Week in Review

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Week in Review

06/29/2013

For the week 6/24-6/28

The Fed and Wall Street

With the final look at U.S. first-quarter GDP, up 1.8% and revised downward unexpectedly from 2.4%, it’s a good time to once again look at the putrid recovery since the financial crisis vs. the Reagan recovery off the 1980-82 recessions.

1980 Q2  -7.9 [annualized]
1980 Q3 -0.7
1980 Q4 7.6
1981 Q1 8.6
1981 Q2 -3.2
1981 Q3 4.9
1981 Q4 -4.9
1982 Q1 -6.4
1982 Q2 2.2
1982 Q3 -1.5
1982 Q4 0.3
1983 Q1 5.1
1983 Q2 9.3
1983 Q3 8.1
1983 Q4 8.5
1984 Q1 8.0
1984 Q2 7.1
1984 Q3 3.9
1984 Q4 3.3
1985 Q1 3.8
1985 Q2 3.4
1985 Q3 6.4
1985 Q4 3.1

2008 Q1 -1.8
2008 Q2 1.3
2008 Q3 -3.7
2008 Q4 -8.9
2009 Q1 -5.3
2009 Q2 -0.3
2009 Q3 1.4
2009 Q4 4.0
2010 Q1 2.3
2010 Q2 2.2
2010 Q3 2.6
2010 Q4 2.4
2011 Q1 0.1
2011 Q2 2.5
2011 Q3 1.3
2011 Q4 4.1
2012 Q1 2.0
2012 Q2 1.3
2012 Q3 3.1
2012 Q4 0.4
2013 Q1 1.8

I wanted to provide some context, thus more numbers than you are used to seeing in comparisons of this kind. It took a while for Reagan to wrestle down some of what he inherited, with then Fed Chairman Paul Volcker determined to fight inflation and letting interest rates rise to historic levels before the Fed lowered the funds rate for the first time in the summer of 1982, which set off the greatest bull market in history. Reagan’s economic policies were then allowed to flourish, as you can see from the growth rates the U.S. economy registered during the recovery.

And President Barack Obama did indeed inherit a mess, as he still likes to say 4 ½ years later, only the Federal Reserve has maintained a zero percent funds rate during this whole time and it’s rather easy to observe Mr. Obama’s economic policies have not borne fruit.

But the markets got the heebie-jeebies recently when the Federal Reserve began to talk of taking away the punch bowl, specifically the latest bond-buying program, quantitative easing III (QE, or QE 3), to the tune of $85 billion a month in Treasuries and mortgage-backed securities. Coupled with the Fed’s basic promise to keep the short-term funds rate at zero until the unemployment rate hit 6.5% from its current 7.6%, QE had fueled the big rally in equities off the March 2009 lows. Bernanke said in his press conference following the Fed’s Open Market Committee confab of June 18-19 that the Fed could begin to pull back, taper its purchases of bonds by end of the year and finish up its program by middle of 2014.   So, as you saw two weeks ago, the markets didn’t respond well to that.

Over the weekend, the issue of China and trouble in its banking sector also came to the forefront and thus this past Monday was another ugly day for global markets. It was then the Fed felt compelled to walk back Chairman Bernanke’s comments that he was preparing to taper Fed purchases, so a number of Fed governors rushed to tell the world (that was also on tenterhooks) this wasn’t necessarily so. No one need worry. Everyone had misinterpreted the chairman. The Fed’s easy money policy would be around for months, and if necessary, far longer to come; it all depends on the economy.

The capper was Bill Dudley, president of the Federal Reserve Bank of New York and a permanent voting member on the FOMC, who said a tapering of bond buying later this year was only “one possible outcome” and market expectations of an early increase in interest rates were “out of sync” with the thinking at the U.S. central bank.

Dudley said that “a few points” deserved to be emphasized. The first was that QE depended on “the outlook rather than the calendar” and was “one possible outcome.”

“If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook – and this is what has happened in recent years – I would expect that the asset purchases would continue at a higher pace for longer,” said Dudley.

As for the other half of the Fed’s program, keeping the funds rate at zero, Dudley said that a “rise in short-term interest rates is very likely to be a long way off.” It would take “considerable time” for the unemployment rate to hit the targeted 6.5%, and even then, the Fed could “wait considerably longer before raising short-term rates.”

Dudley said the vicious market reaction to Bernanke’s timetable was essentially out of line. “Such an expectation (for the first increase in rates) would be quite out of sync with both FOMC statements and the expectations of most FOMC participants,” he added, with a smirk and a sneer. [Maybe not the latter...thrown in for dramatic effect.]

Other Fed officials had earlier said the same thing. Market participants were idiots for thinking the Fed was going to taper before the economy had improved substantially, let alone hike interest rates. Richard Fisher, president of the Federal Reserve Bank of Dallas blamed the “feral hogs” of financial markets for pushing up the yields on U.S. Treasuries, and that “The word ‘exit’ is not appropriate here.”

So after all this talk, and the attempt to put the markets at ease, stocks rallied strongly the rest of the week, save for a late Friday selloff that was more about an index rebalancing, as well as Federal Reserve Gov. Jeremy Stein’s failing to follow the script as he noted in a presentation that the central bank may begin to reduce its stimulus in September. Bond yields nonetheless stabilized.

But last weekend, a voice that needs to be listened to, that of Stephen Cecchetti, head of the Bank for International Settlements’ monetary and economic department, weighed in on the easy money policies of all the world’s central banks. Understand, the BIS is like the central banks’ banker (or central bankers’ bank).   The BIS represents all of them.

So in its annual report to the central banks, Cecchetti and his team said the banks must head for the exit and stop trying to spur a global economic recovery, calling on the central banks to re-emphasize their focus on inflation and press governments to do more to spearhead a return to growth.

The BIS said the global economy was “past the height of the crisis” and that the goal of policy was “to return still-sluggish economies to strong and sustainable growth.”

It said cheap and plentiful central bank money had merely bought time, and that further bond buying would not in any way help growth and only delay needed adjustments to governments’ and households’ balance sheets.

“Alas, central banks cannot do more without compounding the risks they have already created,” the BIS said, adding that delivering more “extraordinary” stimulus was “becoming increasingly perilous.”

“How can central banks encourage those responsible for structural adjustment to implement those reforms? How can they avoid making the economy too dependent on monetary stimulus? When is the right time for them to pull back...[and] how can they avoid sparking a sharp rise in bond yields? It is time for monetary policy to begin answering these questions,” the report said.

“Although six years have passed since the eruption of the global financial crisis, robust, self-sustaining growth still eludes the global economy.”

The BIS, addressing the likes of Mario Draghi and his rallying cry that the European Central Bank would do “whatever it takes” to preserve the currency bloc was now being misconstrued, it warned.

“Central banks cannot ensure the sustainability of fiscal finances,” the BIS continued. “And, most of all, central banks cannot enact the structural economic and financial reforms needed to return economies to the real growth paths.”

Cecchetti said that the initial rise in yields on U.S. Treasuries in response to Chairman Bernanke’s hints in May and at his June presser that the Fed would slow the pace of its asset purchases “should come as no surprise.” [Claire Jones / Financial Times; BBC News]

Despite the attempts to walk back Chairman Bernanke’s recent comments, interest rates remain far higher than the Fed expected at this point. The 10-year Treasury, trading with a yield of 1.63% on May 2, soared to 2.67% earlier this week before settling at 2.50%. Bond kings Bill Gross and Jeffrey Gundlach both had their lunches handed to them. Gundlach specifically saying we would not cross 2.50% and then seeing the market do just that a mere two days later. Gross getting clocked on his Total Return Fund over the past month. By week’s end, however, both maintained their bullish short-term stance on Treasurys, saying we were headed back down, just as the Fed would love to see.

Because, sports fans, the mortgage rate on a 30-year fixed had its biggest one-week rise in 26 years, up to 4.46% and 4.56%, depending on your metric, when it was under 4.00% just the week before and all the way down to 3.40% first week in May.   A one-point move in rates is $100+ a month more in mortgage payments on a $160,000-$200,000 piece of paper and $1,200+ a year is real money...a real deal-killer in many instances.

Nope, the Fed didn’t expect this...an unintended consequence of its taper talk.

Witness the 1.8% growth rate in the first quarter, with a similar number expected in the second, and it’s obvious this fragile recovery can ill afford a surging housing market to be stopped in its tracks, this while higher auto loan rates would impact the other engine of growth in the U.S. economy these days.

But last week I said the Fed’s new growth forecasts for the economy, like over 3% growth the second half of the year and 3.25% or so for 2014, were well above consensus, which, were it to come to pass would mean the funds rate would have to be hiked, sooner than the Fed wants us to believe. I mean it’s nonsensical. It’s why during Bernanke’s press conference I jotted down the words “helter-skelter” to describe his thinking.

So folks, here’s the bottom line. Stephen Cecchetti and his team at the BIS hit the nail on the head. The time for this absurd easy money policy is long over. It hasn’t led to strong growth anywhere. Europe? Are you kidding me? The United States? Can you read the opening numbers? Easy money in China? Their economy by any common-sense analysis is slowing considerably.

Yes, there was a time for zero rates...during the crisis...and Bernanke and his band of cocky bankers deserve credit for preventing a global depression. That’s now history.

But the Fed stayed at the party far too long, and it’s learning it can no longer manipulate the market. If solid 3% growth returns, great, but there would then be consequences for the fixed income market and that can boomerang back on the economy.

Can we make it through this turbulence, this great readjustment to reality, with minimal further damage? Hopefully yes. But where is second-half growth going to come from?

Let’s face it, Ben Bernanke is no Nik Wallenda. That’s the real bottom line, and that’s what should scare the hell out of everyone, investors and non-investors.

There was a lot of economic data to report on this week. The figure for May durable goods was 3.6%, much better than expected. May new home sales came in at 476,000, the best since June 2008. The S&P/Case-Shiller index of property values for April rose 12.1%, year over year, the best since March 2006. [San Francisco was up 23.9%, Las Vegas up 22.3%, but New York up only 3.2%, though I hasten to add the New York market never went through the pain other markets did.]

May personal income was up 0.5%, better than expected, and May consumption was up 0.3%, in line.

Two readings on consumer confidence, the Conference Board’s and the University of Michigan’s, both came in with solid readings, the best since January 2008 on the former.

But on Friday, a Chicago Purchasing Managers’ report for June came in far worse than expected, 51.6, and a big decline from the prior reading of 58.7 that shocked the market then.

Europe and Asia

You know what? I have no freakin’ idea what the heck is happening with the European Union and its banking reform efforts. After I posted last week, I learned finance ministers couldn’t agree on a plan, then early Thursday, they did agree one ahead of a two-day EU summit that would require shareholders and creditors to bear the brunt of any losses when a bank collapsed, rather than the states and taxpayers.

Irish Finance Minister Michael Noonan said, “This is a revolutionary change in the way banks are treated in the European Union. (Governments) will no longer have to make it up as they go along when a bank gets into difficulty.”

Yes, reform was to institutionalize “bail ins” rather than “bailouts”; the latter using taxpayer money and state assets as opposed to going after the banks themselves to liquefy enough assets to address the problem, as much as possible, before hitting uninsured depositors. Savers holding 100,000 euros or less would be fully protected.

Dutch Finance Minister Jeroen Dijsselbloem said the draft deal marked a sea change in the way troubled banks are bailed out.

“If a bank gets in trouble we will now, throughout Europe, have one set of rules on who pays the bill,” he said. “The financial sector itself will now to a very, very large extent become responsible for dealing with its own problems.”

But then I see on Friday the draft deal is still subject to debate, let alone the fact the European parliament has to weigh in on it, and then undoubtedly some eurozone and EU members will have to address constitutional issues, separate votes in their respective parliaments and possible referendums.

The real bottom line as of this writing? If it all went through pretty much as is, it wouldn’t be fully implemented until 2018!

Oh, some central euro-area bank supervision starts next year but even that is still at issue, best I can determine.

As in, what the heck have I wasted all this time on this topic over the years for?!

Here’s my deal going forward. Unless I can explain the process in a paragraph or two, Euro banking reform comes when it comes.

Remember, the big German election is Sept. 22 and Chancellor Angela Merkel doesn’t want to do anything to upset her base beforehand. Following her assumed victory, real reform could then be possible.

--The Greek government was forced to reshuffle its cabinet prior to the Troika’s (IMF, EC, ECB) latest inspection as a junior partner abandoned the leadership at the worst possible time in terms of Greece obtaining its next installment of bailout aid.

And it also turns out Greece’s privatization efforts continue to go awry, its lenders having expected Greece to raise, for example, 700 million euro in the sale of state gaming monopoly, Opap. A deal on the table for the company is at risk of blowing up and should it do so, this would require further spending cuts to keep the country’s bailout program on track.

It was the IMF that recently found that income lost through slippage in the privatization program would blow a hole in Athens’ budget.

--As if the above isn’t bad enough, the Financial Times got hold of a confidential report by the Rome Treasury that speaks of Italy’s potential losses on derivatives contracts going back to the nation’s entry into the euro in 1999. Like try billions of euros.

“A 29-page report by the Treasury, obtained by the Financial Times, details Italy’s debt transactions and exposure in the first half of 2012, including the restructuring of eight derivatives contracts with foreign banks with a total notional value of 31.7 billion euro....

“The report does not name the banks or give details of the original contracts...but the experts said they appeared to date back to the period in the late 1990s. At that time, before and just after Italy entered the euro, Rome was flattering its accounts [Ed. cooking the books] by taking upfront payments from banks in order to meet the deficit targets set by the EU for joining the first wave of 11 countries that adopted the euro in 1999.

“Italy had a budget deficit of 7.7 percent in 1995. By 1998, the crucial year for approval of its euro membership, this had been reduced to 2.7 percent, by far the largest drop among the Euro 11. In the same period tax receipts increased marginally and government spending as a proportion of GDP fell only slightly....

“Mario Draghi, now head of the European Central Bank, was director-general of the Italian Treasury at the time, working with Vincenzo La Via, then head of the debt department, and Ms. Cannata, then a senior official involved with debt and deficit accounting....

“An ECB spokesman declined to comment on the bank’s knowledge of Italy’s potential exposure to derivatives losses or on Mr. Draghi’s role in approving derivatives contracts in the 1990s before he joined Goldman Sachs International in 2002.”

Unreal. Remember, the Managing Director of the IMF, Christine Lagarde, recently evaded prosecution in a huge French political scandal (the Bernard Tapie mess) that she was heavily involved in during her time as France’s finance minister. And there’s the ECB’s Draghi...

--Lastly, Germany had some good news. Retail sales for May were up 0.8% over April, better than expected, unemployment fell to 6.6%, and the Bundesbank is confident the economy will return to growth in the second quarter, but then it foresees another slowdown, with final GDP growth of just 0.3% in 2013. [Rising to 1.5% next year.]

Turning to Asia, the People’s Bank of China sought to calm investor nerves, with the Shanghai Composite finishing the month of June down 14%, the worst month for that market since August 2009, by saying it would keep the interbank lending rate at reasonable rates, as opposed to letting it spike to above 25%, as the PBOC recently did.

China’s financial institutions faced a real liquidity crisis, a cash crunch, as the government sought to teach the lenders a lesson.

Central bank governor Zhou Xiaochuan, in his first public comments since the crisis hit, said, “We will use all kinds of tools and methods to appropriately adjust liquidity and to maintain the overall stability of markets.”

Interbank rates remain nearly twice as high as normal and the tightening will undoubtedly act as a drag on the Chinese economy.

But the PBOC is looking to impose discipline on its banks and reduce their reliance on credit, which in the process would clamp down on the “shadow banking” sector.

Non-performing loans at Chinese banks have risen for six straight quarters, the longest deterioration in at least nine years. According to Moody’s, the increase in the loans will accelerate in coming months.

But others don’t see a major Chinese bank failure at this stage. Instead, some think the PBOC just wants to wring out some of the smaller institutions.

David Cui, Bank of America Merrill Lynch China strategist, working out of Shanghai, begs to differ.   As quoted by Barron’s Jonathan R. Laing, Cui observes:

“I would say that China is now roughly at the stage [of indiscriminate credit growth] the U.S. was in March 2008, when Bear Stearns had to be rescued and the subprime market was unraveling. What will tip the scale will likely be a major event in China similar to Lehman’s bankruptcy six months after the fall of Bear Stearns, which will be some bailout of a major player that Beijing will do everything it can to disguise so as not to shake confidence.”

Economist George Magnus chimes in: “The financial situation in China has become quite alarming. Cracks are appearing all through its financial structure as a result of debt-fueled overinvestment in infrastructure, industrial capacity, housing, and commercial construction. There’s likely to be big trouble coming in the next year or two.” [Barron’s]

Jonathan Laing notes that despite all the overbuilding on the property front, “market prices of apartments haven’t cracked, at least according to government reports. Developers can still borrow money for new projects even while trying to roll over and carry debt on their inventory of unsold apartments.

“Faith remains undiminished that continued migration from the countryside to the cities will cure all housing oversupply. Besides, apartment purchasing has become the No. 1 investment game in China after the stock market crapped out in 2007, with the Shanghai Index falling nearly 70% since....

“A collapse in the Chinese real-estate market would require only a slight shift in investor psychology. And once prices start to crumble, the results to the credit system and, ultimately, the general economy promise to be severe and widespread. Likewise, buildings and land are bedrock collateral supporting many corporate and local government loans.”

As to shadow banking, Jonathan Laing notes that the popularity of products emanating from the system “is easy to grasp. Chinese consumers are starved for investment yield with official deposit rates set so low. Many private firms lack access to bank lending, either because of government policy or the favoritism enjoyed by state-owned enterprises. But a number of products offered are reminiscent of the worst structured investment vehicles and collateralized debt obligations issued in the U.S. prior to 2008. Their structures are opaque, with debt maturities mismatched with underlying assets, and disclosure is risible.”

Oh, how I personally know about the issue of disclosure in China...and lack thereof.

Lastly, in Japan, the government received some okay (emphasis on just ‘okay’) data on consumer prices, unchanged for the month of May, which is better than the outright deflation that continues to hold the economy back. Core prices, ex-food and fuel, were down 0.4% from a year earlier, but some took heart because this was better than the minus 0.6% core figure for April.

Industrial production for May was up 2% from April, better than expected, and retail sales rose 1.5% in the month.

Street Bytes

--A combination of soothing Fedspeak, until Jeremy Stein’s September taper mention, Friday,  and generally solid economic news helped the market bounce back, with the Dow Jones finishing up 0.7% to 14909, while the S&P 500 gained 0.9% and Nasdaq advanced 1.4%. The S&P had its best first half since 1998.

Aside from next Friday’s all-important jobs report, attention now turns to earnings. Expect more of the same. Little change on the top line, revenues; a few percentage points gain on the bottom line.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.36% 10-yr. 2.49% 30-yr. 3.50%

After a rough start to the week, the bond market largely stabilized, though it remains at much higher levels than just two weeks ago. Market watchers are waiting to see if 2.50% holds on the 10-year.

Meanwhile, there have been all manner of figures on bond fund outflows. What’s confusing is some include emerging market debt and some don’t, but suffice it to say, the carnage is the worst since 2008, if not before. I’ll have more on the topic when the quarter-end figures roll in.

One sector that has really taken it on the chin is the junk market. As of Tuesday, the average yield on lower-quality corporate paper had risen to above 7.00% from 4.95% in early May, according to Barclays data. Earlier gains have been wiped out.

Clearly, liquidity is a huge issue across virtually all sectors of the fixed income market given the massive outflows. And as an old Wall Streeter, I got a kick out of this passage from a Journal story.

“Pressure on Wall Street trading desks crystallized Monday for Christopher Sullivan, chief investment officer at the United Nations Federal Credit Union. He said he received three emails and two phone calls that day from a sales contact at a Wall Street firm pleading with him to buy mortgage-backed securities. Mr. Sullivan said ‘no’ each time. The last call included an apology from the contact, saying his trading desk demanded he push the bonds.”

--Gold tumbled to its lowest level in nearly three years, with the decline this quarter the worst since the collapse in 1971 of the Bretton Woods system of exchange rates, which pegged the value of the dollar to the precious metal. [Gold fell from $1595 to $1223, 4/1-6/30] The recent swoon is all about Bernanke setting out for the first time a framework for exiting QE.

--The Senate passed sweeping immigration reform legislation by a 68-32 margin, capping more than six months of negotiations. The 1,200-page bill carries a $50 billion price tag, it would double the number of U.S. Border Patrol agents along the southern border and require the construction of 700 miles of fencing there. It would also require employers to check the legal status of all job applicants using the government’s E-Verify system. And it includes a path to citizenship.

But...I will be writing little more on this topic going forward because the House is going to take up the issue in its own fashion, separating border security from other items in the Senate bill, and the process will be a lengthy one.  GOP opposition makes the eventual passage of compromise legislation highly unlikely. 

Yes, it’s all about the 2014 mid-term elections and GOP candidates in particular being afraid of losing their seats, and/or facing primary challenges. But such an attitude can spell defeat in 2016 for the elephants.

--Moody’s Investors Service released numbers this week showing that the 50 states have, in aggregate, just 48 cents for every dollar in pensions they have promised, as reported by the New York Times; much less than the 74 cents on the dollar states now claim to cover. According to Moody’s that means the states are short by about $980 billion, with local governments being on the hook for additional billions.

So despite the efforts of the states to fix their pension issues, they are still falling woefully short.

--Talk about a potential severe problem, Britain is warning companies already that they will have to cut electricity use between 4pm and 8pm on winter workdays next year due to the nation’s looming energy supply shortage.

The U.K. desperately needs to tap its newly discovered shale gas resources.

--Federal regulators are accusing former New Jersey Governor Jon Corzine of failing to properly supervise MF Global, which misused customer funds before its 2011 collapse.

The Commodity Futures Trading Commission filed a civil lawsuit seeking to ban Corzine from trading in the futures market and demands he pay unspecified penalties.

About $1.2 billion in customer funds disappeared, but most of it has been returned. As part of an earlier settlement, MF Global agreed to pay a $100 million penalty.

It was during the last week of October 2011 that MF, under severe capital and liquidity pressures because of investments in Euro sovereign debt, violated U.S. commodity laws by using nearly $1 billion of customer segregated funds to support its own proprietary operations, directly harming thousands of customers.

--Barack Obama said on Tuesday he would only approve the construction of the Keystone XL pipeline if it did not “significantly exacerbate” climate change. The edict was part of Obama’s three-part plan to deal with climate change using his executive powers as a way of bypassing Congress.

Keystone, which would carry oil from Canada’s tar sands to American refineries on the Gulf of Mexico, has been in limbo for years now, but Obama punted back to the State Department, which concluded in March that the pipeline would not accelerate global greenhouse gas emissions. State is due to issue a final ruling in the next few months.

It is still expected that Obama will give the go ahead for the final stage of construction, but his whole speech on Tuesday about climate change was his way of shoring up his environmental base for the mid-term elections.

--Obama’s climate change initiative was also all about his ‘war on coal.’ Domestic consumption of coal has been declining rapidly, but exports have steadily climbed – from 39.6 million short tons in 2002 to a record 125.7 million last year.

Obama directed the EPA to work with states and industry to develop carbon pollution standards for existing power plants, as well as “calling for an end of public financing for new coal plants overseas – unless they deploy carbon-capture technologies.”

The coal industry says that the effort by the Obama administration to essentially ban coal could be devastating for the economy, by raising energy prices and shuttering more power plants before production can be replaced.

But for all the hand-wringing on the part of the coal industry, the U.S. Department of Energy still forecasts that coal’s share of the U.S. electricity market will be 35% in 2040 vs. 42% in 2011.

I haven’t recommended a stock or sector in ages, but if you can find a coal stock with a reasonable balance sheet, buy it. The sector has been obliterated but there will be survivors.

--BP has gone on the offensive, warning local businesses along the Gulf coast that they may have to pay back received compensation. The British oil major has taken out full-page ads saying: “It’s wrong for anyone to take money they don’t deserve.”

The independently administered fund set up to compensate businesses and individuals is close to spiraling out of control. Thus far it has distributed $7.8 billion, but BP says excessive and fraudulent payouts could leave the company “irreparably harmed.”

Overall, BP has shelled out $11 billion in claims to 300,000 individuals, small businesses and government agencies. This includes payouts from a separate $20 billion compensation fund. The company has estimated the total cost of the Deepwater Horizon disaster at $42 billion.

I don’t blame BP one bit in terms of the fraud that is clearly taking place in some instances.

--Ireland is reeling with the release of leaked phone calls from the September 2008 crisis involving Anglo Irish bank. In one, former CEO David Drumm (sic) says, in a conversation with Director of Treasury John Bowe, “(The) game has changed now because really the problem now is at their [regulator’s] door. Because if they don’t give it [7 billion euro] to us on Monday, they have a bank collapse. If the f---ing money keeps running out the door, the way it has been running out the door.”

In other calls, Anglo executives were told to go to the Irish Central Bank, “arms swinging,” saying: “We need the moolah” to secure cash for their sinking bank.

The calls, exposed by the Irish Independent, will undoubtedly damage Ireland’s reputation among those funding the country’s bailout.

Others say this was five years ago...it’s irrelevant.

--From the Financial Times: “The financial crisis has fuelled a huge expansion of organized crime in Europe with 3,600 criminal syndicates now active across the continent, profiting even from such prosaic products as household detergents, the head of Europol has warned.”

--Depressing story in BloombergBusinessweek concerning Brazil and crime. There were 13,000 road robberies last year and this is a real problem for business Almost $500 million of cargo was stolen in 2012 on Brazil’s roads, 37% more than in 2006.

The penalty for cargo theft on roads is just one year in prison.

--One of China’s government mouthpieces, Global Times, editorialized that China should develop its own Internet technology, alleging that the U.S. can “attack China almost at will.” 

It’s all about Cisco, which generates $2 billion in sales in China. While Cisco has denied it participated in surveillance programs, Chinese media outlets are calling for the company to face restrictions.

Shenzen-based Huawei Technologies Co. stands to benefit, while carriers such as China Mobile will continue to use Cisco for its superior product, including its new router, the CRS-X, that can process 10 times more data than it did ten years ago.

--As reported by the Wall Street Journal, “Three sugar companies received the majority of the $1.1 billion in federal loans made to processors of the sweetener this fiscal year.”

As of Wednesday, due to four-year lows in sugar prices, $644 million in loans remained outstanding, according to the USDA. The bulk of the loans come due Aug. 1.

“The fact that about half of the country’s processors were among this year’s borrowers shows how the sugar industry has integrated cheap government cash into its operations.”

And get this... “In case of a default, a processor would pay the government back in sugar rather than cash.”

I hope they don’t leave it out in the rain outside Capitol Hill.

One of the Big Three receiving a bulk of the loans, Michigan Sugar, gave $307,687 to federal candidates through its political action committee in the 2012 election cycle – the fourth-biggest contributor among crop producers and processors.

--The Senate failed to prevent an increase in student-loan interest rates prior to going on their July 4 recess so some new loans will see the interest rate double from 3.4% to 6.8%, starting Monday. Existing loans wouldn’t be affected. There is a chance the Senate can return from recess the week of July 7 and move to retroactively approve legislation preventing the doubling of rates.

--Lean-hog prices have soared 19% thus far in 2013, owing to strong demand and tight supplies. Consumers are choosing lower price pork over beef these days. Cattle’s self-esteem is taking a hit.

--Corn futures tumbled to a 32-month low as the U.S. Department of Agriculture said the planting of corn jumped to 97.379 million acres, the most since 1936. Wheat fell to its lowest level in a year as wheat acreage reached a four-year high. The UN predicts global wheat output will be the highest ever in 2013.

--Shares in Apple Inc. dipped below $400 for the first time since April (closing the week at $397) as it seems there is a glut of unsold iPhones, while low morale is causing employees to leave. The stock is down more than 40 percent from its record high in September ($705, 9/21).

--BlackBerry shares plummeted, Friday, $4 to $10.50 as the company announced it shipped 6.8 million smartphones last quarter, including 2.7 million new BlackBerry 10 models, which was below the 7.5 million total shipments the Street was looking for. The decline in the share price was the biggest since April 12, 2000. BlackBerry has become a niche player and can’t compete directly with the iPhone and Android devices.

--Barnes & Noble said its loss more than doubled in the latest quarter owing to its Nook e-book reader unit losing money and sales at its bookstores falling 8.8% during the period. It also warned that figure will decline in the “high-single digits” for its fiscal 2014. That’s depressing.

As for the Nook, which B&N had invested heavily in, the company now says it will use an as yet-to-be-announced third party to make it. The bid to compete with Apple, Amazon and Google in the tablet market failed. The Nook hemorrhaged $177 million in cash and sales dropped 34%.

--Accenture Plc, the world’s second-largest technology-consulting company, saw its shares fall 10% on Friday after it cut its earnings forecast for the year. IBM fell in sympathy.

--Distressing potential news for us New Jerseyites. The Star-Ledger, the state newspaper, and an excellent one, is threatening to shut down at the end of the year unless it wins major concessions from its productions unions by Sept. 27. The publisher said the paper lost $19.8 million last year and expects to lose an equal amount in 2013.

The paper is going to outsource printing and production unless it obtains additional concessions from four unions, but this is only a start.

--Fugitive financier Marc Rich died in Switzerland at the age of 78.   He was the controversial trader and founder of commodities giant Glencore who fled to Switzerland in 1983, hours before he was to be indicted on more than 50 charges of trading with Iran during an embargo, along with other charges, all while evading more than $48 million in income taxes.

In other words, one of the great dirtballs of that era, yet he received a very controversial pardon from Bill Clinton on his last day in office, January 2001. Rich had support from the likes of then Israeli Prime Minister Ehud Barak, while Clinton critics pointed to large donations to the Democratic party and the Clinton library from Rich’s then wife, Denise Eisenberg.

Marc Rich was not a good person. A guy who for 15 years ignored U.S. sanctions to trade oil with Iran. And I’m biting my tongue on a lot of other stuff.

--For the first time since 2001, in a survey of executives from 302 companies world-wide by A.T. Kearney, more executives favor investing in the U.S. than China.

A major factor for the change in sentiment is the surge in U.S. oil and gas production, which helps business keep energy costs low. And especially when compared with Europe, the U.S. has a healthier birthrate.

China’s once significant advantage on the wage front is rapidly disappearing, let alone its aging population is a major negative.

Executives were questioned about the likelihood of investing in various countries over the next three years.

--Carnival Corp. announced that long-time CEO Micky Arison will step down, but remain chairman. Carnival has had one headline-making crisis after another, but Arison, owner of the Miami Heat, just won another title!

--Good news...the deadly H7N9 strain of bird flu that broke out on the Chinese mainland in February appears to have died down, though researchers caution it could reemerge in the fall if it follows the pattern of the H5N1 virus.

I didn’t remember this. During the H5N1 outbreak in 2003 – no infections occurred from July to September. And that is exactly what has happened in June with H7N9. 

Foreign Affairs

Syria: The unofficial death toll according to the British-based Syrian Observatory for Human Rights is now more than 100,000. The Syrian army this week took a key town just 3 km from the border with Lebanon, marking another gain for President Bashar Assad after the capture of the key rebel stronghold of Qusair.

The United States said it would provide military support to vetted opposition forces within weeks (The CIA has begun stockpiling arms in Jordan), while Saudi Arabia and Qatar continue to send lethal aid to the rebels. But this effort could take months before there are enough rearmed and retrained “moderate fighters” to make a meaningful difference.

Meanwhile, the support of Iran, Russia and Hizbullah has an immediate impact on Assad’s forces.

Hizbullah leader Sheikh Nasrallah recently made a secret visit to Iran to discuss his organization’s needs in backing Assad, according to an Iraqi newspaper and the Jerusalem Post. Nasrallah requested full financial and military backing from Supreme Leader Ali Khamenei, who reportedly said an alternative Iranian option was to transfer full units of the Revolutionary Guard to a military base in Syria. It also seems elite Hizbullah units are protecting Assad’s presidential palace.

Jordan’s King Abdullah said this week, “It has become clear to all that the Syrian crisis may extend from being a civil war to a regional and sectarian conflict...the extent of which is unknown.

“It is time for a more serious Arab and international coordination to stop the deterioration of the Syrian crisis. The situation cannot wait any longer.”

[By the way, if you ever wondered how Syria survives financially amidst the rubble and the body parts, the Financial Times’ Michael Peel said Iran, Russia and China “are supporting international financial transactions, delivering $500 million a month in oil and extending credit lines.” Peel, who interviewed the deputy prime minister for the economy, added Syria’s allies would help with a “counter-offensive” against what he called a foreign plot to sink the Syrian pound.]

Lebanon: If you needed further evidence the war in Syria had officially spilled over into Lebanon, you received it this week with heavy fighting in the southern city of Sidon, when a Sunni Islamist leader, who is a fierce critic of Hizbullah, ambushed members of the Lebanese Army. The cleric, Sheikh Ahmad Assir, was holed up with about 300 well-armed followers in a mosque compound. Eventually, the army seized it but Assir, who had vowed to die a martyr, apparently escaped through a tunnel. One report had him fleeing to Syria.

The fighting left at least 20 soldiers and an unknown number of Assir’s followers dead, making it the worst conflict in Sidon since the end of Lebanon’s 1975-90 civil war.

Protests spread to Beirut and Tripoli in response, with Sunni clerics calling for “jihad” against the Lebanese Army and Hizbullah.

I totally agree with my friend in Beirut, Michael Young, who tweeted that the Sunni community “risks being defined by its extremists because [its] mainstream leadership is absent.”

I have been writing for years that Saad Hariri, the supposed Sunni leader and former prime minister, needed to return from exile. He has yet to do that. [It was his father who was assassinated in 2005.]

Iran: Various nuclear arms experts believe Iran is rapidly approaching the day when it can then “breakout,” produce enough fissile material to make a bomb. That has always been Israel’s true red line. And breakout can be anywhere from just one or two weeks, to ten, according to David Albright of the Institute for Science and International Security and Greg Jones of the RAND Corporation; two of the best. The timing is anywhere from later this year to mid-2014, as noted by these two in a piece for The Economist.

Egypt: This weekend promises to be a violent one and the potential outcomes are awful to contemplate. One American has already been killed in Alexandria on Friday.

Massive protests against the government of President Mohammed Morsi are planned to mark the anniversary of his first year in office, and Morsi has promised he will crack down hard if necessary. On Thursday, the opposition rejected Morsi’s call in a nationwide address for dialogue on reconciliation.

As for the United States, it is now being singled out for its seeming support of Morsi’s administration, which has failed to deliver promised goods and services. Picture how it often takes over 24 hours to just receive a tank of gas.

The opposition says all of Washington’s aid money is going to the failed regime and none to the secular opposition.

The U.S. ambassador to Egypt, Anne Patterson, counters that the White House supports Morsi because he was fairly elected.

Patterson told a group of activists, “Some say that the street action will produce better results than elections. To be honest, my government and I are deeply skeptical. More violence on the streets will do little more than add new names to the lists of martyrs. Instead, I recommend Egyptians get organized.”

But as reported by the Wall Street Journal’s Matt Bradley, a prominent opposition figure, George Ishaq, said of Patterson on a television show:

“She is an evil lady who is creating divisions. How is this any of her business? If I saw her walking down the street I would tell her, ‘shut up and mind your own business.’”

An anti-Islamist newspaper has called Patterson “The Brotherhood’s Ambassador.”

Oh, this is not good, friends. If the protests succeeded, for example, in ousting Morsi, the Egyptian army will undoubtedly take control in a coup. All the while, Egypt’s economy would continue to collapse.

So we wait and watch. One thing is for sure, a statement I made when Morsi first took charge. He is in way over his head.

Iraq: The U.S. has been forced to send some specialist training troops back to Iraq for the first time since withdrawal in 2011 in an attempt to cut off Islamist fighters from entering Syria and participating in the civil war there. The Pentagon insists the troops will be in Iraq strictly in a training capacity and will not be involved in any combat.

It is believed the Iraqi government requested the assistance, even after Baghdad refused to allow the U.S. to retain a presence after the pullout in December 2011 to continue its counter-terrorism assistance program.

A similar training force is in the works for Lebanon. There are already at least 200 U.S. troops in Jordan for the possibility of a chemical strike (plus another 500 left over from a recent joint training exercise) and a further 400 on the Turkish-Syrian border.

Pakistan: The Taliban killed 10 foreign climbers and a Pakistani guide in a raid against their campsite at the base of one of the world’s tallest mountains in northern Pakistan; an area heretofore known to be peaceful and a source of tourism dollars for the Pakistani government.

The Taliban said it was avenging the death of their deputy leader in a U.S. drone strike last month and began the assault by kidnapping two guides to take them to the remote base camp.

The dead foreigners included three Ukrainians, two Slovakians, two Chinese, one Lithuanian, one Nepalese and one Chinese-American.

The Taliban also attacked Afghanistan’s presidential palace this week, after infiltrating one of the most secure areas of the capital. All of the attackers were killed while the Afghan security force did not lose anyone.

And the United States wants to negotiate with these bastards?

Separately, a top Pakistani official said his country’s nuclear force is now in the care of 25,000 guards.

North Korea: Recent tunneling activity at the North’s nuclear testing grounds suggest Pyongyang is preparing for more trial explosions, according to a new image analysis.

Or North Korea could just be constructing a new tunnel, or clearing debris from older chambers.

Or maybe the tunneling is being conducted by giant mutant rats....

Separately, China and South Korea agreed to push for the removal of nuclear weapons from the Korean peninsula through six-party talks, following President Xi Jinping’s first summit meeting with his South Korean counterpart Park Geun-hye.

Australia: Kevin Rudd has returned as prime minister, ousting Julia Gillard in an inter-party coup three years after she made history in becoming Australia’s first female prime minister by doing the same to Rudd. Rudd won the vote of Labor lawmakers 57 to 45. So Australia has come full circle. Gillard’s political career, though, is over at 51.

Rudd undermined Gillard from day one, but now he has to lead his broken Labor Party into an election September 14 that promises to be a landslide defeat for Labor. One-third of the cabinet has resigned.

Opposition leader Tony Abbott said Gillard will be judged harshly not because she was a woman, but because she was a poor prime minister. Abbott is also calling for the election to be held sooner.

But the first poll following Rudd’s return, conducted Thursday night, shows a six-point gain for Labor, now down just 52-48 vs. 58-42 last month.

Further, asked who would be a better leader, 51.6% said Mr. Rudd, 48.4% Mr. Abbott.

Brazil: President Dilma Rousseff proposed a referendum on political reforms in an effort to placate protesters who have paralyzed parts of the country the past ten days.

Rousseff also promised to boost spending on public transport and focus on health and education. She faces reelection next year, when Brazil is also hosting the World Cup. Two years later is the Rio Olympics.

Many of those demonstrating are furious at the high price tags for both events when many live in poverty and social services are suffering...let alone ticket prices are out of reach.

Russia: Mikhail Khodorkovsky, the former owner of defunct oil giant Yukos, spent his 50th birthday in prison this week. He has been behind bars nearly 10 years on charges of fraud, embezzlement and tax evasion in what many see as Vladimir Putin’s revenge for Khodorkovsky’s political ambitions.

In a poll by the independent Levada Center (thank god these guys are around), one-third of Russians support parole for Khodorkovsky, twice those who want him to remain in prison.

Preceding his arrest in October 2003, Khodorkovsky had openly accused state-run oil behemoth Rosneft of corruption right in front of Putin’s face at a public meeting. Putin then replied that Yukos had non-transparent procedures of paying taxes and the die was cast, especially after Khodorkovsky then said he would finance a liberal opposition political party, Yabloko.

Bangladesh: The foreign ministry in Dhaka is furious that after a year-long review of labor and safety practices in Bangladesh, the Obama administration decided to suspend duty-free trade privileges designed to promote economic growth.

The Bangladeshi government argues it “has taken concrete and visible measures to improve factory safety and protect workers’ rights,” according to a foreign ministry statement.

Italy: Former Prime Minister Silvio Berlusconi was found guilty of having sex with a minor and abusing his power. He was handed a 7-year prison sentence, though he can drag this verdict out on appeal.

Canada: Follow-up to my piece on the tragic floods in Calgary and other parts of Alberta. The Calgary Stampede is being held, remarkably. It’s a Herculean effort but officials say they will pull it off. The Stampede pumps $340 million into the local economy but understand, parts of the downtown area, within walking distance of the Stampede grounds, remain shut down, including some major hotels, last I saw.

Damage in the floods should easily exceed $1 billion. Residents are being given pre-loaded debit cards with $1,250 for every man and woman, plus $500 for each child, which seems like a terrific way to immediately get aid to folks. We could learn a lesson or two in this.

Power outages in parts of Calgary and the surrounding area could last months, according to authorities.

And there is another concern...a real one...a “massive mosquito invasion,” as one newspaper headline put it.

I wish my friends well in putting on the Stampede. 

The Snowden Mess

Ecuador’s foreign minister said it may take months to weigh the ‘risks’ before deciding on whether to take in Edward Snowden, who is apparently still holed up in Moscow’s Sheremetyevo Airport after failing to board a Havana-bound flight from Moscow on Monday. Ricardo Patino said if Snowden “goes to the embassy (in Moscow), then we will make a decision.” Patino admitted that his government needed to include concerns that helping Snowden would hurt the relationship with the U.S., it being Ecuador’s most important trading partner, accounting for 43% of its total exports.

Venezuelan President Nicolas Maduro said he would consider any asylum request from Snowden.

Hong Kong’s secretary of security said it was “very disappointing” that the U.S. government had not responded to allegations that Hong Kong was a target of U.S. cybersnooping.

Lai Tung-Kwok said, “The security bureau formally wrote to the U.S. government on June 21. We expect the U.S. to give Hong Kong people a full explanation as soon as possible. The government will strongly follow up the case,” he said.

Snowden admitted this week that he took the job at consulting firm Booz Allen Hamilton solely to get access to the NSA’s trove of information. [For the record, from a June 12 interview with the South China Morning Post, details of which were just released June 24.]

“My position with Booz Allen Hamilton granted me access to lists of machines all over the world the NSA hacked. That is why I accepted that position about three months ago.”

Snowden claimed his intention was to collect information about the NSA hacking into “the whole world” and “not specifically Hong Kong and China.”

Sen. Carl Levin (D-Mich.), chairman of the Senate Armed Services Committee, said, “It’s evidence of intent, and it’s relevant to the sentencing if he were convicted.”

Sen. Richard Shelby (R-Ala.), a former Intelligence Committee member, said, “It looks like he had a plan...when he went there to acquire information and divulge it. It showed intent, big intent. You can’t prejudge the case, but that’s strong talk.”

Snowden also told the SCMP he’d leak more secrets down the road.

Obama press secretary Jay Carney said, “We expect the Russian authorities to examine all the options available to them to expel Mr. Snowden appropriately. It’s safe to assume that information he has...is already compromised,” Carney added. He also called Hong Kong’s allowing Snowden to leave a “setback” to relations with China, warning there would be “repercussions.”

Russian President Vladimir Putin said on Monday that Snowden had not passed through Russian immigration, meaning he was not technically in Russia.

“He came as a transit passenger and he does not need a visa or other documents,” said Putin. “As a transit passenger he has the right to buy a ticket and fly where he wants.”

Snowden is apparently travelling with Sarah Harrison, a British legal researcher associated with WikiLeaks.

“For those who think that Edward Snowden deserves arrest or worse, cheer yourselves with the thought that Sheremetyevo International Airport might possibly be the most soul-destroying, most angst-inducing transport hub in the world. Low ceilings and dim lighting create a sense of impending doom, while overpriced wristwatches glitter in the murk. Sullen salesgirls peddle stale sandwiches; men in bad suits drink silently at the bars. A vague scent of diesel fuel fills the air, and a thin layer of grime covers the backless benches and sticky floor. It’s not a place you’d want to spend two hours, let alone 48. [Ed. from my own personal experiences at this hellhole, a terrific description by Ms. Applebaum. There is one thing worse, however...the ride from the airport to central Moscow.]

“Yet there he remains, a guest of the Russian government. Russian President Vladimir Putin and Foreign Minister Sergei Lavrov both have repeated the fiction that Snowden ‘did not cross the Russian border’ because he remains in the transit zone at Sheremetyevo. But as of Monday evening, Snowden was in violation of Russian law, which requires anyone staying in the airport longer than 24 hours to have a valid transit visa. Whether Russian authorities have given him a visa or are allowing him to break the law, they have made a deliberate decision to let him remain there, assuming they are not holding him against his will.

“Secretary of State John F. Kerry has appealed for Snowden’s extradition on grounds of ‘respect for the rule of law.’ Although the United States has no extradition treaty with Russia, Kerry has pointed out that it has transferred seven people to Russia in the past two years to honor Russian requests. For the moment, the Russians seem disinclined to respect the rule of law, which is not surprising as they don’t respect it at home. The last time a prominent former Russian secret service agent escaped to the West, Russian agents poisoned him with polonium 210, leaving a trail of radiation all over London and Hamburg....

“By the time you read this, they might have just let him go elsewhere, as the Chinese did, to rid themselves of the problem. But they won’t send him home as a gesture of goodwill or a matter of principle, as Kerry seems to hope. We can expect that only from some of our allies, and Russia isn’t one at all.”

“Russian President Vladimir Putin yesterday (Tuesday) told President Obama to take a flying leap by refusing to turn over spy-secrets leader Edward Snowden – who for a third day remained lounging in a Moscow airport.

“ ‘Snowden is a free person,’ Putin proclaimed during a news conference in Turku, Finland, where he feigned annoyance at getting dragged into the closely watched incident.

“ ‘I’d prefer not to deal with this issue at all,’ he said. ‘It’s like shearing a piglet – too much squealing, too little wool.

“ ‘The sooner he chooses his final destination, the better it is for him and Russia.’....

“In another humiliating slap, Putin defended Snowden and even Julian Assange, the founder of WikiLeaks, who has aided Snowden’s quest for asylum.

“ ‘Assange and Snowden consider themselves human-rights activists and say they are fighting for the spread of information. Ask yourself this: Should you hand these people over so they will be put in prison?’ the former Soviet KGB colonel mused.”

Putin called U.S. accusations that the Kremlin failed to nab Snowden or that it provided him refuge “ravings and rubbish.” He also claimed Snowden’s arrival in Moscow “came as a surprise” to Russian officials.

Sen. John McCain (R-Ariz.) called on Obama to get tough with Putin and blamed the Snowden embarrassment on Obama’s weak leadership.

“When you withdraw to fortress America, when you believe in light footprints, when you show the world you’re leading from behind, these are the consequences of American leadership,” McCain said on CNN.

“Who would you pick in a stare-down contest between Putin and Obama? This administration’s foreign policy is a failure. Our enemies have absolutely no respect for us. If you wanted to understand how relationships are between Russia, the United States and China, Snowden tells you all you need to know.”

Sen. Charles Schumer (D-NY) fumed, “Putin always seems almost eager to put a finger in the eye of the United States,” and that Russia’s involvement will have “serious consequences” in U.S.-Russian relations.

“China interceded to allow Edward Snowden’s dramatic flight from Hong Kong, calculating that infuriating the United States for now was necessary to prevent longer-term corrosion to their relationship, analysts and media said Monday. On a visit to New Delhi, U.S. Secretary of State John Kerry said it was ‘deeply troubling’ if requests for the former spy’s extradition had been ignored – and warned of consequences for Sino-U.S. relations. [Ed. this is almost comical, isn’t it?]

“But despite its fury, Washington has been on the defensive for weeks as Snowden stepped up a drip-feed of leaks from his Hong Kong bolt-hole, including allegations of extensive U.S. snooping on targets in the city and mainland China....

“State media called Washington a ‘villain’ for its alleged hacking, flagging up the irony that the United States has long portrayed itself as a victim of Chinese cyber-espionage.....

“Hong Kong political analyst Johnny Lau said he believed that Chinese representatives ‘must have drained him in depth and exhausted him [for intelligence] before letting him go.’

“Lau argued that Hong Kong’s government was a pawn, with Beijing guiding the pieces.”

The mainland’s Global Times, a government mouthpiece, editorialized, “Snowden’s departure from Hong Kong will prevent the Sino-U.S. relationship from being affected.”

On Thursday, at a press conference in Senegal, President Obama said normal legal channels should be sufficient to handle Washington’s request that Snowden be returned.

“I have not called President Xi personally or President Putin personally and the reason is...number one, I shouldn’t have to,” the president said.

As for Ecuador, at week’s end it waved preferential rights under a U.S. trade agreement to demonstrate its principled approach to the asylum request of Snowden. U.S. Senator Robert Menendez (D-NJ) had warned that accepting Snowden “would severely jeopardize” preferential trade access the United States provides to Ecuador. “Our government will not reward countries for bad behavior,” Menendez said.

Random Musings

--By two 5-4 decisions, though with different makeups in the majority for each, the U.S. Supreme Court struck down a law denying federal benefits to gay couples and cleared the way for same-sex marriage in California.

Same-sex marriage proponents will now go after Republican governors and legislators in states that block same-sex marriages. In New Jersey, Gov. Chris Christie last year vetoed a bill to allow gay marriage.

On the Democratic side, most of those who once backed the Defense of Marriage Act have since reversed their position.

House Speaker John Boehner said in a statement: “While I am obviously disappointed in the ruling, it is always critical that we protect our system of checks and balances. A robust national debate over marriage will continue in the public square, and it is my hope that states will define marriage as the union between one man and one woman.”

While every state in New England now recognizes same-sex marriages, not a single state in the South does. A Pew Research Center survey last month found 64% of those in the Northeast support gay marriage, compared with 43% in the South. Overall, by 51%-46%, Americans said they favor allowing gay men and lesbians to wed, the first time a majority has espoused that view in the Pew poll. [A Washington Post/ABC News poll published in the week that the Court heard the two cases found that 58% of Americans supported legalizing gay marriage, up from 47% three years ago.]

Back in 1996, when the Defense of Marriage Act was passed, just 27% in a USA TODAY/Gallup Poll said same-sex unions should be recognized by law as valid, with the same rights as traditional marriages. Sixty-eight percent said they shouldn’t.

“The avowed purpose and practical effect of the law here in question are to impose a disadvantage, a separate status, and so a stigma upon all who enter into same-sex marriages made lawful by the unquestioned authority of the states. The act’s demonstrated purpose is to ensure that if any state decides to recognize same-sex marriages, those unions will be treated as second-class marriages for purposes of federal law.

“DOMA undermines both the public and private significance of state-sanctioned same-sex marriages; for it tells those couples, and all the world, that their otherwise valid marriages are unworthy of federal recognition.

“DOMA instructs all federal agencies, and indeed all persons with whom same-sex couples interact, including their own children, that their marriage is less worthy than the marriages of others... The federal statute is invalid, for no legitimate purpose overcomes the purpose and effect to disparage and to injure those whom the state, by its marriage laws, sought to protect in personhood and dignity. By seeking to displace this protection and treating those persons as living in marriages less respected than others, the federal statute is in violation of the 5th Amendment.”

“To defend traditional marriage is not to condemn, demean or humiliate those who would prefer other arrangements, any more than to defend the Constitution of the United States is to condemn, demean or humiliate other constitutions. To hurl such accusations so casually demeans this institution.

“In the majority’s telling, this story is black and white: Hate your neighbor or come along with us. The truth is more complicated. It is hard to admit that one’s political opponents are not monsters, especially in a struggle like this one, and the challenge in the end proves more than today’s court can handle. Too bad.

“A reminder that disagreement over something so fundamental as marriage can still be politically legitimate would have been a fit task for what in earlier times was called the judicial temperament. We might have covered ourselves with honor today, by promising all sides of this debate that it was theirs to settle and that we would respect their resolution. We might have let the people decide. But that the majority will not do.

“Some will rejoice in today’s decision, and some will despair at it; that is the nature of a controversy that matters so much to so many. But the court has cheated both sides, robbing the winners of an honest victory, and the losers of the peace that comes from a fair defeat. We owed both of them better. I dissent.”

“The Supreme Court didn’t propound another Roe v. Wade on Wednesday and discover a constitutional right to gay marriage, but it did take a major step toward it. The saving grace for democratic consensus and self-government is that the marriage debate can now continue in the states, if our judges will allow it.

“That’s our reading of two 5-4 rulings that saw the High Court range from its most restrained to aggressive activism in overturning the Defense of Marriage Act, a federal law defining marriage as between a man and a woman. Lower courts will be navigating through the mess for years.

“The restraint came in Hollingsworth v. Perry, where the Court was asked to issue a judicial edict expanding traditional one man-one woman unions to include gays and lesbians for all 50 states under the Fourteenth Amendment’s guarantee of equal protection. A 5-4 odd-couple majority led by Chief Justice John Roberts and including Justices Elena Kagan and Antonin Scalia ruled the plaintiffs had no standing to sue and so made no judgment on the merits.

“This amounts to a punt on the right to gay marriage, which is certainly better than a mere five Justices imposing such a command on the entire country. The lower court decision and thus gay marriage will now prevail in California, but it won’t apply anywhere else. The price of this restraint, however, may be to weaken the power of voters to challenge court decisions in referendums.”

The other decision in U.S. v. Windsor, which overturned Doma, is a major victory for gay marriage “because it means the federal government must now accept same-sex marriages in the 13 states where they are legally recognized. But what happens when a gay couple married in Hawaii, say, moves to Alabama? Which state’s law does the federal government then recognize? Soon enough lower courts will declare state laws barring gay marriage to be illegal, and the Supreme Court will have to revisit the issue.”

Eventually, the Supreme Court will have to rule again on legalizing same-sex unions in all 50 states. Constitutional amendments in 29 states limit marriage to heterosexual couples. Wednesday’s twin rulings mean that about 30% of Americans live in states recognizing same-sex marriage.

--The Supreme Court struck down the heart of the Voting Rights Act of 1965 by a 5-4 vote, along ideological lines, thus freeing nine states, mostly in the South, to change their election laws without advance federal approval.

Chief Justice John Roberts Jr., writing for the majority: “Our country has changed. While any racial discrimination in voting is too much, Congress must ensure that the legislation it passes to remedy that problem speaks to current conditions.”

Justice Ruth Bader Ginsburg, in dissent, noted the legacy of Rev. Dr. Martin Luther King Jr. had been “disserved by today’s decision.,” saying the focus of the Voting Rights Act had properly changed from “first-generation barriers to ballot access” to “second-generation barriers” like racial gerrymandering and laws requiring at-large voting in places with a sizable black minority. She said the law had been effective in thwarting such efforts.

“Progressives resent progress when it renders anachronistic once-valid reasons for enlarging the federal government’s supervisory and coercive powers. Hence they regret Tuesday’s Supreme Court ruling that progress has rendered Section 4 of the 1965 Voting Rights Act unconstitutional.

“This section stipulates the formula by which nine states and some jurisdictions in others are brought under Section 5, which requires them to get federal permission – ‘preclearance’ – for even the most minor changes in voting procedures. The 15th Amendment empowers Congress to enforce with ‘appropriate legislation’ the right to vote. Sections 4 and 5 were appropriate 48 years ago, when the preclearance provisions were enacted for five years. They have been extended four times, most recently in 2006 for 25 years.

“The Voting Rights Act is the noblest legislation in United States history, more transformative than the 1862 Homestead Act, the 1862 Morrill Act (land-grant colleges) or the 1944 GI Bill of Rights....

“Tuesday’s decision came eight months after a presidential election in which African Americans voted at a higher rate than whites. It came when in a majority of the nine states covered by the preclearance requirements, blacks are registered at a higher rate than whites. It came when Mississippi has more black elected officials – not more per capita; more – than any other state.”

--Massachusetts Democratic Rep. Ed Markey defeated GOP candidate Gabriel Gomez in a special election for John Kerry’s Senate seat, Kerry having moved on to secretary of State in February. Markey will have to run again in 2014, which will be the state’s fourth Senate race in five years.

“At a time that Republicans are divided on immigration reform and the National Security Agency surveillance programs (although really only a few libertarian cranks oppose defending ourselves with technology overseen by Congress and the courts), President Obama delivers today a gift, wrapped in a bow, to Republicans in the form of his political and policy blunder, otherwise known as the ‘war on coal.’

“When Democrats controlled both the House and Senate, Obama could not get climate control legislation passed. That explains why he is now seeking to go around Congress to enact anti-coal regulations by fiat....

“Conservatives are once again bonded together in common cause against a president bizarrely antagonistic toward domestic energy production and low energy prices. The gubernatorial campaign of Ken Cuccinelli, in a dog fight with Democrat Terry McAuliffe, let loose on the Democrats’ plans, citing the energy resources in Virginia that directly or indirectly contribute to nearly 20,000 jobs and $2.5 billion toward the state economy. Now, there’s an issue that may turn out his base and get independents riled up....

“While they might be on opposite sides in the immigration fight, GOP Sens. Rand Paul (Ky.) and Orrin Hatch (Utah) were singing the same tune on efforts to make coal production more expensive and difficult. Paul’s statement read in part: ‘President Obama today declared a war on coal, and thus declared a war on Kentucky jobs and our economy.”....Hatch also denounced the president’s scheme: ‘Energy is the fuel of our nation’s economic growth and after one of the longest periods of economic stagnation in modern history, it’s simply baffling that President Obama is proceeding with this unilateral energy policy that will hurt Americans struggling to pay their bills and get a job.’”

--Democrats cried “A-ha!” this week when it was learned the IRS had some progressive groups on the BOLO (“be on the lookout”) list. Why it wasn’t just conservative organizations that were targeted for abuse and harassment!

Wrong. The Treasury inspector general Russell George told Congress in a letter that the evidence couldn’t have been clearer. Conservative groups were singled out for abuse by the IRS, not liberal groups. While some liberal groups might have wound up on a BOLO list, the IRS did not target them.

“According to a House Ways and Means Committee source, only seven of the 298 cases flagged by the IRS for extra scrutiny appeared to represent progressive causes. Not one of the seven was subjected to harassment or abuse.”

--Just last week I reiterated my disdain for America’s generals. And whaddya know, this week we learned of yet another example of just how bad they can be.

Retired Marine Gen. James Cartwright, former vice chairman of the Joint Chiefs of Staff, is under investigation for allegedly leaking classified information about the Stuxnet cyberattack on Iran’s nuclear facilities.

--Pope Francis launched an investigation into the Vatican bank and two days later, a senior Italian bishop was arrested over allegations of corruption and fraud.

The bank, officially known as the Institute for the Works of Religion, has $7.1 billion in assets and 114 employees.

Pope Francis has given his new commission carte blanche, bypassing normal secrecy rules, to try to get to the bottom of scandals that have plagued the bank for decades.

--Statement I’ll take a pass on. From Georgia Congressman and civil rights hero John Lewis:

“Without the Voting Rights Act there would be no President Obama.”

--A News4/Wall Street Journal/Marist survey of New York City Democratic primary voters has Anthony Weiner now leading Christine Quinn, 25-20.

--Guardian reporter Glenn Greenwald truly makes my skin crawl.

--I have to admit, I’ve taken an interest in the Trayvon Martin trial.  That doesn’t make me a bad person.

“A ‘climate bomb’ of potent greenhouse gases 15,000 times more damaging to the climate than carbon dioxide are set to be released by some of the world’s leading producers of refrigerants following a ban on climate credits.

“The companies, the majority of them in China, argue that a ban on trading of climate credits for the incineration of HFC-23 makes it no longer financially viable to destroy the gas, which is a byproduct of a substance used in air conditioners and refrigerators.

“A warning by the Environmental Investigation Agency in a report to be released on Monday will raise the pressure on China to ban such gases and end economic incentives for their production in multilateral talks.

“Some 19 factories – 11 in China – making HCFC-22 have been receiving climate credits under the UN’s Clean Development Mechanism for installing and operating incinerators to burn HFC-23, instead of venting it into the atmosphere. Facilities in developing countries can sell emission reduction credits to buyers in developed countries to allow the latter to meet their targets under the Kyoto protocol.”

But the scheme backfired and the incentives drove companies to produce more HFC-23 instead of curbing it.

It’s also not illegal to release HFC-23 into the atmosphere.

However, as Ms. Hille concludes: “China raised hopes this month when President Xi Jinping and President Barack Obama said at a summit that they had agreed to work together to reduce the production and consumption of hydrofluorocarbons. ‘This is a reversal of China’s attitude, and all eyes are on China now to see if it’s for real,’ said Alexander von Bismarck, executive director at EIA.”

Of course it isn’t for real. Name one thing...one thing...China has kept its word on.

--You want weather extremes? Try McGrath, Alaska, which on June 17 recorded an all-time high of 94 degrees. A few weeks earlier it was 15 in McGrath, the coldest recorded for so late in the year.

Yup, can’t get any more extreme than that, except for 129 in Death Valley this weekend, or 119 in Phoenix. [All about the jet stream, as it always is.]

By the way. In May, there was a day when Maine and Edmonton, Canada, were warmer than Miami and Phoenix.

And in reading a piece by Seth Borenstein of the Associated Press, he notes that Hurricane Sandy’s historic left turn into New Jersey is “something that happens once every 700 years or so.”

--Meanwhile, we are so screwed when it comes to our weather satellites. It’s been known, and written about for years, but a Wall Street Journal piece last weekend by Robert Lee Hotz reiterated that the National Oceanic and Atmospheric Administration “is having a real crisis,” according to atmospheric scientist Dennis Hartmann at the Univ. of Washington in Seattle, who heads a National Research Council committee that monitors Earth-observation satellite programs. 14 of the 23 active satellites that feed us everything from raw data for forecasts to drought reports, to seasonal wildfire forecasts, have exceeded their engineering design life, with few replacements in view.

“The number of Earth-monitoring sensors in orbit aboard such spacecraft is expected to drop to fewer than 30 by the end of the decade from 110 last year, as aging satellites fail, costs soar and space missions go awry, according to the National Research Council.”

NOAA relies on two types of weather satellites, one in “geosynchronous” orbit above the same fixed spot over the U.S., and a second set that travels in a lower polar orbit and scans the entire Earth every day.

But with both budget issues and replacement efforts that are simply way behind schedule, “experts expect to start losing some weather-satellite data as soon as next year, with a gap in satellite coverage lasting from 17 to 53 months.”

It reminds me of a similar satellite issue. Following the collapse of the Soviet Union, Russia’s satellites that are responsible for early warning in the event of a nuclear attack were failing at a rapid rate and not being replaced. [Not sure where this issue stands today.] The concern is that when you have a lot of blind spots, the risk of an accidental nuclear “counterattack” against a threat that never initially materialized grows exponentially.

So now in the coming few years our satellite systems tracking weather will have their own blind spots. Granted, the European weather model predicted Sandy’s left turn first, but the more blind spots you have, obviously the less accurate forecasts can be and in terms of evacuation time, or tornado warnings, that can be deadly.

--Texas executed its 500th prisoner since it reinstated the death penalty in 1982. Since the Supreme Court allowed capital punishment to resume in 1976, 40% of all executions have taken place in the state. 32 states still have the death penalty.

No. 500 was Kimberly McCarthy, 52, who was convicted of viciously killing her neighbor inside her home with a butcher’s knife and candelabra. McCarthy used the knife to sever her victim’s finger and get her wedding ring.

The thing is, as is typical of virtually every death penalty case, McCarthy was convicted way back in 1997 and wasted a ton of the state’s money in the interim.

--Finally, no single issue upsets me more than how Man is destroying the world’s greatest wildlife, like elephants, rhinos and tigers. I have long advocated a sort of mercenary army, comprised of perhaps Afghan and Iraq war vets, under the auspices of the U.N. (because this is one thing they could do well) to go into a place like Tanzania and protect the endangered species; to work hand in hand with local game wardens and security forces in the national parks. I just have to believe some of our war vets would love this kind of work. Protect the animals, and blow away poachers...until the poachers finally get the message. They’d be up against a force they never thought they’d have to reckon with.

The other day, Dan Vergano had a piece in USA TODAY that encapsulated the sickening and tragic pace of the carnage.

“Elephants machine gunned for ivory. Rhinos driven nearly to extinction. Forest rangers murdered. The illegal international trade in endangered species has integrated with organized crime and militant groups worldwide, warns a wildlife report.

“Despite long-standing worldwide concern over endangered species, the ‘Criminal Nature’ report released by the International Fund for Animal Welfare (IFAW) details how wildlife crime has grown into the fourth-largest branch of illegal international trade in the past half-decade. Now worth $19 billion annually, the black market in animals and their parts, notably ivory and furs, threatens to eradicate many of the most iconic of wild species....

“ ‘Within the last few years, poaching has grown tremendously from one-off killings to wholesale massacres using automatic weapons,’ says IFAW’s Beth Allgood.

“About 1,000 forest rangers worldwide have been killed in the past decade, she notes, often at the hands of militants involved in insurgencies. ‘We can’t just see this as an environmental problem anymore, when it has grown into a criminal and security one.’”

Increasingly, observers are seeing links between the animal trade and terror groups in Africa and Asia. UN Secretary-General Ban Ki Moon has linked the Lord’s Resistance Army militant group to the illegal ivory trade and slaughter of elephants in Central Africa.

Just one fact. A tiger is killed every day in India, where only about 3,200 are left in the wild.

The time for massive action is now. The good people in the world have to rise up and take a stand.

And President Obama, very publicly, must tell Chinese President Xi Jinping to get his freakin’ people in line...to launch a brutal crackdown on the illegal importation of ivory and animal parts.

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

Gold closed at $1223...lowest weekly close since Aug. 2010
Oil, $96.56

Returns for the week 6/24-6/28

Dow Jones +0.7% [14909]
S&P 500 +0.9% [1606]
S&P MidCap +2.1%
Russell 2000 +1.4%
Nasdaq +1.4% [3403]

Returns for the period 1/1/13-6/28/13

Dow Jones +13.8%
S&P 500 +12.6%
S&P MidCap +13.8%
Russell 2000 +15.1%
Nasdaq +12.7%

Bulls 41.7
Bears 25.0 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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