Week in Review

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Week in Review

05/05/2012

For the week 4/30-5/4

[Posted 6:30 AM ET,,,from somewhere at the New Jersey shore]

Note: I was out of touch, Friday, and will catch up on a few things next time.

Europe, Washington and Wall Street

The official PMI data on manufacturing in the eurozone was an awful 45.9 for April, down from 47.7 in March (50 being the dividing line between growth and contraction). Euro area unemployment is up to 10.9%, the worst since the start of the euro in 1999, with Spain at 24% and Greece nearly 22%. Even stalwart Germany has to be concerned that 40% of its exports are to the eurozone, and 60% to the EU overall. 

But this Sunday we have critical elections in France and Greece (as well as a sleeper vote in Serbia), and the outcome is not going to be market friendly in either. As discussed further below, Socialist Francois Hollande seems a lock to prevail, after which German Chancellor Angela Merkel will scramble to find a meeting of the minds with a man who has vowed to trash Merkel’s beloved fiscal compact that enforces budget discipline. While in Greece, well, you know how I feel about this one. It’s going to be chaos…and likely deadly.

You know how much I’ve been writing about the far-right in Greece. On Sunday, the Times of London had the headline, “Fears of anarchy as neo-Nazis recruit Greeks with food.” The New York Times had a similar piece, highlighting the black-clad Golden Dawn party that calls for sealing the borders. Golden Dawn’s logo resembles a swastika. It’s conceivable they could poll 3% to 5% of the parliamentary vote as they take over the rapidly growing ghettos of Athens.

Meanwhile, in Spain, everyone was giddy when on Thursday the government sold the amount of debt it was looking to. Whoopty-damn-do. The interest rate on the three-year garbage was 4.03% vs. 2.61% in March. S&P also downgraded 16 Spanish banks and Spain, like other European countries, had rather extensive May Day protests, though thankfully violence was limited. That will come later, as the central government still must extract further severe cuts from the regional and local governments that Madrid has been funding. Spain’s PMI for April, by the way, was 43.5. That’s not very good, sports fans.

Back to Germany, finance minister Wolfgang Schauble reiterated his country’s limited appetite for growth-oriented policies.

“The first precondition in order to have sustainable growth everywhere in Europe is fiscal consolidation. If now we talk about growth, it shouldn’t be understood as a change of direction. That would be a mistake.”

Schauble’s Spanish counterpart, Luis de Guindos, said, “There’s no contradiction between budget cuts and economic growth. Budget cuts are essential to create the conditions to finance growth.”

Or as economist Martin Feldstein wrote in the Financial Times, the Spanish government depends “on foreign and domestic investors who are now reluctant to lend to a government that may be insolvent. The challenge is to rebuild their confidence.”

But, alas, 11 of 27 European Union nations are in recession and a bunch more are threatening to officially join them as the people are more than restless.

European Central Bank chief Mario Draghi said “we have to put growth back at the center of the agenda,” but through structural reforms and cutting day-to-day spending, not hiking taxes.

Back to Francois Hollande, as a story in The Economist put it:

“Mr. Hollande will not only be quickly introduced to his fellow leaders. He may also be quickly, and brusquely, introduced to the bond markets.”

Turning to the U.S. economy, the data was decidedly mixed. Global markets got all excited over the ISM reading on manufacturing for April, 54.8, but then at week’s end, the service-sector came in at 53.5, way below expectations and March’s 56.0 number.

Additionally, March factory orders, down 1.5%, were the worst since March 2009, but jobless claims came in at 365,000, better than the recent pace of 385,000+.

Of course all of this, including a poor ADP jobs number, was leading up to Friday’s employment report for April, which, in a word, sucked. Just 115,000 jobs added, though the unemployment rate ticked down to 8.1%, the lowest in three years, but that was only because 342,000 left the labor force.

I can’t say I’ve followed economist Nouriel Roubini much lately, but I don’t disagree with his view that the U.S. economy will stagnate, at least through 2013, citing some of the following from a presentation at the Milken Institute’s 2012 Global Conference. As reported by Andrew Tangel of the Los Angeles Times:

“The possibility of military confrontation between Iran and Israel and the United States.

“Long-term political conflicts in the Middle East, which he called a ‘total mess.’ The Arab Spring, he predicted, ‘will become an Arab winter.’

“Energy: There’s no U.S. energy strategy or policy in place. ‘Where is the leadership?’ he said….

“ ‘Breaking up is going to be a mess,’ he said, and ‘financial contagion will be significant.’”

And that fiscal cliff of ours remains on the horizon; the mandated spending cuts, coupled with across-the-board tax increases, along with another debt ceiling debate.

“In the next few months, possibly within weeks, markets here and abroad will be looking for signals that our politicians understand the severity of the situation and are able and willing to act appropriately. If clear signals are not forthcoming, markets could react early to the looming trouble, compounding the uncertainties that weigh on the U.S. economy.”

Gee, I’m not the only one it seems who believes trouble could come far sooner than most expect.

“There are many sophisticated theories today about why politics have become so polarized and immobilized. Ideologues have captured both parties, it’s said; primary challenges by right- and left-wing zealots doom centrists; cable television and the Internet favor simplistic, highly partisan rhetoric and argument. Political divisions are accentuated; consensus becomes harder. There’s something to these theories, but they also subtly misrepresent and excuse our present paralysis.

“More promises were made than can be kept without raising taxes, which – for the most part – were also subject to bipartisan promises against increases. Almost everyone agrees that massive budget deficits pose a long-term economic threat, though no one can be precise about how or when the threat might emerge. A central question about our political system is whether, after decades of making more promises to more groups, it can withdraw some promises to minimize the threat.

“So far, the answer is ‘no.’ Political leaders don’t lead. They take the path of least resistance, which has been to do little except to find scapegoats – ‘the rich,’ ‘special interests,’ ‘liberals,’ ‘conservatives’ – that arouse their supporters’ angriest antagonisms. It helps explain polarization. This is really what Washington does. It’s a demoralizing commentary on the state of American democracy.”

Street Bytes

--Stocks fell hard on the week, with the Dow Jones down 1.4% to 13038, while the S&P 500 lost 2.4% and Nasdaq 3.7%, as the latter finished below 3000 (2956) for the first time in two months.

--U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.25% 10-yr. 1.88% 30-yr. 3.07%

Treasuries rallied anew on the poor economic data and uncertainty over Europe

--China’s official PMI for April came in at 53.3, up from 53.1 in March, while the service sector reading, 56.1, was down from March’s 58. The Shanghai exchange has been rallying on speculation the government will be loosening monetary policy by mid-year, which makes sense as the big change in government happens later in the year. You want the people feeling good.

--Australia’s Reserve Bank slashed interest rates 50 basis points on fears the economy was slowing too quickly.

--Facebook is coming! Facebook is coming! The IPO terms are now public and the company is looking to raise as much as $11.8 billion, with a preliminary share price of $28 to $35, which would place a value on the company of somewhere between $86 billion and $96 billion; below what was anticipated. CEO Mark Zuckerberg will control 57.3% of the voting shares (and net nearly $1.1 billion from shares sold in the IPO). Trading could commence May 18.

--The U.N. Food and Agriculture Organization (FAO) said world food prices eased in April, owing to big declines in grains and sugar.

--Toyota continued its comeback as its U.S. sales rose 12% in April, and its market share climbed to 15%, the highest in 17 months. General Motors, though, saw its sales fall 8% and its market share drop to 18% from 20% in April 2011. Ford’s fell 5%, but Chrysler’s rose 20%.

Others: Nissan’s were flat, Honda’s fell 2%, Hyundai’s rose less than 1%, Kia’s were up a like amount and Volkswagen’s surged 27%.

Industrywide, sales rose just 2.3% over April 2011, well below the 13.3% gain for the first three months.

GM is forecasting total industry sales in 2012 of between 14 million and 14.5 million, which would be the best pace since 2007.

[Hyundai announced it would add a third shift to its Montgomery, Ala., facility, creating nearly 900 new positions and push total employment at the plant to 3,000.]

--Robert J. Samuelson / Washington Post…on the fallacy of greedy “speculators” controlling the energy market.

“The actual explanation is more humdrum. Oil demand is what economists call ‘price inelastic.’ People need it to drive cars, heat homes, fly airplanes and run factories. So small shifts in supply or demand can result in big price moves. A large jump in demand or loss in supply raises prices sharply; similarly, prices may plunge when demand dips (from, say, a recession) or supply increases (from, say, new fields)….

“It’s true that outside investors (a.k.a. ‘speculators’) have dramatically shifted money into commodities – raw materials….It’s easy to imagine all this money chasing prices up in futures markets, just as speculative stock market frenzies push share prices to unrealistic levels. It’s also wrong.

“The stock and futures markets operate differently. In the stock market, herd psychology can lead to speculative bubbles or panics. In a bubble, almost everyone seems to win (until the bubble bursts); in a panic, everyone seems to lose (until the panic subsides).

“By contrast, futures markets are ‘zero-sum games.’ One investor’s gain is matched by another’s equal loss. Here’s why. Under the standard futures contract, one investor agrees to buy the commodity (say, 1,000 barrels of oil) at a future date for a given price, and another investor agrees to sell for the same price.”

But rather than futures markets raising spot prices, at times, economists Lutz Kilian, Bassam Fattouh and Lavan Mahadeva issued a report that concluded futures and spot prices reflect “common economic fundamentals.”

“Casting speculators as scapegoats for our dependence on high-priced global oil is easy and misleading. It obscures the only real solution: Use less, possibly through an energy tax, and produce more.”

--So in light of the above, when it comes to natural gas, the Wall Street Journal reported that major players such as ExxonMobil have announced in recent days plans to reduce production further than was the case in the first quarter, which should help alleviate the huge oversupply of the product. The price has risen about 20% since the April 19 bottom, which represented the lowest level since September 2001.

--Speaking of nat gas, Chesapeake Energy Corp. CEO Aubrey McClendon was forced to apologize to investors for all the recent distractions, many involving his personal finances; plus the company missed analysts’ expectations for the first quarter, including Chesapeake’s new estimates that production will be far lower than the company forecast in February.

Earlier, Chesapeake’s board said it would find an independent replacement for McClendon as chairman, while he would be allowed to stay on as CEO, but the bottom line is the company is a mess, with net debt of $12.4 billion, and gobs of off-balance-sheet financing. A Credit Suisse analyst says this last bit amounts to an additional $6 billion, plus there is $3 billion of preferred stock on the balance sheet. The Journal estimates that when you tally it all up, including a working capital deficit, you come up with total leverage in the neighborhood of $24 billion+.

[The SEC has begun an informal inquiry into Chesapeake and McClendon.]

--The current low natural gas price means less in some states’ coffers. Wyoming, for example, was operating on a $4 forecast for nat gas this year and with the current price being in the $2.30 neighborhood, the state’s tax receipts could be at least $100 million lower than expected. So the governor is warning of across-the-board agency cuts of 8% unless the price picture improves.

As noted in USA TODAY, another example would be Oklahoma, which is estimating $3.64 for its 2013 budget starting in July. “Every $1 drop in price costs the state roughly $70 million a year,” according to the state treasurer.

--Natural gas pipeline operator Energy Transfer Partners is acquiring Sunoco Inc. for $5.3 billion, with Energy Transfer picking up nearly 8,000 miles of pipeline, as well as 4,900 gas stations in 24 Eastern states. The stations will keep the Sunoco brand.

--And Delta Air Lines announced it would purchase an oil refinery operation in Pennsylvania for about $150 million in an attempt to control escalating fuel costs. Fuel makes up about one-third of an airline’s expenses, but Delta says it can save $300 million a year by owning a refinery directly. ConocoPhillips had idled the facility in 2011, citing “severe market pressure.”

--The board of directors of News Corporation says it has “full confidence” in Rupert Murdoch, this after a UK government media committee concluded that Murdoch was “not a fit person” to run a major international business. The board countered that Murdoch had “demonstrated resolve” to address mistakes of the company resulting from the phone-hacking scandal.

--From the Los Angeles Times’ E. Scott Reckard: “Wells Fargo & Co. originates 34% of all home loans – more than the combined total of the next seven biggest mortgage lenders. That’s why regulators are closely watching the San Francisco bank, Paul J. Miller, a former Federal Reserve bank examiner, said Thursday.”

Any hiccup at Wells could roil the housing market all over again.

--Lufthansa is cutting 3,500 jobs owing to a worse-than-expected operating loss for the first quarter, though revenue was slightly ahead of expectations.

--Bank of America is cutting another 2,000 positions, particularly in investment and commercial banking; this on top of an earlier announced plan to eliminate 30,000 jobs over three years in the consumer banking area.

--Macau’s gaming revenues for April rose 21.9%, as Sands China opened a new $4 billion casino. Still strong.

--Talk about a troubling quarterly report, stock in Green Mountain Coffee Roasters plummeted over 40% in after-hours trading on Wednesday following the company’s announcement it couldn’t predict demand for its Keurig single-serve coffee brewers and packs, which had many talking about serious accounting issues. CEO Larry Blanford said they don’t understand the potential impact of factors including milder winter weather. Pathetic.

--Microsoft announced it was investing $605 million in Barnes & Noble’s Nook reading device as it challenges Amazon and its Kindle, as well as Apple and the iPad in the fast-growing ebook market, though it’s still just 5% of all book sales.

--Samsung is now the world’s largest cellphone maker, topping Nokia and ending its 14-year run as market leader. Last quarter, Samsung shipped 92 million phones, of which more than 40 million were smartphones, vs. Apple’s 35 million iPhones.

“Since the beginning of (Obama’s) term, state and local governments have shed 611,000 employees – including 196,000 educators – according to government statistics. Unlike the recovery in private-sector employment that Obama and his re-election campaign often cite – with businesses adding 4 million jobs since hiring hit its low point in 2010 – the jobs crisis at the state and local level has continued throughout his term.”

--This is classic…classic Greece, that is. As reported by the Daily Telegraph’s Nick Squires, there is an Ionian island named Zakynthos that has 650 registered blind people, but 600 aren’t blind. It’s a scam designed to get them state benefits. A new mayor uncovered it. “Blind” locals were seen playing backgammon, hunting for rabbits, tending vineyards…unreal.

--U.S. homeownership hit a high of 69.2% in 2004 and is now down to 65.4%, pretty much where it was for the 1970s, 80s and 90s.

--According to research firm GMI, America’s CEOs received a 15% pay raise in 2011, with compensation packages averaging $5.8 million, though it’s $12.1 million among the nation’s top 500 companies.

Meanwhile, according to a report by Sentier Research, analyzing census data, the average American household saw real median income drop 3.5% - from $53,168 in 2007 to $51,287 in 2010.

--CNN’s April ratings were the lowest since August 2001. Alas, one month later back then things changed. 

--Pssst…CNBC viewers. The New York Daily News reported that executives there are “freaking out” because viewership levels for “Squawk Box” and “Closing Bell” have been declining.  Squawk Box’s big fall coincides with the addition of Andrew Ross Sorkin, while Maria Bartiromo’s show, running from 3:00 to 5:00 p.m., is down 18% for the 12 months ending in April. Fox Business Network is picking up viewers.

--Beer drinking in Australia fell to the lowest level since 1946 for the 12 months ending June 30, 2011.

--Edvard Munch’s “The Scream” became the most expensive art work sold at auction as it was purchased for $119.9 million by a telephone bidder who went by the name of Charlie. The work is one of four in a series but was the only one still owned privately. Proceeds will go towards the building of a new museum, hotel and art center in Norway. [The other three versions are still owned by Norwegian museums.]

You know, it really is true that as one art expert put it, “The Scream” and the “Mona Lisa” are the two most recognizable works in the world.

Foreign Affairs

Afghanistan: President Obama, in his surprise visit to Kabul marking the one-year anniversary of the death of Osama bin Laden, told U.S. service members that there was “light on the horizon because of the sacrifices you have made,” signaling the end of the war, as he also signed a Strategic Partnership Agreement with President Hamid Karzai that extends the U.S. commitment beyond the withdrawal of combat troops next year.

In his address to the people back home from Bagram Air Base, Obama said:

“I will not keep Americans in harm’s way a single day longer than is absolutely required for our national security. But we must finish the job we started in Afghanistan, and end this war responsibly.”

The thing is the deal struck by Obama and Karzai clearly keeps the door open for American troops, most likely special forces, to stay beyond 2014, plus the United States will be responsible for the lion’s share of the estimated cost of $4 billion a year to fund and train Afghanistan’s military.

What I don’t get is how we didn’t negotiate to maintain a permanent base there and instead we will share space with the Afghan military, which, almost all would agree, has been a huge issue with the number of ‘insider’ attacks on U.S. forces, such as below.

The agreement also doesn’t permit the U.S. to launch attacks from Afghan soil on neighboring countries, i.e., Pakistan. Not sure how this is going to be worked out.

As for Obama’s trip, it was certainly telling that the president had to sneak in in the dead of night, give his address to the American people at 4:00 a.m. local time, and then just hours after he left, the Taliban launched attacks in Kabul that killed seven.

Earlier in the week, an Afghan soldier fatally shot an American service member, while three Americans soldiers were killed in a bomb attack. In the first instance, the Afghan opened fire with a machine gun from atop a building, also killing an interpreter before he was gunned down. For the month of April, 41 Americans were killed.

“There were two reasons for President Obama to deliver a speech on the anniversary of the killing of Osama bin Laden in Afghanistan and sign an accord with the Afghan government for ongoing cooperation after U.S. troops leave. The first, obviously, is to grab some more of the spotlight. (Had he not ridiculously overplayed his hand by insinuating Mitt Romney would not have killed bin Laden, no one would have thought much of it.) But the second reason and the substance of the speech were more objectionable.

“Obama would have us believe with bin Laden dead we can now just ‘end’ the war. He used ‘end’ a lot in the speech. He didn’t say ‘win’ or ‘victory.’ And in fact he redefined his own mission, now saying we were only concerned about defeating al-Qaeda. His determination to root out the Taliban, which he reiterated at the onset of his Afghan surge? Airbrushed out of history.

“In 2009 he told the cadets at West Point: ‘We must deny al-Qaeda a safe haven. We must reverse the Taliban’s momentum and deny it the ability to overthrow the government. And we must strengthen the capacity of Afghanistan’s security forces and government so that they can take lead responsibility for Afghanistan’s future…[We] will pursue a military strategy that will break the Taliban’s momentum and increase Afghanistan’s capacity over the next 18 months.’

“Today his goals had been trimmed. ‘To build a country in America’s image, or to eradicate every vestige of the Taliban’ would ‘require many more years, many more dollars, and most importantly, many more American lives,’ he told us. No mention made of the other terrorist networks on the prowl in Afghanistan.

“His emphasis was on bringing troops home, getting out. He tried to have it both ways, insisting we were behaving responsibly, but do our enemies believe that? Do our allies, nervously listening to him confirm we are ‘tired of war’?”

Iran: Even I have to concede that recent developments certainly don’t foretell an imminent strike on Iran’s nuclear program as I have been predicting since fall of last year. At the time I felt politics would play a big role, that President Obama, given hard evidence, would strike, alone or in conjunction with Israel, thus giving him time to clean it up before the election. My thought process was that the last thing the Obama campaign would want is Iran testing a nuclear device in September or October. His defeat would thus be ensured.

So now there is either a giant disinformation campaign underway, or there will be no attack anytime soon because we suddenly have an Israeli election coming up. Originally slated for next year, Prime Minister Benjamin Netanyahu wants to take advantage of his improved political standing in the country to pick up some more seats in the Knesset, so a vote looks to be coming in September. Unless some new evidence comes up then, there’s no way Netanyahu would strike during his own election campaign. Nor, assuming a big victory, would it make sense to then strike right before Americans go to the polls.

And with the second round of talks between the P5+1 and Iran slated for May 23 in Baghdad, the International Atomic Energy Agency is meeting with Iran in Vienna on May 14-15. In December, the IAEA said Iran’s nuclear activities were relevant to a nuclear weapons program, but Iran has thus far refused to answer the IAEA’s questions, or allowed access to some disputed sites since then. From the tone of the talk coming out of Iran lately, it would seem the IAEA won’t be totally disappointed in Vienna.

After all, sanctions have had an impact. Even India’s top oil importers announced they would reduce their shipments from Iran by 15% as it seems Iran’s oil output is at its lowest level in 20 years. Iran has every incentive to give in to the P5+1 just enough to force the West, specifically the EU, to pull back its boycott of Iranian crude starting July 1. United States sanctions focusing on Iran’s central bank are to take effect June 28.

Of course now you’ve seen how President Obama doesn’t want Iran being a big campaign issue for him at this late stage. He’ll deal with it, if necessary, in his next term, or leave it for Romney.

So that’s the conventional wisdom for this week, not that I am in the least bit happy about it. We now wait to see how things develop in Vienna and Baghdad. There’s no reason to believe Iran won’t continue to brilliantly employ its delay game, assuming as part of the bargain that they get some sanctions lifted in return.

But lest we get too giddy over some short-term good feelings, should they develop, understand that Iran’s deputy foreign minister said this week that while his nation is optimistic over the next round of talks:

“There should be no doubt that the great nation of Iran…will never abandon exercising its inalienable right to peaceful use of nuclear energy and technology.”

Another official in the foreign ministry told the Los Angeles Times:

“One thing I can tell you for sure is that Iran will never, ever close down the Fordow nuclear site,” referring to the underground enrichment plant near Qom.

A close aide to Ayatollah Khamenei also seemed to put a kibosh on the talk of IAEA inspectors being allowed to make snap visits to nuclear sites, saying: “The inspectors of IAEA turned out to be spies and our nuclear scientists were exposed and some of them assassinated.”

John Bolton / Wall Street Journal…on the tie-in between Iran and Syria…

“Mr. Obama knows that if he confronts Iran directly in Syria, any chance will disappear for a negotiated settlement to Iran’s quest for nuclear weapons. While he should have long ago understood that diplomacy will never persuade Iran to renounce its objective of becoming a nuclear power, he has not. So despite Iran’s obvious role (backed by Russia and China) in defending Assad’s brutality, the president cannot bring himself to admit his Iran policy’s futility. And Mr. Obama is entirely unwilling to risk foreign adventures that might imperil his re-election.”

Syria: Among the Syrian government’s moves this week was the storming of a university dorm at Aleppo, killing at least seven students. One British-based rights group claims at least 95 have been killed and hundreds of houses destroyed during ceasefire negotiations. Syrian rebels apparently killed 15 members of the security forces in an ambush. Russia wants the U.N. to pay attention to violations of the Annan plan on all sides.

Egypt: At least 11 were killed in Cairo (one report I read put the toll at 20) during protests against military rule and the exclusion of a Salafist presidential candidate. Protesters were killed by unidentified assailants and the Supreme Council of the Armed Forces (Scaf) came under fire for not protecting the protesters. Mohamed El Baradei, Nobel prize-winner and former presidential candidate, said: “Egypt is going down the drain.”

“It’s been five weeks since the Obama administration granted Egypt its full $1.3 billion in annual military aid despite its government’s failure to meet conditions set by Congress for advancing democracy. In granting a waiver on national security grounds, administration officials argued that continuing the funding was more likely to encourage cooperation with the United States and progress on human rights than a cutoff would.

“As it turns out, the administration was wrong. In a number of tangible ways, U.S.-Egyptian relations and the military’s treatment of civil society have deteriorated since the waiver was issued March 23. The threat to nongovernmental organizations, whose prosecution triggered the threat of an aid suspension, has worsened. Conditions for U.S.-backed pro-democracy groups elsewhere in the Middle East have deteriorated as other governments have observed Egypt’s ability to crack down with impunity….

“U.S. officials argued that an aid cutoff might cause a dangerous political backlash in Cairo. But since the waiver was issued, Egypt’s government-owned press, which is controlled by the military’s intelligence agency, has continued a toxic campaign of anti-Americanism. The State Department also argued that aid should continue because Egypt had stuck to the 1979 Camp David agreements with Israel. But after the waiver, the government unilaterally canceled a deal under which it was supplying Israel with gas.”

Separately, Israel announced it was reinforcing its 150-mile border with Egypt, including 30,000 troops and hundreds of tanks. In response, Egypt staged massive exercises.

It was in 1979 that the Camp David accords led to Israel’s withdrawal from the Sinai. Now, tensions between the two are as bad as they’ve been in the 33 years since.

North Korea: By all indications, a nuclear test could occur any day now. The White House has warned players in the region it is imminent. And then North Korea will grab the top slot again.

China: What a freakin’ mess, the case of blind Chinese dissident Chen Guangcheng. I’m sorry that I’ll offend many of you with the following statement, but the heck with him. I’m also not of the belief that it was so courageous to escape from house arrest when he was obviously putting his loved ones, let alone those aiding his escape, at great risk. I just have a big problem with this.

But this is yet another classic case of my dictum “wait 24 hours.” And so as I write, the latest is that Chen will be allowed to go to the U.S. to study, accompanied by his wife and kids, but we are waiting to see if the Chinese government follows through on the commitment.

France: The sole debate between President Nicolas Sarkozy and Socialist candidate Francois Hollande took place on Wednesday and the president did not land the decisive blow he needed to beat back Hollande’s challenge. All the polls show Hollande winning Sunday’s run-off, though one poll had the margin down to six points, 53-47 (and as I go to post, the last data before the ballot has it at only four points).

So the two challengers traded insults for 170 minutes, as Hollande talked up the lack of growth, while Sarkozy said, “Growth, yes, but not at the expense of cutting debt and deficit.”

When Sarkozy blamed the financial crisis for adding $658 billion to France’s national debt, Hollande responded, “It’s always someone else’s fault, you always find someone else to blame.”

Hollande, in turn, said he wanted to be a “normal president,” an attack on Sarkozy’s character, but Sarkozy countered, “Your normality is not commensurate with the task at hand. Being normal was not what defined presidents such as De Gaulle and Mitterrand.”

Sarkozy repeatedly told Hollande, “You are lying,” and at the end, when Hollande accused the president of appointing cronies to high places, Sarkozy snapped: “You little slanderer.”

Meanwhile, Marine Le Pen gave her annual May Day speech in Paris and refused to endorse either candidate, saying she would “vote blank,” spoiling her ballot as a protest, while telling her supporters to vote their conscience. Le Pen portrayed both candidates as traitors to France. “First they treated us as fascists and xenophobes and then, when you voted, we became people whom they wanted to talk to,” she told the crowd of 10,000.

“On May 6 it is not a president who is to be elected, but a simple employee of the European Central Bank, a Brussels sub-controller of finance, charged with applying the Commission’s decisions without question.”

Le Pen’s action, while expected, nonetheless is a blow to Sarkozy who has been courting her supporters. She will now focus on parliamentary elections slated for June as she attempts to turn the National Front into a legitimate opposition party.

Ukraine: The daughter of former prime minister Yulia Tymoshenko has called on President Viktor Yanukovych to release her mother and other alleged political prisoners in order to save the Euro 2012 football tournament, slated for Ukraine and beginning June 8.

The Yanukovych government is under immense pressure as both the Netherlands and Austria announced they would not travel to the Euro unless Tymoshenko’s conditions improved after reports she was roughed up in jail. German Chancellor Merkel is considering a similar boycott, Germany having offered to host the event on short notice. Germany also said it would block a pending EU-Ukraine trade deal if Kiev is seen ignoring the rule of law.

This goes back to last October when Tymoshenko was jailed for seven years on disputed charges in a move that was seen by many to be nothing more than revenge on the part of her rival, Yanukovych. But the situation escalated when the former leader said she had been assaulted on April 20 and wants to be treated for her back pain.

Russia: The nation’s defense minister warned that talks on the U.S.-led NATO missile defense plan in Europe are “close to a dead end.” Washington insists the plan is aimed at deflecting a potential Iranian attack, while Moscow continues to voice concerns it will eventually be powerful enough to undermine Russia’s nuclear deterrent. NATO wants to cooperate with Russia, but will not run it jointly as Moscow wants. The Kremlin also insists Washington issue a guarantee the plan is not aimed at Russia or it will retaliate, such as targeting U.S. missile defense systems in Europe. “A decision to use destructive force pre-emptively will be taken in if the situation worsens,” according to Gen. Nikolai Makarov, head of the Russian General Staff.

Separately, Vladimir Putin takes the presidential oath of office again on Monday. You know how I’ve been saying for a long time that Putin won’t survive the year? Vladimir Ryzhkov, a State Duma deputy from 1993 to 2007, penned a piece in the Moscow Times titled “Why Putin’s Days Are Numbered,” citing five key areas “that will ultimately prove the undoing of Putin’s autocracy.”

Electoral fraud and manipulation, corruption, judicial and police abuse, censorship and propaganda in the state-controlled media, and destruction of historical sites.

“The only way Putin knows how to govern is by falsifying and manipulating elections, buying the loyalty of corrupt officials, keeping the courts obedient and controlling the main media outlets. But that is the very model of government that a growing and powerful civil society finds completely unacceptable. The future belongs to them.”

It’s about Russia’s growing middle class, one-third of Russia’s adult population and 50% of the population in major cities. They demand fair elections, political pluralism and political reforms.

One other item. Russia’s birth rate rose 6.5% in the first three months of this year over the same period in 2011, while the death rate fell 3.3%, though, importantly, the number of deaths, 486,600, exceeded the number of births, 450,000, as it has annually for more than a decade…not good.

Nigeria: At least 25 were killed in attacks on Christian places of worship in Nigeria last Sunday. [There was also an attack on Christian worshippers in Kenya the same day, killing one and injuring 15.]

Random Musings

--I am incredibly frustrated how the Obama White House is spinning the administration’s foreign policy “successes.” To wit:

“For the first time since the early 1960s, the Republican Party enters a presidential campaign at a decided disadvantage on foreign policy. Republicans find it hard to get accustomed to the fact that when they pull their favorite political levers – accusations that Democrats are ‘weak’ or Romney’s persistent and false claims that Obama ‘apologizes’ for America – nothing happens.

“The polls could hardly be clearer. In early April, a Washington Post/ABC News poll found that 53 percent of Americans trusted Obama over Romney to handle international affairs. Only 36 percent trusted Romney more….

“How did this happen? The primary reason, to borrow a term from science, is negative signaling: By the end of Bush’s second term, the Republicans’ approach to foreign policy was discredited in the eyes of a majority of Americans. The war in Iraq turned out (and this is being quite charitable) much differently than the Bush administration had predicted….

“More generally, Americans came to see that the war in Iraq had nothing to do with what they cared most about, which was protecting the United States against another terrorist attack. Indeed, the war in Afghanistan, which was a direct response to 9/11, was pushed aside as a priority. At one point, Bush declared of bin Laden: ‘I don’t know where he is. You know, I just don’t spend that much time on him…to be honest with you.’

“And this is where negative signaling turns into a positive assessment of Obama. He understood the importance of bin Laden. He addressed the broad and sensible public desire to get our troops out of Iraq. He focused on how to get a moderately satisfactory result in Afghanistan – which is probably the very best that the United States can do now.

“The Afghan policy Obama announced Tuesday reflected the president’s innate caution. He wants to withdraw our troops but not so fast as to increase the level of chaos in the country. He imagines a longer engagement with Afghanistan because he does not want to repeat the West’s mistake of disengaging too quickly after U.S. arms helped the mujahedeen defeat the Soviet Union there in the 1980s.

“Public opinion is on the side of getting out sooner. But most Americans are likely to accept the underlying rationale for Obama’s policy because it is built not on grand plans to remake a region but on the narrower and more realistic goal of preventing terror groups from regaining a foothold in the country.

“And that’s why Republicans finally seem to realize that driving foreign policy out of the campaign altogether is their best option. After a decade of war, Americans prefer prudence over bluster and careful claims over expansive promises. On foreign policy, Obama has kept his 2008 promise to turn history’s page. The nation is in no mood to turn it back.”

“The American people demand more by way of a foreign policy than the killing of bin Laden and the hunting down of Somali pirates. But this administration has done its best to take the vital matter of America’s place and interest in the foreign world off the board. The strategic retreats, the concessions made to Iran and Syria, the lack of faith in liberty’s place in the order of nations have been hidden and brushed aside.

“We had secured gains in Iraq, but they were given up at the altar of the president’s political needs. As a candidate, he had promised a complete withdrawal, and he did so at great risk to the future stability of a nascent democracy.

“Afghanistan, too, has been neutralized as a political issue: The war is Mr. Obama’s and it isn’t. To set apart the good war of necessity in Kabul from the bad war of choice in Baghdad, he announced a surge in troop levels but then set a date for withdrawal in 2014. His surprise visit to Afghanistan Tuesday was political inoculation in its purest form.

“Dissent, sanctified when it raged against George W. Bush, was now a manifestation of ill will and impatience with a president who had to be given the benefit of the doubt.   Those dreaded drones over the Hindu Kush – brutal instruments of war in the Bush presidency – were now legitimate means of combat. The lawyers who hounded the Bush presidency over the rights of jihadists went silent even as our drones killed them at record pace.

“The metamorphosis in the Obama worldview was remarkable. He had begun his presidency as a man whose biography and outlook promised to drain the swamps of anti-Americanism in the Islamic world. Three years later, he had pulled back from the Greater Middle East. He took no interest in the fate of liberty in those lands, he turned his back on the Iranians when they rose against despotism in the summer of 2009, and he has given the murderous Assad tyranny in Syria a pass.

“You would have thought that the Arab Awakening of 2010-2011 would engage his moral passion. But his aloofness from the big storm that began in Tunisia and swept across Egypt, Libya and now Syria has been nothing short of stunning….

“He heads into November with that complacent view of things. Always the cool, cerebral man unfazed by history’s turbulence and pain. The joke was on those in foreign lands, in Paris and Berlin and Cairo, who embraced him as a new kind of American leader.”

“A year after U.S. forces killed Osama bin Laden, most policy makers and pundits believe al Qaeda is near collapse. ‘Another nail in the coffin,’ one senior U.S. official told me after the death of an al Qaeda operative in Pakistan last month from a U.S. drone strike. In testimony before the Senate in February, Director of National Intelligence James Clapper said the core al Qaeda is likely becoming of ‘symbolic importance.’

“This conclusion is presumptuous. As the administration looks eastward – a strategy that incorporates China’s rise – underestimating al Qaeda would be a dangerous mistake. With a handful of regimes teetering from the Arab Spring, al Qaeda is pushing into the vacuum and riding a resurgent wave as its affiliates engage in a violent campaign of attacks across the Middle East and North Africa.”

Jones then rattles off Yemen, Somalia, al Qaeda in Iraq, al Qaeda in the Islamic Maghreb, al Qaeda in the Arabian Peninsula, Nigeria’s Boko Haram, Pakistan’s Lashkar-e-Taiba (think the attack on Mumbai), some of which have been actively recruiting in the United States.

Granted, al Qaeda’s “central shura, or council…can’t meet as a group anymore and its members spend an inordinate amount of time simply trying to survive. Yet as America’s relationship with Pakistan continues to deteriorate, how long will the U.S. be able to pressure a state whose intelligence service has ties with some of al Qaeda’s allies, such as the Haqqani network and Lashkar-e-Taiba?....

“Addressing U.S. interests in the Far East is important, but not if it means losing focus on America’s most pressing danger zone: the arc running from North Africa to the Middle East and South Asia that is the heart of al Qaeda’s territory….

“With their eyes clearly locked on the November elections, President Barack Obama and his team are going all out to dramatize his decision-making and success in taking out America’s most wanted.

“What they’re doing: Opening up the White House situation room for a presidential interview with NBC, running a television ad by former President Bill Clinton, feeding stories to authors and journalists, encouraging surrogate attacks on Mitt Romney’s courage, even a catchy campaign slogan from Joe Biden – ‘Bin Laden is dead and General Motors is alive.’

“In mock innocence, the White House says they are only responding to news media requests. Yeah, sure.

“Is this White House exploitation for political purposes indecorous and unbecoming, as Republicans claim? Of course it is.

“President George H.W. Bush set the standard for exemplary conduct when he refused to dance on the Soviet grave after its empire collapsed and directed credit toward the U.S. military when they chased Iraqi dictator Saddam Hussein out of Kuwait.

“But more often than not, a president looking toward re-election has gone too far the other way, milking foreign adventures for votes and Republicans have been as guilty as Democrats….

“Serious observers are arguing that in the aftermath of bin Laden’s death, the world may actually have become more dangerous. In Sunday’s Washington Post, David Ignatius persuasively makes the case that we got our man but, as bin Laden hoped, other militant Islamists are now gaining political strength in key countries such as Egypt and Syria.

“In an excellent essay in Time on bin Laden’s elimination, Kennedy School scholar Graham Allison argues that as we now focus on Iran producing its first bomb in the coming 12 months, an increasingly unreliable Pakistan could produce 12 in the same time span.

“ ‘So as we applaud extraordinary performance in this operation,’ concludes Allison, ‘we are left contemplating a discovery that means we are likely to soon face even more daunting challenges in the days and months ahead.’”

--Ian Bremmer / RealClearWorld.com and the Wall Street Journal

“For the first time in seven decades, we live in a world without global leadership. In the United States, endless partisan combat and mounting federal debt have stoked fears that America’s best days are done. Across the Atlantic, a debt crisis cripples confidence in Europe, its institutions and its future. In Japan, recovery from a devastating earthquake, tsunami and nuclear meltdown has proven far easier than ending more than two decades of political and economic malaise. A generation ago, these were the world’s powerhouses. With Canada, they made up the G7, the group of free-market democracies that powered the global economy. Today, they struggle just to find their footing….

“(In) a world where so many challenges transcend borders – from the stability of the global economy and climate change to cyberattacks, terrorism and the security of food and water – the need for international cooperation has never been greater. Cooperation demands leadership.”

--One of my favorites, Oklahoma Republican Sen. Tom Coburn, has written a new book titled “The Debt Bomb: A Bold Plan to Stop Washington From Bankrupting America.” In it Coburn writes of serving on the Simpson-Bowles Commission and his frustrations when his friend Obama rejected its deficit-reduction plan.

“We set the precedent of forcing a down payment on spending cuts to avoid the bait-and-switch trap in which Washington enacts tax hikes but not spending cuts. Unfortunately, President Obama refused to embrace the recommendations and offered almost no feedback. His decision, I believe, will be remembered as one of the greatest failures of presidential leadership in American history.” [Justin Moyer / Washington Post]

--President Obama leads Mitt Romney in the key battleground state of Virginia by a 51-44 margin, a new Washington Post poll shows. Among black voters, Obama leads Romney 97-1. Yikes. Among women, Obama’s lead is 56-38.

--This week, One World Trade Center surpassed the Empire State Building as New York’s tallest building, over 1,250 feet. The Port Authority says 55% of the office space is basically spoken for as the building is slated for completion late 2013 or early 2014. The cost is up to $4 billion. As the New York Post opined on the milestone, “U.S. resilience” proved bin Laden wrong.

--In a poll commissioned by the New York Daily News, if Hillary Clinton were to face off vs. Gov. Andrew Cuomo for the Democratic nomination in 2016, among New York voters, Clinton would trounce Cuomo 60% to 25%. In the 2008 New York primary, Clinton whipped Barack Obama by 17 points.

--More Americans acting badly…Florida prosecutors charged 13 in connection with the suspected hazing death of the Florida A&M University drum major, Robert Champion. 11 of the 13 face felony hazing charges, which carries a maximum sentence of six years in prison.

Champion collapsed aboard a bus following A&M’s game vs. rival Bethune-Cookman. The medical examiner ruled the death a homicide, caused by internal bleeding resulting from blunt-force trauma. Multiple blows, not a single strike.

--In Japan, 14,000 people die every year in the bath tub…three times as many as those who died in car accidents.

“The ritual of bathing in Japan is less about washing but more about relaxing at the end of the work day and, in more traditional communities and older buildings, keeping warm in the winter.

“Local authorities’ data suggests most of the deaths were attributable to drowning, heart palpitations, heart attacks and subarachnoid hemorrhages, the Mainichi newspaper reported.

“The numbers rose significantly in the winter months, when older people move from a warm part of their home to the bathroom and suffer ‘thermal shock.’….

“Authorities are being urged to draw up guidelines on how to take a bath safely, encouraging people to avoid excessive changes in temperatures, gradually and carefully soaking oneself in hot water and drinking lots of fluids.”

“If state Sen. Nicholas Sacco stepped down today as the assistant school superintendent in North Bergen, his 445 unused sick days would be worth $331,970.

“The parting check is so large that each North Bergen property owner would have to come up with $26.68 to cover the bill, among the highest payouts in state history.

“Sacco – the acknowledged political boss of his hardscrabble Hudson County township – says that although the payout may be tough for taxpayers to swallow, he works hard and the generous perk is part of his contract.”

Nothing drives me up the wall more…being able to accumulate sick days and receive compensation for them. Gov. Chris Christie has tackled the issue, but the payouts continue due to a surge in retirements and layoffs.

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

Gold closed at $1645
Oil, $98.49

Returns for the week 4/30-5/4

Dow Jones -1.4% [13038]
S&P 500 -2.4% [1369]
S&P MidCap -3.4%
Russell 2000 -4.1%
Nasdaq -3.7% [2956]

Returns for the period 1/1/12-5/4/12

Dow Jones +6.7%
S&P 500 +8.9%
S&P MidCap +9.8%
Russell 2000 +6.9%
Nasdaq +13.8%

Bulls 43.0
Bears 20.4 [Source: Investors Intelligence]

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