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07/28/2012

For the week 7/23-7/27

[Posted 12:00 AM ET…from Ocean City, MD]

It’s Still All About Europe

Monday it looked as if the eurozone was on the verge of collapse as the yield on Spain’s 10-year bond hit 7.70%, while more of Spain’s regions stepped forward to say they needed help, or as in the case of Catalonia, it didn’t specifically ask for help even though it’s insolvent.

It was also clear on Monday that the troika – the International Monetary Fund, the European Central Bank and European Commission – wouldn’t be granting Greece any further bailout assistance from the 240 billion euro pool approved in bailouts I and II, let alone Greece’s coming request for a third bailout of about 50 billion. Greek Prime Minister Samaras conceded GDP in his country would crater 7% this year, or over 20% in a five-year period that is of depression levels.

The U.K. announced early in the week that its second-quarter GDP was down 0.7%, worse than expected, and the loss of its AAA credit rating was imminent; though we’ve learned as in the case of the U.S. the loss of a AAA rating doesn’t necessarily impact interest rates if the country is still seen as a safe haven vs. all the other garbage nations out there.

But I want to take you back to April, specifically something I wrote on April 28 in this space… citing Spanish Treasury Minister Cristobal Montoro.

“ ‘We are in an extremely delicate moment as a country, an extremely fragile moment as a country…This is the most austere budget since democracy, and it is aimed at being the most realistic that Spain needs to overcome this crisis situation.’

“But when you talk about realism, or lack thereof, how about our new ‘Idiot of the Year’ candidate; Banco Santander CEO Alfredo Saenz, who said, in referring to Spain’s housing crisis of historic proportions, ‘Mortgages get paid in good times and in bad. Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid.’

“That, my friends, is an idiot.

“You see, Mr. Saenz is pointing to government data that says the default ratio in Spain was just 2.6 percent in March, down from 2.7 percent at the end of 2011.

“ ‘The data is good so let’s not start debating the quality of the information,’ said Saenz. ‘Mortgage arrears are not a problem and are not going to be a problem.’

“But a JPMorgan report, published April 26, said the figures just flat out aren’t real. They can’t be. They drastically understate the issue.

“Consider that the delinquency rate in the U.S. is 7.6 percent with unemployment at 8.2 percent. In Ireland, as reported by Bloomberg’s Charles Penty and Esteban Duarte, joblessness is 14.3 percent and the delinquency rate is 9.2 percent.

“So this week Spain reported its unemployment rate hit 24.4 percent. In other words, these delinquency figures being bandied about can’t possibly be right….

“Spain has been living a lie for years now. The central government is mostly transparent, from what we know. But I’ve been telling you for years the problem is in the regions, where corruption was rampant between the developers (none of whom you can find today), the local governments and the banks….

“So here’s my bottom line on Europe. The banks are facing a capital squeeze, which is squeezing lending at the worst possible time. Governments are seeking the right balance between growth and cutting deficits, but this requires political will and little can be found.”

That was April 28. This week the same Banco Santander said first-half profits were halved as its write-offs for Spanish property loans were 2.8 billion euro. “It has written off 6bn euros of the 8.8bn euros that it has been told to write off this year.” [BBC News]

Santander now claims it has achieved 70% of the necessary adjustment to its books.

BBC: “Santander’s home market is one of the worst-hit in Europe, with a rising number of homeowners and businesses defaulting on debts.”

I’m ticked. I’m ticked at the world’s leaders, be they in government or head of some of the largest financial institutions on the planet.

Stop playing us as fools…as chumps. Mr. Alfredo Saenz…you, sir, are scum. You are a liar. 

This week Spain announced its unemployment rate rose to 24.6%, officially, with the youth jobless rate still above 50%, ditto Greece. Spain needs a massive bailout of its government, not just of its banks, witness the reaction in the bond markets on Monday and Tuesday.

But on Thursday, European Central Bank President Mario Draghi came to the rescue and the world’s markets soared. You see, sports fans, the world is peopled with idiots, Wall Street traders being prominent among them.

Mr. Draghi, in a speech at an investment conference in London, said: “To the extent that the size of these sovereign premia (surging yields) hamper the functioning of the monetary policy transmission channel, they come within our mandate. Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” adding, “believe me, it will be enough.”

Boom…stocks soared. Yields on Spanish and Italian debt fell, though they still finished the week at worrisome levels.

You see, the markets now believe that the ECB will re-enter the bond-buying mode it had abandoned in March, piling on more debt upon debt. One ECB Governing Council member made news because he said there are arguments in favor of giving Europe’s coming permanent bailout fund, the European Stability Mechanism (ESM), a banking license that would enable it to lever up and boost its firepower, too.

The purpose of such moves would be to create the firewall that has long been needed to break the backs of contagion. That’s fine. I’m one who has said for years the bailout vehicles were woefully short in their funding, a point that has long since been proved, especially the past few months.

But here’s the thing. Germany’s Bundesbank has been against the ECB buying more sovereign paper because the ECB’s balance sheet is already far bigger than the Fed’s; the German high court isn’t even weighing in on the ‘legality’ of the ESM until mid-September; Germany’s parliament, which has a say in such matters, would never approve placing German taxpayers at further risk than they already are; no one mentioned this week that just the prior one, Finland, also tired of bailing the southern tier out, is seriously considering walking out of the euro; and Greece needs 3 billion euro to meet a debt payment to the ECB due on Aug. 20 but the troika may not rule on giving Greece another installment of its bailout funding until September.

In other words, there are some very real issues that must be taken care of in August but for which the players, ever mindful of their vacations, seem to think they can put them off until later; even though market history shows that some of the worst financial crises of recent memory have hit in said month. And I’m not even raising the geopolitical situation in the Middle East which is awful and threatens to turn catastrophic.

But this coming week sees two meetings that will go a long way towards providing some answers to the issues facing both the U.S. and Europe. Ben Bernanke and his merry band of Fed governors meet to discuss U.S. monetary policy on July 31 and Aug. 1, while the ECB has a meeting on Aug. 2, at which point we should learn just how much cooperation Draghi is receiving from the likes of the Bundesbank and the Germans, let alone just what he plans on doing and on what timetable. So you can be sure the next WIR will be a stemwinder.

A few other items of interest…

The earnings picture has been awful, as forecast by moi, in terms of abysmal guidance, let alone misses galore on the top line (revenues) while corporations monkey with the bottom line (profits). You can’t hide the former; you can do all kinds of mischievous things with the latter (see G.E. under Jack Welch when they always magically ‘beat’ by a penny).

Virtually every large multi-national said Europe’s crisis was impacting their top and/or bottom line, as well as slower growth in China. Companies like 3M, Siemens, Shell, BASF, UPS, Ford, Apple, GlaxoSmithKline, Alcatel-Lucent, Ericsson, Unilever and McDonald’s.

UPS CEO Scott Davis said, “Economies around the world are showing signs of weakening and our customers are increasingly nervous….We think current second-half economic forecasts for the U.S. are too high and that GDP growth will likely be closer to 1 percent….As we get closer to the fiscal cliff, there is more uncertainty out there than ever.”

Swedish truck maker Scania AB’s CEO said, “I don’t see the light at the end of the tunnel,” after reporting a 40% decline in profits.

Caterpillar exec Mike DeWalt, contrary to the ridiculous bullishness of the company’s CEO on CNBC, said “People are taking a bit of a wait-and-see attitude as to how 2013 will shape up, and I think orders are reflecting that.”

At best the watchword is “caution.” At worst it’s “we’re going down, captain.”

Meanwhile, Moody’s said it was changing its outlook on Germany to “negative,” which makes further bailouts for the likes of Greece politically untenable, ditto for the Netherlands, which was also lowered to “negative” (along with Luxembourg). Again, not that this will impact those nations’ interest rates as they are the safe havens, after all, but it turns the eurozone into more of a north/south divide than ever. “We have our own internal problems to take of, Rafael.”

Moody’s, by the way, cited German bank exposures to Spain and Italy as a major cause of the outlook downgrade.

“The continued deterioration in Spain and Italy’s macroeconomic and funding environment has increased the risk that they will require some kind of external support,” said Moody’s. An exit by Greece “would pose a material threat to the euro” and that even in the event of a strong policy response from the eurozone, it would “set off a chain of financial-sector shocks,” it added. [Financial Times]

A reading on eurozone manufacturing for the month of July, by the way, came in at 44.1 vs. 45.1 for June. Pathetic. Germany’s PMI was 43.3, far worse than expected.

A composite PMI covering both manufacturing and services for the eurozone was 46.4. [47.3 in Germany] None of this is remotely good. It’s called recession.

And can you believe there is still money being held in Greek banks? Deposits fell another 5% in June to their lowest level in six years.

Finally, a few words on the U.S. I do have to interject at this point to note that my working conditions here in Ocean City, Md., are abysmal so I’m asking for a mulligan.   With the coming FOMC and ECB meetings I’ll be better able to tie it all together next time anyway. Let’s just say I checked into my hotel room here on the boardwalk on Thursday and realized immediately there was no table or chair. Upon complaining I was told my kind of room had no table and chair. After I went ballistic, saying I had been to (lousy) hotels in the likes of Paraguay and at least had a table (or a work desk) and a chair, I was promised a table would be moved from one room to mine. But then the manager (off site) was called for approval and he said no. This all took over three hours. I was back at square one…which is where I am now as I type this on Friday. No table, but I scrounged up a plastic chair.   

Anyway, the first flash estimate on U.S. second-quarter GDP was released and it came in at 1.5% (first-quarter GDP was raised to 2.0% from 1.9%), which sucks, but it was better than the 1.4% forecast so the markets decided that this, coupled with Mario Draghi’s comments on Thursday, warranted an extension of the rally in stocks at week’s end. No one ever said markets were rational, least of all me, and, as I wondered weeks ago before the current earnings season got underway, we would learn how much of the bad news on the corporate front, i.e., lack of any positive guidance, was already baked in.

The data on housing this week wasn’t that good, with new home sales coming in far less than expected. Here the problem is no inventory. In fact the number of newly constructed homes that came onto the market in June was 144,000 vs. a peak of 572,000 reached in 2006.

And June durable goods, big-ticket items, were down more than expected, 1.4%, when you strip out transportation and defense spending, which is a fair measure of true business spending.

Retail spending, manufacturing, and consumer confidence are all down in America. It’s an environment conducive to 1% to 2% growth for the rest of the year, at best, with a giant question mark for 2013 depending on what Congress and perhaps a new president do post-November.

One last item which is kind of funny. Not laugh out loud, ha ha, funny, mind you, but funny in a ‘why do we even bother’ way.

From Robert Samuelson / Washington Post

“Call it the $12 trillion misunderstanding.

“It ranks among the biggest forecasting errors ever. Back in 2001, the Congressional Budget Office projected federal budget surpluses of $5.6 trillion for 2002-2011. Instead we got $6.1 trillion of deficits – a swing of $11.7 trillion. Naturally, political recriminations followed. Who or what caused the change? President Bush’s tax cuts for ‘the rich’? The Iraq and Afghanistan wars? The Medicare drug benefit? The financial crisis? President Obama’s ‘stimulus’?

“Doubtlessly, the question will emerge as a campaign issue. But any intellectually honest answer – perhaps futile in today’s politically charged climate – will admit that no single cause explains the change. We now have evaluations from the CBO and two nonpartisan groups: the Committee for a Responsible Federal Budget (CRFB) and the Pew Fiscal Analysis Initiative. They all point in the same direction.

“For starters, a weak economy was the largest cause. The CBO attributes $3.2 trillion of the $11.7 trillion shift (about 27 percent) to ‘economic and technical changes.’ ‘We overestimated how good the economy would be, even before the Great Recession,’ says Marc Goldwein of the CRFB.

“Consider. In 2001, the CBO projected that the economy would grow about 3 percent a year over the 2002-2011 period. Actual growth from 2002 to 2007 averaged only 2.6 percent. From 2008-2011 – the Great Recession started in late 2007 – growth averaged only about 0.2 percent annually. Slow economic growth reduces tax revenues and increases spending for jobless benefits and other assistance.”

Mr. Samuelson goes on at length, but you get the picture. The next time someone throws some assumptions at you on the economic front, the first question you should ask is what growth rate are you using? If, as PIMCO talks about, the future growth potential for the U.S. is no more than 1.5-2.0 percent, you can see how easily projections bandied about in Congress are worth no more than the paper they’re written on.

Which is why I prefer the back of a beer coaster. At least there is a pleasurable activity associated with the garbage.

Street Bytes

--After a volatile week, the Dow Jones finished up 2.0% to 13075, its highest close since May 7, while the S&P 500 in gaining 1.7% ended at its highest mark since May 3. Nasdaq added 1.1%. The Dow has finished down eight straight Mondays, however, so we’ll see what happens this time as the Fed and ECB meetings follow later in the week.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.24% 10-yr. 1.55% 30-yr. 2.63%

After hitting a record low of 1.39% on the 10-year, yields rose at week’s end on the Draghi statements and rumors the Bundesbank was changing its tune, thus taking away some of the U.S. “safe haven” play.

--HSBC’s flash estimate on manufacturing in China, the PMI, rose to 49.5 in July, the best since February. Encouraging. Industrial production in the month of June rose 9.5%.

The IMF warned that the eurozone debt crisis poses a “key risk” to China’s growth, though the IMF said China had ample room and fiscal tools “to respond forcefully” to any adverse developments such as in the property market, which some say has experienced a sharper-than-expected decline (I wouldn’t…I’d say it’s as expected).

“Assuming no policy response in China, growth could decline by as much as four percentage points in response to a 1 ¾ percentage point slowdown in global growth,” added the IMF.

Nonetheless, the fund still expects China’s economy to grow 8% this year.

--South Korea reported its slowest growth rate since 2009, 2.4% annualized for the second quarter.

--Japan reported its biggest first-half trade deficit on record, owing to surging imports of fossil fuels with the near total shutdown of its nuclear-power sector, post-Fukushima, and weakening exports to the likes of Europe and China. Nuclear power once supplied a third of Japan’s energy, but only two of the country’s 50 atomic reactors are online and the people have been protesting the reopening of them, let alone any future ones.

Japan also said retail sales fell 0.2% in June, a big disappointment, while consumer prices fell 0.2% as well...not good at all as the country is smack dab back into a deflationary environment.

--After a disastrous IPO in May at $38 a share, Facebook released its first earnings report as a public company on Thursday and it was yet another debacle. While the company hit earnings expectations of 12 cents a share (adjusted for all manner of crapola) and revenue of $1.18 billion, operating margins were down to 43% vs. 53% a year ago and revenue growth is decelerating.   The company said it was focusing heavily on mobile which Facebook admits is a daunting task. The stock promptly fell to $24 in after hours, off 37% from the IPO price in just two months, and even at $24, it is selling at a multiple of 50, heavily adjusted. [Facebook finished the week at $23.60.]

The Financial Times’ Lex column put it best.

“ ‘Our goal is to help every person stay connected’ writes Mark Zuckerberg yet again, this time at the top of Facebook’s first quarterly earnings release. No doubt the goal of those investors who own shares in the social networking site is to connect their fists with the end of the chief executive’s nose.”

[Meanwhile, Zynga, the social gaming company behind Farmville, reported a net loss of $108 million for the first half of the year, compared with a profit of $18 million for the first half of 2011. Zynga then slashed its full year earnings estimate to between 4 and 9 cents from 23 to 29 cents; a huge recalculation. Last December, shares in Zynga were floated at $10. Today they are around $3. Zynga accounts for about 15% of Facebook’s revenues…at least it used to. Zynga’s COO said, “Our users did not remain as engaged and did not come back as often.” If you ever hear I’m on Farmville, just shoot me.]

--Shares in Apple fell after the company missed Wall Street estimates for fiscal third-quarter profits and revenues. The company actually met its own earlier guidance, or slightly exceeded, but it fell short of Street expectations and thus was penalized. For the quarter Apple reported revenue of $35 billion vs. analyst estimates of around $37.2 billion, while earnings of $9.32 per share ($8.8 billion) were a dollar shy of the Street.

Apple sold 26 million iPhones and 17 million iPads, falling short on the former but beating on the latter. Many are simply waiting for the iPhone 5, due out this fall.

The company now has $117 billion in cash. [Actually, on Friday it spent about $350 million of it on a company called AuthenTec.]

--Apple rival Samsung Electronics recorded record profits of $5.9 billion as the world’s largest maker of mobile phones continues to rock and roll with its Galaxy smartphone, despite an ongoing legal battle with Apple over same in the U.S.

Globally, Samsung has 26% of the mobile market to Nokia’s 23% and Apple’s 7%.

--Amazon shares sloughed off another earnings report with the company pocketing a whopping penny for the quarter. The stock trades at a multiple of about 195 after closing the week at $232. Investors continue to focus on revenue growth, which is indeed strong, up 29% vs. 35% the previous two quarters, and even though the company said it might lose $350 million in the current quarter, brave folks keep looking to the future and what they believe will be super profitability as a result of Amazon’s still aggressive expansion plans.

--Shares in volatile Netflix cratered 16% after the company added 530,000 streaming customers vs. expectations of 600,000 (and 1.7 million the previous quarter).

--Cisco Systems is looking to lay off 1,300 workers. Last year the world’s largest maker of computer networking equipment shed 10,000. Cisco cited problems in Europe and a reluctance on the part of corporations to commit to large purchases. Sound familiar?

--McDonald’s missed earnings forecasts as profit fell from $1.41 billion a year ago to $1.35 billion. Revenue edged up only 0.2%, though ex-currency fluctuations was up 5%. Global same-store sales increased 3.7%, including 3.6% in the U.S. and 3.8% in Europe. CFO Peter Bensen said the company faces “headwinds on both the top and bottom lines.”

[The U.S., incidentally, is just 32% of total revenues these days. Europe is 40%.]

--The drought in the U.S. could cost at least $12 billion, making it the costliest since 1988 (which saw losses of $40 billion…$78 billion in 2012 dollars), though this year’s final damage will take months to fully assess. The Department of Agriculture projects that food prices will rise 3%-4% as a result, with beef rising as much as 5%. The price of corn and soyameal, two key ingredients in feed, set new records this week, with corn up about 55% since early June.

It doesn’t help that the heat throughout much of the farming community, combined with a mild winter, is leading to greater than normal infestations of grasshoppers and crickets, which can do a further number on crops.  Separately, Texas and Florida are seeing high levels of mosquitoes because of the unusually warm, yet wet, conditions there. Cases of West Nile Virus are beginning to pop up all over the States.

--79-year-old Sandy Weill, the architect of the bank supermarket with his merger of Travelers (which had acquired Salomon Brothers and Smith Barney) with Citicorp, now says the big banks should be broken up, a rather shocking statement made on CNBC the other morning. Specifically, Weill now advocates splitting consumer banking from investment banking.

“What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.”

Of course his comments come 13 years after he forced the repeal of Glass-Steagall, the law passed after the Great Depression that mandated a separation between commercial and investment banking. Weill’s various acquisitions in creating Citigroup championed the repeal.

Weill said “Our world hates bankers.” Very true. As for the about face, he said, “I think the world changes, and the world that we live in is different than the one that we lived in 10 years ago.”

Actually, as David Reilly of the Wall Street Journal noted, the world has already changed. The supermarkets trade at a substantial discount to the valuations accorded their far smaller peers, while bigger banks without investment banking and trading operations, namely U.S. Bancorp and Wells Fargo, also trade at premiums compared to the discounts accorded JPMorgan Chase, Citigroup and Bank of America.

--Shares of Alcatel-Lucent plunged further on awful earnings news, a loss of 254 million euro in the second-quarter. Sales for the telecom equipment maker fell 7% as European carriers cut spending and competition from rivals weighs on prices. Worrisomely, the company also burned through a ton of cash and as a result is slashing 5,000 jobs. There is talk of liquidity concerns. Not good for those who still call it home, like in Murray Hill, N.J., where I used to live and where our own Dr. Bortrum worked for decades.

--Ford Motor Co. continues to see strong profits in the U.S. and North America, about $2 billion, but losses in Europe and other parts of the world brought the overall profit down to about $1 billion as total revenue declined 6%. Ford’s operating loss in Europe was $404 million vs. a gain of $176 million in the same period a year earlier.

--Boeing, the world’s second-largest defense contractor, boosted full-year guidance despite looming Pentagon budget cuts owing to higher international defense and commercial jetliner sales. International was 37% of Boeing’s defense business (thank you tensions in the Persian Gulf), while deliveries of the 787 Dreamliner will accelerate.

--According to Aaron Elstein of Crain’s New York Business, the coming global settlement on the Libor scandal could see the banks shelling out a collective $35 billion, which, should it come to pass, would dwarf the $25 billion the banks coughed up as a result of the robo-signing debacle.

Which means one thing. Hel-looo law firms! [And some selected accounting firms as well.]

--This sucks…according to corporate travel management company Carson Wagonlit Travel, “Fuel surcharges…have increased twice as fast as fuel prices in the last year. What’s more, most airlines have not reduced fuel surcharges since 2009, despite drops in fuel prices over that time. Fuel charges can represent an increase of as much as 50% on ticket prices,” especially European flights. [Hugo Martin / Los Angeles Times]

According to a different survey, fifty airlines throughout the world collected $22.6 billion from bag fees and other extra passenger charges in 2011. [Hugo Martin]

--For the month of June, North Dakota had an unemployment rate of 2.9%, followed by Nebraska at 3.8%. Nevada still has the highest at 11.6%, unchanged from May. [California’s unemployment rate continues to tick down…now 10.7%. The state’s construction industry, however, is still off 400,000 jobs from the 2006 peak. Can you say housing bubble?]

--According to Zillow Inc., home values in the U.S. posted their first year-over-year increase since 2007 in the second quarter. Residential values have gained for four months in a row. But 24% of homes were still in negative equity, according to CoreLogic Inc.

--Former top editors of News Corp.’s now-closed News of the World tabloid, Rebekah Brooks and Andy Coulson, were among eight accused by British prosecutors of conspiring to hack the voice mail of 600 celebrities, sports stars, politicians and crime victims. The list of celebrities includes Paul McCartney and Brad Pitt.

--Only 3% of U.S. consumers see going to the movies as a “frequent source of entertainment.” TV is the top source, 45%, and the Internet is next at 34%, according to a survey by PR firm Edelman.

According to an analysis by Goldman Sachs, in 2002, the average moviegoer went to the theater eight times a year. Last year, it was less than six. Personally, I haven’t been to a movie since the last “Lord of the Rings” installment. 

--I feel sorry for Radio Shack. Granted, I don’t go into their stores much but I’ve always had a decent shopping experience there. It seems the 91-year-old company is in its death throes as it struggles under a humongous debt load. Its attempts to turn things around by selling smartphones are faltering. I bought mine there and need to upgrade it (as they keep calling me to do…it’s a Palm, after all), but the Shack faces stiff competition in this arena. The company was expected to report a small profit and instead lost $21 million. Sales of consumer electronics plunged 27%. Yikes.

--Same-sex marriages brought in $259 million of economic activity to New York City in the first year of the law allowing the practice, according to city officials. More than 200,000 guests have since traveled from outside of the city to attend same-sex wedding receptions, and more than 235,000 hotel room nights were booked at an average daily room rate of $275. [Crain’s New York Business]

Foreign Affairs

Syria: Who knows what the death toll is here these days (one estimate is over 19,000). The nation is in the throes of sectarian bloodletting, with the entire region increasingly destabilized due to the flood of refugees into Lebanon, Jordan, and Iraq, which in all three cases threaten renewed instability between Shiites and Sunnis, while in the case of Jordan, King Abdullah’s regime could be threatened. As for Israel, it sees its once peaceful border with Syria, the Golan Heights, in a new light, a dark one. Hizbullah, for example, could get hold of the Syrian regime’s chemical weapons and lob shells over the border, or obviously the border with Lebanon. Syrian security forces that once helped keep the peace in Golan are now desperately needed in Damascus and Aleppo. And on Friday, Iran said it was willing to share “its experience and capabilities with brother Syria.”

The Syrian government, in conceding for the first time it did indeed have an extensive supply of chemical weapons, said it would not use them against its own people, only “invaders,” but a senior Syrian military defector said President Bashar Assad’s forces could use them in retaliation for the killing of four top security officials.

General Mustafa Sheikh, citing rebel intelligence obtained in recent days, told Reuters in an interview in southern Turkey, “They are moving (the stockpile) from warehouses to new locations. They want to burn the country. The regime cannot fall without perpetrating a sea of blood.”

Western officials say the government’s assurance it would not use its stockpile of nerve agents, mustard gas and cyanide against its people could yet be taken as a threat to use the weapons against the rebels because the regime has repeatedly claimed the uprising is orchestrated by foreign or foreign-backed terrorists.

Israeli Prime Minister Netanyahu vowed his country would take military action to prevent Syria’s chemical weapons and Scud missiles from falling into the hands of Hizbullah if the regime collapsed, echoing earlier calls by Israeli Defense Minister Barak.

Finally, Turkey continues to inch towards direct involvement. The commercial hub of Aleppo, a city of three million that is seeing the heaviest fighting this week, is but 40 miles from Turkey’s border. Turkey has sealed its border crossings with Syria, though the frontier is open to fleeing refugees. Turkey is now sheltering 45,000 Syrians.

This was preventable. I said last year the United States should have been working with Turkey to create safe zones that would have prevented the refugees pouring into the likes of Lebanon.

But as the Wall Street Journal editorialized this week:

“All of this illustrates the folly of the Obama worldview that the U.S. can act to check the world’s rogues only if the U.N. first vouchsafes its approval….

“The result has been that the U.S. has let Russia and Iran set the world’s Syria policy, arming and propping up Assad while his troops shell civilian neighborhoods and his paramilitary operatives slit throats….

“A threat of additional military intervention (on top of CIA aid to the rebels), either by mobilizing a no-fly zone or raids to capture chemical stockpiles, might accelerate military defections from the regime. An internal coup of some kind could avoid a long and bloody siege of major cities and lead to talks for a real transition government. In the event, (Kofi) Annan shouldn’t be allowed anywhere near that diplomatic effort.”

Iran: According to London-based International Institute for Strategic Studies, the economic sanctions against Iran are doing a number on the country’s development of long-range ballistic missiles.

“There is mounting evidence to suggest that, whereas the sanctions regime has not prevented Tehran from operating an increased number of centrifuges for uranium-enrichment activities or adding to its stockpile of fissile material, it has stymied efforts to develop and produce the long-range ballistic missiles capable of striking potential targets in western Europe and beyond,” according to the IISS report. [Global Security Newswire]

But speaking of centrifuges, Iran announced it had added 1,000 in two months, leading Israeli Defense Minister Barak to say that dealing with a nuclear-armed Iran would be much more deadly and costly than confronting Tehran before it goes nuclear.

Israel: With the Olympics now underway, London’s Sunday Times reported that Hizbullah and Iran were planning to hit Israeli athletes. Should Prime Minister Netanyahu be looking for an excuse to attack Iran, coupled with the Bulgarian attack on Israeli citizens he has one to do so.

But the U.S. election is a little over three months away. I wrote months ago that while Netanyahu is in my mind the smartest man on the planet, and while he talks a tough game, he also has a reputation of being afraid to pull the trigger. It will be highly costly to Israel for it to wait until after November to strike Iran’s nuclear facilities or launch other kinds of strikes against terrorists such as Hizbullah. The next few weeks will speak volumes as to whether the prime minister is willing to wait; say from now until two weeks after the Olympics are over.

Separately, the Jewish population of the West Bank is now over 350,000 for the first time, which Palestinians say is killing any hopes of a two-state solution in which the Palestinians receive their own state in the West Bank. On this I agree with them. It’s why for many of us while we strongly voice our support for Israel, at times it’s difficult to go ‘all in.’ I would just add that Iran takes precedence these days.

And in a survey by the Begin Sadat Center and the Anti-Defamation League, only 32% of Israelis view Barack Obama favorably vs. 54% who did so in 2009.

Just 19% favor an attack on Iran without U.S. support. 42% favor one if the U.S. is on board.

Iraq: In a statement issued last Saturday, al-Qaeda in Iraq warned that the militant network is reconstituting successfully and returning to strongholds from which it was driven out while the American military was there. Two days later, AQI launched a series of attacks that killed at least 115. Iraqi security forces appeared to be the prime target in the worst bloodshed since May 2010. AQI is looking to throw the government into permanent chaos.

Editorial / Wall Street Journal

“Iraq has to find its own democratic way, and the U.S. can’t serve as mediator forever. But Mr. Obama took the U.S. out of the country cold turkey and has since shown no interest in a crucial Middle East nation where so much American blood was shed. The last ambassador left Baghdad in early June, and the Administration has no replacement on deck.

“The abandonment of Iraq is consistent with the Administration’s response to the 17-month conflict in Syria. President Obama says ‘the tide of war is receding,’ but you wouldn’t know it from the arc of instability that is forming from Lebanon, through Syria, Iraq and into the Persian Gulf.”

Egypt: As a headline in the Jerusalem Post put it: “Arab World: Who will rule Egypt?”

Newly elected President Mohamed Morsi, he of the Muslim Brotherhood, or the Supreme Council of the Armed Forces (SCAF)?

The only power Morsi really has these days is to name the prime minister and select a cabinet. So this week he named Hesham Kandil to fill the former, Kandil having been “irrigation minister,” but now SCAF says Morsi can’t select a defense minister, nor the minister of foreign affairs, state budgets and security forces.   I mean the only thing Morsi can do is find a replacement at irrigation! I’d apply for the job except Egypt seems way too dusty for me. 

Let’s face it…Egypt is just a hellhole these days. Maggie Michael wrote the following in Lebanon’s Daily Star.

“CAIRO: Almost daily, armed Egyptians angry over poor services storm hospitals, beating up or menacing doctors. Others took over a governor’s office to protest weeks without running water. Fabric workers shut down factories with strikes demanding better conditions.

“Lawlessness, economic troubles and public frustration have been growing in Egypt for months under the country’s uncertain leadership.”

And Morsi is expected to change things for the better only he has no real authority. And the people are highly unimpressed with former waterworks guy Kandil.

Back to the hospital situation, Maggie Michael writes:

“The emergency center at Cairo’s biggest public hospital al-Qasr al-Aini was shut down Thursday when men armed with knives and machetes attacked workers and guards. The men were furious after the gynecologist who delivered the baby of a female relative asked them to purchase their own blood bags for her from outside the hospital because the facility was short. The daily Al-Masry al-Youm reported the assault left three security guards in critical condition.”

Ah yes, nothing like a little Arab Spring to freshen up the day.

China: The worst rainstorm in Beijing in six decades claimed at least 77 lives but some suspect the toll is far higher as the government is slammed for failure to warn the citizenry, this as state media only reports positive stories on the relief effort. Xinhua, a government-mouthpiece, said 1.9 million were impacted and damages total $1.6 billion.

Now I’ve read a ton on this topic, and everyone is blaming Beijing authorities for overbuilding (such as for the 2008 Olympics) without properly considering drainage issues, and this may indeed be the case. But there have been countless cases where American cities were overwhelmed by flash flooding. Heck, New York City’s subway system gets overwhelmed anytime there is a large amount of rain in a short period of time.

The issue, though, is giving proper warning, and generally the U.S. is superb in this effort. What’s interesting is that the two worst cases of flash flooding in just the past month were in China and Russia.

At least as of this writing, with more rain in the forecast in the Beijing area, there were reports that the Three Gorges Dam on the Yangtze was able to handle record water flows since it became operational in 2003. If that ever goes, I don’t want to imagine the devastation. I mean consider this tidbit I read.

“Nearly 30,000 people were called to stand guard to protect the dykes in Jingzhou, a central Chinese city with more than 6 million people, according to Xinhua.” [Bloomberg]

Meanwhile, on the human rights side, the situation in China is deteriorating rapidly, it would appear.

And ousted Chinese politician Bo Xilai’s wife was accused of the murder of a British businessman, Neil Heywood. Bo’s wife, Gu, and an aide allegedly poisoned Heywood.

North Korea: Comrade Ri Sol Ju is Kim Jong-Un’s new wife! Ri had emerged recently in state photos but no explanation was given and then the word they were married was buried in an article on an amusement park. She’s kind of perky, don’t you think, guys?

Random Musings

--In the lastest NBC News/ Wall Street Journal survey of registered voters, Barack Obama leads Mitt Romney 49-43, precisely the same as in four previous NBC/Journal polls over the last year. The negative ratings for both are big. As Bill McInturff, a Republican pollster who conducts the survey with Democrat Peter Hart said, “We have two candidates who are in deep, double-digit negatives. There is no precedent for that in the modern era.”

Perhaps most importantly, though, this particular poll was yet another that showed that only 8% of voters remain undecided.

“Mr. Romney is building support among men, seniors, and white voters overall, while Mr. Obama has outsize margins among women, African-Americans, Hispanics and younger voters….

“The survey offers a vivid snapshot of both candidates’ strengths and weaknesses. Nearly seven in 10 voters, for instance, say they like Mr. Obama personally, compared with just 47% who say that of Mr. Romney….

[In a USA TODAY/Gallup survey, “Obama retains significant advantages…By 2-1, he’s rated more likeable than Romney.”]

“But the poll also points to a range of strengths for the challenger. Mr. Romney tops Mr. Obama, 43% to 36%, on which candidate is seen as better equipped to improve the economy, a central plank of the Romney campaign. He is now winning among independents, while his support base among conservatives, seniors and white men appears far more eager to vote than do Mr. Obama’s core backers.

“The poll found that blacks, Hispanics and young voters now show significantly less interest in the election than they did in the summer of 2008.” [Neil King Jr. and Daniel Lippman / Wall Street Journal]

[The USA TODAY/Gallup survey notes “By 18 points, 51%-33%, (Republicans and Republican-leaning independents) report being more enthusiastic than usual about voting. In contrast, Democrats and Democratic-leaning independents by 4 points say they are less enthusiastic than usual, 43%-39%.]

Separately, last week a CBS News/New York Times poll found 47% said Obama would do a better job handling foreign policy, while 40% chose Romney.

--Jeff Bergner and Lisa Spiller / The Weekly Standard

“There are three major areas in which the (Romney) campaign urgently needs to sharpen its focus, and these areas are absolutely critical to success. We outline them here in three ‘Rules for Romney.’

Rule 1: Define your ‘big idea.’ What is the overarching theme of your campaign? What is the first thing you want people to think and say about you? What do you stand for? These questions – which are all really the same question – are not easy to answer. In answering them, you are defining your brand….

“Why should the American people vote for you? What will you do differently from a second-term Barack Obama? You say you know how to create jobs and grow the economy. Fair enough. But how will you do this? You have to tell the American people what you are promising them….

[Ed. Romney has been pathetic in this regard.]

Rule 2: Sell your benefits, not your features. What do voters know about you? They know your background. They know you were a businessman at Bain Capital, that you were governor of Massachusetts, and that you saved the Salt Lake City Olympics. But let’s be clear: Electoral success is not about services rendered or experiences accumulated. It is about promises for the future….

“(Demonstrate) the benefits…for people in the real world….

“In political campaigns this means that you do not put your biography, however eminent, at the center of your campaign. You have to explain to voters the benefits of voting for you, not your background or qualifications or experience….

Rule 3: Go all in. Nearly 70% of Americans believe the country is on the wrong track, and a sizable share of those believe the country’s very future is at stake in this election. Go all in….

“Draw the contrast between you and Barack Obama as sharply as you can. Wherever possible, use his own words and his own voice to portray his arrogance, his empty rhetoric, and his broken promises.”

Personally, I think the negative ads being shown in the New York City area by both parties are effective (though why they are spending money here I’ll never know…New York and New Jersey hardly being battleground states).

--In ten battleground states identified by the Wall Street Journal, unemployment in June rose in six of them…Michigan, Pennsylvania, Colorado, Iowa, New Hampshire and Virginia. The rate held steady in three…Nevada, Florida and North Carolina…and fell in one, Ohio.

Nevada, North Carolina, Florida, Michigan and Colorado now have rates equal to or higher than the U.S. rate, 8.2%. Pennsylvania, Ohio, Virginia, Iowa and New Hampshire have rates that are lower.

--Mitt Romney made an incredibly stupid comment in saying of the London Games it is “hard to know just how well it will turn out” in discussing the security situation. You can say something like that writing an op-ed for the New York Times or Washington Post, but not when you are running for president of the United States and visiting in London.

--In the latest Pew poll on Religion & Public Life, less than half, or 49%, of registered voters correctly identified Barack Obama as a Christian. 17% say he is Muslim. Six in 10 who know Mitt Romney is a Mormon say they are comfortable with that. I didn’t see how many think Romney is a Muslim.

--I have never been a big fan of Condoleezza Rice, but she does a terrific job in the Financial Times this week blistering the Obama administration’s foreign policy. Left unsaid, though, is how awful Mitt Romney’s presentation has been on this front.

--At least Romney, in speaking to the Veterans of Foreign Wars convention, blasted the president on the issue of leaking national security secrets in order to bolster Obama’s reputation.

“Whoever provided classified information to the media, seeking political advantage for the administration, must be exposed, dismissed, and punished.

“Exactly who in the White House betrayed these secrets? Did a superior authorize it?

“These are things that Americans are entitled to know – and they are entitled to know right now. If the president believes – as he said last week – that the buck stops with him, then he owes all Americans a full and prompt accounting of the facts.”

California Democratic Senator Dianne Feinstein, leader of the Senate Intelligence Committee, told a World Affairs Council forum on Monday:

“I think the White House has to understand that some of this is coming from their ranks.”

The next day, Feinstein was forced to apologize to the White House, saying she “shouldn’t have speculated” about the source of the leaks.

But of course she was right the first time.

--Earth to Chris Christie. The New Jersey Governor should not in the least consider himself a candidate to be Mitt Romney’s running mate. At this point I don’t even want him doing the Republican Convention’s keynote address. I mean in the month of June, New Jersey’s unemployment rate rose from 9.2% to 9.6%. That’s the ultimate measure of progress, or lack thereof. Fat Boy needs to focus on getting in shape or he won’t even get reelected here.

--With a few days to go in the month, July is looking like the hottest on record for the lower 48, and it may not even be close. St. Louis, Indianapolis, Chicago, Detroit and Denver are all on pace to shatter their all-time monthly records. On Wednesday, St. Louis hit 108, the 11th day this summer of at least 105 degrees.

And get this…from Doyle Rice / USA TODAY

“It’s been unusually hot even in torrid Death Valley, Calif. On July 12 its low temperature dropped to just 107 degrees after hitting a high of 128 degrees the previous day. Not only did the morning low temperature tie a record for the world’s warmest low temperature ever recorded, the average temperature of 117.5 degrees was the world’s warmest 24-hour temperature on record.”

But it’s a dry heat.

--Christine Brennan / USA TODAY…on the IOC’s decision not to recognize the 1972 Munich Olympics tragedy.

“Incredibly, there has never been a moment of silence held (in honor of the 11 Israeli athletes and coaches killed by Black September) at the opening ceremony of the Olympic Games….

“The opening ceremony, IOC President Jacques Rogge said, is ‘an atmospheric that is not fit to remember such a tragic incident.’

“What a ridiculous statement that is. The opening ceremony is exactly the place to remember that awful moment in Olympic history. When Georgian luger Nodar Kumaritashvili was killed the day of the opening ceremony in Vancouver in February 2010, Rogge demanded the evening’s script be rewritten to include several tributes to that tragic incident. And when American leaders asked that opening ceremony protocol be changed to include the entrance of the World Trade Center flag at the 2002 Winter Games in Salt Lake City, the IOC relented, and the tragedy of Sept. 11 was remembered in an unprecedented manner at an Olympic event….

“Few are willing to say it, but we all know why (the IOC doesn’t want to mark Munich). The IOC doesn’t want to do anything that might upset the nearly 50 Arab and predominantly Muslim nations that are competing in these Games.”

So we hereby name the IOC “Dirtball Organization of the World” for 2012. Make that “Racist Organization of the World.” Jacques Rogge himself goes into the December file for consideration as “Dirtball of the Year.”

--I’m watching the Olympic opening ceremonies myself and just caught an Obama commercial… “Forward”…like lemmings to the sea…gurgle gurgle…

--I was reading a piece in BBC History Magazine and I admit to never thinking about just how many Brits lost their lives in World War II as the men of Bomber Command. Take a guess. Were you close to 55,573? Author Patrick Bishop brought this up as part of a story on a memorial to Bomber Command that just went up in London’s Green Park…a rather ghastly one, it seems.

It’s been controversial to celebrate Bomber Command over the years because of the “controversy over civilian deaths in cities like Hamburg and Dresden,” as Bishop writes. But…

“As to the ethics of area bombing, German ruthlessness inevitably caused those who had the courage to fight them to harden their hearts. Britain was locked in an existential struggle with an evil foe. It is hard to disagree with the official historian of the Strategic Air Campaign, Noble Frankland, who experienced it himself as a navigator with Bomber Command. ‘The great immorality open to us in 1940 and 1941,’ he said, ‘was to lose the war against Hitler’s Germany. To have abandoned the only means of direct attack which we had at our disposal would have been a long step in that direction.’

“There is a final point, an awkward one to acknowledge nowadays. The bombing campaign altered Germany’s personality. The utter devastation it wrought taught the Germans a lesson about the folly of aggression and the benefits of peaceful democracy that has lasted to this day.”

--We note the passing of the first American woman in space, astronaut Sally Ride, just 61, who flew on the shuttle Challenger on June 18, 1983, and on a second mission in 1984.

Back in 1987, Dr. Ride led a study team that wrote a report advising NASA on its future direction. Aside from saying Mars should be the “ultimate objective,” Sally Ride noted that the United States had “lost leadership” to the Soviet Union in a number of aspects of space exploration. Rather prophetic.

--Lastly, you know I have a “24-hour rule” on big issues of the day, as much as I can abide by this. Last week it was about 24 hours after the Aurora, Colo., shooting when I posted my column and I had little to say aside from praying for the victims. I do just want to express my admiration for what was clearly a terrific effort on behalf of all the first responders in Aurora. And actor Christian Bale is to be commended for visiting the victims still recovering in area hospitals. He sought no attention for this deed.

But I’m sorry to be callous when I say I am sick of the statement “Love and kindness conquer all” as one resident of Aurora told a news reporter. Bull. [See the above on Bomber Command.]

I agree with the statement of historian Victor Davis Hanson, as reported by the Wall Street Journal, who wrote in part:

“I don’t care a whit whether the Aurora killer was a loner. I don’t care if he was unhappy or if he was on medication. Millions share such pathologies without killing a mouse. I don’t even know whether giving him swift justice will deter the next mass shooter. Yes, give the suspect expert legal counsel; call in all the psychiatrists imaginable; sequester the jury; ensure the judge is a pillar of jurisprudence; but if he is found guilty, I would prefer the gallows and quickly so, to remind us that we live in a civilization that prefers to remember the victims and to remember nothing at all of their killer.”

---

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

God bless America.
---

Gold closed at $1626
Oil, $90.13

Returns for the week 7/23-7/27

Dow Jones +2.0% [13075]
S&P 500 +1.7% [1385]
S&P MidCap +1.0%
Russell 2000 +0.6%
Nasdaq +1.1% [2958]

Returns for the period 1/1/12-7/27/12

Dow Jones +7.0%
S&P 500 +10.2%
S&P MidCap +8.0%
Russell 2000 +7.4%
Nasdaq +13.5%

Bulls 40.4
Bears 26.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Don’t forget the StocksandNews.com iPad app…perfect with salt water taffy.

Brian Trumbore



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-07/28/2012-      
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Week in Review

07/28/2012

For the week 7/23-7/27

[Posted 12:00 AM ET…from Ocean City, MD]

It’s Still All About Europe

Monday it looked as if the eurozone was on the verge of collapse as the yield on Spain’s 10-year bond hit 7.70%, while more of Spain’s regions stepped forward to say they needed help, or as in the case of Catalonia, it didn’t specifically ask for help even though it’s insolvent.

It was also clear on Monday that the troika – the International Monetary Fund, the European Central Bank and European Commission – wouldn’t be granting Greece any further bailout assistance from the 240 billion euro pool approved in bailouts I and II, let alone Greece’s coming request for a third bailout of about 50 billion. Greek Prime Minister Samaras conceded GDP in his country would crater 7% this year, or over 20% in a five-year period that is of depression levels.

The U.K. announced early in the week that its second-quarter GDP was down 0.7%, worse than expected, and the loss of its AAA credit rating was imminent; though we’ve learned as in the case of the U.S. the loss of a AAA rating doesn’t necessarily impact interest rates if the country is still seen as a safe haven vs. all the other garbage nations out there.

But I want to take you back to April, specifically something I wrote on April 28 in this space… citing Spanish Treasury Minister Cristobal Montoro.

“ ‘We are in an extremely delicate moment as a country, an extremely fragile moment as a country…This is the most austere budget since democracy, and it is aimed at being the most realistic that Spain needs to overcome this crisis situation.’

“But when you talk about realism, or lack thereof, how about our new ‘Idiot of the Year’ candidate; Banco Santander CEO Alfredo Saenz, who said, in referring to Spain’s housing crisis of historic proportions, ‘Mortgages get paid in good times and in bad. Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid.’

“That, my friends, is an idiot.

“You see, Mr. Saenz is pointing to government data that says the default ratio in Spain was just 2.6 percent in March, down from 2.7 percent at the end of 2011.

“ ‘The data is good so let’s not start debating the quality of the information,’ said Saenz. ‘Mortgage arrears are not a problem and are not going to be a problem.’

“But a JPMorgan report, published April 26, said the figures just flat out aren’t real. They can’t be. They drastically understate the issue.

“Consider that the delinquency rate in the U.S. is 7.6 percent with unemployment at 8.2 percent. In Ireland, as reported by Bloomberg’s Charles Penty and Esteban Duarte, joblessness is 14.3 percent and the delinquency rate is 9.2 percent.

“So this week Spain reported its unemployment rate hit 24.4 percent. In other words, these delinquency figures being bandied about can’t possibly be right….

“Spain has been living a lie for years now. The central government is mostly transparent, from what we know. But I’ve been telling you for years the problem is in the regions, where corruption was rampant between the developers (none of whom you can find today), the local governments and the banks….

“So here’s my bottom line on Europe. The banks are facing a capital squeeze, which is squeezing lending at the worst possible time. Governments are seeking the right balance between growth and cutting deficits, but this requires political will and little can be found.”

That was April 28. This week the same Banco Santander said first-half profits were halved as its write-offs for Spanish property loans were 2.8 billion euro. “It has written off 6bn euros of the 8.8bn euros that it has been told to write off this year.” [BBC News]

Santander now claims it has achieved 70% of the necessary adjustment to its books.

BBC: “Santander’s home market is one of the worst-hit in Europe, with a rising number of homeowners and businesses defaulting on debts.”

I’m ticked. I’m ticked at the world’s leaders, be they in government or head of some of the largest financial institutions on the planet.

Stop playing us as fools…as chumps. Mr. Alfredo Saenz…you, sir, are scum. You are a liar. 

This week Spain announced its unemployment rate rose to 24.6%, officially, with the youth jobless rate still above 50%, ditto Greece. Spain needs a massive bailout of its government, not just of its banks, witness the reaction in the bond markets on Monday and Tuesday.

But on Thursday, European Central Bank President Mario Draghi came to the rescue and the world’s markets soared. You see, sports fans, the world is peopled with idiots, Wall Street traders being prominent among them.

Mr. Draghi, in a speech at an investment conference in London, said: “To the extent that the size of these sovereign premia (surging yields) hamper the functioning of the monetary policy transmission channel, they come within our mandate. Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” adding, “believe me, it will be enough.”

Boom…stocks soared. Yields on Spanish and Italian debt fell, though they still finished the week at worrisome levels.

You see, the markets now believe that the ECB will re-enter the bond-buying mode it had abandoned in March, piling on more debt upon debt. One ECB Governing Council member made news because he said there are arguments in favor of giving Europe’s coming permanent bailout fund, the European Stability Mechanism (ESM), a banking license that would enable it to lever up and boost its firepower, too.

The purpose of such moves would be to create the firewall that has long been needed to break the backs of contagion. That’s fine. I’m one who has said for years the bailout vehicles were woefully short in their funding, a point that has long since been proved, especially the past few months.

But here’s the thing. Germany’s Bundesbank has been against the ECB buying more sovereign paper because the ECB’s balance sheet is already far bigger than the Fed’s; the German high court isn’t even weighing in on the ‘legality’ of the ESM until mid-September; Germany’s parliament, which has a say in such matters, would never approve placing German taxpayers at further risk than they already are; no one mentioned this week that just the prior one, Finland, also tired of bailing the southern tier out, is seriously considering walking out of the euro; and Greece needs 3 billion euro to meet a debt payment to the ECB due on Aug. 20 but the troika may not rule on giving Greece another installment of its bailout funding until September.

In other words, there are some very real issues that must be taken care of in August but for which the players, ever mindful of their vacations, seem to think they can put them off until later; even though market history shows that some of the worst financial crises of recent memory have hit in said month. And I’m not even raising the geopolitical situation in the Middle East which is awful and threatens to turn catastrophic.

But this coming week sees two meetings that will go a long way towards providing some answers to the issues facing both the U.S. and Europe. Ben Bernanke and his merry band of Fed governors meet to discuss U.S. monetary policy on July 31 and Aug. 1, while the ECB has a meeting on Aug. 2, at which point we should learn just how much cooperation Draghi is receiving from the likes of the Bundesbank and the Germans, let alone just what he plans on doing and on what timetable. So you can be sure the next WIR will be a stemwinder.

A few other items of interest…

The earnings picture has been awful, as forecast by moi, in terms of abysmal guidance, let alone misses galore on the top line (revenues) while corporations monkey with the bottom line (profits). You can’t hide the former; you can do all kinds of mischievous things with the latter (see G.E. under Jack Welch when they always magically ‘beat’ by a penny).

Virtually every large multi-national said Europe’s crisis was impacting their top and/or bottom line, as well as slower growth in China. Companies like 3M, Siemens, Shell, BASF, UPS, Ford, Apple, GlaxoSmithKline, Alcatel-Lucent, Ericsson, Unilever and McDonald’s.

UPS CEO Scott Davis said, “Economies around the world are showing signs of weakening and our customers are increasingly nervous….We think current second-half economic forecasts for the U.S. are too high and that GDP growth will likely be closer to 1 percent….As we get closer to the fiscal cliff, there is more uncertainty out there than ever.”

Swedish truck maker Scania AB’s CEO said, “I don’t see the light at the end of the tunnel,” after reporting a 40% decline in profits.

Caterpillar exec Mike DeWalt, contrary to the ridiculous bullishness of the company’s CEO on CNBC, said “People are taking a bit of a wait-and-see attitude as to how 2013 will shape up, and I think orders are reflecting that.”

At best the watchword is “caution.” At worst it’s “we’re going down, captain.”

Meanwhile, Moody’s said it was changing its outlook on Germany to “negative,” which makes further bailouts for the likes of Greece politically untenable, ditto for the Netherlands, which was also lowered to “negative” (along with Luxembourg). Again, not that this will impact those nations’ interest rates as they are the safe havens, after all, but it turns the eurozone into more of a north/south divide than ever. “We have our own internal problems to take of, Rafael.”

Moody’s, by the way, cited German bank exposures to Spain and Italy as a major cause of the outlook downgrade.

“The continued deterioration in Spain and Italy’s macroeconomic and funding environment has increased the risk that they will require some kind of external support,” said Moody’s. An exit by Greece “would pose a material threat to the euro” and that even in the event of a strong policy response from the eurozone, it would “set off a chain of financial-sector shocks,” it added. [Financial Times]

A reading on eurozone manufacturing for the month of July, by the way, came in at 44.1 vs. 45.1 for June. Pathetic. Germany’s PMI was 43.3, far worse than expected.

A composite PMI covering both manufacturing and services for the eurozone was 46.4. [47.3 in Germany] None of this is remotely good. It’s called recession.

And can you believe there is still money being held in Greek banks? Deposits fell another 5% in June to their lowest level in six years.

Finally, a few words on the U.S. I do have to interject at this point to note that my working conditions here in Ocean City, Md., are abysmal so I’m asking for a mulligan.   With the coming FOMC and ECB meetings I’ll be better able to tie it all together next time anyway. Let’s just say I checked into my hotel room here on the boardwalk on Thursday and realized immediately there was no table or chair. Upon complaining I was told my kind of room had no table and chair. After I went ballistic, saying I had been to (lousy) hotels in the likes of Paraguay and at least had a table (or a work desk) and a chair, I was promised a table would be moved from one room to mine. But then the manager (off site) was called for approval and he said no. This all took over three hours. I was back at square one…which is where I am now as I type this on Friday. No table, but I scrounged up a plastic chair.   

Anyway, the first flash estimate on U.S. second-quarter GDP was released and it came in at 1.5% (first-quarter GDP was raised to 2.0% from 1.9%), which sucks, but it was better than the 1.4% forecast so the markets decided that this, coupled with Mario Draghi’s comments on Thursday, warranted an extension of the rally in stocks at week’s end. No one ever said markets were rational, least of all me, and, as I wondered weeks ago before the current earnings season got underway, we would learn how much of the bad news on the corporate front, i.e., lack of any positive guidance, was already baked in.

The data on housing this week wasn’t that good, with new home sales coming in far less than expected. Here the problem is no inventory. In fact the number of newly constructed homes that came onto the market in June was 144,000 vs. a peak of 572,000 reached in 2006.

And June durable goods, big-ticket items, were down more than expected, 1.4%, when you strip out transportation and defense spending, which is a fair measure of true business spending.

Retail spending, manufacturing, and consumer confidence are all down in America. It’s an environment conducive to 1% to 2% growth for the rest of the year, at best, with a giant question mark for 2013 depending on what Congress and perhaps a new president do post-November.

One last item which is kind of funny. Not laugh out loud, ha ha, funny, mind you, but funny in a ‘why do we even bother’ way.

From Robert Samuelson / Washington Post

“Call it the $12 trillion misunderstanding.

“It ranks among the biggest forecasting errors ever. Back in 2001, the Congressional Budget Office projected federal budget surpluses of $5.6 trillion for 2002-2011. Instead we got $6.1 trillion of deficits – a swing of $11.7 trillion. Naturally, political recriminations followed. Who or what caused the change? President Bush’s tax cuts for ‘the rich’? The Iraq and Afghanistan wars? The Medicare drug benefit? The financial crisis? President Obama’s ‘stimulus’?

“Doubtlessly, the question will emerge as a campaign issue. But any intellectually honest answer – perhaps futile in today’s politically charged climate – will admit that no single cause explains the change. We now have evaluations from the CBO and two nonpartisan groups: the Committee for a Responsible Federal Budget (CRFB) and the Pew Fiscal Analysis Initiative. They all point in the same direction.

“For starters, a weak economy was the largest cause. The CBO attributes $3.2 trillion of the $11.7 trillion shift (about 27 percent) to ‘economic and technical changes.’ ‘We overestimated how good the economy would be, even before the Great Recession,’ says Marc Goldwein of the CRFB.

“Consider. In 2001, the CBO projected that the economy would grow about 3 percent a year over the 2002-2011 period. Actual growth from 2002 to 2007 averaged only 2.6 percent. From 2008-2011 – the Great Recession started in late 2007 – growth averaged only about 0.2 percent annually. Slow economic growth reduces tax revenues and increases spending for jobless benefits and other assistance.”

Mr. Samuelson goes on at length, but you get the picture. The next time someone throws some assumptions at you on the economic front, the first question you should ask is what growth rate are you using? If, as PIMCO talks about, the future growth potential for the U.S. is no more than 1.5-2.0 percent, you can see how easily projections bandied about in Congress are worth no more than the paper they’re written on.

Which is why I prefer the back of a beer coaster. At least there is a pleasurable activity associated with the garbage.

Street Bytes

--After a volatile week, the Dow Jones finished up 2.0% to 13075, its highest close since May 7, while the S&P 500 in gaining 1.7% ended at its highest mark since May 3. Nasdaq added 1.1%. The Dow has finished down eight straight Mondays, however, so we’ll see what happens this time as the Fed and ECB meetings follow later in the week.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.24% 10-yr. 1.55% 30-yr. 2.63%

After hitting a record low of 1.39% on the 10-year, yields rose at week’s end on the Draghi statements and rumors the Bundesbank was changing its tune, thus taking away some of the U.S. “safe haven” play.

--HSBC’s flash estimate on manufacturing in China, the PMI, rose to 49.5 in July, the best since February. Encouraging. Industrial production in the month of June rose 9.5%.

The IMF warned that the eurozone debt crisis poses a “key risk” to China’s growth, though the IMF said China had ample room and fiscal tools “to respond forcefully” to any adverse developments such as in the property market, which some say has experienced a sharper-than-expected decline (I wouldn’t…I’d say it’s as expected).

“Assuming no policy response in China, growth could decline by as much as four percentage points in response to a 1 ¾ percentage point slowdown in global growth,” added the IMF.

Nonetheless, the fund still expects China’s economy to grow 8% this year.

--South Korea reported its slowest growth rate since 2009, 2.4% annualized for the second quarter.

--Japan reported its biggest first-half trade deficit on record, owing to surging imports of fossil fuels with the near total shutdown of its nuclear-power sector, post-Fukushima, and weakening exports to the likes of Europe and China. Nuclear power once supplied a third of Japan’s energy, but only two of the country’s 50 atomic reactors are online and the people have been protesting the reopening of them, let alone any future ones.

Japan also said retail sales fell 0.2% in June, a big disappointment, while consumer prices fell 0.2% as well...not good at all as the country is smack dab back into a deflationary environment.

--After a disastrous IPO in May at $38 a share, Facebook released its first earnings report as a public company on Thursday and it was yet another debacle. While the company hit earnings expectations of 12 cents a share (adjusted for all manner of crapola) and revenue of $1.18 billion, operating margins were down to 43% vs. 53% a year ago and revenue growth is decelerating.   The company said it was focusing heavily on mobile which Facebook admits is a daunting task. The stock promptly fell to $24 in after hours, off 37% from the IPO price in just two months, and even at $24, it is selling at a multiple of 50, heavily adjusted. [Facebook finished the week at $23.60.]

The Financial Times’ Lex column put it best.

“ ‘Our goal is to help every person stay connected’ writes Mark Zuckerberg yet again, this time at the top of Facebook’s first quarterly earnings release. No doubt the goal of those investors who own shares in the social networking site is to connect their fists with the end of the chief executive’s nose.”

[Meanwhile, Zynga, the social gaming company behind Farmville, reported a net loss of $108 million for the first half of the year, compared with a profit of $18 million for the first half of 2011. Zynga then slashed its full year earnings estimate to between 4 and 9 cents from 23 to 29 cents; a huge recalculation. Last December, shares in Zynga were floated at $10. Today they are around $3. Zynga accounts for about 15% of Facebook’s revenues…at least it used to. Zynga’s COO said, “Our users did not remain as engaged and did not come back as often.” If you ever hear I’m on Farmville, just shoot me.]

--Shares in Apple fell after the company missed Wall Street estimates for fiscal third-quarter profits and revenues. The company actually met its own earlier guidance, or slightly exceeded, but it fell short of Street expectations and thus was penalized. For the quarter Apple reported revenue of $35 billion vs. analyst estimates of around $37.2 billion, while earnings of $9.32 per share ($8.8 billion) were a dollar shy of the Street.

Apple sold 26 million iPhones and 17 million iPads, falling short on the former but beating on the latter. Many are simply waiting for the iPhone 5, due out this fall.

The company now has $117 billion in cash. [Actually, on Friday it spent about $350 million of it on a company called AuthenTec.]

--Apple rival Samsung Electronics recorded record profits of $5.9 billion as the world’s largest maker of mobile phones continues to rock and roll with its Galaxy smartphone, despite an ongoing legal battle with Apple over same in the U.S.

Globally, Samsung has 26% of the mobile market to Nokia’s 23% and Apple’s 7%.

--Amazon shares sloughed off another earnings report with the company pocketing a whopping penny for the quarter. The stock trades at a multiple of about 195 after closing the week at $232. Investors continue to focus on revenue growth, which is indeed strong, up 29% vs. 35% the previous two quarters, and even though the company said it might lose $350 million in the current quarter, brave folks keep looking to the future and what they believe will be super profitability as a result of Amazon’s still aggressive expansion plans.

--Shares in volatile Netflix cratered 16% after the company added 530,000 streaming customers vs. expectations of 600,000 (and 1.7 million the previous quarter).

--Cisco Systems is looking to lay off 1,300 workers. Last year the world’s largest maker of computer networking equipment shed 10,000. Cisco cited problems in Europe and a reluctance on the part of corporations to commit to large purchases. Sound familiar?

--McDonald’s missed earnings forecasts as profit fell from $1.41 billion a year ago to $1.35 billion. Revenue edged up only 0.2%, though ex-currency fluctuations was up 5%. Global same-store sales increased 3.7%, including 3.6% in the U.S. and 3.8% in Europe. CFO Peter Bensen said the company faces “headwinds on both the top and bottom lines.”

[The U.S., incidentally, is just 32% of total revenues these days. Europe is 40%.]

--The drought in the U.S. could cost at least $12 billion, making it the costliest since 1988 (which saw losses of $40 billion…$78 billion in 2012 dollars), though this year’s final damage will take months to fully assess. The Department of Agriculture projects that food prices will rise 3%-4% as a result, with beef rising as much as 5%. The price of corn and soyameal, two key ingredients in feed, set new records this week, with corn up about 55% since early June.

It doesn’t help that the heat throughout much of the farming community, combined with a mild winter, is leading to greater than normal infestations of grasshoppers and crickets, which can do a further number on crops.  Separately, Texas and Florida are seeing high levels of mosquitoes because of the unusually warm, yet wet, conditions there. Cases of West Nile Virus are beginning to pop up all over the States.

--79-year-old Sandy Weill, the architect of the bank supermarket with his merger of Travelers (which had acquired Salomon Brothers and Smith Barney) with Citicorp, now says the big banks should be broken up, a rather shocking statement made on CNBC the other morning. Specifically, Weill now advocates splitting consumer banking from investment banking.

“What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.”

Of course his comments come 13 years after he forced the repeal of Glass-Steagall, the law passed after the Great Depression that mandated a separation between commercial and investment banking. Weill’s various acquisitions in creating Citigroup championed the repeal.

Weill said “Our world hates bankers.” Very true. As for the about face, he said, “I think the world changes, and the world that we live in is different than the one that we lived in 10 years ago.”

Actually, as David Reilly of the Wall Street Journal noted, the world has already changed. The supermarkets trade at a substantial discount to the valuations accorded their far smaller peers, while bigger banks without investment banking and trading operations, namely U.S. Bancorp and Wells Fargo, also trade at premiums compared to the discounts accorded JPMorgan Chase, Citigroup and Bank of America.

--Shares of Alcatel-Lucent plunged further on awful earnings news, a loss of 254 million euro in the second-quarter. Sales for the telecom equipment maker fell 7% as European carriers cut spending and competition from rivals weighs on prices. Worrisomely, the company also burned through a ton of cash and as a result is slashing 5,000 jobs. There is talk of liquidity concerns. Not good for those who still call it home, like in Murray Hill, N.J., where I used to live and where our own Dr. Bortrum worked for decades.

--Ford Motor Co. continues to see strong profits in the U.S. and North America, about $2 billion, but losses in Europe and other parts of the world brought the overall profit down to about $1 billion as total revenue declined 6%. Ford’s operating loss in Europe was $404 million vs. a gain of $176 million in the same period a year earlier.

--Boeing, the world’s second-largest defense contractor, boosted full-year guidance despite looming Pentagon budget cuts owing to higher international defense and commercial jetliner sales. International was 37% of Boeing’s defense business (thank you tensions in the Persian Gulf), while deliveries of the 787 Dreamliner will accelerate.

--According to Aaron Elstein of Crain’s New York Business, the coming global settlement on the Libor scandal could see the banks shelling out a collective $35 billion, which, should it come to pass, would dwarf the $25 billion the banks coughed up as a result of the robo-signing debacle.

Which means one thing. Hel-looo law firms! [And some selected accounting firms as well.]

--This sucks…according to corporate travel management company Carson Wagonlit Travel, “Fuel surcharges…have increased twice as fast as fuel prices in the last year. What’s more, most airlines have not reduced fuel surcharges since 2009, despite drops in fuel prices over that time. Fuel charges can represent an increase of as much as 50% on ticket prices,” especially European flights. [Hugo Martin / Los Angeles Times]

According to a different survey, fifty airlines throughout the world collected $22.6 billion from bag fees and other extra passenger charges in 2011. [Hugo Martin]

--For the month of June, North Dakota had an unemployment rate of 2.9%, followed by Nebraska at 3.8%. Nevada still has the highest at 11.6%, unchanged from May. [California’s unemployment rate continues to tick down…now 10.7%. The state’s construction industry, however, is still off 400,000 jobs from the 2006 peak. Can you say housing bubble?]

--According to Zillow Inc., home values in the U.S. posted their first year-over-year increase since 2007 in the second quarter. Residential values have gained for four months in a row. But 24% of homes were still in negative equity, according to CoreLogic Inc.

--Former top editors of News Corp.’s now-closed News of the World tabloid, Rebekah Brooks and Andy Coulson, were among eight accused by British prosecutors of conspiring to hack the voice mail of 600 celebrities, sports stars, politicians and crime victims. The list of celebrities includes Paul McCartney and Brad Pitt.

--Only 3% of U.S. consumers see going to the movies as a “frequent source of entertainment.” TV is the top source, 45%, and the Internet is next at 34%, according to a survey by PR firm Edelman.

According to an analysis by Goldman Sachs, in 2002, the average moviegoer went to the theater eight times a year. Last year, it was less than six. Personally, I haven’t been to a movie since the last “Lord of the Rings” installment. 

--I feel sorry for Radio Shack. Granted, I don’t go into their stores much but I’ve always had a decent shopping experience there. It seems the 91-year-old company is in its death throes as it struggles under a humongous debt load. Its attempts to turn things around by selling smartphones are faltering. I bought mine there and need to upgrade it (as they keep calling me to do…it’s a Palm, after all), but the Shack faces stiff competition in this arena. The company was expected to report a small profit and instead lost $21 million. Sales of consumer electronics plunged 27%. Yikes.

--Same-sex marriages brought in $259 million of economic activity to New York City in the first year of the law allowing the practice, according to city officials. More than 200,000 guests have since traveled from outside of the city to attend same-sex wedding receptions, and more than 235,000 hotel room nights were booked at an average daily room rate of $275. [Crain’s New York Business]

Foreign Affairs

Syria: Who knows what the death toll is here these days (one estimate is over 19,000). The nation is in the throes of sectarian bloodletting, with the entire region increasingly destabilized due to the flood of refugees into Lebanon, Jordan, and Iraq, which in all three cases threaten renewed instability between Shiites and Sunnis, while in the case of Jordan, King Abdullah’s regime could be threatened. As for Israel, it sees its once peaceful border with Syria, the Golan Heights, in a new light, a dark one. Hizbullah, for example, could get hold of the Syrian regime’s chemical weapons and lob shells over the border, or obviously the border with Lebanon. Syrian security forces that once helped keep the peace in Golan are now desperately needed in Damascus and Aleppo. And on Friday, Iran said it was willing to share “its experience and capabilities with brother Syria.”

The Syrian government, in conceding for the first time it did indeed have an extensive supply of chemical weapons, said it would not use them against its own people, only “invaders,” but a senior Syrian military defector said President Bashar Assad’s forces could use them in retaliation for the killing of four top security officials.

General Mustafa Sheikh, citing rebel intelligence obtained in recent days, told Reuters in an interview in southern Turkey, “They are moving (the stockpile) from warehouses to new locations. They want to burn the country. The regime cannot fall without perpetrating a sea of blood.”

Western officials say the government’s assurance it would not use its stockpile of nerve agents, mustard gas and cyanide against its people could yet be taken as a threat to use the weapons against the rebels because the regime has repeatedly claimed the uprising is orchestrated by foreign or foreign-backed terrorists.

Israeli Prime Minister Netanyahu vowed his country would take military action to prevent Syria’s chemical weapons and Scud missiles from falling into the hands of Hizbullah if the regime collapsed, echoing earlier calls by Israeli Defense Minister Barak.

Finally, Turkey continues to inch towards direct involvement. The commercial hub of Aleppo, a city of three million that is seeing the heaviest fighting this week, is but 40 miles from Turkey’s border. Turkey has sealed its border crossings with Syria, though the frontier is open to fleeing refugees. Turkey is now sheltering 45,000 Syrians.

This was preventable. I said last year the United States should have been working with Turkey to create safe zones that would have prevented the refugees pouring into the likes of Lebanon.

But as the Wall Street Journal editorialized this week:

“All of this illustrates the folly of the Obama worldview that the U.S. can act to check the world’s rogues only if the U.N. first vouchsafes its approval….

“The result has been that the U.S. has let Russia and Iran set the world’s Syria policy, arming and propping up Assad while his troops shell civilian neighborhoods and his paramilitary operatives slit throats….

“A threat of additional military intervention (on top of CIA aid to the rebels), either by mobilizing a no-fly zone or raids to capture chemical stockpiles, might accelerate military defections from the regime. An internal coup of some kind could avoid a long and bloody siege of major cities and lead to talks for a real transition government. In the event, (Kofi) Annan shouldn’t be allowed anywhere near that diplomatic effort.”

Iran: According to London-based International Institute for Strategic Studies, the economic sanctions against Iran are doing a number on the country’s development of long-range ballistic missiles.

“There is mounting evidence to suggest that, whereas the sanctions regime has not prevented Tehran from operating an increased number of centrifuges for uranium-enrichment activities or adding to its stockpile of fissile material, it has stymied efforts to develop and produce the long-range ballistic missiles capable of striking potential targets in western Europe and beyond,” according to the IISS report. [Global Security Newswire]

But speaking of centrifuges, Iran announced it had added 1,000 in two months, leading Israeli Defense Minister Barak to say that dealing with a nuclear-armed Iran would be much more deadly and costly than confronting Tehran before it goes nuclear.

Israel: With the Olympics now underway, London’s Sunday Times reported that Hizbullah and Iran were planning to hit Israeli athletes. Should Prime Minister Netanyahu be looking for an excuse to attack Iran, coupled with the Bulgarian attack on Israeli citizens he has one to do so.

But the U.S. election is a little over three months away. I wrote months ago that while Netanyahu is in my mind the smartest man on the planet, and while he talks a tough game, he also has a reputation of being afraid to pull the trigger. It will be highly costly to Israel for it to wait until after November to strike Iran’s nuclear facilities or launch other kinds of strikes against terrorists such as Hizbullah. The next few weeks will speak volumes as to whether the prime minister is willing to wait; say from now until two weeks after the Olympics are over.

Separately, the Jewish population of the West Bank is now over 350,000 for the first time, which Palestinians say is killing any hopes of a two-state solution in which the Palestinians receive their own state in the West Bank. On this I agree with them. It’s why for many of us while we strongly voice our support for Israel, at times it’s difficult to go ‘all in.’ I would just add that Iran takes precedence these days.

And in a survey by the Begin Sadat Center and the Anti-Defamation League, only 32% of Israelis view Barack Obama favorably vs. 54% who did so in 2009.

Just 19% favor an attack on Iran without U.S. support. 42% favor one if the U.S. is on board.

Iraq: In a statement issued last Saturday, al-Qaeda in Iraq warned that the militant network is reconstituting successfully and returning to strongholds from which it was driven out while the American military was there. Two days later, AQI launched a series of attacks that killed at least 115. Iraqi security forces appeared to be the prime target in the worst bloodshed since May 2010. AQI is looking to throw the government into permanent chaos.

Editorial / Wall Street Journal

“Iraq has to find its own democratic way, and the U.S. can’t serve as mediator forever. But Mr. Obama took the U.S. out of the country cold turkey and has since shown no interest in a crucial Middle East nation where so much American blood was shed. The last ambassador left Baghdad in early June, and the Administration has no replacement on deck.

“The abandonment of Iraq is consistent with the Administration’s response to the 17-month conflict in Syria. President Obama says ‘the tide of war is receding,’ but you wouldn’t know it from the arc of instability that is forming from Lebanon, through Syria, Iraq and into the Persian Gulf.”

Egypt: As a headline in the Jerusalem Post put it: “Arab World: Who will rule Egypt?”

Newly elected President Mohamed Morsi, he of the Muslim Brotherhood, or the Supreme Council of the Armed Forces (SCAF)?

The only power Morsi really has these days is to name the prime minister and select a cabinet. So this week he named Hesham Kandil to fill the former, Kandil having been “irrigation minister,” but now SCAF says Morsi can’t select a defense minister, nor the minister of foreign affairs, state budgets and security forces.   I mean the only thing Morsi can do is find a replacement at irrigation! I’d apply for the job except Egypt seems way too dusty for me. 

Let’s face it…Egypt is just a hellhole these days. Maggie Michael wrote the following in Lebanon’s Daily Star.

“CAIRO: Almost daily, armed Egyptians angry over poor services storm hospitals, beating up or menacing doctors. Others took over a governor’s office to protest weeks without running water. Fabric workers shut down factories with strikes demanding better conditions.

“Lawlessness, economic troubles and public frustration have been growing in Egypt for months under the country’s uncertain leadership.”

And Morsi is expected to change things for the better only he has no real authority. And the people are highly unimpressed with former waterworks guy Kandil.

Back to the hospital situation, Maggie Michael writes:

“The emergency center at Cairo’s biggest public hospital al-Qasr al-Aini was shut down Thursday when men armed with knives and machetes attacked workers and guards. The men were furious after the gynecologist who delivered the baby of a female relative asked them to purchase their own blood bags for her from outside the hospital because the facility was short. The daily Al-Masry al-Youm reported the assault left three security guards in critical condition.”

Ah yes, nothing like a little Arab Spring to freshen up the day.

China: The worst rainstorm in Beijing in six decades claimed at least 77 lives but some suspect the toll is far higher as the government is slammed for failure to warn the citizenry, this as state media only reports positive stories on the relief effort. Xinhua, a government-mouthpiece, said 1.9 million were impacted and damages total $1.6 billion.

Now I’ve read a ton on this topic, and everyone is blaming Beijing authorities for overbuilding (such as for the 2008 Olympics) without properly considering drainage issues, and this may indeed be the case. But there have been countless cases where American cities were overwhelmed by flash flooding. Heck, New York City’s subway system gets overwhelmed anytime there is a large amount of rain in a short period of time.

The issue, though, is giving proper warning, and generally the U.S. is superb in this effort. What’s interesting is that the two worst cases of flash flooding in just the past month were in China and Russia.

At least as of this writing, with more rain in the forecast in the Beijing area, there were reports that the Three Gorges Dam on the Yangtze was able to handle record water flows since it became operational in 2003. If that ever goes, I don’t want to imagine the devastation. I mean consider this tidbit I read.

“Nearly 30,000 people were called to stand guard to protect the dykes in Jingzhou, a central Chinese city with more than 6 million people, according to Xinhua.” [Bloomberg]

Meanwhile, on the human rights side, the situation in China is deteriorating rapidly, it would appear.

And ousted Chinese politician Bo Xilai’s wife was accused of the murder of a British businessman, Neil Heywood. Bo’s wife, Gu, and an aide allegedly poisoned Heywood.

North Korea: Comrade Ri Sol Ju is Kim Jong-Un’s new wife! Ri had emerged recently in state photos but no explanation was given and then the word they were married was buried in an article on an amusement park. She’s kind of perky, don’t you think, guys?

Random Musings

--In the lastest NBC News/ Wall Street Journal survey of registered voters, Barack Obama leads Mitt Romney 49-43, precisely the same as in four previous NBC/Journal polls over the last year. The negative ratings for both are big. As Bill McInturff, a Republican pollster who conducts the survey with Democrat Peter Hart said, “We have two candidates who are in deep, double-digit negatives. There is no precedent for that in the modern era.”

Perhaps most importantly, though, this particular poll was yet another that showed that only 8% of voters remain undecided.

“Mr. Romney is building support among men, seniors, and white voters overall, while Mr. Obama has outsize margins among women, African-Americans, Hispanics and younger voters….

“The survey offers a vivid snapshot of both candidates’ strengths and weaknesses. Nearly seven in 10 voters, for instance, say they like Mr. Obama personally, compared with just 47% who say that of Mr. Romney….

[In a USA TODAY/Gallup survey, “Obama retains significant advantages…By 2-1, he’s rated more likeable than Romney.”]

“But the poll also points to a range of strengths for the challenger. Mr. Romney tops Mr. Obama, 43% to 36%, on which candidate is seen as better equipped to improve the economy, a central plank of the Romney campaign. He is now winning among independents, while his support base among conservatives, seniors and white men appears far more eager to vote than do Mr. Obama’s core backers.

“The poll found that blacks, Hispanics and young voters now show significantly less interest in the election than they did in the summer of 2008.” [Neil King Jr. and Daniel Lippman / Wall Street Journal]

[The USA TODAY/Gallup survey notes “By 18 points, 51%-33%, (Republicans and Republican-leaning independents) report being more enthusiastic than usual about voting. In contrast, Democrats and Democratic-leaning independents by 4 points say they are less enthusiastic than usual, 43%-39%.]

Separately, last week a CBS News/New York Times poll found 47% said Obama would do a better job handling foreign policy, while 40% chose Romney.

--Jeff Bergner and Lisa Spiller / The Weekly Standard

“There are three major areas in which the (Romney) campaign urgently needs to sharpen its focus, and these areas are absolutely critical to success. We outline them here in three ‘Rules for Romney.’

Rule 1: Define your ‘big idea.’ What is the overarching theme of your campaign? What is the first thing you want people to think and say about you? What do you stand for? These questions – which are all really the same question – are not easy to answer. In answering them, you are defining your brand….

“Why should the American people vote for you? What will you do differently from a second-term Barack Obama? You say you know how to create jobs and grow the economy. Fair enough. But how will you do this? You have to tell the American people what you are promising them….

[Ed. Romney has been pathetic in this regard.]

Rule 2: Sell your benefits, not your features. What do voters know about you? They know your background. They know you were a businessman at Bain Capital, that you were governor of Massachusetts, and that you saved the Salt Lake City Olympics. But let’s be clear: Electoral success is not about services rendered or experiences accumulated. It is about promises for the future….

“(Demonstrate) the benefits…for people in the real world….

“In political campaigns this means that you do not put your biography, however eminent, at the center of your campaign. You have to explain to voters the benefits of voting for you, not your background or qualifications or experience….

Rule 3: Go all in. Nearly 70% of Americans believe the country is on the wrong track, and a sizable share of those believe the country’s very future is at stake in this election. Go all in….

“Draw the contrast between you and Barack Obama as sharply as you can. Wherever possible, use his own words and his own voice to portray his arrogance, his empty rhetoric, and his broken promises.”

Personally, I think the negative ads being shown in the New York City area by both parties are effective (though why they are spending money here I’ll never know…New York and New Jersey hardly being battleground states).

--In ten battleground states identified by the Wall Street Journal, unemployment in June rose in six of them…Michigan, Pennsylvania, Colorado, Iowa, New Hampshire and Virginia. The rate held steady in three…Nevada, Florida and North Carolina…and fell in one, Ohio.

Nevada, North Carolina, Florida, Michigan and Colorado now have rates equal to or higher than the U.S. rate, 8.2%. Pennsylvania, Ohio, Virginia, Iowa and New Hampshire have rates that are lower.

--Mitt Romney made an incredibly stupid comment in saying of the London Games it is “hard to know just how well it will turn out” in discussing the security situation. You can say something like that writing an op-ed for the New York Times or Washington Post, but not when you are running for president of the United States and visiting in London.

--In the latest Pew poll on Religion & Public Life, less than half, or 49%, of registered voters correctly identified Barack Obama as a Christian. 17% say he is Muslim. Six in 10 who know Mitt Romney is a Mormon say they are comfortable with that. I didn’t see how many think Romney is a Muslim.

--I have never been a big fan of Condoleezza Rice, but she does a terrific job in the Financial Times this week blistering the Obama administration’s foreign policy. Left unsaid, though, is how awful Mitt Romney’s presentation has been on this front.

--At least Romney, in speaking to the Veterans of Foreign Wars convention, blasted the president on the issue of leaking national security secrets in order to bolster Obama’s reputation.

“Whoever provided classified information to the media, seeking political advantage for the administration, must be exposed, dismissed, and punished.

“Exactly who in the White House betrayed these secrets? Did a superior authorize it?

“These are things that Americans are entitled to know – and they are entitled to know right now. If the president believes – as he said last week – that the buck stops with him, then he owes all Americans a full and prompt accounting of the facts.”

California Democratic Senator Dianne Feinstein, leader of the Senate Intelligence Committee, told a World Affairs Council forum on Monday:

“I think the White House has to understand that some of this is coming from their ranks.”

The next day, Feinstein was forced to apologize to the White House, saying she “shouldn’t have speculated” about the source of the leaks.

But of course she was right the first time.

--Earth to Chris Christie. The New Jersey Governor should not in the least consider himself a candidate to be Mitt Romney’s running mate. At this point I don’t even want him doing the Republican Convention’s keynote address. I mean in the month of June, New Jersey’s unemployment rate rose from 9.2% to 9.6%. That’s the ultimate measure of progress, or lack thereof. Fat Boy needs to focus on getting in shape or he won’t even get reelected here.

--With a few days to go in the month, July is looking like the hottest on record for the lower 48, and it may not even be close. St. Louis, Indianapolis, Chicago, Detroit and Denver are all on pace to shatter their all-time monthly records. On Wednesday, St. Louis hit 108, the 11th day this summer of at least 105 degrees.

And get this…from Doyle Rice / USA TODAY

“It’s been unusually hot even in torrid Death Valley, Calif. On July 12 its low temperature dropped to just 107 degrees after hitting a high of 128 degrees the previous day. Not only did the morning low temperature tie a record for the world’s warmest low temperature ever recorded, the average temperature of 117.5 degrees was the world’s warmest 24-hour temperature on record.”

But it’s a dry heat.

--Christine Brennan / USA TODAY…on the IOC’s decision not to recognize the 1972 Munich Olympics tragedy.

“Incredibly, there has never been a moment of silence held (in honor of the 11 Israeli athletes and coaches killed by Black September) at the opening ceremony of the Olympic Games….

“The opening ceremony, IOC President Jacques Rogge said, is ‘an atmospheric that is not fit to remember such a tragic incident.’

“What a ridiculous statement that is. The opening ceremony is exactly the place to remember that awful moment in Olympic history. When Georgian luger Nodar Kumaritashvili was killed the day of the opening ceremony in Vancouver in February 2010, Rogge demanded the evening’s script be rewritten to include several tributes to that tragic incident. And when American leaders asked that opening ceremony protocol be changed to include the entrance of the World Trade Center flag at the 2002 Winter Games in Salt Lake City, the IOC relented, and the tragedy of Sept. 11 was remembered in an unprecedented manner at an Olympic event….

“Few are willing to say it, but we all know why (the IOC doesn’t want to mark Munich). The IOC doesn’t want to do anything that might upset the nearly 50 Arab and predominantly Muslim nations that are competing in these Games.”

So we hereby name the IOC “Dirtball Organization of the World” for 2012. Make that “Racist Organization of the World.” Jacques Rogge himself goes into the December file for consideration as “Dirtball of the Year.”

--I’m watching the Olympic opening ceremonies myself and just caught an Obama commercial… “Forward”…like lemmings to the sea…gurgle gurgle…

--I was reading a piece in BBC History Magazine and I admit to never thinking about just how many Brits lost their lives in World War II as the men of Bomber Command. Take a guess. Were you close to 55,573? Author Patrick Bishop brought this up as part of a story on a memorial to Bomber Command that just went up in London’s Green Park…a rather ghastly one, it seems.

It’s been controversial to celebrate Bomber Command over the years because of the “controversy over civilian deaths in cities like Hamburg and Dresden,” as Bishop writes. But…

“As to the ethics of area bombing, German ruthlessness inevitably caused those who had the courage to fight them to harden their hearts. Britain was locked in an existential struggle with an evil foe. It is hard to disagree with the official historian of the Strategic Air Campaign, Noble Frankland, who experienced it himself as a navigator with Bomber Command. ‘The great immorality open to us in 1940 and 1941,’ he said, ‘was to lose the war against Hitler’s Germany. To have abandoned the only means of direct attack which we had at our disposal would have been a long step in that direction.’

“There is a final point, an awkward one to acknowledge nowadays. The bombing campaign altered Germany’s personality. The utter devastation it wrought taught the Germans a lesson about the folly of aggression and the benefits of peaceful democracy that has lasted to this day.”

--We note the passing of the first American woman in space, astronaut Sally Ride, just 61, who flew on the shuttle Challenger on June 18, 1983, and on a second mission in 1984.

Back in 1987, Dr. Ride led a study team that wrote a report advising NASA on its future direction. Aside from saying Mars should be the “ultimate objective,” Sally Ride noted that the United States had “lost leadership” to the Soviet Union in a number of aspects of space exploration. Rather prophetic.

--Lastly, you know I have a “24-hour rule” on big issues of the day, as much as I can abide by this. Last week it was about 24 hours after the Aurora, Colo., shooting when I posted my column and I had little to say aside from praying for the victims. I do just want to express my admiration for what was clearly a terrific effort on behalf of all the first responders in Aurora. And actor Christian Bale is to be commended for visiting the victims still recovering in area hospitals. He sought no attention for this deed.

But I’m sorry to be callous when I say I am sick of the statement “Love and kindness conquer all” as one resident of Aurora told a news reporter. Bull. [See the above on Bomber Command.]

I agree with the statement of historian Victor Davis Hanson, as reported by the Wall Street Journal, who wrote in part:

“I don’t care a whit whether the Aurora killer was a loner. I don’t care if he was unhappy or if he was on medication. Millions share such pathologies without killing a mouse. I don’t even know whether giving him swift justice will deter the next mass shooter. Yes, give the suspect expert legal counsel; call in all the psychiatrists imaginable; sequester the jury; ensure the judge is a pillar of jurisprudence; but if he is found guilty, I would prefer the gallows and quickly so, to remind us that we live in a civilization that prefers to remember the victims and to remember nothing at all of their killer.”

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

God bless America.
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Gold closed at $1626
Oil, $90.13

Returns for the week 7/23-7/27

Dow Jones +2.0% [13075]
S&P 500 +1.7% [1385]
S&P MidCap +1.0%
Russell 2000 +0.6%
Nasdaq +1.1% [2958]

Returns for the period 1/1/12-7/27/12

Dow Jones +7.0%
S&P 500 +10.2%
S&P MidCap +8.0%
Russell 2000 +7.4%
Nasdaq +13.5%

Bulls 40.4
Bears 26.6 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Don’t forget the StocksandNews.com iPad app…perfect with salt water taffy.

Brian Trumbore