Week in Review

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Week in Review

07/30/2011

For the week 7/25-7/29

Europe, Washington and Wall Street

Before we get to the mess in Washington, I want you to read part of an editorial in the Financial Times by Francois Baroin and Wolfgang Schauble, finance ministers of France and Germany, respectively. Baroin and Schauble are discussing the new Greek Bailout II and its chances of success. By the end you should be falling out of your chair with laughter.

“Given the Greek government’s commitment to stabilize its finances and strengthen its competitiveness, eurozone countries, together with the International Monetary Fund, will offer new financing, in view of Greece’s difficulty regaining market access. The private sector will bear its responsibilities, assuming a large part of Greece’s financing needs and easing its debt burden. The European financial stability facility, and later the European stability mechanism, will be strengthened too, including allowing them to act preventively where contagion threatens eurozone countries.

“Greece can succeed in making its debt sustainable in the long term if it succeeds in both increasing growth and reducing its debt ratio. Greece has committed itself to additional drastic consolidation measures, with the goal of bringing its budget deficit below 3% of gross domestic product by 2014. It has also committed itself to profound structural reforms to strengthen growth and competitiveness, as well as extensive privatization. European Union structural funds for Greece will also be more closely targeted at increasing growth and competitiveness. On this basis, Greece will be able to overcome its debt problems and return to growth.”

On what freakin’ planet are these two living on?! Where do you begin? For starters, I love all this talk of the private sector stepping up, a private partnership, when I told you weeks ago that the banks and insurance companies basically already bailed out of their Greek paper…the very scrip the EU is hoping these same institutions will roll over and willingly take haircuts on.    And the European Financial Stability Facility (EFSF) is woefully inadequate, as I’ll note further in a bit, and there is zero guarantee it will be strengthened in the future primarily because of the political dynamics, plus there is no way Greece’s budget deficit is 3% of GDP by 2014. If it is, believe me, the global equity markets will be on a helluva roll because that would be the best sign we’ve licked the crisis.

Of course this week Moody’s Investors Service again downgraded Greece, citing the very European plan that Baroin and Schauble are praising. Yes, if you hand Greece $150 billion it probably won’t fall into the Aegean for a while, but Greece still needs a ‘selective default’ that sets a precedent for the rest of the eurozone nations. EU officials, on the other hand, say, the problem stops here. Other countries won’t need Greece-like bailouts (even though Portugal and Ireland have smaller ones already). 

But for the rest of us it continues to be all about Italy and Spain and contagion.

“Greece will be deemed in at least partial default by the ratings agencies and both Ireland and Portugal are likely to be stuck with a junk credit rating, or close to it, for years to come. The deal does not address the solvency issue for these countries and persists in the expectation that something will happen to restore their borrowing ability. These PIGs will not be flying back to market anytime soon.

“The real threat to stability is contagion to Italy and Spain…The EU leaders have, in the cases of Greece, Ireland and Portugal, acknowledged that distressed eurozone sovereigns cannot be expected to pay much beyond four percent….

“A feature of the program intended to deal with the contagion threat is a provision that loans could be extended from the European Financial Stability Facility to countries not yet in a formal rescue program, for which read Italy and Spain. But the conditions for such assistance are unclear and the EFSF has been allocated additional tasks but no additional funding. This inspired economist Willem Buiter to liken it to a soldier instructed to shoot some additional targets but furnished with no additional bullets.

“European decision-makers will be heading for the beaches shortly but the bond market will not. If Spain and Italy get into trouble over the next few months (an upward creep in rates and a cancelled bond auction), there is no clarity about the policy response. This is the crucial weakness in Thursday’s [July 21] deal. While the EFSF can now buy bonds in the secondary market, they will not have funds to do so. The European Central Bank has felt constrained from the creation of extra liquidity to do this job itself. A normal central bank, such as the U.S. Federal Reserve or the Bank of England, would respond this way to a financial crisis and indeed both have already done so. The Brussels decisions will work for now provided Italy and Spain get lucky. If not, there will be more crisis summits in due course.”

By week’s end, Italy and Spain were once again inching their way back into the headlines. Interest rates on their bonds were rising anew and the International Monetary Fund said Spain is still in “the danger zone.” “The policy agenda remains challenging and urgent – there can be no let up in the reform momentum.”

I’d add you aren’t going to get more funding for the EFSF facility, currently at 440 billion euros, which is nowhere near enough if Italy or Spain blow up, when the people in key countries such as Germany are as ticked off as they already are with Chancellor Angela Merkel and some of her euro compatriots.

Addressing the bailout package, the finance chair for the Free Democrats, part of Merkel’s ruling coalition, said the Brussels summit threatened “the castration of Germany’s Parliament” by shifting budget power to Europe.

The head of the Bundesbank, Jens Weidmann, said the accord exposed Germany and other creditor states to “sizable risks” and greatly altered the EU’s constitutional landscape.

“The euro area has taken a big step towards a collectivization of risks,” he said. “This weakens the foundations of a monetary union where each is responsible for its own budget. In the future, it is going to be even harder to uphold incentives for solid fiscal policies.”

Matthew Campbell and Robert Watts / Sunday Times (of London)

“Germany’s new anti-EU mood was captured in a recent warning by the Frankfurter Allgemeine Zeitung, the leading broadsheet newspaper, that the EU was becoming a ‘monster’ – an observation unthinkable only a few years ago. Euroscepticism, formerly the preserve of Britain, has infected the French and the Dutch, once fervently pro-European. Even the Scandinavians are rebelling against the social democratic pro-European model. From Copenhagen to Helsinki they are embracing the far-right, anti-immigrant parties whose rabble-rousing demagogues seem more in tune with their pain. There is so much anger in Finland about bailouts that it risks bringing down the government.

“Sarkozy will crow, in the best Gallic tradition, about saving the world from disaster – ‘We have done something historic,’ he boasted after the agreement on Thursday. But the truth is that the politicians running the EU have done little to combat the disenchantment…

“From Italy’s Silvio Berlusconi – dismissed by critics as a clown interested more in ‘bunga-bunga’ parties with topless girls than in politics – to the backbiting duo of ‘Sarko’ and Merkel, Europe’s leaders have seemed oblivious to the gathering rebellion outside their gates.”

It was another pathetic week in our nation’s capital, starting with zero leadership at the top from a figure no one likes anymore, a president who with last January’s State of the Union address had the opportunity to use the bully pulpit and begin to educate the American people on the entitlement crisis and instead did nothing.

And Barack Obama did nothing with the Simpson-Bowles commission, one he called for himself, ignoring their highly thoughtful, and realistic, game plan for dealing with the deficit. He threw his own commission under the bus. If I were those members who spent days and days working on it, I’d march into the Oval Office en massee and scream, “Why did you waste our time?!”

But on the other side of the aisle, you have the Republicans, who as Charles Krauthammer spells out below for some reason want to shoot themselves in the foot and hand Obama a political victory.

As for the upcoming Tuesday, Aug. 2, debt-ceiling deadline, by the time some of you read this, maybe there will have been a resolution. If not, what you need to know is that on Aug. 2 through the rest of the month, the government takes in $172 billion and $306 billion is scheduled to go out, with ‘just’ $29 billion in actual debt service the month of August. It’s up to the president then to decide which of the remaining $277 billion is paid out of $143 billion in receipts.

But the bottom line hasn’t changed for me all year and now that we aren’t going to get the legitimate $4 trillion deficit reduction package that would have set the markets on fire, as investment dollars from around the world flooded into the United States, and instead are likely to see a $2 trillion or less package, we’re on course for the great Crash of 2012, again, as I noted way back, with a decline on the order of 30% in a short period of time. I’m just guessing we could somehow skirt through the balance of 2011, but something will trigger the calamity next year.

Most likely it will be because the United States, without a real effort to cut entitlements once the debt-ceiling is raised, will become like Greece in terms of we’ll be lurching from crisis to crisis and at some point next spring or summer, especially as the presidential campaign really heats up and the rhetoric makes us all want to hurl, the trigger will be pulled and the markets will be on life support. 

Editorial / Wall Street Journal…on Obama’s speech Monday night.

“Apart from shifting blame for any debt default, the speech was also an attempt to inoculate Mr. Obama in case the U.S. loses its AAA credit rating. He cleverly, if dishonestly, elided the credit-rating issue with the debt-ceiling debate. But he knows that Standard & Poor’s has said that it may cut the U.S. rating even if Congress moves on the debt ceiling. Mr. Obama wants to avoid any accountability for the spending blowout of the last three years that has raised the national debt held by the public – the kind we have to pay back – from 40% in 2008 to 72% next year, and rising. This will be the real cause of any downgrade.”

“If leadership is the capacity to take people where they need to go – whether or not they realize it or want it – then we’ve had almost no leadership in these weeks of frustrating and maddening debate over the budget and debt ceiling. There’s been an unspoken consensus among President Obama, congressional Democrats and Republicans not to discuss the central issue underlying the standoff….

“By now, it’s obvious that we need to rewrite the social contract that, over the past half-century, has transformed the federal government’s main task into transferring income from workers to retirees….Social Security, Medicare and Medicaid and other retiree programs constitute roughly half of non-interest federal spending.

“These transfers have become so huge that, unless checked, they will sabotage America’s future. The facts are known: By 2035, the 65-and-over population will nearly double, and health costs remain uncontrolled; the combination automatically expands federal spending (as a share of the economy) by about one-third from 2005 levels. This tidal wave of spending means one or all of the following: (a) much higher taxes; (b) the gutting of other government services, from the Weather Service to medical research; (c) a partial and dangerous disarmament; (d) large and unstable deficits….

“On average, the federal government supports each American 65 and over by about $26,000 a year (about $14,000 through Social Security, $12,000 through Medicare). At 65, the average American will live almost 20 more years. Should these sizable annual subsidies begin later and be less for some? It’s hard to discuss the budget realistically if you ignore most of what the budget does.

“That’s been our course. Obama poses as one brave guy for even broaching ‘entitlement reform’ with fellow Democrats. What he hasn’t done is to ask – in language that is clear and comprehensible to ordinary people – whether many healthy, reasonably well-off seniors deserve all the subsidies they receive. That would be leadership. Obama is having none of it. But the shunning is bipartisan. Tea Party advocates broadly deplore government spending without acknowledging that most of it goes for popular Social Security and Medicare.”

The people, especially the elderly, know the budget deficits are a big problem, but in the latest Pew Research Center poll, 64% rejected higher Medicare premiums and 58% opposed gradual increases in the Social Security retirement age.

Friend of the right, Charles Krauthammer of the Washington Post, writes:

“Consider the Boehner Plan for debt reduction. The Heritage Foundation’s advocacy arm calls it ‘regrettably insufficient.’ Of course it is. That’s what happens when you control only half a branch. But the plan’s achievements are significant. It is all cuts, no taxes. It establishes the precedent that debt-ceiling increases must be accompanied by equal spending cuts. And it provides half a year to both negotiate more fundamental reform (tax and entitlement) and keep the issue of debt reduction constantly in the public eye….

“Obama faces two massive problems – jobs and debt. They’re both the result of his spectacularly failed Keynesian gamble: massive spending that left us a stagnant economy with high and chronic unemployment – and a staggering debt burden. Obama is desperate to share ownership of this failure. Economic dislocation from a debt-ceiling crisis nicely serves that purpose – if the Republicans play along. The perfect out: Those crazy Tea Partyers ruined the recovery?

“Why would any conservative collaborate with that ploy? November 2012 constitutes the new conservatism’s one chance to restructure government and change the ideological course of the country. Why risk forfeiting that outcome by offering to share ownership of Obama’s wreckage?”

“Admit it. Part of you wants to see Washington blow it. You want to see our national debt downgraded. Deep down inside, against your more rational instincts, you want to see a U.S. debt default. We haven’t had a real default since powdered wigs and tricornered hats were in vogue.

“The reason, maybe the only reason, we like games of chicken is because of the potential for disaster. We want to see someone wait too long, past the moment of no return. And the funny thing about it is as that moment comes closer – in this case Aug. 2 – we want to see it happen ever more.

“If anything, brinksmanship spurs a rabid, adrenaline-fueled curiosity. In the debt-ceiling debate, we have got it in spades.

“And, given the way each side is misreading the other, the odds are getting better every day that we will find out how spectacular the crash will really be.”

Meanwhile, China’s state-run news agency sharply criticized the debate in Washington, though no actual policymakers have said anything as yet, recognizing China isn’t real popular over here these days. Nonetheless, Xinhua stated in an editorial that it was “unfortunate and disappointing” that other countries would have to pay if American lawmakers do not raise the ceiling.

“It is arguably true that the ongoing tug of war in Washington is Uncle Sam’s own business, as the United States has not yet defaulted on its debt.

“However, the ugliest part of the saga is that the well-being of many other countries is also in the impact zone when the donkey and the elephant fight.”

U.S. economist Stephen Roach, who has spent years in China, said senior officials there are “appalled” by the impasse.

“Coming so shortly on the heels of the subprime crisis, the debate over the debt ceiling and the budget deficit is the last straw” for China, Roach told Bloomberg News.

Roach cited an unnamed Chinese policymaker as saying the other week that “we understand politics, but your government’s continued recklessness is astonishing.”

But let’s say we avoid default and instead are downgraded, as seems likely any day now.

David Wessel of the Wall Street Journal has a good explanation for us laymen.

“Very little happens automatically if the U.S. Treasury long-term debt is stamped AA by S&P. A few institutions with strict rules about holding only AAA paper would have to sell, or change their charters. And no one knows precisely what will happen in the big ‘repo market,’ where institutions make short-term loans collateralized by U.S. Treasury debt. But money market mutual funds – which hold $684 billion in U.S. government debt – wouldn’t have to dump Treasuries or stop buying them, their trade association says. Life-insurance companies could still hold U.S. Treasuries, their trade association says. U.S. banks, under current rules, wouldn’t have to retain bigger capital cushions against U.S. Treasury holdings….

“A downgrade could have more political than financial impact: Pushing Congress to actually do something about the deficit, instead of passing bills that don’t become law. Or it could push the ratings firms further to the sidelines. Economist Carmen Reinhart of the Peterson Institute for International Economics in Washington predicts a downgrade will accelerate efforts by governments on both sides of the Atlantic to de-emphasize rating-firm opinions, a particularly convenient move at a time when governments are borrowing so heavily.

“Ultimately, the issue is the unsustainable fiscal trajectory of the U.S. government and the inability of the political system to change course. The credit rating isn’t the problem. The problem is the problem.”

That concludes the debt-ceiling portion of our review. And now….

Wall Street and the economy…and boy do both totally suck. The Dow Jones has declined 581 points in six days and then on Friday, we learned that the U.S. economy grew at a paltry 1.3% clip in the second quarter, below consensus, though the big shocker was in a drastic revision for the first quarter from growth of 1.9% to just 0.4%. We were supposed to be growing at 3% all year. Further, we also learned that 2009 was more brutal than we thought, with the economy declining 3.5% rather than the earlier stated figure of 2.6%.

Put it all together, the first six months in particular, and it’s no mystery why the unemployment rate is at 9.2%, with the real figure far higher. Equally distressing were some of the comments coming out of Corporate America as CEOs discussed the future.

Juniper Networks, for one. Juniper is a rival to Cisco Systems in the Internet networking business and this week lowered guidance for the balance of the year on slowing sales. Just last April, Juniper had predicted second quarter revenue would rise 16% to 21% and instead it reported a 15% increase, while now guiding down for the current quarter from estimated revenue growth of 14.5% to just 9.4%.

Emerson Electric said it expects orders to slow in the second half.

“U.S. and European economies have clearly slowed and entered a soft patch.”

We thought we had already gone through the soft patch back in April, remember?

Corning, suppliers of glass for television picture tubes, PCs, iPads and such, talked of “weaker retail expectations for the second half,” and that the “supply chain is waiting longer to build inventory for the seasonal pull of the fourth quarter.”

It’s clear in many businesses there is now an inventory overhang with reduced demand. CEOs remain exceedingly cautious about hiring. It’s a bleak picture and far from the 3%+ growth I wrote just last week that is the consensus economic outlook for the 12 months, 7/2011 thru 6/2012.

Street Bytes

--Owing to the debt crisis, and then Friday’s GDP report, it was the worst week for U.S. equities since May 2010, with the Dow Jones down 4.2% to 12143, while the S&P 500 lost 3.9% and Nasdaq 3.6%. The Dow and S&P both declined 2.2% for the month of July, the third straight monthly decline as well.

--U.S. Treasury Yields

6-mo. 0.16% 2-yr. 0.36% 10-yr. 2.79% 30-yr. 4.13%

Treasuries rallied to the best yields of the year on the 10- and 30-year on speculation the debt-ceiling deadlock would be broken. Plus it’s not like the economic news had everyone scurrying to buy equities, including a poor durable goods figure from earlier in the week. The opposite happened, and that benefited Treasuries as well.

--China’s industrial profits were up 29% in the first half. That’s good, kids.

--Japan’s recovery from the tsunami/earthquake/nuclear disasters of March is continuing with factory orders up 3.9% for June and retail sales up 1.1% for the month. Supply chain disruptions continue to ease but now we’re back to whether there really is enough demand from key industries such as the auto sector?

--South Korea’s GDP for the second quarter was up 3.4% vs. a 4.2% rise in the first quarter.

--Germany’s unemployment rate held steady in June at 7.0%, the lowest since reunification in 1991. Germany also reported record retail sales for the month of 6.3%.

--The U.K.’s GDP for the second quarter was a putrid 0.2% from an almost equally sluggish 0.5% advance in the first quarter. Prime Minister David Cameron’s austerity program is hitting in earnest.

--According to the S&P/Case-Shiller index of property values in 20 U.S. cities, home prices dropped in the year ended May by the most in 18 months, 4.5%.

Sales of new homes fell to a 312,000 annual pace. In the Northeast, new single-family sales fell to their lowest level since the government began tracking the data in 1973.

As for home ownership, the rate fell to its lowest level in June since 1998, 65.9%.

--Exxon Mobil reported earnings of $10.68 billion for the second quarter as revenues grew to $125.5 billion. But the earnings of $2.18 per share fell short of expectations.

--The investment banks are beginning to retrench in a big way amid declining trading revenues, concerns over the global debt crisis, and the still uncertain regulatory environment. UBS is cutting 5,000, worldwide, Credit Suisse 2,000, HSBC a rumored 10,000, and Barclays an unspecified number. This is on top of already announced cuts at the likes of Goldman Sachs.

--In a piece on U.S. multi-nationals and profits from overseas operations, I have to make note of this bit from the Wall Street Journal’s Kate Linebaugh and James R. Hagerty, which is but one example of American business these days.

“GE has about 46% of its 287,000-person work force in the U.S., where it gets about 40% of its revenues. The company’s work force shrank by 17,000, or around 5.6%, last year, including 1,000 American jobs. GE is adding about 125 workers at the Greenville, S.C., facility this year and is also adding 1,000 jobs at its unionized appliance-manufacturing plant in Louisville, Ky.

“U.S. multinational corporations cut their work forces at home by 2.9 million during the 2000s while increasing them overseas by 2.4 million, according to data from the U.S. Commerce Department. In all, U.S. multinationals employed 21.1 million people in the U.S. in 2009 and 10.3 million elsewhere.”

--Bond fund manager Jeffrey Gundlach has a super track record and has been getting a lot of publicity for it with numerous appearances on CNBC in particular.

But he’s in quite a tussle with his old employer, TCW Group Inc., which claims in a messy court case that Gundlach plotted to steal the company’s trade secrets before he was fired and started his own firm, DoubleLine Capital LP. Gundlach had been with TCW, which is part of Societe Generale SA, for 25 years.

And now it has been revealed in an L.A. courtroom that TCW “discovered 12 sex toys, 34 porn magazines and 36 ‘hardcore sexually explicit DVDs and videocassettes’ in his office the day he was fired in 2009.” [Kaja Whitehouse / New York Post]

--Shares of Sprint were taken down 16% on Thursday after the company released disappointing earnings, with Sprint saying it lost 101,000 wireless contract subscribers during the second quarter, far worse than expected. Sprint is the third-largest wireless provider in the U.S. and is being hurt in particular by AT&T, which is attempting to acquire T-Mobile USA, which would move the combined operation ahead of Verizon into the top slot.

--Apple Inc. is the new leader in the global smartphone marketplace, accounting for 18.5% of shipments in the second quarter, compared with 13.5% a year earlier, according to Strategy Analytics. Nokia dropped to third place, falling behind Samsung as Nokia’s market share has fallen from 38.1% to 15.2%. It remains the biggest handset producer overall, but not in the product that is obviously the future.

--Research in Motion, maker of the BlackBerry, is cutting 2,000 jobs, or 11% of its workforce. About half of RIM’s employees are located south-west of Toronto in Waterloo, Ontario.

--Johnson & Johnson is lowering the maximum daily dose of Extra Strength Tylenol to reduce the risk of accidental overdose from the active ingredient acetaminophen, which is the top cause of liver failure. The maximum dose will soon be listed on packages as six rather than the current eight pills a day. [Next year the recommended dosage on Regular Strength Tylenol will also be reduced.] If Congress and the president got their acts together, we wouldn’t need Extra Strength Tylenol.

--I live across the street from a very large Merck facility, with thousands of employees, so I wonder what the mood was there when the company announced another 12,000 to 13,000 job cuts by 2015 (at least not tomorrow) in addition to 11,500 eliminated last year. Merck currently has 91,000 employees and the focus is on profits.

--Investor Wilbur Ross is attempting to acquire Bank of Ireland and I saw him on CNBC the other day talking about the country’s resilience in the face of a severe austerity program and I had to laugh. This place has a long ways to go, especially as the people got hit with two new blows this week, a 22% increase in gas prices and a 9.5% hike in a popular health insurance program. Regarding the gas company raising prices, 150,000 are already behind on their payments.

--David P. passed along a piece I had missed. Goldman Sachs operates a string of warehouses in Detroit, where it reportedly has stockpiled a quarter of the world’s aluminum reserves and is in essence manipulating the price by controlling supply. As Matt Taibbi first labeled Goldman, the Vampire Squid strikes again. Buyers, to say the least, are furious.

[On a related note, Christopher Pia, former head trader at hedge fund giant Moore Capital, was fined a whopping $1 million by the Commodity Futures Trading Commission for manipulating the price of platinum and palladium. He was banned permanently from trading the two products. Pia specialized in banging the close by placing tons of orders in the final two minutes to move the price.]

--According to the Pew Research Center, between 2005 and 2009, the median net worth of Hispanic households dropped by 66% and that of black households fell by 53%, while the median net worth of white households dropped by only 16%.

“The median net worth of a white family now stands at 20 times that of a black family and 18 times that of a Hispanic family – roughly twice the gap that existed before the recession and the biggest gap since data began being collected in 1984.” [Peter Whoriskey / Washington Post]

The housing market collapse impacted black and Hispanic households far more than whites. Separately, the wealthiest 10% of all households control 56% of the wealth, up from 49%.

--Shares in Netflix tumbled 10% after the company announced a slowdown in subscriber growth amid increasing uncertainty over how many subscribers it will lose after announcing price hikes, $10 per month to $16 per on the basic plan.

--Amazon’s sales leapt 51% in the second quarter, but net income slipped 8% owing to greater costs and new investments in distribution centers. The shares hit a new all-time high this week but for crying out loud trade at a 95 p/e. But you would have made the same statement over $100 ago, as I did.

--Ford Motor Co. reported its ninth consecutive quarterly profit, $2.4 billion, but there is uncertainty over contract talks with the UAW that began this week, let alone future demand.

--Inflation Alert: Vietnam’s consumer prices rose at a 22% clip this month.

--China and India together buy about one-third of Iran’s oil, but owing to U.S. sanctions against Tehran, it is difficult to conduct dollar-denominated business, with China owing Iran an estimated $30 billion, not that China can’t pay its bills. So Tehran and Beijing are looking at other ways to “offset” the debt. One idea being bandied about is a barter arrangement. Iran sends its oil to China and China sends goods and services to Iran. Like China could send Iran fake iPads, I’m guessing, which would be better than ballistic missiles.

--Tremont Group Holdings Inc., one of the largest feeder funds in Bernie Madoff’s Ponzi scheme, has agreed to a $1 billion settlement with the trustee handling the victims’ fund, Irving Picard. Thus far, Picard has recovered $8.6 billion, about half the amount lost by Madoff’s investors.

--New Zealand billionaire Richard Chandler upped his stake in controversial Sino-Forest Corp., the Chinese tree-farm operator targeted by short sellers for lack of transparency, to 15%, saying, through a spokesman, it represents “an excellent deep-value investment opportunity.”

--Hedge fund king George Soros, 81, announced he was ending his career and will only manage his own and family money. Outside investors will have their money returned. Soros’ flagship Quantum Fund returned about 20% a year, on average, since 1969.

--The U.S. Postal Service is targeting 3,700 locations for closure. 

--This was kind of interesting. Pandora Internet radio reported that it is doing better in the New York market than two old terrestrial standbys, Z100 and Hot 97. Pandora also did well in Los Angeles and other big markets. Pandora is hoping the release of its first set of ratings figures will attract advertisers.

--Congratulations to Dunkin’ Donuts, or rather the parent, Dunkin’ Brands Group Inc. for a highly successful IPO. With the shares priced at $19, the stock closed the week at $28.90. 

--The average American eats a salad at mealtime only about 36 times a year, according to market research firm NPD Group and the Journal. “Fewer than half of Americans – 49% - ate at least one ‘leaf salad’ at home in two weeks, compared with 75% who ate a potato dish and 81% who ate beef.”

--McDonald’s is phasing out fries in favor of apple slices for its “Happy Meals,” giving in to calls from the government. The portion of a meal that is comprised of fries will be reduced in half.

--Finally, I didn’t have the opportunity last time to note the passing of Elliot Handler, co-founder of Mattel and the inventor of Hot Wheels, who died at 95 about a week ago. Handler and his wife, Ruth, founded Mattel out of a garage workshop in Los Angeles in 1945 with their friend Harold “Matt” Matson. The name Mattel is from Matt and Elliot. That alone was brilliant.

But Ruth invented Barbie in 1959. Handler reportedly told his wife, “No mother is ever going to buy her daughter a doll with breasts.”

In reading an obituary in the Los Angeles Times, I have to make note of Barbie’s proportions – 39-21-33. Feminists said this promoted unattainable body expectations for young girls.

By 1965, Mattel’s sales topped $100 million, due largely to Barbie. Then later in the decade, Handler came up with a toy that he hoped would appeal to boys as Barbie did with girls…a miniature die-cast vehicle that became its own No.1-selling toy brand…Hot Wheels. And boy was this one hot. I was ten when they were introduced in 1968 and it was a must have. [Though I also had a ton of Corgi toys and Matchbox cars.]

But in 1975, Ruth and Elliot were ousted from the company by new corporate managers and Ruth was later accused of having cooked the books, whereupon she was heavily fined and sentenced to community service. She died in 2002 and is buried on the Island of Misfit Toys.

Foreign Affairs

Iran: Among six nations polled by Zogby, since 2006, Iran’s favorability among Arab countries has plummeted from the 70-90% range to a current range of 10-40%, with the average favorability rating at just 27.5%. [The six nations were Morocco, Egypt, Lebanon, Jordan, Saudi Arabia and the UAE. Saudis’ views are the worst, with only 6% viewing Iran favorably, which clearly speaks to tensions between these two facing each other across the Persian Gulf.]

Separately, there was a bizarre killing in Tehran where it was a classic case of my mantra ‘wait 24 hours.’ At first the media reported that one of Iran’s nuclear scientists had been murdered, but then Iran said the victim had no ties to the nuclear program and was instead a student. Iran’s parliament speaker attributed the attack to Israel and the United States.

What is true is that a number of atomic specialists have indeed been killed in targeted strikes in recent years, which some say is the work of Mossad and/or the CIA in an effort to cripple Iran’s weapons program.

On a different front, the courtship of Egypt by Iran continues, as the struggle inside Egypt to redefine foreign policy will continue straight through the parliamentary and presidential elections this fall and next winter. Iran wants to be there as an ally after decades of Hosni Mubarak’s staunchly anti-Iran stance. A leading presidential contender, Amr Moussa, is calling for better relations with Tehran.

As an aside, a Newsweek/Daily Beast poll of Egyptian voters has 70% wanting to amend or cancel the Camp David accords, while 47% prefer Moussa in a matchup of three frontrunners.

[On Friday, there was a massive show of force by Islamists in Tahrir Square in Cairo, which was more than a bit unsettling.]

Lastly, the U.S. Treasury Department outlined an extensive fund-raising operation employing Iran-based operatives working in alliance with al Qaeda and drawing on donors in countries such as Kuwait and Qatar. This certainly isn’t a shock, seeing as how Iran has been smuggling sophisticated weaponry into Iraq and Afghanistan for use against the U.S. and the West, with funding of al Qaeda along the same lines to help hasten the withdrawal of American forces.

Afghanistan: It has been one big blow after another for the Karzai government and the latest was the killing of the mayor of Kandahar by a suicide bomber who “detonated explosives hidden in his turban.” [Taimoor Shah / New York Times] Well, that’s a pretty picture.

Kandahar, of course, has been a focus of the U.S. surge and earlier this month President Karzai’s half-brother, Wali, the provincial leader of Kandahar, was assassinated.

And on Thursday, the Taliban attacked the capital of another southern province in a highly coordinated assault by seven suicide bombers with the aim of assassinating the governor. At least in that regard they were unsuccessful, but 21 others were killed.

As for a recent attack on one of Kabul’s leading hotels that killed 20, it has become clear the Taliban were aided by three insiders, including a police officer, further highlighting Kabul’s ineffective security forces.

There was some good news, however. A NATO attack killed at least 80 Taliban in a remote area near the Pakistani border, but even here it isn’t all good because NATO officials now don’t know how many other such encampments, comprised largely of Pakistanis, there are. The victims in the attack were affiliated with the vicious leader Haqqani, who is linked to the Kabul hotel attack, among others.

Iraq: Ned Parker of the Los Angeles Times reported that cleric Moqtada al-Sadr has “won pardons for at least 50 prisoners jailed for crimes including murder, kidnapping and attacks on U.S. troops.” The pardons are being granted by President Talibani, at the behest of Prime Minister Maliki, who needs Sadr’s support to stay in power. Oh yeah, this war worked out well.

Maliki’s dysfunctional government (even worse than ours) still hasn’t decided if it wants 10,000 or so U.S. forces to remain beyond December. Maliki knows he needs them, but Sadr is telling him the Americans must go.

Lebanon: For the second time in two months, a roadside bomb planted at the entrance to the port city of Sidon struck a UN convoy, wounding five French soldiers. Earlier six Italian peacekeepers were wounded. No one has claimed responsibility in either instance.

Meanwhile, former Prime Minister Saad Hariri accused Hizbullah leader Nasrallah of sponsoring what he called “hatred media campaigns” against the Hariri family, thus dampening any optimism over President Michel Sleiman’s call for national dialogue. A statement read that Hizbullah was “using a weapon [media campaigns], which is added to the arsenal of weapons whose effect will end sooner or later.”

It appears that Saad Hariri is returning to Beirut shortly, ending a three-month absence, which will ratchet up tensions further. A Hariri ally who is a member of parliament said, “We are against this government and the way it was formed. This is a coup government, a Hizbullah government. Our declared goal is to bring down this government.”

I hope you understand why I write so much about this situation. It still threatens to blow at any moment. It’s also tied to Syria in that Hariri has blamed Syrian President Assad, as well as Nasrallah, for toppling his Cabinet.

For its part, Hizbullah took the opportunity of the Norway attacks by Anders Breivik, and his manifesto, to say his actions were “proof of the racism of Zionist culture,” Breivik having expressed his support of Israel, along with his anti-Muslim diatribes. Hizbullah said “Zionist terrorism” poses a danger to Palestinians and Arabs as well as to Europeans. 

“Lebanon is being damaged by fragmentation in the political game. Nasrallah is flying the banner of defending our offshore gas fields – in search of new relevance for a party that has lost its meaning beyond being the armed sentinel of the Shiite sect, and that may soon be deprived of a valuable Syrian ally; (Prime Minister) Mikati is engaged in an elaborate act that all is dandy in Lebanon, to reverse waning confidence in stability; March 14 [Hariri’s coalition] is all sound and fury, but signifying nothing as it fails to define an alternative to the vague program on the other side….

“[March 14] has been wishy-washy on sensitive issues, from addressing declining economic conditions, where the responsible position requires backing Mikati, to taking a stance on the Syrian situation, to providing a convincing counter-offer to the majority’s tendentious vision for a national dialogue. Demanding that Hizbullah’s weapons be included in a dialogue is natural, but this will not serve as the basis of serious discussion until March 14 corners the party by presenting a detailed project for disarmament that incorporates a political quid pro quo.”

Israel: Turkey strongly condemned the ongoing building of new homes in West Bank settlements, with the foreign minister saying, “Israel’s illegal actions on the lands it has invaded are unacceptable. This decision will deepen the suspicions of Israel’s sincerity in pushing the peace process forward.” What peace process?

[In Turkey itself, on Friday, all of the top military chiefs resigned in protest over recent arrests of other senior officers. More on this next week.]

Syria: The number killed in the uprising is somewhere between 1,500 and 1,600, with another 11,000 arrested across the country. The leaderless opposition is planning further massive demonstrations over Ramadan (the month of August).

Libya: Boy, that NATO coalition is really effective, isn’t it, sports fans? Gaddafi shows no signs of giving up the game and the stalemate continues. Plus the West is now saying they envision a scenario where Gaddafi is allowed to stay in the country if he gives up all politics, while the rebels insist he must be expelled, arrested or killed. It’s also possible there will be a lull in the fighting during Ramadan. 

But there was a bizarre deal on the rebel front as the military chief of staff was killed Thursday by assailants who fatally shot Gen. Younis and two other senior commanders in Benghazi. No one seems to know who did the killing. Younis had defected from the Tripoli regime to join the rebels in February, but some of the rebels began to see him as a double-agent.

China: Each WIR I feel like I give you a nugget or two you just won’t find anywhere else and such was the case three weeks ago, 7/9/11, when I wrote the following:

“Elsewhere in China, you know that bridge that was showcased in timing with the July 1 celebration of the Communist Party’s 90th birthday? The world’s longest sea bridge, 23 miles?

“It turns out construction of it was rushed to coincide with the anniversary, as in nuts and bolts were left unfastened, including bolts on guard rails that were in place but not tightened up. State-run China Central Television said it would take at least two months to really finish construction. Typical.”

And so it was that Saturday, July 23, China experienced the flipside of often haphazard growth when two high-speed trains collided, both headed to Fuzhou, Fujian, where I’ve been a few times, as one train stalled on the tracks after being hit by lightning, and then the second rammed into the back of it, killing at least 43. About 200 were injured in a scene of true carnage.

While this wasn’t the top high-speed line that was just opened between Beijing and Shanghai, the accident exposed a number of gaping holes in the system and was a huge psychological blow to the government’s high-speed train ambitions.

At first, officials tried to downplay the accident, as censors sought to stifle criticism across state airwaves, while video emerged showing efforts at the crash scene to attempt to bury some of the train cars before evidence could be collected!

But this time the people won and the media blasted the government and the government couldn’t stop the dissent, as China’s “micro-blogging” sites let loose.

The People’s Daily, the prime Communist party mouthpiece, editorialized that China “needs development, but does not need blood-smeared GDP.”

The state-run Global Times contrasted the “bureaucratic” attitude of officials with the booming “public democracy” witnessed on the Internet, in an unusually scathing editorial.

“They [the authorities] have become accustomed to only being praised in the past and when facing a crisis, they believe they can deal with the public in a bureaucratic way.

“However, public opinion in China cannot stand this anymore.” [Agence France-Presse]

Finally, the State Railway Office came clean on what could be a viable explanation for the accident.  A railway research institute said that a signal light should have turned red after a lightning strike hit the stalled train but stayed green and rail staff on the scene failed to see something was amiss and that their training had been woefully inadequate. The Beijing Railway Institute said, “Safety overrides all else, and high-speed rail safety is of even more overriding importance.”

Premier Wen Jiabao said, “No matter it was equipment problem, or management problem, or production problem, we must search till the end. If there is corruption problem hiding behind during the investigation process, we will deal with it under the law, without any sympathy.”

The government has launched a massive safety inspection of all of China’s rails.

China cannot cut corners when it comes to safety or the feared civil unrest in the land won’t come about because of rising pork prices, but from another accident or two of this kind. As for the 23-mile sea bridge, you’ll forgive me if I take a pass on venturing onto it.

In other news…Taiwan said China invaded its airspace for the first time since 1999 as the Taipei government just reported that in late June, it was forced to send two F-16 fighters up to intercept two Chinese aircraft that crossed into its airspace, after which the Chinese jets quickly turned back.   The Chinese aircraft were evidently chasing a U.S. U-2 spy plane.

And on the South China Sea front, Philippine President Benigno Aquino foolishly warned China to back off when it came to something called the Reed Bank that the Philippines claims as its own.

“Our message to the world is clear: What is ours is ours,” said Aquino, who then spoke of steps his nation was taking to modernize its armed forces.

Oh brother. No one is asking you to just give up territory you believe is your own, President Aquino, but the last thing you want to do is pick a fight with China. Chill out. Solve this diplomatically.

Finally, back to the rail accident, the Ministry of Railways and the Shanghai Railway Bureau are holding talks with victims’ families on compensation, which, according to the Global Times, is likely to amount to about $75,000 to $80,000 for each victim. In case you were wondering what you were worth there.

North Korea: Pyongyang is calling for a peace treaty with the United States as it restarts six-nation nuclear disarmament talks. Washington is waiting for the North “to take concrete and irreversible steps.”

Kosovo: I have long said keep your eyes on this area. The people in the Balkans still truly hate each other and this week there were two violent episodes between ethnic Albanians and Serbs, with 200 Serbs firebombing a customs post. In an earlier incident, a Kosovo police officer was killed in clashes

Russia: Two key advisers publicly urged President Medvedev to run for re-election, warning a return of Vladimir Putin would be a “national catastrophe.”

Well, this clearly won’t please Putin so you can imagine the palace intrigue taking place. Neither has given their plans as yet.

[As an aside, 53% of Russians polled recently believe the upcoming December State Duma elections will be rigged.]

Indonesia: A disturbing development in the world’s most populous Muslim nation as an Indonesian court sentenced Muslim extremists to virtually no time for a vicious mob attack in February that resulted in three deaths. A 17-year-old “who repeatedly smashed a victim’s skull with a stone,” was sentenced to three months in jail for manslaughter. The ringleader of the 1500-strong mob received five months. Most of the other ten on trial will be walking within weeks. In a rare criticism, the United States said it was “disappointed by the disproportionately light sentences.”

The violence was perpetrated against the Ahmadiyah sect, which, unlike mainstream Muslims, do not believe Mohammed was the last prophet and are regarded as heretics.

Venezuela: President Hugo Chavez returned home from Cuba after completing a second round of chemotherapy.

And finally…Norway. Anders Behring Breivik may indeed be insane but the premise under which he acted in killing 76 Norwegians in two separate attacks last Friday is real to some on the continent.

The rise of right-wing extremism in Europe has been an ongoing theme in this space since the beginning. If the archives* from the start were available you’d see a ton of work on the far-right, including on the late Jorg Haider of Austria, all the way through this spring.

*I shut them down, pre-2006, because I want to protect my work for when I finally write my definitive history of our times.

“You are nuts if you are bullish on Europe in the short-term. And the gloomier things get here the more the people will be lashing out against immigrants, whether it’s France and its current fight against the Roma, or Turks in Germany, it’s going to get ugly. And depressing.”

“First France was criticized for its anti-Gypsy (Roma) policies as it deported 1,000, but now Milan, Italy is doing the same with its Roma population as it dismantled the largest Gypsy camp, with officials decrying it as a den of thieves in yet another sign that, as I said would be the case with the Great Recession, immigrants are becoming the scapegoat….

“While I love Vienna, and can’t wait to get back, maybe next year, if you look for it there is a certain uneasy feeling below the surface, which I saw my first time there, 1999 (first time since I was a kid, that is), when I hopped on a commuter train and took it to the end of the line, out into the suburbs. I was going to hike in a national park but in walking around the neighborhoods on the outskirts of it, and in peering into a bar near the train station and spying the ugly looking characters inside, I was spooked out. It was as if I could smell Nazism in the air.

“Anyway, Austria’s far-right Freedom Party (think the late Jorg Haider) won more than a quarter of the vote in Vienna city elections last weekend in yet another sign of anti-immigrant fervor across Europe.”

WIR…5/7/11…on my trip to Paris and seeing firsthand the National Front’s Marine Le Pen.

“What’s clear is the FN (National Front) is but one far-right, nationalist party across Europe that is gaining traction; others being Finland’s True Finn’s (19% in a recent election), Norway’s Progress party (23%), Denmark’s People’s party (19%), the Democrats in Sweden, and other such parties in the Netherlands, Belgium, Switzerland, Italy and Austria. It’s a movement that is only going to grow and with the increasing turmoil over the euro currency, the haves vs. the have nots, and people such as the Finns and Germans increasingly unwilling to pay for the profligacy of others, as well as the immigration problem, it could end up being explosive, particularly if Europe were to reenter recession mode across the continent.”

One thing the commentaries on the Norway attacks keep failing to mention is the economic element. The rise of the far-right is as much about immigrants (read mostly Muslims from the likes of North Africa over to Turkey, as well as some Balkan nations) taking jobs, as well as Islamists failing to assimilate themselves into local cultures, and that is why I have continued to harp on the topic because as is pretty readily apparent, with one or two exceptions Europe’s economy is in the gutter and not likely to go anywhere for years to come. The natives will thus become increasingly frustrated, turn even further to fringe parties, and take out their anger on the immigrant communities in their midst.

And while hopefully we don’t witness violence again on the scale of Anders Breivik, were you to begin to see demonstrations in some of Europe’s major cities, with police clashing with extremists, it’s just another item that will help sap confidence, and most of the time the consumer doesn’t spend without it.

As for Norway, specifically, it was pathetic and appalling that the country’s Delta Force was delayed 90 minutes in getting to Utoya Island in part because they were unable to deploy a helicopter because the entire crew was on vacation. As the AP reported, “Victims who called emergency services from the midst of the massacre were (also) told to stay off the line because authorities were dealing with the Oslo bombing.”

“Norway, like the rest of Europe, is in serious trouble. Millions of European Muslims live in rigidly patriarchal families in rapidly growing enclaves where women are second-class citizens, and where non-Muslims dare not venture. Surveys show that an unsettling percentage of Muslims in Europe reject Western values, despise the countries they live in, support the execution of homosexuals, and want to replace democracy with Shariah Law. (According to a poll conducted by the Telegraph, 40% of British Muslims want Shariah implemented in predominantly Muslim parts of the United Kingdom.)

“Muslim gay-bashing is driving gays out of Amsterdam. Muslim Jew-bashing is driving Jews out of Gothenburg, Sweden. And let’s not forget about the shameful trials of politician Geert Wilders in the Netherlands and historian Lars Hedegaard in Denmark, which demonstrate how the fear of Muslim wrath is squelching the freedom of speech of those who dare to criticize Islam.

“There is reason to be deeply concerned about all these things, and to want to see them addressed forcefully by government leaders who care about the preservation of individual liberty and human rights. But this cause has been seriously damaged by Anders Behring Breivik

“In Norway, to speak negatively about any aspect of the Muslim faith has always been a touchy matter, inviting charges of ‘Islamophobia’ and racism. It will, I fear, be a great deal more difficult to broach these issues now that this murderous madman has become the poster boy for the criticism of Islam.”

Random Musings

--According to a Rasmussen Reports survey, 85% of Americans believe their congressional members are more interested in advancing their own careers than helping average Americans. 46% believe Congress is full of crooks. Just 6% believe their elected officials are doing a good job.

--Michael Barone (the foremost expert on all things Congress) / New York Post

“The entire House is elected every two years. The voters in 2010, with unusual clarity, elected a House determined to reverse the Obama Democrats’ vast increase in the size and scope of government.

“But determination isn’t enough. President Obama remains in office, armed with a veto. Friendly media permit him to use euphemisms to insist on tax increases that were roundly rejected by the voters in 2010.

“The Senate, two-thirds of which was elected in the Democratic years of 2006 and 2008, retains a Democratic majority that though unable to pass its own budget, can frustrate House Republicans’ attempts to deliver on their more recent mandate.

“The lesson: You must win at least two elections in a row to make the kind of policy changes that the Obama Democrats made in 2009 and 2010 and that House Republicans want to make now.

“The good news for Republicans is that there has been a convergence of voting in congressional and presidential elections.

“Starting in the 1950s, accelerating in the ‘60s and ‘70s and continuing in the ‘80s, many Americans split their tickets, often electing Republican presidents but Democratic House majorities.

“In the mid-90s, that changed. The Democratic percentage of the vote for president and for the House have differed by no more than 1 percent, starting in 1996.

“The percentages for the two parties in the popular vote for the House in the last three off-year elections also have been almost exactly the same as the percentages for the parties in the vote for president two years later.

“In 1998, the popular vote for the House was 49 percent to 48 percent Republican.

“In 2000, the popular vote for president was 48 percent for both parties.

“In 2002, the popular vote for the House was 51 percent to 46 percent Republican. 

“In 2004, the popular vote for president was 51 percent to 48 percent Republican.

“In 2006, the popular vote for the House was 53 percent to 45 percent Democratic. 

“In 2008, the popular vote for president was 53 percent to 46 percent Democratic.

“Obviously, this isn’t good news for Obama, since the popular vote for the House in 2010 was 52 percent to 45 percent Republican. Translate those numbers into electoral votes, and you have something like a 331-207 Republican victory….

“Obama promised to transform America, and he and his party have raised the federal government’s share of gross domestic product from 21 percent to 25 percent – a huge policy change. They are striving now to keep it at that level permanently.

“Republicans want to reverse that huge policy change, and many are ready to denounce any debt-limit deal that leaves them short of that goal.

“Before doing so, they ought to consult the Constitution. To achieve the changes they want and that voters endorsed in 2010, they need to win again in 2012. The deal that gets them closer to that is what they ought to be seeking now.”

--Gerald F. Seib / Wall Street Journal…on “dysfunctional Washington.”

“The (Republicans’ and Democrats’) mutual distrust arises because of a wide philosophical disagreement over the size and role of government in 21st century American society. Democrats see the government’s role edging up as the nation ages and its economy matures. Moreover, they see that as the inevitable and desirable evolution of a nation making good on its social compact with a graying population and competing in a global economy where state-directed economies such as China’s use the power of government to prevail.

“Republicans watch those same trends and recoil from what they see as a nation drifting away from its traditional economic moorings and toward the inherently flawed models of a socialist Europe and a mercantilist China. They see a social compact that needs to be trimmed as the economy matures and a government role in the economy that shouldn’t grow to compete with China but rather be curtailed to differentiate the American model from the Chinese one….

“Compromise between these two views is hardly impossible in theory, but it becomes nearly so in practice because of the second big trend at work: A generation’s worth of political forces have pushed Republicans to the right and Democrats to the left, and rendered the political middle in Congress weak and thin, to the extent it exists at all.

“In that regard, Congress is merely a reflection of the two national parties, which have sorted themselves out along ideological grounds in the last three decades to the point where there is virtually no overlap between them….

“These trends are exacerbated in the House by the ever-finer art of drawing up congressional districts that reinforce partisan and ideological trends. Republicans and Democrats in states across the land use data and technology to draw up districts composed largely of conservative or liberal voters to ensure those seats stay safely in the hands of one party or the other. That produces a system in which lawmakers increasingly are rewarded for hewing to the party line and punished for deviating from it.

“The Senate used to be the place where such partisan lines were blurred. But increasingly it is populated and run by former House members who have brought those tendencies into their chamber.

“It’s a system virtually designed to produce partisan divides, and you are seeing its consequences.”

Great point by Seib on the Senate now having so many former House members.

--I didn’t comment last time on President Obama’s late-Friday (7/22) press conference, or as George Will called it in his Washington Post column, “news conference-cum-tantrum,” where “Obama imperiously summoned congressional leaders to his presence: ‘I’ve told’ them ‘I want them here at 11 a.m.’ By Saturday, his administration seemed to be cultivating chaos by suddenly postulating a new deadline: The debt-ceiling impasse must end before Asian markets opened Sunday evening Eastern time, lest the heavens fall.

“Those markets opened; the heavens held. The faux deadline, reportedly invoked at a Saturday White House meeting by Treasury Secretary Timothy Geithner, who should resign, inevitably seeped into the media and invited overseas panic, thereby risking the nation’s currency, for brief tactical advantage.

“Amid these tawdry episodes, House Speaker John Boehner signaled constitutional sanity regained: ‘Congress will forge a responsible path forward.’ Congress. Obama has marginalized himself.

“Inordinate self-regard is an occupational hazard of politics and part of the job description of the rhetorical presidency, this incessant tutor. Still, upon what meat doth this our current Caesar feed that he has grown so great that he presumes to command leaders of a coequal branch of government? He once boasted (June 3, 2008) that he could influence the oceans’ rise; he must be disabused of comparable delusions about controlling Congress.

“When he was a lecturer on constitutional law, he evidently skipped the separation-of-powers doctrine.”

--David Brooks / New York Times…also on the 7/22 ‘presser’ and Obama’s behavior.

“Obama never should have gone in front of the cameras just minutes after the talks faltered Friday evening. His appearance was suffused with that ‘I’m the only mature person in Washington’ condescension that drives everybody else crazy. Obama lectured the leaders of the House and Senate in the sort of patronizing tone that a junior high principal might use with immature delinquents. He talked about unreturned phone calls and being left at the altar, personalizing the issue like a spurned prom date.

“Obama’s Friday appearance had a gigantic unintended consequence. It brought members of Congress together. They decided to take control. The White House is now on the sidelines….

“This should be a humbling moment for the White House, and maybe a learning experience. There are other people who have been around Washington a long time. They know how to play this game. As a result of their efforts, we may see some debt reduction but nothing big and transformational. Obama won’t get his centrist election boost. Republicans won’t have to wrestle with tax increases. Democrats won’t have to wrestle with entitlement reform.”

--What is readily apparent is that Barack Obama has one of the worst staffs in the Western world.

“The past few weeks I’ve asked Democrats who supported him how they feel about (Obama). I got back nothing that showed personal investment. Here are the words of a hard-line progressive and wise veteran of the political wars: ‘I never loved Barack Obama. That said, among my crowd who did ‘love’ him, I can’t think of anyone who still does.’….

“Maybe Mr. Obama is living proof of the political maxim that they don’t care what you know unless they know that you care. But the idea that he is aloof and so inspires aloofness may be too pat….

“The secret of Mr. Obama is that he isn’t really very good at politics, and he isn’t good at politics because he doesn’t really get people….

“And so his failures in the debt ceiling fight. He wasn’t serious, he was only shrewd – and shrewdness wasn’t enough. He demagogued the issue – no Social Security checks – until he was called out, and then went on the hustings spouting inanities….

“So he is losing a battle in which he had superior forces – the presidency, the U.S. senate. In the process he revealed that his foes have given him too much mystique. He is not a devil, an alien, a socialist. He is a loser. And this is America, where nobody loves a loser.”

Actually, Ms. Noonan, you could have said that Obama is from Chicago, and Chicago used to love losers, see the Cubs, but even now Cubs fans have grown weary of a lousy franchise, just as we are of the franchise in Washington, D.C.

--Former Wyoming Republican Senator Alan Simpson, of Simpson-Bowles fame, in an interview with TIME.

Q: What’s the biggest obstacle to cutting the deficit?

Simpson: The absolute rigidity of the parties. I’ve never seen that before. Somebody said they’re as rigid as a fireplace poker but without the occasional warmth.

We found enough fat in the Defense Department to send a truck of potato chips to the obese. Take one example, Tricare, a health care plan for 2.2 million military retirees, separate from the VA. The premium is $470 a year, and there’s no co-pay, and the cost is $53 billion a year. Try to change even that, and you get ‘You’re not a patriot.’

--Oregon Democratic Congressman David Wu has become the fourth member of Congress this year to step down amid a sex scandal. Something happened between Wu and the teenage daughter of a friend, a recent high school graduate. Wu has told his staff it was consensual.

--I have been consistent since day one of this column…12 ½ years now (14 going back to my days at PIMCO) and have been to as many military cemeteries in the U.S., let alone the world, to pay my respects as just about anyone.

But I have also mentioned on more than one occasion that Dwight David Eisenhower had it right; we have every reason to be concerned with the “military-industrial complex.” Just from my archives alone I could write a book on how the Pentagon continually screws the American people. It is beyond disgraceful. It’s criminal and many should spend the rest of their lives at Leavenworth with zero opportunity to get fresh air. Few topics tick me off more than this. This year I wrote about the vast percentage of our esteemed generals (personal opinion…80% are worthless) who retire and then become either lobbyists or executives in the defense industry.

[Former Defense Secretary Robert Gates tried to address this problem.]

Gee, do you think there is a slight conflict of interests?

So while I quote military strategists whom I respect greatly like Mark Helprin, who are concerned that in today’s world we maintain our military preeminence, there is an amazing amount of waste and corruption at the Pentagon. Another example of this comes from the Wall Street Journal, in an article by Nathan Hodge.

“The U.S. has wasted or misspent $34 billion contracting for services in Iraq and Afghanistan, according to a draft report by a bipartisan congressional panel, the most comprehensive effort so far to tally the overall cost of a decade of battlefield contracting in America’s two big wars.

“The three-year investigation comes from the Commission on Wartime Contracting in Iraq and Afghanistan, which was established by Congress in 2008.

“Its final report, expected to be sent to Capitol Hill in the next few weeks, lays out in detail the failure of federal agencies to properly manage and oversee grants and contracts set to exceed a total of $206 billion by the end of the fiscal year on Sept. 30.”

“The U.S. Air Force’s fleet of F-22 Raptor fighters has been grounded since May 3 due to toxins entering the cockpit via the aircraft’s life support systems, sources with extensive F-22 experience said.”

Pilots have suffered “hypoxialike symptoms” on 14 occasions. But despite an extensive investigation, “No one yet knows what toxin or combinations of toxins might have caused the incidents.”

One former F-22 pilot told Defense News, “There is a lot of nasty stuff getting pumped into the pilots’ bloodstream through what they’re breathing from.”

--I liked the description of Republican ideologue Grover Norquist by Michael Hiltzik of the L.A. Times. He’s “inexplicably influential.” 

--Bad week for presidential candidate Michele Bachmann as she is refusing to answer questions about her family’s business.

“I’m running for the presidency of the United States. My husband is not running for the presidency. Neither are my children. Neither is our business.”

--I’m continually amused when former New York Gov. George Pataki says he’s contemplating a run for the White House. This week he said he felt increasingly “compelled” to jump into the race. Spare yourself, George. Your name is Pataki, not Washington.

--The world’s population is slated to hit 7 billion on Oct. 31, according to a U.N. study. The population first hit 1 billion in 1800, then 2 billion in 1925…then came the 1960s New York City blackout and the population skyrocketed to 5 billion and then…

I was just informed this last bit might not be totally accurate. Anyway, India could surpass China by 2050, for you long-term investors out there looking to time the consumer staples sector.

--The successor to the Hubble Space Telescope is going to be a victim of budget cuts as funding for the James Webb Space Telescope, which was to have 100 times the power of Hubble, is on the chopping block. As supportive as I am of all things space-related, costs for the project have risen 50% since the first 2005 estimate to today’s $6.8 billion. It’s a shame. For more than a decade, astronomers have been pegging the 2018 launch for their own future research. The telescope itself is 21-feet wide. But will it ever be launched in our lifetimes?

--Lastly, P.J. O’Rourke / The Weekly Standard…on the last shuttle launch and America’s future in space, O’Rourke having taken his seven-year-old son, Cliff, to watch it from the Kennedy Space Center. “His little face – seemingly made up entirely of open eyes – announced it: ‘This is awe!’ He didn’t need to say anything and, having forgotten to breathe, he probably couldn’t. Indeed, for the first waking moment in his 89 months on earth, he was silent…

“On July 20, 1969, at 10:56 p.m., I was in my off-campus apartment staring at a black and white portable TV, a can of Budweiser in my hand. ‘One small step…’ I remember every detail. Where were you and what were you doing when Lyndon Johnson signed Medicare into law? Medicare cost $523 billion in 2010. NASA cost $18.7 billion, just 0.6 percent of federal spending. In fact, since NASA’s founding in 1958, its total spending has barely exceeded what we pay for Medicare per annum. Would you rather reach into infinity for 53 years or get old and sick for 12 months? In 2011 each American will give NASA about $60 – the sun, the moon, and the stars for less than the price of a month of basic cable.

“Oh, maybe it’s a waste of taxpayer money. But government wastes taxpayer money. This is what government does. It can’t be changed. Our earliest evidence of government, in the ruins of Babylon and Egypt, shows nothing but ziggurats and pyramids of wasted taxpayer money, the TARP funds and shovel-ready stimulus programs of their day. Let’s waste taxpayer money putting that look back on Cliff’s face.”

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

God bless America.

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Gold closed at $1631…another all-time high
Oil, $95.70

Returns for the week 7/25-7/29

Dow Jones -4.2% [12143]
S&P 500 -3.9% [1292]
S&P MidCap -4.9%
Russell 2000 -5.3%
Nasdaq -3.6% [2756]

Returns for the period 1/1/11-7/29/11

Dow Jones +4.9%
S&P 500 +2.7%
S&P MidCap +4.0%
Russell 2000 +1.7%
Nasdaq +3.9%

Bulls 49.5
Bears 21.5 [Source: Chartcraft / Investors Intelligence]

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