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07/13/2013

For the week 7/8-7/12

Posted: 12:00 AM ET

Washington and Wall Street

So much for the little Fed-induced hiccup in the markets, mid-May to mid-June, that had the S&P 500, peak to trough, declining 6.5% and the Dow Jones losing 5.5% (intraday highs to intraday lows for both indices). The past three weeks it’s been back off to the races, and new record highs in both, as the Federal Reserve sought to reassure investors it wasn’t taking away the punch bowl too early in terms of its $85 billion monthly purchase of Treasuries and mortgage-backed securities, nor was it close to raising the funds rate from zero for, essentially, years to come. At least not until the unemployment rate, currently 7.6%, hits the targeted 6.5%, or maybe even lower.

This week, the Fed released the minutes from its June 18-19 meeting, the press conference after which riled everyone up with Chairman Ben Bernanke coming out and saying the Fed would begin to taper quantitative easing by end of the year and possibly finish it up by mid-2014.

The minutes showed “Several members (judging) that a reduction in asset purchases would likely soon be warranted.” Even so, “many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases.”

Well, there was a bit of confusion with talk like this, but then two hours later, after the market closed on Wednesday, Bernanke addressed an economic conference and said the Fed needed to keep a stimulative monetary policy in place given low levels of inflation and the 7.6% unemployment rate that “if anything overstates the health of the labor market.”

“The overall message is accommodation,” he said. “(A) highly accommodative policy is needed for the foreseeable future.”

Buy! Buy!! Buy!!!

Nothing really changed. The statements were the same as before.

What did change, at least for a few days, is the bond market, which while rallying back some this week is still about 100 basis points higher in ten weeks, with a 30-year fixed mortgage up to 4.50% from 3.35% in May, which is definitely slowing the surge in the housing industry. And, during this same time, the global economic outlook has only worsened, especially with regards to one very important player, China, while Europe remains mired in recession.

And due in part to tensions in the Middle East, that will only get worse (you can take that to the bank), oil prices are back over $100 per barrel, an unwelcome tax on the American consumer.

Guidance during this earnings season is also no doubt going to be lackluster, especially for U.S. multinationals with significant overseas exposures.

Estimates on U.S. second-quarter GDP are falling to a general band of 1.0% to 1.5%, which sucks, and jobless claims for this past week rose all over again.

[For its part, the International Monetary Fund reduced its global growth outlook to 3% for 2013 and 3.75% for next year, updating its U.S. forecast to a rise of just 1.7% this year and 2.7% in 2014.]

Oh, there was some good news. Earnings for JPMorgan Chase and Wells Fargo were OK, but not stunningly good. Those stocks have already had quite a run (and congratulations to those of you who have participated....treat yourself to a Shiner Bock, the ‘premium’ domestic), consumer credit is expanding, and same-store retail sales for June were solidly higher.

But I noticed a number of stories from around the country, including here in New Jersey and places like Charleston, South Carolina, where the sequester appears to be finally hitting, with massive furloughs in the defense industry, which while us budget hawks believe it’s the right thing to do (and I have some good news on the budget below), it does indeed have an adverse economic impact, at least in the short term.

Next week Mr. Bernanke testifies before the House and Senate as part of his semi-annual duties, and he’ll have an opportunity to roil, or rally the markets further.

It all comes down to the data, however, and the Fed seems exceedingly optimistic on future growth, particularly for 2014, which means the easy money spigot should be left on full throttle when they fall short.

Oh, I wish this were not the case. If you aren’t scared to death by the international situation these days, and the fact we have an invisible president occupying the White House who, by design, wants to abrogate America’s traditional leadership at the worst possible time, you’re nuts.

The Fed should be hiking the funds rate, not keeping it at zero, for one good reason. America’s savers deserve some return on their cash, because cash is where all investors should be headed. The funds rate should be 2%, something. It is criminal for the Fed to have kept rates at zero for so long. As I showed you very graphically the other week, the Fed’s policies have basically worked in one sector, housing, and to a lesser extent autos, though there was a replacement factor in the latter already built in. The rest of the economy, despite what you see in rising corporate profits, is stuck in neutral, witness stagnant revenues.

That’s my take for this week. Throw it in with all the opinions you read and hear and we’ll see who is right in 12 months. I just smell something awful in the air. History will not judge this current White House well. Historians, and future generations of Americans, will look on this era with disgust.

The world is crying out for leadership....leadership of the right kind. America, once great, contributes nothing.

Europe and China

The IMF revised its growth outlook for some of the following.

Germany... now up 0.3% in 2013, up 1.3% next year
France... down 0.2% 2013, up 0.8% 2014
Italy... down 1.8%, up 0.7%
Spain... down 1.6%, unchanged
U.K.... up 0.9%, up 1.5% next

Overall, the IMF said the eurozone will remain in recession this year, down 0.6%, with meager growth of 0.9% in 2014.

“Growth remains weak and unemployment is at a record high,” said the IMF in its accompanying statement regarding the eurozone. “Concerted policy actions to restore financial sector health and complete the banking union are essential.

“The centrifugal forces across the euro area remain serious and are pulling down growth everywhere.”

But in the day-to-day, it’s all about the German election on Sept. 22 (with Chancellor Angela Merkel’s support firming), which is delaying action on any adverse situations in euroland, of which there are many. Germany continues to have its own economic issues as well, with May exports falling 2.4% over April, 4.8% year-over-year, with exports to the other members of the eurozone down 9.6%, though down just 1.6% outside Europe. Industrial production in May was also down 1% compared with April.

France lost its top credit rating at Fitch Ratings, reduced to AA+ from AAA, joining Moody’s and S&P in removing France from a shrinking list of top-rated governments. Fitch cited the lack of growth and surging debt levels.

In Greece, the unions stepped up the pressure on the government and its troika-mandated further austerity measures, calling for a 24-hour general strike for this coming Tuesday, the fourth such action of the year.

But if the government is to clinch the first installment of an $8.7 billion aid payment approved by the 17 eurozone finance ministers on Monday, the cuts, including further layoffs, must go through. 

The aid is being meted out in small portions, partly so as not to rock the boat with the likes of Germany ahead of its vote. In order to receive the first $5 billion, Greece must trim government payrolls and adopt the other measures by July 19, thus the timing of the strike. The IMF will release about $2.35 billion on July 29, and in October, the Greek’s would receive another $1.3 billion.

But it’s all a sham, as discussed further below. Chancellor Merkel, post-9/22, will be in a position to take tougher stands on Greece, Portugal, Cyprus and the rest. Regarding this last one, Cyprus clearly needs a second bailout, already, and Portugal is running on fumes.

Plus, as I’ve been harping on, there is no banking union for the European Union, and the credit squeeze continues, as many Euro banks are still too weak to lend, especially to small- and medium-sized companies operating in the periphery.

You also have a situation in Ireland, which is looking for a new deal on its crippling bank debt of 64 billion euro of taxpayers’ money, whereby Jeroen Dijsselbloem, the Dutchman who chairs the 17-strong group of eurozone finance ministers, says any so-called “retroactive recapitalization” of Ireland’s bank debt would sap the 60 billion European Stability Mechanism (ESM) bank fund.

Remember, with all the happy talk from European Central Bank President Mario Draghi about his backstops, only 60 billion of the 500 billion euro ESM has been set aside for bank recapitalizations.

So forget Ireland, Dijsselbloem is basically saying forget Greece, Spain and others as well in terms of their being able to tap the very fund that we’ve been told for years was the ultimate backstop.

Again, it’s all a sham!

As noted in the Irish Independent:

“European leaders originally signed off on the idea of the ESM being used retroactively more than a year ago, but since then the deadline for making a decision on what that actually means has been pushed out further and further.”

Editorial / The Financial Times’ Lex column:

“A couple of weeks ago, EU finance ministers agreed on the broad parameters of how failing banks should be resolved and how much leeway national authorities should have over which creditors to bail in and which to save. The latest spat is over how that agreement is implemented in those countries that are in the bloc’s putative banking union. The commission has proposed that it makes the final decision. The Germans are not pleased.

“And with some reason. Resolutions would be funded by a new 60 billion to 70 billion euro pot created with bank contributions. Banks funded largely by deposits would pay less to the pot. And those with riskier activities would pay more. German banks – notably Deutsche Bank and Commerzbank – lose on both fronts. The former funds 28% of its balance sheet with deposits, the latter 36% - below southern European banks...The higher perceived risk of investment banking could also raise the German contributions.

“So the European Commission could make decisions over how far German money can bail out German banks. But if a banking union is going to mean anything, national authorities have to be willing to cede control to central institutions. A halfhearted banking union becomes an exercise in adding new layers of bureaucracy rather than a coherent basis for a banking system. It is time for Germany to decide how committed it really is to banking union.”

Ambrose Evans-Pritchard / The Daily Telegraph

“None of Euroland’s key actors seems willing to admit that the current strategy is untenable. They hope to paper over the cracks until the German elections in September, as if that is going to make any difference.

“A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin. It alleges that Greece lacks the ‘willingness and capacity’ to collect taxes. In fact, Athens is missing targets because the economy is still in freefall and that is because of austerity overkill. The Greek think-tank IOBE expects GDP to fall 5% this year. It has told journalists privately that the final figure may be -7%. The Greek stabilization is a mirage.

“Italy’s slow crisis is again flaring up. Its debt trajectory has punched through the danger line over the past two years. The country’s 2.1 trillion euro debt – 129% of GDP – may already be beyond the point of no return for a country without its own currency. Standard & Poor’s did not say this outright when it downgraded the country to near-junk BBB on Tuesday. But if you read between the lines, it is close to saying the game is up for Italy....

“Indeed. The International Monetary Fund has just slashed its growth forecast for Italy this year to -1.8%. The accumulated fall in Italian output since 2007 will reach 10%. This is a depression. Yet how is the country supposed to get out of this trap with its currency overvalued by 20% to 30% within EMU?

“Spain’s crisis has a new twist. The ruling Partido Popular is caught in a slush-fund scandal of such gravity that it cannot plausibly brazen out the allegations any longer, let alone rally the nation behind another year of scorched-earth cuts. El Mundo says a ‘pre-revolutionary’ mood is taking hold.

“A magistrate has obtained the original ‘smoking gun’ alleging that Premier Mariano Rajoy accepted illegal payments as a minister. The Left is calling for his head but so are members of the Consejo General del Poder Judicial, the justice watchdog....

“Much of the ruling party appears tainted by a network of covert funding. If proved, said (a Consejo member), it poses a ‘very grave’ threat to Spanish democracy.

“Portugal is slipping away....

“Like Greece before it, Portugal is chasing its tail in a downward spiral....

“What is new is that Vitor Gaspar, the high priest of Portugal’s shock therapy, has thrown in the towel. He blames the fainthearted for refusing to slash with greater vigor. Needless to say, he still refuses to accept that a strategy of wage cuts and deflation in a country with total debt of 370% of GDP was always likely to fail....

“The Portuguese press is already reporting that the European Commission is working secretly on a second bailout, an admission that the wheels are coming off the original 78 billion euro EU-IMF troika rescue.

“This is a political minefield. Any fresh rescue would require a vote in the German Bundestag, certain to demand ferocious conditions if this occurs before the elections....

“Markets have reacted insouciantly so far to these gestating crises across Club Med. They remain entranced by the ‘Draghi Put,’ the ECB’s slowly fraying pledge to backstop Italian and Spanish debt, forgetting that the ECB can only act under strict conditions, triggered first by a vote in the Bundestag.

“These conditions can no longer be fulfilled. The politics have curdled everywhere.

“Sooner or later, this immense bluff must surely be called.”

On top of all the above, and Mr. Evans-Pritchard’s allusions to revolution, such as in Spain, the Global Corruption Barometer, an annual survey conducted by Transparency International, was released on Tuesday and less than 10% of people in Europe believe their leaders are doing a good job of fighting corruption, reflecting a serious crisis of faith in government. For example, only 8% of Portuguese express confidence in their leaders’ abilities to fight corruption, compared with 21% in 2007, before the outbreak of the financial crisis. Only 11% of Britons and 13% of Germans feel their governments are effective in this regard.

---

As alluded to earlier, China releases its growth figure for the second quarter Sunday evening and this week, Lou Jiwei, the finance minister, said in unscripted comments that China was aiming for 7% GDP expansion this year, below the government’s official forecast of 7.5% set back in March.

As the Financial Times’ Simon Rabinovitch notes, this is no trivial matter...whether Lou slipped or the target has actually been cut.

“If the bottom line is (now) 7%, the implication is quite straightforward: the country’s new leaders are ready to tolerate a bigger slowdown than expected and will hold back from stimulating the economy even as it falls to growth levels last seen in the late 1990s.”

It’s possible that Lou, at a news conference during the U.S.-China Strategic and Economic Dialogue in Washington, was referring to the five-year target of 7% average annual growth from 2011-2015. But Beijing specifically said the target for 2013 was 7.5%.

So did Premier Li Keqiang, who is really in charge of the economy, lower it? We’ll have a big clue on Sunday.

[For its part, the IMF pegged China growth at 7.8%, down 0.3% from its April forecast, and lowered 2014 from 8.3% to 7.7%.]

Meanwhile, China’s consumer price index for June rose 2.7% and is running at a 2.4% pace for the first six months, while producer prices fell another 2.7%...deflation...owing to overcapacity in many industries. Food prices, the key here, especially in terms of battling any social unrest, rose 4.9% in June year-over-year.

And in keeping with the possible dour news on GDP, exports for June were shockingly down 3.1%, when a gain of 3.7% was expected. Is the government finally getting a handle on all the fake data in this category? It certainly appears so. It’s encouraging to see some truth-telling begin to emerge. Imports also fell, down 0.7%.

But on a totally different matter, China’s pollution levels, a groundbreaking study by researchers at MIT, Tsinghua University and Peking University in Beijing, and Hebrew University of Jerusalem, using decades of data from across China, found that air pollution has cut life expectancy by an average of 5.5 years in the north of the country.

China’s leadership knows they have a very serious issue on their hands, one that can bring down the government, for starters. The people have had it. Who would want to raise a family in a city like Beijing? What foreigners would want to accept an assignment in China?

Lastly, regarding Japan, the IMF raised its GDP outlook here to 2% for this year, owing to Shinzo Abe’s and the Bank of Japan’s accommodative policies, but then predicts only 1.2% next year owing to a softer global forecast.

For its part, the Bank of Japan issued its most optimistic assessment of the Japanese economy in years, saying:

“Japan’s economy is starting to recover moderately,” citing a “pick-up” in exports and “resilience” in consumer spending.

So this is good, but with Japan’s humongous debt load, how long can the recovery last? Hopefully, for the sake of the world, more than a few artificially stimulated quarters.

Street Bytes

--Stocks staged their best rally since the first week of the year as the market powered to new highs. The Dow Jones finished the week up 2.2% to a record 15464, while the S&P 500 gained 3.0% to a new mark of 1680. Nasdaq, still far below its all-time peak of 5048 set in March 2000, nonetheless added 3.5% to an even 3600, its highest since Sept. of the same year.

As noted above, Wells Fargo and JPMorgan Chase reported solid earnings, but both warned on the impact of rising mortgage rates. JPM CEO Jamie Dimon said higher rates could lead to a “dramatic reduction” in the bank’s profits by eroding demand for mortgage refinancing.

Also on Friday, UPS, normally viewed as a good bellwether, a la FedEx, warned a slowing U.S. economy would hurt its results for the balance of the year. UPS shares tumbled 6%.

And Boeing limited the Dow’s gains on Friday when a fire on one of its Dreamliner aircraft at London’s Heathrow closed the airport for a spell. No one was on board and as I go to post, no cause has been determined, though it does not appear to be battery related. Boeing’s shares fell 5% on the news.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.34% 10-yr. 2.58% 30-yr. 3.63%

The producer price index rose a hotter than expected 0.8% in June, up 0.2% ex-food and energy. For the 12 months, the PPI is up 2.5%, up 1.7% on core. Consumer prices are released next week.

--The U.S. government posted a budget surplus of $117 billion in June, better than expected and the largest on record for the month. An improving economy, albeit at a putrid pace, public spending cuts, and dividend payments from Fannie Mae and Freddie Mac led to the positive showing.

For the first nine months of fiscal 2013, which began Oct. 1, the nation’s deficit narrowed to $509.8 billion compared with a $904.2 billion shortfall over the same period last year.

--The price of crude oil surged to its highest level since March 2012, largely due to a bigger-than-expected drop in U.S. supplies last week. Bottlenecks in the Midwest have eased, allowing refiners to ramp up operations. It was just about two months ago we were talking about record inventories.

According to the Energy Information Administration, net exports of gasoline were up 13% for the first four months of 2013 vs. the same period last year. [See below story on Houston.]

Meanwhile, OPEC, in its first forecast for 2014, said it expected daily global oil demand to accelerate by one million barrels a day next year, to 90.7 million barrels, largely due to growing consumption in emerging markets.

--In its quarterly World Economic Outlook, the IMF projects Canada’s economy will grow 1.7% this year, 2.2% next; Russia’s 2.5% in 2013, 3.3% in ’14 (big drops vs. estimates of just three months earlier); and India’s 5.6% and 6.3%, respectively.

--Australia’s unemployment rate rose to 5.7% in June, the highest since September 2009, with new Prime Minister Kevin Rudd, facing an immediate early election by Nov. 30, declaring he is the best leader to steer Australia through a downturn, now that “the China resources boom is over,” as he put it. “The new economic challenge that Australia faces today: how to protect our jobs and living standards given that global growth is sluggish.”

--Global personal computer sales fell for the fifth quarter in a row, the longest decline in history. Worldwide PC shipments totaled 76 million units in the second quarter, a 10.9% drop from a year earlier, according to research firm Gartner.

Tablets sales have hurt, but now PCs are getting hit further by the introduction of low-cost tablets, especially in emerging economies.

China’s Lenovo Group for the first time supplanted Hewlett-Packard as the No. 1 PC supplier. Dell remained third.

--KFC parent Yum Brands Inc. reported a decline in June sales at its established restaurants in China of 10%, less than expected, and less than the 19% drop in May and 29% in April, so as CEO David Novak said, “The good news is that China sales are recovering...The extensive media surrounding avian flu in China has subsided, and same-store sales at KFC are clearly improving.” Novak maintains that its nearly 6,000 restaurants in China, roughly 75% of them KFCs, will turn positive in the fourth quarter. [KFC has also been dealing with a Chinese government investigation into possible safety violations among its chicken suppliers.]

China, recall, represents more than half of Yum’s overall sales. Sales in the U.S. grew 1% for the second quarter; up 1% in the international division, excluding China and India.

--The United States and China agreed this week to restart stalled negotiations on an investment treaty that would make it easier for U.S. businesses to invest there. May I suggest a certain Chinese investment of mine be the first target of a U.S. company. I’m not very optimistic negotiations will go anywhere, though as the Chinese economy slows, perhaps precipitously, they have an incentive to cooperate.

--Meanwhile, the Wall Street Journal reported that the U.S. government is giving American Internet providers addresses linked to suspected Chinese hackers in a previously undisclosed effort to block cyberspying. An official at Mandiant, a cybersecurity research firm, described recent hacking levels as “Business as usual.”

--Continuing on the China theme, eight Chinese cities announced they were likely to implement curbs on auto sales in an attempt to control high pollution levels. This triggered concerns among the likes of Hyundai and Kia, where China has been a key driver of growth.

Car sales in the eight selected cities, which include Shenzhen and Qingdao, could see car sales fall by about 400,000 units. [Beijing and Shanghai are among other cities that already restrict vehicles on the road by using auctions and lotteries to sell a limited number of license plates.]

In June, by the way, German cars accounted for 26% of total sales in China, followed by Chinese vehicles at 25%, Japanese with 18% and U.S. cars with 16%, according to the China Association of Automobile Manufacturers. [But another story I read put the Chinese share of the domestic market at 38%...sorry for the confusion....both were supposedly out of the CAAM.]

As for Chinese car exports, the number shipped out in June declined almost 20% from a year ago, owing to slowing markets in the likes of Iraq, Vietnam and Turkey.

--The greater Houston area has replaced New York City as the largest exporting region in the U.S., owing to the energy boom that has created cheaper feedstocks (think low natural gas prices) for the Houston area’s refineries and petrochemical plants.

Last year, Houston’s exports rose 5.6% vs. a 2.7% drop in the New York area. [In New York, exports were hurt by Hurricane Sandy.]

--As part of its earnings report, which was slightly better than expected, Alcoa, the largest U.S. aluminum producer, said it expects a 9 to 10 percent increase in aluminum demand this year from the aerospace sector.

--A judge has ruled that Apple conspired with publishers to fix the price of e-books, looking to restrain trade. The judge ordered a new hearing to determine damages to be imposed on Apple and they could be significant.

The U.S. Department of Justice said the conspiracy was designed to challenge online retailer Amazon’s dominance of the segment.

Penguin earlier settled for $75 million, while Hachette, HarperCollins, Simon & Schuster and Macmillan settled for lesser amounts.

So in Apple’s case, think $150 million+. Granted they have more than enough cash and Apple has said it would fight the “false allegations.”

--The Washington Post’s Hayley Tsukayama reports:

“Security researchers believe they have found a major security flaw in Google’s Android mobile operating system, which could affect up to 99 percent of Android phones now in consumers’ hands.

“In results published Wednesday by the Bluebox Security research firm, chief technology officer Jeff Forristal said the flaw gave hackers a ‘master key’ into the Android system.”

The flaw is in the security verification process, which allows hackers to “turn any legitimate application into a malicious Trojan.”

--Investors in Bill Gross’ PIMCO Total Return Fund suffered their biggest-ever quarterly loss, 3.6% (compared with a 2.3% loss on the Barclays U.S. Aggregate Bond Index), owing to the rapid rise in Treasury yields, while emerging market bonds, as well as Treasury inflation-protected securities, or TIPS, also got trashed, with Gross having heavy positions in all three categories.

Knowing this particular fund and its past performance well, however, and having worked with PIMCO on the retail fund side, Gross usually bounces back strongly, at least relative to his benchmarks.

--Kroger is acquiring upscale grocery-store operator Harris Teeter for $2.44 billion, the latter with 212 stores mainly in the Southeast. Always liked this chain. Fond memories of beer purchases there.

--It’s not expected to go anywhere, but Sens. Elizabeth Warren (D-Mass.) and John McCain (R-Ariz.) introduced legislation Thursday to reinstate the Glass-Steagall prohibition on federally insured banks from also operating as investment banks. Said Sen. Warren:

“Despite the progress we’ve made since 2008, the biggest banks continue to threaten the economy. The 21st Century Glass-Steagall Act will reestablish a wall between commercial and investment banking, make our financial system more stable and secure, and protect American families.”

McCain said:

“Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world.”

I concur.

--The USDA reiterated it expects a record corn crop this year, though it lowered its estimate slightly due to heavy rains and late planting in some areas. Iowa, in particular, suffered from record precip, with replanting required because the initial seeds had rotted.

--Atlantic City’s casino industry is on pace for its worst year since 1991, as after the first six months, the casinos won $1.38 billion, down 10.7% from the same period in 2012. July and August can save the year, somewhat, but last year, AC’s casinos took in just over $3 billion, down from a high of $5.2 billion in 2006. That was just before Pennsylvania opened its first casinos that have taken a big chunk out of AC’s business.

--The mega-budget “The Lone Ranger” took in only $49 million over the five-day Fourth of July holiday, $20 million under analysts’ projections and, for the three-day Friday-Sunday period, the $29.4 million was weaker than last year’s big-budget bomb “John Carter.” “The Lone Ranger” cost $225 million to produce (another figure I saw put it at $250 million), plus another $100 million on marketing.

Disney executives are no doubt second-guessing themselves, after having shut down the flick last summer when the budget began to spin out of control.

“Despicable Me,” on the other hand, took in $142 million for the same five days.

--Regarding the crash of Asiana flight 214 at San Francisco International, as soon as you heard the description that the nose was much higher than the tail as the plane approached the runway, you knew it was pilot error. I don’t think there has ever been a more obvious case, this quickly, of such distressing incompetence; the pilot flying the aircraft being in training for the Boeing 777. It was Kang Kook Lee’s first landing at SFO, as well.

Of all the airports I’ve flown into in the world, I hate SFO the most because of such a long over water approach. Being a window seat guy, I can imagine the terror of experienced travelers, looking out the window and knowing they were too low.

It’s also amazing that the pilots didn’t react right away in having the plane evacuated, but thank god the flight attendants appear to have been top professionals; at least those not ejected out the back when the tail was ripped off, as well as the two attendants pinned to emergency chutes that opened inside. 

[By the way, this was the first time anyone was killed during a 777 accident, the plane having been released in 1995.]

--From an op-ed in the Wall Street Journal by Charles Schwab and Walt Bettinger:

“A Gallup survey conducted in April found that just 52% of Americans were invested in ‘an individual stock, a stock mutual fund, or in a self-directed 401(k) or IRA.’ This is the broadest ownership of capital in the world, but it is down from a Gallup-survey high of 67% in June 2002. That’s not good for individuals, and it’s’ not good for the country....

“No one will benefit if individual investors stop participating in the markets. But that is what’s happening at a troubling rate. Here are some reasons for that trend....

High-frequency traders are gaming the system....

Glitches and errors plague the markets. From the ‘flash crash’ of 2010 to the glitch-riddled Facebook IPO in 2012 to the market-wide shut down when Hurricane Sandy hit New York, individuals are losing confidence in the integrity of the system....

Tax policies here and abroad discourage investors....

The retirement savings system is under attack. ...President Obama’s recent budget would set an arbitrary cap on the total amount of retirement savings an individual can accumulate in tax-advantaged retirement accounts....

“The system we have is not perfect. But instead of hindering it or scrapping it altogether we should be enacting policies that make it easier for employers of all sizes to offer employees a savings plan, encourage market-based innovation, and making a concerted national effort to educate America’s workers on how to maximize retirement plans, particularly with low-cost investment choices.”

It would also be nice if the Fed would raise the funds rate so investors had an opportunity to save a nickel now and then.

Foreign Affairs

Egypt: After at least 51 Muslim Brotherhood protesters were killed last weekend (54 people in all) outside Republican Guard headquarters where former President Mohamed Morsi is allegedly being held, with both sides claiming the other started the violence, the hardline Salafist Nour party – which had supported the removal of Morsi, said it was withdrawing from talks to choose an interim prime minister, describing the shooting as a “massacre.”

Mohamed ElBaradei was at the same time chosen interim PM, which not only didn’t please Islamists, it didn’t appease many in the opposition, so his name was withdrawn in favor of an economist, 76-year-old Hazem al-Beblawi, as appointed by interim President Adly Mansour.

On Monday, Mansour set out a blueprint for parliamentary and presidential elections, as part of a 33-article constitutional declaration that gave a timeline rather than specific target dates.

Parliamentary elections are to be called within 15 days after the results of a referendum on proposed amendments to the suspended 2012 Islamist-backed charter, whose ratification first outraged Morsi opponents.

But the main opposition National Salvation Front said it wasn’t consulted on the 33 articles, and doesn’t agree with everything in there, so it withdrew its support.

At the same time, as the week progressed, you had the further demonization of the Brotherhood, with the military seeking the arrest of leader Mohammed Badie, along with nine others for allegedly inciting the violence on July 8.

Russian President Vladimir Putin warned, “Syria is already in the grips of a civil war...and Egypt is moving in the same direction.”

Al-Qaeda leader Ayman al-Zawahiri issued a call for “all jihadis” to take revenge against the interim government.

“We must make a revolution against them,” Zawahiri said in a video posted on YouTube.

The black flag of al-Qaeda has been spotted in some districts of Cairo.

Security in the lawless Sinai peninsula has only gotten worse. A Coptic priest was murdered by gunmen in the first sectarian killing of the present crisis. A gas pipeline to Jordan was blown up.

By the end of the week, though, the interim government warmly welcomed a comment from a State Department spokesman on Thursday that the former government of President Mohammad Morsi “wasn’t a democratic rule.” Egypt’s foreign ministry commented that the U.S. stance “reflects understanding and realization about the political developments that Egypt is witnessing in recent days, as embodying the will of the millions of Egyptians who took to the streets.”

Brotherhood spokesman Gehad Haddad said the remarks showed American hypocrisy: “There is no way the Egyptian army would have gone through with this coup if it would not have been sanctioned by the U.S.”

But the State Department added, “The arrests we have seen over the past several days targeting specific groups are not in line with the national reconciliation that the interim government and the military say they are pursuing.” [Daily Star]

Interim Prime Minister Beblawi said he had not ruled out Muslim Brotherhood members in his Cabinet, but the Brotherhood rejected the offer.

President Obama directed the Pentagon to review American aid to Egypt, $1.3 billion worth. Senators John McCain and Carl Levin (D-Mich.) have called for a suspension of the aid, but the White House said it would take its time considering whether the provision applying to the labeling of the situation (i.e., calling it a coup) applies.

Since 1978’s Camp David Accords, America’s aid package to Egypt has been its second largest, next to funds granted Israel.

Meanwhile, Saudi Arabia pledged $5 billion in economic aid to shore up the military-backed interim leaders, while the United Arab Emirates is kicking in $3 billion. Which means Washington’s already shrinking influence with the new government in Cairo is diminished further.

In a stark example of the state of the Egyptian economy, a former minister from Morsi’s ousted government said Egypt had less than two months’ supply left of imported wheat, a far worse shortage than previously disclosed.

And now it looks increasingly likely that the IMF won’t extend a badly needed $4.8 billion credit line until it sees an internationally-recognized government in place.

Jonah Goldberg / Los Angeles Times

“One has to wonder what the next Islamist movement will say when America counsels it to put down its weapons and take up the ballot instead.

“The most implausible interpretation of Obama’s zigzagging approach to foreign policy is that he is simply ‘winging it,’ as Robert W. Merry, editor of the National Interest, writes.

“It is difficult to find much, if any, intellectual coherence to the president’s foreign policy. He fought for a surge of troops in Afghanistan but then refused to rally public support for the war he escalated. Worse, he later rendered the surge moot by announcing to our enemies that we’d soon bug out, no matter what.

“During Iran’s Green Revolution, he stood pat as the mullahs crushed a democracy movement seeking to overthrow a regime hostile to U.S. interests. In Libya, he intervened to oust a dictator who had become a de facto ally, insisting he couldn’t stand by as innocents were slaughtered. In Syria, a vassal of Iran, he has stood by as innocents were slaughtered.”

Ian Bremmer / Sydney Morning Herald

“As we ponder Egypt’s foreseeable future, there are no attractive options. Egypt’s least worst option? Pakistan, if it should be so lucky. Things in Egypt are now so bad that resembling Pakistan is as good as it can realistically get any time soon. The worst possibility is outright state failure.

“The outcome is in the military’s hands. Egypt’s situation already bears similarities to Pakistan’s, where the military is central, broadly popular, and the country’s primary economic force. In both countries, the military understands that actually running the country, or at least being seen as running the country, is the worst way to consolidate power while avoiding public fury when things go wrong....

“The military is in a race against the clock. The interim transitional government has laid out a timetable for new elections that is undeniably too ambitious. The six month timeline leaves only four months for redrafting the constitution, a process that is destined to take much longer. The chance of protracted civil conflict is very real and growing.”

Robert Kagan / Washington Post

“Egypt is not starting over. It has taken a large step backward. And the Obama administration bears much blame. It put little or no meaningful pressure on Mubarak to make even minor political reforms that might have been enough to prevent the anti-regime outburst that exploded at the end of 2010. Then it put little or no tangible pressure on Morsi to end his undemocratic practices, which might have forestalled the most recent crisis. It has become fashionable in today’s ‘post-American world’ milieu to argue that the United States had no ability to shape events in Egypt. This is absurd. The United States is far from being all-powerful, but neither is it powerless. Americans provide $1.5 billion a year in assistance to Egypt, $1.3 billion of which goes to the Egyptian military....

“So now that the military coup has occurred, how do we avoid the ‘seismic repercussions’? Any answer must begin with a complete suspension of all aid to Egypt, especially military aid, until there is a new democratic government, freely elected with the full participation of all parties and groups in Egypt, including the Muslim Brotherhood....

“It is past time to get out of this rut of failure. Better to learn from our history than to repeat it. It will be sad if some future American president has to apologize to Egyptians for what Barack Obama did, and did not do, in 2013.”

Editorial / Washington Post

“Many Egyptians hoped that last week’s military coup would somehow correct the troubles the country has experienced since 2011 in its transition to democracy. Instead, the generals now in charge are repeating the same abuses and authoritarian practices that preceded the rise to power of the Islamist government they ousted.

“The new regime’s dependence on brute force was demonstrated Monday, when soldiers opened fire on a large crowd that had been protesting the ouster of President Mohamed Morsi, killing 51 people. Later in the day, a little-known judge who had been appointed president by the military issued a constitutional decree that had been prepared in secret and without the agreement of the political forces the generals said they were responding to when they carried out the coup.

“The governing document contains the worst elements of the constitution the military suspended, and adds more. It grants unchecked power to the military-installed president; exempts the armed forces from civilian supervision; and includes a provision on sharia law that secular and liberal forces strongly opposed when it was proposed by militant Islamists last year. The decree lays out procedures for amending the previous constitution that would allow only limited input from political parties or other groups outside the new regime.

“A prime minister appointed Tuesday served in the previous military government. Named as vice president was former diplomat Mohamed ElBaradei, who chose not to run for president after polls showed his support in single digits. In answer to all the objections, Gen. Abdel Fatah al-Sissi, the defense minister who led the coup, issued a recorded statement saying that the timetable for holding elections next year should offer ‘more than enough assurance’ to those worried about the country’s direction.

“Egypt desperately needs a political compromise to avoid further violence, not another diktat. But while the new regime’s spokesmen say they wish to reach out to the Muslim Brotherhood, the country’s largest political force, Mr. Morsi and other top leaders are under arrest. Meanwhile, the generals are cutting deals with a more extreme Islamist movement, adopting its sharia language in the constitutional decree and allowing it to vet candidates for prime minister.”

Meanwhile, the Post concludes, “The Obama administration is doubling down on its own failures.”

Editorial / Wall Street Journal

“Before the bad and ugly, let’s start with glimmers of hope from Cairo. A week after protests and a military intervention forced out the Muslim Brotherhood’s Mohamed Morsi, Egypt has a technocrat as prime minister, a ‘road map’ to restore elected government and a broad political coalition committed to make this second attempt at democracy work better than the first....

“Now the bad news. The killing of 51 Morsi supporters early Monday morning in Cairo gave Egypt a glimpse into the abyss of civic conflict. (See Syria, early 2011). Who started this clash is irrelevant. The Brotherhood is spoiling for revenge, and any restraint has to come from the military.

“The political crackdown is counterproductive. President Morsi and the Brotherhood’s most powerful leader, Khairat Al Shater, are in custody, along with 600-odd others. Prosecutors on Wednesday ordered the arrest of spiritual guide Mohammed Badie for allegedly inciting Monday’s protests. The Brotherhood’s two television channels, which were closed last week, remain off the air....

“Egypt can’t be stable – forget about a democracy – without Islamists in the tent.

“Also worrying, the military drew up the new constitutional ‘road map’ in secret without consultation with the anti-Morsi opposition. The interim president will rule by decree. The constitution, which an authoritarian Mr. Morsi rammed through late last year, will be redrafted by unelected officials. None of this helps to generate a new consensus.”

Syria: President Bashar Assad’s military continues to make big gains and is on the verge of taking the last rebel strongholds in Homs, the nation’s third-largest city. Hizbullah, which led the way in the retaking of Qusair, is playing a vital support role in Homs. There is no medical equipment in Homs. Imagine the carnage. There are reports the last rebels are donning suicide vests.

Friday, it was reported a key rebel leader was killed by a rival group linked to al-Qaeda in a further sign of the escalating struggle between the moderates and Islamists.

Editorial / Washington Post

“It has been a month since the White House informed journalists that President Obama had decided to supply Syrian rebels with light arms. Since then, the regime has launched a bloody new offensive in the city of Homs, using heavy artillery and rockets to attack residential areas held by the rebels. Thousands of people have been killed, adding to a death toll approaching 100,000. President Bashar al-Assad has been boasting of his military successes and of the failure of outside powers to bring down his regime. Meanwhile, the United States has failed to deliver any of the promised munitions to beleaguered rebel forces – ‘not even a single bullet,’ one source told The Post’s David Ignatius.

“The delay can be attributed in part to congressional resistance... But the larger problem is an extraordinary failure of leadership by President Obama. While deciding on intervention in a fateful Middle East war, the president has chosen a minimalist option likely to fail while declining to publicly explain or justify his actions.

“A decision to intervene in a foreign war, even in a small way, ought to be the subject of a direct presidential address to the country and an open debate in Congress....

“Mr. Obama’s fecklessness on Syria has baffled and alarmed important U.S. allies, including Turkey and Israel, which wonder if the United States can still be counted on as a force in the region. It has emboldened not just Mr. Assad but also Iran, which has been stepping up its own intervention in Syria in the belief that it will not be countered. Now the president is failing to deliver even on the modest action he decided on. It’s a spectacle that can only harm U.S. standing in the Middle East – and prolong Syria’s bloodshed.”

Lebanon: Incredibly, no one was killed in a massive car bombing in Beirut’s Hizbullah stronghold, though at least 50 were injured.

Iran: According to an exiled Iranian opposition group that has been accurate in the past, Iran is secretly developing a new nuclear site in mountain tunnels north of Tehran. Should this be true, it certainly makes the apparent conciliatory approach of new President-elect Rohani, who is sworn in Aug. 3, more difficult to take seriously.

German intelligence confirmed that the site has been tracked by the West since activity began there in 2006-07. Iran seems to be trying to disguise it as a mine project.

Saudi Arabia: The London Times and others reported that satellite photos reveal the existence of a hitherto unknown missile base in the Saudi desert from which the Kingdom appears to be targeting both Iran and Israel.

Jane’s Intelligence Review suggests it is stocked with intermediate range surface-to-surface missiles, has two launchpads, fuel depots and other military infrastructure.

Jane’s analysts report that one launchpad bears an alignment pointing to Israel, the other to Iranian cities. Analysis suggests the base was designed to operate with a limited target set. This is the third such Saudi missile base to be identified.

While both Israel and Iran are Saudi Arabia’s historic enemies, numerous reports have suggested the Saudis are prepared to offer aid to Israel should Iran get the bomb.

Yes, in case you are wondering, the bases are capable of launching nuclear-tipped missiles. The infrastructure is now all in place.

Could Israel give the Saudis nukes to defend themselves against Iran some day?

North Korea: As reported by the Global Security Newswire, “A new expert analysis of satellite photographs strongly suggests that North Korea tested an engine for one of its long-range rockets sometime this spring – a development that has implications for its work on ICBMs.”

Separately, a long-range missile test of the ground-based interceptor program (GBI), failed, when a target was launched from an atoll in the Pacific Ocean and, in response, a GBI was fired from Vandenberg Air Force base in California. A Defense Department press release said “the intercept of a long-range ballistic missile target...was not achieved.”

Understand, the GBI system is the primary means of defending the U.S. homeland against ICBM strikes by North Korea and Iran. There has not been a successful intercept since 2008. To date, Reuters reports, only 50% of the 16 intercept attempts have been successful.

The Defense Department is proceeding with plans to acquire 14 new GBI missiles, at a cost of about $1 billion.

On a different issue, North and South Korea agreed in principle to reopen the Kaesong industrial complex after work had been halted in April amid high regional tensions.

120 South Korean businesses operate in the factory park that employs 53,000 North Koreans and supplies Pyongyang with badly needed hard currency, $90 million per year, which is why many say this is throwing an unnecessary lifeline to Kim Jong Eun’s regime

China: At annual talks between the U.S. and China designed to address strategic and economic issues, Vice President Joe Biden urged Beijing to stop “outright theft” through hacking, while stressing “our relationship is and will continue to be a mix of competition and cooperation.”

Japan: In the first national defense white paper under Prime Minister Shinzo Abe, the defense ministry, sharpening its criticism of what it sees as China’s belligerence in disputed Asian waters, said: “China has attempted to change the status quo by force based on its own assertion which is incompatible with the existing order of international law.... Thus, there is a concern over [China’s} future direction.”

Russia: In a move that will further hurt Vladimir Putin’s reputation in the West, a Moscow court convicted late investment fund lawyer Sergei Magnitsky on Thursday of tax evasion. The court also convicted Magnitsky’s former client William Browder, a Briton who has spearheaded an international campaign to expose Moscow’s culpability in Magnitsky’s death, the lawyer dying in a Moscow jail while awaiting trial in 2009.

Meanwhile, President Obama is slated to visit Moscow in September. Will he cancel over the Edward Snowden affair? Were Snowden to remain in Moscow, specifically at the airport, it is inconceivable that Obama would go.

Snowden reemerged on Friday, after meeting with human rights groups and lawyers at Sheremetyevo, to say he sought asylum in Russia until he was able to travel to Latin America. Snowden said in a statement, the U.S. and some European countries had “demonstrated a willingness to act outside the law. This unlawful threat makes it impossible for me to travel to Latin America and enjoy the asylum granted there in accordance with our shared rights.” Oh shut up.

Oh, and here’s something to warm the cockles. Russian Defense Minister Sergei Shoigu said this week his country would “boost the number of cruise missiles five-fold in the next three years and by 30 times by 2020.”

Lastly, this coming Thursday, a Kirov court will either convict or acquit opposition leader Alexei Navalny on charges of stealing timber from a state-owned company in 2009, a charge many believe was simply trumped up. Prosecutors are seeking a sentence of six years. It is assumed he will be convicted.

Navalny, in his closing statement, vowed to continue his political activities, irrespective of the verdict.

“I declare that my colleagues and I will do everything to destroy this feudal system being built in Russia, to destroy this regime, in which 83 percent of the national riches belong to half of the population,” apparently referring to the Kremlin’s management of the country’s vast energy resources.

Navalny also called Kremlin officials “a bunch of morons.”

Yes, he has some cojones. 

India: The Defense Research and Development Organization wants to slash how long the country would need to conduct a nuclear counteroffensive against an adversary, the agency’s leader told India Today.

This is not about Pakistan. It’s about China.

Indian Defense Minister A.K. Antony was set to depart for China the day after the report and, speaking that same day, Chinese Gen. Luo Yuan cautioned India against creating “new trouble.”

“India is the only country in the world that says that it is developing its military power because of China’s military threat,” he was quoted as saying. “India should be very cautious in what it does and what it says.”

Pakistan: In a scathing 336-page report, Pakistan’s official investigation into the hunt for Osama bin Laden revealed the search should have ended eight years earlier if a Pakistani traffic policeman had spotted the world’s most wanted man in a car he had stopped for speeding; an extraordinary revelation obtained by Al Jazeera, part of a tale that shows how bin Laden, through luck and sheer incompetence, managed to live undetected in the country for almost a decade. The report was equally harsh on the military and government.

The report also criticized the government for failing to detect CIA activities on its soil in the run-up to the raid.

The Abbottabad Commission added, “The U.S. acted like a criminal thug.... but above all, the tragedy refers to the comprehensive failure of Pakistan to detect the presence of bin Laden on its territory...or to discern the direction of U.S. policy towards Pakistan that culminated in the avoidable humiliation of the people of Pakistan.”

The commission also did not rule out involvement of rogue elements within the Pakistani intelligence service, a rather touchy subject for an internal investigation of this kind. Those who put the report together deserve credit for bravery.

Canada: What an awful stretch for this good nation. A few weeks ago it was the catastrophic, historic flooding in Calgary and other parts of Alberta. This week saw devastating flooding in Toronto of historic proportions that flooded parts of the downtown area, left 300,000 without power, and nearly caused an epic disaster when hundreds of passengers were stranded for several hours on a flooded commuter train, though amazingly all were evacuated on police boats. Water rose so high, so quickly, passengers fled to the upper decks of the coaches.

And then there was last Saturday morning’s immense tragedy in the small, picturesque Quebec town of Lac-Megantic when a runaway train carrying 72 carloads of crude oil derailed and exploded in the town center, where there was a nightclub filled with patrons at 1:00 AM. Many of the 50 victims will never be identified...incinerated.

Edward Burkhardt, president and CEO of U.S.-based Rail World Inc., which owns the runaway train operated by Montreal Maine & Atlantic Railway Inc., said the train’s engineer had been suspended without pay and was under ‘police control.’

“We think he applied some hand brakes, but the question is, did he apply enough of them? He said he applied 11 hand brakes. We think that’s not true. Initially we believed him, but now we don’t....

“If brakes aren’t properly applied on a train, it’s going to run away,” Burkhardt said.

The locomotive had earlier caught fire when it was parked outside Lac-Megantic for a shift change. The engineer had departed the train for the evening.

Firefighters extinguished the blaze, and in the process, shut down the locomotive, according to separate reports by both the company and the investigators. That may have disengaged the locomotive’s air brake. Sometime afterwards the train started to roll, picking up speed during an 18-minute journey, before it roared into town, derailed and the cars filled with oil exploded one after another.

Nigeria: Last weekend, terrorists aligned with al-Qaeda-linked Boko Haram, slaughtered at least 41 children and a teacher at a boarding school. The nighttime attack saw many of the pupils burned to death in their beds. Hundreds more children escaped into the bush. So say a prayer for the survivors that they may have just one good night’s sleep the rest of their lives because it is unlikely they ever will.

Random Musings

--Peter Wallstein / Washington Post

“Lawmakers tasked with overseeing national security policy say a pattern of misleading testimony by senior Obama administration officials has weakened Congress’ ability to rein in government surveillance....

“On three occasions since 2009, top Justice Department officials said the government’s ability to collect business records in terrorism cases is generally similar to that of law enforcement officials during a grand jury investigation. That comparison, some lawmakers now say, signaled to them that data was being gathered on a case-by-case basis, rather than the records of millions of Americans’ daily communications being vacuumed up in bulk.

“In addition, two Democratic members of the Senate Intelligence Committee say that even in top-secret briefings, officials ‘significantly exaggerated’ the effectiveness of at least one program that collected data on Americans’ e-mail usage.”

--Boston Marathon bomber Dzhokhar Tsarnaev pleaded “not guilty” to using a weapon of mass destruction and 29 other charges in Boston federal court. It was despicable to see he had supporters. Here’s hoping the feds have the guts to go for the death penalty.

--Walter Russell Mead / Wall Street Journal...on President Obama’s ‘unserious speeches’

“The first year of President Obama’s tenure was marked by high-profile speeches. In Cairo and Istanbul, he sought to overcome the polarization between the Muslim world and the West. As he said on June 4, 2009, in Cairo: ‘I do have an unyielding belief that all people yearn for certain things: the ability to speak your mind and have a say in how you are governed; confidence in the rule of law and the equal administration of justice; government that is transparent and doesn’t steal from the people; the freedom to live as you choose. These are not just American ideas; they are human rights. And that is why we will support them everywhere.’

“Eight days later, on the night of June 12, demonstrations broke out in a major Islamic country in protest against the blatant vote-rigging of a presidential election. From the White House: first several days of silence, then on June 17 came this less-than-inspirational remark from the president: ‘It is not productive, given the history of U.S. and Iranian relations, to be seen as meddling in Iranian elections.’ In other words, never mind: U.S. policy toward democracy in the Islamic world is still driven solely by national interest.

“The president seems not to realize that grand sentiments in fine words do not great speeches make. Winston Churchill’s Battle of Britain speeches weren’t great because they referred to noble values; they were great because they were true. The speeches were the verbal expression of a determination to resist unto death – and Churchill meant every word with every fiber of his being. The Gettysburg Address is a great speech because it condenses the essence of a cause for which hundreds of thousands were willing to die into a short and simple talk in which every word is real.

“Second-rate orators use flowery language to disguise the conventionality or insincerity of their sentiments, to disguise their true motives, or – and this was the biggest problem for the White House on Syria – to substitute rhetoric for action. President Obama’s speeches, like his Nobel Prize address, are strong because they express his true purpose. As he spoke of the tragic necessity of war, he was planning a surge in Afghanistan and unleashing a drone campaign. The speech was a serious reflection on important actions.

“You cannot be a great speaker unless you are a great doer. If Martin Luther King Jr. had not led the civil-rights movement to success and ultimately laid down his life for it, his speeches would be little studied. If Churchill had surrendered to Hitler, nobody would care about his defiant addresses....

“(Mr. Obama) would do well to quit thinking of speechmaking as an act in itself and begin to think of it as the verbal expression of an action already under way.”

--According to new data by the Institute for Health Metrics and Evaluation at the Univ. of Washington in Seattle, male life expectancy in the U.S. is 76, 81 for females. But death rates from illnesses associated with obesity, diabetes and kidney disease, among others, are on the rise.

In an editorial accompanying the report, Harvey V. Fineberg, president of the Institute of Medicine, said, “Despite a level of health expenditures that would have seemed unthinkable a generation ago, the health of the U.S. population has improved only gradually and has fallen behind the pace of progress in many other wealthy nations.”

In every measure examined, including life expectancy and quality of life, Fineberg said the U.S. ranking fell among the 34 members of the Organization for Economic Cooperation and Development, a think tank for developed nations.

--According to a Wall Street Journal-NBC 4 New York-Marist poll, former New York Gov. Eliot Spitzer leads Manhattan Borough President Scott Stringer by nine points in the race for New York City comptroller (among registered Democrats).

Spitzer shocked the city’s politicians when he launched a last-minute bid to get on the Sept. 10 primary ballot after five years in the wilderness following revelation he spent a lot of his free time with hookers.

Spitzer benefits from tremendous name recognition, with 67% of Democrats saying he should be given a second chance.

But many also believe Spitzer’s entry into an otherwise sleepy comptroller race (even as this is the second most powerful position in the city) will take away from Anthony Weiner’s campaign for mayor.

As one consultant told Crain’s New York Business, “Eliot is different from Anthony in that he can get press every single day for saying something new, and saying something smart.”

--Texas Republican Gov. Rick Perry, the longest-serving governor and one-time presidential candidate, announced he would not seek a fourth term in 2014. He didn’t rule out another run for president, with many believing he’ll now have the time to better prepare a stronger bid in 2016. His former chief of staff, Ray Sullivan, said, “He learned a lot last time, and one of the lessons was get in early.”

Texas has added 1.6 million jobs during his tenure.

--Interesting piece by Jonathan Martin of the New York Times on Liz Cheney and her probable run for the Senate seat now held by Republican Michael Enzi. I can see how the move “threatens to start a civil war within the state’s Republican establishment, despite the reverence many hold for her family.

“Mr. Enzi, 69, says he is not ready to retire, and many Republicans say he has done nothing to deserve being turned out.

“It would bring about ‘the destruction of the Republican Party of Wyoming if she decides to run and he runs, too,’ Alan K. Simpson, a former Republican senator from the state, said in an interview last week. ‘It’s a disaster – a divisive, ugly situation – and all it does is open the door for the Democrats for 20 years.’”

Ms. Cheney did not ask Enzi if he planned on running again. What a total lack of class.

Should Cheney run, she will blast Enzi for not being conservative enough.

I’m sick of this intra-party crap, including over the immigration bill. Once again, us elephants have a legitimate shot at taking back the Senate, and, once again, it would appear, we will shoot ourselves in the foot.

--Hillary Clinton is already collecting $200,000 per speech. It can be a little more or less depending on how long she spends shaking hands and posing for photographs, whether there is a Q&A, and whether a private plane is provided.

--Talk about a heatwave...my favorite town of Lahinch, on the west coast of Ireland, hit a high of 93 degrees on Wednesday, which I looked up was within a degree of the all-time Ireland record.

--I’m one of those who takes fish oil supplements, though only half the recommended daily dose, so I wasn’t thrilled by the study out of the Fred Hutchinson Cancer Research Center in Seattle that concludes that men who take such supplements or eat fatty fish may be more likely to contract prostate cancer, as in a 71% increased risk of a deadly form of it.

Scientists cannot explain the connection, but findings indicate omega-3s are involved in the formation of tumors.

Since my dosage is low, I’m going to keep taking the pills (at least until my bottles run out!), and will continue eating omega-3 rich fish once or twice a week.

But I wonder how many people reading this highly-publicized report know that Fred Hutchinson was a former ballplayer and manager, last with the Cincinnati Reds, who died of lung cancer? It was a real tragedy when he passed in 1964, just 45, and it was his brother, Dr. William Hutchinson, who then named an existing cancer facility in honor of Fred.

--Finally, if you didn’t see it, look up video of the now 16-year-old Pakistani girl, Malala, who survived a Taliban assassination attempt. As I’ve written before, she is the world’s best role model, an amazingly courageous woman.

On Friday, she gave a speech at the United Nations on her main cause; letting girls attend school in areas where radical Islamists prevail. I swear, listening to this kid, I’d rather have her as my president than the fellow we have today.

We love Malala!
---

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

God bless America.

---

Gold closed at $1277...rallied $65 on the week
Oil, $105.95

Returns for the week 7/8-7/12

Dow Jones +2.2% [15464]
S&P 500 +3.0% [1680]
S&P MidCap +3.0%
Russell 2000 +3.1%
Nasdaq +3.5% [3600]

Returns for the period 1/1/13-7/12/13

Dow Jones +18.0%
S&P 500 +17.8%
S&P MidCap +19.7%
Russell 2000 +22.0%
Nasdaq +19.2%

Bulls: 46.9
Bears: 22.9 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

07/13/2013

For the week 7/8-7/12

Posted: 12:00 AM ET

Washington and Wall Street

So much for the little Fed-induced hiccup in the markets, mid-May to mid-June, that had the S&P 500, peak to trough, declining 6.5% and the Dow Jones losing 5.5% (intraday highs to intraday lows for both indices). The past three weeks it’s been back off to the races, and new record highs in both, as the Federal Reserve sought to reassure investors it wasn’t taking away the punch bowl too early in terms of its $85 billion monthly purchase of Treasuries and mortgage-backed securities, nor was it close to raising the funds rate from zero for, essentially, years to come. At least not until the unemployment rate, currently 7.6%, hits the targeted 6.5%, or maybe even lower.

This week, the Fed released the minutes from its June 18-19 meeting, the press conference after which riled everyone up with Chairman Ben Bernanke coming out and saying the Fed would begin to taper quantitative easing by end of the year and possibly finish it up by mid-2014.

The minutes showed “Several members (judging) that a reduction in asset purchases would likely soon be warranted.” Even so, “many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases.”

Well, there was a bit of confusion with talk like this, but then two hours later, after the market closed on Wednesday, Bernanke addressed an economic conference and said the Fed needed to keep a stimulative monetary policy in place given low levels of inflation and the 7.6% unemployment rate that “if anything overstates the health of the labor market.”

“The overall message is accommodation,” he said. “(A) highly accommodative policy is needed for the foreseeable future.”

Buy! Buy!! Buy!!!

Nothing really changed. The statements were the same as before.

What did change, at least for a few days, is the bond market, which while rallying back some this week is still about 100 basis points higher in ten weeks, with a 30-year fixed mortgage up to 4.50% from 3.35% in May, which is definitely slowing the surge in the housing industry. And, during this same time, the global economic outlook has only worsened, especially with regards to one very important player, China, while Europe remains mired in recession.

And due in part to tensions in the Middle East, that will only get worse (you can take that to the bank), oil prices are back over $100 per barrel, an unwelcome tax on the American consumer.

Guidance during this earnings season is also no doubt going to be lackluster, especially for U.S. multinationals with significant overseas exposures.

Estimates on U.S. second-quarter GDP are falling to a general band of 1.0% to 1.5%, which sucks, and jobless claims for this past week rose all over again.

[For its part, the International Monetary Fund reduced its global growth outlook to 3% for 2013 and 3.75% for next year, updating its U.S. forecast to a rise of just 1.7% this year and 2.7% in 2014.]

Oh, there was some good news. Earnings for JPMorgan Chase and Wells Fargo were OK, but not stunningly good. Those stocks have already had quite a run (and congratulations to those of you who have participated....treat yourself to a Shiner Bock, the ‘premium’ domestic), consumer credit is expanding, and same-store retail sales for June were solidly higher.

But I noticed a number of stories from around the country, including here in New Jersey and places like Charleston, South Carolina, where the sequester appears to be finally hitting, with massive furloughs in the defense industry, which while us budget hawks believe it’s the right thing to do (and I have some good news on the budget below), it does indeed have an adverse economic impact, at least in the short term.

Next week Mr. Bernanke testifies before the House and Senate as part of his semi-annual duties, and he’ll have an opportunity to roil, or rally the markets further.

It all comes down to the data, however, and the Fed seems exceedingly optimistic on future growth, particularly for 2014, which means the easy money spigot should be left on full throttle when they fall short.

Oh, I wish this were not the case. If you aren’t scared to death by the international situation these days, and the fact we have an invisible president occupying the White House who, by design, wants to abrogate America’s traditional leadership at the worst possible time, you’re nuts.

The Fed should be hiking the funds rate, not keeping it at zero, for one good reason. America’s savers deserve some return on their cash, because cash is where all investors should be headed. The funds rate should be 2%, something. It is criminal for the Fed to have kept rates at zero for so long. As I showed you very graphically the other week, the Fed’s policies have basically worked in one sector, housing, and to a lesser extent autos, though there was a replacement factor in the latter already built in. The rest of the economy, despite what you see in rising corporate profits, is stuck in neutral, witness stagnant revenues.

That’s my take for this week. Throw it in with all the opinions you read and hear and we’ll see who is right in 12 months. I just smell something awful in the air. History will not judge this current White House well. Historians, and future generations of Americans, will look on this era with disgust.

The world is crying out for leadership....leadership of the right kind. America, once great, contributes nothing.

Europe and China

The IMF revised its growth outlook for some of the following.

Germany... now up 0.3% in 2013, up 1.3% next year
France... down 0.2% 2013, up 0.8% 2014
Italy... down 1.8%, up 0.7%
Spain... down 1.6%, unchanged
U.K.... up 0.9%, up 1.5% next

Overall, the IMF said the eurozone will remain in recession this year, down 0.6%, with meager growth of 0.9% in 2014.

“Growth remains weak and unemployment is at a record high,” said the IMF in its accompanying statement regarding the eurozone. “Concerted policy actions to restore financial sector health and complete the banking union are essential.

“The centrifugal forces across the euro area remain serious and are pulling down growth everywhere.”

But in the day-to-day, it’s all about the German election on Sept. 22 (with Chancellor Angela Merkel’s support firming), which is delaying action on any adverse situations in euroland, of which there are many. Germany continues to have its own economic issues as well, with May exports falling 2.4% over April, 4.8% year-over-year, with exports to the other members of the eurozone down 9.6%, though down just 1.6% outside Europe. Industrial production in May was also down 1% compared with April.

France lost its top credit rating at Fitch Ratings, reduced to AA+ from AAA, joining Moody’s and S&P in removing France from a shrinking list of top-rated governments. Fitch cited the lack of growth and surging debt levels.

In Greece, the unions stepped up the pressure on the government and its troika-mandated further austerity measures, calling for a 24-hour general strike for this coming Tuesday, the fourth such action of the year.

But if the government is to clinch the first installment of an $8.7 billion aid payment approved by the 17 eurozone finance ministers on Monday, the cuts, including further layoffs, must go through. 

The aid is being meted out in small portions, partly so as not to rock the boat with the likes of Germany ahead of its vote. In order to receive the first $5 billion, Greece must trim government payrolls and adopt the other measures by July 19, thus the timing of the strike. The IMF will release about $2.35 billion on July 29, and in October, the Greek’s would receive another $1.3 billion.

But it’s all a sham, as discussed further below. Chancellor Merkel, post-9/22, will be in a position to take tougher stands on Greece, Portugal, Cyprus and the rest. Regarding this last one, Cyprus clearly needs a second bailout, already, and Portugal is running on fumes.

Plus, as I’ve been harping on, there is no banking union for the European Union, and the credit squeeze continues, as many Euro banks are still too weak to lend, especially to small- and medium-sized companies operating in the periphery.

You also have a situation in Ireland, which is looking for a new deal on its crippling bank debt of 64 billion euro of taxpayers’ money, whereby Jeroen Dijsselbloem, the Dutchman who chairs the 17-strong group of eurozone finance ministers, says any so-called “retroactive recapitalization” of Ireland’s bank debt would sap the 60 billion European Stability Mechanism (ESM) bank fund.

Remember, with all the happy talk from European Central Bank President Mario Draghi about his backstops, only 60 billion of the 500 billion euro ESM has been set aside for bank recapitalizations.

So forget Ireland, Dijsselbloem is basically saying forget Greece, Spain and others as well in terms of their being able to tap the very fund that we’ve been told for years was the ultimate backstop.

Again, it’s all a sham!

As noted in the Irish Independent:

“European leaders originally signed off on the idea of the ESM being used retroactively more than a year ago, but since then the deadline for making a decision on what that actually means has been pushed out further and further.”

Editorial / The Financial Times’ Lex column:

“A couple of weeks ago, EU finance ministers agreed on the broad parameters of how failing banks should be resolved and how much leeway national authorities should have over which creditors to bail in and which to save. The latest spat is over how that agreement is implemented in those countries that are in the bloc’s putative banking union. The commission has proposed that it makes the final decision. The Germans are not pleased.

“And with some reason. Resolutions would be funded by a new 60 billion to 70 billion euro pot created with bank contributions. Banks funded largely by deposits would pay less to the pot. And those with riskier activities would pay more. German banks – notably Deutsche Bank and Commerzbank – lose on both fronts. The former funds 28% of its balance sheet with deposits, the latter 36% - below southern European banks...The higher perceived risk of investment banking could also raise the German contributions.

“So the European Commission could make decisions over how far German money can bail out German banks. But if a banking union is going to mean anything, national authorities have to be willing to cede control to central institutions. A halfhearted banking union becomes an exercise in adding new layers of bureaucracy rather than a coherent basis for a banking system. It is time for Germany to decide how committed it really is to banking union.”

Ambrose Evans-Pritchard / The Daily Telegraph

“None of Euroland’s key actors seems willing to admit that the current strategy is untenable. They hope to paper over the cracks until the German elections in September, as if that is going to make any difference.

“A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin. It alleges that Greece lacks the ‘willingness and capacity’ to collect taxes. In fact, Athens is missing targets because the economy is still in freefall and that is because of austerity overkill. The Greek think-tank IOBE expects GDP to fall 5% this year. It has told journalists privately that the final figure may be -7%. The Greek stabilization is a mirage.

“Italy’s slow crisis is again flaring up. Its debt trajectory has punched through the danger line over the past two years. The country’s 2.1 trillion euro debt – 129% of GDP – may already be beyond the point of no return for a country without its own currency. Standard & Poor’s did not say this outright when it downgraded the country to near-junk BBB on Tuesday. But if you read between the lines, it is close to saying the game is up for Italy....

“Indeed. The International Monetary Fund has just slashed its growth forecast for Italy this year to -1.8%. The accumulated fall in Italian output since 2007 will reach 10%. This is a depression. Yet how is the country supposed to get out of this trap with its currency overvalued by 20% to 30% within EMU?

“Spain’s crisis has a new twist. The ruling Partido Popular is caught in a slush-fund scandal of such gravity that it cannot plausibly brazen out the allegations any longer, let alone rally the nation behind another year of scorched-earth cuts. El Mundo says a ‘pre-revolutionary’ mood is taking hold.

“A magistrate has obtained the original ‘smoking gun’ alleging that Premier Mariano Rajoy accepted illegal payments as a minister. The Left is calling for his head but so are members of the Consejo General del Poder Judicial, the justice watchdog....

“Much of the ruling party appears tainted by a network of covert funding. If proved, said (a Consejo member), it poses a ‘very grave’ threat to Spanish democracy.

“Portugal is slipping away....

“Like Greece before it, Portugal is chasing its tail in a downward spiral....

“What is new is that Vitor Gaspar, the high priest of Portugal’s shock therapy, has thrown in the towel. He blames the fainthearted for refusing to slash with greater vigor. Needless to say, he still refuses to accept that a strategy of wage cuts and deflation in a country with total debt of 370% of GDP was always likely to fail....

“The Portuguese press is already reporting that the European Commission is working secretly on a second bailout, an admission that the wheels are coming off the original 78 billion euro EU-IMF troika rescue.

“This is a political minefield. Any fresh rescue would require a vote in the German Bundestag, certain to demand ferocious conditions if this occurs before the elections....

“Markets have reacted insouciantly so far to these gestating crises across Club Med. They remain entranced by the ‘Draghi Put,’ the ECB’s slowly fraying pledge to backstop Italian and Spanish debt, forgetting that the ECB can only act under strict conditions, triggered first by a vote in the Bundestag.

“These conditions can no longer be fulfilled. The politics have curdled everywhere.

“Sooner or later, this immense bluff must surely be called.”

On top of all the above, and Mr. Evans-Pritchard’s allusions to revolution, such as in Spain, the Global Corruption Barometer, an annual survey conducted by Transparency International, was released on Tuesday and less than 10% of people in Europe believe their leaders are doing a good job of fighting corruption, reflecting a serious crisis of faith in government. For example, only 8% of Portuguese express confidence in their leaders’ abilities to fight corruption, compared with 21% in 2007, before the outbreak of the financial crisis. Only 11% of Britons and 13% of Germans feel their governments are effective in this regard.

---

As alluded to earlier, China releases its growth figure for the second quarter Sunday evening and this week, Lou Jiwei, the finance minister, said in unscripted comments that China was aiming for 7% GDP expansion this year, below the government’s official forecast of 7.5% set back in March.

As the Financial Times’ Simon Rabinovitch notes, this is no trivial matter...whether Lou slipped or the target has actually been cut.

“If the bottom line is (now) 7%, the implication is quite straightforward: the country’s new leaders are ready to tolerate a bigger slowdown than expected and will hold back from stimulating the economy even as it falls to growth levels last seen in the late 1990s.”

It’s possible that Lou, at a news conference during the U.S.-China Strategic and Economic Dialogue in Washington, was referring to the five-year target of 7% average annual growth from 2011-2015. But Beijing specifically said the target for 2013 was 7.5%.

So did Premier Li Keqiang, who is really in charge of the economy, lower it? We’ll have a big clue on Sunday.

[For its part, the IMF pegged China growth at 7.8%, down 0.3% from its April forecast, and lowered 2014 from 8.3% to 7.7%.]

Meanwhile, China’s consumer price index for June rose 2.7% and is running at a 2.4% pace for the first six months, while producer prices fell another 2.7%...deflation...owing to overcapacity in many industries. Food prices, the key here, especially in terms of battling any social unrest, rose 4.9% in June year-over-year.

And in keeping with the possible dour news on GDP, exports for June were shockingly down 3.1%, when a gain of 3.7% was expected. Is the government finally getting a handle on all the fake data in this category? It certainly appears so. It’s encouraging to see some truth-telling begin to emerge. Imports also fell, down 0.7%.

But on a totally different matter, China’s pollution levels, a groundbreaking study by researchers at MIT, Tsinghua University and Peking University in Beijing, and Hebrew University of Jerusalem, using decades of data from across China, found that air pollution has cut life expectancy by an average of 5.5 years in the north of the country.

China’s leadership knows they have a very serious issue on their hands, one that can bring down the government, for starters. The people have had it. Who would want to raise a family in a city like Beijing? What foreigners would want to accept an assignment in China?

Lastly, regarding Japan, the IMF raised its GDP outlook here to 2% for this year, owing to Shinzo Abe’s and the Bank of Japan’s accommodative policies, but then predicts only 1.2% next year owing to a softer global forecast.

For its part, the Bank of Japan issued its most optimistic assessment of the Japanese economy in years, saying:

“Japan’s economy is starting to recover moderately,” citing a “pick-up” in exports and “resilience” in consumer spending.

So this is good, but with Japan’s humongous debt load, how long can the recovery last? Hopefully, for the sake of the world, more than a few artificially stimulated quarters.

Street Bytes

--Stocks staged their best rally since the first week of the year as the market powered to new highs. The Dow Jones finished the week up 2.2% to a record 15464, while the S&P 500 gained 3.0% to a new mark of 1680. Nasdaq, still far below its all-time peak of 5048 set in March 2000, nonetheless added 3.5% to an even 3600, its highest since Sept. of the same year.

As noted above, Wells Fargo and JPMorgan Chase reported solid earnings, but both warned on the impact of rising mortgage rates. JPM CEO Jamie Dimon said higher rates could lead to a “dramatic reduction” in the bank’s profits by eroding demand for mortgage refinancing.

Also on Friday, UPS, normally viewed as a good bellwether, a la FedEx, warned a slowing U.S. economy would hurt its results for the balance of the year. UPS shares tumbled 6%.

And Boeing limited the Dow’s gains on Friday when a fire on one of its Dreamliner aircraft at London’s Heathrow closed the airport for a spell. No one was on board and as I go to post, no cause has been determined, though it does not appear to be battery related. Boeing’s shares fell 5% on the news.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.34% 10-yr. 2.58% 30-yr. 3.63%

The producer price index rose a hotter than expected 0.8% in June, up 0.2% ex-food and energy. For the 12 months, the PPI is up 2.5%, up 1.7% on core. Consumer prices are released next week.

--The U.S. government posted a budget surplus of $117 billion in June, better than expected and the largest on record for the month. An improving economy, albeit at a putrid pace, public spending cuts, and dividend payments from Fannie Mae and Freddie Mac led to the positive showing.

For the first nine months of fiscal 2013, which began Oct. 1, the nation’s deficit narrowed to $509.8 billion compared with a $904.2 billion shortfall over the same period last year.

--The price of crude oil surged to its highest level since March 2012, largely due to a bigger-than-expected drop in U.S. supplies last week. Bottlenecks in the Midwest have eased, allowing refiners to ramp up operations. It was just about two months ago we were talking about record inventories.

According to the Energy Information Administration, net exports of gasoline were up 13% for the first four months of 2013 vs. the same period last year. [See below story on Houston.]

Meanwhile, OPEC, in its first forecast for 2014, said it expected daily global oil demand to accelerate by one million barrels a day next year, to 90.7 million barrels, largely due to growing consumption in emerging markets.

--In its quarterly World Economic Outlook, the IMF projects Canada’s economy will grow 1.7% this year, 2.2% next; Russia’s 2.5% in 2013, 3.3% in ’14 (big drops vs. estimates of just three months earlier); and India’s 5.6% and 6.3%, respectively.

--Australia’s unemployment rate rose to 5.7% in June, the highest since September 2009, with new Prime Minister Kevin Rudd, facing an immediate early election by Nov. 30, declaring he is the best leader to steer Australia through a downturn, now that “the China resources boom is over,” as he put it. “The new economic challenge that Australia faces today: how to protect our jobs and living standards given that global growth is sluggish.”

--Global personal computer sales fell for the fifth quarter in a row, the longest decline in history. Worldwide PC shipments totaled 76 million units in the second quarter, a 10.9% drop from a year earlier, according to research firm Gartner.

Tablets sales have hurt, but now PCs are getting hit further by the introduction of low-cost tablets, especially in emerging economies.

China’s Lenovo Group for the first time supplanted Hewlett-Packard as the No. 1 PC supplier. Dell remained third.

--KFC parent Yum Brands Inc. reported a decline in June sales at its established restaurants in China of 10%, less than expected, and less than the 19% drop in May and 29% in April, so as CEO David Novak said, “The good news is that China sales are recovering...The extensive media surrounding avian flu in China has subsided, and same-store sales at KFC are clearly improving.” Novak maintains that its nearly 6,000 restaurants in China, roughly 75% of them KFCs, will turn positive in the fourth quarter. [KFC has also been dealing with a Chinese government investigation into possible safety violations among its chicken suppliers.]

China, recall, represents more than half of Yum’s overall sales. Sales in the U.S. grew 1% for the second quarter; up 1% in the international division, excluding China and India.

--The United States and China agreed this week to restart stalled negotiations on an investment treaty that would make it easier for U.S. businesses to invest there. May I suggest a certain Chinese investment of mine be the first target of a U.S. company. I’m not very optimistic negotiations will go anywhere, though as the Chinese economy slows, perhaps precipitously, they have an incentive to cooperate.

--Meanwhile, the Wall Street Journal reported that the U.S. government is giving American Internet providers addresses linked to suspected Chinese hackers in a previously undisclosed effort to block cyberspying. An official at Mandiant, a cybersecurity research firm, described recent hacking levels as “Business as usual.”

--Continuing on the China theme, eight Chinese cities announced they were likely to implement curbs on auto sales in an attempt to control high pollution levels. This triggered concerns among the likes of Hyundai and Kia, where China has been a key driver of growth.

Car sales in the eight selected cities, which include Shenzhen and Qingdao, could see car sales fall by about 400,000 units. [Beijing and Shanghai are among other cities that already restrict vehicles on the road by using auctions and lotteries to sell a limited number of license plates.]

In June, by the way, German cars accounted for 26% of total sales in China, followed by Chinese vehicles at 25%, Japanese with 18% and U.S. cars with 16%, according to the China Association of Automobile Manufacturers. [But another story I read put the Chinese share of the domestic market at 38%...sorry for the confusion....both were supposedly out of the CAAM.]

As for Chinese car exports, the number shipped out in June declined almost 20% from a year ago, owing to slowing markets in the likes of Iraq, Vietnam and Turkey.

--The greater Houston area has replaced New York City as the largest exporting region in the U.S., owing to the energy boom that has created cheaper feedstocks (think low natural gas prices) for the Houston area’s refineries and petrochemical plants.

Last year, Houston’s exports rose 5.6% vs. a 2.7% drop in the New York area. [In New York, exports were hurt by Hurricane Sandy.]

--As part of its earnings report, which was slightly better than expected, Alcoa, the largest U.S. aluminum producer, said it expects a 9 to 10 percent increase in aluminum demand this year from the aerospace sector.

--A judge has ruled that Apple conspired with publishers to fix the price of e-books, looking to restrain trade. The judge ordered a new hearing to determine damages to be imposed on Apple and they could be significant.

The U.S. Department of Justice said the conspiracy was designed to challenge online retailer Amazon’s dominance of the segment.

Penguin earlier settled for $75 million, while Hachette, HarperCollins, Simon & Schuster and Macmillan settled for lesser amounts.

So in Apple’s case, think $150 million+. Granted they have more than enough cash and Apple has said it would fight the “false allegations.”

--The Washington Post’s Hayley Tsukayama reports:

“Security researchers believe they have found a major security flaw in Google’s Android mobile operating system, which could affect up to 99 percent of Android phones now in consumers’ hands.

“In results published Wednesday by the Bluebox Security research firm, chief technology officer Jeff Forristal said the flaw gave hackers a ‘master key’ into the Android system.”

The flaw is in the security verification process, which allows hackers to “turn any legitimate application into a malicious Trojan.”

--Investors in Bill Gross’ PIMCO Total Return Fund suffered their biggest-ever quarterly loss, 3.6% (compared with a 2.3% loss on the Barclays U.S. Aggregate Bond Index), owing to the rapid rise in Treasury yields, while emerging market bonds, as well as Treasury inflation-protected securities, or TIPS, also got trashed, with Gross having heavy positions in all three categories.

Knowing this particular fund and its past performance well, however, and having worked with PIMCO on the retail fund side, Gross usually bounces back strongly, at least relative to his benchmarks.

--Kroger is acquiring upscale grocery-store operator Harris Teeter for $2.44 billion, the latter with 212 stores mainly in the Southeast. Always liked this chain. Fond memories of beer purchases there.

--It’s not expected to go anywhere, but Sens. Elizabeth Warren (D-Mass.) and John McCain (R-Ariz.) introduced legislation Thursday to reinstate the Glass-Steagall prohibition on federally insured banks from also operating as investment banks. Said Sen. Warren:

“Despite the progress we’ve made since 2008, the biggest banks continue to threaten the economy. The 21st Century Glass-Steagall Act will reestablish a wall between commercial and investment banking, make our financial system more stable and secure, and protect American families.”

McCain said:

“Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world.”

I concur.

--The USDA reiterated it expects a record corn crop this year, though it lowered its estimate slightly due to heavy rains and late planting in some areas. Iowa, in particular, suffered from record precip, with replanting required because the initial seeds had rotted.

--Atlantic City’s casino industry is on pace for its worst year since 1991, as after the first six months, the casinos won $1.38 billion, down 10.7% from the same period in 2012. July and August can save the year, somewhat, but last year, AC’s casinos took in just over $3 billion, down from a high of $5.2 billion in 2006. That was just before Pennsylvania opened its first casinos that have taken a big chunk out of AC’s business.

--The mega-budget “The Lone Ranger” took in only $49 million over the five-day Fourth of July holiday, $20 million under analysts’ projections and, for the three-day Friday-Sunday period, the $29.4 million was weaker than last year’s big-budget bomb “John Carter.” “The Lone Ranger” cost $225 million to produce (another figure I saw put it at $250 million), plus another $100 million on marketing.

Disney executives are no doubt second-guessing themselves, after having shut down the flick last summer when the budget began to spin out of control.

“Despicable Me,” on the other hand, took in $142 million for the same five days.

--Regarding the crash of Asiana flight 214 at San Francisco International, as soon as you heard the description that the nose was much higher than the tail as the plane approached the runway, you knew it was pilot error. I don’t think there has ever been a more obvious case, this quickly, of such distressing incompetence; the pilot flying the aircraft being in training for the Boeing 777. It was Kang Kook Lee’s first landing at SFO, as well.

Of all the airports I’ve flown into in the world, I hate SFO the most because of such a long over water approach. Being a window seat guy, I can imagine the terror of experienced travelers, looking out the window and knowing they were too low.

It’s also amazing that the pilots didn’t react right away in having the plane evacuated, but thank god the flight attendants appear to have been top professionals; at least those not ejected out the back when the tail was ripped off, as well as the two attendants pinned to emergency chutes that opened inside. 

[By the way, this was the first time anyone was killed during a 777 accident, the plane having been released in 1995.]

--From an op-ed in the Wall Street Journal by Charles Schwab and Walt Bettinger:

“A Gallup survey conducted in April found that just 52% of Americans were invested in ‘an individual stock, a stock mutual fund, or in a self-directed 401(k) or IRA.’ This is the broadest ownership of capital in the world, but it is down from a Gallup-survey high of 67% in June 2002. That’s not good for individuals, and it’s’ not good for the country....

“No one will benefit if individual investors stop participating in the markets. But that is what’s happening at a troubling rate. Here are some reasons for that trend....

High-frequency traders are gaming the system....

Glitches and errors plague the markets. From the ‘flash crash’ of 2010 to the glitch-riddled Facebook IPO in 2012 to the market-wide shut down when Hurricane Sandy hit New York, individuals are losing confidence in the integrity of the system....

Tax policies here and abroad discourage investors....

The retirement savings system is under attack. ...President Obama’s recent budget would set an arbitrary cap on the total amount of retirement savings an individual can accumulate in tax-advantaged retirement accounts....

“The system we have is not perfect. But instead of hindering it or scrapping it altogether we should be enacting policies that make it easier for employers of all sizes to offer employees a savings plan, encourage market-based innovation, and making a concerted national effort to educate America’s workers on how to maximize retirement plans, particularly with low-cost investment choices.”

It would also be nice if the Fed would raise the funds rate so investors had an opportunity to save a nickel now and then.

Foreign Affairs

Egypt: After at least 51 Muslim Brotherhood protesters were killed last weekend (54 people in all) outside Republican Guard headquarters where former President Mohamed Morsi is allegedly being held, with both sides claiming the other started the violence, the hardline Salafist Nour party – which had supported the removal of Morsi, said it was withdrawing from talks to choose an interim prime minister, describing the shooting as a “massacre.”

Mohamed ElBaradei was at the same time chosen interim PM, which not only didn’t please Islamists, it didn’t appease many in the opposition, so his name was withdrawn in favor of an economist, 76-year-old Hazem al-Beblawi, as appointed by interim President Adly Mansour.

On Monday, Mansour set out a blueprint for parliamentary and presidential elections, as part of a 33-article constitutional declaration that gave a timeline rather than specific target dates.

Parliamentary elections are to be called within 15 days after the results of a referendum on proposed amendments to the suspended 2012 Islamist-backed charter, whose ratification first outraged Morsi opponents.

But the main opposition National Salvation Front said it wasn’t consulted on the 33 articles, and doesn’t agree with everything in there, so it withdrew its support.

At the same time, as the week progressed, you had the further demonization of the Brotherhood, with the military seeking the arrest of leader Mohammed Badie, along with nine others for allegedly inciting the violence on July 8.

Russian President Vladimir Putin warned, “Syria is already in the grips of a civil war...and Egypt is moving in the same direction.”

Al-Qaeda leader Ayman al-Zawahiri issued a call for “all jihadis” to take revenge against the interim government.

“We must make a revolution against them,” Zawahiri said in a video posted on YouTube.

The black flag of al-Qaeda has been spotted in some districts of Cairo.

Security in the lawless Sinai peninsula has only gotten worse. A Coptic priest was murdered by gunmen in the first sectarian killing of the present crisis. A gas pipeline to Jordan was blown up.

By the end of the week, though, the interim government warmly welcomed a comment from a State Department spokesman on Thursday that the former government of President Mohammad Morsi “wasn’t a democratic rule.” Egypt’s foreign ministry commented that the U.S. stance “reflects understanding and realization about the political developments that Egypt is witnessing in recent days, as embodying the will of the millions of Egyptians who took to the streets.”

Brotherhood spokesman Gehad Haddad said the remarks showed American hypocrisy: “There is no way the Egyptian army would have gone through with this coup if it would not have been sanctioned by the U.S.”

But the State Department added, “The arrests we have seen over the past several days targeting specific groups are not in line with the national reconciliation that the interim government and the military say they are pursuing.” [Daily Star]

Interim Prime Minister Beblawi said he had not ruled out Muslim Brotherhood members in his Cabinet, but the Brotherhood rejected the offer.

President Obama directed the Pentagon to review American aid to Egypt, $1.3 billion worth. Senators John McCain and Carl Levin (D-Mich.) have called for a suspension of the aid, but the White House said it would take its time considering whether the provision applying to the labeling of the situation (i.e., calling it a coup) applies.

Since 1978’s Camp David Accords, America’s aid package to Egypt has been its second largest, next to funds granted Israel.

Meanwhile, Saudi Arabia pledged $5 billion in economic aid to shore up the military-backed interim leaders, while the United Arab Emirates is kicking in $3 billion. Which means Washington’s already shrinking influence with the new government in Cairo is diminished further.

In a stark example of the state of the Egyptian economy, a former minister from Morsi’s ousted government said Egypt had less than two months’ supply left of imported wheat, a far worse shortage than previously disclosed.

And now it looks increasingly likely that the IMF won’t extend a badly needed $4.8 billion credit line until it sees an internationally-recognized government in place.

Jonah Goldberg / Los Angeles Times

“One has to wonder what the next Islamist movement will say when America counsels it to put down its weapons and take up the ballot instead.

“The most implausible interpretation of Obama’s zigzagging approach to foreign policy is that he is simply ‘winging it,’ as Robert W. Merry, editor of the National Interest, writes.

“It is difficult to find much, if any, intellectual coherence to the president’s foreign policy. He fought for a surge of troops in Afghanistan but then refused to rally public support for the war he escalated. Worse, he later rendered the surge moot by announcing to our enemies that we’d soon bug out, no matter what.

“During Iran’s Green Revolution, he stood pat as the mullahs crushed a democracy movement seeking to overthrow a regime hostile to U.S. interests. In Libya, he intervened to oust a dictator who had become a de facto ally, insisting he couldn’t stand by as innocents were slaughtered. In Syria, a vassal of Iran, he has stood by as innocents were slaughtered.”

Ian Bremmer / Sydney Morning Herald

“As we ponder Egypt’s foreseeable future, there are no attractive options. Egypt’s least worst option? Pakistan, if it should be so lucky. Things in Egypt are now so bad that resembling Pakistan is as good as it can realistically get any time soon. The worst possibility is outright state failure.

“The outcome is in the military’s hands. Egypt’s situation already bears similarities to Pakistan’s, where the military is central, broadly popular, and the country’s primary economic force. In both countries, the military understands that actually running the country, or at least being seen as running the country, is the worst way to consolidate power while avoiding public fury when things go wrong....

“The military is in a race against the clock. The interim transitional government has laid out a timetable for new elections that is undeniably too ambitious. The six month timeline leaves only four months for redrafting the constitution, a process that is destined to take much longer. The chance of protracted civil conflict is very real and growing.”

Robert Kagan / Washington Post

“Egypt is not starting over. It has taken a large step backward. And the Obama administration bears much blame. It put little or no meaningful pressure on Mubarak to make even minor political reforms that might have been enough to prevent the anti-regime outburst that exploded at the end of 2010. Then it put little or no tangible pressure on Morsi to end his undemocratic practices, which might have forestalled the most recent crisis. It has become fashionable in today’s ‘post-American world’ milieu to argue that the United States had no ability to shape events in Egypt. This is absurd. The United States is far from being all-powerful, but neither is it powerless. Americans provide $1.5 billion a year in assistance to Egypt, $1.3 billion of which goes to the Egyptian military....

“So now that the military coup has occurred, how do we avoid the ‘seismic repercussions’? Any answer must begin with a complete suspension of all aid to Egypt, especially military aid, until there is a new democratic government, freely elected with the full participation of all parties and groups in Egypt, including the Muslim Brotherhood....

“It is past time to get out of this rut of failure. Better to learn from our history than to repeat it. It will be sad if some future American president has to apologize to Egyptians for what Barack Obama did, and did not do, in 2013.”

Editorial / Washington Post

“Many Egyptians hoped that last week’s military coup would somehow correct the troubles the country has experienced since 2011 in its transition to democracy. Instead, the generals now in charge are repeating the same abuses and authoritarian practices that preceded the rise to power of the Islamist government they ousted.

“The new regime’s dependence on brute force was demonstrated Monday, when soldiers opened fire on a large crowd that had been protesting the ouster of President Mohamed Morsi, killing 51 people. Later in the day, a little-known judge who had been appointed president by the military issued a constitutional decree that had been prepared in secret and without the agreement of the political forces the generals said they were responding to when they carried out the coup.

“The governing document contains the worst elements of the constitution the military suspended, and adds more. It grants unchecked power to the military-installed president; exempts the armed forces from civilian supervision; and includes a provision on sharia law that secular and liberal forces strongly opposed when it was proposed by militant Islamists last year. The decree lays out procedures for amending the previous constitution that would allow only limited input from political parties or other groups outside the new regime.

“A prime minister appointed Tuesday served in the previous military government. Named as vice president was former diplomat Mohamed ElBaradei, who chose not to run for president after polls showed his support in single digits. In answer to all the objections, Gen. Abdel Fatah al-Sissi, the defense minister who led the coup, issued a recorded statement saying that the timetable for holding elections next year should offer ‘more than enough assurance’ to those worried about the country’s direction.

“Egypt desperately needs a political compromise to avoid further violence, not another diktat. But while the new regime’s spokesmen say they wish to reach out to the Muslim Brotherhood, the country’s largest political force, Mr. Morsi and other top leaders are under arrest. Meanwhile, the generals are cutting deals with a more extreme Islamist movement, adopting its sharia language in the constitutional decree and allowing it to vet candidates for prime minister.”

Meanwhile, the Post concludes, “The Obama administration is doubling down on its own failures.”

Editorial / Wall Street Journal

“Before the bad and ugly, let’s start with glimmers of hope from Cairo. A week after protests and a military intervention forced out the Muslim Brotherhood’s Mohamed Morsi, Egypt has a technocrat as prime minister, a ‘road map’ to restore elected government and a broad political coalition committed to make this second attempt at democracy work better than the first....

“Now the bad news. The killing of 51 Morsi supporters early Monday morning in Cairo gave Egypt a glimpse into the abyss of civic conflict. (See Syria, early 2011). Who started this clash is irrelevant. The Brotherhood is spoiling for revenge, and any restraint has to come from the military.

“The political crackdown is counterproductive. President Morsi and the Brotherhood’s most powerful leader, Khairat Al Shater, are in custody, along with 600-odd others. Prosecutors on Wednesday ordered the arrest of spiritual guide Mohammed Badie for allegedly inciting Monday’s protests. The Brotherhood’s two television channels, which were closed last week, remain off the air....

“Egypt can’t be stable – forget about a democracy – without Islamists in the tent.

“Also worrying, the military drew up the new constitutional ‘road map’ in secret without consultation with the anti-Morsi opposition. The interim president will rule by decree. The constitution, which an authoritarian Mr. Morsi rammed through late last year, will be redrafted by unelected officials. None of this helps to generate a new consensus.”

Syria: President Bashar Assad’s military continues to make big gains and is on the verge of taking the last rebel strongholds in Homs, the nation’s third-largest city. Hizbullah, which led the way in the retaking of Qusair, is playing a vital support role in Homs. There is no medical equipment in Homs. Imagine the carnage. There are reports the last rebels are donning suicide vests.

Friday, it was reported a key rebel leader was killed by a rival group linked to al-Qaeda in a further sign of the escalating struggle between the moderates and Islamists.

Editorial / Washington Post

“It has been a month since the White House informed journalists that President Obama had decided to supply Syrian rebels with light arms. Since then, the regime has launched a bloody new offensive in the city of Homs, using heavy artillery and rockets to attack residential areas held by the rebels. Thousands of people have been killed, adding to a death toll approaching 100,000. President Bashar al-Assad has been boasting of his military successes and of the failure of outside powers to bring down his regime. Meanwhile, the United States has failed to deliver any of the promised munitions to beleaguered rebel forces – ‘not even a single bullet,’ one source told The Post’s David Ignatius.

“The delay can be attributed in part to congressional resistance... But the larger problem is an extraordinary failure of leadership by President Obama. While deciding on intervention in a fateful Middle East war, the president has chosen a minimalist option likely to fail while declining to publicly explain or justify his actions.

“A decision to intervene in a foreign war, even in a small way, ought to be the subject of a direct presidential address to the country and an open debate in Congress....

“Mr. Obama’s fecklessness on Syria has baffled and alarmed important U.S. allies, including Turkey and Israel, which wonder if the United States can still be counted on as a force in the region. It has emboldened not just Mr. Assad but also Iran, which has been stepping up its own intervention in Syria in the belief that it will not be countered. Now the president is failing to deliver even on the modest action he decided on. It’s a spectacle that can only harm U.S. standing in the Middle East – and prolong Syria’s bloodshed.”

Lebanon: Incredibly, no one was killed in a massive car bombing in Beirut’s Hizbullah stronghold, though at least 50 were injured.

Iran: According to an exiled Iranian opposition group that has been accurate in the past, Iran is secretly developing a new nuclear site in mountain tunnels north of Tehran. Should this be true, it certainly makes the apparent conciliatory approach of new President-elect Rohani, who is sworn in Aug. 3, more difficult to take seriously.

German intelligence confirmed that the site has been tracked by the West since activity began there in 2006-07. Iran seems to be trying to disguise it as a mine project.

Saudi Arabia: The London Times and others reported that satellite photos reveal the existence of a hitherto unknown missile base in the Saudi desert from which the Kingdom appears to be targeting both Iran and Israel.

Jane’s Intelligence Review suggests it is stocked with intermediate range surface-to-surface missiles, has two launchpads, fuel depots and other military infrastructure.

Jane’s analysts report that one launchpad bears an alignment pointing to Israel, the other to Iranian cities. Analysis suggests the base was designed to operate with a limited target set. This is the third such Saudi missile base to be identified.

While both Israel and Iran are Saudi Arabia’s historic enemies, numerous reports have suggested the Saudis are prepared to offer aid to Israel should Iran get the bomb.

Yes, in case you are wondering, the bases are capable of launching nuclear-tipped missiles. The infrastructure is now all in place.

Could Israel give the Saudis nukes to defend themselves against Iran some day?

North Korea: As reported by the Global Security Newswire, “A new expert analysis of satellite photographs strongly suggests that North Korea tested an engine for one of its long-range rockets sometime this spring – a development that has implications for its work on ICBMs.”

Separately, a long-range missile test of the ground-based interceptor program (GBI), failed, when a target was launched from an atoll in the Pacific Ocean and, in response, a GBI was fired from Vandenberg Air Force base in California. A Defense Department press release said “the intercept of a long-range ballistic missile target...was not achieved.”

Understand, the GBI system is the primary means of defending the U.S. homeland against ICBM strikes by North Korea and Iran. There has not been a successful intercept since 2008. To date, Reuters reports, only 50% of the 16 intercept attempts have been successful.

The Defense Department is proceeding with plans to acquire 14 new GBI missiles, at a cost of about $1 billion.

On a different issue, North and South Korea agreed in principle to reopen the Kaesong industrial complex after work had been halted in April amid high regional tensions.

120 South Korean businesses operate in the factory park that employs 53,000 North Koreans and supplies Pyongyang with badly needed hard currency, $90 million per year, which is why many say this is throwing an unnecessary lifeline to Kim Jong Eun’s regime

China: At annual talks between the U.S. and China designed to address strategic and economic issues, Vice President Joe Biden urged Beijing to stop “outright theft” through hacking, while stressing “our relationship is and will continue to be a mix of competition and cooperation.”

Japan: In the first national defense white paper under Prime Minister Shinzo Abe, the defense ministry, sharpening its criticism of what it sees as China’s belligerence in disputed Asian waters, said: “China has attempted to change the status quo by force based on its own assertion which is incompatible with the existing order of international law.... Thus, there is a concern over [China’s} future direction.”

Russia: In a move that will further hurt Vladimir Putin’s reputation in the West, a Moscow court convicted late investment fund lawyer Sergei Magnitsky on Thursday of tax evasion. The court also convicted Magnitsky’s former client William Browder, a Briton who has spearheaded an international campaign to expose Moscow’s culpability in Magnitsky’s death, the lawyer dying in a Moscow jail while awaiting trial in 2009.

Meanwhile, President Obama is slated to visit Moscow in September. Will he cancel over the Edward Snowden affair? Were Snowden to remain in Moscow, specifically at the airport, it is inconceivable that Obama would go.

Snowden reemerged on Friday, after meeting with human rights groups and lawyers at Sheremetyevo, to say he sought asylum in Russia until he was able to travel to Latin America. Snowden said in a statement, the U.S. and some European countries had “demonstrated a willingness to act outside the law. This unlawful threat makes it impossible for me to travel to Latin America and enjoy the asylum granted there in accordance with our shared rights.” Oh shut up.

Oh, and here’s something to warm the cockles. Russian Defense Minister Sergei Shoigu said this week his country would “boost the number of cruise missiles five-fold in the next three years and by 30 times by 2020.”

Lastly, this coming Thursday, a Kirov court will either convict or acquit opposition leader Alexei Navalny on charges of stealing timber from a state-owned company in 2009, a charge many believe was simply trumped up. Prosecutors are seeking a sentence of six years. It is assumed he will be convicted.

Navalny, in his closing statement, vowed to continue his political activities, irrespective of the verdict.

“I declare that my colleagues and I will do everything to destroy this feudal system being built in Russia, to destroy this regime, in which 83 percent of the national riches belong to half of the population,” apparently referring to the Kremlin’s management of the country’s vast energy resources.

Navalny also called Kremlin officials “a bunch of morons.”

Yes, he has some cojones. 

India: The Defense Research and Development Organization wants to slash how long the country would need to conduct a nuclear counteroffensive against an adversary, the agency’s leader told India Today.

This is not about Pakistan. It’s about China.

Indian Defense Minister A.K. Antony was set to depart for China the day after the report and, speaking that same day, Chinese Gen. Luo Yuan cautioned India against creating “new trouble.”

“India is the only country in the world that says that it is developing its military power because of China’s military threat,” he was quoted as saying. “India should be very cautious in what it does and what it says.”

Pakistan: In a scathing 336-page report, Pakistan’s official investigation into the hunt for Osama bin Laden revealed the search should have ended eight years earlier if a Pakistani traffic policeman had spotted the world’s most wanted man in a car he had stopped for speeding; an extraordinary revelation obtained by Al Jazeera, part of a tale that shows how bin Laden, through luck and sheer incompetence, managed to live undetected in the country for almost a decade. The report was equally harsh on the military and government.

The report also criticized the government for failing to detect CIA activities on its soil in the run-up to the raid.

The Abbottabad Commission added, “The U.S. acted like a criminal thug.... but above all, the tragedy refers to the comprehensive failure of Pakistan to detect the presence of bin Laden on its territory...or to discern the direction of U.S. policy towards Pakistan that culminated in the avoidable humiliation of the people of Pakistan.”

The commission also did not rule out involvement of rogue elements within the Pakistani intelligence service, a rather touchy subject for an internal investigation of this kind. Those who put the report together deserve credit for bravery.

Canada: What an awful stretch for this good nation. A few weeks ago it was the catastrophic, historic flooding in Calgary and other parts of Alberta. This week saw devastating flooding in Toronto of historic proportions that flooded parts of the downtown area, left 300,000 without power, and nearly caused an epic disaster when hundreds of passengers were stranded for several hours on a flooded commuter train, though amazingly all were evacuated on police boats. Water rose so high, so quickly, passengers fled to the upper decks of the coaches.

And then there was last Saturday morning’s immense tragedy in the small, picturesque Quebec town of Lac-Megantic when a runaway train carrying 72 carloads of crude oil derailed and exploded in the town center, where there was a nightclub filled with patrons at 1:00 AM. Many of the 50 victims will never be identified...incinerated.

Edward Burkhardt, president and CEO of U.S.-based Rail World Inc., which owns the runaway train operated by Montreal Maine & Atlantic Railway Inc., said the train’s engineer had been suspended without pay and was under ‘police control.’

“We think he applied some hand brakes, but the question is, did he apply enough of them? He said he applied 11 hand brakes. We think that’s not true. Initially we believed him, but now we don’t....

“If brakes aren’t properly applied on a train, it’s going to run away,” Burkhardt said.

The locomotive had earlier caught fire when it was parked outside Lac-Megantic for a shift change. The engineer had departed the train for the evening.

Firefighters extinguished the blaze, and in the process, shut down the locomotive, according to separate reports by both the company and the investigators. That may have disengaged the locomotive’s air brake. Sometime afterwards the train started to roll, picking up speed during an 18-minute journey, before it roared into town, derailed and the cars filled with oil exploded one after another.

Nigeria: Last weekend, terrorists aligned with al-Qaeda-linked Boko Haram, slaughtered at least 41 children and a teacher at a boarding school. The nighttime attack saw many of the pupils burned to death in their beds. Hundreds more children escaped into the bush. So say a prayer for the survivors that they may have just one good night’s sleep the rest of their lives because it is unlikely they ever will.

Random Musings

--Peter Wallstein / Washington Post

“Lawmakers tasked with overseeing national security policy say a pattern of misleading testimony by senior Obama administration officials has weakened Congress’ ability to rein in government surveillance....

“On three occasions since 2009, top Justice Department officials said the government’s ability to collect business records in terrorism cases is generally similar to that of law enforcement officials during a grand jury investigation. That comparison, some lawmakers now say, signaled to them that data was being gathered on a case-by-case basis, rather than the records of millions of Americans’ daily communications being vacuumed up in bulk.

“In addition, two Democratic members of the Senate Intelligence Committee say that even in top-secret briefings, officials ‘significantly exaggerated’ the effectiveness of at least one program that collected data on Americans’ e-mail usage.”

--Boston Marathon bomber Dzhokhar Tsarnaev pleaded “not guilty” to using a weapon of mass destruction and 29 other charges in Boston federal court. It was despicable to see he had supporters. Here’s hoping the feds have the guts to go for the death penalty.

--Walter Russell Mead / Wall Street Journal...on President Obama’s ‘unserious speeches’

“The first year of President Obama’s tenure was marked by high-profile speeches. In Cairo and Istanbul, he sought to overcome the polarization between the Muslim world and the West. As he said on June 4, 2009, in Cairo: ‘I do have an unyielding belief that all people yearn for certain things: the ability to speak your mind and have a say in how you are governed; confidence in the rule of law and the equal administration of justice; government that is transparent and doesn’t steal from the people; the freedom to live as you choose. These are not just American ideas; they are human rights. And that is why we will support them everywhere.’

“Eight days later, on the night of June 12, demonstrations broke out in a major Islamic country in protest against the blatant vote-rigging of a presidential election. From the White House: first several days of silence, then on June 17 came this less-than-inspirational remark from the president: ‘It is not productive, given the history of U.S. and Iranian relations, to be seen as meddling in Iranian elections.’ In other words, never mind: U.S. policy toward democracy in the Islamic world is still driven solely by national interest.

“The president seems not to realize that grand sentiments in fine words do not great speeches make. Winston Churchill’s Battle of Britain speeches weren’t great because they referred to noble values; they were great because they were true. The speeches were the verbal expression of a determination to resist unto death – and Churchill meant every word with every fiber of his being. The Gettysburg Address is a great speech because it condenses the essence of a cause for which hundreds of thousands were willing to die into a short and simple talk in which every word is real.

“Second-rate orators use flowery language to disguise the conventionality or insincerity of their sentiments, to disguise their true motives, or – and this was the biggest problem for the White House on Syria – to substitute rhetoric for action. President Obama’s speeches, like his Nobel Prize address, are strong because they express his true purpose. As he spoke of the tragic necessity of war, he was planning a surge in Afghanistan and unleashing a drone campaign. The speech was a serious reflection on important actions.

“You cannot be a great speaker unless you are a great doer. If Martin Luther King Jr. had not led the civil-rights movement to success and ultimately laid down his life for it, his speeches would be little studied. If Churchill had surrendered to Hitler, nobody would care about his defiant addresses....

“(Mr. Obama) would do well to quit thinking of speechmaking as an act in itself and begin to think of it as the verbal expression of an action already under way.”

--According to new data by the Institute for Health Metrics and Evaluation at the Univ. of Washington in Seattle, male life expectancy in the U.S. is 76, 81 for females. But death rates from illnesses associated with obesity, diabetes and kidney disease, among others, are on the rise.

In an editorial accompanying the report, Harvey V. Fineberg, president of the Institute of Medicine, said, “Despite a level of health expenditures that would have seemed unthinkable a generation ago, the health of the U.S. population has improved only gradually and has fallen behind the pace of progress in many other wealthy nations.”

In every measure examined, including life expectancy and quality of life, Fineberg said the U.S. ranking fell among the 34 members of the Organization for Economic Cooperation and Development, a think tank for developed nations.

--According to a Wall Street Journal-NBC 4 New York-Marist poll, former New York Gov. Eliot Spitzer leads Manhattan Borough President Scott Stringer by nine points in the race for New York City comptroller (among registered Democrats).

Spitzer shocked the city’s politicians when he launched a last-minute bid to get on the Sept. 10 primary ballot after five years in the wilderness following revelation he spent a lot of his free time with hookers.

Spitzer benefits from tremendous name recognition, with 67% of Democrats saying he should be given a second chance.

But many also believe Spitzer’s entry into an otherwise sleepy comptroller race (even as this is the second most powerful position in the city) will take away from Anthony Weiner’s campaign for mayor.

As one consultant told Crain’s New York Business, “Eliot is different from Anthony in that he can get press every single day for saying something new, and saying something smart.”

--Texas Republican Gov. Rick Perry, the longest-serving governor and one-time presidential candidate, announced he would not seek a fourth term in 2014. He didn’t rule out another run for president, with many believing he’ll now have the time to better prepare a stronger bid in 2016. His former chief of staff, Ray Sullivan, said, “He learned a lot last time, and one of the lessons was get in early.”

Texas has added 1.6 million jobs during his tenure.

--Interesting piece by Jonathan Martin of the New York Times on Liz Cheney and her probable run for the Senate seat now held by Republican Michael Enzi. I can see how the move “threatens to start a civil war within the state’s Republican establishment, despite the reverence many hold for her family.

“Mr. Enzi, 69, says he is not ready to retire, and many Republicans say he has done nothing to deserve being turned out.

“It would bring about ‘the destruction of the Republican Party of Wyoming if she decides to run and he runs, too,’ Alan K. Simpson, a former Republican senator from the state, said in an interview last week. ‘It’s a disaster – a divisive, ugly situation – and all it does is open the door for the Democrats for 20 years.’”

Ms. Cheney did not ask Enzi if he planned on running again. What a total lack of class.

Should Cheney run, she will blast Enzi for not being conservative enough.

I’m sick of this intra-party crap, including over the immigration bill. Once again, us elephants have a legitimate shot at taking back the Senate, and, once again, it would appear, we will shoot ourselves in the foot.

--Hillary Clinton is already collecting $200,000 per speech. It can be a little more or less depending on how long she spends shaking hands and posing for photographs, whether there is a Q&A, and whether a private plane is provided.

--Talk about a heatwave...my favorite town of Lahinch, on the west coast of Ireland, hit a high of 93 degrees on Wednesday, which I looked up was within a degree of the all-time Ireland record.

--I’m one of those who takes fish oil supplements, though only half the recommended daily dose, so I wasn’t thrilled by the study out of the Fred Hutchinson Cancer Research Center in Seattle that concludes that men who take such supplements or eat fatty fish may be more likely to contract prostate cancer, as in a 71% increased risk of a deadly form of it.

Scientists cannot explain the connection, but findings indicate omega-3s are involved in the formation of tumors.

Since my dosage is low, I’m going to keep taking the pills (at least until my bottles run out!), and will continue eating omega-3 rich fish once or twice a week.

But I wonder how many people reading this highly-publicized report know that Fred Hutchinson was a former ballplayer and manager, last with the Cincinnati Reds, who died of lung cancer? It was a real tragedy when he passed in 1964, just 45, and it was his brother, Dr. William Hutchinson, who then named an existing cancer facility in honor of Fred.

--Finally, if you didn’t see it, look up video of the now 16-year-old Pakistani girl, Malala, who survived a Taliban assassination attempt. As I’ve written before, she is the world’s best role model, an amazingly courageous woman.

On Friday, she gave a speech at the United Nations on her main cause; letting girls attend school in areas where radical Islamists prevail. I swear, listening to this kid, I’d rather have her as my president than the fellow we have today.

We love Malala!
---

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

God bless America.

---

Gold closed at $1277...rallied $65 on the week
Oil, $105.95

Returns for the week 7/8-7/12

Dow Jones +2.2% [15464]
S&P 500 +3.0% [1680]
S&P MidCap +3.0%
Russell 2000 +3.1%
Nasdaq +3.5% [3600]

Returns for the period 1/1/13-7/12/13

Dow Jones +18.0%
S&P 500 +17.8%
S&P MidCap +19.7%
Russell 2000 +22.0%
Nasdaq +19.2%

Bulls: 46.9
Bears: 22.9 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore