilla El Nino,” said Bill Patzert, a climatologist with NASA’s Jet Propulsion Laboratory.

More than a few leading forecasters are predicting the same thing; drought-busting rains (and huge snowfalls in the Sierras). This is good...just don’t plan to travel anywhere in the state for a few months amid what will inevitably be massive mudslides blocking the state’s arteries.

[I’d also cancel the AT&T Pro-Am at Pebble Beach in February, today.]

Foreign Affairs

Iraq/ISIS/Syria: A truck bomb at a popular market in a predominantly Shia district of Baghdad killed over 60, with Islamic State claiming responsibility.

Meanwhile, 20 civilians died when bombs dropped by the Iraqi air force hit a maternity and children’s hospital in Fallujah.

The violence comes after the army’s outgoing chief of staff, Gen. Raymond Odierno, told reporters that the U.S. should consider embedding American troops with Iraqi forces if progress against ISIS isn’t forthcoming soon.

But then there were reports Kurdish forces fighting in northern Iraq against ISIS were attacked with chemical weapons this week, mustard gas.

The German Defense Ministry said, “There was a chemical weapons attack” southwest of Irbil and that the chemical agent had been delivered with mortar or artillery shells.

Germany has been supporting the Kurdish Peshmerga fighters with arms shipments and weapons training since September.

ISIS has previously been accused of using chlorine gas against Kurdish forces.

And ISIS is holding dozens of Christians in the southeastern province of Homs, according to Syrian community leaders, ISIS having captured the town of Qaryatain. The Syrian Observatory for Human Rights said more than 230 were kidnapped, including at least 60 Christians.

Lastly, Damascus was targeted in shelling of several areas that killed at least 13, ahead of Iranian Foreign Minister Zarif’s scheduled visit. Syrian government air raids in the east of the country killed at least 31, according to the Syrian Observatory for Human Rights.

Iran: The nuclear agreement with Iran will re-ignite in a big way after Labor Day. Until then....

“The U.S. Congress still hasn’t voted on the nuclear deal with Iran, but European companies are already rushing to invest in the Islamic Republic. Italian Foreign Minister Paolo Gentiloni last week led a business delegation to Tehran, where he told his hosts that ‘our two countries can work together in the fields of trade, commerce and economy,’ according to Iranian media.

“The same week, Italian investment bank Mediobanca signed a memorandum of understanding with Iran’s Economy Ministry to facilitate future trade between Iran and Italy.”

P5+1 members France and Germany are doing the same thing, ditto Russia and China.

“When Sen. Charles E. Schumer (D-N.Y.) decided he would vote against President Obama’s nuclear deal with Iran, he explained his reasoning in a 1,700-word essay. On balance, he concluded, ‘the very real risk that Iran will not moderate and will, instead, use the agreement to pursue its nefarious goals is too great.’ We disagree with that conclusion, but not with serene confidence; we share the senator’s concern that Iran will use the lifting of sanctions to intensify its toxic behavior in the region. We understand and respect Mr. Schumer’s decision; also, it’s generally better to treat policy disagreements in good faith.

“That has not been the spirit in which Mr. Obama and his team have met his Iran-deal critics. The president has countered them with certitude and ad hominem attacks, the combined import of which is that there are no alternatives to his policy, that support for the deal is an obvious call and that nearly anyone who suggests otherwise is motivated by politics or ideology. Mr. Obama’s rhetoric reached its low point when he observed that the deal’s opponents value war over diplomacy and that Iranian extremists were ‘making common cause with the Republican caucus.’

“This was self-contradictory when the president said it; one of the announced GOP opponents, Senate Foreign Relations Committee Chairman Bob Corker (Ten.), is a man Mr. Obama himself praised, just four months ago, as ‘sincerely concerned about this issue’ and ‘a good and decent man.’ The White House lost further consistency after Mr. Schumer’s announcement. If there’s anyone who’s not a Republican partisan, it’s the arch-Democrat from New York, who’s planning a bid to lead the Democratic Senate caucus after the current leader, Harry Reid (Nev.), retires. As payback the White House and its allies are openly encouraging Democrats to deny him the job.”

“Much has now been written on the merits and demerits of the Iran deal. Not enough has been said about the bald certitude of its principal sponsor, or the naked condescending disdain with which he treats his opponents. Mr. Obama has the swagger of a man who never seems to have encountered a contrary point of view he respected, or come to grips with the limits of his own intelligence, or figured out that facile arguments tend to be weak ones, if for no other reason than that the world is a complicated place, information is never complete and truth is rarely more than partial....

“One might have thought that, by now, the president and his advisers would be chastened by experience. Al Qaeda is ‘on a path to defeat’ (2012). Bashar Assad’s ‘days are numbered’ (2011). ‘If you like your current insurance, you can keep that insurance. Period, end of story’ (2009). Russia and the U.S. ‘are not simply resetting our relationship but also broadening it’ (2010). Yemen is an example of a counterterrorist strategy ‘we have successfully pursued...for years’ (2014)....

“It says something about the crassness of Mr. Obama’s approach that the New York Times noted that allies of the president fear he ‘has gone overboard in criticizing’ opponents of the deal. But it also says something about the weakness of his deal. Right behind Mr. Obama’s salesmanship is a battalion of apologists who admit that the deal is a stinker but the realistic alternatives may be worse – particularly when there’s no hope of Mr. Obama’s punishing Iran should it sprint toward a bomb in the wake of the deal’s collapse.”

[Albright is founder and president of the Institute for Science and International Security]

“Iran’s Foreign Minister Mohammad Javad Zarif said over the weekend that my organization, the Institute for Science and International Security, was spreading lies when we published satellite imagery that showed renewed, concerning activity at the Parchin military site near Tehran. This site is linked by Western intelligence and the International Atomic Energy Agency (IAEA) to past work on nuclear weapons. But...the Iranians (continue) to deny the visible evidence in commercial satellite imagery. Iran’s comments would be mirthful if the topic were not so serious.

“Zarif is also calling U.S. intelligence officials and members of Congress liars. They are the original source of the information both about renewed activity at Parchin and concerns about the activity. All we did was publish satellite imagery showing this activity and restate the obvious concern....

“Concern about Parchin has become more urgent now that there is a debate raging over whether the IAEA will have adequate access to this site under the terms of its deal with Iran. It would be irresponsible not to worry about reports that suggest that Iran could be again sanitizing the site to thwart environmental sampling that could reveal past nuclear weapons activities there. This concern is further heightened because Iran has demanded to do this sampling itself instead of letting the IAEA do it. Such an arrangement is unprecedented and risky, and will be even more so if Iran continues to sanitize the site....the IAEA will not be able to visit Parchin until after the samples are taken, and it remains doubtful that the inspectors will be able to take additional samples....

“Resolving the Parchin issue is central to the IAEA’s effort to resolve concerns about Iran’s past work on nuclear weapons by the end of the year, but Parchin is not the only site and activity involved in this crucial issue. The IAEA needs to visit other sites and interview a range of scientists and officials. Instead of allowing this needed access, Iran appears to be continuing its policy of total denial, stating that the concerns are merely Western falsifications and fantasies. The United States recently reasserted that it believes Iran had a nuclear weapons program and stated that it knows a considerable amount about it. So, if Iran sticks to its strategy, one can expect an impasse that includes Iran refusing to allow the IAEA the access it needs to sites and scientists within the coming months....

“The United States and Congress should clearly and publicly confirm, and Congress should support with legislation, that if Iran does not address the IAEA’s concerns about the past military dimensions of its nuclear programs, U.S. sanctions will not be lifted. To do otherwise is to make a mockery of the nuclear deal.”

Turkey: Istanbul saw a wave of attacks on Monday that were more than a bit disconcerting, with two women shooting at the U.S. consulate and at least nine people being killed in separate attacks on Turkish security forces; this after Turkey announced a crackdown on ISIS, Kurdish and far-left militants.

Afghanistan: The country has been rocked by a series of bombings blamed on the Taliban that killed dozens in the past week. Afghan President Ashraf Ghani angrily denounced Pakistan for failing to stop Taliban militants from using Pakistan to plot their terror strikes.

“We hoped for peace, but war is declared against us from Pakistani territory,” Ghani said at a news conference on Monday.

65 were killed in attacks on Kabul alone, over 80 nationwide, as there appears to be a power struggle in the Taliban to see who takes over for the main leader, Mullah Omar, who while we now know has been dead over two years, it wasn’t made official until two weeks ago.

Israel: Naftali Bennett / New York Times

[Bennett is Israel’s education minister and leader of the Jewish Home Party.]

“Israel is under attack. This time though, the threat is not from Iran, Hizbullah or Hamas. It comes from a fringe group within Israel, which needs to be eradicated swiftly and forcefully.

“Last week, an ultra-Orthodox man brutally stabbed six participants at the Gay Pride Parade in Jerusalem, including 16-year-old Shira Banki who a few days later died of her injuries....

“A day later, Israelis awoke to news that an 18-month-old Palestinian boy, Ali Dawabsha, had been burned to death in a firebomb attack on his home in the West Bank village of Duma. His family is still hospitalized, fighting for their lives. [Ed. the father later died.]

“Shira’s murderer and the suspected perpetrators of the heinous and unforgivable firebombing that killed Ali are radical Jewish extremists who claim to act in the name of God but do the exact opposite – they desecrate God, our religion and the Jewish people.

“They represent no one but themselves. They are terrorists. And just as Israel has done in our previous wars on terror, we will defeat them with all the means at our disposal.

“I am the leader of Israel’s right-wing camp and it is no secret that I have genuine disagreements with our Palestinian neighbors....

“But at the same time, I believe in coexistence and working together with our neighbors to create stability, economic prosperity and a safe, secure future for all of our children, Israeli and Palestinian, without regard for their religion or sexual orientation....

“The terrorists who killed Shira and Ali do not represent Israel or its people. They are a fringe group, made up of radical extremists who do not only seek to kill. Their ultimate goal is the destruction of the State of Israel....

“These extremists threaten Zionism, our future and our statehood. We must do everything in our power to stop them.”

China: As I go to post, there are still a ton of questions regarding the catastrophic explosions in the port area of Tianjin (near Beijing) on Wednesday night. The death toll will continue to climb for days to come, though the government is saying 50 thus far, with at least 700 injured.

It is still unclear what hazardous chemicals were being stored inside the warehouse where the explosions took place, but some experts say that some chemicals may have been easily flammable at temperatures of 35 Celsius (95F), which would have been enough to start a fire. Or a possible leak from a container, coupled with the hot temps inside the warehouse, may have been enough.

We do know the chemicals released included potassium nitrate, sodium cyanide and toluene, which can prove harmful to a person’s nervous system.

Firefighters were initially called to the port on reports of a fire, but then the two massive explosions hit, killing at least 12 of them, with over 30 missing.

In another example of ‘classic China,’ local Tianjin television stations on Thursday devoted little live coverage to the explosions. Nope. Wouldn’t want to embarrass local officials now, would we?

But wait...there’s more! As noted in a Bloomberg story, “Air pollution is killing an average of 4,000 people a day in China, according to researchers who cited coal-burning as the likely principal cause.”

As I’ve written for years, it’s about the tiny particles known as PM2.5s that can trigger heart attacks, strokes, lung cancer and asthma.

“When I was last in Beijing, pollution was at the hazardous level: Every hour of exposure reduced my life expectancy by 20 minutes,” Richard Muller, scientific director of Berkeley Earth and a co-author of a paper published in PLOS One from the Public Library of Science. “It’s as if every man, woman and child smoked 1.5 cigarettes each hour.”

China still gets about 64 percent of its primary energy from coal, according to National Energy Administration data. True, the dirtiest plants are being closed, including at least four around Beijing, but new ones are still planned, albeit cleaner ones.

Separately, Typhoon Soudelor did a number on Taiwan and then eastern China. One city on Taiwan’s northeast side, Taipingshan, recorded 46 inches of rain in less than 36 hours. It was difficult coming up with an accurate death toll, with the number of missing, but it exceeded seven on the island and 14 on the mainland, with millions losing power on both.

Japan: The government ended a two-year freeze on the use of nuclear power, restarting one of the dozens of reactors in the country that were taken offline after meltdowns at a plant in Fukushima in 2011. None of Japan’s 48 operable commercial nuclear reactors that shut down soon after the accident have operated since 2013.

This is a highly contentious issue in Japan. Not all 48 will operate again, only those meeting new safety standards. But with few domestic energy sources, Japan needs as many as possible. Electricity prices have risen 20 percent since the Fukushima disaster, squeezing households and businesses.

But surveys still show a majority of Japanese favor closing the idled plants permanently.

Separately, the past ten days saw sober commemorations of the 70th anniversary of the dropping of the atomic bombs on Hiroshima and Nagasaki.

Friday, Prime Minister Shinzo Abe expressed “profound grief” over his country’s actions in World War II as he made a long-awaited statement marking 70 years since Japan’s surrender, saying apologies made by previous governments were “unshakeable.”

Abe pledged Japan would “never wage a war again.” The prime minister is under pressure not only to avoid angering China and South Korea, but also to satisfy his own nationalists, who are tired of being asked all the time to apologize. He didn’t...personally. [Abe also failed to mention the issues of the ‘comfort women’ and Nanking, which is what Beijing and Seoul are looking for.]

North Korea: According to a South Korean media report, North Korea’s vice premier has been executed by firing squad after showing discontent with the policies of leader Kim Jong-un.

Yonhap News Agency cited an unnamed source as saying 63-year-old Choe Yong-gon was the latest in a series of high-level purges since Kim took charge in late 2011. An estimated 70 officials have been killed.

Mr. Choe was last seen publicly in December, according to a South Korean official.

Also, South Korea accused the North of planting land mines that maimed two of its soldiers, saying Pyongyang “will pay a severe price.”

One soldier had a foot amputated and the second had to have parts of both legs removed after stepping on wooden-box mines in the demilitarized zone.

Russia / Ukraine: A senior Russian diplomat has strongly denied claims Iranian Maj. Gen. Ghasem Soleimani, commander of Iran’s elite Quds Force, visited Moscow in violation of U.N. sanctions. Fox News had reported Soleimani traveled there last month for meetings with President Vladimir Putin.

Actually, in a piece I read from Lebanon’s Daily Star, “An Iranian official” said Soleimani “met senior Russian officials in Moscow in July.” This same report said Iranian Foreign Minister Zarif was visiting Moscow this coming week.

Meanwhile, a Russian newspaper posted an audiotape on its website that it says reveals two U.S. spies plotting to bring down Malaysia Airlines flight MH17 over Ukraine last year. But as Carol J. Williams reported in the Sydney Morning Herald (and L.A. Times), “the conversations are so stilted and oddly worded that they have been widely dismissed by native English speakers as obviously fake.”

Foreign Policy magazine, in a commentary posted under the rubric Propaganda Watch, called the recordings “comically bad.”

On the Ukraine front, Kiev said pro-Russian rebels had increased the intensity of shelling in the east to the highest levels in weeks. The Ukrainian military said there were 127 violations of a truce in just 24 hours, with the heaviest fighting in the Donetsk region, leaving “many casualties.” The death toll in the war now exceeds 6,700, according to the U.N.

Cuba: I’m sorry...I really couldn’t give a damn about this place. But today was important as we finally flew our flag over the Embassy in Havana. That said....

“The American flag is a powerful symbol of the country’s long and noble struggle to defend the values of freedom and democracy. When Secretary of State John F. Kerry raises it over the U.S. embassy in Cuba on Friday, the ceremony will mark an end to a half-century of hostility between the two nations. President Obama has gambled that establishing normal relations with Cuba – commerce, information, culture and ‘soft power’ – is the best way to change the isolated island, still in the grip of the Castro brothers and their sclerotic revolution.

“What’s unfortunate about the scenario planned for Havana is that Mr. Kerry has decided to omit the very people in Cuba who embody the values that the American flag represents: human dignity, the wisdom of the individual above the state and free access to basic rights of expression in speech, assembly and thought. These people – the dissidents in Cuba who have fought tirelessly for democracy and human rights, and who continue to suffer regular beatings and arrests – will not be witnesses to the flag-raising. They were not invited.

“The official U.S. explanation for excluding the dissidents is that the flag-raising ceremony is a government-to-government affair. This is lame. Inviting the dissidents would be a demonstration to Raul and Fidel Castro of what the flag stands for: people freely choosing their leaders, a pluralism of views and a public engaging in the institutions and traditions of a healthy civil society. Not inviting them is a sorry tip of the hat to what the Castros so vividly stand for: diktat, statism, control and rule by fear.”

Random Musings

--A post-Republican debate NBC/Wall Street Journal national poll had 22% saying Carly Fiorina won the debate, with 18% picking Donald Trump. 

But overall, 23% of Republicans would vote for Trump. 13% for Ted Cruz, 11% for Ben Carson, and 8% apiece for Fiorina and Marco Rubio.

[A Reuters/Ipsos national survey, post-debate, had Trump at 24%, with Jeb Bush next at 12%. No other candidate had more than 8%.]

Curiously in the NBC/WSJ poll, Sen. Rand Paul was hurt the most in the debate, with 8% of those polled saying their opinion of him improved, while 22% said they felt more negative. Of course it was Paul who most went after both Trump and Chris Christie.

--A CNN/ORC poll of Republican caucus-goers in Iowa has Trump at 22%, Carson 14%, Walker 9%, Cruz 8%, Fiorina 7%, Huckabee 7% and Bush, Paul and Rubio at 5%. Chris Christie is at 3%.

On the Democratic side, Hillary Clinton leads Bernie Sanders, 50-31, with Joe Biden at 12%.

A Suffolk University Iowa survey has Trump at 17%, Walker 12%, Rubio 10%, Carson 9% and Fiorina and Cruz at 7% apiece.

--A Boston Herald/Franklin Pierce Univ. New Hampshire poll has Trump at 18%, Bush 13%, Kasich 12%, Cruz 10% and Fiorina 9%. [Chris Christie 3%.]

--Bernie Sanders’ crowds have truly been remarkable... 15,000 in Seattle; 28,000 in Portland, Ore.

“The Clinton team is clearly nervous. Her poll numbers have been plummeting as Sanders’ have been surging. The campaign moved up its ad buys from November to this month. She’s been tacking ever further left.

“The trouble for Clinton and the Democrats generally is that while Barack Obama was able to unite the factions of the left to get himself elected, it’s not clear anyone else can....

“(And) the Obama coalition seems to be fraying while he’s still in office.

“The black left is angrier at the end of his presidency than it was at the beginning. The egalitarians think the country is worse off, and the technocrats are left trying to explain why their plans are so great, despite the fact that the economy has never really recovered on their watch.

“Moreover, none of Obama’s presumptive heirs has the charisma or skills to repair or sustain the coalition.

“Sanders has charm, but the Jewish socialist transplant from Brooklyn has spent his political life in a state that has only about 7,500 blacks.

“He lacks the vocabulary to appeal beyond the white left. Meanwhile, the black left, an indispensable voting bloc, has no standard-bearer in the primaries and is clearly cross about it.

“Clinton’s most comfortable in the role of elitist technocrat, which is great for fundraising from Wall Street and wooing Beltway journalists, but it’s not so useful for wooing voters in a populist environment.

“Thanks to her husband, she still has goodwill among African-Americans. But she lacks the charisma, passion or personal story to excite either the black left or the white left. The woman who left the White House ‘dead broke’ makes five times the average American’s annual income per speech.

“The GOP’s Trump problem will eventually melt away. I suspect the Democrats’ troubles are far more durable.”

“Al Capone famously never got put away for murder or mob activity. It was tax evasion that snared the iconic mobster. Hillary Clinton has yet to be charged with anything but the irony that she may have stumbled over a ‘technical’ security rule is palpable.

“The Post reports, ‘Hillary Rodham Clinton’s attorney has agreed to provide the FBI with the private server that housed her e-mail during her four years as secretary of state, Clinton’s presidential campaign said Tuesday. Her attorney has agreed to give agents a thumb drive containing copies of thousands of e-mails that Clinton had previously turned over to the State Department.'

According to ex-law enforcement officials and criminal law attorneys experienced with investigations of high-profile individuals with whom we have spoken, this is a nice way of saying: ‘The FBI allowed her to hand over the material instead of suffering the embarrassment of subpoena.' The Clinton campaign’s silence seems to confirm this is the case. (‘Nick Merrill, a Clinton spokesman, said Tuesday night that Clinton is cooperating with the FBI probe. He declined to say whether the FBI ordered that she turn over the devices and when her attorney, David Kendall, had done so.’)

“The Associated Press reports, ‘A day after Hillary Rodham Clinton turned her personal email server over to the Justice Department, her campaign assured supporters that the Democratic presidential candidate did not send classified information over her private account.' How Clintonian. This does not mean she did not possess such e-mails or that her receipt of these on an unsecured server was proper. Indeed this is where the plot thickens:

“ ‘There is no evidence she used encryption to prevent prying eyes from accessing the emails or her personal server.

“ ‘Two emails that traversed Clinton’s personal system contained information that had been designated ‘top secret’ and ‘sensitive compartmented information,’ one of the government’s highest classification ratings, U.S. officials said.’

“First, the investigation is being handled by the FBI, headed by widely-respected director James Comey....

“Second, high level officials including Gen. (Ret.) David Petraeus and another former CIA director John Deutch were investigated for improper handling of classified materials. Petraeus was compelled to accept a plea deal.” [Deutch agreed to plead guilty to a misdemeanor and paid a small fine. He was later pardoned by Bill Clinton.]

“There is something stunning that after all the Clinton escapades, the issue that might bring her down is her own paranoid penchant for control and secrecy....(and) as she always feared, once her e-mails are in others’ hands, the leaks will start and we may learn much more about Clinton than we ever have.”

--Back to Trump, as for his dustup with Fox anchor Megyn Kelly, the two have agreed to disagree. 

--Meanwhile, Rick Perry’s candidacy has imploded. Bye bye.

--According to the Eagleton Center for Public Interest Polling at Rutgers University, 54% of my fellow New Jerseyans want Chris Christie to step down while he runs for president, while 41% believe he should remain in office. He has spent nearly 55% of the year outside of the state, as reported by NJ Advance Media.

--New York City Mayor Bill de Blasio really has done a godawful job, the latest example being the city’s handling of the legionnaires disease outbreak that has killed 12. He had to admit this week the city didn’t know the locations of cooling towers, breeding grounds for the disease, nor did the city inspect them prior to this situation.

--Wasn’t it funny how one video released in Ferguson, Missouri, highlighting the dirtball who fired on police during the recent protests and then was hit himself, finally quieted down activists in the area, at least for a day or two?

I have tried to keep quiet on the whole Black Lives Matter movement. It’s really not part of what I do, is my reasoning.

But after the killing of the police officer in Memphis the other week, I couldn’t help but notice Memphis Police Director Toney Armstrong (black), who said the following:

“We say so often...do black lives matter? And at the end of the day, we have to ask ourselves, do all lives matter – regardless of race, creed, color, economic status, what profession that person holds? All lives matter,” Armstrong said. “This is just a reminder of how dangerous this job is.”

And it just has to be said, Bernie Sanders was a wimp when he let the Black Lives Matter folks shut down one of his speeches.

--More than 1,200 Baltimore government workers made more than $100,000 in salary and overtime pay in fiscal 2015, salary data show. That seems like a staggeringly large number for a small, dysfunctional city.

--Finally, believe it or not, I watched Jon Stewart maybe once. Oh, I saw all the clips, virtually every day, it seems, so I knew his act. His show just always conflicted with what I was watching and I don’t have time to view taped episodes of anything.

So I’m reading last week’s TIME and in their bits and pieces segment at the front of the magazine, they acknowledge Stewart’s departure with his quote concerning Fox News. “Adios...M-----F’ers.”

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

Gold $1112
Oil $42.50

Returns for the week 8/10-8/14

Dow Jones +0.6% [17477]
S&P 500 +0.7% [2091]
S&P MidCap +0.9%
Russell 2000 +0.5%
Nasdaq +0.1% [5048]

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

Dow Jones -1.9%
S&P 500 +1.6%
S&P MidCap +3.4%
Russell 2000 +0.7%
Nasdaq +6.6%

Bulls 40.2
Bears 18.6 [Source: Investors Intelligence]

Click on the GoFundMe link above if you haven’t already done so, or you can send a check to PO Box 990, New Providence, NJ 07974...just as my favorite cousin, Carolyn, did this week. You’re the best, Carolyn! [Her mother was my godmother...the sweetest, kindest person God ever created, at least in my lifetime.]

Brian Trumbore

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