Week in Review

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Week in Review

07/06/2013

For the week 7/1-7/5

Wall Street and Obamacare

The market had one eye on the Middle East this week as Egyptian President Mohammed Morsi and his Muslim Brotherhood paid the price for overreaching, neglecting the economy, and worsening divisions in society in their one year in power, with Morsi being removed by the military in dramatic fashion, as I detail below. It’s yet another reminder of my dictum, wait 24 hours, and no one can tell you where this all leads as violence claimed at least 30 lives in Cairo on Friday.

But as for Wall Street, at first it reacted negatively to the growing tensions in Tahrir Square, and then, curiously, celebrated Friday amidst the violence and surging oil prices, the latter to their highest level since April 2012, $103.

Actually, to try to decipher Wall Street’s actions on a daily basis is an often futile task. I do concede, though, that Friday’s jobs report, with 195,000 being added to the payrolls in June (202,000 in the private sector), coupled with upward revisions to April and May, now 199,000 and 195,000, respectively, makes for a powerful trend. The jobless rate, though, remained at 7.6% and, let’s face it, we all know many of these new jobs are a far cry from the old ones, even if hourly earnings for June rose at the best pace since July 2011.

Of course the strong labor reports caused the bond market to convulse anew (so much for the bond kings’ claims the worst was over...more below), as the yield on the 10-year Treasury, a key determinant for mortgage rates, hit a nearly two-year high at 2.74%, after seemingly stabilizing at 2.50%. The rate on a 30-year fixed should hit at least 4.75% next week, a far cry from the 3.40% rate of May. The surge in the housing market could be stopped in its tracks.

So we have higher oil prices that will shortly be reflected at the pump, after a nice decline in prices heading into the summer driving season, housing could be headed for a slowdown just when we thought we could pull out the champagne, rising yields aren’t good for auto loan rates, the other major engine of recent growth, and who knows what kinds of pictures we’ll be watching on our evening newscasts when it comes to the Middle East. Does the situation in Egypt stabilize, or does the region’s most populous nation explode?  If it’s the latter, that certainly won’t help consumer sentiment in the U.S. and Europe, for starters.

But in terms of the Federal Reserve, the next confab of Ben Bernanke and his merry band of governors is July 30-31, though this is expected to be a low key affair with no press conference.

It’s September where the focus now lies. With Friday’s jobs report, many analysts are now climbing aboard the early taper train, targeting the September 17-18 meeting, specifically, as the time when Bernanke will announce he is going to start pulling away the punchbowl, reducing the $85 billion in monthly asset purchases; especially if the July and August jobs reports, which will have been revealed by the September gathering, show similar progress to the April thru June period. And we’ve seen how the market can react negatively to a spike in rates, even if it failed to do so on Friday.

On a totally different issue, the Affordable Care Act, aka Obamacare, the White House delayed for one year a requirement that businesses provide health insurance to employees, a setback for President Obama’s landmark piece of legislation.

The provision, known as the employer mandate, calls for businesses with 50 or more workers to provide affordable quality insurance to workers or pay a $2,000 fine per employee. Business groups objected and now the provision will take effect in January 2015.

[This does not affect businesses with fewer than 50 workers, who were already exempt from the rule.]

Most large businesses, however, offer coverage to their employees.

As Obama seeks to secure his legacy, implementation of the ACA is paramount; especially with the prospects for immigration reform up in the air in the House.

The White House portrayed the delay in the employer mandate as a common-sense step that would reduce the financial burdens on small businesses, while Republicans crowed it was an acknowledgement that the health-care overhaul is flawed.

As the Washington Post pointed out, “The decision will spare Obama what might have been a major distraction as officials begin to implement the centerpiece of the health-care law, which remains in place: a requirement, starting in 2014, that most Americans obtain insurance through their employer or through federally backed and state-backed marketplaces, known as exchanges.”

Senior Obama adviser Valerie Jarrett said, “We believe we need to give employers more time to comply with the new rules.”

House Speaker John Boehner said the decision “means even the Obama administration knows the ‘train wreck’ will only get worse,” adding that it “will undermine all the other rules because people will expect delay.”

Small businesses, many of which need to install new tracking systems, hinted they might reduce their workforces to fall below the 50-worker threshold.

Yet the mandate is not as central to Obamacare as other provisions. According to the Kaiser Family Foundation, 98% of employers with more than 200 employees already offer health benefits, and 94% of those with between 50 and 199 employees provide insurance.

And, again, small businesses with less than 50 are exempt. But there are still questions as to how to track the hours of employees who work variable schedules, 30 hours a week being the benchmark for defining a full-time employee. 

Bottom line, when you break down all the numbers, really only 1% of all workers are directly impacted by the one-year delay but any workers left high and dry could sign up with the so-called insurance exchanges, with one caveat. Many of the states are not ready.

It’s also clear that despite the reality of the numbers involved, Republicans can make hay of the decision, while some (not Ms. Rubin below) say it does make it easier for Democrats to face their respective electorates in 2014 because they wouldn’t have to address any complaints over the specific mandate.

“In deciding to postpone the implementation of the employer mandate, the Obama administration has undermined its sole claim to greatness and delivered a blow to Democrats on the ballot in 2014. Here are seven reasons why it is a huge setback:

“1. It proves the president’s assurances that everything was 100 percent on track to be false. His credibility is low now; this may send it skidding further.

“2. This gives every Republican the ‘I told you it was a mess’ argument in 2014.

“3. It also gives Republicans encouragement that they can prevent the mandate from ever going forward and can see Obamacare collapse under its own weight.

“4. The delays are another instance in which Obama’s support for big government will undermine Americans’ faith in it. It is all too unwieldy to run well.

“5. It will open the floodgates to arguments that the rest of the law should be delayed as well.

“6. It will fuel the meme that Obama’s second term is a flat-out disaster.

“7. And if Obamacare is in tatters, what has Obama accomplished in his presidency?”

Senate Minority Leader Mitch McConnell (Ky.): “Obamacare costs too much and it isn’t working the way the administration promised. And while the White House seems to slowly be admitting what Americans already know, and what I hear consistently in my travels around Kentucky regarding the regulatory burden on employers, the fact remains that Obamacare needs to be repealed and replaced with common-sense reforms that actually lower costs for Americans.” 

House Majority Leader Eric Cantor (Va.): “Rather than continuing to delay the predictable pain until another election day has passed, we should scrap this entire law and instead implement patient-centered reforms before any more damage is done to our economy or the health care families depend on. The best delay for Obamacare is a permanent one.”

On another topic – the latest revelations from analyst-turned-leaker Edward Snowden that the National Security Agency bugged European Union offices in Washington, New York and Brussels – President Obama, while saying he would provide allies with information, also suggested such activity by governments was hardly unusual.

“We should stipulate that every intelligence service, not just ours, but every European intelligence service, every Asian intelligence service, wherever there’s an intelligence service – here’s one thing that they’re going to be doing: They’re going to be trying to understand the world better, and what’s going on in world capitals around the world,” he said. “If that weren’t the case, then there’d be no use for an intelligence service.”

But European governments were furious. French President Francois Hollande said, “We cannot accept this kind of behavior from partners and allies.”

A German government spokesman, Steffen Seibert, told reporters, “Eavesdropping on friends is unacceptable. We’re not in the Cold War anymore.”

On the broader issue of Snowden’s leaks (with further comment below), then U.S. Ambassador to the U.N., Susan Rice, dismissed claims his leaks have weakened the Obama presidency.

“I don’t think the diplomatic consequences, at least as they are foreseeable now, are that significant,” she said.

Good grief. This woman astounds me...the mere fact she still holds senior policy positions and just moved into the White House as the president’s national security adviser, should trouble all Americans. She is flat out incompetent.

Defense Secretary Chuck Hagel, and Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, on the other hand, have called Snowden’s leaks a serious breach that damaged national security.

Here’s the deal. Snowden has hurt the United States, and in no small way. China and Russia have been given the opportunity to play President Obama as a fool. And, as I note below, we have no idea what else Snowden has for later release, though we should assume the worst.

But as to the EU surveillance issue, I’ll tell you why this matters and I apologize for pulling out my extensive foreign travel experience in noting that many of those without same might not fully understand.

When you travel abroad and really talk to people of other countries (best accomplished in bars and pubs), you’re amazed at how much Europeans, in particular, know about American history compared to what we ourselves know. The United States is widely admired and respected. 

But the last 10+ years, Europeans do not agree with U.S. policies, the Iraq War being number one, and our general air of superiority.

Many Europeans are pacifists and not all of them appreciate the protection the United States has provided them since the end of World War II, though they do understand we saved them in the first place.

It’s complicated. Europeans, broadly speaking, loathe George W. Bush. They thought Obama would be different and he has disappointed them. The spying revelations could be the straw that broke the camel’s back.

Is it fair? Probably not. The timing of the NSA leaks, though, could not have been worse, just as the U.S. and Europe are starting difficult and wide-ranging free-trade sessions.

Look at the relationship between China and Japan. Every time Japan does something the Chinese government doesn’t like, such as a Japanese politician’s visit to the Yasukuni shrine, where those convicted of war crimes are honored, it’s a reason to stir up Chinese nationalism. Or when there is a territorial dispute in the South and East China seas. Just last year, during one flare-up, sales of Japanese autos in China plummeted when the Chinese were whipped up into a frenzy.

It can be commercial when it comes to Europe and the United States, as well, and if not handled delicately, certain issues can result in lost American jobs...or prevent the signing of a free-trade agreement that would result in more jobs. If our diplomats don’t handle things properly, European consumer groups (not the governments’ themselves) could boycott our products, or seek to lessen travel to the U.S., and that can impact the labor market.

But out of nowhere, the United States caught a break at week’s end with the revelation in the French newspaper Le Monde that all phone calls, emails, text messages, faxes and Internet searches in France are monitored by the French security services and the epicenter of the spying is a three-story underground bunker at the intel headquarters in Paris.

Wrote the authors of the report, “The politicians know about it, but secrecy is the rule. It is out of control.”

So needless to say this is rather embarrassing to President Hollande after his cries about the U.S. spying effort.

The Obama administration is still going to have to supply European governments’ details. Of course they are doing the same things to us. But were it not for Edward Snowden, it would have all been kept quiet. Susan Rice could not be more wrong.

Europe and Asia

Turning to the European economy and central bank policy, the week started off on a down note amid renewed concerns over the fate of Greece and Portugal. Regarding the latter, the Portuguese 10-year bond traded with a yield above 8% for the first time since November as Portugal’s finance and foreign ministers resigned over disagreements concerning the austerity program mandated by the terms of its bailout. GDP in Portugal is expected to fall another 2.3% this year.

The resignations undermined the fate of the 78 billion euro lifeline extended Portugal and the center-right coalition, in obvious disarray, was feeling the heat from an opposition demanding early elections.

In the case of Greece, its bond yields were soaring anew after a period of stability over the fate of its fragile coalition government and the possibility Greece wouldn’t qualify for further bailout relief.

But by the end of the week, the Greek government said it was close to a deal with its EU-IMF creditors on cutting state jobs, which would clear the way for the next bailout installment, while in Portugal, Prime Minister Passos Coelho said, “A formula has been found that will secure the stability of the government.” [Portugal’s 10-year rallied and finished the week with a yield at 7.13%. Talk about volatility.]

But by Thursday, all eyes were also on the European Central Bank and Bank of England, even though there was little mystery they would both hold the line on short-term interest rates at 0.5%.

What was a surprise, however, was the language used by ECB President Mario Draghi and new Bank of England Gov. Mark Carney.

Draghi, who last year helped save the eurozone with a simple statement that the ECB “would do what it takes” to maintain stability in the currency bloc, said that interest rates will remain at current or lower levels for an “extended period,” the most extensive language Draghi has ever used.

“Monetary policy will remain accommodative for as long as necessary,” he told a news conference.

Draghi said he would not be drawn in on how long he expected rates to remain low, only that the ECB’s decision was “unanimous.”

“It’s not six months, it’s not 12 months – it’s an extended period of time,” he said.

The euro fell heavily on the news, which isn’t bad because it’s good for European exporters. [Their goods are cheaper.]

Only hours earlier, Mark Carney, who became governor of the BoE on Monday, made a break with tradition in spelling out in a statement that any expectations that interest rates are headed up were misguided. Normally after its meetings, the Bank of England doesn’t issue a statement with its policy actions.

So both key bankers offered up promises of easy money well into the future, which at least for one day had equity markets on the continent back off to the races, though they declined a bit on Friday.

What Draghi and Carney were doing was aligning themselves more fully with the Fed’s Ben Bernanke in giving a kind of timetable, even if not a specific one, in an attempt to engender more confidence and thus lending to European businesses, particularly those of the small- and medium-sized variety who are finding it so difficult to obtain credit these days.

The fact that the European Union just scrapped the long hoped for plans for a banking union doesn’t seem to matter.

Actually, Mario Draghi has literally done nothing but jawbone. No direct actions, as compared to the Fed’s $85 billion a month in purchases of Treasuries and mortgage-backed securities.

As to the state of the economy, i.e., reality, Draghi said, “The risks surrounding the economic outlook for the euro area continue to be on the downside.”

The eurozone unemployment rate remained above 12% in May, 12.2% vs. 11.3% in May 2012. [The rate for the EU-27 remained unchanged at 10.9%.]

Austria and Germany were the lowest at 4.7% and 5.3%, respectively, but Spain ticked up to 26.9%, Greece 26.8% (March), Italy 12.2%, Cyprus 16.3%, Ireland 13.6% (though down from 14.9% May 2012), and France 10.9%.

The youth unemployment rate in the euro area was 23.9%, but 59.2% in Greece (also March), 56.5% in Spain, 42.1% in Portugal and 38.5% in Italy.

The final eurozone manufacturing PMI for June came in at a 16-month high, 48.8, which is still below the 50 dividing line between growth and contraction, not being at 50 or above since July 2011. Discouragingly, the new orders component hit a two-year low and new export orders were down.

Individually, the June PMI readings did show that the U.K. hit a 25-month high at 52.5, while, separately, a reading on Britain’s service sector came in at a strong 56.9.

Germany’s manufacturing PMI was 48.6, not good (and as just reported, factory orders in May declined 2%); France’s, at 48.4, was a 16-month high; Italy hit a 23-mo. high at 49.1; Spain a 26-mo. high at 50.0; and Greece a 24-mo. high at 45.4.

On the services side, Germany’s PMI rose to 50.4, Italy’s down to 45.8, Spain’s up to 47.8, and France’s up to 47.2.

Put it all together and it’s still putrid, save for the U.K. (as I’ve been arguing for a long time now).

“The sub-50 PMI reading for June indicates that the euro area recession has extended into a record seventh consecutive quarter. The survey is broadly consistent with GDP falling by 0.2% in the second quarter...

“However, there is good reason to believe that the region is stabilizing and on course to return to growth during the second half of the year....

“The concern is that, with Germany barely growing, it remains difficult to identify any real growth drivers. This suggests that the pace of economic expansion for the region as a whole is likely to remain subdued until business confidence improves further and unemployment starts falling from its current, alarming record high of 12.2%.”

In China, the official government PMI for manufacturing in June fell to 50.1 from 50.8 in May (a final reading from HSBC pegged it at 48.2). China’s services PMI fell to 53.9, a 9-mo. low (HSBC had it ticking up to 51.3).

So this isn’t good, plus the government didn’t help matters any in terms of trying to convince analysts the data is real when it suspended release of industry-specific numbers from its monthly surveys of manufacturing purchasing managers. An official said, “We now have 3,000 samples in the survey, and from a technical point of view, time is very limited.” [Bloomberg] The just released manufacturing PMI also omitted readings on export orders and imports without any explanation from the government.

We’ve been told the suspension of industry-specific data, such as on the steel sector, is temporary.

Meanwhile, Chinese President Xi Jinping said the Communist Party should place more importance on achievements in improving people’s lives, social development and the environment; at least as much as on economic data.

In Japan, manufacturers turned optimistic for the first time since Sept. 2011, a further sign of confidence in Prime Minister Shinzo Abe’s reflationary policies.

Street Bytes

--Stocks rose a second straight week, with the Dow Jones adding 1.5% to 15135, the S&P 500 up 1.6% and Nasdaq 2.2%. Earnings start rolling in next week, with the big crush the following two.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.39% 10-yr. 2.74% 30-yr. 3.71%

On Friday, the yield on the 10-year rose 22 basis points, the most in two years.

--Aside from the jobs report, there was other important economic data on the week. The June ISM reading on manufacturing came in at 50.9, slightly better than expected, while the ISM non-manufacturing reading declined to 52.2, not good. May construction spending rose 0.5%, while factory orders for the month were up 2.1%, both in line with expectations.

--Central banks sold a record amount of U.S. Treasury debt for the week ended 6/28, $32.4 billion, eclipsing the prior mark of $24 billion in August 2007.

--Investors have pulled about $60 billion from U.S. bond funds since Ben Bernanke rattled markets, after investors had poured about $1 trillion into bonds since beginning of 2009; so you see the potential for an ongoing shift out of fixed income. Investors aren’t used to negative returns in bonds and the average fund lost about 2.2%-2.4% in the first half of 2013.

Bond kings Bill Gross of PIMCO and Jeffrey Gundlach of DoubleLine both argue, however, that the worst is already over. PIMCO’s Total Return Fund, managed by Gross for 26 years, suffered $9.9 billion in withdrawals in June, though at $268 billion, remains the largest bond fund in the world. Gross’ big bet on inflation-linked Treasuries, TIPS, boomeranged on him as inflation expectations fell in recent months, despite the hyper-easing that was supposed to lead to rising prices.

--Outflows from muni bond funds for the month of June were the largest ever recorded, according to Lipper.

--U.S. auto sales rose at the strongest rate in more than five years in June, with pickup trucks leading the way. Overall, auto makers sold 1.4 million cars and light trucks last month, 9.2% more than a year ago, according to Autodata Corp. The industry is on track for its best year since 2007, with sales of 7.8 million the first six months.

Ford’s rose 13%, Nissan’s 12.9%, Toyota’s 9.8%, Honda’s 9.7%, Chrysler’s 8.2%, GM’s 6.5% and Hyundai’s up 1.9%.

Increasing home-building activity is helping lead pickup truck sales.

[One side benefit of the surging auto sector...automotive advertising on the radio is up about 7.5% this year in the New York ad market, for example.]

--Gold officially fell 23% in the second quarter, the biggest quarterly decline since the start of modern gold trading in 1974.

--From a Wall Street Journal piece by Simon Constable:

“A decline in the number of spots on the sun could warm up the market for natural gas.

“These spots, which scientists have observed for centuries, are caused by changes in the magnetic fields on the solar surface, the National Aeronautics and Space Administration says. Scientists aren’t sure why, but when the number of visible spots declines, temperatures on Earth tend to be lower. This matters for investors because the sun is entering another period of fewer spots.”

Reader and long-time sun spot watcher, Mark R., suggests going long wool futures.

Don Coxe (Coxe Advisors) notes that from 1645 to 1715, sunspots all but disappeared, and that coincided with a mini-ice age when, among other things, England’s River Thames froze.

--Real estate data provider CoreLogic reports home prices rose 12.2% in May compared with last year. The issue now is the impact of rising mortgage rates, which probably won’t show up until July’s data.

--Canada’s jobless rate remained unchanged in June at 7.1%.

--Croatia became the 28th European Union member on Monday, the first addition since Bulgaria and Romania joined in 2007. Excitement has dimmed here since it began the application process ten years ago. Croatia has been wracked by recession for five years.

--British-owned Ulster Bank plans to lay off as many as 1,800 in Ireland (both sides of the border), while real estate prices in Ireland have stabilized the last two months, following the nationwide 50%+ decline since the peak in 2007. Dublin prices are down 56%. [I’ve seen other figures below 50% for Dublin.]

--Aquaculture has overtaken beef rearing in the U.K. for the first time, with output from fish farming reaching 66 million tons last year while beef production was down to 63 million tons. Chicken has overtaken beef in Britain as the most popular meat, as is the case in many countries the past few years.

A report by the Organization for Economic Cooperation and Development predicts that humans will eat more farmed than wild fish by 2015. 

Farmed fish are disgusting, but most of the time these days we have no choice when we go to the market, plus everyone lies on their labels to begin with.

--A survey of Lebanese citizens reveals that 66% believe the level of corruption is the highest it’s ever been. 61% report to having paid bribes in order to accelerate the issuing of formal documents. That’s pathetic. [Daily Star]

--Kuwait’s Investment Authority has pledged to invest as much as $5 billion in infrastructure projects, mostly in the U.K., over the next three to five years. Qatar recently made the same pledge as both seek to find ways to increase returns on sovereign wealth funds.

Specifically, the funds are looking for companies that work in highly regulated industries, such as water and power distribution.

--The French government, in an effort to save energy and cut pollution, has mandated that businesses, stores and public buildings across the country, including in Paris, turn off the lights in shop windows and on facades between 1:00 a.m. and 7:00 a.m. Office lights must be switched off one hour after the last employee goes home, which means that the last person in the office must return an hour later to turn them off.

The Environment Minister, who will oversee the program, says France’s national energy bill will be reduced by 200 million euros a year.

So the City of Lights won’t be as much so, going forward.

By the way, in reading a Financial Times story on the preceding, it was Gabriel Nicolas de la Reynie, a 17th-century Lieutenant of Paris, who made it the first place in the world to introduce street lighting in an attempt to reduce the crime rate.

So stay off Paris streets after 1:00 a.m., at least that’s my advice. Stay off Cairo’s, for the time being, 24 hours a day.

--Samsung warned of weaker-than-expected profits and sales for the second quarter as the slowdown in its handset business appears to be worse than many analysts believed.

But...the preliminary estimate is still for operating profit of $8.2 billion, an increase of 8% from the previous quarter and a 47% increase year-over-year. Record earnings, actually.

--Billionaire hedge-fund operator Steven Cohen apparently is going to avoid prosecution in the massive insider trading scheme involving his firm, SAC Capital. A late July deadline looms and thus far, prosecutors have been unable to flip Mathew Martoma, a former top SAC trader, who would be a key to indicting Cohen.

It’s not as if Cohen is totally off the hook, however. The SEC has already slammed an SAC-related unit with a $616 million penalty and investors have pulled $billions from his funds, plus the SEC is still pursuing a civil case against Cohen.

--Random House and Penguin completed their long-awaited merger: the creation of a publishing behemoth with sales of $3.9 billion and more than 10,000 employees.

Penguin Random House currently has a 25% share of the U.S. and global markets for general interest books.

--Chinese and world experts have concluded that the new H7N9 bird flu virus is more likely to be transmissible between humans than any other known bird flu virus. They based their conclusion on the fact that the virus has caused more human infections in a shorter period than any other bird flu virus, and that it is undergoing troubling genetic changes.

There were 132 reported cases of H7N9 from February to May, a much higher rate of infection than the H5N1 virus, which was responsible for about 60 cases a year over the past 10 years.

As I noted last time, there were no reported cases of H7N9 in June, but researchers expect it to reemerge in the fall.

--Disney’s “The Lone Ranger” has received pathetic reviews and the projection is for $50 to $60 million over the Fourth of July extended weekend, vs. production costs of $200 million.

“Iron Man 3” from Disney’s Marvel unit is the biggest movie thus far in 2013, taking in $1.2 billion globally since its early May release.

--In a TIME poll, 4% of Americans consider themselves pessimists, 50% optimists, and 43% put themselves somewhere in between. I’m in the 4%.

“If I could, I would repeal the Internet. It is the technological marvel of the age, but it is not – as most people imagine – a symbol of progress. Just the opposite. We would be better off without it. I grant its astonishing capabilities: the instant access to vast amounts of information, the pleasures of YouTube and iTunes, the convenience of GPS and much more. But the Internet’s benefits are relatively modest compared with previous transformative technologies, and it brings with it a terrifying danger: cyberwar. Amid the controversy over leaks from the National Security Agency, this looms as an even bigger downside.

“By cyberwarfare, I mean the capacity of groups – whether nations or not – to attack, disrupt and possibly destroy the institutions and networks that underpin everyday life. These would be power grids, pipelines, communication and financial systems, business record-keeping and supply-chain operations, railroads and airlines, databases of all types (from hospitals to government agencies). The list runs on. So much depends on the Internet that its vulnerability to sabotage invites doomsday visions of the breakdown of order and trust.

“In a report, the Defense Science Board, an advisory group to the Pentagon, acknowledged ‘staggering losses’ of information involving weapons design and combat methods to hackers (not identified, but probably Chinese). In the future, hackers might disarm military units. ‘U.S. guns, missiles and bombs may not fire, or may be directed against our own troops,’ the report said. It also painted a specter of social chaos from a full-scale cyberassault. There would be ‘no electricity, money, communications, TV, radio or fuel (electrically pumped). In a short time, food and medicine distribution systems would be ineffective.’”

Now while the threats of this kind of technological Armageddon may be exaggerated, I totally agree with Mr. Samuelson’s conclusion:

“The Internet’s virtues are overstated, its vices understated. It’s a mixed blessing – and the mix may be moving against us.”

Foreign Affairs

Egypt: Egypt’s military forced out the first freely elected leader in the nation’s history, President Mohammed Morsi, in a coup after just four days of massive protests as the Muslim Brotherhood suffered a huge backlash for abusing its electoral mandate. Morsi, ignoring the military’s 48-hour ultimatum to solve the crisis, was placed under house arrest.

Adly Mansour, the head of the Supreme Constitutional Court, was sworn in as interim president and will oversee a technocratic government, according to the military.  Early elections were promised, but as yet no timetable has been given. The military then immediately targeted senior figures in the Muslim Brotherhood for arrest, including the revered leader, Mohamed Badie, and his deputy, among others in the Brotherhood leadership. Mansour, in his first comments, described the armed forces as “the conscience of our nation and fortress of our security.”

The Brotherhood is 83 years old and Hosni Mubarak had banned the group. After Mubarak’s fall, the newly legalized group vaulted to power in elections, with veteran member Morsi at the top of the ticket.

In a statement, Thursday, the Brotherhood denounced the coup and subsequent crackdown, including the shutdown of its television stations. The military, it said, is returning Egypt to the practices of “the dark, repressive, dictatorial and corrupt ages.”

The National Salvation Front, the top opposition political group that was instrumental in working with the military, criticized the crackdown on the Brotherhood, saying, “We totally reject excluding any party, particularly political Islamic groups.”

The Front has proposed one of its leaders, Nobel Peace laureate Mohammed ElBaradei, to become prime minister of the interim Cabinet. Said a leading member of the Front, “Reconciliation is the name of the game, including the Muslim Brotherhood. We need to be inclusive. The detentions are a mistake.” The Front also seeks to ensure the military has no role in politics.

ElBaradei told the BBC that the army’s intervention was “a painful measure” but had been on behalf of the people and ultimately averted civil war.

“Mr. Morsi unfortunately undermined his own legitimacy by declaring himself as a pharaoh.”

Around the region, Arab leaders were happy to see Morsi go. Saudi Arabia hailed the “wisdom and moderation” of the Egyptian military for acting to remove him. Jordan’s foreign minister praised the Egyptian people.

“Egypt’s Muslim Brotherhood waited for decades for the opportunity to rule Egypt, and when it got the chance, rigid dogma and disregard for the opinions of others ended up characterizing its disappointing performance.

“Perhaps few would have expected the dramatic fall of President Mohammed Morsi to play out in the way it has this week, but for many people it was only a matter of time. The day-to-day performance of Morsi and his team, along with their wider objectives and strategies, turned out to be a recipe for disaster. The Brotherhood’s experiment in government was marked by running roughshod over a country of 90 million people. Whether it was demonstrators in the street, or the powerful army, or the judiciary, the media, women, minorities and young people, the Brotherhood’s tenure was an instance of acting in a pre- ‘Arab Spring’ mode....

“The implications of the events in Egypt will require time before they are evident, but people should expect repercussions in some form. Tunisia, Libya and Turkey have governments in which the Brotherhood or one of its equivalents is in power; similar movements exist in countries such as Sudan and Yemen, while in Syria, the Brotherhood is one of the main components of the opposition. The collapse of the experiment in Egypt can only serve as a warning to leaders elsewhere that ‘political Islam’ is not necessarily a winning political formula, unless politicians can demonstrate their openness and ability to work with others, while respecting dissent....

“In the end, a simple lesson should be derived from the fall of Morsi. In a rapidly changing 21st-century world, political parties and movements are doomed to fail if all they have to offer is rigid religious dogma and accusations of treason every time society wants to exercise its right of expression, and say so.”

“There is no ambiguity about what happened in Egypt on Wednesday: a military coup against a democratically elected government and the wrong response to the country’s problems. The armed forces forcibly removed and arrested President Mohammed Morsi, who won 51 percent of the vote in a free and fair election little more than a year ago. A constitution ratified by a two-thirds majority in another popular vote last December was suspended; dozens of leaders of the Muslim Brotherhood have been arrested and a number of media outlets shut down. A little-known judge appointed as president and granted the power to rule by decree will be entirely dependent on the armed forces for his authority.

“Having not spoken up against the excesses of Mr. Morsi’s government, the Obama administration has, with equal fecklessness, failed to forthrightly oppose the military intervention. But there should be no question that under a law passed by Congress, U.S. aid to Egypt – including the $1.3 billion annual grant to the military – must be suspended.

“Some in the administration and Congress will try to avoid this step, because of the armed forces’ history as a U.S. ally and guarantor of peace with Israel. But the suspension of aid is the necessary first step in a U.S. policy that advances the aim Mr. Obama laid out in a Wednesday night statement: ‘to ensure the lasting restoration of Egypt’s democracy.’

“Following the removal from office of Hosni Mubarak in February 2011, military leaders promised – as they did again Wednesday – to ensure democratic rights and quickly move toward elections. They did neither. Liberal democratic leaders who had opposed Mr. Mubarak’s autocracy were singled out for repression; critical journalists and activists were prosecuted and jailed in military-run trials; and while elections were repeatedly postponed, a campaign was launched against civil society groups dedicated to promoting free elections and human rights... The generals, meanwhile, insisted on constitutional provisions exempting the armed forces and its budget from civilian authority.

“The Obama administration should now make clear to the new military-backed regime that aid will be restored only if a genuinely democratic transition is pursued in the coming months....

“Had the armed forces not intervened, democracy probably would have led to the defeat within months of the Muslim Brotherhood in legislative elections. If it does not provoke the eruption of violent conflict, this coup may well ensure that Islamist forces, including more radical groups, grow stronger. The United States must focus on preventing the worst outcomes in a vital Arab ally, including civil war or a new dictatorship. That means dropping its passivity and using the leverage of aid to insist on a democratic transition.”

“Military rule can’t solve Egypt’s pressing problems and might even plunge the country into greater instability. Radical Islamists who have always mocked the democratic process would well return to terrorism. History does not repeat itself, but the lessons learned in Algeria should not be ignored.

“In every coup, those who seize power promise their rule will be temporary. Yet their ‘temporary’ often gets too long, if not outright forever. In 1952, Col. Nasser and his gang promised to hold elections and return to the barracks within six months. They clung to power for 50 years. 

“A coup by any other name is still a coup, and will smell as sour.

“And the aspiring democrats of Tahrir Square may end up as losers yet again. Whoever throws the banquet, they could be served as the turkey on the table.”

“Mr. Morsi won the election narrowly over a Mubarak-era political leftover, but he soon reinforced fears that the Brotherhood would use its new power to build an Islamist dictatorship. He tried to claim near-absolute powers by decree to force through a draft constitution written by Islamists and boycotted by everyone else.

“The result was political polarization, with the opposition and military uniting against the Brotherhood supporters who were Mr. Morsi’s last defenders. The millions of Egyptians who took to the streets were also protesting chronic gas and food shortages and a sinking economy. The uprising shows that the worst fate for Islamists can be to take power and thus be accountable for results. Unlike Iran in 1979, Egypt retains enough competing power centers such as a secular business class and judiciary to prevent an Islamist revolution.

“Yet a military coup riding mass protests carries its own risks to future stability. One danger is the reaction of the Brotherhood, which is still the strongest single political party. The secretive group renounced armed struggle in the 1970s. But that could change if its leaders conclude that democracy works for everyone except for them....

“President Obama stayed quiet throughout the latest crisis, finally issuing an anodyne call Wednesday night for ‘a democratic political order with participation from all sides and all political parties – secular and religious, civilian and military.’

“Mr. Obama also requested a review of U.S. aid to Egypt, but cutting that off now would be a mistake. Unpopular as America is in Egypt, $1.3 billion in annual military aid buys access with the generals. U.S. support for Cairo is written into the Camp David peace accords with Israel. Washington can also do more to help Egypt gain access to markets, international loans and investment capital. The U.S. now has a second chance to use its leverage to shape a better outcome.”

“Human rights and women’s groups have condemned the ‘horrific levels’ of sexual violence against women in Cairo’s Tahrir Square, with reports of 101 sex attacks amid the latest wave of protests that led to the toppling of Egypt’s first freely elected president, Mohammed Morsi.

“The brutality of the assaults, which included many rapes, was unprecedented and far surpassed reports of sex attacks occurring during previous public protests in and around Cairo’s general square, which was the epicenter of the 2011 revolution, the groups said.”

Sickening...barbaric. Some attacks lasted 45 minutes. Some women were beaten with sticks and kidnapped in vehicles. [Some even worse, but I’m doing some selective editing.]

Not the kind of story that promotes tourism, for starters. And what does this say about the police, who have been ineffectual since the first revolution.

Syria / Lebanon: President Bashar Assad claimed in an interview published Thursday that the opposition failed to overthrow his regime and had “used up all their tools.” Assad continues to maintain that what has happened in his country for more than two years is not part of a revolution, but a conspiracy by Western and some Arab states to destabilize his country. Assad praised Egyptians for their massive protests and said the overthrow of President Morsi meant the end of “political Islam.”

For its part, a high-ranking Russian official said ‘we told you so.’

Alexei Pushkov, chairman of the State Duma’s International Affairs Committee, said, “The Arab Spring has only led to chaos in Egypt and a bloody foreign-backed drama in Syria, war in Libya, a mess in Tunisia and war in Mali.”

“There seems no doubt that Hizbullah played a suspect role in the removal of Sheikh Ahmad Assir in Abra. This has angered many Sunnis, understandably so. However, the sense of doom hovering over Lebanon before that showdown has subsided and many Lebanese backed the Army and do not regret Assir’s defeat.

“In part this is a reflection of the changing attitude toward events in Syria. Whatever the barbarism of his men, President Bashar Assad has succeeded in redefining the debate over the conflict in his favor. From the outset his regime portrayed the uprising as one led by jihadists, and created the objective conditions ensuring that jihadists would join the fight. This granted Assad the means to pursue a war of eradication, similar to that of the Algerian generals during the 1990s, and rally to his side those fearing Sunni Islamists the most.

“Few were duped by Assad’s tactics. They saw clearly that for months his men murdered and tortured unarmed protesters. But this provoked no response from supine Western governments and Assad pursued his policy of repression and radicalization, knowing that jihadists would soon fill the void left by Western unresponsiveness.

“The radicalization also had repercussions for the countries surrounding Syria. In Iraq, the government is facing car bomb attacks in Shiite areas on a daily basis, consolidating communal fears and giving Prime Minister Nouri al-Maliki the justification he needs to support the Assad regime. In Jordan, fears that jihadist gains in Syria might harm Jordan has forced the regime to play a balancing game: assisting the rebels in line with the policies of the Gulf states, but also setting limits on that assistance, while looking for ways, if possible, to push the Syrian refugee crisis outside the kingdom’s borders.

“In Lebanon, the mood is changing decisively against the Syrian uprising – not because of sympathy for Assad, but because there is a perception that the war next door may spread to Lebanon....

“The involvement of Hizbullah in the Syria conflict, while a source of sectarian tensions in Lebanon, has become a fait accompli. The threats by the Syrian opposition to strike back against the party inside Lebanese territory are viewed with alarm by many Lebanese who refuse to be drawn into the fighting next door. Hizbullah benefits from this uneasiness.”

“Is John Kerry stupid? This is not a rhetorical question....

“Our brand-spanking-new secretary of state has spent a considerable amount of time in the Middle East over the past month. That makes sense, since the Middle East is the epicenter of the world’s troubles.

“But Kerry has chosen not to concentrate on the immediate crises at hand there – the killing grounds in Syria, the roiling streets of Egypt, even (a little bit to the North) the troubles in Turkey. Instead, he’s dedicated himself to a lingering policy problem that is a) not in crisis, b) uniquely unready for any kind of forward movement at present and c) utterly beside the point at the moment.

“That matter is, of course, the relationship between Israel and the Palestinians.

“For the past 30 years, the foreign-policy establishment (of which Kerry has long been a leading member) believed unquestioningly that the leading cause of instability in the Middle East was the Israeli-Palestinian conflict.

“That conviction was shaken to its core after that solitary street vendor in Tunisia set himself afire in December 2010 and effectively set the Arab world on fire in his wake. Two months later, the dictator of the largest and most important Arab country, Egypt, was gone after massive protests ended his 30-year reign. Later in 2011, Moammar Gaddafi’s four-decade rule in Libya died when a rebel took Gaddafi’s life with a bayonet. Then began the Syrian civil war against the Assad dynasty that has now cost 100,000 lives.

“In all these cases, the strife and political turmoil was among Arabs; nothing Israel did was at issue except when bashing Zionism might’ve been politically expedient for domestic consumption. And concerns that the Palestinian problem might inflame ‘the Arab street’ were ludicrous, since ‘the Arab street’ was in open revolt against the rulers of their own countries.

“And that open revolt has continued, with immensely complex consequences and opportunities for U.S. foreign policy – and all of them have to do with how the United States handles intra-Arab conflicts.

“So what does our secretary of state dwell upon? He decides to use a wildly outmoded form of showmanship – so-called ‘shuttle diplomacy,’ in which he travels back and forth between Israeli and Palestinian leaders in an effort to bridge the gap between them....

“This was all predictable. After the disastrous efforts to push Israel into concessions in President Obama’s first years in the White House, he and Kerry’s predecessor, Hillary Clinton, washed their hands of the conflict.

“A smart man would have followed their example. After all, as Forrest Gump said, ‘Stupid is as stupid does.’”

Republican Sen. Lindsey Graham (S.C.), speaking after meeting with Israeli Prime Minister Benjamin Netanyahu in Jerusalem, said of Kerry’s efforts to jump-start peace talks between Israel and the Palestinians, the Syrian civil war was much more of a pressing issue, because if it is not dealt with, “the whole region is going down.”

“To me, we’re having misplaced priorities here,” Graham warned. “The peace process is important, but Syria is literally blowing apart: 100,000 dead.”

Graham, who traveled to Israel with Arizona Republican Sen. John McCain, said the idea of an international conference on the crisis was fruitless.

“The idea of sitting down with the Russians and the Iranians, and expecting Assad to leave when he’s winning, to me makes no sense,” said Graham. “(We) should be spending our time trying to stop the slaughter in Syria. And when we say as a nation, our president says ‘Assad must go,’ we need to prove to people we mean it. And when our president said, ‘The use of chemical weapons is a red line,’ well that red line has been crossed. I would just urge the administration to focus on Syria, because if you don’t get this right soon, the whole region is going down.” [Jerusalem Post]

Iran: President-elect Hassan Rohani said Iran’s election outcome has created new leeway to de-escalate a long-running international standoff over the country’s contested nuclear program.

In an address quoted by AFP, Rohani said, “Moderation in foreign policy means neither surrender nor confrontation but constructive and efficacious interaction with the world.”

But he also promised to assert “all of Iran’s rights and the nation’s demands.”

And speaking at a nuclear energy conference in St. Petersburg, Russia, the head of Iran’s Atomic Energy Organization said production of nuclear fuel would “continue in line with our declared goals. The enrichment linked to fuel production will also not change.”

Iraq: According to the United Nations mission here, violence in June claimed 761 Iraqis. 49 were then killed in a wave of violence on July 2nd. 

Russia: Since Sochi was selected as the site of the 2014 Winter Olympics, I argued this was an incredibly stupid choice and that you’d have to be nuts to think about attending because of the terror threat, Sochi being near Dagestan and Chechnya. So on Wednesday, a leading Chechen rebel called on Islamist militants in the North Caucasus to disrupt the Sochi Games, reversing a previous appeal of his not to target civilians in the region.

Doku Umarov, a big name in the terror trade, urged his fighters to “do their utmost to derail” the games, which he described as “satanic dances on the bones of our ancestors.”

“We have the obligation to use all means to prevent this,” he said in a video posted on a rebel website.

Ramzan Kadyrov, the strongman who rules Chechnya, said his security forces would track down Umarov.

Umarov’s group is blamed for bombing a Moscow airport in January 2011, two subway stations in 2010 and a Russian train in 2009.

Separately, an unmanned Russian rocket carrying three navigation satellites valued at a collective $200 million crashed shortly after lift-off. Launch facility personnel at the site in Kazakhstan were not hurt.

This is the fifth catastrophic failure of the Proton-M rocket since 2010 and represents a big blow to Russia’s commercial space operation.

Brazil: President Dilma Rousseff has seen her popularity ratings plummet since massive protests broke out across the country. Published last weekend by the country’s biggest newspaper, a survey found 30% rated Rousseff’s government as “great/good,” a sharp fall from 57% who gave it that grade just three weeks earlier, before the demonstrations started.

Random Musings...Edward Snowden and the consequences

--Late Friday, Venezuelan President Nicolas Maduro said he had decided to offer asylum to Edward Snowden, but as I go to post, no word on what Snowden will do, he still being holed up in Moscow’s international airport.

Earlier, Bolivian President Evo Morales was given a hero’s welcome after his unplanned 14-hour layover in Vienna on his flight home from Moscow, due to suspicions that Snowden was on board. Latin American leaders called it a stunning violation of national sovereignty and disrespect for the region and Morales has threatened to close the U.S. embassy.

Bolivia’s ambassador to the United Nations said “the orders came from the United States.” President Morales said, “They want to frighten and intimidate me but they won’t scare me. We’re not in colonial or imperial times...this is an aggression against Latin America.”

Leftist president Cristina Fernandez of Argentina said, “This is a humiliation for a sister nation and for the South American continent.

The U.S. refused to comment on whether it was involved in any decision to close European airspace.

In a letter to the Ecuadorean Government this week, Snowden wrote, “I remain free to publish information that serves the public interest, with an extra-judicial manhunt costing me and my family my freedom to travel and my right to live peacefully without fear of illegal aggression.”

In a statement, Snowden said, “The Obama administration has now adopted the strategy of using citizenship as a weapon. Although I am convicted of nothing, it has unilaterally revoked my passport, leaving me a stateless person.”

Obviously coached by WikiLeaks, specifically attorney and Brit Sarah Harrison, Snowden added: “In the end the Obama administration is not afraid of whistleblowers like me, Bradley Manning or Thomas Drake. We are stateless, imprisoned or powerless. No, the Obama administration is afraid of you. It is afraid of an informed, angry public demanding the constitutional government it was promised – and it should be.”

As for President Obama’s reaction...from an editorial / Wall Street Journal:

“Keith Alexander, the general in charge of the National Security Agency, told ABC News on Sunday that intelligence revelations by fugitive contractor Edward Snowden had ‘caused irreversible and significant damage to our country and to our allies.’

“But now President Obama seems to think it’s no big deal. ‘I have not called [Chinese] President Xi personally or [Russian] President Putin personally’ about the case, Mr. Obama said on Thursday in Senegal.

“And why not? ‘Number one, I shouldn’t have to,’ Mr. Obama said. ‘Number two, we’ve got a whole lot of business that we do with China and Russia, and I’m not going to have one case of a suspect who we’re trying to extradite suddenly being elevated to the point where I’ve got to start doing wheeling and dealing and trading on a whole host of other issues.’ Oh, and he doesn’t want to ‘be scrambling jets to get a 29-year-old hacker.’

“That’s a revealing answer, and not in a good way. Mr. Obama has invested precious diplomatic capital trying to ‘reset’ relations with Russia and personalize relations with China’s leaders, including this month with Mr. Xi in Palm Springs. Hanging with dictators can’t be Mr. Obama’s idea of a good time, but if there’s a point to the exercise it’s precisely so he can pick up the phone and intercede with Vlad and Xi over this kind of issue....

“The Washington Post reports that U.S. analysts fear Mr. Snowden stole much more than he’s disclosed. ‘They think he copied so much stuff – that almost everything that place does, he has,’ a former government official said....

“Meantime, Mr. Obama seems to think the only way to force Mr. Snowden’s extradition is to make concessions to the Chinese and Russians, rather than demand his return and force Moscow and Beijing to pay a price for failing to comply. Perhaps it’s because this Administration rarely seems to exact any price for the misbehavior of other countries that our diplomatic demarches are now treated with such open disdain.

“This is why Mr. Snowden remains in a Moscow airport terminal, making demands (via his father) of the terms the U.S. must meet before he returns home. This is also how Russia merrily arms Bashar Assad’s forces in Syria, and how Mr. Assad unleashes chemical weapons on his own people, and how Iran marches toward an atomic bomb – all with little concern for what the U.S. might do.”

Sources told the Sunday Times of London that Snowden has the data backed up and stored in a vault or safe, and that it is believed he left his laptops in Hong Kong.   Guardian reporter Glenn Greenwald said, “[Snowden] has taken extreme precautions to make sure many different people around the world have these archives to insure the stories will inevitably be published.”

“Collectively, Russia, China, the United States and the world’s other nuclear-armed countries possess enough fissile material to blow up the planet many times over. Exactly how many times that is, however, became more of a mystery Monday.

“At last count, in 2010, the Pentagon revealed it was the proud owner of 5,113 all-American nuclear warheads. That’s down from a high of more than 31,000 in the late 1960s.”

But how many does the U.S. have today? Whereas the Pentagon had no problem supplying a figure, recent Freedom of Information Act requests for an update have been rejected.

--There were only 154 homicides in New York City the first six months of 2013, down from 202 in the same period last year. Police Commissioner Ray Kelly attributed much of the drop to a new anti-gang initiative meant to suppress retaliatory violence among neighborhood gangs.

Since the department started producing a reliable method of compiling crime statistics 50 years ago, 2012 saw the fewest homicides on record, 419.

Commissioner Kelly and Mayor Michael Bloomberg would also credit the controversial stop-and-frisk policy, though the department is employing this tactic less and less due to political pressure.

--New York Gov. Andrew Cuomo signed a new law that will punish young drivers caught texting or using a hand-held cellphone on the road a 60-day suspension, plus the already existing fines. Good.

--Monsignor Nunzio Scarano (61), who worked as a senior accountant at the Vatican, was arrested along with an Italian secret service agent and a financial intermediary in a $26 million money-laundering scheme whereby Scarano flew dirty money into Italy on a private plane.

Scarano was known as ‘Monsignor 500’ because of his penchant for carrying only 500 euro notes which he loved to show off. He denies the charges.

The arrest came just two days after Pope Francis appointed a special commission to look into the Vatican Bank in an effort to clean up its finances. The director and deputy director resigned.

--On the brighter side, Pope Francis cleared Pope John Paul II and Pope John XXIII for sainthood.

--What a heartbreaking tragedy this week...the death of the 19 firefighters in Arizona. Sadly, they did not establish an escape route and despite the use of their emergency fire shelters, they were overwhelmed by the intensity of the Yarnell Hill fire. 63% of wildland firefighter fatalities since 1910 occurred during “burnover,” when a fire front engulfs crews. [Los Angeles Times]

Some of the 19 seemingly never even deployed their shelters, which are effective in fast-moving fires that pass over quickly, but cannot withstand flames or severe heat.

--For the archives, the temperature hit 129 in Death Valley last weekend, a record for any day in June in the U.S. It was 117 in Las Vegas, tying an all-time record for the month, and 119 in Phoenix, the fourth-highest ever.

Philadelphia and New York City were among the locations reporting record June rainfalls. 

--For junior historians and Civil War buffs, this was quite a week. Gettysburg...the 150th anniversary. I’ve been there twice and will go back, maybe in the fall, but I’m not one of those who likes to be among the hordes. I did my Normandy pilgrimage the year after the 50th anniversary of D-Day, for example.

But while I’m always bemoaning the average American’s seeming lack of basic knowledge when it pertains to our nation’s history, I was pleasantly surprised the other day when a local sports talk radio host mentioned he was taking some time off to go to Gettysburg and all manner of callers quickly chimed in, giving him advice. [By the way, baseball fans. If you didn’t know it, Hall of Fame pitcher Eddie Plank is buried in Gettysburg. That’s something I’ve forgotten my two trips to the place, but won’t forget next time.]

I do admit that one event this weekend that would be very cool (and no doubt emotional) to participate in is the commemoration of Pickett’s Charge, where thousands are going to be allowed to slowly walk up together. With thousands waiting on top. 

Of course this fall there will be one last big commemoration...Nov. 19, the anniversary of Abraham Lincoln’s Gettysburg Address.

“In the 1780s, the son of a farmer in south-central Pennsylvania purchased from his father 116 acres where two roads intersected. He laid out 210 lots for a town he named for himself. He was James Gettys.

“What happened when two armies collided there 150 years ago was, some might argue, not the most important battle in American history or even the Civil War. The 1777 defeat of the British at Saratoga won French support for the American Revolution. The Battle of Antietam (Sept. 17, 1862) enabled Abraham Lincoln to redefine the war by issuing the Emancipation Proclamation. The Battle of Midway sealed Japan’s fate.

“But the Revolution would have succeeded without French assistance: No distant island could govern this continent. Japan’s defeat was assured when its attack on Pearl Harbor enraged a continental superpower. And in spite of Antietam, which repulsed the first invasion of the North, secession could still have succeeded if Robert E. Lee’s second invasion had shattered Northern support for the war by smashing the Union army at Gettysburg.

“Antietam would have shortened the war, saving hundreds of thousands of lives, if Gen. George McClellan, among the most disagreeable figures in U.S. history, had pursued the retreating Lee. But Antietam was most important for what it enabled Lincoln to proclaim 106 days later. Gettysburg was most important for what it achieved, not for giving the president an occasion to deliver an address there 139 days later.

“Studying history serves democracy by highlighting contingencies: Things did not need to turn out the way they did; choices matter....

“They certainly did during the first three days of July 1863 at the town of 2,390 people seven miles north of the Mason-Dixon line....

“After Antietam, Lee said: ‘If I could do so, I would again cross the Potomac and invade Pennsylvania.’ Hence a small crossroads town became the hinge of American, and hence world, history.”

--Finally, the Wall Street Journal printed an excerpt from President Calvin Coolidge’s “Address at the Celebration of the 150th Anniversary of the Declaration of Independence” in Philadelphia, July 5, 1926:

It was not because it was proposed to establish a new nation, but because it was proposed to establish a nation on new principles, that July 4, 1776, has come to be regarded as one of the greatest days in history. Great ideas do not burst upon the world unannounced. They are reached by a gradual development over a length of time usually proportionate to their importance. This is especially true of the principles laid down in the Declaration of Independence. Three very definite propositions were set out in its preamble regarding the nature of mankind and therefore of government. These were the doctrine that all men are created equal, that they are endowed with certain inalienable rights, and that therefore the source of the just powers of government must be derived from the consent of the governed.

If no one is to be accounted as born into a superior station, if there is to be no ruling class, and if all possess rights which can neither be bartered away nor taken from them by any earthly power, it follows as a matter of course that the practical authority of the Government has to rest on the consent of the governed. While these principles were not altogether new in political action, and were very far from new in political speculation, they had never been assembled before and declared in such a combination. But remarkable as this may be, it is not the chief distinction of the Declaration of Independence...

It was the fact that our Declaration of Independence containing these immortal truths was the political action of a duly authorized and constituted representative public body in its sovereign capacity, supported by the force of general opinion and by the armies of Washington already in the field, which makes it the most important civil document in the world.

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

Gold closed at $1212
Oil, $103.22

Returns for the week 7/1-7/5

Dow Jones +1.5% [15135]
S&P 500 +1.6% [1631]
S&P MidCap +2.2%
Russell 2000 +2.9%
Nasdaq +2.2% [3479]

Returns for the period 1/1/13-7/5/13

Dow Jones +15.5%
S&P 500 +14.4%
S&P MidCap +16.2%
Russell 2000 +18.4%
Nasdaq +15.2%

Bulls 43.8
Bears 20.8 [Source: Investors Intelligence]

Dr. Bortrum is recovering nicely from surgery. I have an unofficial date for his return to the golf links of September, though he will be ineligible for the FedEx Cup....as am I.

Have a great week. I appreciate your support.

Brian Trumbore

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