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05/18/2013

For the week 5/13-5/17

[Posted 12:00 AM ET]

Scandals Envelop the White House...but Wall Street Keeps Rockin’

We are entering an environment where my dictum of “wait 24 hours” was never more useful. It is way too soon to know if President Barack Obama’s second-term is on the verge of going up in flames. Everyone has a different opinion as to which of the scandals that are now dominating the airwaves actually has legs. And then within each scandal there are facets that are more important to some than others. On Benghazi, for example, my anger is over how unprepared we were for a 9/11 anniversary, and it’s infuriating to hear the White House call the renewed investigation “a political circus.”

With the IRS scandal, we are beginning to learn how the report on the targeting of Tea Party types was withheld until after the election, which of course makes perfect sense, if you were looking to ensure victory in November and not have this information, long rumored, hit in September.

For now we have the president labeling the IRS’ actions “inexcusable.”

“Americans are right to be angry about it, and I’m angry about it,” Obama said in a brief address Wednesday night, adding that he “will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has.”

The president told us he would seek to put in place new safeguards to prevent the targeting from happening again and would work closely with a multitude of congressional investigations.

House Majority Leader Eric Cantor (R-Va.) said Wednesday, “The news has, I think, awakened the public, beginning to raise questions in their minds as to the direction of this government. And really, to whom is this government accountable?”

“We are accountable to the families of the victims in Benghazi,” Cantor added. “We certainly are accountable to the taxpayers and the people of this country as to the actions of the IRS. And we certainly have plenty of questions and are accountable to the press in terms of the First Amendment rights and its ability to enjoy those and realize those.”

I watched the congressional hearing on the IRS matter, Friday, and wanted to give acting commissioner Steven Miller a piece of my mind, watching his snarky performance, while J. Russell George, the Treasury Department inspector general, seemed out of his league, though at least likeable. 

George maintains there was no evidence IRS officials were under political pressure to target conservative groups, while Miller, who Obama forced to resign, said, “I want to apologize on behalf of the Internal Revenue Service for the mistakes that we made and the poor service we provided,” but that they were simply overwhelmed by the flood of applications and the practice of maintaining a list of keywords that flagged conservative groups for extra view was “intolerable,” but a mistake that had been merely put together by civil servants trying to work more efficiently. 

So now we wait 24 hours to see what the next news cycle reveals. Did Treasury know exactly what George was investigating in June 2012 when he apprised them of an investigation in name only, not, apparently, the specifics?

One thing is certain. The scandals continue to undermine the American people’s faith in government, and as to who it damages more, Republicans or Democrats, while the answer for today is obvious, Democratic operative Paul Begala nailed it. The scandals are more damaging to Democrats because their mantra is that more government is good.

For President Obama it’s always been about 2014 and an attempt to take back the House to assure his legacy.

If you had to bet today, though, Dems can forget the House, while Republicans are salivating over the opportunity to regain the Senate.

Peggy Noonan / Wall Street Journal

“The president, as usual, acts as if all of this is totally unconnected to him. He’s shocked, it’s unacceptable, he’ll get to the bottom of it. He read about it in the papers, just like you.

“But he is not unconnected, he is not a bystander. This is his administration. Those are his executive agencies. He runs the IRS and the Justice Department.

“A president sets a mood, a tone. He establishes an atmosphere. If he is arrogant, arrogance spreads. If he is too partisan, too disrespecting of political adversaries, that spreads too. Presidents always undo themselves and then blame it on the third guy in the last row in the sleepy agency across town....

“And why – in the matters of the Associated Press and Benghazi too – does no one in this administration ever take responsibility? Attorney General Eric Holder doesn’t know what happened, exactly who did what. The president speaks in the passive voice. He attempts to act out indignation, but he always seems indignant at only one thing: that he’s being questioned at all. That he has to address this. That fate put it on his plate.”

Meanwhile...Wall Street keeps soaring to new records, ignoring some so-so fundamentals in favor of easy money. It didn’t hurt that hedge-fund billionaire David Tepper reiterated his very bullish call, citing the Fed and a stronger economy. The latest Wall Street Journal survey of economists has the economy growing at a 2.4% clip this year, while everyone is expecting the second half to be better than the first in terms of Corporate America and earnings.

But the economic data for the week was mixed. April retail sales came in better than expected, up 0.1% when a decline was expected, the LEI (leading economic indicators) for the month was also better than forecast and the Michigan sentiment reading was the highest since July 2007.

On the negative side, jobless claims soared on the week, back to the 360,00 level, industrial production for April was down 0.5%, the worst performance in eight months, a reading from New York’s Empire State Manufacturing survey was awful, and housing starts for April were well below consensus, though the figure for building permits was solid.

There was another good piece of news, however, that I have argued will prove to be not so good for all of us.

The Congressional Budget Office issued a revised forecast on the deficit picture for fiscal 2013, ending Sept. 30, and the CBO now projects the deficit will decline to $642 billion from an earlier estimate of $845 billion, while the deficit is projected to decline to $378 billion in F-2015 from an earlier forecasted $430 billion.

It’s this last figure I’ve quoted a lot, the deficit bottoming at $430 billion before rising anew owing to entitlements.

And I’ve harped on the net interest expense forecast given an eventual normalized interest rate environment and the CBO doesn’t change that forecast much at all. $764 billion in net interest expense in 2022 vs. an earlier projected $795 billion. This year it will be just $223 billion.

So here’s the deal. The reason why the good news is depressing is that the pressure on the White House and Congress to find a solution to the longer-term debt woes has been lessened considerably.

Entitlement reform? No way. They’ll both take the easy way out.

The improvement in the deficit is a result of increased tax revenues and the housing rebound that has allowed Fannie Mae and Freddie Mac to make massive dividend payments to the Treasury.

The debt-ceiling issue is also now pushed off until possibly November.

But for all the budget happy talk this week, the CBO is still projecting $6.3 trillion in cumulative deficits the next decade.

While on the increased revenues...

Red Jahncke / Wall Street Journal

“Much of the increase in 2013 receipts is due to final tax payments for 2012 deriving from a rush to realize long-term capital gains before the 15% ‘Bush’ tax rate on such gains expired at the end of 2012 – and before the new 23.8% rate on long-term capital gains for higher-income taxpayers took effect on Jan. 1. How do we know this? Because virtually the same tax change occurred during the Reagan years, when the long-term capital gains tax rate jumped eight points, to 28% in 1987, when the Tax Reform Act took effect, from 20% in 1986.”

And on entitlements...

Greg Sargent / Washington Post

“The Monica Lewinsky scandal may have helped save Social Security in the late 1990s. Now the scandal fever currently gripping Washington – IRS, Benghazi, Associated Press phone records – may save Social Security and Medicare two decades later.

“Liberals who are dreading the scandal-mania that is taking hold should note that it contains a potential upside: It could make a Grand Bargain that includes cuts to Medicare and Social Security benefits even less likely than it already is. That’s because when scandal grips Washington, a president actually needs his core supporters more than ever to ward it off, making it harder to do anything that will alienate them.....

“Indeed, some leading liberals and labor officials are hoping this proves to be the case if the scandals continue. ‘We don’t know what’s going to happen with this scandal talk,’ Mike Lux, a leading progressive strategist who fought in the Clinton impeachment wars, tells me. ‘But one thing I do know from the Clinton years is that presidents need their bases completely fired up and fighting for them when the scandal stuff hits. Anything that President does to alienate the base, like cutting Medicare and Social Security, would hurt him badly when he needs the base to the maximum. The scandal talk makes a Grand Bargain less likely.’”

Robert Samuelson / Washington Post

“In any other time and place, $642 billion would qualify as a lot of money. But in the Washington of 2013, it has been reduced to pocket change. When the Congressional Budget Office announced that it has cut its projected 2013 federal deficit to $642 billion – compared with 2012’s deficit of $1.1 trillion and an earlier 2013 estimate of $845 billion – there was an almost-palpable sigh of relief. The budget problem is taking care of itself. Congress and the White House can relax. No more self-destructive budget brawls. No more unpopular choices between tax increases and spending cuts.

“Can we get real? For starters, $642 billion is serious money, and despite the modest improvements of the latest CBO report, the basic trends in federal finances remain the same. From 2014 to 2023, the government will spend $6 trillion more than it collects in taxes. The budget never comes close to balancing. Expanding spending on the elderly and health care continues to strangle the rest of government. As a share of the economy (GDP), military and domestic discretionary programs (examples: drug approval, environmental regulation, Head Start, federal courts) drop about 40% from 2010 to 2023.

“Nothing of consequence has changed. A few numbers have shifted slightly. That’s all. They moved in a favorable direction. Next time, they might go the other way. What’s also constant is the unwillingness of leaders of both parties, beginning with the president, to discuss budget choices candidly....

“So the latest deficit numbers, though interesting, settle nothing. They don’t provide a road map for long-term budget discipline or resolve the debate over the short-term effects of deficits. They do provide an excuse for both Congress and the White House to postpone genuine discussion and decisions.”

Note: Check out the last four minutes or so of my 5/16 “Nightly Review” video for a budget lesson.

Europe’s Economy

Here’s a simple fact: The European Union remains on hold in terms of big policy moves until after the German elections in September, including on the critical issue of a banking union with a single resolution agency and rescue fund for ailing banks. Such a move was agreed to in principle last summer with details to be worked out this summer and implemented beginning of 2014.

Now, details won’t be hammered out until 2014, perhaps implemented in 2015, and this depends on how many treaty changes are required (that would then have to be approved by individual parliaments).

So with this one issue you see how the Euro crisis just drags on, even if stock markets in many of the countries rocket higher. Like in the U.S. and Japan, it’s about the European Central Bank’s accommodative monetary policy that has led to higher stock and stabilized debt markets. But the real economy, especially in the southern tier, continues to suffer from the credit crunch that makes it hard for small- and medium-sized businesses to survive.

As to the fundamentals, Eurostats released the ugly story on Euro-17 GDP, down 0.2% for the first quarter over the fourth, worse than expected and the sixth straight quarter of contraction, the worst since 2008-09.

France saw its GDP decline 0.2% after a 0.2% contraction in Q4, so it’s back in recession, its first in four years.

Italy’s fell 0.5% after a 0.9% fall in Q4 (-2.3% on an annualized basis). Industrial production in Italy for the month of March fell 0.8%.

Spain’s GDP declined 0.5% and is off 2.0% annualized.

The Netherlands contracted 0.1%, 1.3% annualized.

But Germany eked out a 0.1% gain in Q1 over Q4, thus avoiding recession, even as Q4 was revised downward to a contraction of 0.7%. 

Yes, the brutal winter hit many of the Euro economies hard, but still, it’s a putrid picture on the continent with rising discontent, particularly in Spain and France.

But there were a few better data points. 

Eurozone industrial production for March actually rose 1% in March over February (though not sure how weather played into this). 

Euro-17 inflation for April was just 1.2%, a 3-year low, but we don’t want it going much lower, that’s for sure.

And European (all 27 EU nations) car sales rose for the first time in 19 months in April, up 1.8%, with Germany’s up 3.8%, ending five months of declines there.

In non-Euro Britain, outgoing Bank of England Gov. Mervyn King said the U.K. was finally heading into a sustained recovery, though interest rates will remain low due to still high unemployment. The BoE said GDP will grow 0.5% in the second quarter after a 0.3% rise in the first.

But back to France, President Francois Hollande opened the second year of his term with still plunging poll #s, a 24% approval rating, and the sense among his countrymen he just isn’t up to the challenge of turning around the economy. The public’s mood is grim and the European Commission head said France has been losing its competitiveness “over the past 20 years.”

A Pew Research Center survey has only 41% of the French having a favorable impression of the European Union, a 19-point drop over the 60% figure of a year ago. 

Roger Altman / Financial Times...on who is responsible for the policy of austerity...

“(Financial markets) originally pushed austerity onto the weaker nations, not politicians. A careful review of the timeline in this eurozone financial crisis bears this out.

“It was Greece which first loss access to public borrowing markets in early 2010, as evidenced by the downgrading of its credit ratings and the stratospheric 12% yield on its bonds at that time. The troika then negotiated an austerity program with the Greek government, in exchange for 110 billion euro in initial emergency financing from the then eurozone rescue fund.

“Ireland then suffered a loss of market confidence in the autumn of 2010, as its yields soared through 9% and eventually reached 12%. The Irish government announced a package of tax increases and spending cuts, in exchange for 85bn euro in emergency financing from the IMF. This is the same conditionality which, historically, has accompanied such IMF rescue loans.

“Later that month, Portugal announced an austerity program to ‘reassure markets’, including sharp spending cuts, as its yields spiked towards an eventual peak of 12%. Later, in March 2011, the country requested lending assistance from the ECB, which announced that it welcomed Portugal’s adjustment program.

“As 2011 progressed, yields on Spanish 10-year bonds pierced 6% and comparable Italian yields almost reached that level. The ECB then began to buy the outstanding debt of these two countries, to drive down these yields. But, it did so on the condition that they implement wide-ranging reforms, including tighter budgets, liberalized labor markets, privatizations and the like.

“In response, Rome announced a series of comparable austerity measures. Spain followed with a similar tightening regimen in March 2012 and requested eurozone assistance for its weakened banking system. Indeed, Spanish yields peaked in July 2012 over these banking concerns.

“The point is that all of these tightening programs resulted from a loss, or near-loss, of access to credit markets....The affected nations did not have a choice – they were forced to implement austerity in an effort to regain market confidence.”

And while Greece still has an astronomically high debt of 180% of GDP, because of the adoption of many of its austerity measures, Fitch, which had cut Greece’s rating to triple-C from B-minus a year ago, reversed course this week, returning it to B-minus. About a year ago, Greece’s bonds were trading with a yield of close to 30%. This week they were down to 8.60%. Some very smart players made a killing on this paper.

---

China: Foreign direct investment rose a meager 0.4% in April from a year earlier when a 6.2% increases was the median estimate. Not good. Industrial production for the month rose 9.3%, worse than expected, while retail sales increased 12.8%, which sounds good but fell short of projections.

GDP forecasts for China are being lowered, generally to 7.6% -7.8% from 8.0%. The country grew 7.7% in Q1 and the government’s target is 7.5% for the entire year.

Japan: GDP in the first quarter rose 0.9%, 3.5% on an annualized basis, as exports rose 3.8% and consumer spending rose 0.9%; further confirmation the expansionary policies of Prime Minister Shinzo Abe are working. The weakening yen is helping the likes of Toyota. But actual business investment declined a fifth straight quarter, so companies are still reluctant to invest in new plant and equipment. And deflation remains a factor.

The key is whether the improvement in exports filters through to the broader economy.

Plus economists are concerned that Abe’s gamble, and the Bank of Japan’s plan to flood the economy with money, including in the doubling of its government debt holdings that sent the yen sharply lower, may not work after this initial spurt. With a staggering debt load, this is a legitimate concern.

Street Bytes

--The incredible rally is only gaining speed with the major averages up big a fourth consecutive week. The Dow Jones added 1.6% to close at another all-time high, 15354, while the S&P 500 hit another high of its own, 1667, up 2.1%, and Nasdaq added 1.8% to 3498. The three are now up 16-17% for the year. The Dow Jones also extended its remarkable streak on Tuesdays, now up 18 straight.

--U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.24% 10-yr. 1.95% 30-yr. 3.17%

Producer prices in April fell 0.7%, up 0.1% ex-food and energy. For the 12 months, the readings were +0.7%, and +1.7% on core. Consumer prices for the month declined 0.4%, +0.1% on core, while for the past 12 months they were +1.1% (a 2-year low) and +1.7%, ex-food and energy.

--Mexico’s first-quarter GDP came in at a disappointing 0.5% over the fourth quarter, or a 1.8% annualized pace. The government lowered its forecast for growth for all of 2013 to 3.1%.

--Today marks the one-year anniversary of Facebook’s IPO, priced at $38. Friday the shares closed at $26.25. [The low of $17.55 was set last Sept. 4.]

In the first eight years of the company, it was about user growth. Today it’s about revenue. Before the IPO, Facebook made 85% of its revenue from desktop ads. Today, the company is looking everywhere for it, including the big focus on mobile. But CEO Mark Zuckerberg’s challenge is not to interfere with the user experience.

--Lots of earnings news on the retail front. J.C. Penney Co. lost $348 million in its first quarter, the last to reflect the stewardship of ousted CEO Ron Johnson, with Penney having seen sales crater 25% under his watch. 

Johnson was replaced by his predecessor, Mike Ullman, who said, “One of our top priorities this year is to restore traffic. We need to make a connection with the customer that is enduring as well as meaningful.”

Good luck. I remember years ago when Sears had its Penney’s moment. Not that I was a regular Sears customer at the time, but I haven’t been into a Sears since.

Wal-Mart said same-store sales in the U.S. fell for the first time in seven quarters, blaming a delay in income-tax-refund checks, challenging weather, and the payroll-tax increase, though the company hastened to add the current quarter was off to a healthy start.

Nonetheless, Wal-Mart said its customers remain “stretched.”

U.S. same-store sales fell 1.4% in the first quarter.

Kohl’s, on the other hand, said “There’s a lot of pent-up demand for spring merchandise out there.” Yet its same-store sales fell 1.9% for the quarter, though the shares rose because while earnings fell 4.5%, they came in far better than expected.

--Cisco Systems’ long-time CEO John Chambers is a straight shooter. When he doesn’t see a lot of reason for optimism, he says so rather than try to sugarcoat things. So it was significant the other day when in releasing the networking equipment giants’ earnings, he sounded a note of optimism, saying Cisco is seeing a “continued slow, steady recovery” in markets around the world for its product. U.S. sales climbed 7%, though revenues from Europe, the Middle East and Africa were flat. Overall revenue grew 5.4%.

But putrid demand in southern Europe is a major reason why Cisco isn’t more optimistic in its guidance. 

--Dell badly missed analysts’ expectations on the earnings front for its fiscal first quarter, with revenue declining 2.4%, though this last bit exceeded estimates. The report comes amidst the battle for the company between a Michael Dell-led group and billionaire investor Carl Icahn. 

For today, Dell’s offer of $13.65 a share looks better than Icahn’s offer of $12 plus stock, seeing as the company’s fortunes continue to decline. PC-related revenue, for example, fell 9% as Dell’s controller said Windows 8, released last October, is “not necessarily the catalyst to drive accelerated growth we thought it would be.”

Dell’s sales this year are expected to be less than they were in 2006, with net income around the levels of 2003, according to Bloomberg and analysts’ estimates.

--According to a Bloomberg Global Poll, 71% of respondents said Apple has lost its cachet as an industry innovator. [28% say it is permanent, 43% say it may be a temporary hiccup.] Apple announced this week the latest iteration of the iPhone isn’t coming out until the fall.

Perhaps most worrisomely for Apple, 83% of respondents in Asia said the company has lost its mojo, Asia of course being a major growth market for Apple.

--Apple shares suffered this week when Google announced it would launch a subscription music service that represents a breakthrough with the music industry and licensing. Google will offer its service for $7.99 per month, undercutting existing subscription services such as Spotify, though it’s not yet clear what portion Google will share with musicians and labels.

--Hedge fund billionaire Daniel Loeb has given Sony a list of demands, including spinning off its entertainment arm. While Prime Minister Shinzo Abe has promised to shake up corporate Japan, actually doing so has been another issue there.

--Home sales in Southern California rose at the fastest clip in April in seven years, up 9.5% from a year ago. The median price for a Southland home last month reached $357,000, up 23.1% from April 2012 and the highest level since June 2008. As Ronald Reagan would have said...not bad, not bad at all.

--California’s jobless rate fell to 9.0% in the month of April from 9.4% in March. My state of New Jersey’s rate is finally falling, 8.7%, down 0.3% from March. Nevada is highest at 9.6%. North Dakota continues to lead the nation at just 3.3%.

--Speaking of the Golden State, for the first time in a decade, the state is projecting a budget surplus, $1.1 billion as part of Gov. Jerry Brown’s proposal for the coming fiscal year. Brown has vowed not to just spend it, preferring to put it into a reserve fund because he knows the unexpected revenue surge could be a largely one-time event, similar to what has transpired on the federal level, as noted above.

Nonetheless, Brown is faced with pressure from all sides to restore spending levels for pet projects slashed in recent years.

--HSBC plans to cut another 14,000 jobs around the world as it proceeds with a three-year restructuring intended to restore its competitiveness and profit margins.

--New York City’s jobless rate fell to 8.4% in April from 8.9% in March, the lowest since March 2009.

--JPMorgan Chase has demanded that Bloomberg hand over five years’ worth of employee logs, as the bank considers whether to take legal action against the news and data group, after it emerged that Bloomberg journalists could track how clients used the ubiquitous terminals.

Bloomberg has apologized for allowing reporters access to “limited client information” through a combination of commands on the terminal and is examining compliance policies.

Personally, I can’t get outraged over this whole deal, but where it was useful was in Bloomberg reporters attempting to determine whether key employees remained at a target firm or not through monitoring login activity, though  Bloomberg has maintained its reporters were never able to see market-sensitive details of “securities-level data, position data [or] trading data.”

At the same time, Bloomberg reporters clearly had scoops on the Federal Reserve other news agencies didn’t.

--In the latest survey by the International Energy Agency, North American oil production will grow by 3.9 million barrels a day between 2012 and 2018, accounting for more than half of the increase in non-OPEC production for the period.

The IEA also said instability in North and sub-Saharan Africa will take a toll on production-capacity growth in some OPEC states. Average OPEC production will rise by 1.75 million barrels a day to 36.75 million barrels by the end of the period. Previously, the IEA pegged OPEC production capacity to grow 3.34 million barrels a day to 37.54 million barrels in 2017.

OPEC’s big challenge is to keep production below its self-imposed 30 million barrel a day limit or prices will crash with the increased supply from North America.

--The World Health Organization says it appears likely that the new coronavirus can be passed between people in close contact. France confirmed its second case. Two more people in Saudi Arabia died, bringing the death toll in Europe and the Middle East to 18 out of just 33 cases; a rather high mortality rate, I think you’d agree. Saudi Arabia has been criticized for not being aggressive enough on the reporting end.

The WHO’s Keiji Fukuda said this week, “Right now we are really in a race for more information. This is a new infection and there are many gaps in our knowledge.”

--I love looking at hotel occupancy rates in troubled nations as a good indicator of the geopolitical situation. In the first quarter, occupancy rates at Cairo hotels were 28%, while they were 56% in Beirut, both sizable declines. [Daily Star]

--NBC’s “Rock Center” is history (as of June 21), a blow to NBC’s News unit and anchor Brian Williams. The show’s ratings were dismal and the network kept moving it around, which never helps.

I blame Bush.

Foreign Affairs

Syria: A video that emerged this week best sums up the catastrophic direction the war here is taking. It appears to show a Syrian rebel, identified by U.S.-based Human Rights Watch as a well-known insurgent from the city of Homs, taking a bite from the heart of a dead soldier.

The main Syrian opposition coalition said he would be put on trial. The video seems to show him cutting out the heart.

Human Rights Watch said the rebel’s actions were a war crime. Peter Bouckaert told Reuters, “The mutilation of the bodies of enemies is a war crime. But the even more serious issue is the very rapid descent into sectarian rhetoric and violence.”

The UK-based Syrian Observatory for Human Rights puts the death toll now at more than 80,000.

The Assad regime has been making tremendous strides on the battlefield and there is no doubt the government has been helped by the presence of Hizbullah fighters weighing in on the side of Bashar.

Russia continues to stick it to the United States and its allies in sending warships and advanced antiship cruise missiles (as well as sophisticated anti-aircraft missiles) to Syria. As reported by the New York Times’ Michael R. Gordon and Eric Schmitt:

“Unlike Scud and other longer-range surface-to-surface missiles that the Assad government has used against opposition forces, the Yakhont antiship missile system provides the Syrian military a formidable weapon to counter any effort by international forces to reinforce Syrian opposition fighters by imposing a naval embargo, establishing a no-fly zone or carrying out limited airstrikes.”

Republican Senator Bob Corker (Tenn.) said, “This weapons transfer is obviously disappointing and will set back efforts to promote the political transition that is in the best interests of the Syrian people and the region. There is now greater urgency for the U.S. to step up assistance to the moderate opposition forces who can lead Syria after Assad.”

Equally disturbing, Russia has been blocking the approval of United Nations fact-finding missions to Jordan, Turkey and Lebanon to examine the refugee crisis that also threatens the region’s overall stability. Turkey exhibited patience after two car bombs in a border town inside Turkey killed at least 46, with Syria’s intelligence apparatus being blamed.

Separately, the Financial Times reports Qatar has spent $3 billion supporting the rebellion, but Saudi Arabia apparently has surpassed that figure.

Iran: Last Saturday was the deadline for filing for the nation’s upcoming presidential election and two last-minute registrants shook up the process to the core; the filings by Ali Akbar Hashemi Rafsanjani, a former president and leading figure of the 1979 revolution, and President Mahmoud Ahmadinejad’s top aide and hand-picked choice to be his successor, Esfandiar Rahim Mashaei.

Rafsanjani and Mashaei could not be more different but both were immediately vilified by leading figures in Iran. The deputy police commander was quoted as issuing a warning to both Ahmadinejad and Mashaei that the “shedding of blood is allowed,” alluding to their claiming to take their orders from the Shiite messiah rather than Ayatollah Ali Khamenei and the clergy. While Rafsanjani was accused by the top editor of the country’s influential state-run newspaper of being a representative for the “American-Israeli sedition” of 2009, referring to the protests that erupted after the last presidential elections. Rafsanjani has widely been accused of engineering the demonstrations.

The Guardian Council, which vets the office seekers, will issue its final approved list on Tuesday after passing judgment on some 700 would-be candidates. It is expected up to 10 will be approved, which would make it difficult for one candidate to win a majority without a run-off. If Rafsanjani or Mashaei are barred from running, the legitimacy of the vote will be called into question. Particularly in the case of Rafsanjani, supporters would no doubt hit the streets. The election is June 14.

Should Rafsanjani not be allowed to run, it also sends the clearest signal to Israel that the election is rigged to guarantee another hardliner wins. Israel has been holding off on any actions until after the vote to see if the new president is someone the West can deal with. 

I am long on record, going back to the time of the Iraq War, as saying the United States should have been conducting backchannel negotiations with Rafsanjani. I will elaborate on this next time.

Meanwhile, in the same vein, Iran and the International Atomic Energy Agency met for a 10th time on Wednesday in an attempt to reach agreement on the scope of the frozen probe into possible nuclear weapons-relevant activities. The senior Iranian negotiator, Saeed Jalili, is among the candidates for president and could make the final cut.

Iraq: The spillover from Syria is intensifying amid the latest wave of sectarian bombings and assassinations that left at least 40 dead on Wednesday and Thursday.

Israel: Prime Minister Netanyahu is under fire for a major expense scandal at a time when the new government approved austerity measures, including tax increases and reduced social benefits. Specifically, taxpayer-funded expenses for Netanyahu and his family on their three residences in 2012 included $27,000 a month for cleaning (up 119% since 2009), $11,000 a month for food and hospitality (up 124%) and $1,450 a month for various personal expenses such as hairdressers and makeup (up 94%).

May I suggest Swiffer products for the cleaning, Dollar Tree for food, and my man Mike for $20 haircuts. I grant you I don’t know what Mrs. Netanyahu’s needs would be.

Pakistan: Nawaz Sharif is returning to government after an easy victory in parliamentary elections last weekend. Sharif will be able to cobble together a significant majority. Turnout was high despite 64 being killed in various attacks on election day.

Sharif exchanged greetings with his Indian counterpart, Prime Minister Manmohan Singh, and there is cause for optimism on this front.

During his election campaign, Sharif said he would end Pakistan’s involvement in the U.S.-led war on terror, without saying whether that included military operations against the Taliban and al-Qaeda.

It was in Sharif’s second term in office, in 1997-99, that he fell out with then-army chief of staff, Gen. Pervez Musharraf, who would launch a coup. This go ‘round, Sharif said he expects a smooth relationship with the mililtary.

Good relations with India and the Pakistani army are key if Sharif is to be able to focus on his stated number one mission, Pakistan’s economy, including the acute power shortage that impedes economic growth.

Libya: Stephen F. Hayes of The Weekly Standard has done the best reporting on the Benghazi issue, including on the talking points. Following the release of 94 pages of emails the other day, Hayes wrote the following:

“The documents, first reported by The Weekly Standard...directly contradict claims by White House press secretary Jay Carney and Secretary of State Hillary Clinton that the revisions of those talking points were driven by the intelligence community and show heavy input from top Obama administration officials, particularly those at the State Department....

“As striking as what appears in the email traffic is what does not. There is no mention of the YouTube video that would become a central part of the administration’s explanation of the attacks to the American people until a brief mention in the subject line of emails coming out of an important meeting where further revisions were made.

“Carney, in particular, is likely to face tough questioning about the contents of the emails because he made claims to reporters that were untrue. ‘The White House and the State Department have made clear that the single adjustment that was made to those talking points by either of those two – of these two institutions were changing the word ‘consulate’ to ‘diplomatic facility,’ because the word ‘consulate’ was inaccurate,’ he told reporters on November 28, 2012.

“That’s not true. An email sent at 9:15 PM on September 14, from an official in the CIA’s Office of Public Affairs to others at the agency, described the process this way. ‘The State Department had major reservations with much or most of the document. We revised the document with their concerns in mind.’

“That directly contradicts what Carney said. It’s also difficult to reconcile with claims made by Secretary of State Hillary Clinton during testimony she gave January 23 on Capitol Hill.

“ ‘It was an intelligence product,’ she said, adding later that the ‘intelligence community was the principal decider about what went into talking points.’

“Carney and other top Obama administration officials have long maintained that CIA officials revised the talking points with minimal input from Obama administration officials. The claim made little sense when they made it – why would CIA officials revise on their own a set of talking points they’d already finalized? The emails demonstrate clearly that it isn’t true.

“Another CIA email, this one a draft of a message for CIA director David Petraeus, noted that the talking points process had ‘run into major problems,’ in part because of the ‘major concerns’ raised by the State Department. That same email reported that the issues would be revisited at the Deputies Committee meeting on Saturday morning....

“When Petraeus received the rewritten talking points, he objected. ‘Frankly, I’d just as soon not use this,’ he wrote to a legislative affairs staffer. But he declined to put up a fight.”

[I have far more below on the Benghazi topic.]

Afghanistan: The Taliban said it would launch a spring offensive and it is carrying through. 16 people were killed in a suicide car bombing in Kabul on Thursday, including six Americans (two soldiers, four contractors), though a separate insurgent group claimed credit for this one.

Earlier in the week, four American soldiers (I saw other reports saying three) were killed in a roadside bomb.

China: Beijing test-fired a new long-range rocket capable of destroying orbiting satellites, according to American intelligence assessments. As reported by the London Times’ Michael Evans:

“The launch of the interceptor, which reached an altitude of more than 6,000 miles, could pose a serious threat in the future to America’s military communications in the Asia-Pacific region....

“Beijing insisted that the rocket...carried a science payload aimed at studying the Earth’s magnetic field.

“However, a U.S. defense official said that Monday’s launch appeared to be the first test of a new missile that could destroy satellites in orbits typically used for communications.”

Philippines / Taiwan: Tensions intensified between the two over the killing of a fisherman from Taiwan last week. Taiwan imposed sanctions against the Philippines, rejecting as unacceptable a Philippine apology. A Philippine patrol boat fired at least 32 shots at the victim’s vessel. Taiwan also froze the hiring of workers from the Southeast Asian country.

Russia: On Tuesday, U.S. diplomat Ryan Fogle was asked to leave the country after the security services claimed to have caught him red-handed trying to recruit a Russian agent. The FSB, the successor to the Soviet-era KGB, alleged that Fogle, a third-secretary at the U.S. Embassy, worked for the CIA.

These things happen relatively frequently between the two sides but what made this incident different is the heavy publicity the arrest was given on Russian television, when normally such matters are handled discreetly between Moscow and Washington. Clearly, President Vladimir Putin wanted to play games, but then in a major breech of intelligence protocol, Russia crossed way over the line days later in naming the CIA station chief in Moscow. A spokesman for the FSB named the diplomat while speaking to Russian media. 

Britain: Prime Minister David Cameron suffered a major inter-party blow when a large number of Conservative lawmakers voted for a motion critical of the U.K.’s plans regarding the European Union. Many feel the prime minister must spell out details for holding a referendum on EU membership, but the split in the party impacts his chances of gaining reelection in 2015.

In January, Cameron promised to renegotiate the U.K.’s relationship with the EU and then hold a referendum after the next vote, probably in 2017.

But many in his party want him to guarantee the referendum in law. It also puts his coalition with the Liberal Democrats in jeopardy, furthering limiting his room to maneuver.

Philip Stevens / Financial Times

“In promising a referendum David Cameron signposted the route for Britain’s departure from the EU. Unsurprisingly, a deeply Eurosceptic Conservative party is now unceremoniously bundling the prime minister along this path. Exit has long been a plausible outcome of the endless Tory paroxysms. It has begun to look a probability. This is a sobering thought, and not only for foreign investors thinking about where to put their money.

“When Harold Wilson gave Britons a plebiscite on EU membership in 1975 the then British leader was not thinking about the national interest. He wanted to bridge divisions in his own, half-skeptic party. A sham renegotiation to secure better membership terms was followed by a government call for a Yes vote. Wilson won the day, and, for a time, quelled the anti-Europe rebellion.

“Faced with his own Eurosceptic insurgency, Mr. Cameron imagined he could pull off a similar coup. The realities of coalition politics with the Liberal Democrats precluded an immediate referendum, so he promised a vote if the Tories won the 2015 election. The ploy, quite predictably, has failed. Skeptics have learnt a lot since 1975. They have been emboldened rather than placated by the referendum pledge....

“The next demand of the Tory skeptics will be that Mr. Cameron set out his demands for the promised renegotiation with Britain’s partners. He must spell out precisely which powers will be repatriated to the Westminster parliament, which EU policies Britain will opt out of, and the guarantees that will be secured against further integration.

“So far Mr. Cameron has sensibly confined himself to generalities. Who can disagree with a call for Europe to be more competitive and open to the world and to interfere less in the nooks and crannies of national life? It is when the talk turns to special privileges and exemptions for Britain that things get tricky.

“The other day I heard a senior figure in Angela Merkel’s government express palpable horror at the prospect of a British departure. It would be a serious blow to Europe as well as to Britain. Ms. Merkel, he continued, would do all she could to assuage concerns that eurozone integration could leave Britain marginalized in EU decision-making. Berlin could sign up also to an outward-looking, less intrusive EU.

“The German and other EU governments, however, have their own red lines. It is one thing to offer Britain assurances about the future, quite another to allow any member to opt out of parts of the union’s acquis – the accumulated body of European law and agreements – that it finds inconvenient. To accept that approach would be to begin to unravel the entire enterprise.”

Venezuela: The country is literally out of toilet paper. We may have our problems in America these days, but gosh darnit...we have a wide variety of paper to choose from. And at the end of the day....

Random Musings

--A senior Pentagon official warned at a congressional hearing the U.S. “war on terror” against al-Qaeda and its affiliates could last “at least 10 to 20 years” owing to the spread of Islamist radicals in the Middle East and North Africa.  

Gee, but during last fall’s campaign, we were told we had the bastards on the run.

--Attorney General Eric Holder said the Justice Department had opened a criminal probe of recently disclosed actions by the Internal Revenue Service. The IRS apologized for what it labeled inappropriate scrutiny of tax-exemption requests by conservative groups with “tea party” or “patriot” in their names, among others.

Holder added that when it came to the seizure of Associated Press reporter records, they were approved by his deputy, Jim Cole, since Holder recused himself from the investigation into who leaked information on a 2012 counterterrorism operation in Yemen.

--Regarding the AP seizure, the organization said the Justice Department had obtained the records for more than 20 telephone lines of its offices and journalists, including home phones and cellphones. The records were seized without notice.

Monday, Gary Pruitt, president and CEO of The AP, called the seizure, a “massive and unprecedented intrusion” into its news gathering activities.

“There can be no possible justification for such an overbroad collection of the telephone communications of The Associated Press and its reporters,” wrote Pruitt. “These records potentially reveal communications with confidential sources across all of the news gathering activities undertaken by The AP during a two-month period, provide a road map to AP’s news gathering operations, and disclose information about AP’s activities and operations that the government has no conceivable right to know.”

As reported by Charlie Savage and Leslie Kaufman of the New York Times:

“Justice Department regulations call for subpoenas for journalists’ phone records to be undertaken as a last resort and narrowly focused, subject to the attorney general’s personal signoff. Under normal circumstances, the regulations call for notice and negotiations, giving the news organization a chance to challenge the subpoena in court.

“The Justice Department referred questions about the subpoena to a spokesman for Ronald C. Machen Jr., the United States attorney for the District of Columbia, who was assigned by Mr. Holder last June to lead one of two major leak investigations. Those inquiries came amid a Congressional uproar over several disclosures of national security information in the media.

“ ‘We must notify the media organization in advance unless doing so would pose a substantial threat to the integrity of the investigation,’ Mr. Machen’s spokesman, William Miller, said.”

Editorial / Washington Post

“When the Justice Department launched its investigation of alleged leaks of national security information by the Obama administration a year ago, we were skeptical. The history of such probes is mainly a tale of dead ends and unintended negative consequences. That this effort to criminalize a leak was launched amid an election-year uproar seemed especially inauspicious.

“Our forebodings have been borne out with the revelation that federal prosecutors have undertaken a broad sweep of the Associated Press’ phone records. Whatever national-security enhancement this was intended to achieve seems likely to be outweighed by the damage to press freedom and governmental transparency....

“Crucially, (the Justice Department did not follow usual policy), which is to give news organizations a chance to negotiate or contest such a subpoena ahead of time.

“That policy is rooted in sound respect for the First Amendment. It’s not legally binding – in part because the Justice Department and the press have recognized a mutual interest in resolving such matters without potentially counterproductive Congressional or judicial intervention.

“In a letter to AP President and CEO Gary B. Pruitt yesterday, Deputy Attorney General James M. Cole explained that the department had no alternative means of gathering essential information. He also intimated that Justice had kept AP in the dark until a few days ago so as to avoid ‘a substantial threat to the integrity of the investigation.’ Attorney General Eric H. Holder Jr. ...fleshed that assertion out at a press conference Tuesday, saying at issue is one of ‘the top two or three most serious leaks that I have ever seen’ which ‘put the American people at risk, and that is not hyperbole.’

“Perhaps that’s so...though we hope reporters are working on it. As Mr. Pruitt responded Tuesday, ‘We held that story until the government assured us that the national security concerns had passed. Indeed, the White House was preparing to publicly announce that the bomb plot had been foiled.’ The usual reason for keeping a subpoena secret is that the target would otherwise try to destroy documents. In this case, AP could not have done so even if it wanted to, since the relevant records were in the possession of its phone service providers. Without even giving AP a chance to weigh in, we don’t see how the department could intelligently weigh its prosecutorial needs against this broad subpoena’s chilling effect on reporters and their sources.”

--George Will / Washington Post

“He has, acting personally and through his subordinates and agents, endeavored to...cause, in violation of the constitutional rights of citizens, income tax audits or other income tax investigations to be initiated or conducted in a discriminatory manner.”

-- Article II, Section I, Articles of Impeachment against Richard M. Nixon, adopted by the House Judiciary Committee, July 29, 1974

“The burglary occurred in 1972, the climax came in 1974, but 40 years ago this week – May 17, 1973 – the Senate Watergate hearings began exploring the nature of Richard Nixon’s administration. Now the nature of Barack Obama’s administration is being clarified as revelations about IRS targeting of conservative groups merge with myriad Benghazi mendacities.

“This administration aggressively hawked the fiction that the Benghazi attack was just an excessively boisterous movie review. Now we are told that a few wayward souls in Cincinnati, with nary a trace of political purpose, targeted for harassment political groups with ‘tea party’ and ‘patriot’ in their titles. The Post reported Monday that the IRS also targeted groups that ‘criticized the government and sought to educate Americans about the U.S. Constitution.’ Credit the IRS’s operatives with understanding who and what threatens the current regime....

“Episodes like this separate the meritorious liberals from the meretricious. The day after the IRS story broke, The Post led the paper with it, and, with an institutional memory of Watergate, published a blistering editorial demanding an Obama apology. The New York Times consigned the story to page 10 (its front-page lead was the umpteenth story about the end of the world being nigh because of global warming). Through Monday, the Times had expressed no editorial thoughts about the IRS. The Times’ Monday headline on the matter was: ‘IRS Focus on Conservatives Gives GOP an Issue to Seize On.’ So that is the danger.

“If Republicans had controlled both houses of Congress in 1973, Nixon would have completed his term. If Democrats controlled both today, the Obama administration’s lawlessness would go uninvestigated. Not even divided government is safe government, but it beats the alternative.”

On Tuesday the Times finally had an editorial on the matter and this is their conclusion.

“President Obama said on Monday that he learned of the practice (of targeting the Tea Party et al) only when the public did late last week, and he called it ‘outrageous.’ He promised to take action against those involved – and needs to find out whether any political appointees ordered the practice or knew of it. Inevitably, the stumble by the IRS will now be used by the Republicans as a point of attack. They are gleefully promising months of hearings, and the National Republican Congressional Committee is already trying to tarnish Democratic lawmakers with what it calls ‘the Obama administration’s use of the IRS as a political tool.’

“This will serve as the perfect distraction from issues, like the budget, gun control or immigration reform. And it will probably prevent any real progress on campaign finance reform, which, in turn, will make it vastly more difficult for the IRS to prevent abuse of the tax code.”

Editorial / Washington Post

“Washington is now sinking its teeth into a real scandal: the Internal Revenue Service using ideological criteria to choose the targets of its attention. What we already know is bad enough. Given the seriousness of the charges and the unreliability of IRS disclosures so far, purposeful, sober investigation is exactly what is needed....

“Any unequal application of the law based on ideological viewpoint is unpardonable – toxic to the legitimacy of the government’s vast law-enforcement authority....

“The inspector general (reports) that Lois Lerner, the head of the IRS’ tax-exempt organization office, knew about the targeting in 2011; she seemed to say Friday that she learned about it from news reports last year. That inconsistency raises suspicions about the agency’s statements that higher-ups didn’t know about the targeting and that there was no political motivation....

“Considering that Ms. Lerner seems to have known about the targeting by 2011, did the IRS ever plan on revealing that it had singled out conservative groups? Or was it only the impending release of the inspector general’s report that compelled agency officials to ‘fess up?”

Rep. Jim Jordan (R-Ohio), a member of the oversight committee, said, “We still do not know why the targeting began, how extensive it was, who initiated it and who knew about it. The IRS must be held accountable to the American people, which requires a full investigation.”

The IRS watchdog’s report said the decision to focus on groups with conservative-sounding names originated in the IRS “determinations unit” in Cincinnati in early 2010.

Sen. Orrin Hatch (Utah), the ranking Republican on the Senate Finance Committee, said Monday, “I wrote to the IRS three times last year after hearing concerns that conservative groups were being targeted. Yet it didn’t occur to anyone at the IRS to let us know that this targeting was in fact happening? Knowing what we know now, the IRS was at best far from forthcoming, or at worst, being deliberately dishonest with Congress. These are the facts and the questions we need answered.”

As the Wall Street Journal reported, however, “In a letter sent in September to Mr. Hatch and posted on the committee’s website, then-acting Commissioner Steven Miller said, ‘Revenue agents use sound reasoning based on tax law training and their experience to review applications and identify the additional information needed to make a proper determination of an organization’s exempt status.’”

Gregory Korte / USA TODAY

“In the 27 months that the Internal Revenue Service put a hold on all Tea Party applications for non-profit status, it approved applications from similar liberal groups, a USA TODAY review of IRS data shows.

“As applications from conservative groups sat in limbo, groups with obviously liberal names were approved in as little as nine months. With names including words like ‘Progress’ or ‘Progressive,’ these groups applied for the same tax status and were engaged in the same kinds of activities as the conservative groups.”

Meanwhile...

Editorial / Wall Street Journal

“Even as the politicized tax enforcement scandal expands, the Internal Revenue Service continues to expand its political powers thanks to the Affordable Care Act. A larger government always creates more openings for abuse, as Americans will learn when the IRS starts auditing their health care in addition to their 1040 next year....

“Three years ago, National Taxpayer Advocate Nina Olson, who operates within the IRS, presciently noted that ObamaCare is ‘the most extensive social benefit program the IRS has been asked to implement in recent history.’....

“Instead of going after tax cheats, these bureaucrats will write and enforce tax regulations for parts of the economy in which they have no core competence. For example, do ski instructors or public school teachers count as seasonal workers? How long is a ‘full time’ work week? Is it 40 hours, or 30?

“The IRS will also dispense ObamaCare’s insurance subsidies since technically they’re ‘advanceable’ tax credits, i.e., transfer payments made prior to filing a tax return. The IRS will also police the individual mandate-tax to buy health insurance, as well as the business penalties for not offering Washington-approved coverage to employees.”

--David Brooks / New York Times

“Everyone is treating the IRS issue as a bigger deal, but the Justice Department scandal is worse. This was a sweeping intrusion that makes it hard for the press to do its job. Who is going to call a journalist to report wrongdoing knowing that at some future date, the government might feel perfectly free to track the phone records and hunt you down?

“I would have thought a dozen Justice Department officials would have risen up and splashily resigned when they learned of the scope of this invasion. Aren’t there some lawyers in the Justice Department, and, if so, did they go to law schools where the Constitution is left unassigned?”

--Benghazi...

Charles Krauthammer / Washington Post

“Note to GOP re Benghazi: Stop calling it Watergate, Iran-contra, bigger than both, etc. First, it might well be, but we don’t know. History will judge. Second, overhyping will only diminish the importance of the scandal if it doesn’t meet presidency-breaking standards. Third, focusing on the political effects simply plays into the hands of Democrats desperately claiming that this is nothing but partisan politics.

“Let the facts speak for themselves. They are damning enough. Let Gregory Hicks, the honorable, apolitical second-in-command that night in Libya, movingly and grippingly demolish the president’s Benghazi mantra that ‘what I have always tried to do is just get all the facts’ and ‘every piece of information that we got, as we got it, we laid it out for the American people.’

“On the contrary. Far from assiduously gathering and releasing information, the administration was assiduously trying to control and suppress it.”

Republican Senator Ron Johnson (Wis.) / Wall Street Journal

“There was a steady stream of warnings about the deteriorating security situation in Benghazi from the U.S. intelligence community. The British, the United Nations and the International Committee of the Red Cross had removed their personnel. Libya was an obvious hot spot, and 9/11 was a day to be on high alert. And yet we are supposed to believe that none of this required or received the attention of the secretary of state? If it is true Mrs. Clinton was so profoundly uninformed, then it would also be true she was profoundly negligent.

“When she wasn’t hunkered down in the days following the attack, maintaining strategic silence due to an ‘FBI investigation,’ she stuck to the administration talking point that the attack was a spontaneous protest. She repeatedly referred to the YouTube video – even telling the father of slain American security officer Tyrone Woods that the producer of the video would be brought to justice.

“President Obama’s re-election narrative was that Osama bin Laden was dead, al Qaeda was decimated, and Libya proved the success of his ‘leading from behind’ strategy. Despite the warnings, the administration ramped down security in Benghazi. It’s no wonder Mrs. Clinton would want to keep her head down following the attack and make every attempt to misdirect attention from the administration’s negligence.

“The natural reaction of any leader when a subordinate loses his life in the line of duty is to talk to anyone who could explain what happened. That’s why, in January, I asked Mrs. Clinton why she didn’t just call the survivors to find out the facts....

“(With) the revelations of the Interim Progress Report and testimony, it is becoming clear her reaction – and the behavior of President Obama and his administration – was designed to mask their failure of leadership. Instead of making a call to acting Ambassador Gregory Hicks, Mrs. Clinton and the White House sidelined him, leaving him ‘stunned’ and ‘embarrassed’ as he watched Susan Rice’s Sunday show appearances, as he put it to Congress last week.

“Thanks to the bravery of Mr. Hicks and his colleagues, the truth about Benghazi is beginning to be revealed. But more survivors need to be able to tell their stories. Some are contract employees who will need whistleblower protection, and some are current or former administration officials whose testimony may need to be compelled by subpoena.

“A congressional Joint Select Committee can offer that protection and issue those subpoenas. Such a committee should be appointed without further delay, so that the full story of Benghazi can be told and so such a fiasco never happens again.”

Early in the week, there was President Obama, in a joint press conference with British Prime Minister David Cameron, saying that with regards to the talking points, there’s “No there, there.” He also said of the four Americans killed, while security issues needed to be answered, “We were not able to prevent their deaths.”

That’s bull, Mr. President. My point has been, as Gregory Hicks put it, we didn’t even try to prevent the second attack that took out the 3rd and 4th Americans.

Maureen Dowd / New York Times

“ ‘My reaction was that, O.K., we’re on our own,’ Hicks said quietly. He said the commander of that Special Forces team told him, ‘This is the first time in my career that a diplomat has more balls than someone in the military.’

“The defense secretary at the time, Leon Panetta, insisted, ‘We quickly responded.’ But they responded that they would not respond. As Emma Roller and David Weigel wrote in Slate: ‘The die was cast long before the attack, by the weak security at the consulate, and commanders may have decided to cut their losses rather than risking more casualties. And that isn’t a story anyone prefers to tell.’”

On ABC’s “This Week,” Ret. Gen. James Cartwright, former vice chairman of the Joint Chiefs of Staff, was discussing the issue of buzzing the militants and trying to get jets in the air from, say, Aviano, Italy, and he actually said, ‘it looks like it would have taken 1-2 days.’

That’s outrageous. Our general corps is nothing but a bunch of hacks.

Why weren’t F-16s and tankers on standby?! On the anniversary of 9/11?!

Maureen Dowd:

“All the factions wove their own mythologies at the expense of our deepest national mythology: that if there is anything, no matter how unlikely or difficult, that we can do to try to save the lives of Americans who have volunteered for dangerous assignments, we must do it.”

I was extremely disappointed when I saw that former Defense Secretary Robert Gates, in defending the Obama administration and the suggestion that the Pentagon could have scrambled jets or special forces during the attack, said this was a “cartoonish impression of military capabilities.”

Mr. Secretary, you can do better than that. You know the Special Forces were ready to go in if allowed, and, again, why didn’t the Pentagon have jets on standby?

You know, last Sunday night on “60 Minutes” we learned of yet another example of the “cartoonish abilities” of Seal Team Six as they rescued Jessica Buchanan.

At the same time, last weekend I was reading a glowing review in the Wall Street Journal by Max Hastings of Rick Atkinson’s “The Guns at Last Light”, Atkinson’s story of the North-West Europe campaign following D-Day.

Hastings:

“By nightfall on June 6, the allies held five beachheads between 2,000 yards and 6 miles deep. For all British Gen. Bernard Montgomery’s rash displays of braggadocio beforehand – demanding that ‘armored columns must penetrate deep inland, and quickly, on D-Day’ – it was never realistic to hope for much more. The battles that followed were far bloodier than those on the beaches – the Normandy campaign lasted more than two months and cost 37,000 lives. The British air commander in chief, Trafford Leigh-Mallory, wrote: ‘The fault with us is, basically, generalship.’ Omar Bradley, the senior American field officer during the Normandy campaign, seemed to agree: He relieved seven subordinate generals in two months, including two successive commanders of one division, the 90th. But Mr. Atkinson seems as skeptical of Bradley’s own abilities, wondering ‘if he had been promoted beyond his natural level of competence.’ Bradley professed that ‘the one quality all great generals had in common was their understanding.’ But such battlefield clairvoyance, which he had occasionally displayed as a corps commander in Tunisia and Sicily, often eluded him as an army group commander.’”

What does the above have to do with Benghazi? Everything, of course. See Gen. Cartwright. See the likes of Tommy Franks in Iraq.

Benghazi is important to me because those responsible for not doing more to prevent or aid those in the second attack need to be held accountable

We are getting closer to knowing who was responsible for the first one and the death of Ambassador Chris Stephens.

--As George Will alluded to above, there were a number of climate change articles this week related to new findings. To wit...

The Economist

“At noon on May 4th the carbon-dioxide concentration in the atmosphere around the Mauna Loa Observatory in Hawaii hit 400 parts per million (ppm). The average for the day was 399.73 and researchers at the observatory expect this figure, too, to exceed 400 in the next few days. The last time such values prevailed on Earth was in the Pliocene epoch, 4m years ago, when jungles covered northern Canada....

“The concentration of CO2 peaks in May, falls until October as plant growth in the northern hemisphere’s summer absorbs the gas, and then goes up again during winter and spring.”

Marc Morano, former spokesman for Republican Senator James Inhofe and executive editor of Climate Depot, said, “The Earth has had many-times-higher levels of CO2 in the past. Americans should welcome the 400 parts-per-million threshold. This means that plants are going to be happy, and this means that global-warming fearmongers are going to be proven wrong.” [Bloomberg]

But there are lots of snakes and nasty insects in the jungle.

--As Doyle Rice of USA TODAY puts it, in discussing a new Discovery Channel series that explores how North America’s wildlife adapts to the wildest weather on the planet.

“North America – and the USA in particular – has the world’s wildest weather extremes: No other part of the planet can boast its ferocious weather stew of hurricanes, tornadoes, droughts, floods, wildfires, blizzards, heat waves and cold snaps.

“ ‘You’d be hard-pressed to find another patch of land on Earth the size of the USA that boasts such a variety of such intensely extreme weather inside its borders,’ says meteorologist and author Robert Henson of Boulder, Colo.’”

The U.S. experiences about 80% to 90% of all of the tornadoes that occur across the world, by the way. The U.S. sees about 1,000 tornadoes a year vs. fewer than 10 in China.

All this weather is good for the economy, when you think about it, including those profiting from storm recovery. [That’s my conclusion, not Discovery Channel’s.]

--According to data compiled by the U.S. Centers for Disease Control and Prevention, human feces taint more than half of public swimming pools. E. coli., which indicates the presence of fecal matter, was detected in 58 percent of samples taken from pool filters. E. coli was in 70 percent of municipal pools tested and 49 percent of pools that require membership or are at a club.

The CDC recommends “swimmers shower with soap before getting in a pool, don’t swim when they have diarrhea and wash their hands with soap after using the toilet or changing diapers.” [Bloomberg]

If your baby has diarrhea, please keep him or her on dry land, preferably at home.

--Saturday’s Powerball drawing has seen the jackpot soar to $600 million+, breaking the Nov. 2012 record of $587.5 million. The big reason for the rapid jump in this current game is California, which just started selling Powerball tickets in April. The Golden State now accounts for 11% of the game’s sales. 

Good luck. Personally, I wouldn’t mind winning it.

--Go Orb!

---

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

God bless America.

---

Gold closed at $1364...lowest weekly close since Feb. 2011
Oil, $96.02

Returns for the week 5/13-5/17

Dow Jones +1.6% [15354]
S&P 500 +2.1% [1666]
S&P MidCap +1.8%
Russell 2000 +2.2%
Nasdaq +1.8% [3498]

Returns for the period 1/1/13-5/17/13

Dow Jones +17.2%
S&P 500 +16.9%
S&P MidCap +18.7%
Russell 2000 +17.3%
Nasdaq +15.9% 

Bulls 54.2
Bears 19.8 [Source: Investors Intelligence]

Nightly Review video schedule...Monday and Thursday only this week. Posted around 5:30 PM ET.

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

05/18/2013

For the week 5/13-5/17

[Posted 12:00 AM ET]

Scandals Envelop the White House...but Wall Street Keeps Rockin’

We are entering an environment where my dictum of “wait 24 hours” was never more useful. It is way too soon to know if President Barack Obama’s second-term is on the verge of going up in flames. Everyone has a different opinion as to which of the scandals that are now dominating the airwaves actually has legs. And then within each scandal there are facets that are more important to some than others. On Benghazi, for example, my anger is over how unprepared we were for a 9/11 anniversary, and it’s infuriating to hear the White House call the renewed investigation “a political circus.”

With the IRS scandal, we are beginning to learn how the report on the targeting of Tea Party types was withheld until after the election, which of course makes perfect sense, if you were looking to ensure victory in November and not have this information, long rumored, hit in September.

For now we have the president labeling the IRS’ actions “inexcusable.”

“Americans are right to be angry about it, and I’m angry about it,” Obama said in a brief address Wednesday night, adding that he “will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has.”

The president told us he would seek to put in place new safeguards to prevent the targeting from happening again and would work closely with a multitude of congressional investigations.

House Majority Leader Eric Cantor (R-Va.) said Wednesday, “The news has, I think, awakened the public, beginning to raise questions in their minds as to the direction of this government. And really, to whom is this government accountable?”

“We are accountable to the families of the victims in Benghazi,” Cantor added. “We certainly are accountable to the taxpayers and the people of this country as to the actions of the IRS. And we certainly have plenty of questions and are accountable to the press in terms of the First Amendment rights and its ability to enjoy those and realize those.”

I watched the congressional hearing on the IRS matter, Friday, and wanted to give acting commissioner Steven Miller a piece of my mind, watching his snarky performance, while J. Russell George, the Treasury Department inspector general, seemed out of his league, though at least likeable. 

George maintains there was no evidence IRS officials were under political pressure to target conservative groups, while Miller, who Obama forced to resign, said, “I want to apologize on behalf of the Internal Revenue Service for the mistakes that we made and the poor service we provided,” but that they were simply overwhelmed by the flood of applications and the practice of maintaining a list of keywords that flagged conservative groups for extra view was “intolerable,” but a mistake that had been merely put together by civil servants trying to work more efficiently. 

So now we wait 24 hours to see what the next news cycle reveals. Did Treasury know exactly what George was investigating in June 2012 when he apprised them of an investigation in name only, not, apparently, the specifics?

One thing is certain. The scandals continue to undermine the American people’s faith in government, and as to who it damages more, Republicans or Democrats, while the answer for today is obvious, Democratic operative Paul Begala nailed it. The scandals are more damaging to Democrats because their mantra is that more government is good.

For President Obama it’s always been about 2014 and an attempt to take back the House to assure his legacy.

If you had to bet today, though, Dems can forget the House, while Republicans are salivating over the opportunity to regain the Senate.

Peggy Noonan / Wall Street Journal

“The president, as usual, acts as if all of this is totally unconnected to him. He’s shocked, it’s unacceptable, he’ll get to the bottom of it. He read about it in the papers, just like you.

“But he is not unconnected, he is not a bystander. This is his administration. Those are his executive agencies. He runs the IRS and the Justice Department.

“A president sets a mood, a tone. He establishes an atmosphere. If he is arrogant, arrogance spreads. If he is too partisan, too disrespecting of political adversaries, that spreads too. Presidents always undo themselves and then blame it on the third guy in the last row in the sleepy agency across town....

“And why – in the matters of the Associated Press and Benghazi too – does no one in this administration ever take responsibility? Attorney General Eric Holder doesn’t know what happened, exactly who did what. The president speaks in the passive voice. He attempts to act out indignation, but he always seems indignant at only one thing: that he’s being questioned at all. That he has to address this. That fate put it on his plate.”

Meanwhile...Wall Street keeps soaring to new records, ignoring some so-so fundamentals in favor of easy money. It didn’t hurt that hedge-fund billionaire David Tepper reiterated his very bullish call, citing the Fed and a stronger economy. The latest Wall Street Journal survey of economists has the economy growing at a 2.4% clip this year, while everyone is expecting the second half to be better than the first in terms of Corporate America and earnings.

But the economic data for the week was mixed. April retail sales came in better than expected, up 0.1% when a decline was expected, the LEI (leading economic indicators) for the month was also better than forecast and the Michigan sentiment reading was the highest since July 2007.

On the negative side, jobless claims soared on the week, back to the 360,00 level, industrial production for April was down 0.5%, the worst performance in eight months, a reading from New York’s Empire State Manufacturing survey was awful, and housing starts for April were well below consensus, though the figure for building permits was solid.

There was another good piece of news, however, that I have argued will prove to be not so good for all of us.

The Congressional Budget Office issued a revised forecast on the deficit picture for fiscal 2013, ending Sept. 30, and the CBO now projects the deficit will decline to $642 billion from an earlier estimate of $845 billion, while the deficit is projected to decline to $378 billion in F-2015 from an earlier forecasted $430 billion.

It’s this last figure I’ve quoted a lot, the deficit bottoming at $430 billion before rising anew owing to entitlements.

And I’ve harped on the net interest expense forecast given an eventual normalized interest rate environment and the CBO doesn’t change that forecast much at all. $764 billion in net interest expense in 2022 vs. an earlier projected $795 billion. This year it will be just $223 billion.

So here’s the deal. The reason why the good news is depressing is that the pressure on the White House and Congress to find a solution to the longer-term debt woes has been lessened considerably.

Entitlement reform? No way. They’ll both take the easy way out.

The improvement in the deficit is a result of increased tax revenues and the housing rebound that has allowed Fannie Mae and Freddie Mac to make massive dividend payments to the Treasury.

The debt-ceiling issue is also now pushed off until possibly November.

But for all the budget happy talk this week, the CBO is still projecting $6.3 trillion in cumulative deficits the next decade.

While on the increased revenues...

Red Jahncke / Wall Street Journal

“Much of the increase in 2013 receipts is due to final tax payments for 2012 deriving from a rush to realize long-term capital gains before the 15% ‘Bush’ tax rate on such gains expired at the end of 2012 – and before the new 23.8% rate on long-term capital gains for higher-income taxpayers took effect on Jan. 1. How do we know this? Because virtually the same tax change occurred during the Reagan years, when the long-term capital gains tax rate jumped eight points, to 28% in 1987, when the Tax Reform Act took effect, from 20% in 1986.”

And on entitlements...

Greg Sargent / Washington Post

“The Monica Lewinsky scandal may have helped save Social Security in the late 1990s. Now the scandal fever currently gripping Washington – IRS, Benghazi, Associated Press phone records – may save Social Security and Medicare two decades later.

“Liberals who are dreading the scandal-mania that is taking hold should note that it contains a potential upside: It could make a Grand Bargain that includes cuts to Medicare and Social Security benefits even less likely than it already is. That’s because when scandal grips Washington, a president actually needs his core supporters more than ever to ward it off, making it harder to do anything that will alienate them.....

“Indeed, some leading liberals and labor officials are hoping this proves to be the case if the scandals continue. ‘We don’t know what’s going to happen with this scandal talk,’ Mike Lux, a leading progressive strategist who fought in the Clinton impeachment wars, tells me. ‘But one thing I do know from the Clinton years is that presidents need their bases completely fired up and fighting for them when the scandal stuff hits. Anything that President does to alienate the base, like cutting Medicare and Social Security, would hurt him badly when he needs the base to the maximum. The scandal talk makes a Grand Bargain less likely.’”

Robert Samuelson / Washington Post

“In any other time and place, $642 billion would qualify as a lot of money. But in the Washington of 2013, it has been reduced to pocket change. When the Congressional Budget Office announced that it has cut its projected 2013 federal deficit to $642 billion – compared with 2012’s deficit of $1.1 trillion and an earlier 2013 estimate of $845 billion – there was an almost-palpable sigh of relief. The budget problem is taking care of itself. Congress and the White House can relax. No more self-destructive budget brawls. No more unpopular choices between tax increases and spending cuts.

“Can we get real? For starters, $642 billion is serious money, and despite the modest improvements of the latest CBO report, the basic trends in federal finances remain the same. From 2014 to 2023, the government will spend $6 trillion more than it collects in taxes. The budget never comes close to balancing. Expanding spending on the elderly and health care continues to strangle the rest of government. As a share of the economy (GDP), military and domestic discretionary programs (examples: drug approval, environmental regulation, Head Start, federal courts) drop about 40% from 2010 to 2023.

“Nothing of consequence has changed. A few numbers have shifted slightly. That’s all. They moved in a favorable direction. Next time, they might go the other way. What’s also constant is the unwillingness of leaders of both parties, beginning with the president, to discuss budget choices candidly....

“So the latest deficit numbers, though interesting, settle nothing. They don’t provide a road map for long-term budget discipline or resolve the debate over the short-term effects of deficits. They do provide an excuse for both Congress and the White House to postpone genuine discussion and decisions.”

Note: Check out the last four minutes or so of my 5/16 “Nightly Review” video for a budget lesson.

Europe’s Economy

Here’s a simple fact: The European Union remains on hold in terms of big policy moves until after the German elections in September, including on the critical issue of a banking union with a single resolution agency and rescue fund for ailing banks. Such a move was agreed to in principle last summer with details to be worked out this summer and implemented beginning of 2014.

Now, details won’t be hammered out until 2014, perhaps implemented in 2015, and this depends on how many treaty changes are required (that would then have to be approved by individual parliaments).

So with this one issue you see how the Euro crisis just drags on, even if stock markets in many of the countries rocket higher. Like in the U.S. and Japan, it’s about the European Central Bank’s accommodative monetary policy that has led to higher stock and stabilized debt markets. But the real economy, especially in the southern tier, continues to suffer from the credit crunch that makes it hard for small- and medium-sized businesses to survive.

As to the fundamentals, Eurostats released the ugly story on Euro-17 GDP, down 0.2% for the first quarter over the fourth, worse than expected and the sixth straight quarter of contraction, the worst since 2008-09.

France saw its GDP decline 0.2% after a 0.2% contraction in Q4, so it’s back in recession, its first in four years.

Italy’s fell 0.5% after a 0.9% fall in Q4 (-2.3% on an annualized basis). Industrial production in Italy for the month of March fell 0.8%.

Spain’s GDP declined 0.5% and is off 2.0% annualized.

The Netherlands contracted 0.1%, 1.3% annualized.

But Germany eked out a 0.1% gain in Q1 over Q4, thus avoiding recession, even as Q4 was revised downward to a contraction of 0.7%. 

Yes, the brutal winter hit many of the Euro economies hard, but still, it’s a putrid picture on the continent with rising discontent, particularly in Spain and France.

But there were a few better data points. 

Eurozone industrial production for March actually rose 1% in March over February (though not sure how weather played into this). 

Euro-17 inflation for April was just 1.2%, a 3-year low, but we don’t want it going much lower, that’s for sure.

And European (all 27 EU nations) car sales rose for the first time in 19 months in April, up 1.8%, with Germany’s up 3.8%, ending five months of declines there.

In non-Euro Britain, outgoing Bank of England Gov. Mervyn King said the U.K. was finally heading into a sustained recovery, though interest rates will remain low due to still high unemployment. The BoE said GDP will grow 0.5% in the second quarter after a 0.3% rise in the first.

But back to France, President Francois Hollande opened the second year of his term with still plunging poll #s, a 24% approval rating, and the sense among his countrymen he just isn’t up to the challenge of turning around the economy. The public’s mood is grim and the European Commission head said France has been losing its competitiveness “over the past 20 years.”

A Pew Research Center survey has only 41% of the French having a favorable impression of the European Union, a 19-point drop over the 60% figure of a year ago. 

Roger Altman / Financial Times...on who is responsible for the policy of austerity...

“(Financial markets) originally pushed austerity onto the weaker nations, not politicians. A careful review of the timeline in this eurozone financial crisis bears this out.

“It was Greece which first loss access to public borrowing markets in early 2010, as evidenced by the downgrading of its credit ratings and the stratospheric 12% yield on its bonds at that time. The troika then negotiated an austerity program with the Greek government, in exchange for 110 billion euro in initial emergency financing from the then eurozone rescue fund.

“Ireland then suffered a loss of market confidence in the autumn of 2010, as its yields soared through 9% and eventually reached 12%. The Irish government announced a package of tax increases and spending cuts, in exchange for 85bn euro in emergency financing from the IMF. This is the same conditionality which, historically, has accompanied such IMF rescue loans.

“Later that month, Portugal announced an austerity program to ‘reassure markets’, including sharp spending cuts, as its yields spiked towards an eventual peak of 12%. Later, in March 2011, the country requested lending assistance from the ECB, which announced that it welcomed Portugal’s adjustment program.

“As 2011 progressed, yields on Spanish 10-year bonds pierced 6% and comparable Italian yields almost reached that level. The ECB then began to buy the outstanding debt of these two countries, to drive down these yields. But, it did so on the condition that they implement wide-ranging reforms, including tighter budgets, liberalized labor markets, privatizations and the like.

“In response, Rome announced a series of comparable austerity measures. Spain followed with a similar tightening regimen in March 2012 and requested eurozone assistance for its weakened banking system. Indeed, Spanish yields peaked in July 2012 over these banking concerns.

“The point is that all of these tightening programs resulted from a loss, or near-loss, of access to credit markets....The affected nations did not have a choice – they were forced to implement austerity in an effort to regain market confidence.”

And while Greece still has an astronomically high debt of 180% of GDP, because of the adoption of many of its austerity measures, Fitch, which had cut Greece’s rating to triple-C from B-minus a year ago, reversed course this week, returning it to B-minus. About a year ago, Greece’s bonds were trading with a yield of close to 30%. This week they were down to 8.60%. Some very smart players made a killing on this paper.

---

China: Foreign direct investment rose a meager 0.4% in April from a year earlier when a 6.2% increases was the median estimate. Not good. Industrial production for the month rose 9.3%, worse than expected, while retail sales increased 12.8%, which sounds good but fell short of projections.

GDP forecasts for China are being lowered, generally to 7.6% -7.8% from 8.0%. The country grew 7.7% in Q1 and the government’s target is 7.5% for the entire year.

Japan: GDP in the first quarter rose 0.9%, 3.5% on an annualized basis, as exports rose 3.8% and consumer spending rose 0.9%; further confirmation the expansionary policies of Prime Minister Shinzo Abe are working. The weakening yen is helping the likes of Toyota. But actual business investment declined a fifth straight quarter, so companies are still reluctant to invest in new plant and equipment. And deflation remains a factor.

The key is whether the improvement in exports filters through to the broader economy.

Plus economists are concerned that Abe’s gamble, and the Bank of Japan’s plan to flood the economy with money, including in the doubling of its government debt holdings that sent the yen sharply lower, may not work after this initial spurt. With a staggering debt load, this is a legitimate concern.

Street Bytes

--The incredible rally is only gaining speed with the major averages up big a fourth consecutive week. The Dow Jones added 1.6% to close at another all-time high, 15354, while the S&P 500 hit another high of its own, 1667, up 2.1%, and Nasdaq added 1.8% to 3498. The three are now up 16-17% for the year. The Dow Jones also extended its remarkable streak on Tuesdays, now up 18 straight.

--U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.24% 10-yr. 1.95% 30-yr. 3.17%

Producer prices in April fell 0.7%, up 0.1% ex-food and energy. For the 12 months, the readings were +0.7%, and +1.7% on core. Consumer prices for the month declined 0.4%, +0.1% on core, while for the past 12 months they were +1.1% (a 2-year low) and +1.7%, ex-food and energy.

--Mexico’s first-quarter GDP came in at a disappointing 0.5% over the fourth quarter, or a 1.8% annualized pace. The government lowered its forecast for growth for all of 2013 to 3.1%.

--Today marks the one-year anniversary of Facebook’s IPO, priced at $38. Friday the shares closed at $26.25. [The low of $17.55 was set last Sept. 4.]

In the first eight years of the company, it was about user growth. Today it’s about revenue. Before the IPO, Facebook made 85% of its revenue from desktop ads. Today, the company is looking everywhere for it, including the big focus on mobile. But CEO Mark Zuckerberg’s challenge is not to interfere with the user experience.

--Lots of earnings news on the retail front. J.C. Penney Co. lost $348 million in its first quarter, the last to reflect the stewardship of ousted CEO Ron Johnson, with Penney having seen sales crater 25% under his watch. 

Johnson was replaced by his predecessor, Mike Ullman, who said, “One of our top priorities this year is to restore traffic. We need to make a connection with the customer that is enduring as well as meaningful.”

Good luck. I remember years ago when Sears had its Penney’s moment. Not that I was a regular Sears customer at the time, but I haven’t been into a Sears since.

Wal-Mart said same-store sales in the U.S. fell for the first time in seven quarters, blaming a delay in income-tax-refund checks, challenging weather, and the payroll-tax increase, though the company hastened to add the current quarter was off to a healthy start.

Nonetheless, Wal-Mart said its customers remain “stretched.”

U.S. same-store sales fell 1.4% in the first quarter.

Kohl’s, on the other hand, said “There’s a lot of pent-up demand for spring merchandise out there.” Yet its same-store sales fell 1.9% for the quarter, though the shares rose because while earnings fell 4.5%, they came in far better than expected.

--Cisco Systems’ long-time CEO John Chambers is a straight shooter. When he doesn’t see a lot of reason for optimism, he says so rather than try to sugarcoat things. So it was significant the other day when in releasing the networking equipment giants’ earnings, he sounded a note of optimism, saying Cisco is seeing a “continued slow, steady recovery” in markets around the world for its product. U.S. sales climbed 7%, though revenues from Europe, the Middle East and Africa were flat. Overall revenue grew 5.4%.

But putrid demand in southern Europe is a major reason why Cisco isn’t more optimistic in its guidance. 

--Dell badly missed analysts’ expectations on the earnings front for its fiscal first quarter, with revenue declining 2.4%, though this last bit exceeded estimates. The report comes amidst the battle for the company between a Michael Dell-led group and billionaire investor Carl Icahn. 

For today, Dell’s offer of $13.65 a share looks better than Icahn’s offer of $12 plus stock, seeing as the company’s fortunes continue to decline. PC-related revenue, for example, fell 9% as Dell’s controller said Windows 8, released last October, is “not necessarily the catalyst to drive accelerated growth we thought it would be.”

Dell’s sales this year are expected to be less than they were in 2006, with net income around the levels of 2003, according to Bloomberg and analysts’ estimates.

--According to a Bloomberg Global Poll, 71% of respondents said Apple has lost its cachet as an industry innovator. [28% say it is permanent, 43% say it may be a temporary hiccup.] Apple announced this week the latest iteration of the iPhone isn’t coming out until the fall.

Perhaps most worrisomely for Apple, 83% of respondents in Asia said the company has lost its mojo, Asia of course being a major growth market for Apple.

--Apple shares suffered this week when Google announced it would launch a subscription music service that represents a breakthrough with the music industry and licensing. Google will offer its service for $7.99 per month, undercutting existing subscription services such as Spotify, though it’s not yet clear what portion Google will share with musicians and labels.

--Hedge fund billionaire Daniel Loeb has given Sony a list of demands, including spinning off its entertainment arm. While Prime Minister Shinzo Abe has promised to shake up corporate Japan, actually doing so has been another issue there.

--Home sales in Southern California rose at the fastest clip in April in seven years, up 9.5% from a year ago. The median price for a Southland home last month reached $357,000, up 23.1% from April 2012 and the highest level since June 2008. As Ronald Reagan would have said...not bad, not bad at all.

--California’s jobless rate fell to 9.0% in the month of April from 9.4% in March. My state of New Jersey’s rate is finally falling, 8.7%, down 0.3% from March. Nevada is highest at 9.6%. North Dakota continues to lead the nation at just 3.3%.

--Speaking of the Golden State, for the first time in a decade, the state is projecting a budget surplus, $1.1 billion as part of Gov. Jerry Brown’s proposal for the coming fiscal year. Brown has vowed not to just spend it, preferring to put it into a reserve fund because he knows the unexpected revenue surge could be a largely one-time event, similar to what has transpired on the federal level, as noted above.

Nonetheless, Brown is faced with pressure from all sides to restore spending levels for pet projects slashed in recent years.

--HSBC plans to cut another 14,000 jobs around the world as it proceeds with a three-year restructuring intended to restore its competitiveness and profit margins.

--New York City’s jobless rate fell to 8.4% in April from 8.9% in March, the lowest since March 2009.

--JPMorgan Chase has demanded that Bloomberg hand over five years’ worth of employee logs, as the bank considers whether to take legal action against the news and data group, after it emerged that Bloomberg journalists could track how clients used the ubiquitous terminals.

Bloomberg has apologized for allowing reporters access to “limited client information” through a combination of commands on the terminal and is examining compliance policies.

Personally, I can’t get outraged over this whole deal, but where it was useful was in Bloomberg reporters attempting to determine whether key employees remained at a target firm or not through monitoring login activity, though  Bloomberg has maintained its reporters were never able to see market-sensitive details of “securities-level data, position data [or] trading data.”

At the same time, Bloomberg reporters clearly had scoops on the Federal Reserve other news agencies didn’t.

--In the latest survey by the International Energy Agency, North American oil production will grow by 3.9 million barrels a day between 2012 and 2018, accounting for more than half of the increase in non-OPEC production for the period.

The IEA also said instability in North and sub-Saharan Africa will take a toll on production-capacity growth in some OPEC states. Average OPEC production will rise by 1.75 million barrels a day to 36.75 million barrels by the end of the period. Previously, the IEA pegged OPEC production capacity to grow 3.34 million barrels a day to 37.54 million barrels in 2017.

OPEC’s big challenge is to keep production below its self-imposed 30 million barrel a day limit or prices will crash with the increased supply from North America.

--The World Health Organization says it appears likely that the new coronavirus can be passed between people in close contact. France confirmed its second case. Two more people in Saudi Arabia died, bringing the death toll in Europe and the Middle East to 18 out of just 33 cases; a rather high mortality rate, I think you’d agree. Saudi Arabia has been criticized for not being aggressive enough on the reporting end.

The WHO’s Keiji Fukuda said this week, “Right now we are really in a race for more information. This is a new infection and there are many gaps in our knowledge.”

--I love looking at hotel occupancy rates in troubled nations as a good indicator of the geopolitical situation. In the first quarter, occupancy rates at Cairo hotels were 28%, while they were 56% in Beirut, both sizable declines. [Daily Star]

--NBC’s “Rock Center” is history (as of June 21), a blow to NBC’s News unit and anchor Brian Williams. The show’s ratings were dismal and the network kept moving it around, which never helps.

I blame Bush.

Foreign Affairs

Syria: A video that emerged this week best sums up the catastrophic direction the war here is taking. It appears to show a Syrian rebel, identified by U.S.-based Human Rights Watch as a well-known insurgent from the city of Homs, taking a bite from the heart of a dead soldier.

The main Syrian opposition coalition said he would be put on trial. The video seems to show him cutting out the heart.

Human Rights Watch said the rebel’s actions were a war crime. Peter Bouckaert told Reuters, “The mutilation of the bodies of enemies is a war crime. But the even more serious issue is the very rapid descent into sectarian rhetoric and violence.”

The UK-based Syrian Observatory for Human Rights puts the death toll now at more than 80,000.

The Assad regime has been making tremendous strides on the battlefield and there is no doubt the government has been helped by the presence of Hizbullah fighters weighing in on the side of Bashar.

Russia continues to stick it to the United States and its allies in sending warships and advanced antiship cruise missiles (as well as sophisticated anti-aircraft missiles) to Syria. As reported by the New York Times’ Michael R. Gordon and Eric Schmitt:

“Unlike Scud and other longer-range surface-to-surface missiles that the Assad government has used against opposition forces, the Yakhont antiship missile system provides the Syrian military a formidable weapon to counter any effort by international forces to reinforce Syrian opposition fighters by imposing a naval embargo, establishing a no-fly zone or carrying out limited airstrikes.”

Republican Senator Bob Corker (Tenn.) said, “This weapons transfer is obviously disappointing and will set back efforts to promote the political transition that is in the best interests of the Syrian people and the region. There is now greater urgency for the U.S. to step up assistance to the moderate opposition forces who can lead Syria after Assad.”

Equally disturbing, Russia has been blocking the approval of United Nations fact-finding missions to Jordan, Turkey and Lebanon to examine the refugee crisis that also threatens the region’s overall stability. Turkey exhibited patience after two car bombs in a border town inside Turkey killed at least 46, with Syria’s intelligence apparatus being blamed.

Separately, the Financial Times reports Qatar has spent $3 billion supporting the rebellion, but Saudi Arabia apparently has surpassed that figure.

Iran: Last Saturday was the deadline for filing for the nation’s upcoming presidential election and two last-minute registrants shook up the process to the core; the filings by Ali Akbar Hashemi Rafsanjani, a former president and leading figure of the 1979 revolution, and President Mahmoud Ahmadinejad’s top aide and hand-picked choice to be his successor, Esfandiar Rahim Mashaei.

Rafsanjani and Mashaei could not be more different but both were immediately vilified by leading figures in Iran. The deputy police commander was quoted as issuing a warning to both Ahmadinejad and Mashaei that the “shedding of blood is allowed,” alluding to their claiming to take their orders from the Shiite messiah rather than Ayatollah Ali Khamenei and the clergy. While Rafsanjani was accused by the top editor of the country’s influential state-run newspaper of being a representative for the “American-Israeli sedition” of 2009, referring to the protests that erupted after the last presidential elections. Rafsanjani has widely been accused of engineering the demonstrations.

The Guardian Council, which vets the office seekers, will issue its final approved list on Tuesday after passing judgment on some 700 would-be candidates. It is expected up to 10 will be approved, which would make it difficult for one candidate to win a majority without a run-off. If Rafsanjani or Mashaei are barred from running, the legitimacy of the vote will be called into question. Particularly in the case of Rafsanjani, supporters would no doubt hit the streets. The election is June 14.

Should Rafsanjani not be allowed to run, it also sends the clearest signal to Israel that the election is rigged to guarantee another hardliner wins. Israel has been holding off on any actions until after the vote to see if the new president is someone the West can deal with. 

I am long on record, going back to the time of the Iraq War, as saying the United States should have been conducting backchannel negotiations with Rafsanjani. I will elaborate on this next time.

Meanwhile, in the same vein, Iran and the International Atomic Energy Agency met for a 10th time on Wednesday in an attempt to reach agreement on the scope of the frozen probe into possible nuclear weapons-relevant activities. The senior Iranian negotiator, Saeed Jalili, is among the candidates for president and could make the final cut.

Iraq: The spillover from Syria is intensifying amid the latest wave of sectarian bombings and assassinations that left at least 40 dead on Wednesday and Thursday.

Israel: Prime Minister Netanyahu is under fire for a major expense scandal at a time when the new government approved austerity measures, including tax increases and reduced social benefits. Specifically, taxpayer-funded expenses for Netanyahu and his family on their three residences in 2012 included $27,000 a month for cleaning (up 119% since 2009), $11,000 a month for food and hospitality (up 124%) and $1,450 a month for various personal expenses such as hairdressers and makeup (up 94%).

May I suggest Swiffer products for the cleaning, Dollar Tree for food, and my man Mike for $20 haircuts. I grant you I don’t know what Mrs. Netanyahu’s needs would be.

Pakistan: Nawaz Sharif is returning to government after an easy victory in parliamentary elections last weekend. Sharif will be able to cobble together a significant majority. Turnout was high despite 64 being killed in various attacks on election day.

Sharif exchanged greetings with his Indian counterpart, Prime Minister Manmohan Singh, and there is cause for optimism on this front.

During his election campaign, Sharif said he would end Pakistan’s involvement in the U.S.-led war on terror, without saying whether that included military operations against the Taliban and al-Qaeda.

It was in Sharif’s second term in office, in 1997-99, that he fell out with then-army chief of staff, Gen. Pervez Musharraf, who would launch a coup. This go ‘round, Sharif said he expects a smooth relationship with the mililtary.

Good relations with India and the Pakistani army are key if Sharif is to be able to focus on his stated number one mission, Pakistan’s economy, including the acute power shortage that impedes economic growth.

Libya: Stephen F. Hayes of The Weekly Standard has done the best reporting on the Benghazi issue, including on the talking points. Following the release of 94 pages of emails the other day, Hayes wrote the following:

“The documents, first reported by The Weekly Standard...directly contradict claims by White House press secretary Jay Carney and Secretary of State Hillary Clinton that the revisions of those talking points were driven by the intelligence community and show heavy input from top Obama administration officials, particularly those at the State Department....

“As striking as what appears in the email traffic is what does not. There is no mention of the YouTube video that would become a central part of the administration’s explanation of the attacks to the American people until a brief mention in the subject line of emails coming out of an important meeting where further revisions were made.

“Carney, in particular, is likely to face tough questioning about the contents of the emails because he made claims to reporters that were untrue. ‘The White House and the State Department have made clear that the single adjustment that was made to those talking points by either of those two – of these two institutions were changing the word ‘consulate’ to ‘diplomatic facility,’ because the word ‘consulate’ was inaccurate,’ he told reporters on November 28, 2012.

“That’s not true. An email sent at 9:15 PM on September 14, from an official in the CIA’s Office of Public Affairs to others at the agency, described the process this way. ‘The State Department had major reservations with much or most of the document. We revised the document with their concerns in mind.’

“That directly contradicts what Carney said. It’s also difficult to reconcile with claims made by Secretary of State Hillary Clinton during testimony she gave January 23 on Capitol Hill.

“ ‘It was an intelligence product,’ she said, adding later that the ‘intelligence community was the principal decider about what went into talking points.’

“Carney and other top Obama administration officials have long maintained that CIA officials revised the talking points with minimal input from Obama administration officials. The claim made little sense when they made it – why would CIA officials revise on their own a set of talking points they’d already finalized? The emails demonstrate clearly that it isn’t true.

“Another CIA email, this one a draft of a message for CIA director David Petraeus, noted that the talking points process had ‘run into major problems,’ in part because of the ‘major concerns’ raised by the State Department. That same email reported that the issues would be revisited at the Deputies Committee meeting on Saturday morning....

“When Petraeus received the rewritten talking points, he objected. ‘Frankly, I’d just as soon not use this,’ he wrote to a legislative affairs staffer. But he declined to put up a fight.”

[I have far more below on the Benghazi topic.]

Afghanistan: The Taliban said it would launch a spring offensive and it is carrying through. 16 people were killed in a suicide car bombing in Kabul on Thursday, including six Americans (two soldiers, four contractors), though a separate insurgent group claimed credit for this one.

Earlier in the week, four American soldiers (I saw other reports saying three) were killed in a roadside bomb.

China: Beijing test-fired a new long-range rocket capable of destroying orbiting satellites, according to American intelligence assessments. As reported by the London Times’ Michael Evans:

“The launch of the interceptor, which reached an altitude of more than 6,000 miles, could pose a serious threat in the future to America’s military communications in the Asia-Pacific region....

“Beijing insisted that the rocket...carried a science payload aimed at studying the Earth’s magnetic field.

“However, a U.S. defense official said that Monday’s launch appeared to be the first test of a new missile that could destroy satellites in orbits typically used for communications.”

Philippines / Taiwan: Tensions intensified between the two over the killing of a fisherman from Taiwan last week. Taiwan imposed sanctions against the Philippines, rejecting as unacceptable a Philippine apology. A Philippine patrol boat fired at least 32 shots at the victim’s vessel. Taiwan also froze the hiring of workers from the Southeast Asian country.

Russia: On Tuesday, U.S. diplomat Ryan Fogle was asked to leave the country after the security services claimed to have caught him red-handed trying to recruit a Russian agent. The FSB, the successor to the Soviet-era KGB, alleged that Fogle, a third-secretary at the U.S. Embassy, worked for the CIA.

These things happen relatively frequently between the two sides but what made this incident different is the heavy publicity the arrest was given on Russian television, when normally such matters are handled discreetly between Moscow and Washington. Clearly, President Vladimir Putin wanted to play games, but then in a major breech of intelligence protocol, Russia crossed way over the line days later in naming the CIA station chief in Moscow. A spokesman for the FSB named the diplomat while speaking to Russian media. 

Britain: Prime Minister David Cameron suffered a major inter-party blow when a large number of Conservative lawmakers voted for a motion critical of the U.K.’s plans regarding the European Union. Many feel the prime minister must spell out details for holding a referendum on EU membership, but the split in the party impacts his chances of gaining reelection in 2015.

In January, Cameron promised to renegotiate the U.K.’s relationship with the EU and then hold a referendum after the next vote, probably in 2017.

But many in his party want him to guarantee the referendum in law. It also puts his coalition with the Liberal Democrats in jeopardy, furthering limiting his room to maneuver.

Philip Stevens / Financial Times

“In promising a referendum David Cameron signposted the route for Britain’s departure from the EU. Unsurprisingly, a deeply Eurosceptic Conservative party is now unceremoniously bundling the prime minister along this path. Exit has long been a plausible outcome of the endless Tory paroxysms. It has begun to look a probability. This is a sobering thought, and not only for foreign investors thinking about where to put their money.

“When Harold Wilson gave Britons a plebiscite on EU membership in 1975 the then British leader was not thinking about the national interest. He wanted to bridge divisions in his own, half-skeptic party. A sham renegotiation to secure better membership terms was followed by a government call for a Yes vote. Wilson won the day, and, for a time, quelled the anti-Europe rebellion.

“Faced with his own Eurosceptic insurgency, Mr. Cameron imagined he could pull off a similar coup. The realities of coalition politics with the Liberal Democrats precluded an immediate referendum, so he promised a vote if the Tories won the 2015 election. The ploy, quite predictably, has failed. Skeptics have learnt a lot since 1975. They have been emboldened rather than placated by the referendum pledge....

“The next demand of the Tory skeptics will be that Mr. Cameron set out his demands for the promised renegotiation with Britain’s partners. He must spell out precisely which powers will be repatriated to the Westminster parliament, which EU policies Britain will opt out of, and the guarantees that will be secured against further integration.

“So far Mr. Cameron has sensibly confined himself to generalities. Who can disagree with a call for Europe to be more competitive and open to the world and to interfere less in the nooks and crannies of national life? It is when the talk turns to special privileges and exemptions for Britain that things get tricky.

“The other day I heard a senior figure in Angela Merkel’s government express palpable horror at the prospect of a British departure. It would be a serious blow to Europe as well as to Britain. Ms. Merkel, he continued, would do all she could to assuage concerns that eurozone integration could leave Britain marginalized in EU decision-making. Berlin could sign up also to an outward-looking, less intrusive EU.

“The German and other EU governments, however, have their own red lines. It is one thing to offer Britain assurances about the future, quite another to allow any member to opt out of parts of the union’s acquis – the accumulated body of European law and agreements – that it finds inconvenient. To accept that approach would be to begin to unravel the entire enterprise.”

Venezuela: The country is literally out of toilet paper. We may have our problems in America these days, but gosh darnit...we have a wide variety of paper to choose from. And at the end of the day....

Random Musings

--A senior Pentagon official warned at a congressional hearing the U.S. “war on terror” against al-Qaeda and its affiliates could last “at least 10 to 20 years” owing to the spread of Islamist radicals in the Middle East and North Africa.  

Gee, but during last fall’s campaign, we were told we had the bastards on the run.

--Attorney General Eric Holder said the Justice Department had opened a criminal probe of recently disclosed actions by the Internal Revenue Service. The IRS apologized for what it labeled inappropriate scrutiny of tax-exemption requests by conservative groups with “tea party” or “patriot” in their names, among others.

Holder added that when it came to the seizure of Associated Press reporter records, they were approved by his deputy, Jim Cole, since Holder recused himself from the investigation into who leaked information on a 2012 counterterrorism operation in Yemen.

--Regarding the AP seizure, the organization said the Justice Department had obtained the records for more than 20 telephone lines of its offices and journalists, including home phones and cellphones. The records were seized without notice.

Monday, Gary Pruitt, president and CEO of The AP, called the seizure, a “massive and unprecedented intrusion” into its news gathering activities.

“There can be no possible justification for such an overbroad collection of the telephone communications of The Associated Press and its reporters,” wrote Pruitt. “These records potentially reveal communications with confidential sources across all of the news gathering activities undertaken by The AP during a two-month period, provide a road map to AP’s news gathering operations, and disclose information about AP’s activities and operations that the government has no conceivable right to know.”

As reported by Charlie Savage and Leslie Kaufman of the New York Times:

“Justice Department regulations call for subpoenas for journalists’ phone records to be undertaken as a last resort and narrowly focused, subject to the attorney general’s personal signoff. Under normal circumstances, the regulations call for notice and negotiations, giving the news organization a chance to challenge the subpoena in court.

“The Justice Department referred questions about the subpoena to a spokesman for Ronald C. Machen Jr., the United States attorney for the District of Columbia, who was assigned by Mr. Holder last June to lead one of two major leak investigations. Those inquiries came amid a Congressional uproar over several disclosures of national security information in the media.

“ ‘We must notify the media organization in advance unless doing so would pose a substantial threat to the integrity of the investigation,’ Mr. Machen’s spokesman, William Miller, said.”

Editorial / Washington Post

“When the Justice Department launched its investigation of alleged leaks of national security information by the Obama administration a year ago, we were skeptical. The history of such probes is mainly a tale of dead ends and unintended negative consequences. That this effort to criminalize a leak was launched amid an election-year uproar seemed especially inauspicious.

“Our forebodings have been borne out with the revelation that federal prosecutors have undertaken a broad sweep of the Associated Press’ phone records. Whatever national-security enhancement this was intended to achieve seems likely to be outweighed by the damage to press freedom and governmental transparency....

“Crucially, (the Justice Department did not follow usual policy), which is to give news organizations a chance to negotiate or contest such a subpoena ahead of time.

“That policy is rooted in sound respect for the First Amendment. It’s not legally binding – in part because the Justice Department and the press have recognized a mutual interest in resolving such matters without potentially counterproductive Congressional or judicial intervention.

“In a letter to AP President and CEO Gary B. Pruitt yesterday, Deputy Attorney General James M. Cole explained that the department had no alternative means of gathering essential information. He also intimated that Justice had kept AP in the dark until a few days ago so as to avoid ‘a substantial threat to the integrity of the investigation.’ Attorney General Eric H. Holder Jr. ...fleshed that assertion out at a press conference Tuesday, saying at issue is one of ‘the top two or three most serious leaks that I have ever seen’ which ‘put the American people at risk, and that is not hyperbole.’

“Perhaps that’s so...though we hope reporters are working on it. As Mr. Pruitt responded Tuesday, ‘We held that story until the government assured us that the national security concerns had passed. Indeed, the White House was preparing to publicly announce that the bomb plot had been foiled.’ The usual reason for keeping a subpoena secret is that the target would otherwise try to destroy documents. In this case, AP could not have done so even if it wanted to, since the relevant records were in the possession of its phone service providers. Without even giving AP a chance to weigh in, we don’t see how the department could intelligently weigh its prosecutorial needs against this broad subpoena’s chilling effect on reporters and their sources.”

--George Will / Washington Post

“He has, acting personally and through his subordinates and agents, endeavored to...cause, in violation of the constitutional rights of citizens, income tax audits or other income tax investigations to be initiated or conducted in a discriminatory manner.”

-- Article II, Section I, Articles of Impeachment against Richard M. Nixon, adopted by the House Judiciary Committee, July 29, 1974

“The burglary occurred in 1972, the climax came in 1974, but 40 years ago this week – May 17, 1973 – the Senate Watergate hearings began exploring the nature of Richard Nixon’s administration. Now the nature of Barack Obama’s administration is being clarified as revelations about IRS targeting of conservative groups merge with myriad Benghazi mendacities.

“This administration aggressively hawked the fiction that the Benghazi attack was just an excessively boisterous movie review. Now we are told that a few wayward souls in Cincinnati, with nary a trace of political purpose, targeted for harassment political groups with ‘tea party’ and ‘patriot’ in their titles. The Post reported Monday that the IRS also targeted groups that ‘criticized the government and sought to educate Americans about the U.S. Constitution.’ Credit the IRS’s operatives with understanding who and what threatens the current regime....

“Episodes like this separate the meritorious liberals from the meretricious. The day after the IRS story broke, The Post led the paper with it, and, with an institutional memory of Watergate, published a blistering editorial demanding an Obama apology. The New York Times consigned the story to page 10 (its front-page lead was the umpteenth story about the end of the world being nigh because of global warming). Through Monday, the Times had expressed no editorial thoughts about the IRS. The Times’ Monday headline on the matter was: ‘IRS Focus on Conservatives Gives GOP an Issue to Seize On.’ So that is the danger.

“If Republicans had controlled both houses of Congress in 1973, Nixon would have completed his term. If Democrats controlled both today, the Obama administration’s lawlessness would go uninvestigated. Not even divided government is safe government, but it beats the alternative.”

On Tuesday the Times finally had an editorial on the matter and this is their conclusion.

“President Obama said on Monday that he learned of the practice (of targeting the Tea Party et al) only when the public did late last week, and he called it ‘outrageous.’ He promised to take action against those involved – and needs to find out whether any political appointees ordered the practice or knew of it. Inevitably, the stumble by the IRS will now be used by the Republicans as a point of attack. They are gleefully promising months of hearings, and the National Republican Congressional Committee is already trying to tarnish Democratic lawmakers with what it calls ‘the Obama administration’s use of the IRS as a political tool.’

“This will serve as the perfect distraction from issues, like the budget, gun control or immigration reform. And it will probably prevent any real progress on campaign finance reform, which, in turn, will make it vastly more difficult for the IRS to prevent abuse of the tax code.”

Editorial / Washington Post

“Washington is now sinking its teeth into a real scandal: the Internal Revenue Service using ideological criteria to choose the targets of its attention. What we already know is bad enough. Given the seriousness of the charges and the unreliability of IRS disclosures so far, purposeful, sober investigation is exactly what is needed....

“Any unequal application of the law based on ideological viewpoint is unpardonable – toxic to the legitimacy of the government’s vast law-enforcement authority....

“The inspector general (reports) that Lois Lerner, the head of the IRS’ tax-exempt organization office, knew about the targeting in 2011; she seemed to say Friday that she learned about it from news reports last year. That inconsistency raises suspicions about the agency’s statements that higher-ups didn’t know about the targeting and that there was no political motivation....

“Considering that Ms. Lerner seems to have known about the targeting by 2011, did the IRS ever plan on revealing that it had singled out conservative groups? Or was it only the impending release of the inspector general’s report that compelled agency officials to ‘fess up?”

Rep. Jim Jordan (R-Ohio), a member of the oversight committee, said, “We still do not know why the targeting began, how extensive it was, who initiated it and who knew about it. The IRS must be held accountable to the American people, which requires a full investigation.”

The IRS watchdog’s report said the decision to focus on groups with conservative-sounding names originated in the IRS “determinations unit” in Cincinnati in early 2010.

Sen. Orrin Hatch (Utah), the ranking Republican on the Senate Finance Committee, said Monday, “I wrote to the IRS three times last year after hearing concerns that conservative groups were being targeted. Yet it didn’t occur to anyone at the IRS to let us know that this targeting was in fact happening? Knowing what we know now, the IRS was at best far from forthcoming, or at worst, being deliberately dishonest with Congress. These are the facts and the questions we need answered.”

As the Wall Street Journal reported, however, “In a letter sent in September to Mr. Hatch and posted on the committee’s website, then-acting Commissioner Steven Miller said, ‘Revenue agents use sound reasoning based on tax law training and their experience to review applications and identify the additional information needed to make a proper determination of an organization’s exempt status.’”

Gregory Korte / USA TODAY

“In the 27 months that the Internal Revenue Service put a hold on all Tea Party applications for non-profit status, it approved applications from similar liberal groups, a USA TODAY review of IRS data shows.

“As applications from conservative groups sat in limbo, groups with obviously liberal names were approved in as little as nine months. With names including words like ‘Progress’ or ‘Progressive,’ these groups applied for the same tax status and were engaged in the same kinds of activities as the conservative groups.”

Meanwhile...

Editorial / Wall Street Journal

“Even as the politicized tax enforcement scandal expands, the Internal Revenue Service continues to expand its political powers thanks to the Affordable Care Act. A larger government always creates more openings for abuse, as Americans will learn when the IRS starts auditing their health care in addition to their 1040 next year....

“Three years ago, National Taxpayer Advocate Nina Olson, who operates within the IRS, presciently noted that ObamaCare is ‘the most extensive social benefit program the IRS has been asked to implement in recent history.’....

“Instead of going after tax cheats, these bureaucrats will write and enforce tax regulations for parts of the economy in which they have no core competence. For example, do ski instructors or public school teachers count as seasonal workers? How long is a ‘full time’ work week? Is it 40 hours, or 30?

“The IRS will also dispense ObamaCare’s insurance subsidies since technically they’re ‘advanceable’ tax credits, i.e., transfer payments made prior to filing a tax return. The IRS will also police the individual mandate-tax to buy health insurance, as well as the business penalties for not offering Washington-approved coverage to employees.”

--David Brooks / New York Times

“Everyone is treating the IRS issue as a bigger deal, but the Justice Department scandal is worse. This was a sweeping intrusion that makes it hard for the press to do its job. Who is going to call a journalist to report wrongdoing knowing that at some future date, the government might feel perfectly free to track the phone records and hunt you down?

“I would have thought a dozen Justice Department officials would have risen up and splashily resigned when they learned of the scope of this invasion. Aren’t there some lawyers in the Justice Department, and, if so, did they go to law schools where the Constitution is left unassigned?”

--Benghazi...

Charles Krauthammer / Washington Post

“Note to GOP re Benghazi: Stop calling it Watergate, Iran-contra, bigger than both, etc. First, it might well be, but we don’t know. History will judge. Second, overhyping will only diminish the importance of the scandal if it doesn’t meet presidency-breaking standards. Third, focusing on the political effects simply plays into the hands of Democrats desperately claiming that this is nothing but partisan politics.

“Let the facts speak for themselves. They are damning enough. Let Gregory Hicks, the honorable, apolitical second-in-command that night in Libya, movingly and grippingly demolish the president’s Benghazi mantra that ‘what I have always tried to do is just get all the facts’ and ‘every piece of information that we got, as we got it, we laid it out for the American people.’

“On the contrary. Far from assiduously gathering and releasing information, the administration was assiduously trying to control and suppress it.”

Republican Senator Ron Johnson (Wis.) / Wall Street Journal

“There was a steady stream of warnings about the deteriorating security situation in Benghazi from the U.S. intelligence community. The British, the United Nations and the International Committee of the Red Cross had removed their personnel. Libya was an obvious hot spot, and 9/11 was a day to be on high alert. And yet we are supposed to believe that none of this required or received the attention of the secretary of state? If it is true Mrs. Clinton was so profoundly uninformed, then it would also be true she was profoundly negligent.

“When she wasn’t hunkered down in the days following the attack, maintaining strategic silence due to an ‘FBI investigation,’ she stuck to the administration talking point that the attack was a spontaneous protest. She repeatedly referred to the YouTube video – even telling the father of slain American security officer Tyrone Woods that the producer of the video would be brought to justice.

“President Obama’s re-election narrative was that Osama bin Laden was dead, al Qaeda was decimated, and Libya proved the success of his ‘leading from behind’ strategy. Despite the warnings, the administration ramped down security in Benghazi. It’s no wonder Mrs. Clinton would want to keep her head down following the attack and make every attempt to misdirect attention from the administration’s negligence.

“The natural reaction of any leader when a subordinate loses his life in the line of duty is to talk to anyone who could explain what happened. That’s why, in January, I asked Mrs. Clinton why she didn’t just call the survivors to find out the facts....

“(With) the revelations of the Interim Progress Report and testimony, it is becoming clear her reaction – and the behavior of President Obama and his administration – was designed to mask their failure of leadership. Instead of making a call to acting Ambassador Gregory Hicks, Mrs. Clinton and the White House sidelined him, leaving him ‘stunned’ and ‘embarrassed’ as he watched Susan Rice’s Sunday show appearances, as he put it to Congress last week.

“Thanks to the bravery of Mr. Hicks and his colleagues, the truth about Benghazi is beginning to be revealed. But more survivors need to be able to tell their stories. Some are contract employees who will need whistleblower protection, and some are current or former administration officials whose testimony may need to be compelled by subpoena.

“A congressional Joint Select Committee can offer that protection and issue those subpoenas. Such a committee should be appointed without further delay, so that the full story of Benghazi can be told and so such a fiasco never happens again.”

Early in the week, there was President Obama, in a joint press conference with British Prime Minister David Cameron, saying that with regards to the talking points, there’s “No there, there.” He also said of the four Americans killed, while security issues needed to be answered, “We were not able to prevent their deaths.”

That’s bull, Mr. President. My point has been, as Gregory Hicks put it, we didn’t even try to prevent the second attack that took out the 3rd and 4th Americans.

Maureen Dowd / New York Times

“ ‘My reaction was that, O.K., we’re on our own,’ Hicks said quietly. He said the commander of that Special Forces team told him, ‘This is the first time in my career that a diplomat has more balls than someone in the military.’

“The defense secretary at the time, Leon Panetta, insisted, ‘We quickly responded.’ But they responded that they would not respond. As Emma Roller and David Weigel wrote in Slate: ‘The die was cast long before the attack, by the weak security at the consulate, and commanders may have decided to cut their losses rather than risking more casualties. And that isn’t a story anyone prefers to tell.’”

On ABC’s “This Week,” Ret. Gen. James Cartwright, former vice chairman of the Joint Chiefs of Staff, was discussing the issue of buzzing the militants and trying to get jets in the air from, say, Aviano, Italy, and he actually said, ‘it looks like it would have taken 1-2 days.’

That’s outrageous. Our general corps is nothing but a bunch of hacks.

Why weren’t F-16s and tankers on standby?! On the anniversary of 9/11?!

Maureen Dowd:

“All the factions wove their own mythologies at the expense of our deepest national mythology: that if there is anything, no matter how unlikely or difficult, that we can do to try to save the lives of Americans who have volunteered for dangerous assignments, we must do it.”

I was extremely disappointed when I saw that former Defense Secretary Robert Gates, in defending the Obama administration and the suggestion that the Pentagon could have scrambled jets or special forces during the attack, said this was a “cartoonish impression of military capabilities.”

Mr. Secretary, you can do better than that. You know the Special Forces were ready to go in if allowed, and, again, why didn’t the Pentagon have jets on standby?

You know, last Sunday night on “60 Minutes” we learned of yet another example of the “cartoonish abilities” of Seal Team Six as they rescued Jessica Buchanan.

At the same time, last weekend I was reading a glowing review in the Wall Street Journal by Max Hastings of Rick Atkinson’s “The Guns at Last Light”, Atkinson’s story of the North-West Europe campaign following D-Day.

Hastings:

“By nightfall on June 6, the allies held five beachheads between 2,000 yards and 6 miles deep. For all British Gen. Bernard Montgomery’s rash displays of braggadocio beforehand – demanding that ‘armored columns must penetrate deep inland, and quickly, on D-Day’ – it was never realistic to hope for much more. The battles that followed were far bloodier than those on the beaches – the Normandy campaign lasted more than two months and cost 37,000 lives. The British air commander in chief, Trafford Leigh-Mallory, wrote: ‘The fault with us is, basically, generalship.’ Omar Bradley, the senior American field officer during the Normandy campaign, seemed to agree: He relieved seven subordinate generals in two months, including two successive commanders of one division, the 90th. But Mr. Atkinson seems as skeptical of Bradley’s own abilities, wondering ‘if he had been promoted beyond his natural level of competence.’ Bradley professed that ‘the one quality all great generals had in common was their understanding.’ But such battlefield clairvoyance, which he had occasionally displayed as a corps commander in Tunisia and Sicily, often eluded him as an army group commander.’”

What does the above have to do with Benghazi? Everything, of course. See Gen. Cartwright. See the likes of Tommy Franks in Iraq.

Benghazi is important to me because those responsible for not doing more to prevent or aid those in the second attack need to be held accountable

We are getting closer to knowing who was responsible for the first one and the death of Ambassador Chris Stephens.

--As George Will alluded to above, there were a number of climate change articles this week related to new findings. To wit...

The Economist

“At noon on May 4th the carbon-dioxide concentration in the atmosphere around the Mauna Loa Observatory in Hawaii hit 400 parts per million (ppm). The average for the day was 399.73 and researchers at the observatory expect this figure, too, to exceed 400 in the next few days. The last time such values prevailed on Earth was in the Pliocene epoch, 4m years ago, when jungles covered northern Canada....

“The concentration of CO2 peaks in May, falls until October as plant growth in the northern hemisphere’s summer absorbs the gas, and then goes up again during winter and spring.”

Marc Morano, former spokesman for Republican Senator James Inhofe and executive editor of Climate Depot, said, “The Earth has had many-times-higher levels of CO2 in the past. Americans should welcome the 400 parts-per-million threshold. This means that plants are going to be happy, and this means that global-warming fearmongers are going to be proven wrong.” [Bloomberg]

But there are lots of snakes and nasty insects in the jungle.

--As Doyle Rice of USA TODAY puts it, in discussing a new Discovery Channel series that explores how North America’s wildlife adapts to the wildest weather on the planet.

“North America – and the USA in particular – has the world’s wildest weather extremes: No other part of the planet can boast its ferocious weather stew of hurricanes, tornadoes, droughts, floods, wildfires, blizzards, heat waves and cold snaps.

“ ‘You’d be hard-pressed to find another patch of land on Earth the size of the USA that boasts such a variety of such intensely extreme weather inside its borders,’ says meteorologist and author Robert Henson of Boulder, Colo.’”

The U.S. experiences about 80% to 90% of all of the tornadoes that occur across the world, by the way. The U.S. sees about 1,000 tornadoes a year vs. fewer than 10 in China.

All this weather is good for the economy, when you think about it, including those profiting from storm recovery. [That’s my conclusion, not Discovery Channel’s.]

--According to data compiled by the U.S. Centers for Disease Control and Prevention, human feces taint more than half of public swimming pools. E. coli., which indicates the presence of fecal matter, was detected in 58 percent of samples taken from pool filters. E. coli was in 70 percent of municipal pools tested and 49 percent of pools that require membership or are at a club.

The CDC recommends “swimmers shower with soap before getting in a pool, don’t swim when they have diarrhea and wash their hands with soap after using the toilet or changing diapers.” [Bloomberg]

If your baby has diarrhea, please keep him or her on dry land, preferably at home.

--Saturday’s Powerball drawing has seen the jackpot soar to $600 million+, breaking the Nov. 2012 record of $587.5 million. The big reason for the rapid jump in this current game is California, which just started selling Powerball tickets in April. The Golden State now accounts for 11% of the game’s sales. 

Good luck. Personally, I wouldn’t mind winning it.

--Go Orb!

---

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

God bless America.

---

Gold closed at $1364...lowest weekly close since Feb. 2011
Oil, $96.02

Returns for the week 5/13-5/17

Dow Jones +1.6% [15354]
S&P 500 +2.1% [1666]
S&P MidCap +1.8%
Russell 2000 +2.2%
Nasdaq +1.8% [3498]

Returns for the period 1/1/13-5/17/13

Dow Jones +17.2%
S&P 500 +16.9%
S&P MidCap +18.7%
Russell 2000 +17.3%
Nasdaq +15.9% 

Bulls 54.2
Bears 19.8 [Source: Investors Intelligence]

Nightly Review video schedule...Monday and Thursday only this week. Posted around 5:30 PM ET.

Have a great week. I appreciate your support.

Brian Trumbore