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08/20/2011

For the week 8/15-8/19

[Posted 7:00 AM CT…from Des Moines, Iowa]

Europe, Washington and Wall Street

As I did a lot of driving and touring the last two days, I need to keep the opening brief; the opening always being written last when I put this column together. But the good news for you is there is little I haven’t covered before, especially since this whole European debt crisis took hold spring of 2010, let alone the real genesis, going back to the housing bubbles in Spain and Ireland, circa 2005. The only problem is, things got worse.

This week stocks around the world continued to crash (just using a term that will be employed with increasing frequency) with the S&P 500 now down 16% over its four-week losing streak and the Nasdaq down 18% during the same period. As I spell out below, European results have been just as bad.

Nonetheless, here’s the latest.

German Chancellor Angela Merkel and French President Nicolas Sarkozy got together on Tuesday to come up with a grand plan to save the eurozone. Before they met, rumors were flying that Merkel had finally come on board when it came to Sarkozy’s long-held plan that the only solution was to have eurobonds; one bond for the entire 17-nation club, just like Treasuries. Merkel declined, and for good reason, though this is the solution that the euro members may be forced to accept, somehow, if the crisis enters the final disaster stage, as now seems imminent.

The problem with a Eurobond solution is that when you have one bond for all, all have to guarantee the payment or no one – institutions, you and me – would buy them.

But this also means the strong are guaranteeing the weak, and while Sarkozy’s initial idea was to have one set of debt guidelines for all, which was part of the genesis of the euro in the first place – all members were to have budget deficits of no more than 3% of GDP and total debt not exceeding 60% of same – it’s the implementation that has been sorely lacking.

So what would happen in a eurobond era? You’d be mandating that everyone do ‘X’, but each of the 17 governments today has the power to tax and spend, and no central authority can tell the Greeks, or the Irish, or the Finns what to do unless each of the 17 changes their constitution to give a new central European authority the power over their own economic policies.

In other words, at least today, a total impossibility. Why would Finland, for example, want to guarantee the debt of Greece? In fact, just this week, Finland asked Greece for 20% hard collateral on any loans Finland makes to them. By Friday, four more euro members wanted to do the same, which seriously calls into question the very Greek bailout that started this whole f’n mess.

Ergo, so much for any thought of a Eurobond.   What now? Well, Merkel and Sarkozy emerged from their meeting to basically say, we punt! Oh, they talked about a new central European economic authority, under the existing European Union parliamentary structure, but there was no resolution on increasing funding for the European Financial Stability Fund, which sits at 440 billion in euro, barely enough to backstop Greece, Ireland and Portugal, and nowhere near enough should Italy and Spain require serious help.

Merkel and Sarkozy talked about a new system whereby each of the 17 amended their constitutions to mandate new budget constraints, so that if they weren’t met the EU could levy sanctions on the offenders, but this would require cooperation from all 17 parliaments, and, again, today that ain’t happenin’.

The two ‘leaders’ thus spoke of long-term plans, hypothetically, that look good on paper, but this is a crisis requiring immediate solutions, and this is where the EFSF is so critical because the way things stand today, the European Central Bank, which is buying the bonds of Italy and Spain to keep their interest rates low enough to be able to go into the private market for financing, can’t continue to do so without further funding itself and/or a central mandate.

None of this is a surprise to any of you after all I’ve written the past 16 months, but the fact European leaders can’t reach any kind of consensus is what is taking us all down at lightspeed.

Plus, you have the fact there is no growth, in either Europe or the United States, while Asia is slowing. It’s a recipe for Financial Armageddon. Too much debt and no way to grow out of the crisis.

The Financial Times summed up the incredibly depressing state of affairs.

“This stagnation looks worse in historical context. A deep recession should be followed by a strong recovery as the labor and capital that lay fallow during the bad years are put to work. That is not happening. Four years without economic growth qualify as a sort of Lesser Depression.”

To wit:

Morgan Stanley cut the global growth forecast to 3.9% from 4.2% for this year, but the developed nation forecast went from 1.9% to 1.5%, with the investment bank saying Europe and the U.S. were “dangerously close” to tipping back into recession.

Citigroup lowered the U.S. growth forecast for 2011 to 1.6% and just 2.1% in 2012, down from 2.7%.

PIMCO said the EU should let the three PIGs default; Portugal, Ireland and Greece in an attempt to save Italy and Spain.

The World Bank president said, “We are entering a new danger zone.” World leaders need to take strong “short- and long-term” action “to restore confidence.” A new global recession is imminent otherwise.

Facing a new round of severe austerity cuts, Italy’s largest union said it was authorizing a strike.  The government announced a $64 billion program of cuts that would merge/eliminate 1,500 of Italy’s 8,000 municipalities, resulting in 50,000 job losses. Plus many public holidays would be moved to Sundays to increase the number of days worked.

Germany’s second quarter GDP came in at 0.1% owing to lagging consumer demand; this after Q1 GDP was up 0.8%. The previous week, France announced its second quarter GDP was unchanged. So the two key players in the Eurozone aren’t growing.

Euro manufacturers like Volkswagen AG are now warning of the big slowdown.

The interest rate on Greece’s two-year note hit 37%.

Those are just some snippets. Then you have the European banks themselves, which are under immense pressure, and, increasingly facing funding issues. The banks desperately need more capital, but just like in 2008, now they look at each other with suspicion and refuse to lend to one another, a la Lehman. The situation is incredibly serious. Our own Federal Reserve has U.S. operations of European banks under the microscope to make sure they can operate day-to-day.

A very real prospect of a run on a bank exists in Europe, as early as this coming week, without serious central action, while waiting in the wings, in the continent’s alleyways, is the far-right, as I’ve argued for years would be the case. Europe will see darkness again in our lifetime, war, of this I’m certain.

On a lighter note, the U.S. economy may be in shambles but I don’t see another civil war, at least not until after Europe blows itself up! 

The deleveraging of the economy continues apace, with consumer demand moribund, while the critical housing sector continues to suck wind, the latest example being a decline in July existing home sales for a third month in four, and an absolutely horrible reading on Philadelphia area manufacturing didn’t help; this while the weekly jobless claims figure was back over 400,000, the 18th week in 19 above that key level, while the only one below, two weeks ago, was revised up to 399,000. Pathetic.

A poll of 39 economists for USA TODAY has the odds of another recession now pegged at 30% (I’d say 50%), while they forecast Q3 2011 through Q3 2012 growth at 2% to 2.8%. We will be doing cartwheels in the streets if the next 12 months the economy grows at 2%, at least those with jobs will.

Yes, it’s also about a crisis in confidence, from Europe across the pond and across our nation to California, which just saw its unemployment rate rise to 12%, second worst in the nation to Nevada’s 12.9%.

But while Europe can’t find the leaders it needs, here in America there is no shortage of leaders, right? Right? Hel-loo!

You mean you don’t think this new super duper deficit-reduction committee of 12 will come up with a solution that will appease the markets? Why here we are, in crisis mode, and they don’t meet until Sept. 16! And President Obama’s super-secret plan for solving our ills won’t be revealed until after Labor Day, it would seem, because, I guess, there really is no crisis. So why did I just waste all your time, and mine, with the opening of this column?

Gee, I’d apologize but I wouldn’t know what for? I mean think of this. The president doesn’t even have a real economic team advising him after all the legitimate folks (whether you agreed with them or not, at least they had some credentials) have all left! Instead he’s got a bunch of sycophants. “You look great today, Mr. President.” “Is the temperature in the room good enough for you, Mr. President?” “I got some new Titleist golf balls for you, Mr. President. Mighty fine day for a round, isn’t it, Mr. President?”

Meanwhile, in China, Vice President Joe Biden is telling Chinese leaders, “You have nothing to worry about” when it comes to the good old U.S. of A.  I’m sure they feel much better.

Street Bytes

--U.S. stocks took it on the chin for a fourth consecutive week with the Dow Jones off 4% to 10817, while the S&P 500 lost 4.7% and Nasdaq a whopping 6.6%.

Incidentally, last summer, the day before Ben Bernanke announced QE2, the S&P 500 closed at 1047. This week it finished at 1123. Oh yeah, nice job, Mr. Chairman. Hardly the surge in wealth effect that you expected, right Mr. Princeton brainiac? Rick Perry was too easy on the guy.

Meanwhile, in Europe, check out these key barometers for the month of August thus far:

London -13%
Paris -18%
Frankfurt -24%

--U.S. Treasury Yields

6-mo. 0.02% 2-yr. 0.19% 10-yr. 2.06% 30-yr. 3.39%

At one point on Thursday, the 10-year traded down to a yield of 1.9872%, the first time ever below 2.00% since the 1960s (1950, according to noted analyst Roger Ibbotson). The 30-year yield dropped the most since December 2008.

China, by the way, increased its Treasury holdings in June, despite all the talk to the contrary.

[Separately, China reported foreign direct investment in the country rose 19.8% in July, a good sign, as McDonald’s announced it would add an outlet a day over the next 3-4 years.]

--Fitch Ratings on Tuesday reaffirmed its triple-A status for the U.S., calling the recent Budget Control Act to reduce the deficit a “significant positive development.” Why thank you, Fitch. Here’s an envelope of $100s for your efforts.

--On the inflation front, the producer price index for July rose 0.2%, 0.4% ex-food and energy. The PPI is up 7.2%, year over year, while the core rate is up 2.5%. As for consumer prices, they rose a whopping 0.5%, 0.2% on core, and the year over year figures are now 3.6% and 1.8%, respectively, both hotter than expected.

--In the week ending Aug. 10, net outflows from domestic stock funds were $23.5 billion, the biggest weekly outflow since Oct. 15, 2008, or four weeks after Lehman’s bankruptcy filing. I can’t imagine what it will be the next two weeks, thru Aug. 24, given the further volatility.

--The U.S. Court of Appeals in Atlanta ruled Friday, Aug. 12, that Congress can do a lot of things when it comes to health insurance, but what it cannot do is: “mandate that individuals enter into contracts with private insurance companies for the purchase of an expensive product from the time they are born until the time they die.”

So while many support aspects of Obamacare, and there are some good provisions, forcing people to buy coverage is another matter.   And the recent Atlanta ruling is yet another sign the U.S. Supreme Court must weigh in, and soon, like when it reconvenes this fall. The High Court must also state what provisions of the law can stand…or do they shelve it all?

--One of the big controversies of the week was billionaire Warren Buffett’s declaration in a New York Times op-ed that income taxes should be raised on Americans earning $1 million or more per year. His 2010 tax bill was nearly $7 million, or 17.4% of his taxable income. “That’s actually a lower percentage than was paid by any of the other 20 people in our office,” he wrote.

Buffett says job creation wouldn’t be stifled:

“I have worked with investors for 60 years and I have yet to see anyone – not even when capital gains rates were 39.9 percent in 1976-77 – shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.”

For an opposing view, here’s an editorial from the Wall Street Journal:

“Barney Kilgore, the man who made the Wall Street Journal into a national publication, was once asked why so many rich people favored higher taxes. That’s easy, he replied. They already have their money….

“Mr. Buffett is repeating his now familiar argument this week, coinciding with Mr. Obama’s Midwestern road trip on the economy. Since the media are treating Mr. Buffett as a tax oracle, let’s take a closer look at some of the billionaire’s intellectual tax dodges.

The double tax oversight. The Berkshire Hathaway magnate makes much of the fact that he paid only 17.4% of his income in taxes, which he considers unfair when salaried workers often pay more. But Mr. Buffett makes most of his income from his investments, in particular from dividends and capital gains that are taxed at a rate of 15%.

“What he doesn’t say is that much of his income was already taxed once as corporate income, which is assessed at a 35% rate (less deductions). The 15% levy on capital gains and dividends to individuals is thus a double tax that takes the overall tax rate on that corporate income closer to 45%....

The middle-class bait-and-switch. Like Mr. Obama, Mr. Buffett speaks about raising taxes only on the rich. But somehow he ignores that the president’s tax increase starts at $200,000 for individuals and $250,000 for couples. Mr. Obama ought to call them ‘thousandaires,’ but that probably doesn’t poll as well.

“The president needs to levy his tax increase at such a lower income level because that’s where the money is. In 2009, 237,000 taxpayers reported income above $1 million and they paid $178 billion in taxes. A mere 8,274 filers reported income above $10 million, and they paid only $54 billion in taxes.

“But 3.92 million reported income above $200,000 in 2009, and they paid $434 billion in taxes. To put it another way, roughly 90% of the tax filers who would pay more under Mr. Obama’s plan aren’t millionaires, and 99.99% aren’t billionaires.

“Mr. Buffett says it’s only ‘fair’ to raise his taxes, but he’s lending his credibility to raising taxes on millions of middle-class earners for whom a few extra thousand dollars in after-tax income is a big deal. Unlike Mr. Buffett, those middle-class earners aren’t rich and may earn $250,000 for only a few years of their working lives. How is that fair?

The charity loophole.   For billionaires like Mr. Buffett, the single most important deduction in the tax code is for charitable giving…Yet we don’t hear Mr. Buffett calling for the elimination of that deduction in the name of fairness.

“Mr. Buffett has already sheltered the bulk of his fortune from federal taxes by putting them into a foundation that will give the money away. That’s an act of generosity, but if the government’s purposes are so vital, why doesn’t he simply give the money to the IRS?”

--Venezuela’s President Hugo Chavez nationalized his country’s gold industry to stamp out illegal mining and boost foreign reserves. The move is in keeping with rumors Venezuela is moving its money out of U.S. banks into friendlier ones, such as in Russia and China, that wouldn’t freeze the nation’s assets. Some experts believe Venezuela needs to round up its gold, including that held overseas, in order to placate Russian and Chinese banks that are seeking stronger guarantees on their loans. Venezuela is sitting on a large gold deposit in the south of the country but has been slow to develop, and control, it.

--Talk about a fiasco, how about Hewlett-Packard? The company’s shares fell a record 20% on Friday on the heels of an earnings report that, first, fell short of expectations on eps and revenues, and, second, guided lower for the current quarter in both, the third time CEO Leo Apotheker, formerly of SAP, has done so on sales since he took over in November.

Then HP said it would buy Autonomy, one of the U.K.’s leading technology companies, for over $10 billion, while spinning off HP’s PC business. Apotheker wants to emulate the IBM model, focusing on high-margin services, but he isn’t IBM!

Actually, what really upsets me is HP is discontinuing its WebOS software, which it picked up through its acquisition of Palm. I mean I’m finally getting used to my Palm phone. You can’t do that to me!

--The Dow Jones rose 214 points on Monday, before struggling the rest of the week, largely on the heels of a flurry of mergers and acquisitions by the likes of Time-Warner, Cargill and Transocean.

But the biggest news splash that day was Google’s largest acquisition ever, $12.5 billion for wireless phone maker Motorola Mobility Holdings, which makes Google a maker of smartphones, tablet computers, and TV set-top boxes, all powered by Google’s Android operating system. Google is looking to copy Apple’s cross-pollination with the iPhone, iPad and Apple TV.

--Bank of America announced it would lay off 3,500 employees, soon, after handing out pink slips to 2,500 in the first half of the year, and this latest wave could yet become a tsunami.

--Wall Street is slashing estimates on bonuses it will dole out in 2011 to its equity and fixed-income traders. Just last May, the forecast was that they would rise 10 to 15 percent. Now talk is they’ll be slashed as much as 30 percent, according to one expert. [Another says it will be closer to 10 percent.] Regardless, not good for New York City and its budget, for starters. [Bloomberg News]

--Last week I wrote of how California is falling way short of state tax revenue projections. This week, New Jersey announced its revenues are tracking estimates for the first three months of the fiscal year, less than 1% below forecast. Encouraging.

--Texas’ drought has cost the state an estimated $5.2 billion in crop and livestock losses, a record figure that could still rise. I’ve had a tough time getting a handle on the Iowa corn crop while here. It doesn’t look terrific to me, but the locals say everything is “OK,” though more rain would be appreciated. Driving down on Friday from Clear Lake, somehow the corn seemed worse than just a few days earlier.

[If you haven’t been to Iowa before, once you get out of any city, it’s nothing but corn. Period.]

And then I saw that Iowa State University’s agronomy climatologist warned that the U.S. corn yield is likely to average 149 bushels per acre, which would be the lowest in five years. Elwynn Taylor is four bushels per acre below the latest U.S. Dept. of Agriculture estimate from last week.

I think what we’ve all learned this year is that while planting season is important, July is the key month; see the drought in the southwest, plus searing heat in the Midwest. 

An article in the Des Moines Register says corn pollinates best at temperatures in the upper 80s. Instead, Iowa and Illinois endured temps near 100 degrees during the crucial two weeks of pollination. And then I read that Iowa’s Sec. of Agriculture said at the State Fair, “I’m really worried about the crop.” So I guess the folks at the bar who told me the crop was “OK” may have had too much to drink.

--Speaking of corn, China continues to buy copious amounts of our product owing in no small part to a rising middle class that is changing its eating habits, such as devouring more pork, as the government encourages hog farmers to feed Porky and friends more corn.

And having devoured a delicious pork chop on a stick, or two, at the Iowa State Fair, as well as absolutely scrumptious, mouth-watering bacon on same, just a big old “Oink oink” to my pig friends. What a great product you are. Thanks for being, err, you.

Lastly, on the issue of corn, driving around I listened to the famous WHO 1040 in Des Moines, which is conservative in nature, and they had on a couple of agriculture folks the other day and not one could give a good reason for subsidizing ethanol at this point.

--The rate of credit card defaults for the second quarter was down 35% from Q2 of 2010, which is great, and as it should be, but of course that means consumption is down, and that’s not good for the overall economy.

At the same time, the reduced default rate is partly a result of credit card companies simply writing off uncollectible balances, though this impact isn’t as great these days as actual consumer behavior. And it needs to be noted that consumers are paying off their credit card bills before they pay their mortgage, which is a symptom of knowing your house is underwater, so why bother?

--Wal-Mart’s CFO said, in announcing the company’s latest earnings, “Our core customer continues to be strained. The volatility in the headlines doesn’t help the customer. They are really stretched right now,” adding more of Wal-Mart’s customers are on public assistance.

Wal-Mart is also suffering as competitors lower their prices to compete with the giant, thus eating into Wal-Mart’s claim to be the industry’s “low cost leader.”

--Home-improvement leader Home Depot, while beating earnings estimates, nonetheless does not expect “any meaningful improvement in the housing market for the back half of 2011.”

--J.D. Power & Associates cut its U.S. light-vehicle sales forecasts for both 2011 and 2012. Said a strategist there, “It really comes down to consumer confidence, and consumers just don’t have any right now.” Earlier in the week, Goldman Sachs and RBC Capital Markets also lowered their forecasts. Left unsaid, “About those plant expansions the White House and automakers have been touting…”

--Hundreds of striking Verizon workers showed up for a candlelight vigil outside the New Jersey home of the CEO the other night. At least it was peaceful but what a stupid act. The strikers are mostly on the land-line side of the business and refuse to accept the company’s demands on givebacks for pensions and healthcare premiums. Said one striker, “We want to keep what we have.”

You are in the dead land-line business, fella. Just be glad you have a freakin’ job at this point and try and retrain yourself for something more useful in the interim.

--Inflation Alert: The Port Authority of New York and New Jersey, along with governors Chris Christie and Andrew Cuomo, agreed on a 56% fare hike for bridges and tunnels over five years. I’ll never go to New York again. Can’t afford it.

--Irrelevant record of the week: The average rate on a 30-year fixed mortgage fell to 4.15%, the lowest level on record dating to 1971. Whoopty-damn-do. Such rates have hardly energized the housing sector and the evidence thus far is that relatively few can take advantage of them in terms of refinancing.

--I saw in the local crime blotter that some punk was arrested for shoplifting a Louis Vuitton belt at a Neiman-Marcus. Value of said belt? $515! Yet another sign of the apocalypse.

--A whistleblower at the SEC has accused the regulatory agency of destroying at least 9,000 pages of documents relating to leading Wall Street banks and hedge funds; including the likes of Goldman Sachs, Morgan Stanley and SAC Capital Advisors. The SEC, according to an attorney at the agency, said it would systematically destroy files after closing “matters under inquiry.” But of course folks now wonder what documents were being destroyed. Sen. Charles Grassley (R-IA) is particularly upset because he has been looking into trading irregularities and some of these records were part of the file trashing.

--As reported by the Los Angeles Times’ Alana Semuels, economists at the San Francisco Federal Reserve have determined that when it comes to Made in China, “Goods and services from China accounted for only 2.7% of U.S. personal consumption spending in 2010. About 88.5% of U.S. spending last year was on American-made products and services,” the report read.

Semuels:

“How can this be, considering that many of the toys, electronics, housewares, shoes and other goods we use daily come from the Middle Kingdom?

“One word: services. Services, which account for about two-thirds of spending, are mainly produced locally. Your dry cleaner, accountant, mechanic and manicurist most likely are right in your neighborhood.

“Then there’s groceries and gasoline. Most of the food Americans eat is produced domestically….About 90% of all gasoline sold in the U.S. is refined in the United States.”

To paraphrase Pig Pen, in defending his appearance, “Kind of makes you want to treat us with more respect!”

--Burger King is retiring its “The King” mascot, which I kind of liked. It’s rumored he’ll now be starring in his own slasher picture series.

Foreign Affairs

Iraq: Mighty fine week for terrorists here, I think you’d agree. Like try a wave of 42 highly coordinated attacks on Monday, from north to south, that killed over 85, not including three suicide bombers, and left 300 wounded. Al Qaeda in Mesopotamia allegedly was responsible, thereby showing that insurgents continue to attack from anywhere and at an hour of their choosing. As the U.S. plans to withdraw at yearend, save for whatever the Iraqi government eventually allows us to keep in the way of training forces, it’s more clear than ever what will follow our departure. Total chaos and another all-out civil war, with Iran looking to fill the ensuing leadership vacuum, not that there isn’t already one, as Prime Minister Maliki is scared to tie his shoes without asking permission from the little Son of Satan, Moqtada al-Sadr and his band of Orcs.

I said last Christmas it was official. The United States lost this war. I stand by that. This coming Christian holiday season, few will be left in the country to celebrate, which is my point. So we might have access to some Iraqi oil (assuming Iran isn’t totally in charge, at which point they’d look to cut the U.S. out). We gained a little crude, and lost thousands of troops and a ton of treasure. This one is on George W. I’ve documented everything in this very space.

No doubt, Saddam and his sons had to be taken out, but it was the conduct of the war in those first critical years where we lost. It’s easy to now say we shouldn’t have gone in in the first place and look like an armchair genius. But the fact is once we were there, both the generals and the civilian leadership disgraced our nation and we had a president, early on, who was clueless, and, as I wrote those first two summers, AWOL.

Afghanistan: Super week here, too, as a supposedly peaceful region saw the governor’s compound come under attack, with 22 killed by six suicide bombers. A U.K. cultural center was attacked in Kabul, with 12 dead at last word. That’s always a good recruiting tool for the foreign service. And a bomb planted on a motorcycle exploded in a market, killing 8. I only bring up this last one because I’m the guy who told you years ago, that while terror attacks in Sri Lanka had zero impact on, say, global financial markets or U.S. security, the actual acts themselves were important.

Why? Because so many of the world’s terrorist tactics emanated from Sri Lanka and the Tamils and I said they would then export their methods elsewhere. The Tamil Tigers also perfected another bomb I won’t get into now, but think trees, and bombs planted in them with trip wires.

[The Tamil rebels were largely vanquished in 2008-09, but they’ll be back.]

Syria: Yippee! The United States, France, Germany and Britain, in coordinated statements, all told Syrian President Bashar Assad he had to go! “Go!” they said. “Just go!” Let’s see, it’s only about five months since the uprising started here, and 2,000 deaths later, “Go!” In turn, Assad launched more attacks on Friday against protesters.

Granted, Assad is indeed feeling pressure from all sides these days and he might very well go straight to Hell without passing GO, but hopefully the leaders of the above four western nations won’t gloat.

No, if Assad does indeed step down in the next few weeks it will be because of two other nations, Turkey and Saudi Arabia, not the increasingly powerless Little Four. Turkey is itching to invade the border areas and teach Assad, and any future Syrian leader, a painful lesson. While the Saudis, still miffed at how the White House treated Hosni Mubarak and the whole Arab Spring thing in general, are getting far bolder in their own Middle East strategy. The Saudis have two goals in mind. Protect all royals and isolate Iran. Both Saudi King Abdullah and Turkey’s Prime Minister Erdogan have been the most forceful in their dealings with Damascus, not Barack and Hillary, the latter who likes to speak tough while inside her brain she’s thinking, ‘I have no way to back up what I just said. Wonder if they’ll catch on?’

We did.

[Speaking of Turkey, Kurdish rebels ambushed a Turkish military convoy this week, killing nine soldiers, so Turkey launched a massive counterattack on suspected Kurdish hideouts in northern Iraq. Ergo, Erdogan has no problem invading others’ territory if given cause to do so.]

Israel: Terrorists from Gaza and Sinai killed 8 Israelis the other day and Israel attacked numerous targets in Gaza in retaliation. At least 14 rockets were then fired into Israel in a serious escalation of tensions. I’ve been writing about the increasing lawlessness in Sinai, though, and this has become a huge problem for the region and the Egyptian government. It’s nothing more than a safe haven for terrorists, with the Bedouin offering it up for a price, of course. Israel’s relations with Egypt are at a multi-year low and as I go to post have taken a decided turn for the worse. Egypt is recalling its ambassador over claims Israeli troops killed three Egyptian soldiers during a shootout between Israelis and Palestinian militants in the border area. This is a major developing story.

Pakistan: Our good friends here, it turns out, allowed Chinese intelligence to look at the wreckage of the stealth American helicopter that took part in the raid on Osama bin Laden’s compound, as first reported by the New York Times. So look for this same helicopter, branded Made in China, in about five years at a Wal-Mart near you.

Meanwhile, a group of armed men broke into the Lahore home of an American contractor and kidnapped him. Warren Weinstein had been based there for seven years and had tight security, or so he thought. No word as yet on his whereabouts or condition, but the 70-year-old was preparing to leave the country within the week. What a man. Weinstein speaks six languages and earned a Ph.D. in international law and economics from Columbia. He has been working on international aid and development projects in Pakistan designed to increase their exports in industries such as dairy and furniture.

Libya: The rebels are coming! The rebels are coming! They’re coming to Tripoli, it would seem, as they made major advances in just the past week. Might as well find out just who these rebels are, after all. “OK, rebels. It’s yours. Now show us what you got.”

Japan: When it comes to the Fukushima nuclear disaster, to say the Japanese government has zero credibility would be an understatement of epic proportions. It’s been one lie after another, from a government that is prone to that. The people have long deserved better than decade after decade of worthless, corrupt bureaucrats. So it came as no real surprise this week when the first trace amounts of radioactivity were found in rice some 90 miles south of Fukushima. The government is assuring the people there is zero cause for alarm, that the levels are well below that which would be harmful for human consumption.

Britain: Some of the top law enforcement officials are not happy that William Bratton is going to be an unpaid advisor to Prime Minister David Cameron following the riots. Why they are ignoring our homegrown expertise, said the inspector for silly walks.

To be fair, Cameron should have waited before announcing the move. There was a good way to handle this and a wrong way. Cameron handled it the wrong way. Like wait three weeks and then have the Queen give Bratton a Knighthood.

Editorial / The Economist:

“The riots have been bad for Britain’s already stuttering economy. They have been ruinous for the people whose homes and businesses have been damaged and destroyed. They have tarnished Britain’s image around the world. But most of all, they have been desperately disorienting for the country’s own sense of self.”

Ukraine: Guess who now thinks he can lead the fractured opposition in this country? None other than reigning World Boxing Council heavyweight champion, Vitali Klitschko. I loved this description by Andrew E. Kramer in the New York Times.

“As (Klitschko) strode down a street in Kiev this week, all heads swiveled to take in his enormous physique. Handsome, in a brutal fashion, with bulging veins in his neck, he reached out to greet well-wishers with hands the size of dinner plates, ones best known for knocking out 39 opponents in a professional boxing career.”

With leading opposition figure Yulia Tymoshenko, the braided one, enmeshed in a Soviet-era-style show-trial, Klitschko has an opening to unify a people who are, to say the least, disillusioned. President Yanukovich is turning into a true dictator. Time for Klitschko to move in and knock him out. It’s not like Yanukovich’s guards will stand in the way. One punch. Pow!

Welcome, President Klitschko!  And it’s not like the guy is Larry Holmes, or Gerry Cooney. Klitschko speaks four languages and holds a Ph.D. in sports science.

So what the heck. I’m tired of the world as it is. 

China: Following last month’s deadly high-speed train crash in Wenzhou that killed at least 40 and injured 200 others, the State Council ordered trains to slow down, so fares are also falling. In fact, from my reading, all major train lines, including the highly-touted Shanghai to Beijing link, are lowering speeds. 

From an article by Mimi Lau of the South China Morning Post, “trains designed to run at up to 350km/h would run at 300km/h; those with a top speed of 250km/h would run at 200km/h; and those designed to run at 200km/h would run at 160km/h. More trains will also be arranged to ease passenger flow.”

One Chinese travel expert said lower fares wouldn’t impact air travel, as virtually every domestic flight is sold out for the summer holiday. This is the kind of stuff you need to read when you hear talk of China having a hard landing. I just don’t see it happening, but I reserve the right to change my opinion.

Separately, the Dalian city government, in a rare display of responsiveness to the public’s outrage, agreed to shut down a chemical plant that local residents believed was an environmental disaster waiting to happen.

[Boy, I’m glad my chemical plant holding in Fujian is environmentally friendly!]

Random Musings

--So I made plans to come to Iowa, as I had four years ago in the run-up to the caucuses, way back last November in terms of setting up reservations, and thus stupidly didn’t factor in the straw poll vote before I arrived, which meant many of the politicians had left the state by the time I settled in, and, as it turns out, President Obama’s Iowa segment for his bus tour wasn’t convenient for me to just drop by.

But, I did see, by pure accident, the new main man of the Republican Party, Texas Gov. Rick Perry, at the Iowa State Fair on Monday. I just walked up to where the speakers traditionally do their thing, saw a big crowd, and thought, ‘This is my lucky day.’ Perry had literally just gotten started with his speech, having announced his candidacy two days earlier in South Carolina, and this was his first appearance in Des Moines.

It was a lot of fun and afterwards he walked right in front of me so I snapped off a great photo.

As for the content, one item he focused on that really resonates is tort-reform, which he has practiced in Texas. It’s a simple message, “don’t allow for oversuing…loser pays.” And Perry knows that if he was elected president, “I’m going to be graded on how many jobs I create.”

But Perry got blasted later on for something he said about the Federal Reserve chairman at a private fundraiser on Monday.

Editorial / Wall Street Journal

“Let’s stipulate that Mr. Perry, in his first week on the presidential stump, was wrong to use the words ‘almost treacherous, treasonous’ in referring to Mr. Bernanke. Both of those words ought to be reserved for specific acts of betrayal against America, and the Fed chief is certainly a patriot….

“On the other hand, everybody knows Mr. Perry meant no literal harm and was indulging the irrational exuberance that is one of his trademarks. The faux-outrage from liberals who routinely refer to the tea party as ‘terrorists’ shouldn’t be taken seriously.

“The real news isn’t the rhetorical gaffe but the substance and politics of Mr. Perry’s demarche. Here we have a presidential candidate, a Texas populist no less, laying out a position in favor of sound money. This is a bear walking on its hind legs….

“Mr. Perry seems to appreciate that the Federal Reserve can’t conjure prosperity from the monetary printing presses. His articulation needs some work, but we hope the Texan doesn’t let media and other criticism deter him from pursuing the argument. The issue is crucial to understanding – and explaining to the American public – how the meltdown happened and why Americans are so unhappy with the current recovery.

“The Texas Governor has a better insight into middle-class economic anxiety than do most Washington-Wall Street elites.”

--Back to the aforementioned straw poll, it means zippo in determining the winner of the Iowa caucuses next winter, let alone who ends up winning the party nomination, but it obviously helps winnow the field down, see former Minnesota Gov. Tim Pawlenty. Evangelicals also make up 60% of the Republican caucus participants, and in a drive to the western part of the state on Tuesday, I have to admit to being rather shocked as to the number of evangelical radio stations on the AM band. [This is not a comment on faith, just fact.]

Anyway, for the record, last Saturday Michele Bachmann captured 28.6% of the straw vote, with Ron Paul second at 27.7% and Pawlenty a disappointing, and fatal, third at just 13.6%. Rick Santorum was fourth and Herman Cain fifth.

But Rick Perry wasn’t on the printed ballot and Mitt Romney, while on it, opted not to participate for strategic reasons. Perry instead chose the day to announce his candidacy.

--As for President Obama and his “listening tour,” you can imagine the local coverage in Iowa was heavy, and Obama looked like a toolshed.

But as a Wall Street Journal editorial best summed up, woe be to those who questioned the president and his policies at his town hall meetings.

“Prepare to be insulted if you wish to express a point of view not shared by President Obama….

“Mr. Obama’s unique brand of political discernment was captured on film yesterday during a town hall event in Atkinson, Illinois. A farmer took his turn at the microphone and, after welcoming the president to town, said that drought conditions had made it an especially tough year in the Midwest. Then he said, ‘Please don’t challenge us with more rules and regulations from Washington, D.C.’ He added that farmers liked to rise in the morning and start tending their fields, not their paperwork.

“Mr. Obama asked which rules the farmer had in mind, and the man responded that pending rules on noise pollution, dust pollution and water run-off were of concern. Was this a valuable opportunity for the president to discover more of those unnecessary rules that he claimed to be hunting down and eliminating last winter?

“No, Mr. Obama quickly made clear that he wasn’t on a listening tour of the Midwest. He instructed the farmer, ‘If you hear something’s happening, but it hasn’t happened, don’t always believe what you hear.’

“He then described how lobbyists in Washington can mislead people like the farmer into thinking that ideas merely under discussion are about to become regulatory burdens. It must have been a thrill for the farmer to have the president tell him in public how he’d been duped and how little he knew about the regulations affecting his own business….

“Contrast this with the president’s frequent approving mentions of billionaire Warren Buffett, who agrees with the White House that taxes should be raised on millions of people who make less than he does….

“How progressive of Mr. Obama. He thinks one of the country’s richest men is an oracle but small-town farmers are dopes who’ve been duped by special interests. The larger pattern is that Mr. Obama dismisses everything said by anyone engaged in profit-seeking business, except when the comments support his policies.”

--And as for Obama’s campaign bus through the Midwest, the Washington Post’s Kathleen Parker nailed it.

“What could the White House have been thinking?

“Here the country is reeling from depression, recession and oppression, and the president decides to take a heartland tour in the visual equivalent of an armored hearse?

“The infamous black bus that has been toting Barack Obama around for stump speeches designed to distract from the Republican hoedown in Iowa couldn’t be less effective – unless you’re Darth Vader. As the ship of state rumbled through the American countryside like a land shark from Mordor, Dick Cheney suddenly looks like Howdy Doody.

“It’s incomprehensible.

“A bus tour itself is not a bad idea when your aim is to reconnect with everyday people, but this one is ill-timed and looks desperate. If you’re confident in your presidency, you ignore the impotent opposition while they slug it out.

“ ‘Who them? I’m busy.’

“Otherwise, the bus is a stab in the heartland. We’re a red, white and blue nation, colors of optimism and hope. Or, thanks to Obama’s own rhetoric, we’re at least a purple nation. Lavender polka dots would have been better than a black mass that penetrates amber waves of grain like an armada of doom.

“No doubt there are mighty good reasons for the color and construction of the presidential mega-hearse, but as political symbolism, the vehicle looks like a creation out of Batman and the president appears as Paul Revere of the Apocalypse.

“Whoever came up with the black bus had best be looking for a job, preferably not in public relations.”

Good thing I didn’t see it in my travels on Iowa’s highways and bi-ways. If I had spotted it in my rearview mirror, I would have had a heart attack and plunged off a bridge.

--If the president wants some good news, he can at least point to a McClatchey-Marist Poll that says six in ten voters believe Obama is not responsible for the current economy, which I find hard to believe at this point. However, 2/3s of those surveyed said they are convinced things will get even worse, including 75% of Republicans, which is more like it.

--So does Obama deserve a vacation?  I guess so. Fundraising is tough work. According to USA TODAY’s Fredreka Schouten, “President Obama has headlined 127 fundraising events for himself and others, significantly outpacing the fundraising activity of the previous five presidents during their first terms, new research obtained by USA TODAY shows.

“By comparison, President George W. Bush had held 88 fundraisers and President Clinton, 76, at this point in their first terms.”

Yes, as one strategist told the paper, we’re in the era of the permanent campaign. Or as California Republican Party Chairman Tom Del Beccaro said, “It certainly reinforces the idea that he’s more concerned about his own job than American jobs.”

--I missed something last time. A new poll in New Jersey gave Gov. Chris Christie a 50% approval rating among registered voters, while 41% disapproved, a tick up from May’s 46% approval rating. The governor has definitely tried to soften his image after the big battles with the state senate leader. Christie is getting good marks for “leadership.”

--In a New York Times/CBS News poll, 70% of New York City residents view the economy as being bad. Only 45% approve of Mayor Michael Bloomberg’s stewardship, the worst for him in six years. At his peak, Bloomberg’s approval rating was solidly in the 62-65% range before the financial collapse summer of 2008.

--In a speech to the Heritage Foundation, Representative Roscoe Bartlett (R-Md.), said the United States has made no substantial headway in defending its electrical infrastructure against a potential electromagnetic pulse generated by a nuclear device or other weapon. As reported by the Global Security Newswire:

“(Bartlett) warned that the detonation of a nuclear weapon 300 miles in the atmosphere above Iowa or Nebraska could create a magnetic pulse sufficient enough to knock out the country’s entire electrical grid. Similarly, a crude nuclear device attached to a Scud missile, with an aperture of 180 miles, and fired off the East Coast could cripple all of New England.

“In addition, a cyber-attack aimed at the nation’s major electric transformers or a major solar event could also paralyze all electrical operations in a particular area, possibly for years, according to Bartlett.

“ ‘EMP is certainly the most asymmetric warfare that you can imagine,’ the 10-term congressman told the audience.”

The problem is, Congress has been empowered to develop a series of recommendations to protect the U.S. electrical system and named the Homeland Security Dept. the lead agency in 2008, but any recommendations haven’t been acted upon.

Bartlett said the full House approved a measure that would have taken steps toward hardening the grid, but some in the Senate let it die because they “decided it was going to be too expensive.”

“If it ends life as you know it, it can’t be too expensive to avoid, can it? I’m having trouble understanding that logic,” he said.

--An extensive USA TODAY/Gallup poll finds 90% of whites and 85% of blacks say civil rights for blacks have improved in the nation during their lifetime.

But while nearly eight in 10 whites say blacks have an equal chance in their community to get any kind of job for which they are qualified, six in 10 African Americans say job discrimination remains persistent.

Six in 10 blacks say the government should take a major role in trying to improve the social and economic position of blacks and other minority groups. Just one in five whites agrees. And 52% of blacks say new civil rights laws are needed, compared with 15% of whites who believe so.

By the way, after the initial euphoria over the election of a black president, only 52% of Americans predict the problem of race relations will eventually be worked out, the same as before Obama took office. Now, 45% of whites, and 55% of blacks say race relations will always be a problem. Back in December of 1963, four months after Martin Luther King Jr. delivered his “I Have a Dream” speech, only 26% of blacks said race relations would always be a problem.

Lastly, an area where major progress has been made since a 1968 Gallup survey is on the topic of  interracial marriage. Back then only 17% of whites approved; 56% of blacks. Now 83% of whites and 96% of blacks approve of it. 

--Never have I been on a trip where I was more aware of cellphones and how we truly look like a nation of idiots for letting these stupid things control our lives. I made a conscious decision not to take mine to the state fair because I went there to take in the sights and sounds, and to talk to people, not to feel compelled to read every e-mail.

I mean it’s amazing how I’d say 75% of fairgoers were reading their stupid emails when I’m venturing only one in 100 was even remotely important. I mean to see someone who has the intelligence of a turtle reading their smartphone like they are receiving something critical is beyond pathetic.

And not for nothing, but society, and our way of living, has done nothing but go down since these devices began to take over our lives, especially those of our children, most of whom will grow up to be social illiterates with the interpersonal skills of a squirrel, who in case you haven’t noticed is still leading the ranks of road kill.

--It’s out of the way, two hours north of Des Moines, or about two hours south of Minneapolis, but if you love music, let alone rock and roll, you have to go to the Surf Ballroom in Clear Lake, Iowa, as I did on Thursday. The Surf was the scene of Buddy Holly’s last concert, Feb. 2, 1959, after which his plane went down, taking the lives of the Big Bopper and Ritchie Valens with him (while Waylon Jennings was saved because he gave up his seat to the Big Bopper, aka J.P. Richardson, and fellow backup band member Tony Allsup lost his seat to Valens in a coin flip).

The Surf has been faithfully restored and is heavily used these days (Jerry Lee Lewis headlined last February’s now annual Winter Dance Party, which sounds like a real pisser to go to), but it’s the pictures of all who played there, before and after 1959, that is amazing.

What’s also super cool about the whole experience, though, is that you can then take a little drive to the actual spot where Holly’s plane went down after taking off from Mason City in an ice-storm. It’s on private property but accessible down a path in the middle of a cornfield. Feb. 3, 1959…the day the music died.

--This is depressing…The U.S. Army suffered a record number of suicides in July, 32, the most since it began releasing monthly figures in 2009. The number includes 22 active-duty soldiers and 10 reservists. The Army in this regard is trying, having launched a major effort to institute new training to improve soldiers’ ability to bounce back from combat-related stress, as well as problems in their personal lives.

--I’ve preached on the topic of patriotism in this space and elsewhere on my site, saying things like, “If you really want to do something patriotic, go to Arlington National Cemetery, or a Veterans cemetery in your area.”

So I’d like to think I’m a man of my word, at least I try to be, and on Tuesday I was in Van Meter, Iowa, home of Hall of Fame baseball great Bob Feller, and up the road from his museum is the Iowa Veterans Cemetery so I drove in to pay my respects.   It’s up on a hill, an absolutely gorgeous setting, and I walked around a bit. Read a bunch of tombstones…took a picture of one, Lawrence J. McFaddin Jr., killed at Pearl Harbor…and then came across this, from the Iowa Vietnam Veterans’ Memorial.

Never again will one generation of veterans abandon another.

In memory of those who honorably served their country during the Vietnam War Era.

For those who fought for our freedom, life has a meaning the protected will never know.

Regarding this last line in particular, never were truer words spoken concerning today’s conflicts in Iraq and Afghanistan. The vast majority of Americans either don’t give a damn or haven’t the slightest clue what our men and women are going through.

--Finally, one of the more touching scenes in recent memory occurred when the stage collapsed at the Indiana State Fair last weekend. As an emotional Gov. Mitch Daniels put it, the spectators, who initially ran from the disaster as the towering structure went down, immediately reversed course and “ran to the trouble, not from the trouble. That’s the character that we associate with our state,” Daniels said, visibly choked up.

It was an example of the best of the human spirit.

---

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

God bless America.
---

Gold closed at $1855…unreal stretch
Oil, $82.66

Returns for the week 8/15-8/19

Dow Jones -4.0% [10817]
S&P 500 -4.7% [1123]
S&P MidCap -6.5%
Russell 2000 -6.6%
Nasdaq -6.6% [2341]

Returns for the period 1/1/11-8/19/11

Dow Jones -6.6%
S&P 500 -10.7%
S&P MidCap -13.2%
Russell 2000 -16.8%
Nasdaq -11.7%

Bulls 46.2
Bears 23.7 (unch.) [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

08/20/2011

For the week 8/15-8/19

[Posted 7:00 AM CT…from Des Moines, Iowa]

Europe, Washington and Wall Street

As I did a lot of driving and touring the last two days, I need to keep the opening brief; the opening always being written last when I put this column together. But the good news for you is there is little I haven’t covered before, especially since this whole European debt crisis took hold spring of 2010, let alone the real genesis, going back to the housing bubbles in Spain and Ireland, circa 2005. The only problem is, things got worse.

This week stocks around the world continued to crash (just using a term that will be employed with increasing frequency) with the S&P 500 now down 16% over its four-week losing streak and the Nasdaq down 18% during the same period. As I spell out below, European results have been just as bad.

Nonetheless, here’s the latest.

German Chancellor Angela Merkel and French President Nicolas Sarkozy got together on Tuesday to come up with a grand plan to save the eurozone. Before they met, rumors were flying that Merkel had finally come on board when it came to Sarkozy’s long-held plan that the only solution was to have eurobonds; one bond for the entire 17-nation club, just like Treasuries. Merkel declined, and for good reason, though this is the solution that the euro members may be forced to accept, somehow, if the crisis enters the final disaster stage, as now seems imminent.

The problem with a Eurobond solution is that when you have one bond for all, all have to guarantee the payment or no one – institutions, you and me – would buy them.

But this also means the strong are guaranteeing the weak, and while Sarkozy’s initial idea was to have one set of debt guidelines for all, which was part of the genesis of the euro in the first place – all members were to have budget deficits of no more than 3% of GDP and total debt not exceeding 60% of same – it’s the implementation that has been sorely lacking.

So what would happen in a eurobond era? You’d be mandating that everyone do ‘X’, but each of the 17 governments today has the power to tax and spend, and no central authority can tell the Greeks, or the Irish, or the Finns what to do unless each of the 17 changes their constitution to give a new central European authority the power over their own economic policies.

In other words, at least today, a total impossibility. Why would Finland, for example, want to guarantee the debt of Greece? In fact, just this week, Finland asked Greece for 20% hard collateral on any loans Finland makes to them. By Friday, four more euro members wanted to do the same, which seriously calls into question the very Greek bailout that started this whole f’n mess.

Ergo, so much for any thought of a Eurobond.   What now? Well, Merkel and Sarkozy emerged from their meeting to basically say, we punt! Oh, they talked about a new central European economic authority, under the existing European Union parliamentary structure, but there was no resolution on increasing funding for the European Financial Stability Fund, which sits at 440 billion in euro, barely enough to backstop Greece, Ireland and Portugal, and nowhere near enough should Italy and Spain require serious help.

Merkel and Sarkozy talked about a new system whereby each of the 17 amended their constitutions to mandate new budget constraints, so that if they weren’t met the EU could levy sanctions on the offenders, but this would require cooperation from all 17 parliaments, and, again, today that ain’t happenin’.

The two ‘leaders’ thus spoke of long-term plans, hypothetically, that look good on paper, but this is a crisis requiring immediate solutions, and this is where the EFSF is so critical because the way things stand today, the European Central Bank, which is buying the bonds of Italy and Spain to keep their interest rates low enough to be able to go into the private market for financing, can’t continue to do so without further funding itself and/or a central mandate.

None of this is a surprise to any of you after all I’ve written the past 16 months, but the fact European leaders can’t reach any kind of consensus is what is taking us all down at lightspeed.

Plus, you have the fact there is no growth, in either Europe or the United States, while Asia is slowing. It’s a recipe for Financial Armageddon. Too much debt and no way to grow out of the crisis.

The Financial Times summed up the incredibly depressing state of affairs.

“This stagnation looks worse in historical context. A deep recession should be followed by a strong recovery as the labor and capital that lay fallow during the bad years are put to work. That is not happening. Four years without economic growth qualify as a sort of Lesser Depression.”

To wit:

Morgan Stanley cut the global growth forecast to 3.9% from 4.2% for this year, but the developed nation forecast went from 1.9% to 1.5%, with the investment bank saying Europe and the U.S. were “dangerously close” to tipping back into recession.

Citigroup lowered the U.S. growth forecast for 2011 to 1.6% and just 2.1% in 2012, down from 2.7%.

PIMCO said the EU should let the three PIGs default; Portugal, Ireland and Greece in an attempt to save Italy and Spain.

The World Bank president said, “We are entering a new danger zone.” World leaders need to take strong “short- and long-term” action “to restore confidence.” A new global recession is imminent otherwise.

Facing a new round of severe austerity cuts, Italy’s largest union said it was authorizing a strike.  The government announced a $64 billion program of cuts that would merge/eliminate 1,500 of Italy’s 8,000 municipalities, resulting in 50,000 job losses. Plus many public holidays would be moved to Sundays to increase the number of days worked.

Germany’s second quarter GDP came in at 0.1% owing to lagging consumer demand; this after Q1 GDP was up 0.8%. The previous week, France announced its second quarter GDP was unchanged. So the two key players in the Eurozone aren’t growing.

Euro manufacturers like Volkswagen AG are now warning of the big slowdown.

The interest rate on Greece’s two-year note hit 37%.

Those are just some snippets. Then you have the European banks themselves, which are under immense pressure, and, increasingly facing funding issues. The banks desperately need more capital, but just like in 2008, now they look at each other with suspicion and refuse to lend to one another, a la Lehman. The situation is incredibly serious. Our own Federal Reserve has U.S. operations of European banks under the microscope to make sure they can operate day-to-day.

A very real prospect of a run on a bank exists in Europe, as early as this coming week, without serious central action, while waiting in the wings, in the continent’s alleyways, is the far-right, as I’ve argued for years would be the case. Europe will see darkness again in our lifetime, war, of this I’m certain.

On a lighter note, the U.S. economy may be in shambles but I don’t see another civil war, at least not until after Europe blows itself up! 

The deleveraging of the economy continues apace, with consumer demand moribund, while the critical housing sector continues to suck wind, the latest example being a decline in July existing home sales for a third month in four, and an absolutely horrible reading on Philadelphia area manufacturing didn’t help; this while the weekly jobless claims figure was back over 400,000, the 18th week in 19 above that key level, while the only one below, two weeks ago, was revised up to 399,000. Pathetic.

A poll of 39 economists for USA TODAY has the odds of another recession now pegged at 30% (I’d say 50%), while they forecast Q3 2011 through Q3 2012 growth at 2% to 2.8%. We will be doing cartwheels in the streets if the next 12 months the economy grows at 2%, at least those with jobs will.

Yes, it’s also about a crisis in confidence, from Europe across the pond and across our nation to California, which just saw its unemployment rate rise to 12%, second worst in the nation to Nevada’s 12.9%.

But while Europe can’t find the leaders it needs, here in America there is no shortage of leaders, right? Right? Hel-loo!

You mean you don’t think this new super duper deficit-reduction committee of 12 will come up with a solution that will appease the markets? Why here we are, in crisis mode, and they don’t meet until Sept. 16! And President Obama’s super-secret plan for solving our ills won’t be revealed until after Labor Day, it would seem, because, I guess, there really is no crisis. So why did I just waste all your time, and mine, with the opening of this column?

Gee, I’d apologize but I wouldn’t know what for? I mean think of this. The president doesn’t even have a real economic team advising him after all the legitimate folks (whether you agreed with them or not, at least they had some credentials) have all left! Instead he’s got a bunch of sycophants. “You look great today, Mr. President.” “Is the temperature in the room good enough for you, Mr. President?” “I got some new Titleist golf balls for you, Mr. President. Mighty fine day for a round, isn’t it, Mr. President?”

Meanwhile, in China, Vice President Joe Biden is telling Chinese leaders, “You have nothing to worry about” when it comes to the good old U.S. of A.  I’m sure they feel much better.

Street Bytes

--U.S. stocks took it on the chin for a fourth consecutive week with the Dow Jones off 4% to 10817, while the S&P 500 lost 4.7% and Nasdaq a whopping 6.6%.

Incidentally, last summer, the day before Ben Bernanke announced QE2, the S&P 500 closed at 1047. This week it finished at 1123. Oh yeah, nice job, Mr. Chairman. Hardly the surge in wealth effect that you expected, right Mr. Princeton brainiac? Rick Perry was too easy on the guy.

Meanwhile, in Europe, check out these key barometers for the month of August thus far:

London -13%
Paris -18%
Frankfurt -24%

--U.S. Treasury Yields

6-mo. 0.02% 2-yr. 0.19% 10-yr. 2.06% 30-yr. 3.39%

At one point on Thursday, the 10-year traded down to a yield of 1.9872%, the first time ever below 2.00% since the 1960s (1950, according to noted analyst Roger Ibbotson). The 30-year yield dropped the most since December 2008.

China, by the way, increased its Treasury holdings in June, despite all the talk to the contrary.

[Separately, China reported foreign direct investment in the country rose 19.8% in July, a good sign, as McDonald’s announced it would add an outlet a day over the next 3-4 years.]

--Fitch Ratings on Tuesday reaffirmed its triple-A status for the U.S., calling the recent Budget Control Act to reduce the deficit a “significant positive development.” Why thank you, Fitch. Here’s an envelope of $100s for your efforts.

--On the inflation front, the producer price index for July rose 0.2%, 0.4% ex-food and energy. The PPI is up 7.2%, year over year, while the core rate is up 2.5%. As for consumer prices, they rose a whopping 0.5%, 0.2% on core, and the year over year figures are now 3.6% and 1.8%, respectively, both hotter than expected.

--In the week ending Aug. 10, net outflows from domestic stock funds were $23.5 billion, the biggest weekly outflow since Oct. 15, 2008, or four weeks after Lehman’s bankruptcy filing. I can’t imagine what it will be the next two weeks, thru Aug. 24, given the further volatility.

--The U.S. Court of Appeals in Atlanta ruled Friday, Aug. 12, that Congress can do a lot of things when it comes to health insurance, but what it cannot do is: “mandate that individuals enter into contracts with private insurance companies for the purchase of an expensive product from the time they are born until the time they die.”

So while many support aspects of Obamacare, and there are some good provisions, forcing people to buy coverage is another matter.   And the recent Atlanta ruling is yet another sign the U.S. Supreme Court must weigh in, and soon, like when it reconvenes this fall. The High Court must also state what provisions of the law can stand…or do they shelve it all?

--One of the big controversies of the week was billionaire Warren Buffett’s declaration in a New York Times op-ed that income taxes should be raised on Americans earning $1 million or more per year. His 2010 tax bill was nearly $7 million, or 17.4% of his taxable income. “That’s actually a lower percentage than was paid by any of the other 20 people in our office,” he wrote.

Buffett says job creation wouldn’t be stifled:

“I have worked with investors for 60 years and I have yet to see anyone – not even when capital gains rates were 39.9 percent in 1976-77 – shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.”

For an opposing view, here’s an editorial from the Wall Street Journal:

“Barney Kilgore, the man who made the Wall Street Journal into a national publication, was once asked why so many rich people favored higher taxes. That’s easy, he replied. They already have their money….

“Mr. Buffett is repeating his now familiar argument this week, coinciding with Mr. Obama’s Midwestern road trip on the economy. Since the media are treating Mr. Buffett as a tax oracle, let’s take a closer look at some of the billionaire’s intellectual tax dodges.

The double tax oversight. The Berkshire Hathaway magnate makes much of the fact that he paid only 17.4% of his income in taxes, which he considers unfair when salaried workers often pay more. But Mr. Buffett makes most of his income from his investments, in particular from dividends and capital gains that are taxed at a rate of 15%.

“What he doesn’t say is that much of his income was already taxed once as corporate income, which is assessed at a 35% rate (less deductions). The 15% levy on capital gains and dividends to individuals is thus a double tax that takes the overall tax rate on that corporate income closer to 45%....

The middle-class bait-and-switch. Like Mr. Obama, Mr. Buffett speaks about raising taxes only on the rich. But somehow he ignores that the president’s tax increase starts at $200,000 for individuals and $250,000 for couples. Mr. Obama ought to call them ‘thousandaires,’ but that probably doesn’t poll as well.

“The president needs to levy his tax increase at such a lower income level because that’s where the money is. In 2009, 237,000 taxpayers reported income above $1 million and they paid $178 billion in taxes. A mere 8,274 filers reported income above $10 million, and they paid only $54 billion in taxes.

“But 3.92 million reported income above $200,000 in 2009, and they paid $434 billion in taxes. To put it another way, roughly 90% of the tax filers who would pay more under Mr. Obama’s plan aren’t millionaires, and 99.99% aren’t billionaires.

“Mr. Buffett says it’s only ‘fair’ to raise his taxes, but he’s lending his credibility to raising taxes on millions of middle-class earners for whom a few extra thousand dollars in after-tax income is a big deal. Unlike Mr. Buffett, those middle-class earners aren’t rich and may earn $250,000 for only a few years of their working lives. How is that fair?

The charity loophole.   For billionaires like Mr. Buffett, the single most important deduction in the tax code is for charitable giving…Yet we don’t hear Mr. Buffett calling for the elimination of that deduction in the name of fairness.

“Mr. Buffett has already sheltered the bulk of his fortune from federal taxes by putting them into a foundation that will give the money away. That’s an act of generosity, but if the government’s purposes are so vital, why doesn’t he simply give the money to the IRS?”

--Venezuela’s President Hugo Chavez nationalized his country’s gold industry to stamp out illegal mining and boost foreign reserves. The move is in keeping with rumors Venezuela is moving its money out of U.S. banks into friendlier ones, such as in Russia and China, that wouldn’t freeze the nation’s assets. Some experts believe Venezuela needs to round up its gold, including that held overseas, in order to placate Russian and Chinese banks that are seeking stronger guarantees on their loans. Venezuela is sitting on a large gold deposit in the south of the country but has been slow to develop, and control, it.

--Talk about a fiasco, how about Hewlett-Packard? The company’s shares fell a record 20% on Friday on the heels of an earnings report that, first, fell short of expectations on eps and revenues, and, second, guided lower for the current quarter in both, the third time CEO Leo Apotheker, formerly of SAP, has done so on sales since he took over in November.

Then HP said it would buy Autonomy, one of the U.K.’s leading technology companies, for over $10 billion, while spinning off HP’s PC business. Apotheker wants to emulate the IBM model, focusing on high-margin services, but he isn’t IBM!

Actually, what really upsets me is HP is discontinuing its WebOS software, which it picked up through its acquisition of Palm. I mean I’m finally getting used to my Palm phone. You can’t do that to me!

--The Dow Jones rose 214 points on Monday, before struggling the rest of the week, largely on the heels of a flurry of mergers and acquisitions by the likes of Time-Warner, Cargill and Transocean.

But the biggest news splash that day was Google’s largest acquisition ever, $12.5 billion for wireless phone maker Motorola Mobility Holdings, which makes Google a maker of smartphones, tablet computers, and TV set-top boxes, all powered by Google’s Android operating system. Google is looking to copy Apple’s cross-pollination with the iPhone, iPad and Apple TV.

--Bank of America announced it would lay off 3,500 employees, soon, after handing out pink slips to 2,500 in the first half of the year, and this latest wave could yet become a tsunami.

--Wall Street is slashing estimates on bonuses it will dole out in 2011 to its equity and fixed-income traders. Just last May, the forecast was that they would rise 10 to 15 percent. Now talk is they’ll be slashed as much as 30 percent, according to one expert. [Another says it will be closer to 10 percent.] Regardless, not good for New York City and its budget, for starters. [Bloomberg News]

--Last week I wrote of how California is falling way short of state tax revenue projections. This week, New Jersey announced its revenues are tracking estimates for the first three months of the fiscal year, less than 1% below forecast. Encouraging.

--Texas’ drought has cost the state an estimated $5.2 billion in crop and livestock losses, a record figure that could still rise. I’ve had a tough time getting a handle on the Iowa corn crop while here. It doesn’t look terrific to me, but the locals say everything is “OK,” though more rain would be appreciated. Driving down on Friday from Clear Lake, somehow the corn seemed worse than just a few days earlier.

[If you haven’t been to Iowa before, once you get out of any city, it’s nothing but corn. Period.]

And then I saw that Iowa State University’s agronomy climatologist warned that the U.S. corn yield is likely to average 149 bushels per acre, which would be the lowest in five years. Elwynn Taylor is four bushels per acre below the latest U.S. Dept. of Agriculture estimate from last week.

I think what we’ve all learned this year is that while planting season is important, July is the key month; see the drought in the southwest, plus searing heat in the Midwest. 

An article in the Des Moines Register says corn pollinates best at temperatures in the upper 80s. Instead, Iowa and Illinois endured temps near 100 degrees during the crucial two weeks of pollination. And then I read that Iowa’s Sec. of Agriculture said at the State Fair, “I’m really worried about the crop.” So I guess the folks at the bar who told me the crop was “OK” may have had too much to drink.

--Speaking of corn, China continues to buy copious amounts of our product owing in no small part to a rising middle class that is changing its eating habits, such as devouring more pork, as the government encourages hog farmers to feed Porky and friends more corn.

And having devoured a delicious pork chop on a stick, or two, at the Iowa State Fair, as well as absolutely scrumptious, mouth-watering bacon on same, just a big old “Oink oink” to my pig friends. What a great product you are. Thanks for being, err, you.

Lastly, on the issue of corn, driving around I listened to the famous WHO 1040 in Des Moines, which is conservative in nature, and they had on a couple of agriculture folks the other day and not one could give a good reason for subsidizing ethanol at this point.

--The rate of credit card defaults for the second quarter was down 35% from Q2 of 2010, which is great, and as it should be, but of course that means consumption is down, and that’s not good for the overall economy.

At the same time, the reduced default rate is partly a result of credit card companies simply writing off uncollectible balances, though this impact isn’t as great these days as actual consumer behavior. And it needs to be noted that consumers are paying off their credit card bills before they pay their mortgage, which is a symptom of knowing your house is underwater, so why bother?

--Wal-Mart’s CFO said, in announcing the company’s latest earnings, “Our core customer continues to be strained. The volatility in the headlines doesn’t help the customer. They are really stretched right now,” adding more of Wal-Mart’s customers are on public assistance.

Wal-Mart is also suffering as competitors lower their prices to compete with the giant, thus eating into Wal-Mart’s claim to be the industry’s “low cost leader.”

--Home-improvement leader Home Depot, while beating earnings estimates, nonetheless does not expect “any meaningful improvement in the housing market for the back half of 2011.”

--J.D. Power & Associates cut its U.S. light-vehicle sales forecasts for both 2011 and 2012. Said a strategist there, “It really comes down to consumer confidence, and consumers just don’t have any right now.” Earlier in the week, Goldman Sachs and RBC Capital Markets also lowered their forecasts. Left unsaid, “About those plant expansions the White House and automakers have been touting…”

--Hundreds of striking Verizon workers showed up for a candlelight vigil outside the New Jersey home of the CEO the other night. At least it was peaceful but what a stupid act. The strikers are mostly on the land-line side of the business and refuse to accept the company’s demands on givebacks for pensions and healthcare premiums. Said one striker, “We want to keep what we have.”

You are in the dead land-line business, fella. Just be glad you have a freakin’ job at this point and try and retrain yourself for something more useful in the interim.

--Inflation Alert: The Port Authority of New York and New Jersey, along with governors Chris Christie and Andrew Cuomo, agreed on a 56% fare hike for bridges and tunnels over five years. I’ll never go to New York again. Can’t afford it.

--Irrelevant record of the week: The average rate on a 30-year fixed mortgage fell to 4.15%, the lowest level on record dating to 1971. Whoopty-damn-do. Such rates have hardly energized the housing sector and the evidence thus far is that relatively few can take advantage of them in terms of refinancing.

--I saw in the local crime blotter that some punk was arrested for shoplifting a Louis Vuitton belt at a Neiman-Marcus. Value of said belt? $515! Yet another sign of the apocalypse.

--A whistleblower at the SEC has accused the regulatory agency of destroying at least 9,000 pages of documents relating to leading Wall Street banks and hedge funds; including the likes of Goldman Sachs, Morgan Stanley and SAC Capital Advisors. The SEC, according to an attorney at the agency, said it would systematically destroy files after closing “matters under inquiry.” But of course folks now wonder what documents were being destroyed. Sen. Charles Grassley (R-IA) is particularly upset because he has been looking into trading irregularities and some of these records were part of the file trashing.

--As reported by the Los Angeles Times’ Alana Semuels, economists at the San Francisco Federal Reserve have determined that when it comes to Made in China, “Goods and services from China accounted for only 2.7% of U.S. personal consumption spending in 2010. About 88.5% of U.S. spending last year was on American-made products and services,” the report read.

Semuels:

“How can this be, considering that many of the toys, electronics, housewares, shoes and other goods we use daily come from the Middle Kingdom?

“One word: services. Services, which account for about two-thirds of spending, are mainly produced locally. Your dry cleaner, accountant, mechanic and manicurist most likely are right in your neighborhood.

“Then there’s groceries and gasoline. Most of the food Americans eat is produced domestically….About 90% of all gasoline sold in the U.S. is refined in the United States.”

To paraphrase Pig Pen, in defending his appearance, “Kind of makes you want to treat us with more respect!”

--Burger King is retiring its “The King” mascot, which I kind of liked. It’s rumored he’ll now be starring in his own slasher picture series.

Foreign Affairs

Iraq: Mighty fine week for terrorists here, I think you’d agree. Like try a wave of 42 highly coordinated attacks on Monday, from north to south, that killed over 85, not including three suicide bombers, and left 300 wounded. Al Qaeda in Mesopotamia allegedly was responsible, thereby showing that insurgents continue to attack from anywhere and at an hour of their choosing. As the U.S. plans to withdraw at yearend, save for whatever the Iraqi government eventually allows us to keep in the way of training forces, it’s more clear than ever what will follow our departure. Total chaos and another all-out civil war, with Iran looking to fill the ensuing leadership vacuum, not that there isn’t already one, as Prime Minister Maliki is scared to tie his shoes without asking permission from the little Son of Satan, Moqtada al-Sadr and his band of Orcs.

I said last Christmas it was official. The United States lost this war. I stand by that. This coming Christian holiday season, few will be left in the country to celebrate, which is my point. So we might have access to some Iraqi oil (assuming Iran isn’t totally in charge, at which point they’d look to cut the U.S. out). We gained a little crude, and lost thousands of troops and a ton of treasure. This one is on George W. I’ve documented everything in this very space.

No doubt, Saddam and his sons had to be taken out, but it was the conduct of the war in those first critical years where we lost. It’s easy to now say we shouldn’t have gone in in the first place and look like an armchair genius. But the fact is once we were there, both the generals and the civilian leadership disgraced our nation and we had a president, early on, who was clueless, and, as I wrote those first two summers, AWOL.

Afghanistan: Super week here, too, as a supposedly peaceful region saw the governor’s compound come under attack, with 22 killed by six suicide bombers. A U.K. cultural center was attacked in Kabul, with 12 dead at last word. That’s always a good recruiting tool for the foreign service. And a bomb planted on a motorcycle exploded in a market, killing 8. I only bring up this last one because I’m the guy who told you years ago, that while terror attacks in Sri Lanka had zero impact on, say, global financial markets or U.S. security, the actual acts themselves were important.

Why? Because so many of the world’s terrorist tactics emanated from Sri Lanka and the Tamils and I said they would then export their methods elsewhere. The Tamil Tigers also perfected another bomb I won’t get into now, but think trees, and bombs planted in them with trip wires.

[The Tamil rebels were largely vanquished in 2008-09, but they’ll be back.]

Syria: Yippee! The United States, France, Germany and Britain, in coordinated statements, all told Syrian President Bashar Assad he had to go! “Go!” they said. “Just go!” Let’s see, it’s only about five months since the uprising started here, and 2,000 deaths later, “Go!” In turn, Assad launched more attacks on Friday against protesters.

Granted, Assad is indeed feeling pressure from all sides these days and he might very well go straight to Hell without passing GO, but hopefully the leaders of the above four western nations won’t gloat.

No, if Assad does indeed step down in the next few weeks it will be because of two other nations, Turkey and Saudi Arabia, not the increasingly powerless Little Four. Turkey is itching to invade the border areas and teach Assad, and any future Syrian leader, a painful lesson. While the Saudis, still miffed at how the White House treated Hosni Mubarak and the whole Arab Spring thing in general, are getting far bolder in their own Middle East strategy. The Saudis have two goals in mind. Protect all royals and isolate Iran. Both Saudi King Abdullah and Turkey’s Prime Minister Erdogan have been the most forceful in their dealings with Damascus, not Barack and Hillary, the latter who likes to speak tough while inside her brain she’s thinking, ‘I have no way to back up what I just said. Wonder if they’ll catch on?’

We did.

[Speaking of Turkey, Kurdish rebels ambushed a Turkish military convoy this week, killing nine soldiers, so Turkey launched a massive counterattack on suspected Kurdish hideouts in northern Iraq. Ergo, Erdogan has no problem invading others’ territory if given cause to do so.]

Israel: Terrorists from Gaza and Sinai killed 8 Israelis the other day and Israel attacked numerous targets in Gaza in retaliation. At least 14 rockets were then fired into Israel in a serious escalation of tensions. I’ve been writing about the increasing lawlessness in Sinai, though, and this has become a huge problem for the region and the Egyptian government. It’s nothing more than a safe haven for terrorists, with the Bedouin offering it up for a price, of course. Israel’s relations with Egypt are at a multi-year low and as I go to post have taken a decided turn for the worse. Egypt is recalling its ambassador over claims Israeli troops killed three Egyptian soldiers during a shootout between Israelis and Palestinian militants in the border area. This is a major developing story.

Pakistan: Our good friends here, it turns out, allowed Chinese intelligence to look at the wreckage of the stealth American helicopter that took part in the raid on Osama bin Laden’s compound, as first reported by the New York Times. So look for this same helicopter, branded Made in China, in about five years at a Wal-Mart near you.

Meanwhile, a group of armed men broke into the Lahore home of an American contractor and kidnapped him. Warren Weinstein had been based there for seven years and had tight security, or so he thought. No word as yet on his whereabouts or condition, but the 70-year-old was preparing to leave the country within the week. What a man. Weinstein speaks six languages and earned a Ph.D. in international law and economics from Columbia. He has been working on international aid and development projects in Pakistan designed to increase their exports in industries such as dairy and furniture.

Libya: The rebels are coming! The rebels are coming! They’re coming to Tripoli, it would seem, as they made major advances in just the past week. Might as well find out just who these rebels are, after all. “OK, rebels. It’s yours. Now show us what you got.”

Japan: When it comes to the Fukushima nuclear disaster, to say the Japanese government has zero credibility would be an understatement of epic proportions. It’s been one lie after another, from a government that is prone to that. The people have long deserved better than decade after decade of worthless, corrupt bureaucrats. So it came as no real surprise this week when the first trace amounts of radioactivity were found in rice some 90 miles south of Fukushima. The government is assuring the people there is zero cause for alarm, that the levels are well below that which would be harmful for human consumption.

Britain: Some of the top law enforcement officials are not happy that William Bratton is going to be an unpaid advisor to Prime Minister David Cameron following the riots. Why they are ignoring our homegrown expertise, said the inspector for silly walks.

To be fair, Cameron should have waited before announcing the move. There was a good way to handle this and a wrong way. Cameron handled it the wrong way. Like wait three weeks and then have the Queen give Bratton a Knighthood.

Editorial / The Economist:

“The riots have been bad for Britain’s already stuttering economy. They have been ruinous for the people whose homes and businesses have been damaged and destroyed. They have tarnished Britain’s image around the world. But most of all, they have been desperately disorienting for the country’s own sense of self.”

Ukraine: Guess who now thinks he can lead the fractured opposition in this country? None other than reigning World Boxing Council heavyweight champion, Vitali Klitschko. I loved this description by Andrew E. Kramer in the New York Times.

“As (Klitschko) strode down a street in Kiev this week, all heads swiveled to take in his enormous physique. Handsome, in a brutal fashion, with bulging veins in his neck, he reached out to greet well-wishers with hands the size of dinner plates, ones best known for knocking out 39 opponents in a professional boxing career.”

With leading opposition figure Yulia Tymoshenko, the braided one, enmeshed in a Soviet-era-style show-trial, Klitschko has an opening to unify a people who are, to say the least, disillusioned. President Yanukovich is turning into a true dictator. Time for Klitschko to move in and knock him out. It’s not like Yanukovich’s guards will stand in the way. One punch. Pow!

Welcome, President Klitschko!  And it’s not like the guy is Larry Holmes, or Gerry Cooney. Klitschko speaks four languages and holds a Ph.D. in sports science.

So what the heck. I’m tired of the world as it is. 

China: Following last month’s deadly high-speed train crash in Wenzhou that killed at least 40 and injured 200 others, the State Council ordered trains to slow down, so fares are also falling. In fact, from my reading, all major train lines, including the highly-touted Shanghai to Beijing link, are lowering speeds. 

From an article by Mimi Lau of the South China Morning Post, “trains designed to run at up to 350km/h would run at 300km/h; those with a top speed of 250km/h would run at 200km/h; and those designed to run at 200km/h would run at 160km/h. More trains will also be arranged to ease passenger flow.”

One Chinese travel expert said lower fares wouldn’t impact air travel, as virtually every domestic flight is sold out for the summer holiday. This is the kind of stuff you need to read when you hear talk of China having a hard landing. I just don’t see it happening, but I reserve the right to change my opinion.

Separately, the Dalian city government, in a rare display of responsiveness to the public’s outrage, agreed to shut down a chemical plant that local residents believed was an environmental disaster waiting to happen.

[Boy, I’m glad my chemical plant holding in Fujian is environmentally friendly!]

Random Musings

--So I made plans to come to Iowa, as I had four years ago in the run-up to the caucuses, way back last November in terms of setting up reservations, and thus stupidly didn’t factor in the straw poll vote before I arrived, which meant many of the politicians had left the state by the time I settled in, and, as it turns out, President Obama’s Iowa segment for his bus tour wasn’t convenient for me to just drop by.

But, I did see, by pure accident, the new main man of the Republican Party, Texas Gov. Rick Perry, at the Iowa State Fair on Monday. I just walked up to where the speakers traditionally do their thing, saw a big crowd, and thought, ‘This is my lucky day.’ Perry had literally just gotten started with his speech, having announced his candidacy two days earlier in South Carolina, and this was his first appearance in Des Moines.

It was a lot of fun and afterwards he walked right in front of me so I snapped off a great photo.

As for the content, one item he focused on that really resonates is tort-reform, which he has practiced in Texas. It’s a simple message, “don’t allow for oversuing…loser pays.” And Perry knows that if he was elected president, “I’m going to be graded on how many jobs I create.”

But Perry got blasted later on for something he said about the Federal Reserve chairman at a private fundraiser on Monday.

Editorial / Wall Street Journal

“Let’s stipulate that Mr. Perry, in his first week on the presidential stump, was wrong to use the words ‘almost treacherous, treasonous’ in referring to Mr. Bernanke. Both of those words ought to be reserved for specific acts of betrayal against America, and the Fed chief is certainly a patriot….

“On the other hand, everybody knows Mr. Perry meant no literal harm and was indulging the irrational exuberance that is one of his trademarks. The faux-outrage from liberals who routinely refer to the tea party as ‘terrorists’ shouldn’t be taken seriously.

“The real news isn’t the rhetorical gaffe but the substance and politics of Mr. Perry’s demarche. Here we have a presidential candidate, a Texas populist no less, laying out a position in favor of sound money. This is a bear walking on its hind legs….

“Mr. Perry seems to appreciate that the Federal Reserve can’t conjure prosperity from the monetary printing presses. His articulation needs some work, but we hope the Texan doesn’t let media and other criticism deter him from pursuing the argument. The issue is crucial to understanding – and explaining to the American public – how the meltdown happened and why Americans are so unhappy with the current recovery.

“The Texas Governor has a better insight into middle-class economic anxiety than do most Washington-Wall Street elites.”

--Back to the aforementioned straw poll, it means zippo in determining the winner of the Iowa caucuses next winter, let alone who ends up winning the party nomination, but it obviously helps winnow the field down, see former Minnesota Gov. Tim Pawlenty. Evangelicals also make up 60% of the Republican caucus participants, and in a drive to the western part of the state on Tuesday, I have to admit to being rather shocked as to the number of evangelical radio stations on the AM band. [This is not a comment on faith, just fact.]

Anyway, for the record, last Saturday Michele Bachmann captured 28.6% of the straw vote, with Ron Paul second at 27.7% and Pawlenty a disappointing, and fatal, third at just 13.6%. Rick Santorum was fourth and Herman Cain fifth.

But Rick Perry wasn’t on the printed ballot and Mitt Romney, while on it, opted not to participate for strategic reasons. Perry instead chose the day to announce his candidacy.

--As for President Obama and his “listening tour,” you can imagine the local coverage in Iowa was heavy, and Obama looked like a toolshed.

But as a Wall Street Journal editorial best summed up, woe be to those who questioned the president and his policies at his town hall meetings.

“Prepare to be insulted if you wish to express a point of view not shared by President Obama….

“Mr. Obama’s unique brand of political discernment was captured on film yesterday during a town hall event in Atkinson, Illinois. A farmer took his turn at the microphone and, after welcoming the president to town, said that drought conditions had made it an especially tough year in the Midwest. Then he said, ‘Please don’t challenge us with more rules and regulations from Washington, D.C.’ He added that farmers liked to rise in the morning and start tending their fields, not their paperwork.

“Mr. Obama asked which rules the farmer had in mind, and the man responded that pending rules on noise pollution, dust pollution and water run-off were of concern. Was this a valuable opportunity for the president to discover more of those unnecessary rules that he claimed to be hunting down and eliminating last winter?

“No, Mr. Obama quickly made clear that he wasn’t on a listening tour of the Midwest. He instructed the farmer, ‘If you hear something’s happening, but it hasn’t happened, don’t always believe what you hear.’

“He then described how lobbyists in Washington can mislead people like the farmer into thinking that ideas merely under discussion are about to become regulatory burdens. It must have been a thrill for the farmer to have the president tell him in public how he’d been duped and how little he knew about the regulations affecting his own business….

“Contrast this with the president’s frequent approving mentions of billionaire Warren Buffett, who agrees with the White House that taxes should be raised on millions of people who make less than he does….

“How progressive of Mr. Obama. He thinks one of the country’s richest men is an oracle but small-town farmers are dopes who’ve been duped by special interests. The larger pattern is that Mr. Obama dismisses everything said by anyone engaged in profit-seeking business, except when the comments support his policies.”

--And as for Obama’s campaign bus through the Midwest, the Washington Post’s Kathleen Parker nailed it.

“What could the White House have been thinking?

“Here the country is reeling from depression, recession and oppression, and the president decides to take a heartland tour in the visual equivalent of an armored hearse?

“The infamous black bus that has been toting Barack Obama around for stump speeches designed to distract from the Republican hoedown in Iowa couldn’t be less effective – unless you’re Darth Vader. As the ship of state rumbled through the American countryside like a land shark from Mordor, Dick Cheney suddenly looks like Howdy Doody.

“It’s incomprehensible.

“A bus tour itself is not a bad idea when your aim is to reconnect with everyday people, but this one is ill-timed and looks desperate. If you’re confident in your presidency, you ignore the impotent opposition while they slug it out.

“ ‘Who them? I’m busy.’

“Otherwise, the bus is a stab in the heartland. We’re a red, white and blue nation, colors of optimism and hope. Or, thanks to Obama’s own rhetoric, we’re at least a purple nation. Lavender polka dots would have been better than a black mass that penetrates amber waves of grain like an armada of doom.

“No doubt there are mighty good reasons for the color and construction of the presidential mega-hearse, but as political symbolism, the vehicle looks like a creation out of Batman and the president appears as Paul Revere of the Apocalypse.

“Whoever came up with the black bus had best be looking for a job, preferably not in public relations.”

Good thing I didn’t see it in my travels on Iowa’s highways and bi-ways. If I had spotted it in my rearview mirror, I would have had a heart attack and plunged off a bridge.

--If the president wants some good news, he can at least point to a McClatchey-Marist Poll that says six in ten voters believe Obama is not responsible for the current economy, which I find hard to believe at this point. However, 2/3s of those surveyed said they are convinced things will get even worse, including 75% of Republicans, which is more like it.

--So does Obama deserve a vacation?  I guess so. Fundraising is tough work. According to USA TODAY’s Fredreka Schouten, “President Obama has headlined 127 fundraising events for himself and others, significantly outpacing the fundraising activity of the previous five presidents during their first terms, new research obtained by USA TODAY shows.

“By comparison, President George W. Bush had held 88 fundraisers and President Clinton, 76, at this point in their first terms.”

Yes, as one strategist told the paper, we’re in the era of the permanent campaign. Or as California Republican Party Chairman Tom Del Beccaro said, “It certainly reinforces the idea that he’s more concerned about his own job than American jobs.”

--I missed something last time. A new poll in New Jersey gave Gov. Chris Christie a 50% approval rating among registered voters, while 41% disapproved, a tick up from May’s 46% approval rating. The governor has definitely tried to soften his image after the big battles with the state senate leader. Christie is getting good marks for “leadership.”

--In a New York Times/CBS News poll, 70% of New York City residents view the economy as being bad. Only 45% approve of Mayor Michael Bloomberg’s stewardship, the worst for him in six years. At his peak, Bloomberg’s approval rating was solidly in the 62-65% range before the financial collapse summer of 2008.

--In a speech to the Heritage Foundation, Representative Roscoe Bartlett (R-Md.), said the United States has made no substantial headway in defending its electrical infrastructure against a potential electromagnetic pulse generated by a nuclear device or other weapon. As reported by the Global Security Newswire:

“(Bartlett) warned that the detonation of a nuclear weapon 300 miles in the atmosphere above Iowa or Nebraska could create a magnetic pulse sufficient enough to knock out the country’s entire electrical grid. Similarly, a crude nuclear device attached to a Scud missile, with an aperture of 180 miles, and fired off the East Coast could cripple all of New England.

“In addition, a cyber-attack aimed at the nation’s major electric transformers or a major solar event could also paralyze all electrical operations in a particular area, possibly for years, according to Bartlett.

“ ‘EMP is certainly the most asymmetric warfare that you can imagine,’ the 10-term congressman told the audience.”

The problem is, Congress has been empowered to develop a series of recommendations to protect the U.S. electrical system and named the Homeland Security Dept. the lead agency in 2008, but any recommendations haven’t been acted upon.

Bartlett said the full House approved a measure that would have taken steps toward hardening the grid, but some in the Senate let it die because they “decided it was going to be too expensive.”

“If it ends life as you know it, it can’t be too expensive to avoid, can it? I’m having trouble understanding that logic,” he said.

--An extensive USA TODAY/Gallup poll finds 90% of whites and 85% of blacks say civil rights for blacks have improved in the nation during their lifetime.

But while nearly eight in 10 whites say blacks have an equal chance in their community to get any kind of job for which they are qualified, six in 10 African Americans say job discrimination remains persistent.

Six in 10 blacks say the government should take a major role in trying to improve the social and economic position of blacks and other minority groups. Just one in five whites agrees. And 52% of blacks say new civil rights laws are needed, compared with 15% of whites who believe so.

By the way, after the initial euphoria over the election of a black president, only 52% of Americans predict the problem of race relations will eventually be worked out, the same as before Obama took office. Now, 45% of whites, and 55% of blacks say race relations will always be a problem. Back in December of 1963, four months after Martin Luther King Jr. delivered his “I Have a Dream” speech, only 26% of blacks said race relations would always be a problem.

Lastly, an area where major progress has been made since a 1968 Gallup survey is on the topic of  interracial marriage. Back then only 17% of whites approved; 56% of blacks. Now 83% of whites and 96% of blacks approve of it. 

--Never have I been on a trip where I was more aware of cellphones and how we truly look like a nation of idiots for letting these stupid things control our lives. I made a conscious decision not to take mine to the state fair because I went there to take in the sights and sounds, and to talk to people, not to feel compelled to read every e-mail.

I mean it’s amazing how I’d say 75% of fairgoers were reading their stupid emails when I’m venturing only one in 100 was even remotely important. I mean to see someone who has the intelligence of a turtle reading their smartphone like they are receiving something critical is beyond pathetic.

And not for nothing, but society, and our way of living, has done nothing but go down since these devices began to take over our lives, especially those of our children, most of whom will grow up to be social illiterates with the interpersonal skills of a squirrel, who in case you haven’t noticed is still leading the ranks of road kill.

--It’s out of the way, two hours north of Des Moines, or about two hours south of Minneapolis, but if you love music, let alone rock and roll, you have to go to the Surf Ballroom in Clear Lake, Iowa, as I did on Thursday. The Surf was the scene of Buddy Holly’s last concert, Feb. 2, 1959, after which his plane went down, taking the lives of the Big Bopper and Ritchie Valens with him (while Waylon Jennings was saved because he gave up his seat to the Big Bopper, aka J.P. Richardson, and fellow backup band member Tony Allsup lost his seat to Valens in a coin flip).

The Surf has been faithfully restored and is heavily used these days (Jerry Lee Lewis headlined last February’s now annual Winter Dance Party, which sounds like a real pisser to go to), but it’s the pictures of all who played there, before and after 1959, that is amazing.

What’s also super cool about the whole experience, though, is that you can then take a little drive to the actual spot where Holly’s plane went down after taking off from Mason City in an ice-storm. It’s on private property but accessible down a path in the middle of a cornfield. Feb. 3, 1959…the day the music died.

--This is depressing…The U.S. Army suffered a record number of suicides in July, 32, the most since it began releasing monthly figures in 2009. The number includes 22 active-duty soldiers and 10 reservists. The Army in this regard is trying, having launched a major effort to institute new training to improve soldiers’ ability to bounce back from combat-related stress, as well as problems in their personal lives.

--I’ve preached on the topic of patriotism in this space and elsewhere on my site, saying things like, “If you really want to do something patriotic, go to Arlington National Cemetery, or a Veterans cemetery in your area.”

So I’d like to think I’m a man of my word, at least I try to be, and on Tuesday I was in Van Meter, Iowa, home of Hall of Fame baseball great Bob Feller, and up the road from his museum is the Iowa Veterans Cemetery so I drove in to pay my respects.   It’s up on a hill, an absolutely gorgeous setting, and I walked around a bit. Read a bunch of tombstones…took a picture of one, Lawrence J. McFaddin Jr., killed at Pearl Harbor…and then came across this, from the Iowa Vietnam Veterans’ Memorial.

Never again will one generation of veterans abandon another.

In memory of those who honorably served their country during the Vietnam War Era.

For those who fought for our freedom, life has a meaning the protected will never know.

Regarding this last line in particular, never were truer words spoken concerning today’s conflicts in Iraq and Afghanistan. The vast majority of Americans either don’t give a damn or haven’t the slightest clue what our men and women are going through.

--Finally, one of the more touching scenes in recent memory occurred when the stage collapsed at the Indiana State Fair last weekend. As an emotional Gov. Mitch Daniels put it, the spectators, who initially ran from the disaster as the towering structure went down, immediately reversed course and “ran to the trouble, not from the trouble. That’s the character that we associate with our state,” Daniels said, visibly choked up.

It was an example of the best of the human spirit.

---

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

God bless America.
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Gold closed at $1855…unreal stretch
Oil, $82.66

Returns for the week 8/15-8/19

Dow Jones -4.0% [10817]
S&P 500 -4.7% [1123]
S&P MidCap -6.5%
Russell 2000 -6.6%
Nasdaq -6.6% [2341]

Returns for the period 1/1/11-8/19/11

Dow Jones -6.6%
S&P 500 -10.7%
S&P MidCap -13.2%
Russell 2000 -16.8%
Nasdaq -11.7%

Bulls 46.2
Bears 23.7 (unch.) [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore