Week in Review

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Week in Review

09/01/2012

For the week 8/27-8/31

Europe, Washington and Wall Street

Ben Bernanke’s Jackson Hole, Wyoming, speech on Friday ended up being much ado about nothing (zero surprises) as he called the U.S. economic recovery “far from satisfactory,” while singling out the high unemployment rate as a “grave concern…because persistently high levels of unemployment will wreak structural damage on our economy that could last for years.” But Bernanke said thus far the labor market weakness is not a result of structural issues and instead the result of cyclical problems in the economy, i.e., lack of demand, and you can blame all kinds of factors for this, like Europe.

So in light of the above, Bernanke used the same language employed in the Fed’s policy statement following its July 31/Aug. 1 gathering.

“Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions.”

What it all means is that with GDP for the first two quarters of the year at 2.0% and 1.7%, the latter revised up from an earlier estimate of 1.5% this past week, and with the outlook for the second half generally in the 2.0% to 2.5% range (confirmed more or less by recent data and by the latest beige book readings from around the country, which touted stronger auto and home sales for strength in some regions, while manufacturing continues to be on the weak side overall), we are hardly in the kind of growth mode that will send the unemployment rate tumbling down to 7% or lower from its current 8.3%. [Though Bernanke was quick to take credit on Friday for the jobless rate dropping from the cyclical high of 10% because the Fed was so accommodative in keeping interest rates at zero, claiming the Fed’s bond purchases in the first two rounds of easing somehow created at least 2 million jobs. Why they are so good!]

Anyway, the latest reading from the S&P/Case-Shiller home price index for June (these are the guys using tin cans, thus the lag) had prices for the 20-city major metropolitan area benchmark rising 0.5% from June 2011, further signs of a bottom, with inventories continuing to fall, which is good. I also just need to plug in something I missed last week on this front when I was in Ireland, that being existing home sales figures for July, 4.47 million, were at an eight-month high. The median price rose to $187,300 vs. $171,200 in July 2011, yet another good sign, though to give you an idea of just how frothy home sales had become during the bubble, the peak figure for existing home sales was 7.25 million in Sept. 2005.

Turning to Europe, next week is yet another critical one as the European Central Bank’s governing council (lots of fine wine to be served) is to meet on Sept. 6 with the expectation that ECB President Mario Draghi will lay out his long-anticipated bond-buying program for the likes of Spain and Italy to get their borrowing costs down.

Or maybe he won’t. There seems to be a lot of uncertainty, again, as to whether Draghi will spell it out or there could be further delays, perhaps waiting until Sept. 12 when Germany’s constitutional court rules on the legitimacy of the European Stability Mechanism, or ESM, the permanent bailout fund. The court is likely to approve the ESM, but it could impose roadblocks on the extent of Germany’s contribution. [Sept. 12 also being the date for key elections in the Netherlands as well as the start of the Federal Reserve Open Market Committee meeting where Ben Bernanke and his band of merry bondsmen may enact further steps to keep interest rates low, QE3, thereby screwing savers into the wall for good.]

The thing is, Draghi is being rebuffed by the Bundesbank, which is against bond-buying, while German Chancellor Angela Merkel has voiced her support for the idea. 

Then you have Spain, which desperately needs help in reducing its interest rates but Spain is refusing to request a bailout, the required step before the ECB would buy Spain’s paper. Spain, which has no leg to stand on, doesn’t want to accept any conditions for the help (“conditionality”), at least not until they see the details of Draghi’s program.

The whole thing is crazy. Spain has to refinance 20 billion euro of debt in October, demands the ECB buy unlimited amounts of bonds, but doesn’t want to suffer any penalties.

Yet there is Catalonia, one of Spain’s regions that can’t go to the bond market for the 5 billion euro it needs to pay its bills, a region that is 1/5th of the overall economy in Spain, and it says it won’t accept any conditions either. All this while private bank deposits are dropping at the fastest rate since the launch of the euro and GDP has declined three consecutive quarters with no improvement in sight.

Spain did announce on Friday it would create a “bad bank” to sop up all the toxic property assets that currently reside on the banks’ balance sheets but Spain is so unreliable who knows how this will shake  out.

Oh, and Spain’s retail sales fell 7.3% year-over-year in July.

By the way, the ECB already has 212 billion euro in sovereign debt holdings on its balance sheet. How many hundreds of billions more can it take on? 

Portugal, already the recipient of a 78 billion euro bailout, is running a deficit well above its target and is probably in need of further relief. What makes Portugal different from Spain, though, is that Portugal has credibility.

And then there is the true immediate crisis, Greece. The other day French President Hollande said Greece must continue on the austerity path to remain in the eurozone and the Greek government is scrambling to get another 13 billion euro or so of cuts in place before the “troika,” the EU, IMF and ECB, meet to gauge Greece’s progress on its existing reform efforts next week before a report is issued by the troika in early October, with eurozone finance ministers then deciding on the next tranche of aid by Oct. 8. Greece wants an extension on enacting its existing reforms. Hollande said no way. Greece could easily run out of money prior to Oct. 8.

As for Germany, Europe’s growth engine, there was more bad news this week. Business confidence hit a 29-month low and retail sales for July fell 0.9% when a gain of 0.2% was expected.

One other item…Eurostat said the eurozone’s unemployment rate remained at 11.3% for July, though the number of jobless increased for the first time to over 18 million. Spain and Greece continue to have jobless rates of more than 50% among those 25-and-under.

With all the above in mind, the key for any real eurozone solution would be the establishment of a true “banking union,” as proposed a few months ago at an EU summit. The ECB has drawn up a plan that would strip existing national supervisors of all authority to shut down or restructure their countries failing banks, with power passing to a new ECB “supervisory board” separate from the ECB’s existing governing council. The 23-member board would consist of one representative for each of the 17 nations in the eurozone, plus a six-member board, including the chairman and vice chairman. Independence from the ECB’s existing monetary activities is critical.

But the proposal that European Commission President Jose Manuel Barroso will unveil in his state of the union address on Sept. 12 is to give this new supervisory board power over all 6,000 eurozone banks. Germany is adamantly against this. It wants the board to monitor just the eurozone’s 20-25 largest banks, the ones that could conceivably take down the entire eurozone in a crisis, and let the existing national supervisors monitor the other 5,975. It’s a huge sticking point.

German Finance Minister Wolfgang Schauble, writing in the Financial Times, harkened back to September 2008 and the Lehman Brothers bankruptcy.

“The key lesson of the crisis, one sadly confirmed by the recent Libor scandal, is that self-regulation and light-touch supervision just do not work in the financial sector. Without adequate rules and careful policing, the interests of individuals and those of the system will invariably diverge. Left to its own devices, the market will self-destruct.

“Under a mandate from the EU heads of states and governments, the European Commission will shortly unveil proposals for the creation of a European-wide supervisory system for banks. This new supervisor is widely expected to be housed at the European Central Bank.

“Setting up such a system will be no simple undertaking and doing so within a reasonable timeframe will require not just hard work but also courage, for it implies a big step towards more European integration – a genuine transfer of sovereignty and a significant strengthening of European institutions….

“This also means that it should focus its direct oversight on those banks that can pose a systemic risk at a European level. This is not just in line with the tested principle of subsidiarity [Ed. sic…deciding between whether the Union should handle an issue or the Member States]. It is also common sense; we cannot expect a European watchdog to supervise directly all of the region’s lenders – 6,000 in the eurozone alone – effectively.”

So there you have it. Once again another conflict between the ECB and the Germans. Somehow, we are told, this will all be settled by year end. Just understand that to become law, all 27 heads of state in the entire EU must approve, with then some, if not all, national parliaments weighing in, I imagine. Much is going to change in the interim that could cause more than one state to back off, such as Greece exiting the eurozone, or spiraling issues in Spain that get the likes of Austria, the Netherlands, Germany or Finland to say, “That’s it. I’m outta here.” Or, “That’s it…no more bailout funding from us.”

Finally, Europe needs growth and when the continent’s banks aren’t lending, the pace of which is currently down 43% from a year ago, the future remains bleak.

Street Bytes

--Stocks had a second consecutive week of fractional losses, reduced on Friday with Bernanke’s talk that further easing is around the corner. The Dow Jones lost 0.5% to 13090, while the S&P 500 declined 0.3% and Nasdaq lost 0.1% to 3066.

--U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.22% 10-yr. 1.55% 30-yr. 2.66%

Treasuries rallied anew on the heels of Bernanke’s speech. More bond-buying ahead, sports fans.

--China just released its official PMI for manufacturing, 49.2, indicating a contraction in manufacturing activity and a nine-month low.

--Profits at China’s industrial firms fell 5.4% in July from a year earlier. That compares with a 1.7% annual drop in June. Just another sign of the global slowdown in demand.

Premier Wen Jiabao said the other day, “The third quarter of the year is a critical period for China to realize the year’s export growth target and we should take targeted steps to stabilize growth.” [Xinhua]

The benchmark Shanghai Composite Index fell 7.8% in July and August, the worst performer after Cyprus among 93 global indexes tracked by Bloomberg.

--The South China Morning Post (Hong Kong) reported that the mainland government is increasingly concerned about the “rapid build-up of debt in industries such as steel and power, as cooling demand and overcapacity cause delays in payments amid the slowest economic growth in three years.”

Specifically, a few key ministries have met with leaders of the steel, coal, power, non-ferrous metal, and machine building industries. Crude steel output dropped 0.1% in the first seven months of this year, the first decline since 2000. But, “Accounts receivable – the money owed by clients that buy steel, such as property developers or infrastructure companies – surged 20% at the end of June from a year earlier.” Coal industry receivables soared 53% at the end of June from a year earlier. Yikes. [Victoria Ruan / SCMP]

--Japan’s retail sales for July fell 0.8% from a year earlier, the first drop in eight months and far worse than expected; continuing a trend with Japanese economic data recently. Industrial production in July fell 1.2% when an increase of 1.7% was expected. Japan’s GDP seems destined to decline in the third quarter amid falling exports and weak consumer demand. [Consensus is still for a GDP increase of 1%, annualized, but what I’ve seen speaks otherwise, especially when you factor in the importance of China and its own weak data.]

--South Korea’s industrial production in July fell for a second consecutive month, down 1.6% from June. Again, worse than expected.

--China signed a deal to buy 50 planes worth $3.5 billion from Airbus; an agreement signed by German Chancellor Merkel at the start of a two-day visit to China.

--UBS estimates that 2.3 million Chinese will visit Taiwan this year, up from 300,000 in 2008; a big boost for Taiwan’s economy, as reported by the Financial Times. What’s interesting to me is that Taipei, having been there, is really pretty boring (great people, however). But the surrounding area is fascinating, like the seacoast. 

[Speaking of planes and travel, Samsonite said luggage sales to Asia grew 21.3% in the first half of this year.]

--India’s economy grew a little faster than expected in the second quarter, up 5.5% over year ago levels when 5.2% growth was forecast. The first quarter saw GDP rise at an annualized rate of 5.3%.

But factory output has been falling with slowing global demand and the government faces bitter political opposition over the pace of reforms, let alone a number of corruption scandals don’t help.

--Ironically, for the month of August, Spain’s stock market rose 10% and Italy’s 8.5% as investors became increasingly optimistic about the ECB’s coming bond-buying program.

--The Apple-Samsung $1.05 billion judgment was last Friday afternoon and Apple stock didn’t have a chance to really react until Monday morning, at which Apple shares hit another all-time high of $675.70, up $12, but then slithered down the rest of the week to close at $665.

Sitting in my hotel room last weekend in Ireland, rather tired, I readily admit, I didn’t see the details that the federal jury found Samsung infringed on six of seven Apple patents at issue, and I also didn’t realize the initial judgment, which has practically zero financial impact on Samsung given its heft and fine financial condition, could be still trebled by the U.S. trial judge, though I didn’t see when that date would be. The court meets on December 6 on Samsung’s appeal, as well as Apple’s motion to have specific Samsung mobile phones banned in the U.S.,  but I plead ignorance on whether that is the same time the damages are finalized (though of course it makes logical sense it would be the same day, as Spock might conclude).

Regardless, next up for Apple is Google, with Steve Jobs having told biographer Walter Isaacson that Google’s Android was “a stolen product” and “I’m willing to go thermonuclear war on this.” [Claire Cain Miller and Brian X. Chen / New York Times]

--The World Bank warned global food prices surged 10% in the month of July with the poor, of course, being most impacted. From June to July, corn and wheat prices each rose by 25% while soybean prices increased by 17%, according to the WB which also re-emphasized that the use of corn to produce ethanol is a big factor in the price spike.

--General Motors is halting production of the Chevy Volt electric car, the second interruption in production for the car that can go 38 miles on battery power before needing a recharge, because it’s just not selling. GM will close the plant where the Volt is assembled for four weeks.

But, while it’s easy to poke fun of the high-minded types who extol the Volt’s virtues, through July, GM did sell 10,666 vs. the 2,870 sold during the same period a year ago. It’s just that there are too many (6,500) in inventory.

--Hertz Global Holdings Inc. acquired Dollar Thrifty Automotive Group Inc., finally, for $2.3 billion. Both Hertz and Avis, Nos. 2 and 3 behind Enterprise Rent-A-Car, have been trying to acquire No. 4 Dollar. Goodness gracious. Where the heck have I been? I thought Hertz was already No.1! I feel so stupid.

--U.S. arms sales tripled in 2011 to a record high. USA! USA! Thank goodness the turmoil in the Middle East has led Persian Gulf allies to ramp up their weapons procurement! And thank goodness Iran’s mullahs are so awful!

I mean Saudi Arabia alone purchased 84 advanced F-15 fighters, plus upgrades to 70 of the F-15 fighters in the current fleet! Yippee!

OK…I’m being just a bit facetious. But what the heck. This equates to lots of good-paying jobs. Might as well be ours.

--Here’s a potential “October Surprise.” The 15,000 longshoremen along the East Coast who cover ports from Canada to Texas may go on strike October 1st unless a new master contract is signed when the current one expires Sept. 30. Contract negotiations between shippers and a key Newark-based local broke off last week. This would be a mess because it would have an immediate impact on economic activity. The Obama administration should be very concerned over the timing.

--Citigroup Inc. agreed to pay $590 million to settle claims tied to the financial crisis, specifically that it hid its liability to toxic subprime debt from investors.

Well of course they did.   They all did. Citigroup’s settlement, though, is higher than what Goldman Sachs paid in 2010 ($550 million) and Merrill Lynch in two separate lawsuits ($475m in 2009 and $315m in 2011). Citigroup had shelled out $285 million in a separate case of its own in 2011.

In terms of the current settlement, according to Suzanne Kapner of the Wall Street Journal:

“During the class period, the complaint estimates, Citigroup underwrote in excess of $70 billion of such securities [i.e., collateralized debt obligations, CDOs]. While investors assumed Citigroup had sold most of those securities, the complaint alleged that the bank had retained some $57 billion on its books.”

Citigroup was the biggest underwriter of CDOs in 2007, $41.14 billion.

--Thank god I flew back on United from Ireland on Monday and not Tuesday, as Tuesday a two-hour computer glitch led to 580 flight delays and nine cancellations. Us long-time Continental flyers, who had a solid experience once Gordon Bethune took over (I still say Bethune would have made for a good president) are having trouble getting used to United post-merger. But, the flight attendants have been good thus far. 

--American Airlines could be nearing a merger with US Airways. The companies announced on Friday they have started talks, but a deal could still take a while, if ever. All kinds of moving parts in the airline business, especially the unions and pension liabilities.

--Tiffany & Company lowered its outlook for the year, though shares rose as same-store sales declined less than expected, 1% vs. estimates of a 4% drop. Chief executive Michael J. Kowalski said, “Not surprisingly, sales growth has been affected by economic weakness in a number of markets. We think it is only prudent to maintain a cautious near-term outlook about global economic conditions and the effects on customer spending.”

--According to a Pew Research Center poll, 58% of Americans say the rich don’t pay enough in taxes, while 26% believe the rich pay their fair share and 8% say they pay too much.

--The U.S. Dept. of Agriculture issued a forecast that projected, as reported by the Financial Times, “Net farm income will reach $122.2bn in 2012, the highest-ever nominal profit and the second highest in inflation-adjusted terms after 1973.”

And you may ask yourself, ‘How can this be?’ (as David Byrne of Talking Heads might have put it).

It’s all about high grain prices and federal crop insurance, or rather payouts from the latter as a result of the drought. So the farmers abandon their crops and file insurance claims. The University of Illinois says there will be an underwriting loss of $18 billion. In total, the U.S. government kicks in $14 billion. Plus, taxpayers pay producers $11 billion in direct subsidies in 2012, up 6%+ from last year.

But…not everyone can buy crop insurance. Take your livestock folks. High feed prices have killed them, including, as I wrote in this space a few weeks ago, my good friends in the Oklahoma Panhandle, who have both dairy and pig operations. They are screwed.

--Story in a local Irish paper on the number of horses being slaughtered due to the economy. During the boom times, horse possession, for racing or otherwise, became commonplace, but last year 12,575 horses were put down in abattoirs supervised by the Dept. of Agriculture. A similar pace is slated for 2012. This compares to just 2,002 in 2008.

--Meanwhile, I had a few conversations on a number of topics on the Emerald Isle and the housing sector is still a shambles. A few of the holes at Lahinch Golf Club parallel the main road and on the other side are a series of very modest homes whose value totally exploded during the boom…like by 5Xs in some cases. Everyone was in agreement the values today are more than 50% lower, at least (50% being the official, average decline nationwide).

Bloomberg recently had an article saying 553,000 houses were built in the 10 years through 2005 in Ireland, or twice the pace the rest of Europe, according to the piece. [I question this because of Spain.] “About 294,000 homes now lie empty, as prices halved.”

My friend and I stayed at a place in Lahinch that I’d love to name but as will become readily apparent I can’t, because the proprietor is spokesman for the Irish hotel association. Michael told us that of 800 hotels in Ireland, 125 are “zombie hotels.” The government keeps them open (and in the “bad bank,” known as NAMA) because it’s important to keep people employed at this point. The preceding figures don’t include those that have given up and closed their doors.

But on another topic, understand through my 20 trips to Ireland since 1989, I’ve seen it all, including during the boom the fact that many of the service workers (think pubs, hotels and restaurants) were not locals.

So then the economy collapses and the “Polish plumbers,” an all-encompassing term, emigrated back to their home countries.

The result? The locals are back filling the jobs they did before the boom. And that is good; very good for tourists.   The service is back…in a big way. The little stuff. Like on Monday morning I return my car to Hertz at Shannon Airport before 6:00. The office is just opening up, but the local lad couldn’t have been nicer in handling everything and shuttling me to departures. A few years ago it would have been, “Grunt…grunt grunt…grunt.”

Oh, I wish I could tell you details of our Thursday night over there, having arrived very early that morning, but let’s just say my friends and I desperately needed a meal after a night of drinking Pepsi (or an alcoholic derivative thereof) and we were told the kitchen had closed about an hour earlier, it then being midnight, yet, presto! Out came four full fish and chips meals. That would not have happened during the boom. [This was the Atlantic Hotel, by the way, not where we stayed….and guess what? They proceeded to get a lot of our business the rest of the way. Funny how that works.]

--So while we’re on the topic of service, there is my issue with JPMorgan Chase. They get a one-week reprieve, because while I did finally receive my check from their escrow department, I don’t have the time today to go through all the documentation and do the story justice. I will, next time, and I will still pillory these guys.

--California’s community college system, the nation’s largest, has suffered over $800 million in state funding cuts since 2008 and now, according to a survey, more than 470,000 students are beginning the fall semester on waiting lists, unable to get into the courses they need. It’s students like these who use community colleges either to transfer later into four-year schools or get job-training. The state had to cut, but it’s at a time when the kids need the schools most.

--Speaking of community colleges, in the old days many would attend these to learn the auto mechanics trade and USA TODAY reported this week that “A generation who grew up playing Xbox games instead of rebuilding carburetors doesn’t seem to have the fascination with auto repair as earlier generations who grew up as shade-tree mechanics.

“There is already competition among auto dealers in many parts of the nation to hire or retain good technicians. The bigger worry is whether there will be enough younger workers in a few years as a wave of midcareer mechanics hits retirement age.”

There are misperceptions about a career in auto repair. One thing, you don’t have to worry about being outsourced abroad and the job pays an average of $35,790, though 10% earned more than $59,590 in 2010, the most recent year the Bureau of Labor Statistics has data. And with all of today’s cars being wired far more than cars of even just seven years ago, you need en electronics and computer background.

--Lexmark announced it would exit the inkjet printer business as a way of improving profitability. Good thing I use Hewlett-Packard products for all my printing needs. I wouldn’t know what to do.

Lexmark will be closing an inkjet supply factory in Cebu, Philippines by 2015 that employs 1,700.

--Home prices in the Fairfield County, Conn., area, which encompasses snooty Greenwich, have fallen 12.9% in the second quarter from a year earlier. You see, friends, Greenwich is peopled with hedge fund/Wall Street types whose bonuses generally aren’t what they used to be. They’ll learn to adjust.

--Newhouse Newspapers announced that two more of its papers, The Post-Standard in Syracuse and The Patriot-News in Harrisburg, Pa., would join The New Orleans Times-Picayune and its Alabama newspapers in going to just a three-day print schedule. Heck, in Syracuse the basketball team plays no more than three times a week, normally two, so this is fine; Orangemen hoops being the only thing going on there. As for the Patriot-News, it made its name with its coverage of the Penn State scandal.

--Since I have CNBC on in the background all day, until Wolf Blitzer comes on at 4:00, I get really tired of some of the ‘forced outrage,’ my term, by a few of the anchors as a way of being different, hip, whatever.

Such was the case the other day with the decision by New York’s attorney general to investigate the multibillion-dollar-energy-drink industry in terms of its claims regarding ingredients and health benefits.

Oh, this is just another example of the Nanny State run amok, said some of the jerks on the network.

Good! say I. How the heck do you really know what’s in all these new drinks?! Personally, I haven’t wasted a dime on them outside of a Gatorade maybe 2 or 3 times a year on the golf course. But of course, consumers are being taken for a ride. You know it. We all know it.

So let’s finally learn which brands are just bug water and which really contain what they say they do.

Then again, if you just blindly buy stuff without knowing what it truly is, go ahead, say it’s the Nanny State run amok.

[The FDA’s regulation of the energy drink business has been minimal, at best, over the years, compared to the soda biz.]

--Major League Baseball signed an eight-year extension of its deal with ESPN, doubling the rights fee paid to $700 million a year, or a $5.6 billion package that will run through the 2021 season.

--Inflation Alert: The average price of tickets for resale at the U.S. Open is up 7.6% this year compared to last, and 49% higher than in 2010. [Ken Belson / New York Times] Attendance for the Open is expected to hit a record, especially as the weather largely cooperates. 45% of the tournament’s spectators are normally from out of town and 14% are international visitors. [Lisa Fickenscher / Crain’s New York Business]

--For the third year in a row Isabella and Jayden were the most popular baby names in New York City. But did you know, according to Mayor Michael Bloomberg, “People born in New York City have a life expectancy of 80.6 years, nearly 2.5 years longer than the national average of 78.2”?

2. Sophia…Jacob
3. Olivia…Ethan
4. Emma…Daniel
5. Mia…Michael

--The New York Post’s Page Six reports that “Today” co-host Savannah Guthrie is too tall, over six-feet in heels, so she’s been asked to wear lower heels and “lower her anchor chair” to compensate, according to a source. NBC denies this.

Foreign Affairs

Syria: Egypt’s new Islamist President Mohamed Morsi said he would pursue a “balanced” foreign policy, reassuring Israel, without actually naming it, that they have nothing to fear from his campaign in the Sinai Peninsula to root out terrorists that were responsible for the recent deaths of 16 Egyptian soldiers.

But I’m noting Morsi under ‘Syria” because after traveling to Beijing, where he was seeking Chinese investment, Morsi called on Bashar Assad to be removed from power, despite the ongoing Russian and Chinese backing for Assad, and then in the first visit by an Egyptian leader in decades to Iran, Morsi specifically denounced the “oppressive” Syrian regime as he spoke from the country that is Syria’s leading sponsor at a summit of the Non-Aligned movement in Tehran. That took guts. Morsi urged backing for the rebels and totally stunned his hosts, including Iranian President Mahmoud Ahmadinejad.

“The revolution in Egypt is the cornerstone for the Arab Spring, which started days after Tunisia and then it was followed by Libya and Yemen and now the revolution in Syria against its oppressive regime,” Morsi said. “Our solidarity with the struggle of Syrians against an oppressive regime that has lost its legitimacy is an ethical duty and a political and strategic necessity.”

Syria’s foreign minister then stormed out and later condemned Morsi’s stance as an “interference in Syria’s internal affairs,” which he said “incites continued bloodshed in Syria.”

Meanwhile, back to the inept Obama administration, with Chairman of the Joint Chiefs of Staff Gen. Martin Dempsey being an extension of same, Dempsey said that the establishment of safe havens would be “an agenda item” when NATO reconvened. Turkey was forced to block refugees from crossing into the country this week as the numbers in Turkish camps on the Syrian border hit 80,000. Previously, Turkey said 100,000 was the limit it could handle. Over 200,000 refugees are now registered in Turkey, Lebanon, Iraq and Jordan.

This is incredible. About 25,000 deaths later (this being the new estimate), many women and children, the White House is still stalling to get through Nov. 6.  

Meanwhile, French President Hollande had the guts to state that he wants the opposition to form a provisional government quickly so that he can recognize it, while warning the use of chemical weapons would be cause for military intervention.

As for Bashar Assad, he emerged this week to give a television interview wherein he said:

“We are fighting a regional and global war, so time is needed to win it. We are moving forward. The situation is practically better but it has not been decided yet. That takes time.”

“Defections are a mechanism of self-cleansing of the nation. If there is a Syrian citizen who knows of someone who wishes to flee but is hesitant to do so he should encourage him,” he said with a smile.

Assad also heavily criticized Turkey’s leaders, calling some of them “ignorant.” [Daily Star]

“The mounting massacres and refugee flows are rendering the Obama administration’s stubborn stance of passivity on Syria unsustainable. As soon as Thursday, the Turkish government of Recep Tayyip Erdogan, a member of NATO, may ask the UN Security Council to authorize a safe zone for refugees inside Syria. While that is likely to be resisted by Russia, the United States would be foolish to continue standing by while allies such as Turkey and Jordan are swamped, and possibly destabilized, by Syrian refugees. Even more reprehensible is refusing to intervene while a state systematically murders its own citizens.

“Mr. Obama has said that ‘preventing mass atrocities and genocide is a core national security interest and a core moral responsibility of the United States of America.’ In a speech at the Holocaust Museum in April, he said that ‘we need to be doing everything we can to prevent and respond to these kinds of atrocities – because national sovereignty is never a license to slaughter your people.’ Yet now, as atrocity after atrocity is recorded in Syria, he rejects proposals by aides and allies for even limited and humanitarian intervention. Administration officials reportedly have discussed options for a safe zone, but the president has repeatedly sided with those favoring inaction.

“Last week President Obama did say that his ‘calculus’ about ‘military engagement’ would change if the regime began using or deploying its stocks of chemicals weapons. But as the Syrian blogger Ammar Abdulhamid has written, the drawing of that red line may have emboldened the regime to conclude that anything short of using weapons of mass destruction will be tolerated by Washington.

“Mr. Abdulhamid wonders ‘why slaughter would be deemed tolerable if it happened one way and not another.’ It’s a good question – and one for which the administration’s morally bankrupt policy has no answer.”

Iran: The same above-referenced Martin Dempsey said he did not want to be “complicit” if Israel chose to strike Iran’s nuclear program. Speaking to journalists in London, Dempsey said an attack would “clearly delay but probably not destroy Iran’s nuclear program,” but added that the “international coalition” pressuring Iran “could be undone if it was attacked prematurely…. I don’t want to be complicit if they [Israel] choose to do it.” [Jerusalem Post]

Understand that Dempsey’s statement comes as the UN’s International Atomic Energy Agency issued its quarterly report on Iran’s nuclear program and concluded that Tehran had doubled the number of centrifuges spinning out enriched uranium, while increasing its stockpile of same from 145kg to 190kg in just the past three months. This news moves Israel even closer to pulling the trigger, ahead of the U.S. election. Prime Minister Netanyahu has all the ammo he needs to tell his people ‘time is running short’ before Iran is able to hide and bury further key elements of its program, rendering them virtually impossible to take out.

Separately, the Wall Street Journal’s Jay Solomon reported a key Iranian nuclear scientist has re-emerged after being in the shadows for a number of years, Mohsen Fakhrizadeh, “widely compared with Robert Oppenheimer” in terms of his influence.

Israel: Palestinian Authority President Mahmoud Abbas said he will not ask the UN General Assembly to recognize a Palestinian state when it convenes latter part of the month in New York.

Lebanon: In yet another worrisome development, a branch of al-Qaeda issued a specific threat against Shiites in Lebanon, warning that “the positions of Hizbullah and the Amal Movement vis-à-vis the Syrian revolution do not serve the sect’s best interest…If you maintain your arrogant attitude, you will be punished, and you will pay. You only have yourselves to blame.” [Shiites in Lebanon will bear the consequences if they insist on linking themselves to President Assad.]

And Israeli Prime Minister Netanyahu warned the Lebanese that an attack by Hizbullah would be viewed as an attack by the Lebanese government, seeing as Hizbullah is part of the government itself. Netanyahu, in relaying his message to Lebanese leaders through a Western diplomat, said the Israeli army would “strike back forcefully – without differentiating between Hizbullah and the state of Lebanon.” I wouldn’t want to be in Beirut should this happen. Netanyahu was responding to an earlier remark by Hizbullah’s Sheikh Nasrallah: “War with Lebanon would be very, very, very costly.” [Daily Star]

Afghanistan: It was a horrible week for Australia, specifically on Wednesday, as five Aussie soldiers were killed; two in a helicopter crash and three by yet another Afghan wearing a soldier’s uniform, bringing to 45 the number of coalition troops killed in rogue attacks this year (at least 15 in August alone). Opinion polls before these losses show Australians overwhelmingly want their troops pulled before the current 2014 deadline. 38 Aussies have been killed since the war began.

On Monday, the Taliban killed 27 in two separate attacks; beheading 17 civilians (reason not clear) and killing 10 Afghan soldiers. That day two more Americans were killed by an Afghan soldier in another green-on-blue shooting.

And this morning, Saturday, suicide bombers killed at least 12 outside a NATO base but no soldiers were among the victims.

Iraq: The country executed 21 people on Monday on charges of terrorism, bringing the year’s total to 91, which has the UN’s human rights chief calling for a moratorium. There appears to be zero transparency in the trying of these cases.

China: The People’s Liberation Army announced it had made a “strategic transformation” in its nuclear weapons capability, following foreign reports of various missiles being test-fired recently. One ICBM known as the Dongfeng-41 (DF-41) reportedly has a range that would threaten every American city. The PLA also spoke of having a fully mobile missile force, as in they can hide their missiles anywhere before launch.

On a different issue, at least 18 bridges have collapsed on the mainland since 2007, killing 135, according to records from the State Administration of Work Safety, as reported by the South China Morning Post. The number could be higher. Safer to swim.

Russia: Opposition leader Boris Nemtsov issued a report detailing the luxury perks of President Vladimir Putin, calling the spending on Putin’s toys an affront to millions of Russians living in dire poverty. Just what are these holdings? Try 58 planes and helicopters and 20 homes or palaces with opulent outfittings. Nemtsov and his fellow authors wrote:

“One of the most serious reasons prompting V Putin to hold onto power is the atmosphere of wealth and luxury to which he has become accustomed. In a country where more than 20 million people barely make ends meet, the luxurious life of the president is a blatant and cynical challenge to society.”

The Kremlin did not comment. Outrage among the public has yet to surface because Russian leaders have always lived this way.

France: President Hollande has been in office just a few short months and yet his approval rating has already fallen from 55% to 44%. Hollande outlined a plan to create 150,000 jobs for young people that will cost $2.9 billion in attempting to deliver on a campaign promise.

Venezuela: A catastrophic explosion at the country’s biggest oil refinery killed at least 48 as fires raged for days afterwards. There was zero warning for residents next to the refinery, yet people there smelled strong fumes hours before the blast. Then, a cloud of gas ignited in an area of fuel storage tanks and exploded. A cause hasn’t been determined, but experts say it is inexcusable that evacuations weren’t mandated.

The danger for President Hugo Chavez is that the lack of competence exhibited, which is on display throughout industrial Venezuela, helps to bring him down on Oct. 7 in the presidential election. Before the refinery explosion, Chavez actually trailed his opponent, Henrique Capriles Radonski, for the first time in a poll, 48-46.

Random Musings

--Prior to the Republican National Convention, a Washington Post/ABC News poll of registered voters had Mitt Romney at 47% and President Obama at 46%, with the selection of Paul Ryan having no impact. The important polls will begin emerging the week of Sept. 10 following both party conventions.

On likability, Obama still startlingly leads 61% to 27%. The president’s approval rating in the Post/ABC survey was an even 50%. George W. Bush was also at this number at this time in 2004.

One big warning sign for Obama…48% of his backers are “very enthusiastic” about his candidacy, compared with 42% of Romney backers who feel that way about their campaign. Back in May, the president had a 25-point lead in this measure.

--A CNN/TIME/ORC survey of North Carolina voters had Mitt Romney with a 48-47 lead in this key battleground state. The other eight states CNN considers toss ups are: Colorado, Florida, Iowa, Nevada, New Hampshire, Ohio, Virginia and Wisconsin.

The CNN poll of Florida voters has Obama with a 50-46 lead. Obama defeated John McCain by three in the Sunshine State in 2008.

--Hey, did you know Mitt Romney had to give the speech of his life on Thursday? Never was the obvious stated so often in the history of mankind. Personally, I saw all the major speeches for the three nights and was totally underwhelmed by Chris Christie, who was just shouting, and did not understand those who called Ann Romney’s performance “spectacular,” as the New York Post’s John Podhoretz did. But then I have consistently not been a Romney supporter. He has run a dreadful campaign thus far in what should be a Republican rout.

My views are also admittedly different from the mainstream because I remain incredulous at how little attention is being paid to foreign policy in a world that could erupt in the blink of an eye. Romney should be rolling the president on this topic, so it should come as no surprise that I appreciated the speeches of Condi Rice and John McCain.

On a single issue, Syria, all Romney needed to do from day one, as I’ve been writing ad nauseum, was push for safe havens in working shoulder to shoulder with our NATO ally Turkey. This would not have required a massive deployment of troops to fulfill our humanitarian duty as the world’s leader.  

I was also miffed at Paul Ryan for his disingenuous remarks on Simpson-Bowles and for failing to acknowledge his participation in that task force. But I’ll wait to see how the Democrats handle it next week in their speeches. Certainly the president can’t say much, seeing as Ryan was indeed correct in his bottom line criticism of Obama for totally ignoring the final recommendation (which Ryan voted against). This was an egregious mistake on Obama’s part, as history will prove.

As for Clint Eastwood’s performance, I haven’t been that uncomfortable watching television since vice presidential candidate Adm. James Stockdale in 1992 said, “Who am I? Why am I here?”

But what do I know? Peggy Noonan writes in the Wall Street Journal, “Clint Eastwood was funny, endearing – ‘Oprah was crying’ – and carries his own kind of cultural authority. ‘It’s time for somebody else to come along and solve the problem.’ He was free-form, interesting – you didn’t quite know what was going to come next – strange and, in the end, kind of exhilarating. Talk about icons. The crowd yelling, ‘Make my day,’ was one of the great convention moments, ever.”

I do agree with Noonan’s description of Mitt Romney’s speech. “He had to achieve adequacy. He did.”

“(Romney) certainly looked the presidential part. In confident and calm tones, he described the Obama presidency more in sorrow than in anger.

“ ‘Every family in America wanted this to be a time when they could get ahead a little more, put aside a little more for college, do more for their elderly mom who’s living alone now or give a little more to their church or charity. Every small business wanted these to be their best years ever, when they could hire more, do more for those who had stuck with them through the hard times, open a new store or sponsor that Little League team…This is when our nation was supposed to start paying down the national debt and rolling back those massive deficits. This was the hope and change America voted for.’

“(And the oceans were supposed to recede, as well. He later cracked, ‘President Obama promised to slow the rise of the oceans and to heal the planet. MY promise…is to help you and your family.’)”

“It all started off with stirring speeches, Greek columns, the thrill of something new. Now all that’s left is a presidency adrift, surviving on slogans that already seem tired, grasping at a moment that has already passed, like a ship trying to sail on yesterday’s wind…He said, well, ‘I haven’t communicated enough.’ He said his job is to ‘tell a story to the American people’ – as if that’s the whole problem here? He needs to talk more, and we need to be better listeners? Ladies and gentlemen, these past four years we have suffered no shortage of words in the White House. What’s missing is leadership in the White House.”

--Sen. John McCain issued one of the lines of the week that Mitt Romney must use in the debates.

“We can’t afford to have the security of our nation and those who bravely defend it endangered because their government leaks the secrets of their heroic operations to the media.”

“Now begins the final phase of this cognitive dissonance campaign. America’s 57th presidential election is the first devoted to calling the nation’s bluff. When Mitt Romney selected Paul Ryan, Republicans undertook the perilous but commendable project of forcing voters to face the fact that they fervently hold flatly incompatible beliefs.

“Twice as many Americans identify themselves as conservative as opposed to liberal. On Nov. 6 we will know if they mean it. If they are ideologically conservative but operationally liberal. If they talk like Jeffersonians but want to be governed by Hamiltonians. If their commitment to limited government is rhetorical or actual. If it is, as Daniel Patrick Moynihan suspected, a ‘civic religion, avowed but not constraining.’

“This is the problem for uneasy Republicans. The Democrats’ problem is worse because they are not uneasy about their dissonance, being blissfully unaware of it….

“Human beings, said one of the wisest of them – Aristotle – are political animals and language-using animals. Americans, as you do not need to be Aristotle to know, are complaining animals. They use language to complain about politics. Mitt Romney should remind them that one function of elections is to force most voters – the winning majorities – to forfeit the fun of complaining. For example, if the swing state of Nevada, which has the nation’s highest unemployment rate (12%), votes for four more years of current policies, it must henceforth suffer in silence. Actually, all those who vote to continue Barack Obama’s distinctive brand of clientelism – crony capitalism – must, if he wins, become political Trappists, taking a vow to keep quiet.”

“If the Republican Party has in fact declared a war on women, the parade of high-profile female speakers at the party’s national convention this week suggests strongly that the women are winning.

“Quite apart from Ann Romney’s dazzling personal testimonial to her husband, the TV cameras brought an impressive group of female Republican leaders into the nation’s living rooms.

“They include Govs. Mary Fallin of Oklahoma, Susana Martinez of New Mexico and Nikki Haley of South Carolina….

“Meanwhile, Mayor Mia Love of Saratoga Springs, Utah – now running for a House seat – arguably became the RNC’s breakout star from the moment she took the stage Tuesday, talking about her belief in the American dream.

“As a conservative black Mormon born to Haitian parents in Brooklyn, Love turns the notion that Democrats own the diversity issue on its head.

“As, of course, does former Secretary of State Condoleezza Rice….

“(Rice’s) speech reminded Americans that this classically trained pianist and former Stanford provost may be one of America’s smartest and most insightful public servants ever….

“Whether the Democrats will be able to match such candlepower next week is very much an open question.

“After all, only two of the nation’s six female governors are Democrats – and the party’s highest-profile female leader, Hillary Clinton, is apparently skipping the convention altogether.

--I said over a year ago that the choice in 2016, assuming an Obama win, would be Chris Christie vs. Andrew Cuomo. That seems unlikely today.   The Republicans are stacked with young talent, obviously led by Paul Ryan and Marco Rubio.

You also realize, anew, what a pathetic lineup the Republicans fielded in the 2012 campaign. Not one of them, including Santorum, Perry and Cain, will be a factor in 2016 or beyond.

--I saw Rand Paul in New Hampshire earlier this year and told you how I liked his message. He is a definite factor in 2016 and well beyond, though I’d like to see him become the legitimate third party force that would sharpen the debate. [His stance on foreign policy alone makes him the perfect third party challenger…I don’t necessarily agree with it, but after failed wars in Iraq and Afghanistan, his supporters obviously look pretty good on this front.]

“Obama’s great political talent has been his knack for granting his admirers permission to think highly of themselves for thinking highly of him.”

“Romney’s great political challenge is to wean them away by making them faintly embarrassed about their former infatuation.”

--Bret Stephens / Wall Street Journal…on “Barack Obama, Global Has-Been”

“Consider the record. (Obama’s) failed personal effort to bring the 2016 Olympics to Chicago. His failed personal effort to negotiate a climate-change deal at Copenhagen in 2009. His failed efforts to strike a nuclear deal with Iran that year and this year. His failed effort to improve America’s public standing in the Muslim world with the now-forgotten Cairo speech. His failed reset with Russia. His failed effort to strong-arm Israel into a permanent settlement freeze. His failed (if half-hearted) effort to maintain a residual U.S. military force in Iraq. His failed efforts to cut deals with the Taliban and reach out to North Korea. His failed effort to win over China and Russia for even a symbolic U.N. condemnation of Syria’s Bashar Assad. His failed efforts to intercede in Europe’s economic crisis. (‘Herr Obama should above all deal with the reduction of the American deficit’ was the free advice German Finance Minister Wolfgang Schauble offered this year.)

“In June, the Pew Research Center released one of its periodic surveys of global opinion. It found that since 2009, favorable attitudes toward the U.S. had slipped nearly everywhere in the world except Russia and, go figure, Japan. George W. Bush was more popular in Egypt in the last year of his presidency than Mr. Obama is today….

“I tend to think that the buzz about American decline mistakes the mediocrity of the president for the destiny of the nation. But we have an election on, the outcome of which will decide whether one man’s mediocrity becomes a whole nation’s destiny. Mr. Obama is now the world’s leading has-been, trying to revive a career on the strength of a talent that was greatly exaggerated to begin with. But a country that’s willing to reward mediocrity with a second chance risks becoming a has-been itself.”

“Not for nothing, but has anyone thought about the fact the Republican Convention in Tampa, end of August, is at the height of hurricane season? A storm forming in the Gulf about that time could hurt us elephants big time in terms of media coverage.”

I ended up being pretty close to nailing it. As it was Isaac had little impact on the important convention coverage. But our thoughts and prayers go out to those overwhelmed by the flooding.

--Stupidest line of the week in following the hurricane coverage. Fox News’ Steve Harrigan, in seeing a man pulling his wife on a raft, said, ‘It seems difficult to imagine this is happening in 2012, like a time well-past.’

--The New York Daily News’ Heidi Evans had an extensive story on the topic of sexual assault in the U.S. military. In 2011, there were 3,191 reports of them, from wrongful touching to rape – “but even Defense Secretary Leon Panetta says he believes that because it is such an underreported crime, there were actually as many as 19,000 such attacks.”

But less than 8% of reported cases went to trial, owing to a vast majority of victims being too fearful to report the abuse.

The biggest ongoing case is at Lackland Air Force Base in Texas, where 15 basic training instructors are under investigation for sexually assaulting 38 young trainees.

Ms. Evans has horrifying personal accounts in her story, perhaps best summed up by one who said, “That attack tore me up,” her eyes welling with tears. “If that didn’t happen, I would have been a lifer. I loved my job and serving my country.”

--Harvard University is investigating dozens of students for sharing answers or plagiarizing on a final exam. The undergraduate class, “Introduction to Congress,” had a minimum of 250 students and university officials said there may be problems with roughly half the take-home exams. This is a big deal, worthy of a scathing “60 Minutes” segment…hint hint. But as I go to post, one story I read had a number of the students whining about the process while it sounds like the professor was a total jerk.

--This is scary.   A new nationwide advisory issued by the Centers for Disease Control on Friday said that as many as 10,000 people were at risk of contracting hantavirus after staying in Yosemite National Park this summer. There have been six confirmed cases of the rare, rodent-borne disease with at least two deaths, last I saw.

--I went to Neil Armstrong’s home town of Wapakoneta, Ohio, and the fabulous museum there on the space program back in 2000 and share some of my thoughts from then in my 8/29 Bar Chat column. 

“Even in the current age of constant electronic wizardry, Neil Armstrong’s 1969 walk on the moon remains a moment of incomparable magic. For those who saw it, not on YouTube but as it happened, the moment will last a lifetime.

“Technology and engineering science were not then the lingua franca of daily life that they are now. People watched the moonwalk on bulky television sets, often in black and white. No matter. Seeing Neil Armstrong in his puffy white astronaut’s suit descend from the lunar vehicle to touch his foot to the moon’s surface was transcendent. Uncounted number of Americans and earthlings elsewhere went outside later, stared up at the familiar milky globe in the darkness and marveled in pride and awe….

“Armstrong was the right man for a larger-than-life experience. He was the consummate professional engineer, a self-described geek, who always said that his achievement was the product of many minds and strong wills….If he receded from public view after Apollo 11, it was to minimize any chance that history’s focus would shift away from NASA’s achievement on that mission….

“Neil Armstrong’s death at age 82 is an occasion to elevate again in the public eye the personal values that he represented – excellence, fortitude, worthy dreams and personal humility.”

“Honor his example of service, accomplishment and modesty, and the next time you walk outside on a clear night and see the moon smiling down at you, think of Neil Armstrong and give him a wink.”

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

Gold closed at $1692…highest weekly close since 3/9
Oil, $96.47

Returns for the week 8/27-8/31

Dow Jones -0.5% [13090]
S&P 500   -0.3% [1406]
S&P MidCap +0.1%
Russell 2000 +0.4%
Nasdaq -0.1% [3066]

Returns for the period 1/1/12-8/31/12

Dow Jones   +7.1%
S&P 500 +11.8%
S&P MidCap +10.5%
Russell 2000 9.6%
Nasdaq +17.7%

Bulls 48.9
Bears 24.5 [Source: Chartcraft / Investors Intelligence]

Don’t forget the StocksandNews iPad app. Pack it with your child’s peanut butter & jelly sandwich. They’ll thank you for it.

And welcome back to school, kids. No cheating.

Brian Trumbore

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