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05/12/2012

For the week 5/7-5/11

[Posted 6:00 AM ET]

Crisis in Europe…continued…

What a week, beginning with the votes in France and Greece last Sunday and the continued unraveling in Spain.

We’ll take the easy one, first…France. Socialist Francois Hollande will be sworn in on May 15 as his nation’s next president, having defeated incumbent Nicolas Sarkozy 52-48, a little tighter than expected. Clearly, Sarkozy was hurt by the non-endorsement of National Front leader Marine Le Pen and he was unable to pick up enough support from the right to counter Hollande’s leftist coalition (plus many in France were simply tired of Sarkozy’s act). Hollande will be meeting soon with German Chancellor Angela Merkel for what promises to be an interesting chat. On May 15, Hollande not only is inaugurated but France’s first-quarter GDP figure is released and it’s expected to be flat at best, further pointing out the problems he faces with his socialist agenda.

Make no mistake, though. Despite some of his tax proposals which are already driving out France’s wealthy and entrepreneurs, he will prove to be not so radical when it comes to actual enactment. And while he has little high-level experience, he understands that France still has to cut spending and rein in its debt. But he’ll also be attempting to promote growth and there’s just no way France’s debt doesn’t continue to explode.   Nonetheless, Hollande will insist the eurozone’s “fiskalpakt” be renegotiated, which was the central plank in his platform.

As for Merkel, she has ruled out any renegotiation of the compact that would enforce budgetary discipline that all but two of 27 EU nations agreed to.

“Growth through structural reforms is sensible, important and necessary. Growth on credit would just push us right back to the beginning of the crisis, and that is why we should not and will not do it.”

Turning to Spain, I’ve been writing for years that it continues to underestimate the severity of their banking crisis owing to the real estate crash that is still unfolding.  For example, the government is now asking lenders to increase provisions for bad debt by 50 billion euro, or enough to cover losses of 50% on loans to developers and construction firms, but there are also more than 1.4 trillion euros of home loans and corporate debt, according to Yalman Onaran of Bloomberg. The Center for European Policy Studies, out of Brussels, estimates banks really need to increase bad loan provisions by as much as five times what the government is recommending.  Ergo, as Dick Vitale would say, again, “Its bailout city, Baby!”

This week the Spanish government essentially nationalized the nation’s third-largest bank, Bankia, taking a 45% controlling stake while supplying “strictly necessary” capital. Bankia has 38 billion euro in real estate assets, more than any other bank.

The other banks, with capital restrictions such as the above now in play, or needed further, are hoarding all the cash they can get their hands on just to survive.

So to beat a dead horse of the past few years in this column, how the heck do you grow when the banks are in no position, or at least are too paralyzed, to lend?

Well the European Commission (which reiterated this week that Spain’s economy will shrink 1.8% in 2012) is prepared to cut Spain some slack on its budget deficit targets, but only if Madrid agrees to all sorts of demands, including the hiring of outside auditors to verify bank stress tests.

This coming week, Spain will be receiving mandated budgets from its 17 autonomous regions, which have been set strict deficit reduction targets. Of course it’s the regions where all the massive corruption has taken place and where there is zero transparency when it comes to the books.

Which brings me to Greece. More than 70% of Greeks want to stay in the euro, according to the polls, but then when they actually vote, as they did last Sunday, they give more than 60% to all manner of parties that want to bail on the austerity demanded in the very bailout that would ensure they remain in the union.

The centrist parties that have been running Greece for decades received 149 of 300 seats in parliament, including a crazy 50-seat bonus awarded to the first-place finisher, but they still couldn’t muster two more seats for a 151-seat majority. The second-place finisher, the Radical Left Coalition (Syriza) led by Alexis Tsipras, a former Communist who is just 37, also wasn’t able to form a new government. Tsipras said from the start that the 130 billion euro rescue plan had been rejected by the Greek people.

“With their vote, Greek people gave their mandate for a new day in our country, without the cruel bailout measures. They want solidarity and justice.”

Syriza’s economic coordinator told the London Times, “Our position is that we want to stay in the eurozone because we believe we can fulfill our targets much better when we are members of the eurozone. It would be very destructive if we returned to the drachma. However, we are in favor of a radical break with the structure of the eurozone.”

Syriza would like to see the European Central Bank pump money into the economy and to guarantee the issue of Eurobonds, which is a major no-go with the Germans.

Guido Westerwelle, the German foreign minister, warned Greece that unless the country implements new austerity measures of about $15 billion in June, the flow of aid under the bailout will stop, which would cause a collapse of public services and send the state spiraling into bankruptcy and depressing chaos.

“Germany would like to keep Greece in the eurozone, but Greece’s fate is now in its own hands.”

Klaus-Peter Willsch, the chairman of the German parliament’s budget committee, which has a veto over EU bailouts, said, “We should offer Greece a controlled exit from the eurozone, without withdrawing from the EU.”

Philip Stephens / Financial Times

“You can see why so many backed Mr. Tsipras. New Democracy and Pasok [Ed. the two centrist parties] commanded the corrupt and clientelist system that has ruined the economy and disfigured Greek society. For all the jibes in Berlin and beyond about Greeks retiring at 50 or refusing to pay taxes, austerity has already taken a heavy toll. Public spending has been slashed and wages and pensions have fallen by 25%. Greece has lost a fifth of its economic output. Featherbedding has been replaced by sackcloth.

“Public rage, however, does not provide answers. Greece can say no to Brussels and Berlin. It can thumb its nose at the apparatchiks of the IMF. If it so chooses, it can unshackle itself from the euro. What it cannot do is escape a reckoning. Inside or outside the euro, Greece cannot avoid the brutal adjustments needed to repair its public finances and restore international competitiveness. Simply writing off its debts and reclaiming the drachma would trigger economic collapse.

“Greek politicians may be betting that the country’s creditors are bluffing: that, however much they insist otherwise, the EU and IMF could not afford an uncontrolled default in Greece. The latest cracks in the Spanish banking system have provided a timely reminder of the dangers of contagion to the eurozone periphery. The single currency’s firewall is still only half-built. Would Germany’s Angela Merkel really take the risk of a Greek exit that could herald the break-up of the eurozone?...

“Yet my sense from many conversations with dispassionate European officials and politicians is that Greece would delude itself were it to imagine that the new rhetoric of growth will allow it to put aside its commitments to fiscal rectitude and structural reform. The rest of the EU has run out of patience. Its dealings with policy makers in Athens are marked by a complete absence of trust and a deep pessimism about the capacity of the Greek state to reform itself….

“All roads lead to austerity. For Greece, though, there is more at stake than economics. The tragedy of its membership of the EU has been its failure to defy geography and redefine itself as a modern European state. Now, it is hard to imagine how Greece can remain in the single currency. But does it want to return to the Balkans?”

Noted economist Kenneth Rogoff said this week, “A Greek exit would underscore that there’s no realistic long-term plan for Europe, and it would lead to a chaotic endgame for the rest of the eurozone.”

So we’re headed for another election it would seem, probably on June 17, and Alexis Tsipras’ Syriza party could do even better.

At the same time Greece is due to receive 39.4 billion in bailout funding before the end of June, but only if it has committed to the mandated austerity cuts.

Economist Nouriel Roubini called the situation in Europe a “slow-motion train wreck.” He’s wrong. Europe is like two trains about to hit head on at 200 mph.

As for the neo-Nazi Golden Dawn movement, it picked up 438,910 votes in Sunday’s election, 7%, despite Greece’s traditional hatred for Nazi occupation during World War II.   Golden Dawn thus won 21 seats in parliament. No doubt it is one of the most extreme of Europe’s far-Right groups.

“These parties use violence to fulfill their political aims or at least they don’t exclude the use of political violence in their actions,” said Vassiliki Georgiadou, a professor of politics at Athens Panteion University. “They are not only against, but also aggressive to immigrants; they support racist ideas with cultural or with biological connotations too, and they are irredentist, denying the geographical borders of the postwar nation states.” [London Times]

It seems a lot of Greeks really didn’t know what Golden Dawn was all about until now. Like one newly elected MP is facing trial for allegedly lending his car for an assault on a left-wing university lecturer. Now the guy will benefit from parliamentary immunity.

And just who is Golden Dawn’s leader? It’s Nikolaos Michaloliakos, who the night of the election told reporters, “Greece is only the beginning.”

Michaloliakos, 55, is a mathematician with a prison record. Citing Julius Caesar, he declared: “Veni, Vidi, Vici…The Time for fear has come for those who betrayed this homeland. We are coming.” [He was flanked at the podium by “musclebound supporters”; one picture of which was rather scary.]

Golden Dawn, with its swastika-like Ancient Greek symbol believes in throwing out all illegal immigrants and putting landmines on the border to stop any from coming back in.

The party is also sometimes compared to Hamas and Hizbullah because of its social outreach. It is taking over Athens’ slum areas, for example, and becoming the source for food.

And what did Mr. Michaloliakos serve prison time for as a young man? Possession of explosives.

Editorial / Wall Street Journal

“As for the rise of the extremist fringes, this should serve as a warning of what happens in countries where mainstream parties fail. It’s too soon to start making comparisons to the interwar years of the last century when Fascism, Communism and Nazism all found their political footholds. But that’s the scenario Europe may someday risk again if its centrist parties continue to fail.”

--EU Bits

Not for nothing, but Ireland is still slated to hold a referendum on the EU fiscal compact, May 31. Friday, June 1, could thus be another hairy day in the global markets should the Irish vote it down, and they are highly unpredictable on such matters.

Germany’s exports rose 0.9% in March over February when a decline had been forecast. Factory orders and industrial production also rose in the month. 

Retail sales for the month of April in the U.K. were down 3.3% from a year earlier, owing to the wettest April on record.

Portugal is taking austerity to a new level in scrapping four of 14 public holidays.

Angela Merkel’s Christian Democrats scored only 31% in the northern state of Schleswig-Holstein, its lowest tally in the state in 50 years. Sunday, Merkel faces another test in Germany’s most populous state, North-Rhine Westphalia.

British Prime Minister David Cameron said with regards to his austerity program, “There can be no going back on our carefully judged strategy for restoring the public finances. I don’t hide from the scale of that challenge.”

But Cameron is under increasing scrutiny for his friendship with former News International chief executive Rebekah Brooks, who on Friday detailed her close relationship with Cameron, former Prime Minister Tony Blair and their families in testimony to the country’s inquiry into media ethics. Brooks acknowledged that she used her access to lobby the British government over News Corp.’s planned takeover of British Sky Broadcasting. Rather messy for No. 10 Downing Street.

And in Serbia, the Serbian Progressive Party headed by Tomislav Nikolic, a former ultranationalist ally of Slobodan Milosevic, will go against pro-Western President Boris Tadic in a presidential run-off May 20, Nikolic outpolling Tadic in the first round of voting, 25% to 22%. In the run-off, however, Tadic is expected to prevail. At stake is whether Serbia will continue on a path to EU membership or fall back into Russia’s orbit.

As for Washington and Wall Street, there was little economic news on the week, with a non-inflationary report on producer prices the highlight, down 0.2% for April and up 1.9% year-over-year (up 2.7% ex-food and energy the past 12 months), as well as a solid consumer confidence number. Oil hit its lowest levels since the first week in February and the price of gasoline is edging down, though Iran could quickly be back on the table at a moment’s notice…see below.

But the news from the major retailers has been weak lately and on the tech front, Cisco Systems issued a gloomy forecast, guiding revenue lower vs. analysts’ expectations as CEO John Chambers cited the ongoing uncertainty in Europe and a lack of leadership in Washington that is adding to Corporate America’s cautious outlook; as in customers are delaying purchases until the fog lifts. As Chambers put it, “Clearly, they’re keeping their powder dry.”

Meanwhile, PIMCO’s Bill Gross and Goldman Sachs economist Jan Hatzius are among those predicting the Federal Reserve will launch QE3, or more bond buying, to spur what is definitely a slowing economy. The Fed’s meeting in June would seem to be the right time to make such an announcement, unless global markets mandate action earlier (like bank runs in Greece and Spain).

On the federal budget deficit front, the Treasury Department said Thursday that the government in April recorded its first surplus in 43 months - $59.1 billion, which in itself isn’t unusual with tax returns rolling in, plus the Congressional Budget Office said the figure was inflated by timing shifts of certain payments; so adjusted for those the surplus in April would have been more like $27 billion.

Bottom line, the U.S. deficit for the first seven months of the fiscal year ending Sept. 30 is $719 billion; on track to exceed $1 trillion for the fourth straight year. As for the going over the “fiscal cliff” talk, I’ll give it a rest for a week. But it’s coming. Another debt-ceiling debate is also coming sooner than later to a theatre near you.

Lastly, we have the “King of Wall Street,” JPMorgan Chase & Co. CEO Jamie Dimon, who suffered a major black eye at the worst possible time with the revelation JPM had suffered at least $2 billion in trading losses, stemming from bad bets in the bank’s Chief Investment Office that manages risk for the company. Dimon called the ‘hedging’ mistake “egregious, self-inflicted,” and said: “We will admit it, we will fix it and move on.” The actual loss, however, could be far more, or less, after its wound down. Dimon added, JPM’s strategy was “flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

The timing of the JPM announcement could not have been worse as Congress and the banks fight over new regulations designed to rein in such trading, i.e., the Volcker rule, to which Dimon said, “This doesn’t violate the Volcker rule, but it violates the Dimon principle.”

It was the Wall Street Journal a month ago that first called into question the activities of a London-based JPM trader dubbed “the whale,” French-born Bruno Michel Iksil, who was roiling the debt market with oversized trades back then. When queried in April, Dimon said the whale’s trading was “a complete tempest in a teapot.” Only after he made this comment on an earnings call, April 13, did he learn otherwise.

Whether or not this kind of trading falls under the purview of the Volcker rule, Democratic Sen. Carl Levin was ready to pounce, calling JPM’s announcement “just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making.”

But as the Wall Street Journal editorial board points out, not only is there no precise definition of the Volcker rule, no one knows when it takes effect, whatever ‘it’ is.

Back to Dimon, asked if he thought that other banks engaged in such risky derivative trades, he responded: “Just because we’re stupid doesn’t mean everybody else is.” 

The Financial Times editorialized:

“If JPMorgan was a pure investment bank such as Goldman Sachs or Morgan Stanley this mess would be no business of Paul Volcker. It is crazy that even these two banks have to get rid of desks that had nothing to do with the financial crisis. But the Volcker rule is on firmer ground for the JPMorgans and Barclays of the world, which mix being subsidized instruments of government savings policy on one side and risk-taking investment banks on the other. Cue the wailing.”

The SEC opened a preliminary investigation into JPMorgan’s accounting practices and public disclosures about the trades. Fitch Ratings lowered its credit grade one notch and S&P threatened to do the same.

Street Bytes

--Stocks fell for a second straight week as the Dow Jones lost 1.7% to close at 12820, while the S&P 500 dropped 1.1% and Nasdaq lost 0.8%. All three major averages are at their lowest levels in three months.

But next week it’s all about Facebook, which is slated to price on Friday. At least we hope it is mostly about Facebook. That would be a good sign; as in less talk of Europe. Now ask me if this is a likely outcome.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.26% 10-yr. 1.84% 30-yr. 3.01%

Treasuries continue to rally not only as a result of the turmoil in Europe and increased talk of a bailout for Spain, but also because of slowing economic activity around the world.

--The Federal Reserve approved Industrial and Commercial Bank of China’s (ICBC) plans to acquire the U.S. subsidiary of Bank of East Asia, the first such U.S. approval for a Chinese firm. The Fed also gave permission to two other Chinese banks to increase their presence in the U.S.

In a statement the Fed said: “China’s largest banks, such as ICBC, use the ‘big four’ accounting firms. There is no evidence that Chinese accounting methods or practices…are unreliable.”

[On Friday, the Wall Street Journal reported that “China has instructed the Big Four auditors to hand over control of their Chinese operations to local partners by the end of the year and put a Chinese citizen at the top within three years.” Local CPAs currently account for 50% of all Big Four partners, according to the Ministry of Finance.]

--Meanwhile, regarding the Chinese economy, the government released a slew of data on Friday. Inflation slowed to 3.4% in April from 3.6% in March vs. the government’s target of 4% for the year. Last year’s peak was 6.5%. [Food inflation has moderated to 7%.]   The producer price index fell 0.7% from a year ago.

China’s home sales fell 16% in April from the prior month as the government continued its curbs on housing in toughening requirements for down payments and mortgages, as well as restrictions on the number of homes each family can buy.

Industrial production increased 9.3% last month from a year earlier, the slowest pace since 2009, while retail sales rose a less than expected 14.1% over year ago levels, also the least since ’09, and fixed-asset investment increased 20.2% in the first four months of the year, the slowest pace since 2001.

Earlier in the week, we learned April exports rose just 4.9% from a year ago (they were up 8.9% in March), while imports increased only 0.3%.

So all of the above, especially the last two items, speak to slowing external and internal demand, which in turn should allow the government to ease on the monetary front, especially in front of the political transition taking place later in the year. You want the people to be happy this fall, it goes without saying.

--Authorities in Beijing said they plan to get rid of 1,200 high-polluting enterprises by 2015 to improve air quality in the capital. The worst polluters are foundries, chemical plants and furniture factories, according to the South China Morning Post.

--India’s industrial production for the month of March fell unexpectedly 3.5%.

--Iraq produced 3.03 million barrels of oil a day in April, or almost as much as Iran’s 3.2 mbd, according to the latest data out of OPEC. That’s quite an accomplishment as Iraqi production seemed stuck in the 2-2.5 mbd range since Saddam was ousted. Of course it helps that the likes of Exxon Mobil and BP are developing new fields. Plus it’s not as if Iraqis care if these two spill a few million barrels, as is their wont. [Sorry, cheap shot.]

--The National Association of Realtors reported that the U.S. had 2.37 million existing homes for sale at the end of March, down 22% from a year ago, which is good. Better sales and declining inventories will help prices. In some areas such as Phoenix, Seattle and suburban Washington, D.C., there are shortages of lower-priced homes.

--In another hopeful sign for housing, Fannie Mae reported a first-quarter profit and – for the first time since the government seized it in 2008 – does not need a quarterly infusion of taxpayer money. [Washington Post]

Coupled with sibling Freddie Mac, the two own or back 60% of the nation’s mortgages.

Net of dividends paid back to the government, the overall cost of Fannie’s bailout is $93.6 billion. Freddie’s net is $53 billion owed to taxpayers.

--Despite the losses sustained by the studio’s epic flop, “John Carter,” Walt Disney reported strong fiscal second-quarter profits of $1.1 billion. Revenues at its parks and resorts jumped 10%, but studio revenues dropped 12%. However, the opening of “The Avengers” has staunched the bleeding on that front.   The picture has already made more than $700 million globally before this weekend.

Separately, cable network ESPN continues to power Disney’s media networks as revenue in that segment of the operations increased 9% to $4.7 billion.

--Sony shares tumbled to a 31-year low after the company reported a record annual loss of $5.7 billion. Sony, after four years of losses, is trying to convince analysts it will return to profitability in the current financial year.

--Shares in Vertex Pharmaceuticals almost doubled after interim results showed its combination therapy for cystic fibrosis showed promise. One of the two drugs, Kalydeco, sells for nearly $300,000 a year.

--McDonald’s reported a so-so global sales increase in April of just 3.3% at stores open at least 13 months, short of expectations. The figure in the U.S. was also 3.3%, while sales rose 3.5% in Europe and just 1.1% in the Asia/Pacific, the Middle East and Africa. Positive results in China were offset by negative results in Japan.

--Berkshire Hathaway held its annual meeting last Saturday and the only memorable comment I saw was from Charlie Munger, Warren Buffett’s long-time partner, who compared program traders to rats in a granary. Couldn’t agree more. But as the Wall Street Journal’s Jason Zweig points out, Berkshire’s Class B shares “have underperformed the S&P 500 by 3.5 percentage points for the year to date through (5/4), by nearly five points in the past 12 months and by an annual average of eight percentage points in the past three years.”

--According to the New York Times’ Nathaniel Popper and Credit Suisse Trading Strategy, “In April, the average daily trades in American stocks on all exchanges stood at nearly half of its peak in 2008: 6.5 billion compared with 12.1 billion.”

High-frequency traders now account for over half of all stock market activity, but even they have been doing less.

Separately, the New York Stock Exchange reported trading in the first quarter was down 16% quarter-over-quarter.

--The U.S. Postal Service backed off its plan to close up to 3,700 low-revenue rural branches and instead will maintain lobby areas and P.O. boxes while reducing staff and hours. The USPS will also offer buyouts for postmasters, noting that more than 80% of its postal costs in rural areas are labor-related, and replace them with part-time workers.

--California Gov. Jerry Brown said he needs far more than the $4.2 billion in spending reductions he requested in January, raising the specter of deeper cuts to education and state services if his bid for tax hikes fails. A proposal for hikes will be on the November ballot it seems. Tax revenue has lagged by $3.5 billion and state spending is $2.1 billion more than expected so far in the current budget. [Los Angeles Times]

--The U.S. Department of Agriculture raised its forecast for near-term supplies of corn and projected a record harvest this autumn. Corn prices fell 2.5% on the news.

--Toyota Motor Corp. sold the most cars and trucks in the world in the first three months of the year, after being the world’s biggest automaker from 2008 to 2010. Toyota’s recovery from the natural disasters in Asia (including the flooding in Thailand) is basically complete.   Toyota also forecast its profit would double to a five-year high in 2012. [GM is back to No. 2 and Volkswagen No. 3.]

--Shares in Fossil Inc. fell almost 40% following a disappointing first-quarter earnings report. Have any of you actually purchased anything in one of their stores?

--Nothing like a great American success story and so we note the passing of hairstyling pioneer Vidal Sassoon at the age of 84. I had no idea until reading his obituary that he had served in Israel’s War of Independence in 1948. Sassoon opened his first salon in his native London in 1954 but moved to the States in the 1960s, and then Los Angeles in the early 70s, where he decided to make his home and perfect his wash-and-wear styles and products bearing his name. His advertising slogan, “If you don’t look good, we don’t look good,” was all over the television airwaves back in the day.

Growing up poor in London, Sassoon wanted to be a soccer player but his mother said he should be a hairdresser and as he once put it, “the mother got her way.”

--And we note the passing of game show impresario, Bob Stewart, at the age of 91. All he did was create the hits “Password,” “To Tell the Truth,” and “The Price is Right.” Stewart once told the Washington Post in 1978, “People are curious about new shows. By the time they find out that what they are watching is crap, they’ve already watched it.”

--According to a Rutgers University study, nearly 50% of grads over the last five years are unemployed or underemployed.

--Sotheby’s sold Edvard Munch’s “Scream” for $120 million and this week, Christie’s sold a Mark Rothko painting from 1961, “Orange, Red, Yellow,” for $86.9 million.

Munch’s work is art. Rothko’s is garbage. But seeing as how his work was only expected to bring $45 million, there are some folks willing to pay up for crapola.

Now for you abstract expressionist fans out there who I’ve just offended, I do like Jackson Pollock’s work.

--New Zealand is already fired up over the prospects for increased tourism as a result of the upcoming “Hobbit” movies, the first of which is due for release in December. The government is expecting Sir Peter Jackson’s two flicks to give an even bigger boost than the three “Lord of the Rings” pictures. After the 2001-2003 run for the latter, tourism spiked 40%.

--My portfolio: Nothing to say on the China holding some of you are aware of. The company remains silent.

Foreign Affairs

Israel: In a shocking development, Prime Minister Benjamin Netanyahu announced he had formed a unity government with the main opposition party, Kadima, just a day after strongly hinting he would call an early election in September (as I noted last WIR).

The move gives the coalition 94 of the Knesset’s 120 members, a massive majority that will allow Netanyahu to push through political reform, curtail the exemption of ultra-Orthodox Jews from military service and, perhaps, renew peace talks with the Palestinians, as it pushes the prime minister’s government back to the center from the far Right.

His new partner, Kadima leader Shaul Mofaz, will become vice prime minister and regarding the issue of Iran, while Mofaz has spoken out against a unilateral Israeli strike in the past, he is a former military chief and defense minister and has a history of reversing his position on key matters.

Now, coupled with defense minister Ehud Barak, Netanyahu is able to beat back those such as former Mossad chief Meir Dagan who have gone public with their criticism of a strike.

“They call me messianic,” said Netanyahu of his critics, vowing that along with his coalition partners, all elected officials, he’d make “responsible” decisions on Iran.

Just this week, Vice President Joe Biden made clear that time was running out for Iran as the next round of negotiations rapidly approaches.

Benny Avni / New York Post

“No one should expect an Israeli attack ‘tomorrow morning,’ as Barak said recently. To start with, Netanyahu is waiting (without much hope) for the results of an American-backed negotiation with the mullahs…

“But as Biden, scrambling to catch up, acknowledged while addressing Jewish leaders yesterday (Tuesday), ‘The window has not closed in terms of the Israelis if they choose to act on their own militarily.’

“In fact, that window opened wider yesterday. Even if Israel opts to wait until after the U.S. election in November, speculation about Netanyahu’s next move is bound to rattle markets and influence global decision-makers all summer and into the fall.

“And that’s bound to seep into this country’s politics, too.”

Charles Krauthammer / Washington Post

“On June 5, (1967) Israel launched a preemptive strike on the Egyptian air force, then proceeded to lightning victories on three fronts. The Six-Day War is legend, but less remembered is that, four days earlier, the nationalist opposition (Menachem Begin’s Likud precursor) was for the first time ever brought into the government, creating an emergency national-unity coalition.

“Everyone understood why. You do not undertake a supremely risky preemptive war without the full participation of a broad coalition representing a national consensus.

“Forty-five years later, in the middle of the night of May 7-8, 2012, Prime Minister Benjamin Netanyahu shocked his country by bringing the main opposition party, Kadima, into a national unity government. Shocking because just hours earlier, the Knesset was expediting a bill to call early elections in September.

“Why did the high-flying Netanyahu call off elections he was sure to win?

“Because for Israelis today, it is May ’67. The dread is not quite as acute: The mood is not despair, just foreboding. Time is running out, but not quite as fast. War is not four days away, but it looms. Israelis today face the greatest threat to their existence – nuclear weapons in the hands of apocalyptic mullahs publicly pledged to Israel’s annihilation – since May ’67. The world is again telling Israelis to do nothing as it looks for a way out. But if such a way is not found – as in ’67 – Israelis know that they will once again have to defend themselves, by themselves….

“The wall-to-wall coalition demonstrates Israel’s political readiness to attack, if necessary. (Its military readiness is not in doubt.)

“Those counseling Israeli submission, resignation or just endless patience can no longer dismiss Israel’s tough stance as the work of irredeemable right-wingers. Not with a government now representing 78% of the country.

“Netanyahu forfeited September elections that would have given him four more years in power. He chose instead to form a national coalition that guarantees 18 months of stability – 18 months during which, if the world does not act (whether by diplomacy or otherwise) to stop Iran, Israel will.

“And it will not be the work of one man, one party or one ideological faction. As in 1967, it will be the work of a nation.”

Meanwhile, Israeli intelligence shows Iran and Hizbullah planning attacks on senior officers traveling overseas; this after the series of bombing attacks that Iran and Hizbullah are believed to have carried out in Thailand, Georgia, India and Azerbaijan. All except a bombing in New Delhi were foiled. Hizbullah is believed to be still attempting to avenge the 2008 assassination of its military commander Imad Mughniyeh.

Iran: So what are the Iranians saying as the May 23 round of talks in Baghdad approaches? A spokesman with the Foreign Ministry said:

“Some countries say they are concerned that Iran’s activities might be diverted towards non-peaceful purposes in the future. When they are talking about future speculation, how can they not be concerned about scrapping nuclear weapons at the present time?

“Some of these countries have nuclear-capable submarines they have delivered to the Zionist regime,” Ramin Mehmanparast said, alluding to transfers of German-built subs to Israel.

No doubt Iran is feeling the heat as a result of the economic sanctions, but it also seems a bit naïve in believing the European Union’s July 1 ban on Iranian crude can be easily negotiated away.

It also seems that Iran is attempting to eliminate incriminating evidence at its Parchin armed forces installation before a potential visit by the International Atomic Energy Agency that has yet to be allowed into Parchin.

Iran’s top justice official, Ayatollah Larijani, said: “The Iranian people will not retreat from the firm steps they have taken on the path to access nuclear energy for peaceful purposes, and the Westerners should put this wishful thinking out of their mind.”

Syria: Twin bombings that killed 55 people and wounded more than 350 in Damascus on Thursday not only drew wide condemnation across the world, but in all likelihood doomed the peace effort in the country. The carnage was the work of two suicide car bombers who detonated their devices near a main intelligence complex during morning rush-hour. It was the deadliest attack in the capital since the uprising against the Bashar al Assad regime began 14 months ago.

Of course the Syrian government said the attacks were a sign that the Arab state was facing foreign-backed terrorism, and regardless of your opinion, on this single incident they are probably right. Syrian television showed a man pointing to the wreckage. “Is this freedom? This is the work of the Saudis,” he said. It’s the Saudis who have advocated arming the rebels. Try al-Qaeda types instead.

The White House, through spokesman Jay Carney, said: “There are clearly extremist elements in Syria, as we have said all along, who are trying to take advantage of the chaos in that country, chaos brought about by Assad’s brutal assault on his own people.”

But Mr. Carney failed to explain why his boss has been invisible while thousands have been slaughtered.

The Kremlin said it would not yield to pressure to change its pro-Assad stance. Foreign Minister Sergei Lavrov was quoted as saying: “Some of our foreign partners are doing practical things so that the situation in Syria explodes in literal and figurative sense.”

A leading member of the opposition said: “These bombs are not the work of opposition fighters.”

Egypt: The country held its first-ever presidential debate on Thursday and Amr Moussa and Abdel Moneim Abol Fotouh, tipped to be the two frontrunners, traded accusations over their political histories. Fotouh is the independent Islamist and former member of the Muslim Brotherhood who just picked up the endorsement of the hardline Salafists, while Moussa is the former foreign minister under ousted President Hosni Mubarak.

“How can you bring about change after being part of the former regime? Do you think the Egyptian people who revolted to bring this regime down will be eager to elect one of its former symbols?” Fotouh said.

Moussa replied: “First, I would like to tell Dr. Abol Fotouh that I was not part of the ousted regime. For the past 10 years, I have been completely disassociated from the regime.

“I had the courage to oppose the regime from within when I was foreign minister and I decided to quit when things reached a dead end. I knew the consequences of my opposition, but yet I continued to do what I thought was right,” he added.

Moussa then said of Fotouh: “I do not recall you voicing strong opinions about the former regime. Your opposition was simply linked to your affiliation to the Muslim Brotherhood. You always opposed within the framework of the Brotherhood and most of the time you were defending your group rather than standing up for the rights of the entire Egyptian people.”

Fotouh said he was proud of his past affiliation with the Brotherhood. He quit in April 2011 to run for president, saying “I wanted to be a candidate representing all Egyptians and not only one group.”

Both candidates pledged to review Egypt’s 1979 peace treaty with Israel.

So that’s more than you probably wanted to read about the Egyptian presidential debate but at least they held one. [Hussein Abdallah / The Daily Star]

Afghanistan: For the 20th time this year, an attacker wearing an Afghan army uniform opened fire on NATO troops Friday, killing one service member (as I go to post, presumably an American).   The Taliban claimed responsibility.

Separately, an AP-GfK poll showed that only 27% of Americans say they support the war, a new low, with 66% opposing it. A year ago, 37% favored the war, and in the spring of 2010, the reading was 46%.

At the same time, 53% approve of Obama’s handling of Afghanistan, 42% disapprove.

Russia: President Vladimir Putin was sworn in on Monday and received the briefcase enabling him to order a nuclear strike from any location as a gift, just sayin’.

Putin pledged in a speech before 3,000 invited guests to “strengthen Russian democracy, constitutional rights and freedoms,” declaring: “I will do all I can to justify the faith of millions of our citizens. I consider it to be the meaning of my whole life and my obligation to serve my fatherland and our people.”

Russia would become “the center of gravity for the entire Eurasia” Putin also claimed, describing the nation as “reborn” after the crisis of the post-Soviet years.

By the way, I wish I had been invited, even though I’ve long predicted Putin won’t last the year. You see, the reception (only 1,000 tabbed for this, sports fans) cost $1 million and, according to the London Times, included “sturgeon in champagne sauce, fried crab and tsarist ukha, a traditional fish soup known to be a favorite of Mr. Putin’s. The Kremlin’s own premium vodka and a remarkable 5,000 bottles of 2008 Abrau Durso Russian sparkling wine were also being served.”

Mmmm…fried crab….I’m drooling….

Meanwhile, the day before Putin’s inauguration, 50,000 people took part in a protest and more than 400 were arrested, including anti-corruption blogger, Alexey Navalny. A number of protesters were injured by police, as well as about 20 cops. These were the first violent clashes between the two sides since rallies began in December.

Putin’s press secretary Dmitry Peskov allegedly said: “(The police) were too soft. Protesters who hurt riot police should have their livers smeared on the asphalt.”

Later, appearing in front of the Duma, which approved his choice of Dmitry Medvedev as prime minister (thus completing the job swap) 299-144, Putin was his usual sarcastic, insensitive self.

David Statter / Wall Street Journal

“The violence that accompanied the inauguration of Vladimir Putin as Russian president this week is an ominous sign that Mr. Putin’s apparent desire to rule for life is leading his country toward a dangerous political confrontation….

“Dmitry Peskov, Mr. Putin’s spokesman, said he regretted that the police had not behaved more harshly. But harsh treatment may do little to shore up Mr. Putin’s dwindling support. Rising prosperity had until recently obscured the fact that Mr. Putin and a small group of cronies control an estimated 10%-15% of Russia’s gross national product….

“Another problem bred by Mr. Putin’s rule is a deteriorating economy. Crude oil and gas account for 75% of Russia’s exports. In order for him to win the presidency, Mr. Putin’s government authorized $161 billion in additional spending through 2018, increasing pensions and freezing gas prices. As a result, the government needs an oil price of $150 a barrel over the next few years to break even, while a sharp fall in price (for example to $80 a barrel) could lead to an immediate crisis.”

And you have the rise of nationalist extremism.

“In the face of all this, Mr. Putin has made attempts to endow himself with new legitimacy. In recent years, he’s been filmed riding a Harley-Davidson, singing the 1950s hit ‘Blueberry Hill,’ and photographed riding a horse bare-chested. One of his aides said he believed that Mr. Putin was sent to Russia by God, and the Russian media reported that a small female sect believes that Mr. Putin is the reincarnation of the Apostle Paul.

“None of this, however, is likely to protect the Putin regime from the challenge it now faces.   Russia is a country in which the population has no respect for the political system, their rulers, or the distribution of property….

“In the best of all worlds Mr. Putin would resign, and free and fair elections, with nonpartisan monitors, would be held. But even that would not be enough. Russia needs a commission similar to the South African Commission on Truth and Reconciliation to review publicly not only the crimes of the Putin era but also crimes committed during the eight-year rule of his predecessor, Boris Yeltsin. Only this can provide a basis for democracy….

“What’s at stake is not just the country’s prosperity but its existence as a civilized society.”

I’ve said Putin will be done in by a shadowy third force, one of the corrupt hardliners he is now protecting as part of a battle between the hardliners vs. the reformers (as distinct from the opposition). Bottom line for the next few months, a crackdown on the protesters is a certainty.                                               

Meanwhile, Putin backed out of a meeting with President Obama and the other G8 leaders at Camp David, May 18-19, citing he needed to work on his new cabinet and that he was sending Prime Minister Medvedev in his stead. Analysts were skeptical about the official explanation, viewing it as a deliberate snub of Obama, as well as other G8 leaders, over their criticism of Russian elections in December and March. Plus Putin has major issues with the anti-missile defense program.

I’ve also been writing for years that you’re nuts if you’re planning on attending the 2014 Winter Olympics in Sochi owing to the terror threat there. This week the Russian government announced it had foiled a plot, supposedly seizing 10 caches of weapons and ammunition in the breakaway republic of Abkhazia, which is just kilometers from Sochi. As noted in the Moscow Times, “The terrorists were planning to smuggle the explosives and arms into Sochi ‘between 2012 and 2014 to use them during the preparations and during the games,’ according to the National Anti-Terrorist Committee and the Federal Security Service.” 

Sochi sits in the North Caucasus region, near the Russia/Georgia border. Kathryn Stoner-Weiss, Senior Fellow at the Freeman Spogli Institute for International Studies at Stanford University, told USA TODAY:

“This is probably the start of extreme potential problems in the area with the Winter Olympics in Sochi. It’s almost the worst part of Russia to put the Games. It’s not so much because of Georgia, but the Caucasus in general.”

Russia is blaming both Chechen rebel leader Umarov and Georgia for the plot. I doubt Georgia is involved and agree with Ms. Stoner-Weiss that Russia implicated Georgia for political reasons.

And Russia suffered a tragic embarrassment with the crash of a demonstration airplane during a 50-minute flight over Indonesia. All 50 on board are presumed dead as the Sukhoi Superjet 100 crashed into the side of a volcano that was probably shrouded in fog at the time.

The jetliner was the first new model to be produced in Russia since the end of the Soviet Union and is a crushing blow to the national aerospace industry.

The Superjet’s $31.7 million price tag is one-third that of comparable short-hop jets and Russia was expecting orders of 1,000 over the next two decades. Thus the cause of the crash is critical. For the workers’ sake, I hope its pilot error.

China: It’s been flying under the radar, but a dispute over the resource-rich South China Sea between China and the Philippines could escalate at a moment’s notice. The issue is known as the Scarborough Shoal in English and, along with most of the South China Sea, is claimed by China, but the Philippines feels in their rights to not only fish it, but tap portions for the natural resources; this as China announced the China National Offshore Oil Corp. will start drilling operations in the Shoal. [I’ll have more in an upcoming “Hot Spots” column.]

On a different issue, the Global Times, a state-owned newspaper, commented on the case of activist Chen Guangcheng, who fled house arrest to seek safety in the U.S. embassy.

“External forces would like to use this to politicize and universalize some of China’s social conflicts. They want Chen’s case to become deadlocked, drawing in international attention, and becoming an issue as big as what has happened in Libya and Syria, so that they can capitalize on this opportunity to demonize China as a whole.”

The commentator, Liu Yang, said “Chen didn’t realize he was being used and his case being hyped into a national political issue. How can they be so cruel as to use a disabled person in their political games?” [Agence France-Presse]

Chen is still in a Beijing hospital after China agreed to guarantee his safety and allow him to apply for study in the United States. There are conflicting stories on the treatment of his family.

North Korea: Multiple experts told the AP that while Pyongyang has enough plutonium for roughly six bombs and has begun enriching uranium to bomb-grade levels, the North has yet to demonstrate the ability to weaponize the material.

But the state-run Korean Central News Agency read a statement that “Our military and people will thoroughly safeguard our dignity and sovereignty by further boosting defense capabilities, including nuclear deterrent, at any cost.” [Global Security Newswire]

A story on Friday, though, also from GSN, has North Korea launching another rocket before its anticipated third nuclear test.

Mexico: The murder tally in Acapulco almost tripled last year to more than 900, ranking it among the deadliest cities in the world. The Government has launched Operation Secure Guerrero, turning the town center into a virtual militarized zone. Killings are falling as a result, not that this makes me eager to finally visit.

As for the presidential election that is rapidly approaching, July 1, frontrunner Enrique Pena Nieto has a 17-point lead over Josefina Vazquez Mota. Mota is the candidate of President Calderon’s National Action Party, or PAN. A third candidate, leftist Andres Manuel Lopez Obrador, is just two points behind Mota. I apologize I haven’t kept up on this critically important vote. 

Random Musings

--President Obama announced that he believes same-sex couples should be granted the right to marry, reaching this historic conclusion after saying before his position had been evolving over many years.

“I’ve just concluded that for me personally it is important for me to go ahead and affirm that I think same-sex couples should be able to get married,” Obama told ABC News.

Needless to say it is a dramatic move in an election year and it also seems a bit more choreographed than initially believed; as in Obama’s announcement wasn’t necessarily precipitated by Vice President Joe Biden’s comment on the topic last Sunday on “Meet the Press.” [I know the story is Biden apologized later for jumping the gun. I just don’t believe it.]

But regardless of whether it was choreographed or not, the fact is Obama’s announcement will have an impact on key swing states such as North Carolina and Virginia; the former having voted overwhelmingly, 61-39, for a state constitutional amendment the day before the president’s statement to ban same-sex unions.

I also got a kick out of Obama once again dragging his kids into the discussion.

“You know, Malia and Sasha, they have friends whose parents are same-sex couples. There have been times where Michelle and I have been sitting around the dinner table and we’re talking about their friends and their parents and Malia and Sasha, it wouldn’t dawn on them that somehow their friends’ parents would be treated differently. It doesn’t make sense to them and, frankly, that’s the kind of thing that prompts a change in perspective.”

Gay advocates now hope Obama more vocally opposes the Defense of Marriage Act, a 1996 law that bans recognition of same-sex marriage at the federal level. The president has called the law discriminatory, but groups want him to play a more prominent role in fighting to repeal it.

The Washington Post’s Karen Tumulty points out that “When the question has been put to the voters over the past decade – more than 30 times in state referendums since 1988 – they have come down against gay marriage every time.”

But attitudes have indeed been changing and a Washington Post/ABC News survey found that 52% said gay marriage should be legal, while 43% said it should not. [Independents, incidentally, supported gay marriage by a 54-42 margin in this March survey.]

Editorial / Washington Post

“It was not entirely clear how far Mr. Obama’s support extends. According to an ABC report, the president ‘stressed that this is a personal position, and that he still supports the concept of states deciding the issue on their own.’ This suggests that Mr. Obama may not be prepared to go so far as to support the view that the right of gay men and lesbians to marry, like that of interracial couples, is entitled to constitutional protection. He was not asked directly about his views on the constitutional status of same-sex marriage.

“Nonetheless, this development is symbolically important and enormously cheering. The nation has moved swiftly, in historical terms, from cruel and almost unthinking bigotry against gay men and lesbians to recognition that such prejudice is unacceptable….

“That might not seem obvious the day after North Carolina became the 30th state to adopt a constitutional amendment prohibiting same-sex marriage…In total, 38 states prohibit same-sex marriage either by constitutional amendment, statute or both…

“But polls show a population evenly divided and steadily trending toward support for civil rights for gays, with younger people least conflicted of all.”

Editorial / Wall Street Journal

“Congratulations to President Obama for matching his public policy with what everyone already knew were his private beliefs. His statement Wednesday that he supports same-sex marriage spared the public the ruse of waiting until after the election to state the inevitable….

“One school of political thought holds that gay-rights issues typically hurt the person who raises them first. But perhaps the Obama campaign calculates that in a close election he will need a passionate base and that this will drive liberal and youth turnout in such important and evolving states as Virginia, Colorado, New Hampshire and New Mexico. On the other hand, Mr. Obama looks like he has just solved that problem Mitt Romney supposedly has with rousing cultural conservatives.

“The Obama endorsement also guarantees that the media will not allow Mr. Romney to go anywhere without being interrogated on this subject. The Republican could do worse than to say he supports the Defense of Marriage Act that President Bill Clinton signed less than two months before the 1996 Presidential election, adding that he believes the issue ought to be resolved democratically by the states. That has left New York and five other states plus the District of Columbia to sanction gay marriage, while North Carolina on Tuesday went in the opposite direction….

“American public opinion on unions between same-sex couples – whether civil or matrimonial – is changing, with support growing. Barack Obama and Mitt Romney won’t arrive at a marriage of the minds on this subject, but the issue shouldn’t decide the election and we doubt it will.”

On Wednesday evening, the Republican-controlled House of Representatives moved to reinforce the Defense of Marriage Act by a 245-171 margin.

--The CIA and its counterparts in Saudi Arabia and Yemen disrupted a bomb plot, a new underwear device targeting U.S.-bound aircraft, helped in part by the use of a double-agent (a Brit, as we’ve just learned).

Michael A. Walsh / New York Post

“Let’s stipulate that the CIA’s discovery a fortnight ago of yet another underwear-bomber plot, this one originating with al Qaeda in Yemen and aimed at an American airliner, was a splendid feat of intel tradecraft.

“Stipulate, too, that it gets us one step closer to nailing Ibrihim al-Asri, the terrorist behind the earlier Christmas Day underwear-bomber plot in Detroit in 2009, as well as the bombs hidden inside laser printers stashed aboard cargo planes in 2010.

“And let’s agree that foiling the operation by means of a double agent inside al Qaeda in the Arabian Peninsula’s operational structure potentially saved many lives.

“But here’s a rude question: Why do we even know about this?

“One of the unsung stories in the War on Terror is the active cooperation of Arab and other Muslim officers working in-country: Saudi intelligence officers, Iraqi cops and local Afghani chiefs. The FBI in particular has done a splendid job of recruiting, training and partnering with locals on the ground, developing invaluable sources and operational assistance.

“Their identities – their very existences – are generally kept secret, not only for their own protection, but for the continuing effectiveness of counterterrorism ops. You generally don’t let the bad guys know you’ve penetrated their inner sanctums. Moles stay underground for a reason.

“Yet here was John Brennan, the White House counterterrorism adviser, showing up on national TV to take a very public victory lap. ‘I think people getting on a plane today should feel confident that their intelligence services are working day in and day out to stop these types of IEDs from getting anywhere near a plane,’ he said.

“Thanks for sharing. Of course, if Brennan and the CIA had quietly broken up the plot, rolled up the network (two of the plotters in Yemen were killed in a drone attack on Sunday; the announcement of the plot was made the next day) and kept their mouths shut, the public wouldn’t be worrying about those IEDs, because they wouldn’t have realized the threat remained….

“With the economy in shambles, the president and his team have been floating a national-security campaign, based largely around the Navy SEALs’ killing of Osama bin Laden a year ago in Pakistan and the ongoing drone attacks on terrorist leaders. Last week, Obama flew all the way to Kabul to pat himself on the back for bin Laden’s death….

“But the politicization of intelligence is no laughing matter. Obama did the right thing in moving Democratic functionary Leon Panetta over to Defense and replacing him at CIA with Gen. David Petraeus, who’s both apolitical and the soul of discretion – you can bet Petraeus didn’t authorize the leak.

“But even the man who led the turning of the tide in Iraq can only do so much to clean up the swamps of Washington and Langley….

“The old adage, ‘Loose lips sink ships’ still applies, and that goes double for airships.”

I could not agree more with Mr. Walsh’s take. Going back to my comments from Paris when I first heard of the strike to take out bin Laden, and before that “Mission Accomplished,” I have always been deeply troubled by triumphalism, in any form.

But Michael Walsh wrote his piece before we learned details of the double-agent, who was recruited in Britain. Imagine, the United States gave up his identity, too.

As reported in the London Times late Friday night, Defense Secretary Leon Panetta condemned the disclosure.

“As a former Director of the CIA, I have to tell you that those kinds of leaks are very harmful to the efforts of the intelligence community.” 

Said Shashank Joshi, a research fellow at the Royal United Services Institute, a London-based think tank:

“If you’re MI5 and you’re trying to recruit a young British Pakistani or British Arab in the future, how do you persuade them that their actions and their potential identity…[aren’t] going to be splashed across The New York Times the next week?”

Eric Edelman, an under-secretary of defense during the George W. Bush years, said: “Under Obama, intelligence has been systematically politicized for political gain, thus the ‘high fives’ that you saw the other day at the anniversary of Osama bin Laden’s death. The leaks are so appalling it’s hard to fathom, but this is not the first time it has happened.”

Whitehall officials are furious with the U.S. If I’m Mitt Romney, I’d have this at the top of my debate talking points next fall. I’m getting ticked off just typing this.

--I have expressed my admiration for Indiana Republican Sen. Richard Lugar on more than one occasion in this space, almost solely because he’s been an adult on the topic of foreign affairs and presidents of both parties have wisely sought his guidance.

But I have not been privy to his relationship with the citizens of Indiana, some instances of which I honestly just became aware of in his losing primary campaign against Tea Partier Richard Mourdock.

And while I’m sorry to see Lugar go at a time of immense pressure on the diplomatic front, I also have one other thing to say.

You’re 80 freakin’ years old, for crying out loud, Sen. Lugar! Geezuz. My past comments over the years weren’t based on your hanging around until you’re 86.

Enjoy your retirement, and to Indiana Republicans, don’t blow it in November.

--An AP-GfK poll of registered voters has Barack Obama with a 50-42 lead over Mitt Romney. Obama is favored on the issue of the economy by a 46-44 margin.   Female voters favor Obama by 54-39. Black voters go the president’s way 90-5.

But a Politico/Battleground poll found Romney with a 48-47 lead among likely voters, including 48-38 among independents. Obama led Romney by nine points last February in the same survey.

And a new USA TODAY/Gallup Swing States Poll shows that in 12 battleground states, Obama holds a 47-45 edge. On the likability front, however, 58% say the president is likeable, while just 31% describe Romney that way.

A new Quinnipiac University poll shows Obama and Romney in a virtual tie in critical Ohio and Florida. Obama leads in Pennsylvania 47-39.

--Michael Gerson / Washington Post

“ ‘We’re not going back…We’re going forward,’ President Obama said during his formal campaign kickoff in Ohio. This rallying cry was pedestrian, and appropriately so. Obama is no longer a leader on horseback. His campaign – on the evidence of its first day – will be a long, unimaginative, partisan march to the sea.

“Gone are the vast ambitions of national progress and healing. In Ohio on Saturday, Obama made a methodical appeal to various voting blocks – college-educated women, gays, Hispanics. He waded into the culture war on abortion, something he rarely did four years ago. And he accused the GOP of trickle-down hostility to the middle class.

“To every interest group, a sop. On every wedge issue, a swat. To every class enemy, a turn in the tumbrel. Obama has gone ‘forward’ all the way to the strategy of Walter Mondale.

“The president may persuade voters with this message, but he apparently has given up trying to inspire them. And this is not a small thing, since the Obama brand once consisted mainly of inspiration.”

--In a story for Newsweek by Peter J. Boyer and Peter Schweizer titled “Why Can’t Obama Bring Wall Street To Justice?” there is this nugget.  

“ ‘There hasn’t been any serious investigation of any of the largest financial entities by the Justice Department, which includes the FBI,’ says William Black, an associate professor of economics and law at the University of Missouri, Kansas City, who, as a government regulator in the 1980s, helped clean up the S&L mess. Black, who is a Democrat, notes that the feds dealt with the S&L crisis with harsh justice, bringing more than a thousand prosecutions, and securing a 90 percent conviction rate. The difference between the government’s response to the two crises, Black says, is a matter of will, and priorities. ‘You need heads on the pike,’ he says. ‘The first President Bush’s orders were to get the most prominent, nastiest frauds, and put their heads on pikes as a demonstration that there’s a new sheriff in town.’”

Kinda makes you want to move Bush 41 up another notch, doesn’t it?

--Fred Barnes / The Weekly Standard

“In running for reelection, Obama has already set records. As of March 6, he’s held more fundraising events (104) than the previous five presidents combined (94).”

Of course it’s only gotten worse since that data point. On Thursday night, in Studio City, President Obama headlined a star-studded fundraiser that brought in nearly $15 million. Held in George Clooney’s backyard, it was hosted by Jeffrey Katzenberg and had the likes of Robert Downey Jr., Barbra Streisand and Billy Crystal.

--Former New Mexico Gov. Gary Johnson will be the Libertarian Party candidate for president come November. I wouldn’t expect him to get even 3%.

--For the archives, polling for the 2016 Iowa caucus has begun. Hillary Clinton leads Joe Biden 62-14, according to a Public Policy Polling survey. Importantly, Hillary has an 88% favorability rating. On the Republican side, Mike Huckabee and Rick Santorum top the list at 16%, with Gov. Chris Christie at 15%.

--A few weeks ago I blasted the U.S. and the military in particular for bad behavior. So last weekend, there was Defense Secretary Leon Panetta addressing troops at Ft. Benning, Ga. Panetta said that episodes involving a few soldiers who “lack judgment, lack professionalism, lack leadership” could have far-reaching consequences.

“The reality is that our enemies are losing on the battlefield, and they will seek any opportunity to damage us,” the secretary said. “In particular, they have sought to take advantage of a series of troubling incidents that involved misconduct.”

Case closed, one hopes.

--Trader George passed on a piece from Bloomberg that is rather scary. There’s a new type of superbug “that scientists warn is spreading faster, further and in more alarming ways than any they’ve encountered. Researchers say the epicenter is India, where drugs created to fight disease have taken a perverse turn by making many ailments harder to treat….

“Poor hygiene has spread resistant germs into India’s drains, sewers and drinking water, putting millions at risk of drug-defying infections. Antibiotic residues from drug manufacturing, livestock treatment and medical waste have entered water and sanitation systems, exacerbating the problem.”

Now who’s grossed out? 

--According to the Centers for Disease Control, by 2030, 42% of American adults will be obese. This is actually less than experts had predicted previously, though it’s still a significant increase from today’s 33%. Severe obesity, however, where adults are nearly 100 pounds overweight, will double to 11% of adults.

Aside from exercise, there is one solution…cut out sugar! The levels of it in our foods is beyond absurd. So, yes, put me in the Food Nanny camp when it comes to this topic.

--In my last site traffic check, while the lion’s share of my readers come from the U.S., it is curious to me that Pakistan is second again, followed by India, Canada and the U.K. So a “Hee Haw” saaa-luuute to my Pak audience!

--The period January through April was the warmest on record for the U.S., according to the National Oceanic and Atmospheric Administration, some five degrees above the long-term average.

--Warm air can be tough enough to stomach at the extremes, but thank god we don’t have any large dinosaurs to deal with these days as a new study in Current Biology suggests they made a significant contribution to the greenhouse effect 200 million years ago, as reported by the AP. It’s estimated dinosaurs passed about six times more gas than cows do today.

Yes, it was the long-necked plant eaters, sauropods, who had food fermenting in their guts for long periods of time that were the worst offenders. And back then there was no Beano.

--TV Alert…On Monday, PBS’ “American Masters” profiles Johnny Carson. There are many of us who still miss Johnny, like a lot.

--Finally, I have these farmer friends in the Oklahoma Panhandle and one of their boys, Thomas, whom I’ve met a few times, is graduating from Laverne High School next week. He’s part of a great family and I loved what was on the graduation notice from the school.

We came to this place together
To learn, to grow, to share…
Time and space may separate,
But distance cannot come
Between us.

And there is the “Class Motto”:

What we are is God’s gift to us.
What we become is our gift to God.

Kind of makes me wish I was there next week.

So allow me to take this moment to congratulate all the high school and college graduates this year. You have some interesting challenges ahead of you. Work hard. And don’t text and drive.

---

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

God bless America.
---

Gold closed at $1579
Oil, $95.65

Returns for the week 5/7-5/11

Dow Jones -1.7% [12820]
S&P 500 -1.1% [1353]
S&P MidCap -0.1%
Russell 2000 -0.2%
Nasdaq -0.8% [2933]

Returns for the period 1/1/12-5/11/12

Dow Jones +4.9%
S&P 500 +7.6%
S&P MidCap +9.7%
Russell 2000 +6.6%
Nasdaq +12.6%

Bulls 38.7
Bears 20.4 [Source: Investors Intelligence…fewest # of bulls since 10/18/11 when S&P was 1225…but after a dip to 1158 on 11/25/11, the S&P ran up to 1419 on 4/2/12…which is how a contrarian indicator often works, Charlie Brown.]

Have a great week. We’re selling some iPad apps…yippee! Not including those family and friends who were forced to download in the past week. Each one I sell is the equivalent of a draft beer at happy hour at a dive bar in Gary, Indiana; not that I’m looking to travel there for said entertainment.

Happy Mother’s Day!

Brian Trumbore



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-05/12/2012-      
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Week in Review

05/12/2012

For the week 5/7-5/11

[Posted 6:00 AM ET]

Crisis in Europe…continued…

What a week, beginning with the votes in France and Greece last Sunday and the continued unraveling in Spain.

We’ll take the easy one, first…France. Socialist Francois Hollande will be sworn in on May 15 as his nation’s next president, having defeated incumbent Nicolas Sarkozy 52-48, a little tighter than expected. Clearly, Sarkozy was hurt by the non-endorsement of National Front leader Marine Le Pen and he was unable to pick up enough support from the right to counter Hollande’s leftist coalition (plus many in France were simply tired of Sarkozy’s act). Hollande will be meeting soon with German Chancellor Angela Merkel for what promises to be an interesting chat. On May 15, Hollande not only is inaugurated but France’s first-quarter GDP figure is released and it’s expected to be flat at best, further pointing out the problems he faces with his socialist agenda.

Make no mistake, though. Despite some of his tax proposals which are already driving out France’s wealthy and entrepreneurs, he will prove to be not so radical when it comes to actual enactment. And while he has little high-level experience, he understands that France still has to cut spending and rein in its debt. But he’ll also be attempting to promote growth and there’s just no way France’s debt doesn’t continue to explode.   Nonetheless, Hollande will insist the eurozone’s “fiskalpakt” be renegotiated, which was the central plank in his platform.

As for Merkel, she has ruled out any renegotiation of the compact that would enforce budgetary discipline that all but two of 27 EU nations agreed to.

“Growth through structural reforms is sensible, important and necessary. Growth on credit would just push us right back to the beginning of the crisis, and that is why we should not and will not do it.”

Turning to Spain, I’ve been writing for years that it continues to underestimate the severity of their banking crisis owing to the real estate crash that is still unfolding.  For example, the government is now asking lenders to increase provisions for bad debt by 50 billion euro, or enough to cover losses of 50% on loans to developers and construction firms, but there are also more than 1.4 trillion euros of home loans and corporate debt, according to Yalman Onaran of Bloomberg. The Center for European Policy Studies, out of Brussels, estimates banks really need to increase bad loan provisions by as much as five times what the government is recommending.  Ergo, as Dick Vitale would say, again, “Its bailout city, Baby!”

This week the Spanish government essentially nationalized the nation’s third-largest bank, Bankia, taking a 45% controlling stake while supplying “strictly necessary” capital. Bankia has 38 billion euro in real estate assets, more than any other bank.

The other banks, with capital restrictions such as the above now in play, or needed further, are hoarding all the cash they can get their hands on just to survive.

So to beat a dead horse of the past few years in this column, how the heck do you grow when the banks are in no position, or at least are too paralyzed, to lend?

Well the European Commission (which reiterated this week that Spain’s economy will shrink 1.8% in 2012) is prepared to cut Spain some slack on its budget deficit targets, but only if Madrid agrees to all sorts of demands, including the hiring of outside auditors to verify bank stress tests.

This coming week, Spain will be receiving mandated budgets from its 17 autonomous regions, which have been set strict deficit reduction targets. Of course it’s the regions where all the massive corruption has taken place and where there is zero transparency when it comes to the books.

Which brings me to Greece. More than 70% of Greeks want to stay in the euro, according to the polls, but then when they actually vote, as they did last Sunday, they give more than 60% to all manner of parties that want to bail on the austerity demanded in the very bailout that would ensure they remain in the union.

The centrist parties that have been running Greece for decades received 149 of 300 seats in parliament, including a crazy 50-seat bonus awarded to the first-place finisher, but they still couldn’t muster two more seats for a 151-seat majority. The second-place finisher, the Radical Left Coalition (Syriza) led by Alexis Tsipras, a former Communist who is just 37, also wasn’t able to form a new government. Tsipras said from the start that the 130 billion euro rescue plan had been rejected by the Greek people.

“With their vote, Greek people gave their mandate for a new day in our country, without the cruel bailout measures. They want solidarity and justice.”

Syriza’s economic coordinator told the London Times, “Our position is that we want to stay in the eurozone because we believe we can fulfill our targets much better when we are members of the eurozone. It would be very destructive if we returned to the drachma. However, we are in favor of a radical break with the structure of the eurozone.”

Syriza would like to see the European Central Bank pump money into the economy and to guarantee the issue of Eurobonds, which is a major no-go with the Germans.

Guido Westerwelle, the German foreign minister, warned Greece that unless the country implements new austerity measures of about $15 billion in June, the flow of aid under the bailout will stop, which would cause a collapse of public services and send the state spiraling into bankruptcy and depressing chaos.

“Germany would like to keep Greece in the eurozone, but Greece’s fate is now in its own hands.”

Klaus-Peter Willsch, the chairman of the German parliament’s budget committee, which has a veto over EU bailouts, said, “We should offer Greece a controlled exit from the eurozone, without withdrawing from the EU.”

Philip Stephens / Financial Times

“You can see why so many backed Mr. Tsipras. New Democracy and Pasok [Ed. the two centrist parties] commanded the corrupt and clientelist system that has ruined the economy and disfigured Greek society. For all the jibes in Berlin and beyond about Greeks retiring at 50 or refusing to pay taxes, austerity has already taken a heavy toll. Public spending has been slashed and wages and pensions have fallen by 25%. Greece has lost a fifth of its economic output. Featherbedding has been replaced by sackcloth.

“Public rage, however, does not provide answers. Greece can say no to Brussels and Berlin. It can thumb its nose at the apparatchiks of the IMF. If it so chooses, it can unshackle itself from the euro. What it cannot do is escape a reckoning. Inside or outside the euro, Greece cannot avoid the brutal adjustments needed to repair its public finances and restore international competitiveness. Simply writing off its debts and reclaiming the drachma would trigger economic collapse.

“Greek politicians may be betting that the country’s creditors are bluffing: that, however much they insist otherwise, the EU and IMF could not afford an uncontrolled default in Greece. The latest cracks in the Spanish banking system have provided a timely reminder of the dangers of contagion to the eurozone periphery. The single currency’s firewall is still only half-built. Would Germany’s Angela Merkel really take the risk of a Greek exit that could herald the break-up of the eurozone?...

“Yet my sense from many conversations with dispassionate European officials and politicians is that Greece would delude itself were it to imagine that the new rhetoric of growth will allow it to put aside its commitments to fiscal rectitude and structural reform. The rest of the EU has run out of patience. Its dealings with policy makers in Athens are marked by a complete absence of trust and a deep pessimism about the capacity of the Greek state to reform itself….

“All roads lead to austerity. For Greece, though, there is more at stake than economics. The tragedy of its membership of the EU has been its failure to defy geography and redefine itself as a modern European state. Now, it is hard to imagine how Greece can remain in the single currency. But does it want to return to the Balkans?”

Noted economist Kenneth Rogoff said this week, “A Greek exit would underscore that there’s no realistic long-term plan for Europe, and it would lead to a chaotic endgame for the rest of the eurozone.”

So we’re headed for another election it would seem, probably on June 17, and Alexis Tsipras’ Syriza party could do even better.

At the same time Greece is due to receive 39.4 billion in bailout funding before the end of June, but only if it has committed to the mandated austerity cuts.

Economist Nouriel Roubini called the situation in Europe a “slow-motion train wreck.” He’s wrong. Europe is like two trains about to hit head on at 200 mph.

As for the neo-Nazi Golden Dawn movement, it picked up 438,910 votes in Sunday’s election, 7%, despite Greece’s traditional hatred for Nazi occupation during World War II.   Golden Dawn thus won 21 seats in parliament. No doubt it is one of the most extreme of Europe’s far-Right groups.

“These parties use violence to fulfill their political aims or at least they don’t exclude the use of political violence in their actions,” said Vassiliki Georgiadou, a professor of politics at Athens Panteion University. “They are not only against, but also aggressive to immigrants; they support racist ideas with cultural or with biological connotations too, and they are irredentist, denying the geographical borders of the postwar nation states.” [London Times]

It seems a lot of Greeks really didn’t know what Golden Dawn was all about until now. Like one newly elected MP is facing trial for allegedly lending his car for an assault on a left-wing university lecturer. Now the guy will benefit from parliamentary immunity.

And just who is Golden Dawn’s leader? It’s Nikolaos Michaloliakos, who the night of the election told reporters, “Greece is only the beginning.”

Michaloliakos, 55, is a mathematician with a prison record. Citing Julius Caesar, he declared: “Veni, Vidi, Vici…The Time for fear has come for those who betrayed this homeland. We are coming.” [He was flanked at the podium by “musclebound supporters”; one picture of which was rather scary.]

Golden Dawn, with its swastika-like Ancient Greek symbol believes in throwing out all illegal immigrants and putting landmines on the border to stop any from coming back in.

The party is also sometimes compared to Hamas and Hizbullah because of its social outreach. It is taking over Athens’ slum areas, for example, and becoming the source for food.

And what did Mr. Michaloliakos serve prison time for as a young man? Possession of explosives.

Editorial / Wall Street Journal

“As for the rise of the extremist fringes, this should serve as a warning of what happens in countries where mainstream parties fail. It’s too soon to start making comparisons to the interwar years of the last century when Fascism, Communism and Nazism all found their political footholds. But that’s the scenario Europe may someday risk again if its centrist parties continue to fail.”

--EU Bits

Not for nothing, but Ireland is still slated to hold a referendum on the EU fiscal compact, May 31. Friday, June 1, could thus be another hairy day in the global markets should the Irish vote it down, and they are highly unpredictable on such matters.

Germany’s exports rose 0.9% in March over February when a decline had been forecast. Factory orders and industrial production also rose in the month. 

Retail sales for the month of April in the U.K. were down 3.3% from a year earlier, owing to the wettest April on record.

Portugal is taking austerity to a new level in scrapping four of 14 public holidays.

Angela Merkel’s Christian Democrats scored only 31% in the northern state of Schleswig-Holstein, its lowest tally in the state in 50 years. Sunday, Merkel faces another test in Germany’s most populous state, North-Rhine Westphalia.

British Prime Minister David Cameron said with regards to his austerity program, “There can be no going back on our carefully judged strategy for restoring the public finances. I don’t hide from the scale of that challenge.”

But Cameron is under increasing scrutiny for his friendship with former News International chief executive Rebekah Brooks, who on Friday detailed her close relationship with Cameron, former Prime Minister Tony Blair and their families in testimony to the country’s inquiry into media ethics. Brooks acknowledged that she used her access to lobby the British government over News Corp.’s planned takeover of British Sky Broadcasting. Rather messy for No. 10 Downing Street.

And in Serbia, the Serbian Progressive Party headed by Tomislav Nikolic, a former ultranationalist ally of Slobodan Milosevic, will go against pro-Western President Boris Tadic in a presidential run-off May 20, Nikolic outpolling Tadic in the first round of voting, 25% to 22%. In the run-off, however, Tadic is expected to prevail. At stake is whether Serbia will continue on a path to EU membership or fall back into Russia’s orbit.

As for Washington and Wall Street, there was little economic news on the week, with a non-inflationary report on producer prices the highlight, down 0.2% for April and up 1.9% year-over-year (up 2.7% ex-food and energy the past 12 months), as well as a solid consumer confidence number. Oil hit its lowest levels since the first week in February and the price of gasoline is edging down, though Iran could quickly be back on the table at a moment’s notice…see below.

But the news from the major retailers has been weak lately and on the tech front, Cisco Systems issued a gloomy forecast, guiding revenue lower vs. analysts’ expectations as CEO John Chambers cited the ongoing uncertainty in Europe and a lack of leadership in Washington that is adding to Corporate America’s cautious outlook; as in customers are delaying purchases until the fog lifts. As Chambers put it, “Clearly, they’re keeping their powder dry.”

Meanwhile, PIMCO’s Bill Gross and Goldman Sachs economist Jan Hatzius are among those predicting the Federal Reserve will launch QE3, or more bond buying, to spur what is definitely a slowing economy. The Fed’s meeting in June would seem to be the right time to make such an announcement, unless global markets mandate action earlier (like bank runs in Greece and Spain).

On the federal budget deficit front, the Treasury Department said Thursday that the government in April recorded its first surplus in 43 months - $59.1 billion, which in itself isn’t unusual with tax returns rolling in, plus the Congressional Budget Office said the figure was inflated by timing shifts of certain payments; so adjusted for those the surplus in April would have been more like $27 billion.

Bottom line, the U.S. deficit for the first seven months of the fiscal year ending Sept. 30 is $719 billion; on track to exceed $1 trillion for the fourth straight year. As for the going over the “fiscal cliff” talk, I’ll give it a rest for a week. But it’s coming. Another debt-ceiling debate is also coming sooner than later to a theatre near you.

Lastly, we have the “King of Wall Street,” JPMorgan Chase & Co. CEO Jamie Dimon, who suffered a major black eye at the worst possible time with the revelation JPM had suffered at least $2 billion in trading losses, stemming from bad bets in the bank’s Chief Investment Office that manages risk for the company. Dimon called the ‘hedging’ mistake “egregious, self-inflicted,” and said: “We will admit it, we will fix it and move on.” The actual loss, however, could be far more, or less, after its wound down. Dimon added, JPM’s strategy was “flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

The timing of the JPM announcement could not have been worse as Congress and the banks fight over new regulations designed to rein in such trading, i.e., the Volcker rule, to which Dimon said, “This doesn’t violate the Volcker rule, but it violates the Dimon principle.”

It was the Wall Street Journal a month ago that first called into question the activities of a London-based JPM trader dubbed “the whale,” French-born Bruno Michel Iksil, who was roiling the debt market with oversized trades back then. When queried in April, Dimon said the whale’s trading was “a complete tempest in a teapot.” Only after he made this comment on an earnings call, April 13, did he learn otherwise.

Whether or not this kind of trading falls under the purview of the Volcker rule, Democratic Sen. Carl Levin was ready to pounce, calling JPM’s announcement “just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making.”

But as the Wall Street Journal editorial board points out, not only is there no precise definition of the Volcker rule, no one knows when it takes effect, whatever ‘it’ is.

Back to Dimon, asked if he thought that other banks engaged in such risky derivative trades, he responded: “Just because we’re stupid doesn’t mean everybody else is.” 

The Financial Times editorialized:

“If JPMorgan was a pure investment bank such as Goldman Sachs or Morgan Stanley this mess would be no business of Paul Volcker. It is crazy that even these two banks have to get rid of desks that had nothing to do with the financial crisis. But the Volcker rule is on firmer ground for the JPMorgans and Barclays of the world, which mix being subsidized instruments of government savings policy on one side and risk-taking investment banks on the other. Cue the wailing.”

The SEC opened a preliminary investigation into JPMorgan’s accounting practices and public disclosures about the trades. Fitch Ratings lowered its credit grade one notch and S&P threatened to do the same.

Street Bytes

--Stocks fell for a second straight week as the Dow Jones lost 1.7% to close at 12820, while the S&P 500 dropped 1.1% and Nasdaq lost 0.8%. All three major averages are at their lowest levels in three months.

But next week it’s all about Facebook, which is slated to price on Friday. At least we hope it is mostly about Facebook. That would be a good sign; as in less talk of Europe. Now ask me if this is a likely outcome.

--U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.26% 10-yr. 1.84% 30-yr. 3.01%

Treasuries continue to rally not only as a result of the turmoil in Europe and increased talk of a bailout for Spain, but also because of slowing economic activity around the world.

--The Federal Reserve approved Industrial and Commercial Bank of China’s (ICBC) plans to acquire the U.S. subsidiary of Bank of East Asia, the first such U.S. approval for a Chinese firm. The Fed also gave permission to two other Chinese banks to increase their presence in the U.S.

In a statement the Fed said: “China’s largest banks, such as ICBC, use the ‘big four’ accounting firms. There is no evidence that Chinese accounting methods or practices…are unreliable.”

[On Friday, the Wall Street Journal reported that “China has instructed the Big Four auditors to hand over control of their Chinese operations to local partners by the end of the year and put a Chinese citizen at the top within three years.” Local CPAs currently account for 50% of all Big Four partners, according to the Ministry of Finance.]

--Meanwhile, regarding the Chinese economy, the government released a slew of data on Friday. Inflation slowed to 3.4% in April from 3.6% in March vs. the government’s target of 4% for the year. Last year’s peak was 6.5%. [Food inflation has moderated to 7%.]   The producer price index fell 0.7% from a year ago.

China’s home sales fell 16% in April from the prior month as the government continued its curbs on housing in toughening requirements for down payments and mortgages, as well as restrictions on the number of homes each family can buy.

Industrial production increased 9.3% last month from a year earlier, the slowest pace since 2009, while retail sales rose a less than expected 14.1% over year ago levels, also the least since ’09, and fixed-asset investment increased 20.2% in the first four months of the year, the slowest pace since 2001.

Earlier in the week, we learned April exports rose just 4.9% from a year ago (they were up 8.9% in March), while imports increased only 0.3%.

So all of the above, especially the last two items, speak to slowing external and internal demand, which in turn should allow the government to ease on the monetary front, especially in front of the political transition taking place later in the year. You want the people to be happy this fall, it goes without saying.

--Authorities in Beijing said they plan to get rid of 1,200 high-polluting enterprises by 2015 to improve air quality in the capital. The worst polluters are foundries, chemical plants and furniture factories, according to the South China Morning Post.

--India’s industrial production for the month of March fell unexpectedly 3.5%.

--Iraq produced 3.03 million barrels of oil a day in April, or almost as much as Iran’s 3.2 mbd, according to the latest data out of OPEC. That’s quite an accomplishment as Iraqi production seemed stuck in the 2-2.5 mbd range since Saddam was ousted. Of course it helps that the likes of Exxon Mobil and BP are developing new fields. Plus it’s not as if Iraqis care if these two spill a few million barrels, as is their wont. [Sorry, cheap shot.]

--The National Association of Realtors reported that the U.S. had 2.37 million existing homes for sale at the end of March, down 22% from a year ago, which is good. Better sales and declining inventories will help prices. In some areas such as Phoenix, Seattle and suburban Washington, D.C., there are shortages of lower-priced homes.

--In another hopeful sign for housing, Fannie Mae reported a first-quarter profit and – for the first time since the government seized it in 2008 – does not need a quarterly infusion of taxpayer money. [Washington Post]

Coupled with sibling Freddie Mac, the two own or back 60% of the nation’s mortgages.

Net of dividends paid back to the government, the overall cost of Fannie’s bailout is $93.6 billion. Freddie’s net is $53 billion owed to taxpayers.

--Despite the losses sustained by the studio’s epic flop, “John Carter,” Walt Disney reported strong fiscal second-quarter profits of $1.1 billion. Revenues at its parks and resorts jumped 10%, but studio revenues dropped 12%. However, the opening of “The Avengers” has staunched the bleeding on that front.   The picture has already made more than $700 million globally before this weekend.

Separately, cable network ESPN continues to power Disney’s media networks as revenue in that segment of the operations increased 9% to $4.7 billion.

--Sony shares tumbled to a 31-year low after the company reported a record annual loss of $5.7 billion. Sony, after four years of losses, is trying to convince analysts it will return to profitability in the current financial year.

--Shares in Vertex Pharmaceuticals almost doubled after interim results showed its combination therapy for cystic fibrosis showed promise. One of the two drugs, Kalydeco, sells for nearly $300,000 a year.

--McDonald’s reported a so-so global sales increase in April of just 3.3% at stores open at least 13 months, short of expectations. The figure in the U.S. was also 3.3%, while sales rose 3.5% in Europe and just 1.1% in the Asia/Pacific, the Middle East and Africa. Positive results in China were offset by negative results in Japan.

--Berkshire Hathaway held its annual meeting last Saturday and the only memorable comment I saw was from Charlie Munger, Warren Buffett’s long-time partner, who compared program traders to rats in a granary. Couldn’t agree more. But as the Wall Street Journal’s Jason Zweig points out, Berkshire’s Class B shares “have underperformed the S&P 500 by 3.5 percentage points for the year to date through (5/4), by nearly five points in the past 12 months and by an annual average of eight percentage points in the past three years.”

--According to the New York Times’ Nathaniel Popper and Credit Suisse Trading Strategy, “In April, the average daily trades in American stocks on all exchanges stood at nearly half of its peak in 2008: 6.5 billion compared with 12.1 billion.”

High-frequency traders now account for over half of all stock market activity, but even they have been doing less.

Separately, the New York Stock Exchange reported trading in the first quarter was down 16% quarter-over-quarter.

--The U.S. Postal Service backed off its plan to close up to 3,700 low-revenue rural branches and instead will maintain lobby areas and P.O. boxes while reducing staff and hours. The USPS will also offer buyouts for postmasters, noting that more than 80% of its postal costs in rural areas are labor-related, and replace them with part-time workers.

--California Gov. Jerry Brown said he needs far more than the $4.2 billion in spending reductions he requested in January, raising the specter of deeper cuts to education and state services if his bid for tax hikes fails. A proposal for hikes will be on the November ballot it seems. Tax revenue has lagged by $3.5 billion and state spending is $2.1 billion more than expected so far in the current budget. [Los Angeles Times]

--The U.S. Department of Agriculture raised its forecast for near-term supplies of corn and projected a record harvest this autumn. Corn prices fell 2.5% on the news.

--Toyota Motor Corp. sold the most cars and trucks in the world in the first three months of the year, after being the world’s biggest automaker from 2008 to 2010. Toyota’s recovery from the natural disasters in Asia (including the flooding in Thailand) is basically complete.   Toyota also forecast its profit would double to a five-year high in 2012. [GM is back to No. 2 and Volkswagen No. 3.]

--Shares in Fossil Inc. fell almost 40% following a disappointing first-quarter earnings report. Have any of you actually purchased anything in one of their stores?

--Nothing like a great American success story and so we note the passing of hairstyling pioneer Vidal Sassoon at the age of 84. I had no idea until reading his obituary that he had served in Israel’s War of Independence in 1948. Sassoon opened his first salon in his native London in 1954 but moved to the States in the 1960s, and then Los Angeles in the early 70s, where he decided to make his home and perfect his wash-and-wear styles and products bearing his name. His advertising slogan, “If you don’t look good, we don’t look good,” was all over the television airwaves back in the day.

Growing up poor in London, Sassoon wanted to be a soccer player but his mother said he should be a hairdresser and as he once put it, “the mother got her way.”

--And we note the passing of game show impresario, Bob Stewart, at the age of 91. All he did was create the hits “Password,” “To Tell the Truth,” and “The Price is Right.” Stewart once told the Washington Post in 1978, “People are curious about new shows. By the time they find out that what they are watching is crap, they’ve already watched it.”

--According to a Rutgers University study, nearly 50% of grads over the last five years are unemployed or underemployed.

--Sotheby’s sold Edvard Munch’s “Scream” for $120 million and this week, Christie’s sold a Mark Rothko painting from 1961, “Orange, Red, Yellow,” for $86.9 million.

Munch’s work is art. Rothko’s is garbage. But seeing as how his work was only expected to bring $45 million, there are some folks willing to pay up for crapola.

Now for you abstract expressionist fans out there who I’ve just offended, I do like Jackson Pollock’s work.

--New Zealand is already fired up over the prospects for increased tourism as a result of the upcoming “Hobbit” movies, the first of which is due for release in December. The government is expecting Sir Peter Jackson’s two flicks to give an even bigger boost than the three “Lord of the Rings” pictures. After the 2001-2003 run for the latter, tourism spiked 40%.

--My portfolio: Nothing to say on the China holding some of you are aware of. The company remains silent.

Foreign Affairs

Israel: In a shocking development, Prime Minister Benjamin Netanyahu announced he had formed a unity government with the main opposition party, Kadima, just a day after strongly hinting he would call an early election in September (as I noted last WIR).

The move gives the coalition 94 of the Knesset’s 120 members, a massive majority that will allow Netanyahu to push through political reform, curtail the exemption of ultra-Orthodox Jews from military service and, perhaps, renew peace talks with the Palestinians, as it pushes the prime minister’s government back to the center from the far Right.

His new partner, Kadima leader Shaul Mofaz, will become vice prime minister and regarding the issue of Iran, while Mofaz has spoken out against a unilateral Israeli strike in the past, he is a former military chief and defense minister and has a history of reversing his position on key matters.

Now, coupled with defense minister Ehud Barak, Netanyahu is able to beat back those such as former Mossad chief Meir Dagan who have gone public with their criticism of a strike.

“They call me messianic,” said Netanyahu of his critics, vowing that along with his coalition partners, all elected officials, he’d make “responsible” decisions on Iran.

Just this week, Vice President Joe Biden made clear that time was running out for Iran as the next round of negotiations rapidly approaches.

Benny Avni / New York Post

“No one should expect an Israeli attack ‘tomorrow morning,’ as Barak said recently. To start with, Netanyahu is waiting (without much hope) for the results of an American-backed negotiation with the mullahs…

“But as Biden, scrambling to catch up, acknowledged while addressing Jewish leaders yesterday (Tuesday), ‘The window has not closed in terms of the Israelis if they choose to act on their own militarily.’

“In fact, that window opened wider yesterday. Even if Israel opts to wait until after the U.S. election in November, speculation about Netanyahu’s next move is bound to rattle markets and influence global decision-makers all summer and into the fall.

“And that’s bound to seep into this country’s politics, too.”

Charles Krauthammer / Washington Post

“On June 5, (1967) Israel launched a preemptive strike on the Egyptian air force, then proceeded to lightning victories on three fronts. The Six-Day War is legend, but less remembered is that, four days earlier, the nationalist opposition (Menachem Begin’s Likud precursor) was for the first time ever brought into the government, creating an emergency national-unity coalition.

“Everyone understood why. You do not undertake a supremely risky preemptive war without the full participation of a broad coalition representing a national consensus.

“Forty-five years later, in the middle of the night of May 7-8, 2012, Prime Minister Benjamin Netanyahu shocked his country by bringing the main opposition party, Kadima, into a national unity government. Shocking because just hours earlier, the Knesset was expediting a bill to call early elections in September.

“Why did the high-flying Netanyahu call off elections he was sure to win?

“Because for Israelis today, it is May ’67. The dread is not quite as acute: The mood is not despair, just foreboding. Time is running out, but not quite as fast. War is not four days away, but it looms. Israelis today face the greatest threat to their existence – nuclear weapons in the hands of apocalyptic mullahs publicly pledged to Israel’s annihilation – since May ’67. The world is again telling Israelis to do nothing as it looks for a way out. But if such a way is not found – as in ’67 – Israelis know that they will once again have to defend themselves, by themselves….

“The wall-to-wall coalition demonstrates Israel’s political readiness to attack, if necessary. (Its military readiness is not in doubt.)

“Those counseling Israeli submission, resignation or just endless patience can no longer dismiss Israel’s tough stance as the work of irredeemable right-wingers. Not with a government now representing 78% of the country.

“Netanyahu forfeited September elections that would have given him four more years in power. He chose instead to form a national coalition that guarantees 18 months of stability – 18 months during which, if the world does not act (whether by diplomacy or otherwise) to stop Iran, Israel will.

“And it will not be the work of one man, one party or one ideological faction. As in 1967, it will be the work of a nation.”

Meanwhile, Israeli intelligence shows Iran and Hizbullah planning attacks on senior officers traveling overseas; this after the series of bombing attacks that Iran and Hizbullah are believed to have carried out in Thailand, Georgia, India and Azerbaijan. All except a bombing in New Delhi were foiled. Hizbullah is believed to be still attempting to avenge the 2008 assassination of its military commander Imad Mughniyeh.

Iran: So what are the Iranians saying as the May 23 round of talks in Baghdad approaches? A spokesman with the Foreign Ministry said:

“Some countries say they are concerned that Iran’s activities might be diverted towards non-peaceful purposes in the future. When they are talking about future speculation, how can they not be concerned about scrapping nuclear weapons at the present time?

“Some of these countries have nuclear-capable submarines they have delivered to the Zionist regime,” Ramin Mehmanparast said, alluding to transfers of German-built subs to Israel.

No doubt Iran is feeling the heat as a result of the economic sanctions, but it also seems a bit naïve in believing the European Union’s July 1 ban on Iranian crude can be easily negotiated away.

It also seems that Iran is attempting to eliminate incriminating evidence at its Parchin armed forces installation before a potential visit by the International Atomic Energy Agency that has yet to be allowed into Parchin.

Iran’s top justice official, Ayatollah Larijani, said: “The Iranian people will not retreat from the firm steps they have taken on the path to access nuclear energy for peaceful purposes, and the Westerners should put this wishful thinking out of their mind.”

Syria: Twin bombings that killed 55 people and wounded more than 350 in Damascus on Thursday not only drew wide condemnation across the world, but in all likelihood doomed the peace effort in the country. The carnage was the work of two suicide car bombers who detonated their devices near a main intelligence complex during morning rush-hour. It was the deadliest attack in the capital since the uprising against the Bashar al Assad regime began 14 months ago.

Of course the Syrian government said the attacks were a sign that the Arab state was facing foreign-backed terrorism, and regardless of your opinion, on this single incident they are probably right. Syrian television showed a man pointing to the wreckage. “Is this freedom? This is the work of the Saudis,” he said. It’s the Saudis who have advocated arming the rebels. Try al-Qaeda types instead.

The White House, through spokesman Jay Carney, said: “There are clearly extremist elements in Syria, as we have said all along, who are trying to take advantage of the chaos in that country, chaos brought about by Assad’s brutal assault on his own people.”

But Mr. Carney failed to explain why his boss has been invisible while thousands have been slaughtered.

The Kremlin said it would not yield to pressure to change its pro-Assad stance. Foreign Minister Sergei Lavrov was quoted as saying: “Some of our foreign partners are doing practical things so that the situation in Syria explodes in literal and figurative sense.”

A leading member of the opposition said: “These bombs are not the work of opposition fighters.”

Egypt: The country held its first-ever presidential debate on Thursday and Amr Moussa and Abdel Moneim Abol Fotouh, tipped to be the two frontrunners, traded accusations over their political histories. Fotouh is the independent Islamist and former member of the Muslim Brotherhood who just picked up the endorsement of the hardline Salafists, while Moussa is the former foreign minister under ousted President Hosni Mubarak.

“How can you bring about change after being part of the former regime? Do you think the Egyptian people who revolted to bring this regime down will be eager to elect one of its former symbols?” Fotouh said.

Moussa replied: “First, I would like to tell Dr. Abol Fotouh that I was not part of the ousted regime. For the past 10 years, I have been completely disassociated from the regime.

“I had the courage to oppose the regime from within when I was foreign minister and I decided to quit when things reached a dead end. I knew the consequences of my opposition, but yet I continued to do what I thought was right,” he added.

Moussa then said of Fotouh: “I do not recall you voicing strong opinions about the former regime. Your opposition was simply linked to your affiliation to the Muslim Brotherhood. You always opposed within the framework of the Brotherhood and most of the time you were defending your group rather than standing up for the rights of the entire Egyptian people.”

Fotouh said he was proud of his past affiliation with the Brotherhood. He quit in April 2011 to run for president, saying “I wanted to be a candidate representing all Egyptians and not only one group.”

Both candidates pledged to review Egypt’s 1979 peace treaty with Israel.

So that’s more than you probably wanted to read about the Egyptian presidential debate but at least they held one. [Hussein Abdallah / The Daily Star]

Afghanistan: For the 20th time this year, an attacker wearing an Afghan army uniform opened fire on NATO troops Friday, killing one service member (as I go to post, presumably an American).   The Taliban claimed responsibility.

Separately, an AP-GfK poll showed that only 27% of Americans say they support the war, a new low, with 66% opposing it. A year ago, 37% favored the war, and in the spring of 2010, the reading was 46%.

At the same time, 53% approve of Obama’s handling of Afghanistan, 42% disapprove.

Russia: President Vladimir Putin was sworn in on Monday and received the briefcase enabling him to order a nuclear strike from any location as a gift, just sayin’.

Putin pledged in a speech before 3,000 invited guests to “strengthen Russian democracy, constitutional rights and freedoms,” declaring: “I will do all I can to justify the faith of millions of our citizens. I consider it to be the meaning of my whole life and my obligation to serve my fatherland and our people.”

Russia would become “the center of gravity for the entire Eurasia” Putin also claimed, describing the nation as “reborn” after the crisis of the post-Soviet years.

By the way, I wish I had been invited, even though I’ve long predicted Putin won’t last the year. You see, the reception (only 1,000 tabbed for this, sports fans) cost $1 million and, according to the London Times, included “sturgeon in champagne sauce, fried crab and tsarist ukha, a traditional fish soup known to be a favorite of Mr. Putin’s. The Kremlin’s own premium vodka and a remarkable 5,000 bottles of 2008 Abrau Durso Russian sparkling wine were also being served.”

Mmmm…fried crab….I’m drooling….

Meanwhile, the day before Putin’s inauguration, 50,000 people took part in a protest and more than 400 were arrested, including anti-corruption blogger, Alexey Navalny. A number of protesters were injured by police, as well as about 20 cops. These were the first violent clashes between the two sides since rallies began in December.

Putin’s press secretary Dmitry Peskov allegedly said: “(The police) were too soft. Protesters who hurt riot police should have their livers smeared on the asphalt.”

Later, appearing in front of the Duma, which approved his choice of Dmitry Medvedev as prime minister (thus completing the job swap) 299-144, Putin was his usual sarcastic, insensitive self.

David Statter / Wall Street Journal

“The violence that accompanied the inauguration of Vladimir Putin as Russian president this week is an ominous sign that Mr. Putin’s apparent desire to rule for life is leading his country toward a dangerous political confrontation….

“Dmitry Peskov, Mr. Putin’s spokesman, said he regretted that the police had not behaved more harshly. But harsh treatment may do little to shore up Mr. Putin’s dwindling support. Rising prosperity had until recently obscured the fact that Mr. Putin and a small group of cronies control an estimated 10%-15% of Russia’s gross national product….

“Another problem bred by Mr. Putin’s rule is a deteriorating economy. Crude oil and gas account for 75% of Russia’s exports. In order for him to win the presidency, Mr. Putin’s government authorized $161 billion in additional spending through 2018, increasing pensions and freezing gas prices. As a result, the government needs an oil price of $150 a barrel over the next few years to break even, while a sharp fall in price (for example to $80 a barrel) could lead to an immediate crisis.”

And you have the rise of nationalist extremism.

“In the face of all this, Mr. Putin has made attempts to endow himself with new legitimacy. In recent years, he’s been filmed riding a Harley-Davidson, singing the 1950s hit ‘Blueberry Hill,’ and photographed riding a horse bare-chested. One of his aides said he believed that Mr. Putin was sent to Russia by God, and the Russian media reported that a small female sect believes that Mr. Putin is the reincarnation of the Apostle Paul.

“None of this, however, is likely to protect the Putin regime from the challenge it now faces.   Russia is a country in which the population has no respect for the political system, their rulers, or the distribution of property….

“In the best of all worlds Mr. Putin would resign, and free and fair elections, with nonpartisan monitors, would be held. But even that would not be enough. Russia needs a commission similar to the South African Commission on Truth and Reconciliation to review publicly not only the crimes of the Putin era but also crimes committed during the eight-year rule of his predecessor, Boris Yeltsin. Only this can provide a basis for democracy….

“What’s at stake is not just the country’s prosperity but its existence as a civilized society.”

I’ve said Putin will be done in by a shadowy third force, one of the corrupt hardliners he is now protecting as part of a battle between the hardliners vs. the reformers (as distinct from the opposition). Bottom line for the next few months, a crackdown on the protesters is a certainty.                                               

Meanwhile, Putin backed out of a meeting with President Obama and the other G8 leaders at Camp David, May 18-19, citing he needed to work on his new cabinet and that he was sending Prime Minister Medvedev in his stead. Analysts were skeptical about the official explanation, viewing it as a deliberate snub of Obama, as well as other G8 leaders, over their criticism of Russian elections in December and March. Plus Putin has major issues with the anti-missile defense program.

I’ve also been writing for years that you’re nuts if you’re planning on attending the 2014 Winter Olympics in Sochi owing to the terror threat there. This week the Russian government announced it had foiled a plot, supposedly seizing 10 caches of weapons and ammunition in the breakaway republic of Abkhazia, which is just kilometers from Sochi. As noted in the Moscow Times, “The terrorists were planning to smuggle the explosives and arms into Sochi ‘between 2012 and 2014 to use them during the preparations and during the games,’ according to the National Anti-Terrorist Committee and the Federal Security Service.” 

Sochi sits in the North Caucasus region, near the Russia/Georgia border. Kathryn Stoner-Weiss, Senior Fellow at the Freeman Spogli Institute for International Studies at Stanford University, told USA TODAY:

“This is probably the start of extreme potential problems in the area with the Winter Olympics in Sochi. It’s almost the worst part of Russia to put the Games. It’s not so much because of Georgia, but the Caucasus in general.”

Russia is blaming both Chechen rebel leader Umarov and Georgia for the plot. I doubt Georgia is involved and agree with Ms. Stoner-Weiss that Russia implicated Georgia for political reasons.

And Russia suffered a tragic embarrassment with the crash of a demonstration airplane during a 50-minute flight over Indonesia. All 50 on board are presumed dead as the Sukhoi Superjet 100 crashed into the side of a volcano that was probably shrouded in fog at the time.

The jetliner was the first new model to be produced in Russia since the end of the Soviet Union and is a crushing blow to the national aerospace industry.

The Superjet’s $31.7 million price tag is one-third that of comparable short-hop jets and Russia was expecting orders of 1,000 over the next two decades. Thus the cause of the crash is critical. For the workers’ sake, I hope its pilot error.

China: It’s been flying under the radar, but a dispute over the resource-rich South China Sea between China and the Philippines could escalate at a moment’s notice. The issue is known as the Scarborough Shoal in English and, along with most of the South China Sea, is claimed by China, but the Philippines feels in their rights to not only fish it, but tap portions for the natural resources; this as China announced the China National Offshore Oil Corp. will start drilling operations in the Shoal. [I’ll have more in an upcoming “Hot Spots” column.]

On a different issue, the Global Times, a state-owned newspaper, commented on the case of activist Chen Guangcheng, who fled house arrest to seek safety in the U.S. embassy.

“External forces would like to use this to politicize and universalize some of China’s social conflicts. They want Chen’s case to become deadlocked, drawing in international attention, and becoming an issue as big as what has happened in Libya and Syria, so that they can capitalize on this opportunity to demonize China as a whole.”

The commentator, Liu Yang, said “Chen didn’t realize he was being used and his case being hyped into a national political issue. How can they be so cruel as to use a disabled person in their political games?” [Agence France-Presse]

Chen is still in a Beijing hospital after China agreed to guarantee his safety and allow him to apply for study in the United States. There are conflicting stories on the treatment of his family.

North Korea: Multiple experts told the AP that while Pyongyang has enough plutonium for roughly six bombs and has begun enriching uranium to bomb-grade levels, the North has yet to demonstrate the ability to weaponize the material.

But the state-run Korean Central News Agency read a statement that “Our military and people will thoroughly safeguard our dignity and sovereignty by further boosting defense capabilities, including nuclear deterrent, at any cost.” [Global Security Newswire]

A story on Friday, though, also from GSN, has North Korea launching another rocket before its anticipated third nuclear test.

Mexico: The murder tally in Acapulco almost tripled last year to more than 900, ranking it among the deadliest cities in the world. The Government has launched Operation Secure Guerrero, turning the town center into a virtual militarized zone. Killings are falling as a result, not that this makes me eager to finally visit.

As for the presidential election that is rapidly approaching, July 1, frontrunner Enrique Pena Nieto has a 17-point lead over Josefina Vazquez Mota. Mota is the candidate of President Calderon’s National Action Party, or PAN. A third candidate, leftist Andres Manuel Lopez Obrador, is just two points behind Mota. I apologize I haven’t kept up on this critically important vote. 

Random Musings

--President Obama announced that he believes same-sex couples should be granted the right to marry, reaching this historic conclusion after saying before his position had been evolving over many years.

“I’ve just concluded that for me personally it is important for me to go ahead and affirm that I think same-sex couples should be able to get married,” Obama told ABC News.

Needless to say it is a dramatic move in an election year and it also seems a bit more choreographed than initially believed; as in Obama’s announcement wasn’t necessarily precipitated by Vice President Joe Biden’s comment on the topic last Sunday on “Meet the Press.” [I know the story is Biden apologized later for jumping the gun. I just don’t believe it.]

But regardless of whether it was choreographed or not, the fact is Obama’s announcement will have an impact on key swing states such as North Carolina and Virginia; the former having voted overwhelmingly, 61-39, for a state constitutional amendment the day before the president’s statement to ban same-sex unions.

I also got a kick out of Obama once again dragging his kids into the discussion.

“You know, Malia and Sasha, they have friends whose parents are same-sex couples. There have been times where Michelle and I have been sitting around the dinner table and we’re talking about their friends and their parents and Malia and Sasha, it wouldn’t dawn on them that somehow their friends’ parents would be treated differently. It doesn’t make sense to them and, frankly, that’s the kind of thing that prompts a change in perspective.”

Gay advocates now hope Obama more vocally opposes the Defense of Marriage Act, a 1996 law that bans recognition of same-sex marriage at the federal level. The president has called the law discriminatory, but groups want him to play a more prominent role in fighting to repeal it.

The Washington Post’s Karen Tumulty points out that “When the question has been put to the voters over the past decade – more than 30 times in state referendums since 1988 – they have come down against gay marriage every time.”

But attitudes have indeed been changing and a Washington Post/ABC News survey found that 52% said gay marriage should be legal, while 43% said it should not. [Independents, incidentally, supported gay marriage by a 54-42 margin in this March survey.]

Editorial / Washington Post

“It was not entirely clear how far Mr. Obama’s support extends. According to an ABC report, the president ‘stressed that this is a personal position, and that he still supports the concept of states deciding the issue on their own.’ This suggests that Mr. Obama may not be prepared to go so far as to support the view that the right of gay men and lesbians to marry, like that of interracial couples, is entitled to constitutional protection. He was not asked directly about his views on the constitutional status of same-sex marriage.

“Nonetheless, this development is symbolically important and enormously cheering. The nation has moved swiftly, in historical terms, from cruel and almost unthinking bigotry against gay men and lesbians to recognition that such prejudice is unacceptable….

“That might not seem obvious the day after North Carolina became the 30th state to adopt a constitutional amendment prohibiting same-sex marriage…In total, 38 states prohibit same-sex marriage either by constitutional amendment, statute or both…

“But polls show a population evenly divided and steadily trending toward support for civil rights for gays, with younger people least conflicted of all.”

Editorial / Wall Street Journal

“Congratulations to President Obama for matching his public policy with what everyone already knew were his private beliefs. His statement Wednesday that he supports same-sex marriage spared the public the ruse of waiting until after the election to state the inevitable….

“One school of political thought holds that gay-rights issues typically hurt the person who raises them first. But perhaps the Obama campaign calculates that in a close election he will need a passionate base and that this will drive liberal and youth turnout in such important and evolving states as Virginia, Colorado, New Hampshire and New Mexico. On the other hand, Mr. Obama looks like he has just solved that problem Mitt Romney supposedly has with rousing cultural conservatives.

“The Obama endorsement also guarantees that the media will not allow Mr. Romney to go anywhere without being interrogated on this subject. The Republican could do worse than to say he supports the Defense of Marriage Act that President Bill Clinton signed less than two months before the 1996 Presidential election, adding that he believes the issue ought to be resolved democratically by the states. That has left New York and five other states plus the District of Columbia to sanction gay marriage, while North Carolina on Tuesday went in the opposite direction….

“American public opinion on unions between same-sex couples – whether civil or matrimonial – is changing, with support growing. Barack Obama and Mitt Romney won’t arrive at a marriage of the minds on this subject, but the issue shouldn’t decide the election and we doubt it will.”

On Wednesday evening, the Republican-controlled House of Representatives moved to reinforce the Defense of Marriage Act by a 245-171 margin.

--The CIA and its counterparts in Saudi Arabia and Yemen disrupted a bomb plot, a new underwear device targeting U.S.-bound aircraft, helped in part by the use of a double-agent (a Brit, as we’ve just learned).

Michael A. Walsh / New York Post

“Let’s stipulate that the CIA’s discovery a fortnight ago of yet another underwear-bomber plot, this one originating with al Qaeda in Yemen and aimed at an American airliner, was a splendid feat of intel tradecraft.

“Stipulate, too, that it gets us one step closer to nailing Ibrihim al-Asri, the terrorist behind the earlier Christmas Day underwear-bomber plot in Detroit in 2009, as well as the bombs hidden inside laser printers stashed aboard cargo planes in 2010.

“And let’s agree that foiling the operation by means of a double agent inside al Qaeda in the Arabian Peninsula’s operational structure potentially saved many lives.

“But here’s a rude question: Why do we even know about this?

“One of the unsung stories in the War on Terror is the active cooperation of Arab and other Muslim officers working in-country: Saudi intelligence officers, Iraqi cops and local Afghani chiefs. The FBI in particular has done a splendid job of recruiting, training and partnering with locals on the ground, developing invaluable sources and operational assistance.

“Their identities – their very existences – are generally kept secret, not only for their own protection, but for the continuing effectiveness of counterterrorism ops. You generally don’t let the bad guys know you’ve penetrated their inner sanctums. Moles stay underground for a reason.

“Yet here was John Brennan, the White House counterterrorism adviser, showing up on national TV to take a very public victory lap. ‘I think people getting on a plane today should feel confident that their intelligence services are working day in and day out to stop these types of IEDs from getting anywhere near a plane,’ he said.

“Thanks for sharing. Of course, if Brennan and the CIA had quietly broken up the plot, rolled up the network (two of the plotters in Yemen were killed in a drone attack on Sunday; the announcement of the plot was made the next day) and kept their mouths shut, the public wouldn’t be worrying about those IEDs, because they wouldn’t have realized the threat remained….

“With the economy in shambles, the president and his team have been floating a national-security campaign, based largely around the Navy SEALs’ killing of Osama bin Laden a year ago in Pakistan and the ongoing drone attacks on terrorist leaders. Last week, Obama flew all the way to Kabul to pat himself on the back for bin Laden’s death….

“But the politicization of intelligence is no laughing matter. Obama did the right thing in moving Democratic functionary Leon Panetta over to Defense and replacing him at CIA with Gen. David Petraeus, who’s both apolitical and the soul of discretion – you can bet Petraeus didn’t authorize the leak.

“But even the man who led the turning of the tide in Iraq can only do so much to clean up the swamps of Washington and Langley….

“The old adage, ‘Loose lips sink ships’ still applies, and that goes double for airships.”

I could not agree more with Mr. Walsh’s take. Going back to my comments from Paris when I first heard of the strike to take out bin Laden, and before that “Mission Accomplished,” I have always been deeply troubled by triumphalism, in any form.

But Michael Walsh wrote his piece before we learned details of the double-agent, who was recruited in Britain. Imagine, the United States gave up his identity, too.

As reported in the London Times late Friday night, Defense Secretary Leon Panetta condemned the disclosure.

“As a former Director of the CIA, I have to tell you that those kinds of leaks are very harmful to the efforts of the intelligence community.” 

Said Shashank Joshi, a research fellow at the Royal United Services Institute, a London-based think tank:

“If you’re MI5 and you’re trying to recruit a young British Pakistani or British Arab in the future, how do you persuade them that their actions and their potential identity…[aren’t] going to be splashed across The New York Times the next week?”

Eric Edelman, an under-secretary of defense during the George W. Bush years, said: “Under Obama, intelligence has been systematically politicized for political gain, thus the ‘high fives’ that you saw the other day at the anniversary of Osama bin Laden’s death. The leaks are so appalling it’s hard to fathom, but this is not the first time it has happened.”

Whitehall officials are furious with the U.S. If I’m Mitt Romney, I’d have this at the top of my debate talking points next fall. I’m getting ticked off just typing this.

--I have expressed my admiration for Indiana Republican Sen. Richard Lugar on more than one occasion in this space, almost solely because he’s been an adult on the topic of foreign affairs and presidents of both parties have wisely sought his guidance.

But I have not been privy to his relationship with the citizens of Indiana, some instances of which I honestly just became aware of in his losing primary campaign against Tea Partier Richard Mourdock.

And while I’m sorry to see Lugar go at a time of immense pressure on the diplomatic front, I also have one other thing to say.

You’re 80 freakin’ years old, for crying out loud, Sen. Lugar! Geezuz. My past comments over the years weren’t based on your hanging around until you’re 86.

Enjoy your retirement, and to Indiana Republicans, don’t blow it in November.

--An AP-GfK poll of registered voters has Barack Obama with a 50-42 lead over Mitt Romney. Obama is favored on the issue of the economy by a 46-44 margin.   Female voters favor Obama by 54-39. Black voters go the president’s way 90-5.

But a Politico/Battleground poll found Romney with a 48-47 lead among likely voters, including 48-38 among independents. Obama led Romney by nine points last February in the same survey.

And a new USA TODAY/Gallup Swing States Poll shows that in 12 battleground states, Obama holds a 47-45 edge. On the likability front, however, 58% say the president is likeable, while just 31% describe Romney that way.

A new Quinnipiac University poll shows Obama and Romney in a virtual tie in critical Ohio and Florida. Obama leads in Pennsylvania 47-39.

--Michael Gerson / Washington Post

“ ‘We’re not going back…We’re going forward,’ President Obama said during his formal campaign kickoff in Ohio. This rallying cry was pedestrian, and appropriately so. Obama is no longer a leader on horseback. His campaign – on the evidence of its first day – will be a long, unimaginative, partisan march to the sea.

“Gone are the vast ambitions of national progress and healing. In Ohio on Saturday, Obama made a methodical appeal to various voting blocks – college-educated women, gays, Hispanics. He waded into the culture war on abortion, something he rarely did four years ago. And he accused the GOP of trickle-down hostility to the middle class.

“To every interest group, a sop. On every wedge issue, a swat. To every class enemy, a turn in the tumbrel. Obama has gone ‘forward’ all the way to the strategy of Walter Mondale.

“The president may persuade voters with this message, but he apparently has given up trying to inspire them. And this is not a small thing, since the Obama brand once consisted mainly of inspiration.”

--In a story for Newsweek by Peter J. Boyer and Peter Schweizer titled “Why Can’t Obama Bring Wall Street To Justice?” there is this nugget.  

“ ‘There hasn’t been any serious investigation of any of the largest financial entities by the Justice Department, which includes the FBI,’ says William Black, an associate professor of economics and law at the University of Missouri, Kansas City, who, as a government regulator in the 1980s, helped clean up the S&L mess. Black, who is a Democrat, notes that the feds dealt with the S&L crisis with harsh justice, bringing more than a thousand prosecutions, and securing a 90 percent conviction rate. The difference between the government’s response to the two crises, Black says, is a matter of will, and priorities. ‘You need heads on the pike,’ he says. ‘The first President Bush’s orders were to get the most prominent, nastiest frauds, and put their heads on pikes as a demonstration that there’s a new sheriff in town.’”

Kinda makes you want to move Bush 41 up another notch, doesn’t it?

--Fred Barnes / The Weekly Standard

“In running for reelection, Obama has already set records. As of March 6, he’s held more fundraising events (104) than the previous five presidents combined (94).”

Of course it’s only gotten worse since that data point. On Thursday night, in Studio City, President Obama headlined a star-studded fundraiser that brought in nearly $15 million. Held in George Clooney’s backyard, it was hosted by Jeffrey Katzenberg and had the likes of Robert Downey Jr., Barbra Streisand and Billy Crystal.

--Former New Mexico Gov. Gary Johnson will be the Libertarian Party candidate for president come November. I wouldn’t expect him to get even 3%.

--For the archives, polling for the 2016 Iowa caucus has begun. Hillary Clinton leads Joe Biden 62-14, according to a Public Policy Polling survey. Importantly, Hillary has an 88% favorability rating. On the Republican side, Mike Huckabee and Rick Santorum top the list at 16%, with Gov. Chris Christie at 15%.

--A few weeks ago I blasted the U.S. and the military in particular for bad behavior. So last weekend, there was Defense Secretary Leon Panetta addressing troops at Ft. Benning, Ga. Panetta said that episodes involving a few soldiers who “lack judgment, lack professionalism, lack leadership” could have far-reaching consequences.

“The reality is that our enemies are losing on the battlefield, and they will seek any opportunity to damage us,” the secretary said. “In particular, they have sought to take advantage of a series of troubling incidents that involved misconduct.”

Case closed, one hopes.

--Trader George passed on a piece from Bloomberg that is rather scary. There’s a new type of superbug “that scientists warn is spreading faster, further and in more alarming ways than any they’ve encountered. Researchers say the epicenter is India, where drugs created to fight disease have taken a perverse turn by making many ailments harder to treat….

“Poor hygiene has spread resistant germs into India’s drains, sewers and drinking water, putting millions at risk of drug-defying infections. Antibiotic residues from drug manufacturing, livestock treatment and medical waste have entered water and sanitation systems, exacerbating the problem.”

Now who’s grossed out? 

--According to the Centers for Disease Control, by 2030, 42% of American adults will be obese. This is actually less than experts had predicted previously, though it’s still a significant increase from today’s 33%. Severe obesity, however, where adults are nearly 100 pounds overweight, will double to 11% of adults.

Aside from exercise, there is one solution…cut out sugar! The levels of it in our foods is beyond absurd. So, yes, put me in the Food Nanny camp when it comes to this topic.

--In my last site traffic check, while the lion’s share of my readers come from the U.S., it is curious to me that Pakistan is second again, followed by India, Canada and the U.K. So a “Hee Haw” saaa-luuute to my Pak audience!

--The period January through April was the warmest on record for the U.S., according to the National Oceanic and Atmospheric Administration, some five degrees above the long-term average.

--Warm air can be tough enough to stomach at the extremes, but thank god we don’t have any large dinosaurs to deal with these days as a new study in Current Biology suggests they made a significant contribution to the greenhouse effect 200 million years ago, as reported by the AP. It’s estimated dinosaurs passed about six times more gas than cows do today.

Yes, it was the long-necked plant eaters, sauropods, who had food fermenting in their guts for long periods of time that were the worst offenders. And back then there was no Beano.

--TV Alert…On Monday, PBS’ “American Masters” profiles Johnny Carson. There are many of us who still miss Johnny, like a lot.

--Finally, I have these farmer friends in the Oklahoma Panhandle and one of their boys, Thomas, whom I’ve met a few times, is graduating from Laverne High School next week. He’s part of a great family and I loved what was on the graduation notice from the school.

We came to this place together
To learn, to grow, to share…
Time and space may separate,
But distance cannot come
Between us.

And there is the “Class Motto”:

What we are is God’s gift to us.
What we become is our gift to God.

Kind of makes me wish I was there next week.

So allow me to take this moment to congratulate all the high school and college graduates this year. You have some interesting challenges ahead of you. Work hard. And don’t text and drive.

---

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

God bless America.
---

Gold closed at $1579
Oil, $95.65

Returns for the week 5/7-5/11

Dow Jones -1.7% [12820]
S&P 500 -1.1% [1353]
S&P MidCap -0.1%
Russell 2000 -0.2%
Nasdaq -0.8% [2933]

Returns for the period 1/1/12-5/11/12

Dow Jones +4.9%
S&P 500 +7.6%
S&P MidCap +9.7%
Russell 2000 +6.6%
Nasdaq +12.6%

Bulls 38.7
Bears 20.4 [Source: Investors Intelligence…fewest # of bulls since 10/18/11 when S&P was 1225…but after a dip to 1158 on 11/25/11, the S&P ran up to 1419 on 4/2/12…which is how a contrarian indicator often works, Charlie Brown.]

Have a great week. We’re selling some iPad apps…yippee! Not including those family and friends who were forced to download in the past week. Each one I sell is the equivalent of a draft beer at happy hour at a dive bar in Gary, Indiana; not that I’m looking to travel there for said entertainment.

Happy Mother’s Day!

Brian Trumbore