Week in Review

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Week in Review

07/09/2011

For the week 7/4-7/8

Wall Street, Washington and Europe

After Greece’s parliament approved a new austerity program, and after the European Union, European Central Bank and International Monetary Fund (the troika), gave its blessing and promised to dole out Greece’s next tranche of $17 billion in aid so it could pay its bills the next few months (the IMF was the last to formally kick in on Friday), even I was hoping we’d get a little break from the debt crisis until mid-August or thereabouts, but it seems that won’t be the case.

On Monday, Standard & Poor’s put a kibosh to the Greek bond rollover plan being offered up by France (which Germany said it would go along with) as part of Bailout II to fund Greece to the tune of $170 billion that would carry it into 2014. 

But S&P said: “We believe that both options represent [i] a ‘similar restructuring’ [ii] are ‘distressed’ and [iii] offer ‘less value than the promise of the original securities’ under our criteria.

“If either option were implemented in its current form, absent other mitigating information, we would likely view it as constituting a default.”

Fitch Ratings then said that “if it looks like a default, we will rate it as a default,” though Fitch hasn’t formally said how it would judge the French scheme. 

S&P’s comments left everyone wondering whether a rollover deal would then trigger credit-default swaps, the insurance against government default.

Euro politicians were in an uproar, especially given S&P’s failure to see the last crisis beforehand with regards to its ratings, but as the Financial Times opined:

“The claim that the agency is overcompensating for its spade-blindness before the financial crisis is impossible to prove or refute. But it is irrelevant. Since S&P’s standards for defining a default date from 2009, when it made public post-crisis revision, its judgment should not come as a surprise. However, the issue of Greek debt has been marked by wishful thinking from almost everyone in the eurozone – governments, lenders, the European Central Bank and even the Eurostat statistical agency – ever since the Hellenic Republic first applied for entry into the single currency.

“Eurozone politicians and the ECB should thank S&P for telling the truth. The official strategy of delay and obfuscation has bought time, but it is now only increasing the fear of a disorderly euro meltdown. It is time for more forthright treatment.”

What’s ironic is that the rollover plan, whereby banks holding sovereign debt would reinvest 70 percent of their holdings that mature in the next three years into new 30-year Greek bonds, with the bonds then paying an interest rate of between 5.5 and 8 percent, depending on the rate of economic growth in Greece, appears to be moot regardless of the S&P ruling. Why? The banks and insurers have been selling their Greek paper, far more than they promised eurozone officials going back to last year. As in there is just a fraction that would technically qualify for the rollover scheme to begin with. And who now owns what the banks sold? Probably hedge funds, who are hardly the kinds of candidates for a rollover.

So where does that leave Greece? Especially come late August/early September when the $170 billion package (including leftovers from Bailout I) is to be assembled? Don’t know. But one thing is for sure. Greece’s economy is going to tank a further 3 to 4 percent this year, while tax receipts have fallen 7 percent the first five months against the target and receipts were slated to rise 8.5 percent for all of 2011. [Financial Times] The whole collection process is dysfunctional, let alone corrupt.

So that’s Greece. Then the other day, Moody’s weighed in by downgrading Portugal to junk status. Again, euro leaders were in an uproar. Again, the Financial Times opined:

“The furious reaction of European policymakers to the Portugal downgrade (to subinvestment grade) by Moody’s was unwarranted. It is true that the rationale for credit downgrades risks being self-fulfilling. Voicing the fear that something might happen can make that something more likely to happen. Such rating actions also complicate the authorities’ attempts to fix the crisis. But that is mainly because those attempts consisted of little more than buying time. Reality was always going to crash that party….

“Investors became too optimistic (or forgetful) after Greece’s austerity votes. As banks haggle over private sector involvement in a second bailout for Athens, and as bank shares tumble further, the further re-pricing of Portuguese, Greek and Irish debt on Wednesday suggests that the markets are entering a new and even riskier phase of the crisis. The prospect of a wider restructuring of eurozone sovereign debt is now firmly in investors’ sights.”

But wait…there’s more! Italy’s stock market tanked 9% this week, led by a fall in its bank shares, some down 20% or more, over fears Italy’s big banks will receive failing grades when the ECB releases the latest stress test results next week. Spain’s interest rates, amid similar fears, rose to new euro-era highs vs. the German bund. [Ireland’s hit records over the week, too.]

So we’re far, far from over, sports fans, when it comes to this mess. 

And while the eurozone desperately needs growth, the ECB went ahead and hiked interest rates over inflation fears. The key rate is now up to 1.50%. The Bank of England, though, maintained its lending rate at 0.50% because, as Gov. Mervyn King put it, it’s more important to keep the economy growing rather than worrying about inflation at the moment.

Turning to the U.S. economy, a funny thing happened on the way to a renewal of significant job growth. After ADP’s report for June showed a sizable pickup in private sector employment, 157,000 when the consensus was for an increase of 95,000, Wall Street’s economists began to furiously hike their forecasts for the government’s employment report on Friday. Not growth of 100,000…but 125,000…150,000…some even said higher. ADP was a game-changer, yessirree Bob!

Only it wasn’t. The June report showed non-farm payrolls grew 18,000…not 100,000 or more…and the May figure was revised down from a putrid 54,000 to just 25,000. The unemployment rate, critical to President Obama’s re-election, ticked up to 9.2%, the highest since Dec. 2010.

The average estimate for growth in the second quarter is 2.3%, with 3.2% the average forecast for the second half. No freakin’ way on the latter and without a doubt, economists will be scrambling next week to lower their forecasts.

It also doesn’t help that the employment report contained the news that average hourly earnings in June fell 0.1%.

But there was some decent news this week. Chain store sales for June rose 6.5% when an increase of 4.9% was expected, this after the dreadful weather nationwide in May. Overall retail sales are released next week, along with inflation data and the first corporate earnings reports.

The main topic of discussion next time, however, aside from potentially Italy, will be the debt ceiling and deficit reduction talks. So now we turn to….

This weekend is a critical one in terms of our nation’s finances as President Obama met earlier with congressional leaders and asked everyone to reconvene on Sunday at the White House. I’m not going to hazard a guess as to what the two sides may come up with, but talk of real entitlement reform could be just that…talk. For starters, Democrats, including key leaders like Nancy Pelosi, have been adamant all along that Social Security not be touched (as nonsensical as this is), but now some on both sides are talking of a new formula to compute the consumer price index that would lead to lower than currently estimated cost of living adjustments, or COLAs. And some responsible Republicans are considering eliminating tax breaks in return for lower corporate rates. For his part President Obama still wants higher taxes on the wealthy.

My own bottom line remains the same. A package of $2 trillion in debt reduction over the next ten years won’t cut it and at some point in 2012, an event will trigger a crisis and an outright crash in the stock market.

A package of $4 trillion, on the other hand, assuming it isn’t totally smoke and mirrors, would be a huge positive and send a terrific signal to the rest of the world, and its investors, that the United States is serious about tackling its deficit problem. U.S. stocks would rocket higher. Of this I have little doubt.

It’s just that I will be shocked if our political leaders reach such a compromise, which would mean big cuts in future entitlements.

For Republicans, though, I totally agree with the New York Times’ David Brooks. If they can get up to $4 trillion in real debt reduction, and are not being asked to raise marginal tax rates but are instead “merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary,” it would be, in Brooks’ mind, “the mother of all no-brainers.”

So we await the smoke signals from the White House and Capitol Hill.

“So in the 2010 congressional elections (the Tea Party) and millions of other voters helped the Republicans seize control of the House of Representatives and win enough seats in the Senate to end Democrats’ ability to push through legislation on a straight party-line vote.

“Aroused Americans are realizing that their political and policy leaders are not only on the wrong track, but don’t know how to change to the right one. President Barack Obama poured $787 billion into a stimulus package designed to fund shovel-ready projects and cut the unemployment rate to 8%. He subsequently admitted those really weren’t shovel-ready. The unemployment rate, at 9.1% [Ed. prior to Friday], is significantly above the 7.8% level he inherited, but the federal deficit has tripled from less than $500 billion to $1.5 trillion, or about 10% of GDP, in line with Greece.

“Federal Reserve Board chairman Ben Bernanke printed $600 billion with which to buy Obama’s IOUs during an eight-month program, which ended last Thursday, in an attempt to:

“Keep mortgage rates low (he succeeded), so that the housing market would recover (it didn’t);

“Lower corporate borrowing costs (he succeeded) so that business spending would rise sharply (it didn’t);

“Head off a Japanese-style deflation (he succeeded), but at the cost of inflation in commodity prices;

“Drive share prices higher (he succeeded) in order to shore up consumer confidence and spending (it didn’t).

“But it is unfair to blame the huge level of debt and misshapen policies solely on politicians. American voters overwhelmingly favor reducing the deficit, but also say they don’t want to give up any of their healthcare, pension and other benefits, or have their taxes raised. Consistency is indeed the hobgoblin of these voters’ minds.”

“Given an aging population – which boosts Social Security and Medicare spending – government is automatically expanding. Since 1971, federal spending has averaged 21 percent of the economy (gross domestic product); just continuing present programs could easily raise that to 28 percent of GDP by 2021. The liberal-reactionaries can’t smoothly finance that. In 2011, the deficit is already twice the entire defense budget. The richest 10 percent already pay 55 percent of federal taxes. The blanket embrace of all benefits for the elderly – no matter how rich – will require much higher taxes or steep cuts in other programs, including those for the poor.

“The conservative-radicals are no better. Since 1971, federal taxes have averaged about 18 percent of GDP. There is no believable plan to reduce federal spending below that level, even with sizable cuts in Social Security and Medicare benefits. So promises of more tax cuts either border on dishonesty or imply huge unspecified spending cuts that would devastate national defense, states and localities, and the poor.

“A dilemma of democracy is the difficulty of making changes that, though essential for society’s long-term well-being, are unpopular in the short run. That describes today’s budget deadlock. To be sure, not all conservatives and liberals have become radicals and reactionaries. But many have. If we applied true labels to them – reactionaries and radicals – we would clarify the debate and compel them to deal with the world as it exists, not as they imagine it. Dream on.

“Our politicians prefer self-serving fantasies. Americans are misinformed, and consensus becomes harder. Democrats won’t admit the need for major benefit cuts in Social Security and Medicare; Republicans won’t concede the necessity for higher taxes. The result is that our leaders are now playing a game of brinkmanship over raising the federal debt ceiling or defaulting. Liberals say spending cuts now would subvert the recovery; conservatives find that an excuse not to cut. Surely a compromise would be phasing in credible future cuts.

“All this from ‘the world’s greatest nation.’ It lowers our competence and elevates our national embarrassment. Altogether, an unhappy birthday.”

“Here we go again. An approaching crisis. A looming deadline. Nervous markets. And then, from the miasma of gridlock, rises our president, calling upon those unruly congressional children to quit squabbling, stop kicking the can down the road and get serious about debt.

“Ignored the debt problem for two years by kicking the can to a commission.

“Promptly ignored the commission’s December 2010 report.

“Delivered a State of the Union address in January that didn’t even mention the word ‘debt’ until 35 minutes in.

“Delivered in February a budget so embarrassing – it actually increased the deficit – that the Democratic-controlled Senate rejected it 97 to 0.

“Took a budget mulligan with his April 13 debt-plan speech. Asked in Congress how this new ‘budget framework’ would affect the actual federal budget, Congressional Budget Office Director Doug Elmendorf replied with a devastating ‘We don’t estimate speeches.’ You can’t assign numbers to air.

“President Obama assailed the lesser mortals who inhabit Congress for not having seriously dealt with a problem he had not dealt with at all, then scolded Congress for being even less responsible than his own children. They apparently get their homework done on time.

“My compliments. But the Republican House did do its homework. It’s called a budget. It passed the House on April 15. The Democratic Senate has produced no budget. Not just this year, but for two years running. As for the schoolmaster in chief, he produced two 2012 budget facsimiles: The first (February) was a farce and the second (April) was empty, dismissed by the CBO as nothing but words untethered to real numbers.

“Obama has run disastrous annual deficits of around $1.5 trillion while insisting for months on a ‘clean’ debt-ceiling increase, i.e., with no budget cuts at all. Yet suddenly he now rises to champion major long-term debt reduction, scorning any suggestions of a short-term debt-limit deal as can-kicking….

“Obama’s other favorite debt-reduction refrain is canceling an oil-company tax break. Well, if you collect that oil tax and the corporate jet tax for the next 50 years – you will not yet have offset Obama’s deficit spending for February 2011.

“After his Thursday meeting with bipartisan congressional leadership, Obama adopted yet another persona: Cynic in chief became compromiser in chief. Highly placed leaks are portraying him as heroically prepared to offer Social Security and Medicare cuts.

“We shall see. It’s no mystery what is needed. First, entitlement reform that changes the inflation measure, introduces means testing, then syncs the (lower) Medicare eligibility age with Social Security’s and indexes them both to longevity. And second, real tax reform, both corporate and individual, that eliminates myriad loopholes in return for lower tax rates for everyone.

“That’s real debt reduction. Yet even now, we don’t know where the president stands on any of this. Until we do, I’ll follow the Elmendorf Rule: We don’t estimate leaks. Let’s see if Obama can suspend his 2012 electioneering long enough to keep the economy from going over the debt cliff.” 

Street Bytes

--Stocks rose again, though the gains were tempered by the aftereffects of Friday’s jobs report. But even then, the decline in the major averages was minimal and for the week the Dow Jones gained 0.6% to close at 12657, while the S&P 500 added 0.3% and Nasdaq 1.5%. Alcoa starts off earnings season on Monday and activity will pick up in earnest on this front by week’s end.

--U.S. Treasury Yields

6-mo. 0.06% 2-yr. 0.39% 10-yr. 3.02% 30-yr. 4.28%

Rates plunged Friday on the heels of the dismal employment report.

--The Organization for Economic Cooperation and Development showed that consumer prices in its 34 member, developed economies rose 3.2% in the 12 months to May, the highest since October 2008. But, frankly, hardly worth having conniptions over. It’s the emerging world, such as in China and India, where the real inflation issue remains. Food prices in the OECD nations did rise 3.9%, while energy rose 14.2%.

--China’s central bank raised interest rates a 5th time in 8 months as the government keeps up its efforts to bring down inflation, which may hit 6% in June according to some, but this should be the peak and I would expect inflation to drop the rest of the year as most food prices come down, owing in no small part to better harvests in China itself, as well as the economic slowdown.

Note: 6:00 AM ET...I just saw the June inflation figure was 6.4%...more next time.

There was also more talk of non-performing loans on the books of local governments and financial institutions, with Moody’s issuing a warning to this effect, saying the problem is worse than the central government estimates.

--Europe did have some decent economic news this week as May exports across the 27 nations in the EU were 17.4% higher than year ago levels, with Germany’s ahead by over 19%. May itself was far better than April, when the export numbers were down.

--Amid a still exploding scandal, News Corp. Chairman Rupert Murdoch closed the largest English-language newspaper on earth, the News of the World, in what all agree is a desperate attempt to not only save his $46 billion global media empire but also an existing bid for British satellite network BSkyB.   The News of the World is printing its last edition on Sunday after 168 years and 200 employees will likely lose their jobs. News Corp.’s deputy chief operating officer, James Murdoch, one of Rupert’s sons, said the paper had “failed to get to the bottom of repeated wrongdoing that occurred without conscience or legitimate purpose.”

But, like his father, James Murdoch stood by Rebekah Brooks, the former News of the World editor who is now CEO of News International, calling her leadership “crucial.” “I am confident that she neither had knowledge of or directed these activities.” Brooks offered to resign twice this week, according to reports, but was declined each time. Staff will be paid for 90 days. [Rupert Murdoch is evidently on the ground in London as I go to post to deal personally with events.]

Among the many casualties of what are now multiple investigations into the NOTW’s illegal phone hacking is Prime Minister David Cameron, whose former director of communications, Andy Coulson, a former NOTW editor, has been arrested, with opposition leader Ed Miliband calling on Cameron to admit the “appalling error of judgment” in hiring Coulson. [Cameron then took “full responsibility” for the move.] In addition, Miliband is demanding that Cameron come clean on any conversations he had with Coulson because, after all, this is a six-year scandal that only exploded this week because it suddenly became apparent that not only celebrities’ voicemails were hacked (long known but little cared about), but also the messages of the families of dead teenage girls, as well as those of the families of Iraq and Afghan war dead and the victims of London’s 7/7 transport bombings.

So the furor in Britain is wide-ranging, including on how to rein in a media that had gained too much power and was also too politically connected, aside from buying off the police. As Miliband put it:

“For too long, the political class have been too concerned about what people in the press would think and too fearful of speaking out,” rather than standing up for the rights of the people.

I think what most outside observers can’t believe is that Rebekah Brooks remains at her post.

“The involvement of News of the World journalists in the hacking of phones – and crucially in the alleged deletion of some voicemails of Milly Dowler, the murdered teenager – had rapidly made the paper a liability. News International had already been forced to cancel advertising in the coming Sunday issue.

“Like all such coups, however, the immediate effect on the audience – shock and awe – was rapidly followed by chatter about the true meaning of the event.

“The chances of it drawing a line under the criticism that has engulfed the company since The Guardian broke news of the Dowler incident earlier this week are low to non-existent….

“The closing of the title exacerbates the problem because many journalists who are about to lose their jobs feel that (Rebekah Brooks) should have gone instead. Even before the announcement, those on other News International titles, particularly (The London) Times, were distancing themselves from the rogue tabloid….

“Despite the shocked and contrite tone of the statement to staff from James Murdoch, Mr. Murdoch’s son and head of News Corp.’s Europe and Asia operations, the decision thus has a distinct element of self-interest….

“The complex web of relationships and loyalties between Rupert Murdoch, his son and Ms. Brooks will be put under further scrutiny by the closure.”

Meanwhile, Murdoch’s The Sun, Britain’s biggest selling daily newspaper, will now pick up NOTW’s Sunday edition.

--After 17 years, Mexican trucks will finally be allowed to operate in the United States. This had been a condition of the 1994 North American Free Trade Agreement but regulations required them to unload shortly after crossing the border. Mexico then retaliated by imposing tariffs on some goods in 2009. Now the tariffs will be eliminated in exchange for the trucks being allowed far freer access. This is a big deal, and should reduce shipping costs. It’s a big win for U.S. exports there. 

Needless to say, however, some in Congress don’t believe this is such a good deal, arguing it jeopardizes the livelihoods of tens of thousands of U.S.-based truckers.

The Mexican truckers will be regulated like foreign airlines. They must pass drug screening and demonstrate an ability to speak English, along with comply with all U.S. safety standards.

--Exxon Mobil is under the microscope, and for good reason, following a spill of at least 1,000 barrels of oil into the Yellowstone River near Billings, Montana. The spill, aided by floodwaters, has traveled an estimated 240 miles and impacted up to 5,000 acres of farmland. Typical of Big Oil, at first Exxon said the spill damage was minimal, and had less than 200 workers cleaning it up. Now that has grown to over 500.

--China has an even bigger issue involving oil and a spill off the coast of Shandong Province. The government finally came clean on not one, but two spills that impact about 840 square kilometers of sea, as reported by Global Times. The accident at a Sino-U.S. co-developed site actually occurred a month ago, though the State Oceanic Administration said the spills were being contained. [Yeah, right.] Both spill sites are jointly operated by ConocoPhillips and China National Offshore Oil Corporation (CNOOC).

The fishing industry should have been warned, even though the oil companies are saying the spills are occurring in areas where little such activity occurs, and evidently there is a fishing moratorium in such waters from June to September. [You have to do a lot of reading to get this far in the story…I must say.]

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

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

--Lastly on oil, Barron’s had a piece by Gene Epstein in the July 4 issue warning of $150 oil by next spring owing to spare capacity gradually diminishing. $4.50-a-gallon would thus become the norm. That obviously wouldn’t be good in terms of consumer spending and an economy trying to reignite and become an engine for job growth, but it’s really going to be about the pace of any move much higher, and the kinds of headlines generated. I’m curious what reaction will be over the coming month or two as we march back to $4.00, as would appear to be the case, after our temporary respite from that level.

--Among the items being considered as part of the proposed deficit-reduction package between the White House and Congress is an elimination of the $6 billion subsidy for ethanol producers, which is great, though corn-state senators will demand something substantial in return.

--Apartment rents in New York City have skyrocketed, up 9.2% for a one bedroom to $2,674 compared with last year and up 5.5% from the first three months of this year, as potential home purchasers still find it difficult to get financing. Manhattan’s vacancy rate is 0.72%. And landlord concessions, like the first month’s rent being free, are history.

[By the way, the average cost to park a car in midtown Manhattan is also up, to $540 a month vs. a national average of $155.]

--JPMorgan Chase agreed to pay $228 million in a settlement with the U.S. Dept. of Justice over charges it rigged the tender process for municipal bond offerings (though on a technicality it is not being prosecuted for ‘bid-rigging’). 18 individuals have also been charged, nine of whom have pleaded guilty. The bottom line was when municipalities went out to raise money, the bidding agent deliberately obtained sub-par offers from other bidders in order to “set up” JPMorgan. Earlier, Bank of America agreed to settle similar charges.

--Facebook announced it had passed the 750 million member mark worldwide. Previously, the social network had been quiet about its growth, but with questions arising as to whether or not the rate is peaking (especially after word in May that the U.S. audience had actually declined), Facebook suddenly announced it had jumped from an est. 700 million to the 750 number, on its way to 1 billion. A year ago the company was around 500 million.

So, as Facebook readies an IPO that some estimate will be worth $100 billion (Google’s $23 billion IPO was in 2004), the question remains can it convert its huge audience into revenue? 

Meanwhile, Facebook also announced this week it was integrating Skype video chat into its network, giving users the ability to chat one-on-one with their Facebook friends, this after Google debuted its own video-chat service through its Facebook alternative, Google+. 

Facebook was working with Skype on the project before Microsoft agreed to acquire the video-chat service, a deal still awaiting regulatory approval. Microsoft has an investment in Facebook going back to 2007.

--Microsoft announced a partnership with China’s biggest search engine, Baidu, whereby users will be able to see English-language search results generated by Bing. This will hurt Google further, which has seen its market share in China fall below 20% due to its problems with the Chinese government over censorship issues.

--Twitter Inc. is raising further funding that values the microblogging site at $7 billion, or double December’s valuation.

--I have to admit I couldn’t tell you what country AirAsia originated in until the other day when I saw a headline that they were buying 300 Airbus A320 jets and I thought, “Who are those guys?” Actually, the Malaysia-based budget carrier increased its “record-breaking” order by 100 to get it to 300, but this is kind of remarkable. The total contract is $27 billion.

I mean is there that much room for growth in an already saturated Southeast Asia market? We’ll find out over the coming decade.

--Inflation Alert: China’s growing appetite for healthier living is leading to an explosion in the demand, and price, for nuts; 40% to 60% from year ago levels when it comes to cashews, walnuts and pecans.

--According to the National Association for Law Placement, starting salaries for last year’s U.S. law school graduates fell 20%, from $130,000 in 2009 to $104,000. The NALP’s executive director said, “Aggregate starting salaries fell because graduates found fewer jobs with high-paying large law firms and many more jobs with the smallest firms, those that pay the lowest starting salaries.”

--Susannah Cahalan of the New York Post had an interesting piece on the price of a certain kind of crime in America. 

“Ten percent of Americans do it, retailers pretend it doesn’t exist and companies spend billions to stop it. And because of the retail world’s dirty little secret – shoplifting – the average American spends $423 more a year on crime-taxed products.

“Last year alone, the retail industry lost $37.14 billion due to shrinkage (inventory loss), up from $33.5 billion in 2008, according to the 2010 National Retail Federation’s security survey. That amounts to about $101 million lost a day…Shrinkage accounted for 1.56% of retail sales – most businesses can’t turn a profit with a shrinkage rate higher than 2%....

“27 million Americans are shoplifters, according to the National Association for Shoplifting Prevention; yet, stores only catch shoplifters one in 48 times, and inform the police only one out of every 50 caught.”

--Who is benefiting from a tourist standpoint as a result of the Arab Spring? Turkey. Muslim but non-Arab Turkey, that is, as the nation continues to emerge as a regional power. Istanbul has become a popular wedding destination for Saudis, for example.  Tourism was up 15% the first five months of the year over a similar period in 2010.   

The number of Israeli tourists, however, fell 59% the first five months owing to still heightened tensions between the two nations going back to the storming of a Turkish-backed flotilla bound for Gaza a year ago. 

--According to a survey on corporate fraud by Ernst & Young, 2/3s of European executives acknowledge bribery and corruption are widespread in their country and 40% say the problem has worsened during the downturn.

--Remember the K Club golf resort, scene of the 2006 Ryder Cup in Ireland? I’ve written before of how this project ended up being a prime example of the Irish real estate bubble and this week there was a further story involving the failure of many residents to pay maintenance fees. One set of accountants first purchased a condo there in 2004 for over $1.1 million. They are now being sued by the club for back maintenance fees of over $20,000 for 2006 through 2009 and in the suit it came to light the resort is owed over $400,000 in back fees from its property owners. It also seems the resort, once “5-stars,” is now in disrepair and looking a bit shabby.

--According to property website Daft.ie, the average asking home price in Ireland is down 47% from the peak four years ago. Prices of new homes are back to 2001 levels, and prices are continuing to fall. Dublin prices are 50% off the peak, including a decline of over 5% just the past three months.

--Speaking of Ireland, Goldman Sachs stands to make $10 million for advising the Government on the recapitalization of the nation’s banks. [This is separate from underwriting fees Goldman and others stand to gain from future capital raises.]

--Out of nowhere…or so it seems…overall music sales (albums, singles and music videos) are up 8.5% over the same period in 2010, from 756 million to 821 million. Overall album sales (physical and digital) are up 3.6%. Digital album sales grew 19% and now account for 33% of album sales. This is the best news for the industry since 2004. 

So why the improvement after years of decline? Adele’s “21” helped. Lady Gaga’s “Born This Way” did, too. But the impact of TV’s “American Idol” and “Glee” also can’t be discounted.

--I have a position in a Kazahkstan rare earth play (through a Canadian firm that is working with the Russians, whose plant it used to be in Soviet times), so I took note of the story that rare earth reserves have been discovered on the Pacific Ocean Floor. I am not in the least bit concerned with this potential competition; at least not for the rest of my life. 

--U.S. and Chinese officials are getting together in Beijing next week to discuss granting American securities officials, such as from the SEC, the right to investigate companies within China for the first time. The prime targets are the Chinese audit firms with the SEC and Public Company Accounting Oversight Board offering technical expertise, not that U.S. oversight is always top shelf.

But with the plethora of Chinese companies traded in the U.S. that have suddenly been delisted or suspended, any cooperation between the two nations is welcomed.

As for my own Chinese holding, the big one in Fujian province, it rallied nicely with the start of its share buyback program. The buyback itself is small thus far, limited by the overall small trading volume, but it shows that the company is keeping its word…and has cash. As long as the overall Chinese economy doesn’t totally roll over, this investment will work out, especially when sentiment begins to turn regarding valuations and the legitimate stories on the mainland. For example, for me to hit a home run with my position, I just need it to trade at a p/e of six on expected 2011 earnings. Today, the p/e is about 2.5. Frustrating. You can tell, though, that sentiment is indeed turning as there are more and more optimistic voices in the investment community regarding China and the valuations. That’s why the above hoped for cooperation on the accounting front is also critically important in returning confidence.

Foreign Affairs

Lebanon: It was a week of warring in parliament as the March 8 (Hizbullah sponsored) ruling coalition fought back against the Future Movement-led March 14 coalition (supporters of former prime minister Saad Hariri, now in self-imposed exile) over the Special Tribunal for Lebanon (STL) and the recently handed down ‘sealed’ indictment into the Feb. 2005 assassination of former prime minister Rafik Hariri; an indictment that reportedly fingered four members of Hizbullah…the terrorist group having a controlling majority in the government these days.

Prime Minister Najib Mikati said that the March 14 group was “sabotaging the nation” by its “relentless” campaign against both him personally and his newly formed government.

“Once again the participants took advantage of the assassination of Prime Minister Rafik Hariri and his companions to pour their anger and hatred on the government for reasons that are no longer hidden.”

Mikati denies his government is ignoring the “demands for justice as committed by the Lebanese state.” And he expressed resentment over March 14 accusations that the Hizbullah-led cabinet was “a coup government against Lebanese who triumphed for justice and freedom.”

March 14 counters that the proof is in Mikati’s statement on the STL itself, which read in part:

“Our government respects international resolutions, thus it is keen to reveal and expose the truth regarding the crime of the assassination of martyr Prime Minister Rafik Hariri and his companions. The government will follow the path of the Special Tribunal for Lebanon which was in principle [emphasis mine] established to achieve righteousness and justice, without politicization or revenge, and without any negative impact on Lebanon’s stability, unity and civil peace.”

Ah, the power of words. In principle. Opponents of Mikati say the use of these two words can mean a renunciation of the truth in the tribunal’s findings. As one key MP of the March 14 coalition put it, Hariri was not killed “in principle.” “He was actually assassinated by two tons of explosives.” [Daily Star]

Not all of the reports on the reaction in Lebanon to the tribunal’s findings, especially Mikati’s first statement, include the words “in principle” but this is indeed a key. I’m assuming newspapers like the New York Times didn’t leave them out on purpose and rather they were lost in translation. The two words, and treatment of them, could spell civil war under certain circumstances.

For his part, Hizbullah leader Sheikh Nasrallah said the STL unjustly accused the four members, reiterating ‘the resistance,’ as they call themselves (resistance against Israel), will not cooperate with the court, which Hizbullah describes as nothing more than a toady of the U.S. and Israel.

As for President Obama, recall that when then Prime Minister Saad Hariri came to the White House in January, Hizbullah was plotting his ouster back home. As Benny Avni writes in the New York Post:

“Team Obama didn’t even bother to turn the other cheek, let alone hit back. Rather than rushing to help an ally who was ousted while here, the administration mumbled about how Lebanon’s ‘democratic process’ must take its course.

“Some democracy: Hizbullah, backed by Syria and Iran, has seized power the old-fashioned way: by intimidating their opponents, killing their most obstinate political and press rivals (Rafik Hariri’s assassination was just the most prominent in a years-long string of murders) and buying allies’ loyalty with fat business opportunities. (One example: The current prime minister, Najib Mikati, has made his fortune building a telecommunications network in Syria, where having connections to the Assads is the only way to get a contract.)

“Watching their anti-Syrian allies being killed one by one, powerful Lebanese politicians like the Druze leader Walid Jumblatt and Christian strongman Michel Aoun abandoned the Cedar Revolution front and turned into Assad’s most loyal friends.

“Allying with Hizbullah, which managed to kill the first Hariri, these non-Shiite leaders then pushed his son out of power, strengthening the Iran-led coalition. Now they don’t want the tribunal indictments to spoil the fun. As Jumblatt said yesterday, ‘justice shouldn’t come at the expense of stability.’

“So which Obama will emerge on Lebanon (and eventually on Syria) – the great fan of global institutions and international justice, or the ‘realist’ who believes in stability over all?

“So far, it’s neither. (Even as) the adviser he trusts most in the region – Turkey’s Prime Minister Recep Tayyip Erdogan – has soured on Assad and his Lebanese allies, the president is so far opting to stay ‘above the fray.’

“Obama is missing the opportunity to use the Hariri indictments to lead against the Iran-led axis. Too bad for Lebanon. Too bad for Syria’s rebels. Too bad for America.”

I’d add two things to Avni’s opinion piece. I proved long ago that George W. Bush was an utter failure when it came to the opportunities created in those heady days of the Cedar Revolution. And the real loser in this whole discussion, aside from the Lebanese and Syrian people, is going to be Israel, which faces a horrific war with Hizbullah at a moment’s notice.

[On Friday, Israel blocked the arrival of a large number of Palestinians who were attempting to board European flights bound for Tel Aviv, where they were then supposedly going to try to hook up with Palestinians for a “peaceful” demonstration. This is a developing story… Palestinians are instead protesting as a result.]

Pakistan: Ethnic fighting in Karachi took at least 90 lives in the past five days, Karachi being Pakistan’s commercial hub. Picture something like this happening in New York and what the reaction would be. It’s all about infighting between two rival political parties and their armed thugs. Karachi has become divided along ethnic lines and is a safe haven for senior members of the Taliban. 

Separately, U.S. Admiral Mike Mullen directly fingered the Pakistani government in the killing of a leading journalist, Saleem Shahzad, which the government then denounced as being “extremely irresponsible.”

But it’s clear the ISI, Pakistan’s intelligence arm, did order the killing, at least according to the evidence the U.S. has seen, and Adm. Mullen’s remarks put Washington on the record. Shahzad had emailed an account of a meeting with the ISI where he said they had put pressure on him to reveal his sources and made what he construed as a threat.

Mullen told reporters, “I have not seen anything to disabuse the report that the government knew about this.”

So the White House has good reason to be concerned about the direction of the Pakistani government. My own concern, voiced long ago, was of a decapitating strike and recent Taliban attacks on Pakistani military bases show that this can be accomplished with a mere handful of insiders.

And if you need further evidence of why there should be growing concerns here, Shaun Gregory, of the University of Bradford in the United Kingdom, noted Pakistan’s nuclear weapons buildup and the ability to secure it. Gregory cited what I’ve been writing about, how the extremists who launched attacks on the naval installation in Karachi in May, or the central army installation in Rawalpindi in 2009, possessed army outfits and fake ID cards as they passed through several security checkpoints. “They even knew where surveillance cameras were.”

Gregory’s point being the attacks could be a dry-run for an attack on a nuclear arms facility. “I think we are looking at the possibility of a very serious breach of Pakistan’s nuclear security before too long.”

David Albright, one of the preeminent experts in the nuclear arms field, said, “Particularly the most recent attack [Karachi] is really chilling. And you have to worry that nuclear sites could be targeted, and the attackers could muster the resources to do it.”

The Pakistani government, though, is concerned the U.S. may first attempt to secure the weapons, and it’s clear our Special Forces are practicing for such a mission. [Global Security Newswire]

Iraq: On Thursday, two American soldiers were killed by a roadside bomb that exploded near a checkpoint at a large U.S. base in Baghdad (Camp Victory), even though the checkpoint is constantly under surveillance, which is more than a bit disturbing as American casualties continue to spike here after what had been a long period of relative calm.

As a follow-up to my remarks of last week, U.S. officials have been pleased with Iraqi efforts to crack down on the flow of weapons to Iranian-backed Shiite militias, but Adm. Mike Mullen said in a meeting with Pentagon reporters on Thursday that “Iran is very directly supporting extremist Shia groups, which are killing our troops,” adding Tehran’s top leadership knows of this, though he stopped short of saying they were encouraging it.

As to keeping a number of American troops in Iraq beyond the December deadline for total withdrawal, many in Iraq want some to stay, including Iraq’s top general, but it’s up to the divided political leadership to give the go-ahead and the Iraqi parliament probably wouldn’t do so until October, which gives the U.S. virtually zero time to plan for it. Iraqi Prime Minister Maliki, for example, is under intense pressure from Shia militant leader Moqtada al-Sadr to not allow any troops to stay beyond December or, as Sadr himself has put it, he promises a renewal of the campaign against Americans.

Iran: Speaking of this sponsor of terror, there are growing signs that Iran is taking advantage of attention in the region being focused elsewhere as it makes advances on its nuclear weapons capability. Nonproliferation specialist Mark Fitzpatrick noted, “It needs fissile material, weaponization expertise and a delivery vehicle. On each of these, it has been making progress.” Military expert Paul Beaver added: “(Tehran appears intent on obtaining a) nuclear-capable weapons delivery system and then to be able to use that in its diplomatic and political posturing.” [But Beaver believes they are still years from gaining such a capability.] Others add that Russia and China have been supporting key aspects of Iran’s initiatives, which should hardly come as a surprise. [Global Security Newswire]

Afghanistan: It wasn’t a good week for British Prime Minister Cameron. Aside from the phone hacking scandal, he went to Afghanistan to show the British people how their troops there were helping to secure the sector of the country they are largely responsible for and as he was on the ground, a British soldier went missing and was found dead 17 hours later, cutting short Cameron’s visit (only to get home and face the NOTW mess).

Also on the ground, U.S. Senators John McCain (R-Ariz.), Joe Lieberman (I-Conn.) and Lindsey Graham (R-S.C.) called on the White House not to keep its deadline of withdrawing 33,000 troops by September 2012, calling it an “unnecessary risk” and one that undermines the prospects for success during next summer’s fighting season. The senators are calling for the withdrawal to begin just a month or two after because the fighting typically winds down in November.

Yemen: Good lord…did you see the video of President Ali Saleh, the first pictures of him since the assassination attempt on his life June 3? Appearing in Saudi Arabia, where he has been recovering, Saleh looked like a 1930s sci-fi creature. His face was totally burned, blackened, and his hands covered with bandages. Saleh told the Yemeni people he had undergone “more than eight successful operations” and called for dialogue in his split nation. Saleh, who no one wants to return to power in Yemen, didn’t say when he would attempt a comeback and in the meantime his vice president continues to exercise “control,” loosely defined.

Morocco: There was some good news in the Arab World as over 70% of the citizenry here went to the polls to vote on constitutional changes to the country’s 4-century-old monarchy that grants the judiciary more independence as well as official status to the ethnic Berber population. In the end 98% approved, even though King Mohammed VI retains power over the security forces and religious institutions. At least it was a significant start and the changes were supported by the United States, the European Union and the United Nations.

China: The Obama administration is under increasing pressure to sell Taiwan new F-16 fighter jets, or, in a separate proposal, upgrade 145 older models already owned by the Taiwanese air force. Of course Beijing is adamant this not happen and Taipei has long been resigned to the possibility the U.S. wouldn’t honor its previous agreement. Under the 1979 Taiwan Relations Act, the U.S. is obligated to provide weapons for Taiwan’s defense.

North Korea: A.Q. Khan, the founder of Pakistan’s nuclear bomb program, asserted the government of Pyongyang bribed top military officials in Islamabad to obtain access to sensitive nuclear technology in the late 1990s and Khan provided the documentation to back up his claims that he personally transferred over $3 million in payments to senior Pakistani officers. Pakistani officials call Khan’s documentation ‘fake,’ as reported by R. Jeffrey Smith of the Washington Post.

Russia: A travel ban was imposed on Boris Nemtsov, the former Russian parliament member and critic of Vladimir Putin. Recall just two weeks ago I wrote of how the Justice Ministry refused to register an opposition party of which Nemtsov was one of the three key members.

Now he can’t travel outside the country? To put it mildly, what the hell is going on here? Not that anyone should be surprised. After all, the Kremlin gave its blessing to Mikhail Prokhorov’s pro-business, pro-Kremlin party just a few days after denying Nemtsov’s petition. As the London Times editorialized:

“The clear message is that Mr. Putin will brook no challenge to his power and no criticism of his increasingly tawdry record.”

Nemtsov says the travel ban is the first imposed on a politician since the fall of the Soviet Union and it’s for a trumped up case; not publishing enough of an apology to Putin and a billionaire gas trader in a defamation suit involving a pamphlet Nemtsov printed.

“As with so much in Russia, the conflict between fine words and shabby deeds goes back to the constant conflict between a State based on high-sounding constitutional assassination and the fawning determination of senior officials to do the tsar’s bidding that leads to transparent attempts to manipulate regulations to achieve political aims. It was thus in Soviet times; it has changed little in post-Soviet Russia.

“The suppression of political dissent is also a clear sign of nervousness in the ruling tandem. Both Mr. Putin and President Medvedev are worried by the growing influence of Russian bloggers and internet users, who are mobilizing the rising anger at corruption and the repression of the media. And until Mr. Putin and his protégé come to an arrangement on who will stand for election as president in March, Russia’s politics have been put on hold. Everything is now seen through the prism of a presumed Putin-Medvedev rivalry, in which most Russians now believe Mr. Putin still has the upper hand.

“The Kremlin yesterday denounced European criticism of the ban on Mr. Nemtsov as interference in Russia’s laws. It is not. It is the valid criticism of a country that, as a member of the Council of Europe, nominally subscribes to the norms and standards of political pluralism. There is, clearly, a way to go before the Kremlin fully understands that.”

Separately, the Russian Central Bank has bailed out the country’s fifth-largest financial institution, Bank of Moscow, to the tune of $14 billion owing to the discovery that almost a third of the bank’s assets are “problematic.” It seems much of the questionable activity is tied to the actions of recently ousted president Andrei Borodin and his relationships with former Moscow mayor Yuri Luzhkov and real estate projects linked to Luzhkov’s wife, Yelena Baturina, Russia’s richest woman (recall how Moscovites hated Yelena and her screw the little people lifestyle).

Borodin, who ran the bank for 15 years, is said to have fled to London rather than face arrest in Russia. Said one investigator of the Bank of Moscow, which serves 100,000 corporate clients and 9 million private customers, “One half is a normal retail bank. The other is Borodin’s bank.”

This could be a sleeper issue outside Russia as more details become available.

Thailand: Yingluck Shinawatra, 44, a businesswoman with zero political experience, won a decisive victory to become Thailand’s next political leader as her party secured a solid majority in Parliament. Yingluck is the sister of Thaksin Shinawatra, who was ousted in a military coup five years ago. She has proposed an amnesty for convicted politicians, which would clear the way for his return despite a two-year prison sentence imposed in absentia for corruption.

But, the armed forces could just launch another coup, though senior officers are dismissing such a prospect. That said, the conflict between the “Red Shirts,” supporters of Thaksin, and the “Yellow Shirts,” monarchists, could reignite.

Venezuela: Out of nowhere, President Hugo Chavez suddenly returned to Caracas after cancer surgery in Cuba. It had been assumed he would remain in Havana for months of treatment, but after landing told the Venezuelan people, “This is the beginning of the return,” while admitting his treatment from the as yet still undisclosed form of cancer is far from over. [Colon cancer is suspected.] 

Cuba depends on Venezuela’s largesse and some surmise it was Fidel Castro who told Chavez to get back home in order to ensure Cuba got its aid, such as 100,000 barrels a day of cheap oil. After all, it seems Castro was the one who diagnosed his good friend Chavez as well.

France: The country’s Socialist Party has held up the formal filing date for a primary in order to accommodate Dominique Strauss-Kahn should he decide to attempt a political comeback and make himself available for France’s presidential election next spring. But prosecutors haven’t dismissed the case against him in New York just yet, and it’s still clear DSK is a sex fiend and morally reprehensible. Plus the attitude of French women has changed since DSK was first charged as others then came forward to describe their encounters with the man. There is no way he could regain the majority of their support.

The thing is, the whole case certainly doesn’t make President Nicolas Sarkozy anymore popular, but I’ve seen zero on the potential impact on far-right candidate Marine Le Pen’s candidacy. It just has to benefit her. [Go Marine!....he typed ever so quietly.]

South Korea: I’m sure the nation is proud to have won the bid to host the 2018 Winter Olympics in Pyeongchang, but I’m guessing they’ll have second thoughts after the coming disaster in Sochi in 2014.

Random Musings

--Minnesota’s government shutdown enters its second week as 22,000 state workers have been laid off over a budget impasse on how to erase a $5 billion deficit. Democratic Gov. Mark Dayton wants to raise income taxes on the state’s wealthiest residents while Republican lawmakers oppose such a move. Just one economic consequence of the shutdown; state parks are losing $1 million a week in camping fees, park passes, concessions and gift shop sales.

--New Jersey Republican Gov. Chris Christie slashed $900 million from a budget he blasted as “unconstitutional.” Given that he has a line-item veto, he was able to reduce the $30.6 billion budget handed him in such a fashion. Christie said the Democratic proposal deceived “the citizens of the state with a budget that makes them look like Santa Claus in an election year. How shocking, politicians deceiving and pandering to voters to get re-elected.”

Christie refused to tax millionaires more to fund Democrats’ pet projects, including more funding for schools.

O.K.   This is politics. But here’s what frustrates me about Christie, and the thing that people who don’t live in this state as I do don’t always get when they talk of him as president for 2012.

Just days after a signing a sweeping overhaul of pensions and health benefits for state employees, accomplished with the help of key Democrats, including Senate President Stephen Sweeney, Christie abandoned all bipartisanship and Sweeney went ballistic, telling the Sunday Star-Ledger (the key newspaper in the state):

“This is all about him being a bully and a punk. I wanted to punch him in his head.”

“Sweeney had just risked his political neck to support the governor’s pension and health reform, and his reward was a slap across the face….Sweeney couldn’t even get an audience with the governor to discuss (the budget).

“ ‘You know who he reminds me of?’ Sweeney says. ‘Mr. Potter from It’s a Wonderful Life, the mean old bastard who screws everybody.’

“This is not your regular budget dispute. This is personal. And it could have a seismic impact on state politics.

“Because the working alliance between these two men is the central political fact in New Jersey these days. If that changes, this brief and productive era of bipartisan cooperation is over.

“ ‘Last night I couldn’t calm down,’ Sweeney said. ‘To prove a point to me – a guy who has stood side by side with him, and made tough decisions – for him to punish people to prove his political point? He’s just a rotten bastard to do what he did.’”

Sweeney claims Christie promised to call him the Wednesday before, at one point “within five minutes.” Then no call. No negotiations.

Before I give you my conclusion, here is the other side.

“Politics truly ain’t beanbag in New Jersey, so nobody should be surprised – or even much offended – by state Senate President Stephen Sweeney’s recent excoriation of Gov. Chris Christie.

“Sweeney apparently felt Christie fudged a little on a recent budget deal – hence the outburst.

“The governor, who’s not one to mince words, held his tongue this time: ‘The language used was inappropriate and disrespectful to this office,’ said Christie, ‘but [I] stand ready to work with Sen. Sweeney.’….

“Where were all the liberals who cough hairballs whenever a Tea Party type looks cross-eyed at one of their heroes?

“A Democrat who says he wants to ‘punch [a Republican] in the head’ gets a pass from the civility-in-politics types.

“We suspect that both Christie and Sweeney are chuckling over their dust-up, or presently will be.

“And we’ll take productive candor over phony ‘civility’ any day.

Sorry, New York Post. Gov. Christie made a big mistake. I have been pointing out Christie’s sliding poll #s, and while he is hanging in there relative to other governor’s numbers (another fact I have put forward in this space), his behavior in the end will cost him (and deprive the rest of us of an otherwise talented leader).

Christie can be a total a-hole. In this media-hyped era, some find that attractive. But not enough to win elections! My two cents has been that the governor needs to concentrate on winning re-election, while branching out nationally as he has been, and then he’d be positioned for 2016 (against Gov. Andrew Cuomo).

But, again, while many of you from out of state don’t understand my concern because you just see what you find attractive about Christie from a national viewpoint, trust me. Christie’s behavior is a potentially crippling issue.

[The Democratic Senate said it would attempt to override Christie’s vetoes next week but it doesn’t have the votes to be successful, needing three Republicans to get the 2/3s necessary.]

--The government has told airlines to be aware of a new threat, surgically implanted bombs inside humans to evade airport security. For some overseas flights, security asks if you packed your bag yourself (“No…should I have?”), so now I guess these same folks will ask, “Did someone perform surgery on you for the purpose of planting a bomb?” (“Oh, so that was what Rahman was doing?”)

No one should be surprised, seeing as this is not a new idea, but what I thought was interesting was how no one stated the obvious. Assuming this is a real threat (but ignoring how hard it would be to pull off), this cries out for real ‘profiling,’ pure and simple. And that’s good.

--In what is a growing nationwide scandal, Georgia’s governor announced a probe into dozens of Atlanta’s public schools that were found to have school administrators and teachers who were involved in an extensive cheating scandal, whereby standardized tests were doctored to put the schools’ academic progress in the best light. Atlanta school officials emphasized test results “to the exclusion of integrity and ethics.”

One third-grade teacher told investigators that “APS (Atlanta Public Schools) is run like the Mob.”

But Atlanta isn’t alone as test result investigations are ongoing in school districts such as Baltimore, District of Columbia, Dallas and districts in Florida and Ohio.

These days at least ten states require that student scores be the main criterion in teacher evaluations. “A teacher may earn a bonus of as much as $25,000 in Washington, D.C., if his or her students’ scores climb.” [Greg Toppo / USA TODAY]

Georgia state law dictates that teachers who alter tests, which are public documents, could face as much as ten years in prison. Screw ‘em.

--And then there is the case of the three women from the Los Angeles area who used their PTA connections to recruit moms for a $14 million Ponzi scheme, where the suspects told fellow PTA members that they had the exclusive right to sell products from a well-known local dairy to Disneyland, Disney hotels and some smaller retailers. The suspects then asked for capital to expand the business, promising 100% returns, but, if it didn’t work out, investors would at worst get their money back. Investments had to be in cash. There were actually two separate rings and in one, two of the three reeled in $14 million, of which $10 million was repaid. Investigators believe the two spent about $2.5 million on lavish vacations, new cars and gambling trips. The third woman already pleaded guilty and was sentenced to almost ten years. [Christina Hoag / AP]

--Former New York Gov. Eliot Spitzer was pulled from his CNN program after just nine months. Not a real likeable guy.

--And Casey Anthony, to say the least, isn’t likeable either. I did not follow her trial on charges she killed her daughter, Caylee, unless it was forced on me while watching network news, but it was remarkable she is getting away with murder. The prosecution was severely hampered by the fact it was all circumstantial evidence; no DNA, no actual cause of death.

But I’ll leave it up to the New York Post’s Andrea Peyser to comment further.

“O.J. Simpson is alive and free and living in the body of a 25-year-old sociopath named Casey Anthony.

“Yesterday, as the world wept, 12 sun-scorched jurors in this burg a stone’s throw from Disney World believed a goofy fantasy. They decided that Casey was too young, too pretty, too innocent, if a tad shallow and self-absorbed, to have murdered her adorable 2-year-old daughter, Caylee, on her way to competing in a ‘hot body’ contest.

“So Casey skips free, with just a three-year interruption in her drinking and partying and fooling around. She was convicted of lying to police – one would assume, about killing her daughter. But wait! She didn’t kill the kid. The jury has spoken with a forked tongue.

“Tension was as thick as the Florida pea-soup air after the jury reached a decision in this nearly six-week trial, deliberating less than 11 hours. That’s barely long enough to recover from a chemical peel. Casey had stretch marks that hung around longer.

“Normally, a quick verdict signals guilt (Martha Stewart). But it soon became clear that this panel had made up its mind long ago. Why deliberate at all?

“Casey began to cry when ‘not guilty’ was read, over and over and over again. But then, she did something we hadn’t seen before. She cracked a small, sphinx-like smile. A little laugh.

“Her daughter is dead, found decomposing in a Florida swamp. She didn’t report her kid missing for 31 days. She never shed a tear.

“What’s more, her lawyers made the fantasy claim that Casey was molested by her father and brother since age 8 – a story so desperate and without foundation that even the judge told jurors not to consider it.

“The truth is that some mothers don’t love their kids. Due to selfishness or hominess or narcissism, the child we find so adorable is a speed bump on her way to getting a new tattoo.

“As surely as Casey was a bad mom, another child will be killed.

--Owing to a big pick-up in screening among Americans ages 50 to 75, colon cancer deaths are down considerably.

--I have written a lot on the airborne dust conditions our soldiers have been facing in Iraq and Afghanistan, and how the risks, according to independent experts, are being downplayed by the Pentagon, and then on Tuesday, Kelly Kennedy of USA TODAY reported:

“The Pentagon is falsely claiming its research shows that airborne dust in Iraq and Afghanistan poses no health risks to U.S. troops, say three scientists whose review of that research found it riddled with mistakes.

“Military officials then falsely said the review of their research backed their conclusion that the dust in the two war zones is no different from that in California, scientist Philip Hopke, Mark Utell and Anthony Wexler say.”

This is a no-brainer, in your layman editor’s eyes. It’s like the mislabeling of global warming, which I’ve long argued should be called global pollution. Our soldiers are continually sucking in dust, including that kicked up by heavy truck tires. Of course it’s bad. [As was this week’s Phoenix dust storm. You know what I thought of when I saw that? The spread of hantavirus, which actually killed a man on Long Island about two weeks ago.]

--Historian Victor Davis Hanson, in a New York Post op-ed, on what makes America great, despite some of the pessimism of today.

“(There) has never been any nation even remotely similar to America. Here’s why. Most revolutions seek to destroy the existing class order and use all-powerful government to mandate an equality of result rather than of opportunity – in the manner of the French Revolution’s slogan of ‘liberty, equality and fraternity’ or the Russian Revolution’s ‘peace, land and bread.’

“In contrast, our revolutionaries shouted ‘Don’t tread on me!’ and ‘Give me liberty or give me death!’ The Founders were convinced that constitutionally protected freedom would allow the individual to create wealth apart from government. Such enlightened self-interest would then enrich society at large far more effectively than could an all-powerful state.

“Such constitutionally protected private property, free enterprise and market capitalism explain why America – with only about 4.5 percent of the world’s population – even today, in an intensely competitive global economy, still produces a quarter of the world’s goods and services. To make America unexceptional, inept government overseers, as elsewhere in the world, would determine the conditions – where, when, how and by whom – under which businesses operate.

“Individual freedom in America manifests itself in ways most of the world can hardly fathom – whether our unique tradition of the right to gun ownership, the near impossibility of proving libel in U.S. courts, or the singular custom of multimillion-dollar philanthropic institutions, foundations and private endowments. Herding, silencing or enfeebling Americans is almost impossible – and will remain so as long as well-protected citizens can say what they want and do as they please with their hard-earned money….

“The Founders’ notion of the rule of law, coupled with freedom of the individual, explain why America runs on merit, not tribal affinities or birth. Most elsewhere, being a first cousin of a government official, or having a prestigious name, ensures special treatment from the state. Yet in America, nepotism is never assured. End that notion of American merit and replace it with racial tribalism, cronyism or aristocratic privilege, and America itself would vanish as we know it.

“There is no rational reason why a small Republican experiment in 1776 grew to dominate global culture and society – except that America is the only nation, past or present, that put trust in the individual rather than in the state and its elite bureaucracy. Such confidence in the average free citizen made America absolutely exceptional – something we should remember more than ever on this July 4.”

--Finally, we note the passing of a great American…former First Lady Betty Ford. RIP.

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

We also pray for the safe return of the crew of Atlantis, the last space shuttle mission.

Gold closed at $1543…biggest weekly gain since 2009
Oil, $96.45…had been $99.50 before Friday’s decline

Returns for the week 7/4-7/8

Dow Jones +0.6% [12657]
S&P 500 +0.3% [1343]
S&P MidCap +1.0%
Russell 2000 +1.5%
Nasdaq +1.5% [2859]

Returns for the period 1/1/11-7/8/11

Dow Jones +9.3%
S&P 500 +6.8%
S&P MidCap +10.8%
Russell 2000 +8.8%
Nasdaq +7.8%

Bulls  40.9
Bears 24.7 [Source: Chartcraft / Investors Intelligence]

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