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06/22/2013

For the week 6/17-6/21

[Posted 12:00 AM ET]

The Fed and Wall Street

This was another crazy week in the financial markets around the world. I wrote last time that despite unprecedented transparency, Federal Reserve Chairman Ben Bernanke thinks he is able to manipulate the market to his own satisfaction in terms of controlling expectations, only markets don’t respond in such a reliable fashion. So this week, as part of the Federal Reserve’s Open Market Committee’s two-day meeting, Bernanke thought he was doing the right thing in spelling out a specific timetable for future Fed action. 

Why the little children will surely appreciate that I’m not trying to hide anything from them, the chairman must have mused. They can begin to relax.

Instead, the markets reacted with a collective, “Omigod!!! He’s really going to do it!!! He’s going to take away our free money!!! He can’t do that!!! Sell!!!”

And so markets around the world sold stocks, bonds, silver and gold, other commodities, emerging market assets...it was ugly.

But it wasn’t just the Fed that caused severe indigestion among investors; it was also China (for a number of reasons), unprecedented protests in Brazil, renewed concerns in Europe, including potential political crises in Greece and Italy, and rising bond yields all over the globe. 

I’ll get into the details in a bit, but first, Felix Zulauf, a member of the Barron’s Roundtable, had a simple explanation of the current environment for the magazine’s mid-year review, prior to the Fed’s actions this week

Zulauf: “The general perception is that the U.S. economy is improving, and that the Fed will begin to reduce its quantitative-easing program later this year. The consensus in Europe is that things are stabilizing and will improve later this year and into next year. In Japan, the view is that the experiment to boost economic growth will work, at least in the short term. So the general perception is that the global economy is healing, and that is making the banking system nervous.

“The banking system, including the shadow banking system [nonbank financial institutions], is fully loaded with bonds because it received free money from the central banks. If the general perception that things are improving is right, bond yields will go higher. As a precautionary measure, banks are beginning to sell bonds, which is helping to drive yields up. The yield on the 10-year Treasury could rise to 3% as this plays out.

“When banks sell bonds and return the money to the central banks, they are shrinking their balance sheets. This is the reverse of quantitative easing. It means that liquidity is drying up in the global credit system, and when that happens, the borrowers at the periphery of the system get hurt because they can’t finance their funding any more. We could have debt crises in countries such as Turkey, Mexico, and Poland if the general perception is correct.”

[Zulauf actually believes the world economy is weaker than people think it is and that rates, especially in major countries, will decline again by late summer.]

So back to the Fed, which conducted its latest FOMC deliberations on Tuesday and Wednesday. Wednesday, the Fed first released a statement, holding the line on interest rates while saying of its $85 billion a month in purchases of Treasurys and mortgage-backed securities that it was “prepared to increase or reduce the pace of its purchases” as the outlook for unemployment and inflation changes.

Labor markets have shown “further improvement in recent months,” the FOMC said. “The committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.”

So it seemed the Fed was prepared to wait a little longer before slowing QE3. But then as part of its statement, the Fed released revised forecasts for the economy and employment and the FOMC lowered its unemployment forecasts for the end of 2013 and 2014 from 7.4 to 7.25 percent for December, and then from a range of 6.7-7.0 to a new range of 6.5-6.8 percent in 2014.

Additionally, the Fed raised its 2014 growth forecast to 3.25 percent, above current market consensus.

And it revised its inflation forecast down to 1 percent for 2013 and 1.7 percent for 2014; so both well below the 2 percent inflation target.

Then, shortly thereafter, Chairman Bernanke strode before the assembled financial press, settled into his chair, and supplied far more details on projected Fed policy, at which point the world collectively ralphed, while reaching for the sell button.

Mr. Bernanke said among other things that “The fundamentals look a little better to us. In particular, the housing sector, which has been a drag on growth since the crisis, is now obviously a support to growth.” Rising home prices are key to the wealth effect and strengthening consumer confidence and spending.

But he also spelled out that if the Fed’s projections are correct on the improving economy, the Fed could begin pulling back on the asset purchases by the end of 2013 and wind them down totally by the middle of 2014.

“We have no deterministic or fixed plan,” Bernanke added, but the genie was out of the bottle. He said the tapering of the program was akin to “letting up a bit on the gas pedal” and “not beginning to apply the brakes,” but that’s not correct. The Fed would be applying the brakes.

Then Bernanke tried to emphasize that no one needn’t worry about the other half of the Fed’s program, keeping the short-term funds rate at zero, because even the originally targeted 6.5% unemployment rate (from the current 7.6%) was “a threshold, not a trigger,” saying that if unemployment were to fall below it, it would not immediately lead to a rate rise. It would all depend on the overall economic environment. Heck, he added, the threshold could be lowered.

But as he said this I scribbled down “helter-skelter” on a Post-it.

The chairman is trying to be transparent, he’s spelling out a timetable and parameters, but it doesn’t make sense. It’s irrational. If the economy is improving rapidly enough to get the unemployment rate down to 6.5%, which would mean many consecutive months of 200,000+ on the job growth front, even if there is little inflation, which is the Fed’s forecast, you can’t keep short rates at zero!

“Our intent from the beginning was to use asset purchases as a way to achieve some near-term momentum and then to allow the low interest rate policy to carry us through,” said Bernanke. He seeks to stabilize unemployment between 5 and 6 percent.

Yeah, but this makes no sense.

It also goes without saying that the bond purchases have helped fuel economic growth (though at the same time the recovery has been subpar), especially in the housing sector, but after this week’s action, the average 30-year fixed mortgage will be up to 4.35% from 3.40% just last month. You can’t tell me that won’t prevent some from buying. It certainly stopped refinancing in its tracks.

Editorial / Wall Street Journal

“Mr. Bernanke...said the Fed expects to continue some bond-buying well into 2014 and not to raise the fed funds interest rate from its near-zero floor until 2015. How such an accommodative monetary policy meshes with robust growth above 3% would certainly be interesting. We doubt a near-zero rate would survive the collision.”

Alas, Bernanke isn’t going to be around to implement most of the decisions he spelled out for the maddening crowds this week. His second term as chairman ends next January and in an interview with Charlie Rose, President Obama threw Bernanke under the bus.

Comparing the chairman to departing FBI Director Robert Mueller, Obama said, “He’s already stayed a lot longer than he wanted or he was supposed to.”

Bernanke, during his press conference, declined to comment on his future.

Europe and Asia

In Euroland, Markit’s flash composite PMI for the 17-nation eurozone came in at 48.9 for June, up from 47.7 in May...an improvement, the highest since March 2012, but this still marks the 22nd straight month below the 50 dividing line between growth and contraction. The new orders component fell for a 23rd consecutive month. Germany’s composite was 50.9, but manufacturing at 48.7 was down over April. France’s comp was 46.8. [Markit, in its flash estimate, only releases Germany and France, individually.]

So improvement? Yes. Growth? No.

And there were more awful numbers on car sales for the European Union, down 5.9% in May vs. a year ago and the lowest level in two decades, May 1993. Germany’s were down 9.9% in the month, France’s down 10.4%, Italy’s 8%. Not good.

Meanwhile, retail sales in the U.K. rose 2.1% in May over April, better than expected and a continuation of solid news here.

But in Greece, whose stock market cratered 6% on Friday, there were concerns the IMF was on the verge of pulling its bailout support, but the IMF at week’s end said this wasn’t necessarily the case and that they expected Greece to pass its next review, and thus qualify for more aid, at the end of July.

Of bigger immediate concern is a dispute within the ruling coalition involving the closure of the state television network (to be revamped into a vastly streamlined operation with 1,500 fewer employees), with one coalition partner having pulled its ministers, which could force new elections.

And in Cyprus, President Anastasiades has warned that his nation can’t meet its bailout terms because the measures forced on Cyprus harmed the country’s economy and banking system even more than expected.

Lastly, the yield on the 10-year bond in Spain rose to 4.91% vs. 3.94% on May 3. The 10-year in Italy is up to 4.62%, the highest level there since July of last year. This bears watching.

So just when you thought it was safe to go back into the water...

Separately, on the Euro banking reform front, the finance ministers in the EU are trying to resolve the critical issue of how to shut failed banks without burdening taxpayers, or causing bank runs. It has long been hoped that resolution of this question would be achieved this summer, in conjunction with an upcoming EU summit, but it’s unclear if this goal will be achieved. Let alone whether a credible agreement can be reached that engenders confidence in the ability of Europe’s politicians to repair the financial system and encourage banks to lend again.

So a draft EU law forms a pecking order in which bank shareholders would take losses, then bondholders and finally depositors with more than 100,000 euros in their account.

Secondarily, a new banking union needs to come up with a system to supervise, control and support the banks in the eurozone. Germany is insisting that rules on closing banks be in place before the eurozone’s bailout fund (the European Stability Mechanism) can be employed to help banks in trouble.

Some countries such as Sweden, Britain and France say each state should have the final word in deciding how to close banks, but Germany, the Netherlands and Austria want regulations that would be applied in the same way across all 27 countries in the EU, otherwise you undermine the law.

On a different matter, the EU and the United States agreed to initiate negotiations on “the biggest bilateral trade deal in history” between the two. The timeframe for the talks to conclude – 18 months – is a bit ambitious, but no doubt such a deal would be beneficial to all parties if some very thorny issues can be resolved.

Tariffs imposed by the U.S. and EU are already low on goods traded between the two, but there are still significant barriers preventing European companies from competing in the U.S. and vice versa.

For example, in the auto sector, the U.S. and EU employ different safety standards – strict in both cases, but each must meet all the other’s requirements before they can sell cars in that market, putting them at a disadvantage.

And agriculture is a mess, due to the European farming industry being more heavily subsidized than U.S. farmers. 

Plus both sides will have various industries calling for protectionist measures to prevent markets being swamped by the likes of Chinese imports.

Turning to China, it was a wild week here, too, as the banking system dealt with a liquidity crisis (cash crunch) engineered by the government.

The central bank is letting short-term interest rates spike to extraordinary levels to force banks to rein in the “shadow banking” market that has led to rampant speculation and informal lending, and thus hurt small business in its efforts to gain credit, while also creating asset bubbles, such as in real estate. So the People’s Bank of China (PBOC) has at times refused to inject significant funds into the money markets, which this week drove short-term funds to 25 percent before the government stepped in.

Of course this risks defaults and gridlock in the cash markets, a la during the collapse of Lehman.

The Financial Times’ Lex column:

“Remember when your parents confiscated favorite toys until you had tidied your room and promised (again) to keep it that way? China’s banks know the feeling. The country’s central bank has decided to stop pumping cash on demand into the banking system, forcing the banks to clean up their lending habits. Policy makers elsewhere must look with envy at a system where lessons in moral hazard can be handed down like that. The bailout of Northern Rock and the fallout from the collapse of Lehman Brothers encouraged the belief that everyone else could, in fact, expect the support of the state.

“China’s watch-how-you-lend lesson is not over. The squeeze has eased with an injection of cash by the People’s Bank of China, which has brought down exorbitant interbank rates. But assuming the intention was to slow credit growth – which is running at about a fifth year-on-year – the wider impact has yet to be felt.”

Meanwhile, related to the above, new-home prices in Beijing, Shanghai, and Guangzhou posted their biggest gains in May since at least January 2011. The conundrum is it’s tough to tighten the property market because of its impact on the economy.

At the same time, HSBC released its flash estimate of manufacturing for the month of June, the PMI, and at 48.3 it is down from May’s 49.2. The trend is not good. Additionally, foreign direct investment in May was at its worst level in four months.

China’s new leadership is reluctant to initiate new stimulus programs because it wants reforms, first, but that is a long-term fix, not short-term.

It’s also about the ever-present threat of instability, fueled by social media, on issues such as the environment, not just the economy. As I first noted months ago, pollution, especially in the major cities, is causing foreign executives to rethink moving to China when it means endangering the health of their loved ones, let alone themselves. And of course some of China’s best and brightest are leaving their homeland for the same reason...a brain drain China can ill afford. Would you stay? Heck no. 

Finally, in Japan, there was some good news on the export front, up 10.1% in May year over year and confirmation Prime Minister Abe’s plan to reenergize the economy is working, beginning with a weaker yen. Exports to the U.S. were up 16.3%, up 8.3% to China.

Street Bytes

--The market’s two-day swoon on Wednesday and Thursday, 560 points in the Dow Jones, was the worst since November 2011. For the week, the Dow lost 1.8% to 14799, while the S&P 500 lost 2.1% and Nasdaq 1.9%. The indexes are now back to levels of two months ago. The S&P is off 4.6% from its closing high, 5.6% off its intraday high.

--U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.37% 10-yr. 2.53% 30-yr. 3.58%

What a debacle. The yield on the 10-year rose 40 basis points on the week, the first time that has happened since March 2003. The level of 2.53% is also the highest since August 2011.

The consumer price index for May rose 0.1%, ex-food and energy up 0.2%. For the last 12 months, the CPI is up 1.4%, 1.7% on the core.

--The Treasury Department, in a report from late last Friday I didn’t see in time for inclusion in the WIR, reported foreign investors sold long-term U.S. Treasurys in record amounts in April. Together, public and private investors abroad sold a net $54.46 billion in U.S. government bonds and notes, the highest since monthly record keeping began in 1978. This included $30.8 billion of net sales by foreign private investors. 

At the same time, private foreign investors added a net $10.4 billion in equities in April. 

--Investors yanked $17.72 billion from bond funds in the two weeks ended June 12, according to data company Lipper.

--May housing starts came in less than expected at 914,000, but May existing home sales were better than projected at 5.18 million, with the median home price for the month up to $208,000, the best level since July 2008. Limited inventory is helping on the price front.

--Jobless claims for the week rose to 354,000 vs. a revised 336,000 the prior one.

--Gold plunged on Thursday to $1285, before finishing the week at $1297, the first close below $1300 since September 2010, Ben Bernanke having crushed gold investors’ hopes along with others when he signaled an end to QE. The Fed’s bond purchases never did ignite inflation as was long believed by gold bugs. For many miners, profitability dries up at $1200 an ounce.

--Shares in Oracle were punished to the tune of 9% after the software giant missed sales targets for a second quarter running. Net income was in line with expectations. The company blamed weak demand for its products in Asia and Latin America, but it’s also facing fierce competition from the likes of Salesforce.com and Workday.

Oracle likes to say these days it’s a cloud company, but the cloud is only 3% of its sales. As the Financial Times’ Lex column pointed out, the hardware business is still shrinking fast. Revenue growth has averaged 1% over the past seven quarters. And now Oracle has announced it is moving to the New York Stock Exchange.

“That’s where you legends belong,” observes the Lex team. “It’s like the Senior Tour....Better to enjoy your old age. You’ve earned it.”

--Singapore is dealing with its worst smog ever as a result of forest fires in Sumatra, with Prime Minister Lee Hsien Loong saying the crisis could last weeks. He also urged Jakarta to take “definitive action” to extinguish the fires, most of which are illegally set each year to clear the land, but an Indonesian minister said, “Singapore should not be behaving like a child and making all this noise.” 

--Saudi officials said that as of Wednesday, 49 people had contracted the new SARS-like virus in the kingdom and 32 have died, an “extremely high” mortality rate, according to a Johns Hopkins epidemiologist on the scene. Worldwide, the death rate from the Middle East Respiratory Syndrome Coronavirus is at 59 percent.

As I noted the other week, though, the Hajj in the fall is a major concern in terms of spreading the virus worldwide.

--The House defeated a farm bill that would have cut $20.5 billion in food-stamp spending, with 62 Republicans joining 172 Democrats in opposition, final vote 195-234. House Speaker John Boehner and Majority Leader Eric Cantor voted for it. Some Republicans voting against wanted deeper cuts in food stamp spending while others wanted reductions in farm assistance. Something has to be done by the fall.

Bloomberg reported spending by farm lobbyists increased to $138 million last year from $112 million in 2007, the year before the previous farm bill passed.

--Meanwhile, the Senate is poised to approve a massive military-style buildup along the U.S. border with Mexico as part of an effort to gain support for an immigration reform bill. But the plan for increased security alone would cost $30 billion.

The Senate is expected to complete work on the bill next week, but in order to develop momentum before the effort proceeds to the House, the Senate version really needs at least 70 votes of support.

House Republican leaders have plans to separate border security from the rest of any immigration bill and hold two votes, which would doom it, I imagine.

--In the annual J.D. Power & Associates Initial Quality Survey, which compiles a ranking of new-car quality based on problems owners reported during their first 90 days of ownership, Chevrolet and GMC were the only Detroit brands to finish in the top 10; for GM, though, its best showing in eight years. Ford finished sixth from the bottom as its score dropped for a third year in a row. Ford has fallen in large part over consumer dissatisfaction with its touch-screen multimedia system, MyFord Touch.

Porsche took the top spot, with Toyota’s Lexus brand No. 2.

Separately, Chrysler reversed course and agreed to recall many of the 2.7 million Jeeps prone to fires in rear-end collisions after initially defying a government request, thus avoiding a long showdown with the National Highway Traffic Safety Administration.

But it appears Chrysler is a winner because its proposed repair – installing low-cost trailer hitches on some models – is far less expensive than other potential remedies. NHTSA seemed satisfied.

--In the annual World Airline Awards, Emirates was named the best airline in the world for 2013, rising from No. 8 the year before. No airlines from the U.S. or Europe cracked the top 10.

Qatar Airways, last year’s No. 1, dropped to No. 2 and Singapore Airlines remained in third place.

--The U.N. Food and Agriculture Organization reported that its global fish price index, an industry benchmark that tracks both wild and farmed seafood, hit a record high in May, up 15% from a year ago.

A big factor is China’s growing appetite for high-end species, like tuna and oysters, that are at the same time in shorter supply. Oyster and mussel consumption in China is growing at 20% a year. 

Salmon prices have surged 27% in the past year, but remain below record levels. I’ve changed my Sunday habit from straight salmon to wild salmon burgers with feta cheese...just sayin’.

--Facebook and Google tried to reassure users in denying they gave the U.S. government special access to their servers or complied with broad requests for users’ information, in the wake of the revelations concerning the National Security Agency.

For its part, Facebook said it had been ordered to give up information contained in between 18,000 and 19,000 user accounts in the second half of 2012, though it did not disclose how many of the requests it had complied with. Facebook’s general counsel said the demands come “from things like a local sheriff trying to find a missing child, to a federal marshal tracking a fugitive, to a police department investigating an assault, to a national security official investigating a terrorist threat.”

No NSA requests for information on us Mets fans, as best I can determine.

--According to a report from Congress, student loans increased from $550 billion in late 2007 to just under $1 trillion in the first quarter of 2013. The average student loan balance is more than $27,000.

--The unemployment rate declined in 25 states in May. California’s jobless rate tumbled from 9.0% in April to 8.6%, the lowest level since November 2008. Nevada’s is down to 9.5% from 11.5% a year earlier. New York’s is 7.6%, New Jersey’s 8.6%, and Texas’ 6.5%. North Dakota continues to have the lowest at 3.2%.

--In a Gallup survey, only 30% of American workers “were engaged, or involved in, enthusiastic about, and committed to their workplace.” 70% have “checked out” or are “actively disengaged.”

--According to the latest Giving USA report, an industry publication that tracks giving in America, philanthropic donations, from individuals, foundations and corporations, increased just 1.5% in 2012 to $316.23 billion vs. $311.68 billion in 2011. The pre-recession record high in giving of $344.48 billion was set in 2007.

Giving to the arts in 2012, however, increased 7.8%, while gifts to religious organizations remained flat.

--Four suspected cases of the human variant of mad cow disease, one of them fatal, have emerged in western Canada, but the four are not believed to have stemmed from eating tainted beef....developing...

--In the New York area, George Zimmer, now ex-CEO of Men’s Wearhouse, was ubiquitous on television, telling customers in his cigarette-infused voice, “You’re going to like the way you look. I guarantee it.”

But this week, Zimmer was ousted by the board, apparently as a result of a dispute over the direction of the company and efforts to appeal to younger customers. The company has 1,100 stores nationally and same-store sales increased a solid 5.1% in the quarter ended May 4.

--In 2011, the U.S. cremation rate hit 42.2%. That figure is expected to hit 50% by 2017. Some states are already reporting cremation rates above 70%. 

Foreign Affairs

Iran: In a stunner, Hassan Rohani won Iran’s presidential election on the first ballot, capturing 50.7% of the vote. His nearest challenger, Tehran mayor Mohammad Bagher Qalibaf, garnered 16% and current nuclear program chief negotiator Saeed Jalili, once seen as a lock to win, took only 9%. 

Rohani is being called a “reformer,” a “moderate,” but this is still a hard-liner. Some in the press are getting carried away with their labels, and forgetting that it was the Guardian Council, under the control of Supreme Leader Ayatollah Khamenei, that hand-selected eight candidates, two of whom dropped out as those true reformers and moderates in the electorate coalesced around Rohani, with former presidents Khatami and Rafsanjani throwing their considerable support behind him. Rohani takes office Aug. 3.

Editorial / Washington Post

“Hassan Rohani will be Iran’s next president not only because he was picked by a majority of Iranian voters but also because the country’s supreme leader, Ayatollah Ali Khamenei, chose to accept his victory. That decision surprised us and some Western experts on Iran, but in retrospect there was good reason for it. Had the Islamic regime falsified the results and blocked Mr. Rohani, it would have risked a repeat of the popular uprising that followed the 2009 election, when followers of reformist candidates concluded – probably rightly – that the reelection of hard-liner Mahmoud Ahmadinejad had been rigged.

“At the same time, Mr. Rohani was in the presidential race because he had been judged to be a reliable follower of the supreme leader, unlike other moderate and reformist candidates who were banned from the ballot. Though he criticized the government’s recent handling of negotiations on Iran’s nuclear program, he made clear that he supports the program and that decisions about it would lie with Mr. Khamenei. At a press conference Monday, Mr. Rohani rejected the suspension of uranium enrichment, mandated by multiple U.N. Security Council resolutions, and repeated Tehran’s past rhetoric that an improvement in relations with the United States would require that ‘they have to recognize our nuclear rights [and] put away bullying policies against Iran.”

Bret Stephens / Wall Street Journal

“Mr. Rohani is...the man who chaired Iran’s National Security Council between 1989 and 2005, meaning he was at the table when Iran masterminded the 1994 bombing of the Jewish cultural center in Buenos Aires, killing 85 people, and of the Khobar Towers in 1996, killing 19 U.S. airmen. He would also have been intimately familiar with the secret construction of Iran’s illicit nuclear facilities in Arak, Natanz and Isfahan, which weren’t publicly exposed until 2002.

“In 2003, Mr. Rohani took charge as Iran’s lead nuclear negotiator, a period now warmly remembered in the West for Tehran’s short-lived agreement with Britain, France and Germany to suspend its nuclear-enrichment work. That was also the year in which Iran supposedly halted its illicit nuclear-weapons’ work, although the suspension proved fleeting, according to subsequent U.N. repots.

“Then again, what looked to the credulous as evidence of Iranian moderation was, to Iranian insiders, an exercise in diplomatic cunning. ‘Negotiations provided time for Isfahan’s uranium conversion project to be finished and commissioned, the number of centrifuges at Natanz increased from 150 to 1,000 and software and hardware for Iran’s nuclear infrastructure to be further developed,’ Seyed Hossein Mousavian, Mr. Rohani’s spokesman at the time, argues in a recent memoir....

“Now the West is supposed to be grateful that Mr. Ahmadinejad’s scowling face will be replaced by Mr. Rohani’s smiling one – a bad-cop, good-cop routine that Iran has played before. Western concessions will no doubt follow if Mr. Rohani can convince his boss, Supreme Leader Ali Khamenei, to play along. It shouldn’t be a hard sell: Iran is now just a head-fake away from becoming a nuclear state and Mr. Khamenei has shown he’s not averse to pragmatism when it suits him.”

Editorial / Wall Street Journal

“The White House rather too effusively praised the election results, and no doubt it will ramp up its beseeching diplomacy to strike a nuclear deal with the Rohani government. President Obama is desperate to find some agreements to avoid having to launch a military strike. Expect Mr. Rohani to go along for the talks, but mainly to ease Western sanctions and buy more nuclear time.”

Israeli Prime Minister Benjamin Netanyahu weighed in on the election results.

“Wishful thinking is not a substitute for policy. The new Iranian president has been very clear. He is the author of a doctrine. You could call it ‘talk and enrich,’ that is ‘talk and continue to enrich uranium for nuclear weapons.’

“We cannot allow Iran to play this game. We cannot let Iran ride out the clock through endless talks. Iran must comply with U.N. Security Council resolutions.”

Netanyahu continues to insist on a total cessation of all enrichment of nuclear materials at all levels, the removal from Iran of all enriched nuclear material and the closure of Iran’s illicit nuclear facilities.

“If [Iran] insists on continuing to develop its nuclear program, the answer needs to be clear – stopping its nuclear program by any means,” said the Israeli prime minister. “In the past 20 years the only thing that brought about a temporary freeze in Iran’s nuclear program was the fear of aggressive action against it.”

Iran will face strong pressure to resume atomic talks before September to see if Rohani’s victory means any change in policy out of Tehran. In his first speech, Rohani promised to pursue “constructive interaction with the world.”

“We won’t let the past eight years be continued,” he said. “They brought sanctions for the country. Yet, they are proud of it. I’ll pursue a policy of reconciliation and peace. We will also reconcile with the world.”

But Rohani added, Iran “has done nothing to deserve sanctions,” and that Iran has carried out its atomic operations “within international frameworks. If sanctions have any benefits, they will only benefit Israel.”

Syria: Charles Krauthammer / Washington Post

“The war in Syria, started by locals, is now a regional conflict, the meeting ground of two warring blocs. On one side, the radical Shiite bloc led by Iran, which overflies Iraq to supply Bashar al-Assad and sends Hizbullah to fight for him. Behind them lies Russia, which has stationed ships offshore, provided the regime with tons of weaponry and essentially claimed Syria as a Russian protectorate.

“And on the other side are the Sunni Gulf states terrified of Iranian hegemony (territorial and soon nuclear); non-Arab Turkey, now convulsed by an internal uprising; and fragile Jordan, dragged in by geography.

“And behind them? No one. It’s the Spanish Civil War except that only one side – the fascists – showed up. The natural ally of what began as a spontaneous, secular, liberationist uprising in Syria was the United States. For two years, it did nothing.”

On Thursday, Russia seemed to reaffirm plans to supply Syria with advanced anti-aircraft weaponry, which would substantially hamper any efforts by the West to establish a no-fly zone, or for the U.S. and its allies to move on Assad’s air force and air bases. Just last week it appeared Russia wasn’t rushing to supply Syria with the S-300 air and missile defense system.

Earlier, as part of the G-8 summit, British Prime Minister David Cameron said, “It is unthinkable that President Assad can play any part in the future of his country. He has blood on his hands.”

Canadian Prime Minister Stephen Harper accused Russian President Vladimir Putin of supporting “thugs” in Damascus.

Putin, speaking of the announcement by President Obama that the administration would offer military support to the rebels, said in front of host Cameron: “I think you will not deny that one does not really need to support people who not only kill their enemies, but open up their bodies, eat their intestines, in front of the public and cameras....Are these the people you want to support? Is it them who you want to supply with weapons? Then this probably has little relation to the humanitarian values that have been preached in Europe for hundreds of years.”

As for supplying arms to the rebels, the London Times editorialized:

“The truth is that providing moderate rebel leaders with the means to defend themselves and civilians in rebel-held areas is the least bad option left to the West after two years of drift.”

British Foreign Secretary William Hague described the Syrian conflict this week as the worst human tragedy of our times, “on a trajectory to get worse.”

London Times:

“No intervention can be cost-free, but standing by as Syria burns – never a wise or honorable course – is now untenable. Assad will negotiate only when he sees that the alternatives are stalemate and defeat, and he will not see this unless moderate rebels can defend themselves.”

Next door in Jordan, King Abdullah II warned his kingdom is able “at any moment” to protect its national interest.

“If the world does not mobilize or help us in the issue [of Syria] as it should, or if this matter forms a danger to our country, we are able at any moment to take measures that will protect our land and the interests of our people,” said Abdullah.

The U.S. is preparing Jordanian personnel to potentially spot and protect Syrian chemical arms sites. Washington is building up a force in Jordan, which is being overwhelmed by more than 500,000 refugees. The West cannot afford to lose Abdullah. 

Editorial / Washington Post

“(It’s) time for Mr. Obama to recognize that the war in Syria threatens vital U.S. interests – from the fight against al-Qaeda to the security of Israel. The delay in arming the rebels has already steeply raised the cost of achieving an acceptable outcome; too weak an intervention now will merely do so again.”

Separately, Egyptian President Mohamed Morsi said he had cut all diplomatic ties with Damascus and called for a no-fly zone, as you see reaction to the sectarian conflict spread throughout the region. Morsi is a Sunni Islamist leader. Morsi also warned Assad’s allies, Shiite militia Hizbullah, to pull back.

Lebanon: President Michel Sleiman called on Hizbullah to pull its forces out of Syria, saying any further involvement would destabilize Lebanon, this as Hizbullah takes the fight alongside Assad to Aleppo.

Hizbullah leader Sheikh Hassan Nasrallah said in a speech to supporters in Beirut that his group will keep fighting in Syria “wherever needed.”

Sleiman, a Maronite Christian, has become more assertive in his criticism of Syria, calling on both the Arab League and U.N. to force Syria to end its violations of Lebanese sovereignty.

Turkey: Worrisomely, police are carrying out raids and arresting dozens of people suspected of supporting the opposition during the wave of antigovernment protests. Left-wing groups are the initial target. Taksim Square/Gezi Park in Istanbul was once again the scene of violence as Prime Minister Erdogan told the police to clear the park, 24 hours after negotiating with opposition leaders on the fate of a planned development in Gezi, one of the few open spaces in teeming Istanbul.

Erdogan’s supporters staged a massive rally of their own on Sunday.

Unions called for a one-day nationwide strike to protest the police crackdown.

Iraq: Charles Krauthammer / Washington Post

“Whatever the wisdom of the Iraq war in the first place, when Obama came to office in January 2009 the war was won. Al-Qaeda in Iraq had been routed. Nouri al-Maliki’s Shiite government had taken down the Sadr Shiite extremists from Basra all the way north to Baghdad. Casualties were at a wartime low; the civil war essentially over.

“We had a golden opportunity to reap the rewards of this too-bloody war by establishing a strategic relationship with an Iraq that was still under American sway. Iraqi airspace, for example, was under U.S. control as we prepared to advise and rebuild Iraq’s nonexistent air force.

“With our evacuation, however, Iraqi airspace today effectively belongs to Iran – over which it is flying weapons, troops and advisers to turn the tide in Syria. The U.S. air bases, the vast military equipment, the intelligence sources available in Iraq were all abandoned. Gratis. Now we’re trying to hold the line in Jordan.

“Obama is learning very late that, for a superpower, inaction is a form of action. You can abdicate, but you really can’t hide. History will find you. It has now found Obama.”

At least 51 were killed in a wave of bombings last Sunday. Nearly 2,000 have been killed in violence here since the start of April.

Afghanistan: Speaking of wars lost, Afghan President Hamid Karzai suspended talks with the United States on a new security deal to protest the way his government was being left out of initial peace negotiations with the Taliban.

“In view of the contradiction between acts and the statements made by the United States of America in regard to the peace process, the Afghan government suspended the negotiations, currently underway in Kabul between Afghan and U.S. delegations on the bilateral security agreement,” Karzai’s statement said.

The Americans and Taliban said they would first meet in Qatar, where the Taliban has opened an office, before any talks with the Afghan government. On Wednesday, the Taliban claimed responsibility for a rocket attack on Bagram Air Base that killed four Americans.

China: The government is pushing ahead with a plan to move 250 million rural residents into newly constructed towns and cities over the next 12 years, an event Beijing hopes will stimulate a new wave of growth. Aggressive state spending is planned on new roads, hospitals, schools, community centers – which could cost upward of $600 billion a year, according to estimates. Plus you have spending on health care and pensions for the elderly. None of this will be easy.

North Korea: Pyongyang proposed high-level nuclear and security talks with the United States, days after calling off talks with South Korea. The White House was underwhelmed.

July 27 is a key date, the 60th anniversary marking the close of the Korean conflict, which ended in an armistice. A peace treaty ending the war was never formally signed and it is expected North Korea will use this day to draw attention to its divide with the South. Workers are said to be feverishly preparing Pyongyang for mass (controlled) demonstrations.

Brazil: I have been writing for the better part of a year how unprepared Brazil is for both the 2014 World Cup and the 2016 Rio Olympics; how just a few weeks ago the main venue for the track and field events at the Games was being shut down until 2015 for massive repairs on the just constructed facility.

The costs for both, starting with $13 billion for the World Cup, are obviously huge. I just didn’t see the people revolting over it, coupled with rising anger over surging transportation costs and endemic corruption. A member of Brazil’s 2002 winning World Cup team, Rivaldo Ferreira, tweeted, “It’s shameful to spend so much money for this World Cup and leave the hospitals and schools in such a precarious state. At this moment we aren’t in shape to host the World Cup, we don’t need it, we need education and health.” [Bloomberg]

That sums up the attitude of the million+ who participated in massive protests across the nation this week that turned violent. Local officials, such as in Sao Paolo, sought to quell the disturbances by rescinding increases in bus fares that hurt the poor and middle class, but the protests seem to be taking on a life of their own. A new slogan has emerged: “The giant has awakened.”

Pope Francis, champion of the poor, is slated to visit in a matter of weeks. That will be interesting.

Mass protests are rare in Brazil, but it’s not as if violence isn’t in the culture (see the murder rate), so no telling where this all goes.

As for President Dilma Rousseff, she has been largely absent since the demonstrations broke out, but finally addressed the nation on television Friday night. 

Czech Republic: Follow-up...Petr Necas resigned as prime minister over the growing bribery and spying scandal, taking his government down with him. The nation has had six prime ministers since 2002, and Prague is finding it hard to find foreign investors, who view Czech Republic as a country run by corrupt politicians and increasingly under the sway of Russian interests, never a good thing. 

Random Musings

--In the latest CNN/ORC International survey, President Obama’s job approval rating dropped 8 percentage over the past month to 45%, Obama’s lowest rating in more than 18 months. The president’s disapproval rating soared 9 points to 54% since mid-May.

It was rather startling to see that among his base, younger Americans, 18-29, his approval rating plunged from 65% to 48% over the same period.

On the issue of the IRS scandal, last month only 37% of the public thought that the IRS controversy led to the White House, with 55% saying that agency officials acted on their own without direct orders from Washington. Now the number who say the White House directed that IRS program has increased 10 points, to 47%, virtually the same as the 49% who believe the IRS agents acted on their own. 

One thing is clear, Democrats running for reelection next year will be running away from their president in droves.

--George Will / Washington Post

“The question of whether Barack Obama’s second term will be a failure was answered in the affirmative before his Berlin debacle, which has recast the question, which now is: Will this term be silly, even scary in its detachment from reality?

“Before Berlin, Obama set his steep downward trajectory by squandering the most precious post-election months on gun-control futilities and by a subsequent storm of scandals... Then came Wednesday’s pratfall in Berlin.

“There he vowed energetic measures against global warming (‘the global threat of our time’). The 16-year pause of this warming was not predicted by, and is not explained by, the climate models for which, in his strange understanding of respect for science, he has forsworn skepticism.

“Regarding another threat, he spoke an almost meaningless sentence that is an exquisite example of why his rhetoric cannot withstand close reading: ‘We may strike blows against terrorist networks, but if we ignore the instability and intolerance that fuels extremism, our own freedom will eventually be endangered.’ So, ‘instability and intolerance’ are to blame for terrorism? Instability where? Intolerance of what by whom ‘fuels’ terrorists? Terrorism is a tactic of destabilization. Intolerance is, for terrorists, a virtue....

“(Obama) trotted out another golden oldie in Berlin when he vowed to resuscitate the cadaver of nuclear arms control with Russia. As though Russia’s arsenal is a pressing problem. And as though there is reason to think President Vladimir Putin, who calls the Soviet Union’s collapse ‘the greatest geopolitical catastrophe of the century,’ is interested in reducing the arsenal that is the basis of his otherwise Third World country’s claim to great-power status.

“Shifting his strange focus from Russia’s nuclear weapons, Obama said ‘we can...reject the nuclear weaponization that North Korea and Iran may be seeking.’ Were Obama given to saying such stuff off the cuff, this would be a good reason for handcuffing him to a teleprompter. But, amazingly, such stuff is put on his teleprompter and, even more amazing, he reads it aloud.

“Neither the people who wrote those words nor he who spoke them can be taken seriously. North Korea and Iran may be seeking nuclear weapons? North Korea may have such weapons. Evidently Obama still entertains doubts that Iran is seeking them.”

--According to Gallup, Congress is down to a 10% approval rating – the lowest ever recorded for any institution in polling history. The military was tops with 76% having confidence in it.

My own rating of the military is plummeting, see below.

--Army Gen. Keith Alexander, director of the National Security Agency, defended the government’s surveillance and spy operations in congressional testimony as being critical in the terrorism fight.

Intelligence officials disclosed some details on two thwarted attacks – one targeting the New York subway system, another to bomb a Danish newspaper office that had published the cartoon depictions of the Prophet Mohammad. Gen. Alexander offered details on a plot to target Wall Street. Phone records provided by the NSA were crucial in foiling it.

Rep. Mike Rogers, R-Mich., chairman of the House Intelligence Committee, and Rep. Dutch Ruppersberger of Maryland, the top Democrat, said the programs were vital to the intelligence community and assailed Edward Snowden’s actions as criminal.

“It is at times like these where our enemies within become almost as damaging as our enemies on the outside,” said Rep. Rogers.

Ruppersberger said the “brazen disclosures” put the United States and its allies at risk.

On Monday, Snowden accused members of Congress and administration officials of exaggerating their claims about the success of the data gathering programs. I don’t disagree that there is probably an element of truth in this last bit. In the Najibullah Zazi case, an Afghan American living in Aurora, Colo., who plotted with two others to conduct suicide bombings in the New York City subway system, U.S. officials are pointing to the authority granted by the Foreign Intelligence Surveillance Act (FISA) as being critical in identifying that particular plot.

But the British first obtained the critical e-mail address, linking Zazi to a senior al-Qaeda operative.

--Iceland says it has held informal talks with an intermediary of U.S. intelligence leaker Edward Snowden, who reportedly may want to seek asylum there. A 2010 resolution by the Icelandic parliament, that is not legally binding, called for making the country a safe haven for journalists and whistleblowers from around the globe.

On Friday, Snowden was charged with violating the Espionage Act, theft and “conversion of government property”...sharing classified documents with individuals not cleared to receive them.

--A USA TODAY/Pew Research Center Poll finds that by a 54-38 margin, Americans say Edward Snowden should be criminally prosecuted. By a 54-31 margin, Americans believe the surveillance programs he exposed help prevent terrorist attacks. But in a bit of a contradiction, by 48-47, Americans divide over whether they approve or disapprove of the programs as part of the effort to fight terrorism.

--The Washington Post’s Jennifer Rubin on President Obama’s foreign policy:

“Unfortunately, the president who fancies himself as the guy who ends wars and doesn’t start them has no idea that, without military success and the threat of military force, your influence wanes and our adversaries come to regard us, well, as a joke.

“We didn’t win the Cold War at the negotiating table. We won by continually challenging Communist aggression and maintaining a strong military that eventually helped bankrupt the Soviet Union.

“The mistake the left makes is in assuming other countries have similar interests and views and sitting down for a chat is like working on a farm bill in Congress – managing to make compromises here and there. But when dealing with adversaries on the international stage, there rarely is a case in which we can persuade their leaders to ‘see it our way’ or change their own view of what is ‘good for them.’

“Unless and until the U.S. president decides to stop talking down and eschewing all hard power (and the military strength it would require), our adversaries are going to run circles around us – just as they are doing now.”

--My point about Benghazi has always been not as much about the talking points, but rather the issue of why our troops weren’t on standby, like at Aviano air base in Italy (let alone the Special Forces unit in country that was held back). I have written bitterly about the leadership of our military...since the start of the Iraq War, frankly. I praise the grunts. But many of our generals are pathetic. It’s also but one reason why my trust in our government has plunged to my own personal low.

So I have to take note of an op-ed this week in the Wall Street Journal by Kevin G. Norton, a national security consultant and former U.S. Army infantry officer who served in Iraq and Afghanistan.

In part:

“In Benghazi, the U.S. government simply did not do all it could to protect its agents in the field. Leon Panetta, defense secretary at the time of the attack, later told Congress that U.S. forces were not deployed because ‘you don’t deploy forces into harm’s way without knowing what’s going on.’

“This was a stunning abdication of responsibility. Mr. Panetta and President Obama knew that Americans were under attack that night. Thousands of U.S. military personnel have given their lives to save their fellow Americans – civilians and soldiers alike – under similar circumstances.

“At the conclusion of his recent speech on Memorial Day, Mr. Obama issued a challenge to all Americans: ‘Let it be our task, every single one of us, to honor the strength and the resolve and the love these brave Americans felt for each other and for our country.’ Those brave Americans include Ambassador Chris Stevens and three others, including two former Navy SEALs, who died in Benghazi.

“Amid the many recent scandals that have come out of Washington, there is a danger that the disastrous Benghazi episode will be put aside before it has been adequately explored – before Americans know exactly who did and did not perform capably and honorably during those terrible hours and their aftermath.

“We do already know one essential truth about Benghazi: The sacred bond between the government and those who serve it was broken, and the message was delivered to Americans serving around the world. That’s a scandal.”

--Reason No. 58 to not blindly admire “the generals.”

Craig Whitlock / Washington Post

“Pentagon investigators found that the three-star Army general in charge of the U.S. Military Academy at West Point misused his office by having subordinates perform personal tasks, but the results remained confidential until the eve of his retirement, according to newly released documents.

“Lt. Gen. David H. Huntoon Jr., the West Point superintendent, improperly made staffers work at private charity dinners, provide free driving lessons and feed a friend’s cats, according to a report by the Pentagon’s Office of Inspector General.

“The report was completed in May 2012, but the inspector general and the Army kept the results secret until Friday (Ed. June 14), when a heavily redacted version was released in response to Freedom of Information Act requests filed by the Washington Post and other news organizations. Huntoon is scheduled to retire July 17 after a 40-year military career.

“In response to the findings, Huntoon paid his staffers $1,815 for the work and told investigators that he ‘never intended to violate any regulation’ and ‘accepted full responsibility for his actions,’ according to the report....

“Huntoon is one of several Army generals who have been investigated or censured for misconduct the past 18 months.”

Remember, your editor has long subscribed to Army Times and I’ve read all the stories of generals misbehaving. In the case of Huntoon, he had aides work at private dinners and charity events, “giving them only $30 and $40 Starbucks gift cards in exchange for about 18 hours of work each.” [Craig Whitlock]

Recently, the top commander at Fort Jackson, S.C., was suspended after allegations of a physical altercation with a mistress. There are countless stories of this ilk.

--The other day, former House Speaker Newt Gingrich gave a presentation to a House Judiciary subcommittee on one of his favorite topics, the dangers from an electromagnetic pulse (EMP) attack that would plunge the United States into darkness, a topic I have written of before.

Skeptics say the threat is overblown; that a nation such as North Korea wouldn’t waste a nuclear weapon by detonating it in the air, hoping for secondary effects.

But as reported by Ben Terris of the National Journal, “Gingrich and his allies counter that taking out the infrastructure of huge swaths of the country would do much more damage than a strike on a single city. ‘You take the defense budget, the Homeland Security budget, and you ask yourself where on that list of priorities would be the cost of not being prepared for EMP, and my guess is you can find literally hundreds of billions of dollars of lesser important investments,’ Gingrich said.”

--Former investigators are pushing to reopen the probe into the 1996 crash of TWA Flight 800 off the coast of New York, claiming new evidence points to the discounted theory the jumbo jet was downed by a missile strike, just minutes after taking off from John F. Kennedy Airport, bound for Paris. All 230 people on board were killed.

In conjunction with a soon to be released documentary on the topic, former investigators raise doubts about the National Transportation Safety Board’s conclusion that the crash was caused by a center fuel tank explosion, probably caused by a spark from a short-circuit in the wiring.

“We don’t know who fired the missile,” said Jim Speer, an accident investigator for the Air Line Pilots Association, one of those seeking a new review of the probe. “But we have a lot more confidence that it was a missile.”

The former investigators calling for a new probe, including former NTSB accident investigator Hank Hughes and Bob Young, a former senior accident investigator for the now-defunct TWA, say new evidence that a missile may have taken down the jet includes analysis of radar of the jetliner.

--George Will had an op-ed on education and inequality, citing, among others, Jerry Z. Muller, a Catholic University historian, who argued in a recent issue of Foreign Affairs “that expanding equality of opportunity increases inequality because some people are simply better able than others to exploit opportunities.” [Will]

Mr. Will then cites the Cato Institute’s Brink Lindsey, who argued in “Human Capitalism: How Economic Growth Has Made Us Smarter – and More Unequal” that this growth intensifies society’s complexity, which “has opened a great divide between those who have mastered its requirements and those who haven’t.”

Will:

“Modernity – education-based complexity – intensifies the demands on mental abilities. People invest increasingly in human capital – especially education – because status and achievement increasingly depend on possession of the right knowledge.

“Lindsey cited research showing that ‘by the time they reach age 3, children of professional parents have heard some 45 million words addressed to them – as opposed to only 26 million words for working-class kids, and a mere 13 million words in the case of kids on welfare.’ So, class distinctions in vocabularies are already large among toddlers.  Parental choice of neighborhoods and schools mean that children of college-educated parents hang out together. Such peer associations may have as much effect on a child’s development as do parents. These factors, Lindsey said, explain why ‘people raised in the upper middle class are far more likely to stay there than move down, while people raised in the working class are far more likely to stay there than move up.’

“In a historical blink, Lindsey said, humanity has moved from lives rooted in a remembered past to lives focused on an imagined future. This orientation favors the intellectually nimble. ‘Who gets ahead, who struggles to keep up, and who gets left behind are now determined primarily by how people cope with the mental challenges of complexity.’ And coping skills are incubated in families.

“Today, the dominant distinction defining socioeconomic class is between those with and without college degrees. Graduates earn 70 percent more than those with only high school diplomas. In 1980, the difference was just 30 percent.”

But, Mr. Will adds, “Soon the crucial distinction will be between those with meaningful college degrees and those with worthless ones. Many colleges are becoming less demanding as they become more expensive: They rake in money – much of it from government-subsidized tuition grants – by taking in many marginally qualified students who are motivated only to acquire a credential and who learn little.”

And talk about an indictment of today’s system: “Lindsey reported that in 1961, full-time college students reported studying 25 hours a week on average; by 2003, average studying time had fallen to 13 hours. Half of today’s students take no courses requiring more than 20 pages of writing in a semester. Given the role of practice in developing expertise, ‘the conclusion that college students are learning less than they used to seems unavoidable.’”

Lindsey concluded: “Most American kids are now raised in an environment that is arguably less favorable for developing human capital than that in which their parents were raised.”

--The “dead zone” in the waters off Texas and Louisiana is going to be at a record level this summer, federal officials announced. It’s all about the Midwestern floods washing down massive amounts of fertilizer, which then spurs the growth of algal blooms that remove oxygen from the growth.

Conversely, last year’s dead zone was one of the smallest on record as the drought prevented runoff from carrying as much fertilizer down the Mississippi River.

--Poor Ed Koch. The former mayor’s tombstone at Trinity Church in Washington Heights, N.Y., was mistakenly engraved with the wrong birth year – Dec. 12, 1942, instead of 1924.

Koch had picked out his tombstone years in advance. He wants people to visit him. I mean the man even did a pre-obituary video interview – which wasn’t published until after his death this past February.

It wasn’t until a few weeks ago, however, that the dates were etched in by the stone-cutter. It took a while before the error was discovered. Needless to say it’s being corrected.

You can bet Koch is fuming, he having been a real stickler for details.

--The Food Network dumped star Paula Deen after her admission to having used racial slurs in the past, the fact of which came up in a court proceeding.

--Editorial / London Times

“For 86 episodes, over eight years, (James) Gandolfini (who died this week of a heart attack at the age of 51) not only turned Tony Soprano into as big and as memorable a character as Marlon Brando’s Godfather, but he made The Sopranos a show that catapulted television into level-pegging with the big screen. TV became a place where movie stars no longer felt they might be slumming it.

The Sopranos, perhaps TV’s best show yet, changed television forever. James Gandolfini was pivotal in that transformation. It is a huge legacy.”

--Finally, my thoughts and prayers are extended to my friends in Calgary, Canada. It was four years ago I spent a week at the Calgary Stampede, something I had always wanted to do, and had an absolute blast.

But the Stampede, so important to the regional economy, will undoubtedly be postponed this year due to the historic flooding the city is suffering, including the entire fairgrounds being under feet of water. On the fairgrounds is the Saddledome, home to the National Hockey League’s Calgary Flames (and where I saw Kenny Chesney in concert), and it is flooded up to Row 10!

I just watched a video from the Calgary Sun and it is so sad. I mean the entire downtown is flooded, too.   Such a tragedy.    At least three lives were lost, though as I go to post, Calgary’s mayor said the Stampede will be held. I don’t know how the heck it can be.

---

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

God bless America.
---

Gold closed at $1292
Oil, $93.69

Returns for the week 6/17-6/21

Dow Jones -1.8% [14799]
S&P 500 -2.1% [1592]
S&P MidCap -3.0%
Russell 2000 -1.8%
Nasdaq -1.9% [3357]

Returns for the period 1/1/13-6/21/13

Dow Jones +12.9%
S&P 500 +11.7%
S&P MidCap +11.4%
Russell 2000 +13.5%
Nasdaq +11.2%

Bulls 46.8
Bears 21.9 [Source: Investors Intelligence]

Regarding the Nightly Review videos, I created yet another monster. They were taking up a huge amount of time I need to spend elsewhere. It was burning me out. And then this week I was away some and now I have family responsibilities on the health front that will preclude me from doing any videos for quite a while (think elderly parents in need). 

In the future I’m going to use the channel for special segments, such as on the budget deficit, or to blast targets of mine, he wrote with a smile.

For those of you who caught my work, I hope you appreciate that this one-man operation turned out a quality product in terms of content, far better, frankly, than the network news...that is if you want to learn something other than the name of Kanye and Kim’s baby.

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

06/22/2013

For the week 6/17-6/21

[Posted 12:00 AM ET]

The Fed and Wall Street

This was another crazy week in the financial markets around the world. I wrote last time that despite unprecedented transparency, Federal Reserve Chairman Ben Bernanke thinks he is able to manipulate the market to his own satisfaction in terms of controlling expectations, only markets don’t respond in such a reliable fashion. So this week, as part of the Federal Reserve’s Open Market Committee’s two-day meeting, Bernanke thought he was doing the right thing in spelling out a specific timetable for future Fed action. 

Why the little children will surely appreciate that I’m not trying to hide anything from them, the chairman must have mused. They can begin to relax.

Instead, the markets reacted with a collective, “Omigod!!! He’s really going to do it!!! He’s going to take away our free money!!! He can’t do that!!! Sell!!!”

And so markets around the world sold stocks, bonds, silver and gold, other commodities, emerging market assets...it was ugly.

But it wasn’t just the Fed that caused severe indigestion among investors; it was also China (for a number of reasons), unprecedented protests in Brazil, renewed concerns in Europe, including potential political crises in Greece and Italy, and rising bond yields all over the globe. 

I’ll get into the details in a bit, but first, Felix Zulauf, a member of the Barron’s Roundtable, had a simple explanation of the current environment for the magazine’s mid-year review, prior to the Fed’s actions this week

Zulauf: “The general perception is that the U.S. economy is improving, and that the Fed will begin to reduce its quantitative-easing program later this year. The consensus in Europe is that things are stabilizing and will improve later this year and into next year. In Japan, the view is that the experiment to boost economic growth will work, at least in the short term. So the general perception is that the global economy is healing, and that is making the banking system nervous.

“The banking system, including the shadow banking system [nonbank financial institutions], is fully loaded with bonds because it received free money from the central banks. If the general perception that things are improving is right, bond yields will go higher. As a precautionary measure, banks are beginning to sell bonds, which is helping to drive yields up. The yield on the 10-year Treasury could rise to 3% as this plays out.

“When banks sell bonds and return the money to the central banks, they are shrinking their balance sheets. This is the reverse of quantitative easing. It means that liquidity is drying up in the global credit system, and when that happens, the borrowers at the periphery of the system get hurt because they can’t finance their funding any more. We could have debt crises in countries such as Turkey, Mexico, and Poland if the general perception is correct.”

[Zulauf actually believes the world economy is weaker than people think it is and that rates, especially in major countries, will decline again by late summer.]

So back to the Fed, which conducted its latest FOMC deliberations on Tuesday and Wednesday. Wednesday, the Fed first released a statement, holding the line on interest rates while saying of its $85 billion a month in purchases of Treasurys and mortgage-backed securities that it was “prepared to increase or reduce the pace of its purchases” as the outlook for unemployment and inflation changes.

Labor markets have shown “further improvement in recent months,” the FOMC said. “The committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.”

So it seemed the Fed was prepared to wait a little longer before slowing QE3. But then as part of its statement, the Fed released revised forecasts for the economy and employment and the FOMC lowered its unemployment forecasts for the end of 2013 and 2014 from 7.4 to 7.25 percent for December, and then from a range of 6.7-7.0 to a new range of 6.5-6.8 percent in 2014.

Additionally, the Fed raised its 2014 growth forecast to 3.25 percent, above current market consensus.

And it revised its inflation forecast down to 1 percent for 2013 and 1.7 percent for 2014; so both well below the 2 percent inflation target.

Then, shortly thereafter, Chairman Bernanke strode before the assembled financial press, settled into his chair, and supplied far more details on projected Fed policy, at which point the world collectively ralphed, while reaching for the sell button.

Mr. Bernanke said among other things that “The fundamentals look a little better to us. In particular, the housing sector, which has been a drag on growth since the crisis, is now obviously a support to growth.” Rising home prices are key to the wealth effect and strengthening consumer confidence and spending.

But he also spelled out that if the Fed’s projections are correct on the improving economy, the Fed could begin pulling back on the asset purchases by the end of 2013 and wind them down totally by the middle of 2014.

“We have no deterministic or fixed plan,” Bernanke added, but the genie was out of the bottle. He said the tapering of the program was akin to “letting up a bit on the gas pedal” and “not beginning to apply the brakes,” but that’s not correct. The Fed would be applying the brakes.

Then Bernanke tried to emphasize that no one needn’t worry about the other half of the Fed’s program, keeping the short-term funds rate at zero, because even the originally targeted 6.5% unemployment rate (from the current 7.6%) was “a threshold, not a trigger,” saying that if unemployment were to fall below it, it would not immediately lead to a rate rise. It would all depend on the overall economic environment. Heck, he added, the threshold could be lowered.

But as he said this I scribbled down “helter-skelter” on a Post-it.

The chairman is trying to be transparent, he’s spelling out a timetable and parameters, but it doesn’t make sense. It’s irrational. If the economy is improving rapidly enough to get the unemployment rate down to 6.5%, which would mean many consecutive months of 200,000+ on the job growth front, even if there is little inflation, which is the Fed’s forecast, you can’t keep short rates at zero!

“Our intent from the beginning was to use asset purchases as a way to achieve some near-term momentum and then to allow the low interest rate policy to carry us through,” said Bernanke. He seeks to stabilize unemployment between 5 and 6 percent.

Yeah, but this makes no sense.

It also goes without saying that the bond purchases have helped fuel economic growth (though at the same time the recovery has been subpar), especially in the housing sector, but after this week’s action, the average 30-year fixed mortgage will be up to 4.35% from 3.40% just last month. You can’t tell me that won’t prevent some from buying. It certainly stopped refinancing in its tracks.

Editorial / Wall Street Journal

“Mr. Bernanke...said the Fed expects to continue some bond-buying well into 2014 and not to raise the fed funds interest rate from its near-zero floor until 2015. How such an accommodative monetary policy meshes with robust growth above 3% would certainly be interesting. We doubt a near-zero rate would survive the collision.”

Alas, Bernanke isn’t going to be around to implement most of the decisions he spelled out for the maddening crowds this week. His second term as chairman ends next January and in an interview with Charlie Rose, President Obama threw Bernanke under the bus.

Comparing the chairman to departing FBI Director Robert Mueller, Obama said, “He’s already stayed a lot longer than he wanted or he was supposed to.”

Bernanke, during his press conference, declined to comment on his future.

Europe and Asia

In Euroland, Markit’s flash composite PMI for the 17-nation eurozone came in at 48.9 for June, up from 47.7 in May...an improvement, the highest since March 2012, but this still marks the 22nd straight month below the 50 dividing line between growth and contraction. The new orders component fell for a 23rd consecutive month. Germany’s composite was 50.9, but manufacturing at 48.7 was down over April. France’s comp was 46.8. [Markit, in its flash estimate, only releases Germany and France, individually.]

So improvement? Yes. Growth? No.

And there were more awful numbers on car sales for the European Union, down 5.9% in May vs. a year ago and the lowest level in two decades, May 1993. Germany’s were down 9.9% in the month, France’s down 10.4%, Italy’s 8%. Not good.

Meanwhile, retail sales in the U.K. rose 2.1% in May over April, better than expected and a continuation of solid news here.

But in Greece, whose stock market cratered 6% on Friday, there were concerns the IMF was on the verge of pulling its bailout support, but the IMF at week’s end said this wasn’t necessarily the case and that they expected Greece to pass its next review, and thus qualify for more aid, at the end of July.

Of bigger immediate concern is a dispute within the ruling coalition involving the closure of the state television network (to be revamped into a vastly streamlined operation with 1,500 fewer employees), with one coalition partner having pulled its ministers, which could force new elections.

And in Cyprus, President Anastasiades has warned that his nation can’t meet its bailout terms because the measures forced on Cyprus harmed the country’s economy and banking system even more than expected.

Lastly, the yield on the 10-year bond in Spain rose to 4.91% vs. 3.94% on May 3. The 10-year in Italy is up to 4.62%, the highest level there since July of last year. This bears watching.

So just when you thought it was safe to go back into the water...

Separately, on the Euro banking reform front, the finance ministers in the EU are trying to resolve the critical issue of how to shut failed banks without burdening taxpayers, or causing bank runs. It has long been hoped that resolution of this question would be achieved this summer, in conjunction with an upcoming EU summit, but it’s unclear if this goal will be achieved. Let alone whether a credible agreement can be reached that engenders confidence in the ability of Europe’s politicians to repair the financial system and encourage banks to lend again.

So a draft EU law forms a pecking order in which bank shareholders would take losses, then bondholders and finally depositors with more than 100,000 euros in their account.

Secondarily, a new banking union needs to come up with a system to supervise, control and support the banks in the eurozone. Germany is insisting that rules on closing banks be in place before the eurozone’s bailout fund (the European Stability Mechanism) can be employed to help banks in trouble.

Some countries such as Sweden, Britain and France say each state should have the final word in deciding how to close banks, but Germany, the Netherlands and Austria want regulations that would be applied in the same way across all 27 countries in the EU, otherwise you undermine the law.

On a different matter, the EU and the United States agreed to initiate negotiations on “the biggest bilateral trade deal in history” between the two. The timeframe for the talks to conclude – 18 months – is a bit ambitious, but no doubt such a deal would be beneficial to all parties if some very thorny issues can be resolved.

Tariffs imposed by the U.S. and EU are already low on goods traded between the two, but there are still significant barriers preventing European companies from competing in the U.S. and vice versa.

For example, in the auto sector, the U.S. and EU employ different safety standards – strict in both cases, but each must meet all the other’s requirements before they can sell cars in that market, putting them at a disadvantage.

And agriculture is a mess, due to the European farming industry being more heavily subsidized than U.S. farmers. 

Plus both sides will have various industries calling for protectionist measures to prevent markets being swamped by the likes of Chinese imports.

Turning to China, it was a wild week here, too, as the banking system dealt with a liquidity crisis (cash crunch) engineered by the government.

The central bank is letting short-term interest rates spike to extraordinary levels to force banks to rein in the “shadow banking” market that has led to rampant speculation and informal lending, and thus hurt small business in its efforts to gain credit, while also creating asset bubbles, such as in real estate. So the People’s Bank of China (PBOC) has at times refused to inject significant funds into the money markets, which this week drove short-term funds to 25 percent before the government stepped in.

Of course this risks defaults and gridlock in the cash markets, a la during the collapse of Lehman.

The Financial Times’ Lex column:

“Remember when your parents confiscated favorite toys until you had tidied your room and promised (again) to keep it that way? China’s banks know the feeling. The country’s central bank has decided to stop pumping cash on demand into the banking system, forcing the banks to clean up their lending habits. Policy makers elsewhere must look with envy at a system where lessons in moral hazard can be handed down like that. The bailout of Northern Rock and the fallout from the collapse of Lehman Brothers encouraged the belief that everyone else could, in fact, expect the support of the state.

“China’s watch-how-you-lend lesson is not over. The squeeze has eased with an injection of cash by the People’s Bank of China, which has brought down exorbitant interbank rates. But assuming the intention was to slow credit growth – which is running at about a fifth year-on-year – the wider impact has yet to be felt.”

Meanwhile, related to the above, new-home prices in Beijing, Shanghai, and Guangzhou posted their biggest gains in May since at least January 2011. The conundrum is it’s tough to tighten the property market because of its impact on the economy.

At the same time, HSBC released its flash estimate of manufacturing for the month of June, the PMI, and at 48.3 it is down from May’s 49.2. The trend is not good. Additionally, foreign direct investment in May was at its worst level in four months.

China’s new leadership is reluctant to initiate new stimulus programs because it wants reforms, first, but that is a long-term fix, not short-term.

It’s also about the ever-present threat of instability, fueled by social media, on issues such as the environment, not just the economy. As I first noted months ago, pollution, especially in the major cities, is causing foreign executives to rethink moving to China when it means endangering the health of their loved ones, let alone themselves. And of course some of China’s best and brightest are leaving their homeland for the same reason...a brain drain China can ill afford. Would you stay? Heck no. 

Finally, in Japan, there was some good news on the export front, up 10.1% in May year over year and confirmation Prime Minister Abe’s plan to reenergize the economy is working, beginning with a weaker yen. Exports to the U.S. were up 16.3%, up 8.3% to China.

Street Bytes

--The market’s two-day swoon on Wednesday and Thursday, 560 points in the Dow Jones, was the worst since November 2011. For the week, the Dow lost 1.8% to 14799, while the S&P 500 lost 2.1% and Nasdaq 1.9%. The indexes are now back to levels of two months ago. The S&P is off 4.6% from its closing high, 5.6% off its intraday high.

--U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.37% 10-yr. 2.53% 30-yr. 3.58%

What a debacle. The yield on the 10-year rose 40 basis points on the week, the first time that has happened since March 2003. The level of 2.53% is also the highest since August 2011.

The consumer price index for May rose 0.1%, ex-food and energy up 0.2%. For the last 12 months, the CPI is up 1.4%, 1.7% on the core.

--The Treasury Department, in a report from late last Friday I didn’t see in time for inclusion in the WIR, reported foreign investors sold long-term U.S. Treasurys in record amounts in April. Together, public and private investors abroad sold a net $54.46 billion in U.S. government bonds and notes, the highest since monthly record keeping began in 1978. This included $30.8 billion of net sales by foreign private investors. 

At the same time, private foreign investors added a net $10.4 billion in equities in April. 

--Investors yanked $17.72 billion from bond funds in the two weeks ended June 12, according to data company Lipper.

--May housing starts came in less than expected at 914,000, but May existing home sales were better than projected at 5.18 million, with the median home price for the month up to $208,000, the best level since July 2008. Limited inventory is helping on the price front.

--Jobless claims for the week rose to 354,000 vs. a revised 336,000 the prior one.

--Gold plunged on Thursday to $1285, before finishing the week at $1297, the first close below $1300 since September 2010, Ben Bernanke having crushed gold investors’ hopes along with others when he signaled an end to QE. The Fed’s bond purchases never did ignite inflation as was long believed by gold bugs. For many miners, profitability dries up at $1200 an ounce.

--Shares in Oracle were punished to the tune of 9% after the software giant missed sales targets for a second quarter running. Net income was in line with expectations. The company blamed weak demand for its products in Asia and Latin America, but it’s also facing fierce competition from the likes of Salesforce.com and Workday.

Oracle likes to say these days it’s a cloud company, but the cloud is only 3% of its sales. As the Financial Times’ Lex column pointed out, the hardware business is still shrinking fast. Revenue growth has averaged 1% over the past seven quarters. And now Oracle has announced it is moving to the New York Stock Exchange.

“That’s where you legends belong,” observes the Lex team. “It’s like the Senior Tour....Better to enjoy your old age. You’ve earned it.”

--Singapore is dealing with its worst smog ever as a result of forest fires in Sumatra, with Prime Minister Lee Hsien Loong saying the crisis could last weeks. He also urged Jakarta to take “definitive action” to extinguish the fires, most of which are illegally set each year to clear the land, but an Indonesian minister said, “Singapore should not be behaving like a child and making all this noise.” 

--Saudi officials said that as of Wednesday, 49 people had contracted the new SARS-like virus in the kingdom and 32 have died, an “extremely high” mortality rate, according to a Johns Hopkins epidemiologist on the scene. Worldwide, the death rate from the Middle East Respiratory Syndrome Coronavirus is at 59 percent.

As I noted the other week, though, the Hajj in the fall is a major concern in terms of spreading the virus worldwide.

--The House defeated a farm bill that would have cut $20.5 billion in food-stamp spending, with 62 Republicans joining 172 Democrats in opposition, final vote 195-234. House Speaker John Boehner and Majority Leader Eric Cantor voted for it. Some Republicans voting against wanted deeper cuts in food stamp spending while others wanted reductions in farm assistance. Something has to be done by the fall.

Bloomberg reported spending by farm lobbyists increased to $138 million last year from $112 million in 2007, the year before the previous farm bill passed.

--Meanwhile, the Senate is poised to approve a massive military-style buildup along the U.S. border with Mexico as part of an effort to gain support for an immigration reform bill. But the plan for increased security alone would cost $30 billion.

The Senate is expected to complete work on the bill next week, but in order to develop momentum before the effort proceeds to the House, the Senate version really needs at least 70 votes of support.

House Republican leaders have plans to separate border security from the rest of any immigration bill and hold two votes, which would doom it, I imagine.

--In the annual J.D. Power & Associates Initial Quality Survey, which compiles a ranking of new-car quality based on problems owners reported during their first 90 days of ownership, Chevrolet and GMC were the only Detroit brands to finish in the top 10; for GM, though, its best showing in eight years. Ford finished sixth from the bottom as its score dropped for a third year in a row. Ford has fallen in large part over consumer dissatisfaction with its touch-screen multimedia system, MyFord Touch.

Porsche took the top spot, with Toyota’s Lexus brand No. 2.

Separately, Chrysler reversed course and agreed to recall many of the 2.7 million Jeeps prone to fires in rear-end collisions after initially defying a government request, thus avoiding a long showdown with the National Highway Traffic Safety Administration.

But it appears Chrysler is a winner because its proposed repair – installing low-cost trailer hitches on some models – is far less expensive than other potential remedies. NHTSA seemed satisfied.

--In the annual World Airline Awards, Emirates was named the best airline in the world for 2013, rising from No. 8 the year before. No airlines from the U.S. or Europe cracked the top 10.

Qatar Airways, last year’s No. 1, dropped to No. 2 and Singapore Airlines remained in third place.

--The U.N. Food and Agriculture Organization reported that its global fish price index, an industry benchmark that tracks both wild and farmed seafood, hit a record high in May, up 15% from a year ago.

A big factor is China’s growing appetite for high-end species, like tuna and oysters, that are at the same time in shorter supply. Oyster and mussel consumption in China is growing at 20% a year. 

Salmon prices have surged 27% in the past year, but remain below record levels. I’ve changed my Sunday habit from straight salmon to wild salmon burgers with feta cheese...just sayin’.

--Facebook and Google tried to reassure users in denying they gave the U.S. government special access to their servers or complied with broad requests for users’ information, in the wake of the revelations concerning the National Security Agency.

For its part, Facebook said it had been ordered to give up information contained in between 18,000 and 19,000 user accounts in the second half of 2012, though it did not disclose how many of the requests it had complied with. Facebook’s general counsel said the demands come “from things like a local sheriff trying to find a missing child, to a federal marshal tracking a fugitive, to a police department investigating an assault, to a national security official investigating a terrorist threat.”

No NSA requests for information on us Mets fans, as best I can determine.

--According to a report from Congress, student loans increased from $550 billion in late 2007 to just under $1 trillion in the first quarter of 2013. The average student loan balance is more than $27,000.

--The unemployment rate declined in 25 states in May. California’s jobless rate tumbled from 9.0% in April to 8.6%, the lowest level since November 2008. Nevada’s is down to 9.5% from 11.5% a year earlier. New York’s is 7.6%, New Jersey’s 8.6%, and Texas’ 6.5%. North Dakota continues to have the lowest at 3.2%.

--In a Gallup survey, only 30% of American workers “were engaged, or involved in, enthusiastic about, and committed to their workplace.” 70% have “checked out” or are “actively disengaged.”

--According to the latest Giving USA report, an industry publication that tracks giving in America, philanthropic donations, from individuals, foundations and corporations, increased just 1.5% in 2012 to $316.23 billion vs. $311.68 billion in 2011. The pre-recession record high in giving of $344.48 billion was set in 2007.

Giving to the arts in 2012, however, increased 7.8%, while gifts to religious organizations remained flat.

--Four suspected cases of the human variant of mad cow disease, one of them fatal, have emerged in western Canada, but the four are not believed to have stemmed from eating tainted beef....developing...

--In the New York area, George Zimmer, now ex-CEO of Men’s Wearhouse, was ubiquitous on television, telling customers in his cigarette-infused voice, “You’re going to like the way you look. I guarantee it.”

But this week, Zimmer was ousted by the board, apparently as a result of a dispute over the direction of the company and efforts to appeal to younger customers. The company has 1,100 stores nationally and same-store sales increased a solid 5.1% in the quarter ended May 4.

--In 2011, the U.S. cremation rate hit 42.2%. That figure is expected to hit 50% by 2017. Some states are already reporting cremation rates above 70%. 

Foreign Affairs

Iran: In a stunner, Hassan Rohani won Iran’s presidential election on the first ballot, capturing 50.7% of the vote. His nearest challenger, Tehran mayor Mohammad Bagher Qalibaf, garnered 16% and current nuclear program chief negotiator Saeed Jalili, once seen as a lock to win, took only 9%. 

Rohani is being called a “reformer,” a “moderate,” but this is still a hard-liner. Some in the press are getting carried away with their labels, and forgetting that it was the Guardian Council, under the control of Supreme Leader Ayatollah Khamenei, that hand-selected eight candidates, two of whom dropped out as those true reformers and moderates in the electorate coalesced around Rohani, with former presidents Khatami and Rafsanjani throwing their considerable support behind him. Rohani takes office Aug. 3.

Editorial / Washington Post

“Hassan Rohani will be Iran’s next president not only because he was picked by a majority of Iranian voters but also because the country’s supreme leader, Ayatollah Ali Khamenei, chose to accept his victory. That decision surprised us and some Western experts on Iran, but in retrospect there was good reason for it. Had the Islamic regime falsified the results and blocked Mr. Rohani, it would have risked a repeat of the popular uprising that followed the 2009 election, when followers of reformist candidates concluded – probably rightly – that the reelection of hard-liner Mahmoud Ahmadinejad had been rigged.

“At the same time, Mr. Rohani was in the presidential race because he had been judged to be a reliable follower of the supreme leader, unlike other moderate and reformist candidates who were banned from the ballot. Though he criticized the government’s recent handling of negotiations on Iran’s nuclear program, he made clear that he supports the program and that decisions about it would lie with Mr. Khamenei. At a press conference Monday, Mr. Rohani rejected the suspension of uranium enrichment, mandated by multiple U.N. Security Council resolutions, and repeated Tehran’s past rhetoric that an improvement in relations with the United States would require that ‘they have to recognize our nuclear rights [and] put away bullying policies against Iran.”

Bret Stephens / Wall Street Journal

“Mr. Rohani is...the man who chaired Iran’s National Security Council between 1989 and 2005, meaning he was at the table when Iran masterminded the 1994 bombing of the Jewish cultural center in Buenos Aires, killing 85 people, and of the Khobar Towers in 1996, killing 19 U.S. airmen. He would also have been intimately familiar with the secret construction of Iran’s illicit nuclear facilities in Arak, Natanz and Isfahan, which weren’t publicly exposed until 2002.

“In 2003, Mr. Rohani took charge as Iran’s lead nuclear negotiator, a period now warmly remembered in the West for Tehran’s short-lived agreement with Britain, France and Germany to suspend its nuclear-enrichment work. That was also the year in which Iran supposedly halted its illicit nuclear-weapons’ work, although the suspension proved fleeting, according to subsequent U.N. repots.

“Then again, what looked to the credulous as evidence of Iranian moderation was, to Iranian insiders, an exercise in diplomatic cunning. ‘Negotiations provided time for Isfahan’s uranium conversion project to be finished and commissioned, the number of centrifuges at Natanz increased from 150 to 1,000 and software and hardware for Iran’s nuclear infrastructure to be further developed,’ Seyed Hossein Mousavian, Mr. Rohani’s spokesman at the time, argues in a recent memoir....

“Now the West is supposed to be grateful that Mr. Ahmadinejad’s scowling face will be replaced by Mr. Rohani’s smiling one – a bad-cop, good-cop routine that Iran has played before. Western concessions will no doubt follow if Mr. Rohani can convince his boss, Supreme Leader Ali Khamenei, to play along. It shouldn’t be a hard sell: Iran is now just a head-fake away from becoming a nuclear state and Mr. Khamenei has shown he’s not averse to pragmatism when it suits him.”

Editorial / Wall Street Journal

“The White House rather too effusively praised the election results, and no doubt it will ramp up its beseeching diplomacy to strike a nuclear deal with the Rohani government. President Obama is desperate to find some agreements to avoid having to launch a military strike. Expect Mr. Rohani to go along for the talks, but mainly to ease Western sanctions and buy more nuclear time.”

Israeli Prime Minister Benjamin Netanyahu weighed in on the election results.

“Wishful thinking is not a substitute for policy. The new Iranian president has been very clear. He is the author of a doctrine. You could call it ‘talk and enrich,’ that is ‘talk and continue to enrich uranium for nuclear weapons.’

“We cannot allow Iran to play this game. We cannot let Iran ride out the clock through endless talks. Iran must comply with U.N. Security Council resolutions.”

Netanyahu continues to insist on a total cessation of all enrichment of nuclear materials at all levels, the removal from Iran of all enriched nuclear material and the closure of Iran’s illicit nuclear facilities.

“If [Iran] insists on continuing to develop its nuclear program, the answer needs to be clear – stopping its nuclear program by any means,” said the Israeli prime minister. “In the past 20 years the only thing that brought about a temporary freeze in Iran’s nuclear program was the fear of aggressive action against it.”

Iran will face strong pressure to resume atomic talks before September to see if Rohani’s victory means any change in policy out of Tehran. In his first speech, Rohani promised to pursue “constructive interaction with the world.”

“We won’t let the past eight years be continued,” he said. “They brought sanctions for the country. Yet, they are proud of it. I’ll pursue a policy of reconciliation and peace. We will also reconcile with the world.”

But Rohani added, Iran “has done nothing to deserve sanctions,” and that Iran has carried out its atomic operations “within international frameworks. If sanctions have any benefits, they will only benefit Israel.”

Syria: Charles Krauthammer / Washington Post

“The war in Syria, started by locals, is now a regional conflict, the meeting ground of two warring blocs. On one side, the radical Shiite bloc led by Iran, which overflies Iraq to supply Bashar al-Assad and sends Hizbullah to fight for him. Behind them lies Russia, which has stationed ships offshore, provided the regime with tons of weaponry and essentially claimed Syria as a Russian protectorate.

“And on the other side are the Sunni Gulf states terrified of Iranian hegemony (territorial and soon nuclear); non-Arab Turkey, now convulsed by an internal uprising; and fragile Jordan, dragged in by geography.

“And behind them? No one. It’s the Spanish Civil War except that only one side – the fascists – showed up. The natural ally of what began as a spontaneous, secular, liberationist uprising in Syria was the United States. For two years, it did nothing.”

On Thursday, Russia seemed to reaffirm plans to supply Syria with advanced anti-aircraft weaponry, which would substantially hamper any efforts by the West to establish a no-fly zone, or for the U.S. and its allies to move on Assad’s air force and air bases. Just last week it appeared Russia wasn’t rushing to supply Syria with the S-300 air and missile defense system.

Earlier, as part of the G-8 summit, British Prime Minister David Cameron said, “It is unthinkable that President Assad can play any part in the future of his country. He has blood on his hands.”

Canadian Prime Minister Stephen Harper accused Russian President Vladimir Putin of supporting “thugs” in Damascus.

Putin, speaking of the announcement by President Obama that the administration would offer military support to the rebels, said in front of host Cameron: “I think you will not deny that one does not really need to support people who not only kill their enemies, but open up their bodies, eat their intestines, in front of the public and cameras....Are these the people you want to support? Is it them who you want to supply with weapons? Then this probably has little relation to the humanitarian values that have been preached in Europe for hundreds of years.”

As for supplying arms to the rebels, the London Times editorialized:

“The truth is that providing moderate rebel leaders with the means to defend themselves and civilians in rebel-held areas is the least bad option left to the West after two years of drift.”

British Foreign Secretary William Hague described the Syrian conflict this week as the worst human tragedy of our times, “on a trajectory to get worse.”

London Times:

“No intervention can be cost-free, but standing by as Syria burns – never a wise or honorable course – is now untenable. Assad will negotiate only when he sees that the alternatives are stalemate and defeat, and he will not see this unless moderate rebels can defend themselves.”

Next door in Jordan, King Abdullah II warned his kingdom is able “at any moment” to protect its national interest.

“If the world does not mobilize or help us in the issue [of Syria] as it should, or if this matter forms a danger to our country, we are able at any moment to take measures that will protect our land and the interests of our people,” said Abdullah.

The U.S. is preparing Jordanian personnel to potentially spot and protect Syrian chemical arms sites. Washington is building up a force in Jordan, which is being overwhelmed by more than 500,000 refugees. The West cannot afford to lose Abdullah. 

Editorial / Washington Post

“(It’s) time for Mr. Obama to recognize that the war in Syria threatens vital U.S. interests – from the fight against al-Qaeda to the security of Israel. The delay in arming the rebels has already steeply raised the cost of achieving an acceptable outcome; too weak an intervention now will merely do so again.”

Separately, Egyptian President Mohamed Morsi said he had cut all diplomatic ties with Damascus and called for a no-fly zone, as you see reaction to the sectarian conflict spread throughout the region. Morsi is a Sunni Islamist leader. Morsi also warned Assad’s allies, Shiite militia Hizbullah, to pull back.

Lebanon: President Michel Sleiman called on Hizbullah to pull its forces out of Syria, saying any further involvement would destabilize Lebanon, this as Hizbullah takes the fight alongside Assad to Aleppo.

Hizbullah leader Sheikh Hassan Nasrallah said in a speech to supporters in Beirut that his group will keep fighting in Syria “wherever needed.”

Sleiman, a Maronite Christian, has become more assertive in his criticism of Syria, calling on both the Arab League and U.N. to force Syria to end its violations of Lebanese sovereignty.

Turkey: Worrisomely, police are carrying out raids and arresting dozens of people suspected of supporting the opposition during the wave of antigovernment protests. Left-wing groups are the initial target. Taksim Square/Gezi Park in Istanbul was once again the scene of violence as Prime Minister Erdogan told the police to clear the park, 24 hours after negotiating with opposition leaders on the fate of a planned development in Gezi, one of the few open spaces in teeming Istanbul.

Erdogan’s supporters staged a massive rally of their own on Sunday.

Unions called for a one-day nationwide strike to protest the police crackdown.

Iraq: Charles Krauthammer / Washington Post

“Whatever the wisdom of the Iraq war in the first place, when Obama came to office in January 2009 the war was won. Al-Qaeda in Iraq had been routed. Nouri al-Maliki’s Shiite government had taken down the Sadr Shiite extremists from Basra all the way north to Baghdad. Casualties were at a wartime low; the civil war essentially over.

“We had a golden opportunity to reap the rewards of this too-bloody war by establishing a strategic relationship with an Iraq that was still under American sway. Iraqi airspace, for example, was under U.S. control as we prepared to advise and rebuild Iraq’s nonexistent air force.

“With our evacuation, however, Iraqi airspace today effectively belongs to Iran – over which it is flying weapons, troops and advisers to turn the tide in Syria. The U.S. air bases, the vast military equipment, the intelligence sources available in Iraq were all abandoned. Gratis. Now we’re trying to hold the line in Jordan.

“Obama is learning very late that, for a superpower, inaction is a form of action. You can abdicate, but you really can’t hide. History will find you. It has now found Obama.”

At least 51 were killed in a wave of bombings last Sunday. Nearly 2,000 have been killed in violence here since the start of April.

Afghanistan: Speaking of wars lost, Afghan President Hamid Karzai suspended talks with the United States on a new security deal to protest the way his government was being left out of initial peace negotiations with the Taliban.

“In view of the contradiction between acts and the statements made by the United States of America in regard to the peace process, the Afghan government suspended the negotiations, currently underway in Kabul between Afghan and U.S. delegations on the bilateral security agreement,” Karzai’s statement said.

The Americans and Taliban said they would first meet in Qatar, where the Taliban has opened an office, before any talks with the Afghan government. On Wednesday, the Taliban claimed responsibility for a rocket attack on Bagram Air Base that killed four Americans.

China: The government is pushing ahead with a plan to move 250 million rural residents into newly constructed towns and cities over the next 12 years, an event Beijing hopes will stimulate a new wave of growth. Aggressive state spending is planned on new roads, hospitals, schools, community centers – which could cost upward of $600 billion a year, according to estimates. Plus you have spending on health care and pensions for the elderly. None of this will be easy.

North Korea: Pyongyang proposed high-level nuclear and security talks with the United States, days after calling off talks with South Korea. The White House was underwhelmed.

July 27 is a key date, the 60th anniversary marking the close of the Korean conflict, which ended in an armistice. A peace treaty ending the war was never formally signed and it is expected North Korea will use this day to draw attention to its divide with the South. Workers are said to be feverishly preparing Pyongyang for mass (controlled) demonstrations.

Brazil: I have been writing for the better part of a year how unprepared Brazil is for both the 2014 World Cup and the 2016 Rio Olympics; how just a few weeks ago the main venue for the track and field events at the Games was being shut down until 2015 for massive repairs on the just constructed facility.

The costs for both, starting with $13 billion for the World Cup, are obviously huge. I just didn’t see the people revolting over it, coupled with rising anger over surging transportation costs and endemic corruption. A member of Brazil’s 2002 winning World Cup team, Rivaldo Ferreira, tweeted, “It’s shameful to spend so much money for this World Cup and leave the hospitals and schools in such a precarious state. At this moment we aren’t in shape to host the World Cup, we don’t need it, we need education and health.” [Bloomberg]

That sums up the attitude of the million+ who participated in massive protests across the nation this week that turned violent. Local officials, such as in Sao Paolo, sought to quell the disturbances by rescinding increases in bus fares that hurt the poor and middle class, but the protests seem to be taking on a life of their own. A new slogan has emerged: “The giant has awakened.”

Pope Francis, champion of the poor, is slated to visit in a matter of weeks. That will be interesting.

Mass protests are rare in Brazil, but it’s not as if violence isn’t in the culture (see the murder rate), so no telling where this all goes.

As for President Dilma Rousseff, she has been largely absent since the demonstrations broke out, but finally addressed the nation on television Friday night. 

Czech Republic: Follow-up...Petr Necas resigned as prime minister over the growing bribery and spying scandal, taking his government down with him. The nation has had six prime ministers since 2002, and Prague is finding it hard to find foreign investors, who view Czech Republic as a country run by corrupt politicians and increasingly under the sway of Russian interests, never a good thing. 

Random Musings

--In the latest CNN/ORC International survey, President Obama’s job approval rating dropped 8 percentage over the past month to 45%, Obama’s lowest rating in more than 18 months. The president’s disapproval rating soared 9 points to 54% since mid-May.

It was rather startling to see that among his base, younger Americans, 18-29, his approval rating plunged from 65% to 48% over the same period.

On the issue of the IRS scandal, last month only 37% of the public thought that the IRS controversy led to the White House, with 55% saying that agency officials acted on their own without direct orders from Washington. Now the number who say the White House directed that IRS program has increased 10 points, to 47%, virtually the same as the 49% who believe the IRS agents acted on their own. 

One thing is clear, Democrats running for reelection next year will be running away from their president in droves.

--George Will / Washington Post

“The question of whether Barack Obama’s second term will be a failure was answered in the affirmative before his Berlin debacle, which has recast the question, which now is: Will this term be silly, even scary in its detachment from reality?

“Before Berlin, Obama set his steep downward trajectory by squandering the most precious post-election months on gun-control futilities and by a subsequent storm of scandals... Then came Wednesday’s pratfall in Berlin.

“There he vowed energetic measures against global warming (‘the global threat of our time’). The 16-year pause of this warming was not predicted by, and is not explained by, the climate models for which, in his strange understanding of respect for science, he has forsworn skepticism.

“Regarding another threat, he spoke an almost meaningless sentence that is an exquisite example of why his rhetoric cannot withstand close reading: ‘We may strike blows against terrorist networks, but if we ignore the instability and intolerance that fuels extremism, our own freedom will eventually be endangered.’ So, ‘instability and intolerance’ are to blame for terrorism? Instability where? Intolerance of what by whom ‘fuels’ terrorists? Terrorism is a tactic of destabilization. Intolerance is, for terrorists, a virtue....

“(Obama) trotted out another golden oldie in Berlin when he vowed to resuscitate the cadaver of nuclear arms control with Russia. As though Russia’s arsenal is a pressing problem. And as though there is reason to think President Vladimir Putin, who calls the Soviet Union’s collapse ‘the greatest geopolitical catastrophe of the century,’ is interested in reducing the arsenal that is the basis of his otherwise Third World country’s claim to great-power status.

“Shifting his strange focus from Russia’s nuclear weapons, Obama said ‘we can...reject the nuclear weaponization that North Korea and Iran may be seeking.’ Were Obama given to saying such stuff off the cuff, this would be a good reason for handcuffing him to a teleprompter. But, amazingly, such stuff is put on his teleprompter and, even more amazing, he reads it aloud.

“Neither the people who wrote those words nor he who spoke them can be taken seriously. North Korea and Iran may be seeking nuclear weapons? North Korea may have such weapons. Evidently Obama still entertains doubts that Iran is seeking them.”

--According to Gallup, Congress is down to a 10% approval rating – the lowest ever recorded for any institution in polling history. The military was tops with 76% having confidence in it.

My own rating of the military is plummeting, see below.

--Army Gen. Keith Alexander, director of the National Security Agency, defended the government’s surveillance and spy operations in congressional testimony as being critical in the terrorism fight.

Intelligence officials disclosed some details on two thwarted attacks – one targeting the New York subway system, another to bomb a Danish newspaper office that had published the cartoon depictions of the Prophet Mohammad. Gen. Alexander offered details on a plot to target Wall Street. Phone records provided by the NSA were crucial in foiling it.

Rep. Mike Rogers, R-Mich., chairman of the House Intelligence Committee, and Rep. Dutch Ruppersberger of Maryland, the top Democrat, said the programs were vital to the intelligence community and assailed Edward Snowden’s actions as criminal.

“It is at times like these where our enemies within become almost as damaging as our enemies on the outside,” said Rep. Rogers.

Ruppersberger said the “brazen disclosures” put the United States and its allies at risk.

On Monday, Snowden accused members of Congress and administration officials of exaggerating their claims about the success of the data gathering programs. I don’t disagree that there is probably an element of truth in this last bit. In the Najibullah Zazi case, an Afghan American living in Aurora, Colo., who plotted with two others to conduct suicide bombings in the New York City subway system, U.S. officials are pointing to the authority granted by the Foreign Intelligence Surveillance Act (FISA) as being critical in identifying that particular plot.

But the British first obtained the critical e-mail address, linking Zazi to a senior al-Qaeda operative.

--Iceland says it has held informal talks with an intermediary of U.S. intelligence leaker Edward Snowden, who reportedly may want to seek asylum there. A 2010 resolution by the Icelandic parliament, that is not legally binding, called for making the country a safe haven for journalists and whistleblowers from around the globe.

On Friday, Snowden was charged with violating the Espionage Act, theft and “conversion of government property”...sharing classified documents with individuals not cleared to receive them.

--A USA TODAY/Pew Research Center Poll finds that by a 54-38 margin, Americans say Edward Snowden should be criminally prosecuted. By a 54-31 margin, Americans believe the surveillance programs he exposed help prevent terrorist attacks. But in a bit of a contradiction, by 48-47, Americans divide over whether they approve or disapprove of the programs as part of the effort to fight terrorism.

--The Washington Post’s Jennifer Rubin on President Obama’s foreign policy:

“Unfortunately, the president who fancies himself as the guy who ends wars and doesn’t start them has no idea that, without military success and the threat of military force, your influence wanes and our adversaries come to regard us, well, as a joke.

“We didn’t win the Cold War at the negotiating table. We won by continually challenging Communist aggression and maintaining a strong military that eventually helped bankrupt the Soviet Union.

“The mistake the left makes is in assuming other countries have similar interests and views and sitting down for a chat is like working on a farm bill in Congress – managing to make compromises here and there. But when dealing with adversaries on the international stage, there rarely is a case in which we can persuade their leaders to ‘see it our way’ or change their own view of what is ‘good for them.’

“Unless and until the U.S. president decides to stop talking down and eschewing all hard power (and the military strength it would require), our adversaries are going to run circles around us – just as they are doing now.”

--My point about Benghazi has always been not as much about the talking points, but rather the issue of why our troops weren’t on standby, like at Aviano air base in Italy (let alone the Special Forces unit in country that was held back). I have written bitterly about the leadership of our military...since the start of the Iraq War, frankly. I praise the grunts. But many of our generals are pathetic. It’s also but one reason why my trust in our government has plunged to my own personal low.

So I have to take note of an op-ed this week in the Wall Street Journal by Kevin G. Norton, a national security consultant and former U.S. Army infantry officer who served in Iraq and Afghanistan.

In part:

“In Benghazi, the U.S. government simply did not do all it could to protect its agents in the field. Leon Panetta, defense secretary at the time of the attack, later told Congress that U.S. forces were not deployed because ‘you don’t deploy forces into harm’s way without knowing what’s going on.’

“This was a stunning abdication of responsibility. Mr. Panetta and President Obama knew that Americans were under attack that night. Thousands of U.S. military personnel have given their lives to save their fellow Americans – civilians and soldiers alike – under similar circumstances.

“At the conclusion of his recent speech on Memorial Day, Mr. Obama issued a challenge to all Americans: ‘Let it be our task, every single one of us, to honor the strength and the resolve and the love these brave Americans felt for each other and for our country.’ Those brave Americans include Ambassador Chris Stevens and three others, including two former Navy SEALs, who died in Benghazi.

“Amid the many recent scandals that have come out of Washington, there is a danger that the disastrous Benghazi episode will be put aside before it has been adequately explored – before Americans know exactly who did and did not perform capably and honorably during those terrible hours and their aftermath.

“We do already know one essential truth about Benghazi: The sacred bond between the government and those who serve it was broken, and the message was delivered to Americans serving around the world. That’s a scandal.”

--Reason No. 58 to not blindly admire “the generals.”

Craig Whitlock / Washington Post

“Pentagon investigators found that the three-star Army general in charge of the U.S. Military Academy at West Point misused his office by having subordinates perform personal tasks, but the results remained confidential until the eve of his retirement, according to newly released documents.

“Lt. Gen. David H. Huntoon Jr., the West Point superintendent, improperly made staffers work at private charity dinners, provide free driving lessons and feed a friend’s cats, according to a report by the Pentagon’s Office of Inspector General.

“The report was completed in May 2012, but the inspector general and the Army kept the results secret until Friday (Ed. June 14), when a heavily redacted version was released in response to Freedom of Information Act requests filed by the Washington Post and other news organizations. Huntoon is scheduled to retire July 17 after a 40-year military career.

“In response to the findings, Huntoon paid his staffers $1,815 for the work and told investigators that he ‘never intended to violate any regulation’ and ‘accepted full responsibility for his actions,’ according to the report....

“Huntoon is one of several Army generals who have been investigated or censured for misconduct the past 18 months.”

Remember, your editor has long subscribed to Army Times and I’ve read all the stories of generals misbehaving. In the case of Huntoon, he had aides work at private dinners and charity events, “giving them only $30 and $40 Starbucks gift cards in exchange for about 18 hours of work each.” [Craig Whitlock]

Recently, the top commander at Fort Jackson, S.C., was suspended after allegations of a physical altercation with a mistress. There are countless stories of this ilk.

--The other day, former House Speaker Newt Gingrich gave a presentation to a House Judiciary subcommittee on one of his favorite topics, the dangers from an electromagnetic pulse (EMP) attack that would plunge the United States into darkness, a topic I have written of before.

Skeptics say the threat is overblown; that a nation such as North Korea wouldn’t waste a nuclear weapon by detonating it in the air, hoping for secondary effects.

But as reported by Ben Terris of the National Journal, “Gingrich and his allies counter that taking out the infrastructure of huge swaths of the country would do much more damage than a strike on a single city. ‘You take the defense budget, the Homeland Security budget, and you ask yourself where on that list of priorities would be the cost of not being prepared for EMP, and my guess is you can find literally hundreds of billions of dollars of lesser important investments,’ Gingrich said.”

--Former investigators are pushing to reopen the probe into the 1996 crash of TWA Flight 800 off the coast of New York, claiming new evidence points to the discounted theory the jumbo jet was downed by a missile strike, just minutes after taking off from John F. Kennedy Airport, bound for Paris. All 230 people on board were killed.

In conjunction with a soon to be released documentary on the topic, former investigators raise doubts about the National Transportation Safety Board’s conclusion that the crash was caused by a center fuel tank explosion, probably caused by a spark from a short-circuit in the wiring.

“We don’t know who fired the missile,” said Jim Speer, an accident investigator for the Air Line Pilots Association, one of those seeking a new review of the probe. “But we have a lot more confidence that it was a missile.”

The former investigators calling for a new probe, including former NTSB accident investigator Hank Hughes and Bob Young, a former senior accident investigator for the now-defunct TWA, say new evidence that a missile may have taken down the jet includes analysis of radar of the jetliner.

--George Will had an op-ed on education and inequality, citing, among others, Jerry Z. Muller, a Catholic University historian, who argued in a recent issue of Foreign Affairs “that expanding equality of opportunity increases inequality because some people are simply better able than others to exploit opportunities.” [Will]

Mr. Will then cites the Cato Institute’s Brink Lindsey, who argued in “Human Capitalism: How Economic Growth Has Made Us Smarter – and More Unequal” that this growth intensifies society’s complexity, which “has opened a great divide between those who have mastered its requirements and those who haven’t.”

Will:

“Modernity – education-based complexity – intensifies the demands on mental abilities. People invest increasingly in human capital – especially education – because status and achievement increasingly depend on possession of the right knowledge.

“Lindsey cited research showing that ‘by the time they reach age 3, children of professional parents have heard some 45 million words addressed to them – as opposed to only 26 million words for working-class kids, and a mere 13 million words in the case of kids on welfare.’ So, class distinctions in vocabularies are already large among toddlers.  Parental choice of neighborhoods and schools mean that children of college-educated parents hang out together. Such peer associations may have as much effect on a child’s development as do parents. These factors, Lindsey said, explain why ‘people raised in the upper middle class are far more likely to stay there than move down, while people raised in the working class are far more likely to stay there than move up.’

“In a historical blink, Lindsey said, humanity has moved from lives rooted in a remembered past to lives focused on an imagined future. This orientation favors the intellectually nimble. ‘Who gets ahead, who struggles to keep up, and who gets left behind are now determined primarily by how people cope with the mental challenges of complexity.’ And coping skills are incubated in families.

“Today, the dominant distinction defining socioeconomic class is between those with and without college degrees. Graduates earn 70 percent more than those with only high school diplomas. In 1980, the difference was just 30 percent.”

But, Mr. Will adds, “Soon the crucial distinction will be between those with meaningful college degrees and those with worthless ones. Many colleges are becoming less demanding as they become more expensive: They rake in money – much of it from government-subsidized tuition grants – by taking in many marginally qualified students who are motivated only to acquire a credential and who learn little.”

And talk about an indictment of today’s system: “Lindsey reported that in 1961, full-time college students reported studying 25 hours a week on average; by 2003, average studying time had fallen to 13 hours. Half of today’s students take no courses requiring more than 20 pages of writing in a semester. Given the role of practice in developing expertise, ‘the conclusion that college students are learning less than they used to seems unavoidable.’”

Lindsey concluded: “Most American kids are now raised in an environment that is arguably less favorable for developing human capital than that in which their parents were raised.”

--The “dead zone” in the waters off Texas and Louisiana is going to be at a record level this summer, federal officials announced. It’s all about the Midwestern floods washing down massive amounts of fertilizer, which then spurs the growth of algal blooms that remove oxygen from the growth.

Conversely, last year’s dead zone was one of the smallest on record as the drought prevented runoff from carrying as much fertilizer down the Mississippi River.

--Poor Ed Koch. The former mayor’s tombstone at Trinity Church in Washington Heights, N.Y., was mistakenly engraved with the wrong birth year – Dec. 12, 1942, instead of 1924.

Koch had picked out his tombstone years in advance. He wants people to visit him. I mean the man even did a pre-obituary video interview – which wasn’t published until after his death this past February.

It wasn’t until a few weeks ago, however, that the dates were etched in by the stone-cutter. It took a while before the error was discovered. Needless to say it’s being corrected.

You can bet Koch is fuming, he having been a real stickler for details.

--The Food Network dumped star Paula Deen after her admission to having used racial slurs in the past, the fact of which came up in a court proceeding.

--Editorial / London Times

“For 86 episodes, over eight years, (James) Gandolfini (who died this week of a heart attack at the age of 51) not only turned Tony Soprano into as big and as memorable a character as Marlon Brando’s Godfather, but he made The Sopranos a show that catapulted television into level-pegging with the big screen. TV became a place where movie stars no longer felt they might be slumming it.

The Sopranos, perhaps TV’s best show yet, changed television forever. James Gandolfini was pivotal in that transformation. It is a huge legacy.”

--Finally, my thoughts and prayers are extended to my friends in Calgary, Canada. It was four years ago I spent a week at the Calgary Stampede, something I had always wanted to do, and had an absolute blast.

But the Stampede, so important to the regional economy, will undoubtedly be postponed this year due to the historic flooding the city is suffering, including the entire fairgrounds being under feet of water. On the fairgrounds is the Saddledome, home to the National Hockey League’s Calgary Flames (and where I saw Kenny Chesney in concert), and it is flooded up to Row 10!

I just watched a video from the Calgary Sun and it is so sad. I mean the entire downtown is flooded, too.   Such a tragedy.    At least three lives were lost, though as I go to post, Calgary’s mayor said the Stampede will be held. I don’t know how the heck it can be.

---

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

God bless America.
---

Gold closed at $1292
Oil, $93.69

Returns for the week 6/17-6/21

Dow Jones -1.8% [14799]
S&P 500 -2.1% [1592]
S&P MidCap -3.0%
Russell 2000 -1.8%
Nasdaq -1.9% [3357]

Returns for the period 1/1/13-6/21/13

Dow Jones +12.9%
S&P 500 +11.7%
S&P MidCap +11.4%
Russell 2000 +13.5%
Nasdaq +11.2%

Bulls 46.8
Bears 21.9 [Source: Investors Intelligence]

Regarding the Nightly Review videos, I created yet another monster. They were taking up a huge amount of time I need to spend elsewhere. It was burning me out. And then this week I was away some and now I have family responsibilities on the health front that will preclude me from doing any videos for quite a while (think elderly parents in need). 

In the future I’m going to use the channel for special segments, such as on the budget deficit, or to blast targets of mine, he wrote with a smile.

For those of you who caught my work, I hope you appreciate that this one-man operation turned out a quality product in terms of content, far better, frankly, than the network news...that is if you want to learn something other than the name of Kanye and Kim’s baby.

Have a great week. I appreciate your support.

Brian Trumbore