Week in Review

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Week in Review

08/13/2011

For the week 8/8-8/12

Europe, Washington and Wall Street

WIR 7/16/11… “I’ve said it before and I have to say it again. These days, America is incredibly overrated.”

Aug. 8… -634
Aug. 9… +429
Aug. 10… -519
Aug. 11… +423
Aug. 12… +125

Pete M. commented to me after Monday’s market disaster that it reminded him of Lt. Frank Drebin’s line (think the late Leslie Nielsen and “Police Squad”) in telling a crowd that had assembled to watch an exploding fireworks factory, “Move along, nothing to see here.”

The volatility this week was absurd and I got a kick out of those who pooh-poohed the role of high-frequency traders. Within five minutes on Tuesday, about 2:40-2:45, as I watched the tape the Dow went from flat, to down 200, to down 100, to down 200…and then closed up 400 about 75 minutes later.

It was the first time in market history that the Dow Jones had four days in a week, let alone in a row, where it finished up or down 400 points.

Yet in the end, the market’s losses were minimal, for absolutely no good reason, frankly. Neither the Federal Reserve or European Central Bank saved the day with their moves and we enter the weekend with the situation as dire as ever when it comes to Europe.

And I wonder how many times it was said that so-and-so has better credit than the U.S.?

Like on the earnings conference call for my large China holding (another great report…and more inertia in the share price), when the question was asked about the access to credit for the company, not that it needs it with a huge cash position, something frankly I never gave two thoughts to. The CFO quickly said of the two big banks that rated them, it was AAA and AA+.

“Oh,” said the caller. “So at least in one case you’re better than the U.S.”

Yes, it’s both pathetic, and scary, what’s happening these days. Some of what you’ll read below will have you feeling worse than ever.

And isn’t it funny how I started talking of a 30% crash in the U.S. equity market, months ago, though not until 2012, and yet we were seemingly on the verge of that this past week already?! Off the market’s recent highs, we were off about 20% at one point on Wednesday.

For a number of factors, especially regarding Europe, we could easily be right back in the gutter next week as European leaders, including the two who matter most at this point, French President Nicolas Sarkozy and German Chancellor Angela Merkel, get together to come up with a plan to save Europe, one that must, somehow, be agreeable to their own people, which will take leadership to sell it. That’s a tall order for Merkel, who faces an insurrection within her own party over the terms of Greek Bailout II (and it’s already a fragile coalition she controls), and for Sarkozy, whose popularity remains mired in the 20s. If France and Germany don’t agree to save Italy and Spain, if necessary, and help fund an increased European Financial Stability Facility, the gig on the euro is up….plain and simple. It would just be a matter of time, and these days events are moving at light-speed, not like in the times of the Thirty Years War (1618-48). Spain, for example, has a key bond auction on Sept. 1 and without investor confidence someone is backstopping the country, it will fail. The mechanism must be in place before then, or so it seems.

Of course when it comes to Europe, this was a week where S&P, Moody’s & Fitch rating agencies were all forced to reaffirm France’s AAA rating, an issue with the downgrade of the United States by S&P, because there were fears France couldn’t bailout its banks should that become necessary, with the banks being hit hard by short-sellers, rumor mongers, and truth seekers; banks such as the country’s second-largest, Societe Generale, SocGen, whose shares cratered over 20% at one point.

Then there is the growth story, or lack thereof. Europe needs to grow its way out of its debt issue, and it could, if everyone grew at about 4%, even 3%, but today that’s a pipedream.

France reported its second-quarter GDP was totally flat. Italy’s was up a whopping 0.3%. Spain’s 0.2%. Germany reported exports for June unexpectedly fell. The Bank of England lowered the U.K.’s growth outlook to just 1.4% for all of 2011, with Gov. Mervyn King citing “headwinds” buffeting the U.K. economy that are intensifying “day by day.”

French government bonds traded at the highest spread to the German bund since the introduction of the euro, not good, and the ECB had to buy up Spanish and Italian paper to get their yields back below the key 6% level. 

Consider this…from a piece by Landon Thomas Jr. of the New York Times.

“By one measure, according to a recent report from the Peterson Institute for International Economics, 90 of Europe’s biggest banks hold 4.7 trillion euros ($6.7 trillion) in short-term loans that must be repaid over the next two years. That burden alone is more than half of the combined gross domestic product of the 17 nations that share the euro currency.”

“Amid the speculative frenzy known to history as the South Sea Bubble, Isaac Newton declared that he could calculate the motions of the celestial bodies but not the madness of the people. Dizzying swings in financial markets this week might appear also to be driven by caprice rather than economic judgment.  But the volatility genuinely reflects the extreme uncertainty and risk attaching to the global economic outlook.

“Investors are focusing rationally on debt. Global financial stability and economic recovery depend on Western governments’ willingness to restore public finances. That requires deep spending cuts now. (Chancellor) George Osborne was thus right to tell MPs yesterday that the financial crisis vindicated the Government’s tough stance on cutting Britain’s budget deficit….

“There is intellectual firepower in the opposition to the policies of fiscal austerity, but also a notable lack of responsibility.”

“Europe represents about one-fifth of the world economy and buys about a quarter of American exports. While Europe’s debt crisis was confined to a few small countries, they could be rescued; other European countries supplied loans to substitute for the credit denied by private lending markets. In 2010, Greek, Irish and Portuguese government debt totaled about 640 billion euros (about $910 billion), less than 7 percent of the 9.8 trillion euros of debt of all members of the European Union.

“With Spain, Italy and possibly France now under financial assault, the situation changes dramatically. There are more debtor nations and more debt at risk. In 2010, Italy’s debt was 1.8 trillion euros; Spain’s 639 billion euros; and France’s 1.6 trillion euros. But there are fewer countries that can support a rescue; and some of them have heavy debts. Even Germany’s ratio of debt to gross domestic product, a measure of debt in relation to its economy, was a hefty 83% last year, similar to France’s. (The big difference between France and Germany is that Germany’s economy is growing faster.)….

“Austerity…is standard economic medicine for overborrowed countries. It may work for individual countries or even a few countries at a time. But if most of Europe embraces austerity, the logic backfires. Economic growth slows; recession may reemerge. Lower tax revenue makes it harder for countries to service their debts. As this becomes obvious, the financial crisis feeds on itself. Investors sell the bonds of weak countries, sending up their interest rates and making the debt burden heavier.

“Certain years have gone down in history as great global turning points, after which nothing was remotely the same: 1914, 1929, 1939, 1989. Now it looks horribly plausible that 2011 will join their number. The very grave financial crisis that has hung over Europe ever since the banking collapse of three years ago has taken a sinister turn, with the most dreadful and sobering consequences for those of us who live in European democracies.

“The events of the past few days have been momentous: the eurozone sovereign debt crisis has escaped from the peripheries and spread to Italy and Spain; parts of the European banking system have frozen up; U.S. Treasuries have been stripped of their AAA rating, which may be the beginning of a process that leads to the loss of the dollar’s vital status as the world’s reserve currency.

“There have been warnings that we may be in for a repeat of the calamitous events of 2008. The truth, however, is that the situation is potentially much bleaker even than in those desperate days after the closure of Lehman Brothers. Back then, policy-makers had at their disposal a whole range of powerful tools to remedy the situation which are simply not available today….

“And contemplate the sheer fatuity of the statement issued by Angela Merkel’s office on Friday night [Aug. 5]: ‘Markets caused the drama. Now they have to make sure to get things straight again.’

“This remark reveals in the German Chancellor a basic inability even to grasp the nature, let alone understand the scale, of the disaster facing Europe this weekend [Ed. this editorial was written Aug. 7]. Such a failure of comprehension is entirely typical of a certain type of leader throughout history, at times of grave international urgency….

“Another symptom of the frivolity of the European political class is that the European Central Bank is being urged to intervene in the Italian bond market to restore stability. Stand & Poor’s and Moody’s do not produce ratings for the ECB, but if they did, it would be given junk bond status, or worse. The ECB is bankrupt, and this would be evident for all to see but for the fact that it has grossly overvalued the practically worthless Greek, Irish and Portuguese bonds in its portfolio. At some point, eurozone states will be asked to fill the massive holes in the ECB’s balance sheet, and matters will then get messy. Some may plead poverty; others will point out that the constitution of the ECB specifically prevents it from purchasing national bonds….

“Wake up: the eurozone is very close to collapse. It will come as no surprise if some Italian and Spanish banks are forced to close their doors in the course of the next few weeks.”

Standard & Poor’s had just issued its downgrade of U.S. debt to AA+ as I went to post last week and so I’ll repeat their main statement:

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”

S&P added it may lower the long-term rating to AA within the next two years if spending reductions are lower than agreed to in the debt ceiling/deficit reduction plan, interest rates rise, or “new fiscal pressures” emerge.

As the administration attacked S&P over the weekend, claiming that S&P made a $2 trillion error, S&P’s David Beers defended the move, saying any talk of an error was “simply a smoke screen for the unhappiness about our decision. This is not a catastrophic decline in the U.S.’s credit-worthiness.” [Moody’s and Fitch, the other two chief rating agencies, are for now maintaining their AAA for U.S. debt.]

I thought S&P did the right thing. PIMCO’s Bill Gross said it showed Standard & Poor’s had some “spine.” Warren Buffett, on the other hand, said the U.S. merits a “quadruple A” rating. Mr. Buffett, now 80, could be exhibiting early signs of dementia.

New York City Mayor Michael Bloomberg said S&P “hit it on the nose” in issuing the AA+.

“It’s fair to say we have just gotten a two-month civics lesson in how to talk the economy down,” he said, adding that the downgrade was “a damning indictment of how bad things really have gotten in Washington….They have done much more to harm the economy over the past two months than they’ve done to help it.”

President Barack Obama, Monday, 1:52 p.m., as the Dow Jones was down about 430 points, in his first official statement following the downgrade.

“Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we’ve always been and always will be a AAA country….

“And ultimately, the reason I am so hopeful about our future – the reason I have faith in these United States of America – is because of the American people. It’s because of their perseverance, and their courage, and their willingness to shoulder the burdens we face – together, as one nation.”

For its part, China called on the United States to “learn to live within its means,” as the largest foreign holder of U.S. federal debt blamed “short-sighted political wrangling in Washington” for creating the mess threatening the stability of the global financial system.

“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets,” an official commentary said.

“If no substantial cuts were made to the U.S. gigantic military expenditure and bloated social welfare costs, the downgrade would prove to be only a prelude to more devastating credit rating cuts, which will further roil the global financial markets all along the way,” it continued.   [David Pierson / L.A. Times]

But what did investors do? They piled into Treasuries, of course, because it’s not as if there are major inflation issues in the U.S., plus the economy is slowing markedly. And at the same time, there is zero real chance the U.S. would actually default on its debt.

So on Tuesday, the Federal Reserve had a regularly scheduled Open Market Committee meeting and amidst the market turmoil, announced it was going to keep the funds rate (that which it controls) at zero for another two years, thus killing savers all over again. The Fed also said in its accompanying statement:

“The committee currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013….

“Growth so far this year has been considerably slower than the committee had expected,” while “inflation has moderated.”

The problem with the Fed now is they have basically zero policy options if we slide into recession. QE2, one year later, proved to be a disaster, unless you liked playing the commodities markets. The short-term “wealth effect” stimulus did the overall economy zero good as we all paid more for food and energy. And once we learned that first quarter GDP was revised sharply downward from 1.9% to 0.4%, the real starting point to this current phase of the economic crisis, there is only one conclusion that can be reached. Ben Bernanke’s post-crisis policies (post-saving the banking system, 2008-09) have been an abysmal failure.

And as for the new super committee of six Democrats and six Republicans that must come up with $1.5 trillion in deficit reductions by Thanksgiving, or face a nuclear option that automatically then slashes $1.2 trillion, about half from defense, looking at a composition of the respective teams (details below), there is zero cause for optimism. Zero, that these 12 will reach a compromise.

Is it any wonder then that in a Reuters Ipsos poll, 73% of Americans believe the country is “on the wrong track” with just 21% believing we’re headed in the right direction? Who are these 21%, anyway? Are they nuts?

Republicans can’t pat themselves on the back, either, as they are found to be at fault over Democrats by a 49-40 margin.

A USA TODAY survey reveals that 66% say taxes should rise on the upper income brackets.

A Washington Post poll has 8 in 10 dissatisfied with the way the political system is working. 51% of Independents, critical to 2012, are “very” dissatisfied. 71% called S&P’s downgrade of the U.S. “fair.”

So you add it all up and it’s no mystery that consumer confidence is crumbling, according to one report on Friday, to the lowest levels in 30 years. The job outlook sucks, there is a tremendous amount of uncertainty on so many fronts, and thus there is no reason for a consumer, 70% of our economy, to spend willy-nilly unless they believe the world is about to end. What would you do with your last 48-72 hours, anyway? [Just thought I’d throw out a dinner table topic for you. Just don’t bring it up around the impressionable little ones.]

Yes, it’s happy days all around. As to the odds of the economy formally tipping back into recession, does it really matter? We’re going to be stuck in neutral, at best, for a long time to come it would seem and 1%-2% growth would feel like recession on many fronts (though would allow for a decent rally in stocks from time to time).

“The Western banking system collapsed three years ago under a cascade of bad debts. Financial markets periodically undergo booms and busts (as with the bubble in technology stocks in the late 1990s), but this time was different. The asset that had experienced an unsustainable boom in the early years of this century was not a segment of the financial markets, but credit itself.

“Banks and other financial institutions had lent profligately and indiscriminately to borrowers who turned out to be poor credit risks. Banks assumed that the development of new and complex financial instruments had reduced the risks of lending. They were terribly mistaken, and their balance sheets suffered huge damage.

“The remedial measures – low interest rates and big budget deficits – that policymakers put in place after the collapse of Lehman Brothers in 2008 managed to avert a repeat of the Great Depression. But these policies have had big costs and global recovery has been weak and fitful. Investors are concerned that financial weakness might merely have migrated from the private sector to sovereign borrowers. The evidence is worrying.”

“So this is a taste of what it will be like when the American superpower starts shrinking. Enjoying it yet?

“After the humiliation of the United States losing its AAA credit rating; after watching the American stock market descend into chaos; after living for two years in a $15 trillion economy unable to grow beyond 2%, with unemployment rates rarely experienced in the U.S., Americans have their first whiff of inhabiting an empire in decline.

“You could divide the country between those who think that it wouldn’t be the worst thing for the U.S. to enter the long, falling autumn of its life, as has Western Europe; and those who refuse to go down, who’d do whatever they must to hold the world’s No. 1 ranking.

“The U.S. is far from finished. The private economy – from the biggest corporations to innumerable dreamers launching start-ups – is fit and eager. But make no mistake: The U.S. has taken a hard hit to its 65-year status as the world’s pre-eminent nation….

“A central attribute of our exceptionalism has been flexibility. U.S. economic success is a story of adaptive, efficient responses to history’s headwinds and speed-bumps – until now. A national infrastructure bank would be the opposite of that tradition. It’d be too big and too slow. The Obama health-care plan, run through the 46-year-old turbines of Medicare, is wholly at odds with the needs now of a huge, complex country.

“Washington is not America, and so optimism is possible. Out in the country, some states are showing with their public-pension reforms that government flexibility in the face of economic crisis is possible. A Washington able to recognize the immediate needs of the downgraded superpower would lift every identifiable burden from the states and the private economy.

“Here are two headlines from one day this dreadful week: ‘U.S. Productivity Falls’ and ‘Truck Makers Face Fuel-Efficiency Rules.’ That is the path to being less than No. 1. It doesn’t taste right.”

“We and our global market competitors are and have been experiencing a lack of aggregate demand for several decades. It is now only visibly coming to a head, as the magic elixir of leverage is drained and exhausted. This potentially fatal disease of capitalism is a result of several long-term secular phenomena:

“ (1) Aging demographics, where baby boomers spend less, in contrast to their youth, as they approach retirement….

“ (2) Globalization, where 2 billion new competitive workers from Asia and elsewhere take jobs and paychecks from complacent and ill-trained 40-somethings in developed markets.

“ (3) Technological innovation, where machines and robots displace human labor, resulting in corporate profits but declining wages….

“Having run up our credit card to keep on spending, we have reached market-enforced limits that force deleveraging. It is not the debt, however, but the lack of global aggregate demand that is at the heart of the crisis.”

“The first half of 2011 showed a slowdown of growth – if not outright contraction – in most advanced economies. Optimists said this was a temporary soft patch. This delusion has been dashed. Even before last week’s panic, the U.S. and other advanced economies were odds-on for a second severe recession.

“America’s recent data have been lousy: there has been little job creation, weak growth and flat consumption and manufacturing production. Housing remains depressed. Consumer, business and investor confidence has been falling, and will now fall further.

“Across the Atlantic the eurozone periphery is now contracting, or barely growing at best. The risk that Italy or Spain – and perhaps both – will lose access to debt markets is now very high. Unlike Greece, Portugal and Ireland these two countries are too big to be bailed out….

“(Since) this is a crisis of solvency as well as liquidity, orderly debt restructuring must begin. This means across the board reduction on the mortgage debt for the roughly half of America’s households that are underwater, and bail-ins for creditors of banks in distress. Greek-style coercive maturity extensions, at risk free rates, must also come for Portugal and Ireland, with Italy and Spain to follow if they lose market access. Another recession may not be preventable. But policy can stop a second depression. That is reason enough for swift and targeted action.”

And just think, sports fans, how much worse the whole situation would be if North Korea acted up; or if a terrorist attack in India gave it no other recourse but to go to war with Pakistan; or if Hizbullah, feeling pressured, lashed out against Israel; or Iran suddenly tested a nuclear weapon; or a little incident in the South China Sea rapidly escalated; or the kind of rioting we saw in London spread to other major European cities; or a large-scale terrorist attack occurs, like in conjunction with the upcoming UN General Assembly in New York. If you want something to pray for, aside from our servicemen and women in harm’s way, pray none of the above takes place.

Street Bytes

--The advances for the Dow Jones on Thursday and Friday were the first back-to-back gains for it since July 6-7. Overall, after the major equity indices crashed 6%-7% on Monday, stocks climbed back in fits and starts to finish with minimal losses, the fewest of this brutal 3-week losing streak, with the Dow losing 1.5% to close at 11269, the S&P 500 losing 1.7% and Nasdaq declining 1.0%.

There was some respectable economic news the latter part of the week, which helped, as jobless claims came in under 400,000 (assuming it’s not revised up next Thursday), while July retail sales were up 0.5%. But otherwise it was largely about the plight of financials as the bank index cratered 11% on Monday.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.19% 10-yr. 2.25% 30-yr. 3.73%

Treasuries went for an incredible ride, led by the 10-year which had closed the week before with a yield of 2.56%, but at the height of the crisis on Wednesday, saw the yield drop to a record low 2.03% before finishing the same day at the week’s closing 2.25%, with all manner of further gyrations in between. On Thursday, the yield on the 30-year, which had plunged to below 3.50%, rose 27 basis points (0.27%) by the end of the day for the biggest increase in yield in one day since the 1980s. At one point, T’bills technically had negative yields. That’s not the last you’ll hear of such a thing.

Personally, I was like many of you this week. After selling my house in Jan. 2010, I parked a wad of the cash in a short-term bond fund, hoping to earn 2%-3% a year, but with all the uncertainty, and with the fund up big for its category, I redeemed and parked the proceeds in my checking account, where it will earn nothing, but I’ll be very happy. 

--Regarding critical housing, with 25% of homes already underwater, and another leg down in prices seemingly on the way, record-low mortgage rates and lower prices haven’t moved the needle. In fact home lending is now at its worst levels since 1997.

A friend of mine down in North Carolina is faced with a situation echoed all over America. He put a nice condo on the market in November, had all of eight bites since, few of which were serious ones, and finally put it up for rent and had three looks in the first three days of the listing.

Beazer Homes USA Inc., reported its fiscal third-quarter loss widened as it saw the rate of closings collapse, but now, in hard-hit markets like Las Vegas, Beazer is expanding its rental program wherein it buys and rents out foreclosed homes, something Beazer first adopted in Phoenix.

--Food commodities surged Thursday on another report from the U.S. Dept. of Agriculture that said: “Unusually high temperatures and below average precipitation during July across much of the Corn Belt sharply reduced yield prospects.” So food inflation remains on the table. My sources in Russia (in the form of readers) tell me the wheat harvest there should be good. [Ditto Ukraine, from what I hear.]

--Meanwhile, gold hit a record $1817 an ounce before the CME Group boosted margin requirements on the trade, prompting sales, though the $1742 closing price on Friday was $260 above the level of just six weeks ago!

--High prices and weaker economic growth have led the International Energy Agency to lower its global demand outlook for oil to a zero increase in June.  Total consumption of oil products in Asia actually fell 500,000 barrels between May and June, led by China, with demand there decreasing 1.5%. OPEC production stands at about 30 million barrels per day, meaning the cartel has fully made up for lost production from Libya. Saudi production is up to 9.8mbd.

--All kinds of news on the critical China front, as producer and consumer prices for July were up a disconcerting 7.5% and 6.5%, respectively, though most are convinced this is finally the peak as food prices, up 14.8% in the month, should be coming down. The economy is definitely slowing, even as July exports were up a stronger than expected 20.4% (imports up 22.9%). Importantly, new lending for July was at the lowest point of the year.

--Hong Kong’s GDP fell a surprising 0.5% in Q2. Singapore is estimating its GDP will rise 5%-6% in 2011 vs. 7%+ per an earlier estimate. And Japan is cutting its GDP outlook for 2011 from 1.5% to just 0.5%.

--India’s industrial production rose a surprisingly strong 8.8% in June, after a 5.9% rise in May.

--Bank of New York is looking to cut 1,500 jobs, while a number of civil suits against the bank continue to work their way through the system, alleging BNY cheated pension funds by employing currency-trading methods that allowed traders to “capture greater trading gains” when executing orders for institutional clients.   

--Speaking of currencies, China has allowed the yuan to hit a fresh high against the dollar in an attempt to combat inflation. The moves aren’t dramatic, but significant, as China deals with foreign exchange reserves of $3.2 trillion, and $1.2 trillion+ in American debt. It can’t unload the U.S. securities, though, without severely shooting itself in the foot by sinking the value of the dollar further and eroding the value of its own reserves.

The Chinese people are catching on to this quickly, and while they may not understand the minutiae, they get the broad-based concept.

Separately, China has 1,054 tons in gold reserves, but this is less than 2% of the country’s foreign reserves – of which about 75% are estimated to be in dollar-denominated assets.

--EON, Germany’s largest utility, will lay off 10% of its workforce, 11,000 positions, after the government’s decision to shut down all nuclear reactors by 2022, in one of the dumber moves of the still young decade.

--California is looking at tax revenues for July that missed estimates by a whopping $539 million, which will force a trigger resulting in more cuts. Not good and highly distressing. The state’s collections from capital gains taxes have swung wildly in the last decade, as reported by the Los Angeles Times. $3 billion in 2002 to $11.9 billion in 2007, back down to $2.6 billion in 2009.

--Hedge fund king John Paulson, while doing super with his substantial gold bet, has seen the value of his largest fund tumble 31% this year, owing to big positions in financials such as Bank of America and Citigroup.

Jonathan Weil had the following regarding the financial sector in Bloomberg:

“(There) were 186 U.S.-based financial-services companies trading for less than 60% of their book value, or common shareholder equity, including Bank of America, Citigroup, Morgan Stanley, AIG and SunTrust Banks Inc. Together they had a stock market value of $300.5 billion, compared with $686.4 billion of book value, according to data compiled by Bloomberg.

“When I ran the same stock screen for a June 2008 column, a few months before the financial crisis reached full flower, it turned up 168 companies with a combined $120.3 billion market value and a book value of $270.3 billion. The way the credit crunch was playing out then, market declines were begetting writedowns, leading to more market declines and then more writedowns. A year later the cycle broke, thanks to unprecedented government intervention….

“Like a Slinky walking down a flight of stairs, though, all it may take is the slightest push for inertial energy to set the writedown cycle in motion again. For instance: Bank of America, at 33% of book value, finished yesterday (Tues.) with a $68.6 billion market capitalization. That’s less than the $71.1 billion of goodwill on its June 30 balance sheet. (Goodwill, which isn’t a saleable asset, is the ledger entry a company records when it pays a premium price to buy another).

“So, Bank of America would have us believe the goodwill by itself was more valuable than what the market says the entire company is now worth. Investors don’t buy that. They see a company that needs to raise fresh capital, judging by the discount to book value, in spite of the company’s claims it doesn’t need to.”

BofA CEO Brian Moynihan was under fire all week as the shares tumbled and a conference call organized by investor Bruce Berkowitz failed to placate the skeptics as Moynihan insists the bank is on the right track since he took over. What it comes down to is the bank’s massive mortgage portfolio that is bleeding all over the rest of the institution’s generally profitable operations. Moynihan’s credibility is shot.

But wait….there’s more! AIG is suing BofA for $10 billion in losses it says it suffered on $28 billion of mortgage-related investments with the bank, including through its Merrill Lynch and Countrywide Financial units that misrepresented the quality of the mortgage securities being sold.

--Cisco Systems finally reported better than expected results for its fiscal fourth quarter as sales rose 3.3% in the period ending July 30. CEO John Chambers continues to rein in expenses. The shares, which traded at $24.60 last November, rose to $16 by week’s end. Chambers is confident about the current quarter. I wouldn’t be.

--The strike by Verizon workers promise to be a nasty one, potentially lasting months as the company seeks to rein in pensions, while requiring workers to contribute more to health-insurance premiums.

--Depending on the day, Apple and Exxon Mobil are now jockeying for the position of world’s most valuable company.

--The U.S. Postal Service has proposed cutting 120,000 jobs, 20% of its workforce, and to drastically rein in healthcare and pension costs, which represent a third of its labor expenses. The USPS has already eliminated 212,000 positions in the past 10 years and still seeks to close 3,700 branches. Due to its collective bargaining agreement, though, the Postal Service is restricted on how many personnel it can layoff so new legislation would be required. And the USPS also lost $3.1 billion last quarter.

--Treasury Secretary Timothy Geithner said he will stay on, probably through the 2012 election. As former NBA star Derrick Coleman would have observed, “Whoopty-damn-do.”

--According to TV Guide, the “Today” show’s Matt Lauer earns $17 million a year. NBC’s “Nightly News” host Brian Williams earns $13 million, $1 million more than ABC’s “World News” anchor Diane Sawyer. New CBS “Evening News” host Scott Pelley is at $5 million.

But, good lord, Anderson Cooper makes $11 million! Nothing wrong with the guy, I’m just surprised he’s right up there with the big boys and girls. Bill O’Reilly takes home $10 million.

--“Rise of the Planet of the Apes” opened to a stronger than expected $54 million. Ape leader Caesar is demanding a bigger percentage of the gate and is threatening further violence if his demands aren’t met. We need to listen to him.

--Finally, the above noted Irish Independent editorial advises the following:

“Holidaymakers on the continent should be advised to take care: hold only the minimum of the local currency, and treat with special suspicion euro notes coded Y, S and M (signifying they were printed in Greece, Italy and Portugal, respectively). Take plenty of dollars with you, which shopkeepers will certainly accept if there is a run on the banks, or if euros suddenly cease to be legal currency. The precautions may not prove necessary, but there is no point in taking risks.”

Foreign Affairs

Syria: President Bashar Assad’s thugs continue to have their way, seemingly killing at least 15 protesters a day despite calls from all over the world now to end the bloody crackdown against those demonstrating against his rule. The West continues to slap sanctions on Syria and its leaders, while Turkey is acting more aggressively in its diplomatic effort and virtually threatening Syria. In addition, Saudi Arabia recalled its ambassador, as King Abdullah told Assad to “stop the killing machine and the bloodshed …before it is too late,” and others have begun to follow. For his part, Assad said constitutional revisions would be ready by February-March 2012, which is laughable.

But as the London Times opined, Assad is foolish to ignore criticism not only from the West, but from neighbor Turkey.

“Turkey has no qualms about using its large army to enforce its regional interests – as it has from time to time in northern Iraq – and the massing of troops on the Syrian border was enough (years ago to have terrorist leader Abdullah Ocalan) swiftly expelled. Trade, traffic and friendship followed: Syria became increasingly dependent on its powerful neighbor for its own modest development.

“(Turkish Prime Minister) Erdogan’s high standing in both East and West is largely because of his skill at finding a compatibility between democracy and moderate Islamism. The Syrian uprising threatens Turkey in two ways: it sent waves of refugees across the border, and it is likely to bolster the Muslim Brotherhood and other radical Islamist elements that have little interest in the kind of Muslim democracy that Mr. Erdogan espouses. He met Mr. Assad several times, warning him that talk about reform meant little; what was needed was reform.

“That message has been rebuffed with a resort to presidential clichés about terrorist gangs that fools no one and insults Mr. Erdogan, a prickly man who has already proved in his confrontation with the Turkish military that it is unwise to underestimate his acumen and ambition. Turkey has now given Damascus a two-week deadline to halt the killing machine. The alternative is not spelt out. But it is clear; a Turkish military incursion, to ‘protect Turkish interests.’ It would be applauded by the West – unable to do much about Mr. Assad – and perhaps even by Syria’s neighbors….

“President Obama is poised to call for Mr. Assad’s removal. But only the Turks could enforce it. Ankara now speaks from a position of power.”

Lebanon: Of course what happens in Syria is extremely important here, especially for Hizbullah. Anti-Syria Demonstrations have been growing in Beirut (with my friend there among the crowd), while Hizbullah is in the uncomfortable position of supporting a bloody tyrant who is its prime benefactor. Leader Hassan Nasrallah’s image has been burned by protesters in Syria, quite a turnabout. As one Syrian protester told the Associated Press, “Hizbullah always criticizes the double standards of the West, but it has done worse. We feel betrayed.”

So Lebanese politics is divided between those who are against the now-Hizbullah controlled government, and those still loyal to Damascus and fellow benefactor Iran. Hizbullah-linked politician Michel Aoun, for example, dismissed the Syrian uprising as “minor incidents in a neighborhood or two in Homs.” Aoun, playing the role of stooge, accused the West of trying to divide Syria to serve Israel’s interests by pushing Damascus to cut its ties with Iran, and thus proxies Hizbullah and Hamas.

The opposition says that if Hizbullah didn’t control the government, the government would have condemned Syria. Former Prime Minister Saad Hariri called on the government to denounce the “open massacre,” saying Lebanon must not support the Syrian government’s policies.

Israel: The government of Prime Minister Netanyahu is going ahead with the construction of thousands of new homes in East Jerusalem, in the face of U.S. and U.N. opposition and a Palestinian bid for statehood. Officials say the project is needed to ease a severe housing shortage that has triggered mass demonstrations. Palestinians say it is just another illegal settlement designed to hinder any peace negotiations. 

As to the nationwide social justice movement in Israel, an estimated 300,000 took part last Saturday across the country; 200,000 in Tel Aviv alone. The protests have grown in size for three weeks running. It’s about the widening gap between the rich and poor, with the middle class bearing the brunt of an economy, that, similar to the U.S., has people struggling with rising costs while wages stagnate. The young are feeling increasingly disenfranchised.

Afghanistan: News on the downing of the Chinook helicopter was just breaking as I went to post last time and it was but the start of a bloody week for the U.S. and NATO, with at least 37 Americans being killed, 41 for NATO overall, including an IED attack that took out seven Americans on Thursday (this was initially widely reported as claiming five victims).

Iraq: Radical Shiite cleric Moqtada al-Sadr said that even if some U.S. training forces remain behind after the Dec. 31 withdrawal deadline, they are fair game for attack. 

“They will be treated as anyone who stays in Iraq, as a tyrannical occupier that must be resisted by military means,” al-Sadr said in a statement. The Iraqi government still hasn’t decided if it will request that 10,000 or so U.S. troops stay behind.

China: In a further embarrassment for China’s high-speed train initiative, a bullet train manufacturer recalled 54 trains on Friday. The government announced a moratorium on new projects this week, though some wonder whether this will really be the case. The recall applies to trains used on the Beijing-Shanghai line, though is not linked to the July 23 crash on a separate one. Some sensors may be too sensitive and stop a train cold for something as ‘minor’ as a passenger lighting a cigarette in the restroom.

State media has been far more open on the costs of the high-speed rail project in general. As I’ve noted before in this space, there has also been massive amounts of corruption in the operation.

As for the Wenzhou crash that claimed 40 lives, the official China Daily newspaper reported the accident “should not have happened” and was “completely avoidable,” quoting the head of the Safety Administration.

Meanwhile, China put its first aircraft carrier to sea for a trial. The ship was purchased as an unfinished hull from Ukraine in 1998 and shouldn’t itself be viewed as a threat. This is one instance where I believe U.S. analysts who say it will take years before China can operate a full carrier group.

Of more immediate danger are its anti-ship missiles being deployed on their warships and submarines, as well as a new land-based system; all of which are definite threats to U.S. carrier groups.

[On the same day China launched its carrier, Taiwan said its most advanced missile was now ready, “an aircraft carrier killer” of its own.]

North / South Korea: The two sides exchanged artillery fire near a disputed sea border. There were no casualties. It is worrisome that Pyongyang is provoking Seoul.

Russia: New Jersey Nets owner Mikhail Prokhorov said on Thursday that he was prepared to become the country’s next prime minister, which is amazing chutzpah. Prokhorov doesn’t intend to give up ownership of the Nets despite his obvious political ambitions. His new party, Right Cause, is still only polling 4%.

On the Georgian front, Foreign Minister Sergei Lavrov said Russia would never deal with Georgian President Mikhail Saakashvili.

“Saakashvili is, of course, a pathological case and an anomaly among the Georgian people. He is clearly very badly brought up.”

In a rare interview, President Medvedev told Georgia media he would “never forgive” Saakashvili for purportedly starting the 2008 war. I didn’t see if Saakashvili responded.

This was too much. As Bob S. first alerted me, Prime Minister Vladimir Putin was at it again. The Daily Telegraph’s Andrew Osborn describes the scene.

“Russia’s prime minister has added underwater archaeology to his list of outdoor pursuits, diving beneath the Black Sea to explore the submerged ruins of an ancient Greek city known as Russia’s Atlantis [Phanagoria]…which is currently being excavated by Russian archaeologists, and Mr. Putin’s scuba diving foray received top billing on Russian state TV.

“Mr. Putin descended little more than seven feet but somehow managed to uncover the remains of two ancient Greek amphorae, used to store wine or olive oil, buried in the sand.

“ ‘Treasure!’ the 58-year-old Russian strong man said with a big grin after emerging from the sea.”

Bob and I could only think not only of Putin’s past “exploits,” but Kim Jong-il’s 54 on the golf course (or was it 36?), and way back, Mao’s swims in the Yangtze, where the picture of his head was amateurishly superimposed among the masses.

Ukraine: Former Prime Minister Yulia Tymoshenko is in prison during her trial on a charge of abuse of power while leading the government, in a courtroom drama that has riveted the region. The braided one, now 50, loves being in the spotlight, but the spotlight is also on President Viktor Yanukovych, who increasingly is playing the role of dictator. The West didn’t use to sympathize with Tymo, urging her to bow out gracefully after losing to Yanukovych in a fight for the presidency, but today she is gaining support, including from Russia, of all people.

[The Kremlin actually has a good reason to back her. Tymoshenko was responsible for a key Russian-Ukrainian gas deal signed while she was prime minister and now Yanukovych wants it renegotiated.]

Tymoshenko said in court the other day, in defying the judge:

“I will not stand in front of you because it would be kneeling in front of the Mafia. You are not breaking me, but Ukraine’s young democracy.”

The braided one is quite brave. Mass protests are scheduled for Aug. 24, the 20th anniversary of independence from the Soviet Union.

Spain: As a further example of one of my favorite topics, the anti-immigrant mood in Europe, Spain won approval to keep Romanians from seeking work there, as the government is afraid an economy with 20% unemployment just can’t absorb more foreign workers. So Spain, like Italy and France, both wrestling with the North African immigration wave, becomes the latest to buck the EU’s hopes of free movement and a single market.

191,000 Romanian citizens living in Spain were unemployed in the first quarter of 2011… staggering. I had no idea there were now 823,000 Romanian nationals in Spain, including children. Those already living there are not affected by the new rules, but those seeking to move to Spain would need a prior job commitment. 

Britain: Last, but far from least, you had the incredibly depressing scenes of youths rioting, for zero reason, across London and other cities as police were totally unprepared for the hordes of vicious mobs that wantonly destroyed their own neighborhoods. Worrisomely, and in keeping with my theme of a rapidly rising anti-immigrant, far-right theme across all of Europe, vigilante gangs threatened to do the police’s work. I’ll admit that had it been my neighborhood being destroyed by the low-life anarchists, I might have been part of a vigilante group myself, but this is not the vision of a civilized society most of us grew up with; a dream increasingly threatened across the globe, it seems. And talk about timing, with the Olympics one year away.

British Prime Minister David Cameron said it “is a time for the country to pull together,” this as he sought answers for the crisis.

“We will not put up with this in our country. We will not allow a culture of fear to exist on our streets. We will do whatever it takes to restore law and order and to rebuild our communities.”

But at the same time, Cameron, as part of his massive austerity program, is looking to slash thousands of police. With a year to go before the world descends on London, at least those who haven’t canceled their plans after this week, Cameron told a nationwide audience:

“We need to show that we will address our broken society, will restore a stronger sense of morality and responsibility in every town, in every street and in every estate. And a year away from the Olympics, we need to show them the Britain that doesn’t destroy but builds, that doesn’t give up but stands up, that doesn’t look back but always forwards.”

The prime minister promised to protect the citizenry, and that those who suffered property damage will be compensated. He also asked former Boston/New York/Los Angeles police commissioner William Bratton to serve as a special consultant.

“To some people, ‘riots’ is a misnomer, implying some whisper of a cause. What is happening in British cities is gratuitous violence: mugging, vandalism, arson and looting. The black man pictured on YouTube, who put his arm round the shoulder of an injured Asian boy, pretending to comfort him, while his white accomplice raided the boy’s backpack, plumbed the depths of cowardly cynicism. No one seeing this, watching the blood stream red off the bewildered boy’s face, could fail to be maddened by it.

“Ordinary people do not deserve to be treated like this. The excuse of deprivation does not wash with shopkeepers who have painstakingly built small businesses, some living above the shop, over many years. It does not wash with Carpetright, burnt down by vandals on Saturday, which had invested millions in Tottenham community projects and which has promised to help those who have been made homeless. It will not wash with the fearful, furious, silent majority.”

I’m sure like most of America, you share the fury I felt as well. Many of these kids deserve to live the rest of their lives in a dark, Dickensian cell filled with rats and a daily plate of maggots.

It was also an interesting coincidence that a survey was released last Sunday that shows a majority of British voters support the return of the death penalty. 53% in favor, 34% opposed. Britain’s last hangings were in 1964 and capital punishment was abolished for murder in 1969.

Random Musings

--No doubt…for President Obama you can’t possibly have a worse week. The downed helicopter, financial crises in Europe and the United States, Democrats ticked off at you, Republicans blaming all your policies for today’s ills. A Washington Post poll now has his approval rating at 44%. It was 47% just three weeks ago. History tells you he better have it back above 50% if he’s going to win re-election.

--The special committee of 12 that is charged with finding $1.5 trillion in budget savings has now been selected and there is absolutely zero cause for optimism.

For the Republicans: Senators John Kyl, Pat Toomey and Rob Portman, along with House members Dave Camp, Fred Upton and Jeb Hensarling.

For the Democrats: Senators Patty Murray, John Kerry and Max Baucus, along with House members James Clyburn, Chris Van Hollen and Xavier Becerra.

The Republicans are all on record as not wanting any kind of revenue raisers, or tax increases, while the Democrats are on record as not wanting any change to the existing entitlement programs.

Once again, I turn to former Republican Senator Alan Simpson (Wyo.) of Simpson-Bowles fame.

“To reach $4 trillion (in deficit reduction), our solution had more revenue than Republicans wanted. More changes to entitlements than Democrats did. None of us thought our answer was perfect. We held our noses and almost barfed at some of it. But perfection wasn’t the goal. Some Tea Party types (and remember, they are not a party) seem so sure only they know what’s best for all of us. Doesn’t sound like my kind of leadership. I’m a real live, real conservative Republican – check my Senate record – and sometimes I don’t recognize my party. Many conservatives quote Ronald Reagan, saying how he’s their hero. I knew Reagan well. Loved the man and spent a lot of time with him. And you know what? He raised taxes 11 times in his eight years. He did it to make the country run. These bomb throwers take great pride in saying they will never, ever compromise. Reagan was a master of compromise. Read your history, guys and gals. You’re on the wrong side of it.” [BloombergBusinessweek]

“You would think that abysmal growth and jobs data, the first-ever downgrade of U.S. debt and heart-stopping gyrations in the financial markets would impel political leaders to at least take a second look at some of their assumptions about restoring confidence in the U.S. economy.

“President Barack Obama called again this week for a deficit-reduction plan that includes both new revenue and spending cuts, a solution that he said would require ‘common sense and compromise.’ Alas, we have seen little of either quality from Speaker John Boehner and the House majority leader, Eric Cantor. The Republican leaders reiterated their determination to oppose any solution to the U.S. fiscal mess that involves revenue increases.

“Whatever one thinks of the validity of Standard & Poor’s decision to downgrade U.S. debt, it contained an admonition that we should take seriously: Spending cuts alone won’t be sufficient to place the debt, and by extension, the economy, on a sustainable path. In a memo to his Republican colleagues, Cantor warned that S&P’s analysis put the party under ‘pressure to compromise on tax increases’ on the ground that there is ‘no other way forward.’ His response: ‘I respectfully disagree.’

“As always, the Republican leaders justified their intransigence by invoking the demons of job-killing taxes that would suppress the dynamism of overtaxed Americans, hampering growth.

“This is partisan nonsense. First, consider the claim that Americans are being taxed to death. In fact, in terms of the economy as a whole, federal taxes are at their lowest level since 1950. The Congressional Budget Office estimated that federal taxes would account for 14.8 percent of gross domestic product in 2011.

“That isn’t a one-year anomaly: Revenue was 14.9 percent of GDP in both 2009 and 2010. Compare that with a postwar average of about 18.5 percent of GDP, and an average of 18.2 percent during the administration of President Ronald Reagan.

“Which brings us to a second dubious claim: Raising taxes in a downturn hinders growth. In 1982, amid a punishing 16-month recession, Reagan approved the largest peacetime tax increase in U.S. history. A booming economy followed in 1983 and 1984, enabling him to sail to re-election.

“In 1993, President Bill Clinton forced a tax increase through Congress that Representative Dick Armey, then chairman of the House Republican Caucus, condemned as a ‘job killer’ that would push the economy into recession. That increase was succeeded by the creation of 23 million new jobs, and the Clinton administration left a budget surplus of about $236 billion. By contrast, President George W. Bush pushed through two rounds of tax cuts and created just 3 million jobs. He also turned the surplus he inherited into a $1.2 trillion deficit.

“Obviously, today’s economic crisis is vastly more severe than anything Reagan or Clinton faced, thus the timing and scope of tax increases must be carefully calibrated. Over the long term, however, the Republican mantra of ‘no higher taxes, ever’ is as senseless as are claims by some Democrats that we can solve our fiscal gaps simply by soaking the rich. Both spending cuts and revenue increases are required.

“One of the oddest aspects of this debate is that the Republican position may not even be good politics – at least outside safe Republican districts. Public-opinion polls show an increasing acceptance of the need to raise taxes to put the nation’s fiscal house in order. (A large majority of voters would like to see the wealthiest 1 percent raise their hands first.)

“The American people are showing that they grasp a fundamental notion that still eludes some of their political leaders. As Justice Oliver Wendell Holmes said, ‘Taxes are what we pay for a civilized society.’ That is well worth the price.”

--As noted above, President Obama’s statement that America is “AAA” was asinine. Some opinion…

“I don’t think any president has ever said anything quite as depressing as the line Barack Obama delivered yesterday: ‘No matter what some agency may say, we’ve always been and always will be a triple-A country.’

“Really? That’s the best he could come up with in response to the unprecedented downgrading of the creditworthiness of the United States of America?

“Unprecedented moments are what test presidents – and their rhetoric. We get to know leaders and how they tick from their response to crises. And we get to know how they use words to help lead us through the darkness.

“From FDR we got ‘a date which will live in infamy.’ From Churchill we got, ‘I have nothing to offer but blood, toil, tears and sweat.’ From George W. Bush we got, ‘I can hear you, the rest of the world hears you – and the people who knocked these buildings down will hear all of us soon.’

“But from our modern Pericles, the man who delivered a convention speech amidst Greek columns, who said history would record his victory in a primary as the moment at which the oceans began to recede? The leader of whom presidential historian Douglas Brinkley said, ‘I don’t think we’ve had a president since Lincoln who has the oratorical skills that Obama has’?

“Pericles Jr. delayed his own speech on the downgrade by 52 minutes to come up with ‘we’ve always been and always will be a triple-A country’?

“Gosh, thanks for bucking us up after the loss to the Bad News Bears, Mr. O! After we shower, can we get pizza and ice cream? You’re the best coach a 10-year-old kid ever had!

“It may be unfair to task a leader for failing to rise to a rhetorical challenge at a moment of extreme duress.

“But wasn’t that the very least of what Obama promised in his own run for the presidency – the capacity to inspire, to rally the people, to represent us at our best, to speak words that soothe and guide and direct? You’d be hard pressed to think of anything more specific he ran on than that, wouldn’t you?....

“This is the worst moment of Obama’s presidency, bar none. And, to put it mildly, he isn’t rising to it.

“Simply put, this Obama – Coach O, the witless rah-rah guy we saw yesterday – is not going to be president on Jan. 21, 2013.

“The question is whether Coach O can get himself out of Little League and back into the Big Show in time to save himself and his party from an electoral disaster that might itself be unprecedented.”

“A few months ago, Treasury Secretary Timothy Geithner predicted with unshakable confidence that there was ‘no risk’ of a downgrade of U.S. debt. In fact, he argued, ‘Things are better than they’ve been if you want to think about the prospects for improving our long-term fiscal position.’

“In his self-assured cluelessness, Geithner reflected the president he serves. Upon taking office, President Obama gravely misread the historic moment. He has brought us to a dangerous pass where a few slips – another sharp recession, a spike in interest rates – could bring on another terrifying economic crisis. To borrow his own put-down of Congress during the debt-ceiling fight, he’s a AA+ president of a AAA country….

“In February, six months before the downgrade, Obama offered a budget that increased spending and the debt. After 10 years, the deficit still would have been more than $1 trillion. In April, four months before the downgrade, Obama delivered a gimmicky budget speech with no specifics. On April 11, just seven days before S&P assigned a negative outlook to our AAA rating, White House Press Secretary Jay Carney said the president wanted a debt-ceiling increase with no deficit reduction whatsoever….

“It’s President Obama who is ‘wary’ to reveal his secret plan to control entitlements as part of the aborted ‘Grand Bargain.’ As the president of a country that has just suffered a humiliating rebuke for its inability to deal frankly with entitlements, it’s now time for him to show his hand with concrete, detailed proposals. If Obama favors significant entitlement savings in private, it’s his duty to favor them in public.”

A few weeks ago, I told you of a story, two sources removed (though highly credible), that a leading investment banker had played golf with Speaker John Boehner after Boehner had golfed with President Obama. Boehner told the banker that he liked Obama as a person, but that he had also never met someone so in over his head.

I thought about that again when reading the Wall Street Journal’s Bret Stephens’ op-ed the other day.

“How many times have we heard it said that Mr. Obama is the smartest president ever? Even when he’s criticized, his failures are usually chalked up to his supposed brilliance. Liberals say he’s too cerebral for the Beltway rough-and-tumble; conservatives often seem to think his blunders, foreign and domestic, are all part of a cunning scheme to turn the U.S. into a combination of Finland, Cuba and Saudi Arabia.

“I don’t buy it. I just think the president isn’t very bright.

“Socrates taught that wisdom begins in the recognition of how little we know. Mr. Obama is perpetually intent on telling us how much he knows. Aristotle wrote that the type of intelligence most needed in politics is prudence, which in turn requires experience. Mr. Obama came to office with no experience. Plutarch warned that flattery ‘makes itself an obstacle and pestilence to great houses and great affairs.’ Today’s White House, more so than any in memory, is stuffed with flatterers.

“Much is made of the president’s rhetorical gifts. This is the sort of thing that can be credited only by people who think that a command of English syntax is a mark of great intellectual distinction. Can anyone recall a memorable phrase from one of Mr. Obama’s big speeches that didn’t amount to a cliché? As for the small speeches, such as the one we were kept waiting 50 minutes for yesterday, we get Triple-A bromides about America remaining a ‘Triple-A country.’ Which, when it comes to long-term sovereign debt, is precisely what we no longer are under Mr. Obama.

“Then there is Mr. Obama as political tactician. He makes predictions that prove false. He makes promises he cannot honor. He raises expectations he cannot meet. He reneges on commitments made in private. He surrenders positions staked in public. He is absent from issues in which he has a duty to be involved. He is overbearing when he ought to be absent….

“(And) Mr. Obama…appears to consider himself immune from error. Perhaps this explains why he has now doubled down on Heckuva Job Geithner.  It also explains his insulting and politically inept habit of suggesting – whether the issue is health care, or Arab-Israeli peace, or change we can believe in at some point in God’s good time – that the fault always lies in the failure of his audiences to listen attentively. It doesn’t. In politics, a failure of communication is always the fault of the communicator….

“(It) takes actual smarts to understand that glibness and self-belief are not sufficient proof of genuine intelligence. Stupid is as stupid does, said the great philosopher Forrest Gump. The presidency of Barack Obama is a case study in stupid does.”

“When I said ‘change we can believe in,’ I didn’t say ‘change we can believe in tomorrow.’…We knew this was going to take time, because we’ve got this big, messy, tough democracy.”

I refer you to Mr. Stephens above. For Obama to make this statement is sheer stupidity.

“The dissonance of his promise and his reality is jarring.

“When he had power, he didn’t use it. He wanted to be a ‘transformational’ president like Ronald Reagan, but failed to understand that Reagan’s strategic shows of strength allowed him to keep the whip hand without raising his voice.

“And now, just when the high school principal in the Oval has been browbeating Congress to help create jobs, he is once more distracted from that task as he tries to save his own.”

Three days later, Ms. Dowd opined in a separate Times op-ed:

“His inability to grab a microphone and spontaneously assuage Americans’ fears is strange. If the American servicemen had died on a Monday [Ed. referring to the Chinook helicopter shootdown], he wouldn’t have waited until Wednesday to talk about it. He doesn’t like the bully pulpit, just the professor’s lectern.

“After failing to interrupt his Camp David weekend to buck up the country on one of its worst days in history, he tacked on his condolences for the soldiers’ families to his economic pep talk, in what had to be the most inept oratorical segue of his presidency.

“He long ago should have gone out into the country to talk to Americans in person and come up with a concrete plan that people could print out from the White House Web site and study….His withholding and reactive nature has made him seem strangely irrelevant in Washington, trapped by his own temperament. He doesn’t lead, and he doesn’t understand why we don’t feel led.

“Speaking from the State Dining Room of the White House, he advised America it was still ‘a triple-A country’ like some cerebral soccer coach urging the kids to win one for the London Interbank Offered Rate….

“Obama has spent a lifetime creating his persona – superior, wise, above all parties and interests, all-seeing, calm, unflappable.

“But as Drew Westen, a liberal psychology professor at Emory University wrote in the Times on Sunday, puzzling about what has happened to his former hero’s passion, the president never identifies the villains who cause our epic problems.

“It’s unclear, Westen wrote, whether that reflects his aversion to conflict or a fear of offending donors, or both.”

--So today is the all-important Iowa straw poll of the GOP presidential field (following a spirited debate on Thursday), one that will winnow it down as a likely casualty is former Minnesota Gov. Tim Pawlenty. I’m going to Iowa on Sunday for a full week but I’m sorry I missed Mitt Romney’s appearance at the State Fair on Thursday. It was rather explosive, as shown on the national news. I’m going to be touring around the state, including a visit to Clear Lake, made famous for being the site of Buddy Holly’s last concert at the Surf Ballroom, now a museum I’m anxious to see, but I digress. I’ll be at the fair at least two days, depending on which candidates are slated to speak there, or I may seek them out in other towns. 

Heck, I just saw that for the straw poll in Ames, Michele Bachmann booked my man Randy Travis!   Drat. I saw Randy in New Jersey about two years ago and he was his usual outstanding self. No one is cooler than Randy. 

The straw poll, incidentally, is far from the predictor of the Iowa Caucuses in February, but it’s important for the winner and fundraising, no doubt.

Meanwhile, Texas Gov. Rick Perry is expected to announce his candidacy on Saturday, though he’s not on the straw poll ballot. Owing to his support among Evangelicals, he is a direct threat to Ms. Bachmann. Perry held a highly controversial prayer rally for a “Nation in Crisis” last weekend in Houston. An estimated 25,000-30,000 attended. Opponents of the rally by such a leading public official said the governor was violating the First Amendment’s requirement of separation of church and state, but a federal judge dismissed a lawsuit prior to the rally that was attempting to ban it.

--In the month of July, Oklahoma recorded the nation’s highest monthly average temperature ever. I will get hold of my Panhandle friends soon. I expect to see a much different picture of the farm outlook in Iowa.

--Yikes, Al Gore totally lost it. Or as the New York Post’s Andrea Peyser wrote:

“It brings me small joy and great hilarity to report that symptoms of Gore’s encroaching lunacy are piling up faster than a stack of earth-killing disposable diapers.  In New York early this month, Gore hectored promiscuous gals to use ‘fertility management’ (abortion?) and stop having kids, saving us all from atmosphere-dissolving burps, or something.

“Then, he told like-minded crackpot Keith Olbermann that America needs a movement, modeled after the unfortunately bloody ‘Arab Spring’ in Tahrir Square – er, he said, ‘the nonviolent part of it’ – to fight, you guessed it, global warming!

“Finally, in Aspen, Gore went on a psychedelic bender.

“For doubting the holy gospel of earthly cooking – which Gore can’t be helping with his partiality to private planes – he issued a blistering, potty-mouthed tirade against warming deniers, saving a few curses for assorted corporate scum.

“ ‘They pay pseudo-scientists to pretend to be scientists to put out the message, ‘This climate thing, it’s nonsense. Manmade CO2 doesn’t trap heat. It may be volcanoes.’ Bulls—t!’

“ ‘It’s not getting warmer.’ ‘All together now – Bulls—t!’

“He wasn’t done cussing or beating up on unnamed corporations who once kept Americans addicted to cigarettes, but now keep us addicted to, I don’t know, minivans or Lean Cuisine.

“ ‘They have polluted the s—t. There’s no longer a shared reality on an issue like climate, even though the very existence of our civilization is threatened. People have no idea! It’s no longer acceptable in mixed company, meaning bipartisan company, to use the goddamn word ‘climate.’’

“The performance had even Gore’s faithful followers in Hollywood wondering if he’d lost his meds.”

--Sign of the ‘real’ Apocalypse: Sales of wooden baseball bats soared in the U.K. as riots spread.

--It seems America isn’t just rolling over when it comes to the rapid Rise of China. From the Global Times:

“Forestry authorities in north China’s city of Baoding released 600 million bees this month to kill off American white moths, which have plagued large areas of crops and forests.”

This is the fifth year authorities have used bees to kill the moths. The bees bore into white moths’ pupa and kill their larvae.

--If you want something optimistic to think about, I was watching NBC “Nightly News” the other day and of all people, the UAE is giving every student in Joplin, Missouri a laptop following the devastating tornado there. An incredible gesture on the part of our Arab friends.

--I caught the coverage of the funeral for former New York Gov. Hugh Carey, 92, a good man, and Cardinal Egan said a few words, including this cool line:

“The governor used to say when approached, ‘You got it. What is it?’ With most people ‘You got it’ would come after.”

--Finally, as some analysts and commentators have said, the shooting down of the Chinook in Afghanistan that took the lives of 22 SEALs, and eight other Americans, should be a reminder that the Special Forces cannot win a war by themselves. Yet President Obama’s strategy seems to place far too great a reliance on these incredible fighting machines. As Max Boot wrote in a Journal op-ed:

“So we should honor them, but we should not exaggerate what they can do.”

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

Gold closed at $1742…again, high was $1817
Oil, $85.38…traded down to about $76 during the week

Returns for the week 8/8-8/12

Dow Jones -1.5% [11269]
S&P 500 -1.7%
S&P MidCap -0.2%
Russell 2000 -2.4%
Nasdaq -1.0% [2507]

Returns for the period 1/1/11-8/12/11

Dow Jones -2.7%
S&P 500 -6.3%
S&P MidCap -7.1%
Russell 2000 -11.0%
Nasdaq -5.5%

Bulls 47.3 
Bears 23.7 [Source: Chartcraft / Investors Intelligence…surprised at the level of bullishness, seeing as the survey was taken on Tuesday when the S&P closed at a low of 1119]

Have a great week. Next time from Des Moines, Iowa.

Brian Trumbore

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