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07/20/2013

For the week 7/15-7/19

[Posted: 12:00 AM ET]

Washington and Wall Street

The story in the U.S. is a simple one this week. Federal Reserve Chairman Ben Bernanke did all he could to reassure the markets that he had no “preset course” to ending the central bank’s latest bond-buying program, QE3, nor was the Fed remotely close to raising the funds rate from its current zero level.

So relax, America! Buy stocks!

If you’ve been ‘long’ this year, it’s been a most profitable one. If you’ve been ‘long’ since the historic lows of March 2009, you’re a genius. It’s a time when some like hedge fund titan David Tepper profited handsomely for recognizing early the power of the Fed to force everyone into equities, whether they wanted to be in them or not. And in forcing interest rates down, the Fed played no small role in engineering a recovery in the housing market, while improved consumer attitudes, coupled with a needed replacement cycle, led to a surge in auto sales.

Housing and autos have driven the recovery, admittedly a putrid one, but what now?

I mean the Fed has been wildly optimistic in terms of economic growth (relative to just about every other analyst on Wall Street), and has been consistently wrong, so, yes, it would certainly seem the Fed is in no position to begin tapering in September, as the consensus had it two weeks ago before the latest economic data and Bernanke’s statements on staying the course.

Here’s the thing. The Fed’s Open Market Committee meeting on Sept. 17-18 gives them the opportunity to look at July and August’s jobs reports before they make any decision to begin cutting back on their $85 billion a month in purchases of Treasuries and mortgage-backed securities.   And the fact is, as Bernanke has strongly hinted at the past two weeks in various forums, the current 7.6% unemployment rate is in no means a true picture of the real job situation in America. He knows it’s much worse.

So with a Fed ‘target’ of 6.5% before it would consider hiking the funds rate, and the situation where we are nowhere near approaching that level, especially in a true sense, anytime soon, it leads one to believe the Fed will maintain QE3 as well for some time to come, even if it involves a little pullback in buying from time to time. He’s made this very clear and the equity market has more and more confidence they have no real reason to worry. Plus the bond market is settling down, with the 10-year Treasury in the 2.50% range from its high of two weeks ago of 2.74%. The 30-year fixed mortgage rate also declined to 4.37% from 4.51% the prior week, but is still substantially higher than the 3.35% of early May.

But before I wrap up with the real labor picture, some economic data, the kind the Fed chairman is supposed to be focused on.

June retail sales came in less than expected, up just 0.4% for the month. June housing starts were significantly below expectations, 836,000, or down 9.9% from the month before, though single-family home sales were off just 0.8%. The big hit was on the multi-family side, which is always volatile.

A June reading on leading economic indicators was unchanged when a gain of 0.3% was expected. June industrial production was in line with expectations, up 0.3%. And the weekly jobless claims figure dropped to a solid 334,000 level but you all know this number can be all over the board, based on some summer intern’s calculation of ‘seasonality.’

Take all the above together and it doesn’t augur for robust growth, nor does oil at $108 per barrel, a 15-month high.

Nor, would I submit, does the corporate outlook offer much to cheer about, at least as presented this week in a slew of major reports.

For starters one sector did perform well, the banks. Citigroup, Goldman Sachs, Bank of America, and Morgan Stanley all beat on the bottom line, earnings, and all but Bank of America beat on the top line, revenues. The reports echoed the prior week’s earnings news from JPMorgan Chase and Wells Fargo.

But most acknowledge if interest rates remain elevated from the May lows in the second half of the year, this would hit the banks’ mortgage lending operations, with refinancings already falling precipitously. It’s also a fact some of the numbers reported by the banks are squirrelly. 

As to the other earnings reports, let me summarize the bigger ones I honed in on.

Johnson & Johnson exceeded on earnings per share (eps), and on the top line.

Coca-Cola matched eps expectations, but fell short on revenues, with overall sales up just one measly percent.

Yahoo exceeded on eps handily, but fell on the top line and guided lower.

American Express exceeded on the bottom line, fell short on the top.

IBM handily beat on the bottom line, fell vs. expectation on the revenue front, and further, overall revenues were down 3%. [More on their numbers below.]

Intel matched eps, but fell short on revenues, and, as in the case of IBM, its revenues were down overall, 5%. [Intel’s and IBM’s profit actually fell 29% and 17%, respectively.] Intel also guided lower over the putrid PC situation.

Google fell over $1.20 short of expectations on the earnings front, and missed on revenues.

Microsoft had its biggest miss on the bottom line in 12 years, while revenues fell short.

EBay matched on the bottom line, fell on the top line, and guided lower.

General Electric matched on the bottom line, but fell short on the top line, with overall revenues down 4%. [GE’s stock performance was saved, it seems, by the company’s biggest order backlog ever. But these guys are the squirreliest of the squirrely.]

Honeywell handily beat on the bottom line, but fell short on the top line, with overall revenues up 3% from a year ago. [Hardly the kind of growth that leads to extensive job openings.]

UnitedHealthGroup and Verizon both beat on eps, but missed on revenues.

Add all the above up and it’s difficult to paint a really rosy picture. No one except IBM among all the above guided higher in any significant way that I could see, and IBM’s basis for optimism is a joke.

Bottom line, I’ll wait to see what next week’s flood of earnings brings before drawing any sweeping conclusions, except it sure looks like the Fed’s optimistic second-half growth forecast is way off base.

So back to the job picture. It’s sickening how awful it truly is.

Yes, the official unemployment rate is 7.6%, but as Bernanke himself knows, the real rate, what’s known as U-6, which includes those who have quit looking as well as those who have had to settle for part-time work even though they want full-time positions, is 14.3% for June, up from 13.8% in May. 

But it’s even worse than this.  Gallup reports that 17.2% of the workforce is underemployed, which is actually down from the peak of 20.2% in March 2010, but hardly the stuff of robust recoveries.

Mortimer Zuckerman / Wall Street Journal

“In recent months, Americans have heard reports out of Washington and in the media that the economy is looking up – that recovery from the Great Recession is gathering steam. If only it were true. The longest and worst recession since the end of World War II has been marked by the weakest recovery from any U.S. recession in that same period.

“The jobless nature of the recovery is particularly unsettling. In June, the government’s Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000 – but there are jobs and then there are ‘jobs.’ No fewer than 557,000 of these positions were only part-time. The survey also reported that in June full-time jobs declined by 240,000, while part-time jobs soared by 360,000 and have now reached an all-time high of 28,059,000 – three million more part-time positions than when the recession began at the end of 2007.

“That’s just for starters. The survey includes part-time workers who want full-time work but can’t get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%....

“The 7.6% unemployment so common in headlines these days is utterly misleading. An estimated 22 million Americans are unemployed or underemployed; they are virtually invisible and mostly excluded from unemployment calculations that garner headlines....

“The latest unemployment report was as underwhelming as the Household Survey. The biggest gains in June came from leisure and hospitality industries, including hotels and fast-food restaurants. Of the 195,000 new payroll jobs, 75,000 were in restaurants and bars, where the average weekly paycheck is about $351, less than half the average for all other private industries. Not to mention that these positions offer fewer hours, especially in the restaurant world, which has averaged 26.1 hours per week versus 34.5 hours for all private employers.

“What’s going on? The fundamentals surely reflect the feebleness of the macroeconomic recovery that began roughly four years ago, as seen in an average gross domestic product growth rate annualized over the past 15 quarters at a miserable 2%. That’s the weakest GDP growth since World War II....This anemic growth is all we have to show for the greatest fiscal and monetary stimuli in 75 years, with fiscal deficits of over 10% of GDP for four consecutive years. The misery is not going to end soon.”

Stay the course, says Ben Bernanke. Why it’s working so well!

Europe

The Organization for Economic Cooperation and Development’s annual employment outlook has the eurozone’s jobless rate still at a record 12.3% by late 2014, vs. the current 12.2%. Greece (currently at 26.8%) and Spain (26.9%), are projected to see their rates hit 28% next year. [France 11% by end of 2014; Italy 12.5%.]

[The OECD has the U.S. rate at below 7% by end of next year.]

Separately, in May, eurozone exports to the rest of the world fell 2.3% over April. Germany’s exports to nations outside the EU fell a whopping 9% in May over April. Italian exports, though, to non-EU countries rose 3.6% in the month.

Then there are the European Union’s (all 27 nations’) car sales, which in June fell to their lowest point since 1996, down 5.6% from year ago levels.

First-half sales for the EU were down 6.6% from 2012, the lowest in 20 years. Germany’s were down 8.1% the first six months, France’s off 11.2%, Italy’s 10.3%, Spain’s 4.9%.

Renault CEO Carlos Ghosn predicted the other day that the European car market will probably shrink further in 2014 and 2015 as rising joblessness saps consumer demand further.]

But auto sales in the U.K. rose in June a 16th consecutive months, while retail sales for the month edged up over May; further confirmation of Britain’s recovery.

Oh, but as the OECD’s employment and car sales point out, the eurozone continues to have some major issues and politics has come to the fore in the southern periphery: Portugal, Greece, Cyprus, Italy and Spain....all with volatile political situations.

In Greece there was another 24-hour massive strike over the government’s austerity program that this week placed more than 25,000 state workers on notice for dismissal by end of the year in order to obtain further bailout funds. The vote in parliament to unlock the cash was 153-140, with seven abstentions. This is the first direct dismissal plan to the public sector, as 128,000 have been lopped off the rolls since the crisis began through early retirement. 1,000 a day in the private sector have been losing their jobs, however.

But you can see how the powerful labor unions would react. The tension is at the boiling point and began to boil over on Thursday with the visit by the enemy, German Finance Minister Wolfgang Schaeuble, his first trip to Athens since the crisis hit in 2009.

Schaeuble, probably fearing for his life under a massive security umbrella, praised the Greeks’ “determination,” while warning there are no “shortcuts” to austerity and that any talk of debt relief was premature. Maybe we’ll address this next year, said Schaeuble. “If Greece has done its implementation and achieved a primary surplus – then, if necessary, other measures will be negotiated,” he told reporters in Athens.

“Nobody who knows anything about the issue at hand is talking seriously about a further cut for private investors,” Schaeuble had said earlier. Last year’s debt writedown hit private investors to the tune of 53.5% on the face value of their Greek bond holdings, the biggest writedown ever.

But with the German election on Sept. 22, any further concessions aren’t in the cards for today.

Meanwhile, remember Cyprus? Their car sales for the first six months fell over 42% in June; this as GDP is now estimated to decline 24% over this year and next, following their bailout. A brutal depression.

Then you have the political situation in Portugal, Italy and Spain. Portugal’s opposition is demanding early elections over the current government’s austerity measures, mandated by the country’s bailout; Italy’s new government is on the ropes and one of the main parties, not currently in the ruling coalition, but a power broker during Silvio Berlusconi’s time as prime minister, is in hot water as one of its members called Italy’s lone black cabinet member an “orangutan.” Racism is rife in Italy, especially concerning immigrants. The austerity program also threatens the coalition.

And in Spain, there are calls and protests for Prime Minister Mariano Rajoy to resign as the former party treasurer at the center of a corruption scandal told a court he passed out thousands of euro in cash to Rajoy a year before he came to power.

Luis Barcenas admitted he was the man behind the ledgers showing Rajoy and other Popular Party figures receiving cash from a secret slush fund tied to developers. Said one Popular Party MP, “Almost everyone in the party is convinced that the situation is beyond repair.”

Rajoy refuses to step down. “I will fulfill the mandate given to me by voters,” he said. “A prime minister cannot be coming out every day to address rumors and biased information which is published.”

An editorial in the Spanish daily El Pais demanded an explanation from Rajoy.

“Out of respect for the democratic system, the citizens and his own party and voters, the head of government must give a true explanation to parliament,” it said. “Otherwise it will be impossible for him to regain his credibility.”

It doesn’t help that the allegations of secret payments come at a time when the government is demanding sacrifices of everyone else. As I noted last week, from such issues revolutions evolve.

Finally, if there is to be a decent recovery in economic activity for the eurozone, it must begin with the banks.

Editorial / The Economist

“Banks are central to Europe’s prospects. The fear, especially in peripheral economies, is a repeat of Japan’s experience in the 1990s, when ‘zombie’ banks staggered along for years, neither healthy enough to lend to firms nor weak enough to collapse. There are the same unvital signs in Europe. The average price-to-book ratio for European banks remains below one, suggesting that investors think lenders are worth more dead than alive. In America, where banks were recapitalized quickly, the ratio exceeds one. Italy’s two big lenders, UniCredit and Intesa Sanpaolo, have ratios of 0.34 and 0.42 respectively.

“The suspicion of European lenders is well-founded. The amount of shaky loans keeps climbing: worryingly, there are more non-performing loans in the Italian banking system than there is core ‘Tier-1’ capital. Lots of peripheral banks have been loading up on their own governments’ bonds: Portugal’s three biggest banks increased their holdings of Portuguese sovereign debt by 16% in the first quarter of the year. Mortgages account for even more bank assets’ and house prices keep falling – at the fastest pace on record in Spain in the first quarter....

“None of this presages a full-scale collapse: European banks have more capital than they did before the start of the crisis. But lending is being throttled....Banks in strong countries are lending less across borders. Lenders in weak countries pay more to borrow than banks in strong ones. This divergence ripples through to customers: the difference in the cost of borrowing between German and Spanish firms rose from a mere six basis points in summer 2011 to 149 basis points earlier this year.”

As I’ve been writing, Europe needs a banking union, supervised by the ECB, with a common resolution fund and a joint deposit-guarantee program. The Economist concludes:

“The eurozone will not work without a banking union. Here Germany is the block: it hints that it might consider taking on such mutual obligations in the future, but not now. The problem is that now is when the banks are half-dead. Waiting for zombies to come back to life is a fool’s game.”

China and Japan

So last week I wrote that China’s finance minister, Lou Jiwei, “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.”

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

And so on Sunday night, China released its second-quarter GDP and lo and behold it came in at 7.5%, down from 7.7% in the first quarter, and down from 2012’s rate of 7.8%.

How conveeenient, the Street mused.

From the Financial Times’ Lex column:

“China’s censors were busy with the corrector fluid over the weekend. Finance minister Lou Jiwei’s comments last week at a news conference that China was aiming for 7% growth this year, were quickly edited to read 7.5% - bang in line with the current official target. But that China’s gross domestic product growth slowed to 7.5% in the second quarter, from 7.7% in the first, and looks set to slow further, suggests that Mr. Lou’s words were indeed a Freudian slip. Beijing now has a job on its hands to ensure that this slowdown does not turn to a rout.”

Oh, those daffy Chinese and the ancient art of funny numbers.

I do believe some of them. Or at least that some of them are close. For instance the government wants home prices to decline, but in an orderly fashion so as to prevent a bubble, and has been tightening consistently for two years now, such as in mandating mandatory down payments, limits on second and third homes and the like. But June house prices rose in 69 of 70 cities, according to the government, which seems realistic when you consider that for the average Chinese worker in the middle or upper class, housing is the only investment that has worked for years now.

The government also reported that foreign direct investment increased 20% from a year earlier in June, the fastest pace in two years (probably close to the truth...as Beijing had been reporting declines in prior months), retail sales rose 13.3% in the first half (semi-accurate, I’m guessin’) and factory output increased just 9.3% in the first six months (accurate to the point the pace is slowing).

Put it all together and the economy is definitely in slowdown mode but Finance Minister Lou Jiwei said this week there would be no “large-scale fiscal stimulus,” signaling the government will tolerate slower economic growth...for now.

But there is a bigger story for the region that could impact growth in the long run and that is tensions are once again building between China and Japan.

Japan holds very important elections this Sunday for the Upper House, with Japanese Prime Minister Shinzo Abe looking to cement his support, already having that of the Lower House.

Abe wants a more militaristic, nationalistic Japan and he is focusing on building up the military to deal with threats from China, as well as North Korea.

Of particular focus for Abe are the ongoing disputes with Beijing over disputed islands in the East China and South China seas.

This week, in a trip to some small islands close to the Diaoyu Islands in the East China Sea, the prime minister vowed that he would “never make concessions” over the sovereignty of the islets, which Japan calls the Senkakus.

“I will protect people’s lives and property, our country’s territorial lands, water and air space. Japan faces a grim security environment because Chinese vessels are frequently sailing to areas close to our waters, and there are consistent provocations targeted at us.”

It was the first such visit to the area by an incumbent Japanese prime minister since 1972.

In Beijing, a foreign ministry spokesman said that China’s sovereignty over the islands was “indisputable.” “We urge Japan to respect history and stop provocative moves that impeach China’s territorial sovereignty.”

Last week, during massive joint Sino-Russian military drills, Chinese military vessels passed through a strait just north of Japan.

Abe is looking for support to amend Japan’s pacifist constitution by talking up the China threat. But it can backfire. Aug. 15 is the anniversary of the end of World War II, a time when Abe and his nationalist colleagues will inevitably visit Tokyo’s Yasukuni war shrine, where convicted war criminals are honored along the nation’s dead. China, and South Korea, will once again be outraged and look for China to allow its masses to let off a little steam. Better a focus on Japan rather than environmental issues and those brought on by a slowing economy.

None of this is good for Japan’s GDP and it’s also a time when big mistakes can be made.

[The Japanese people are split on whether or not they want changes to the constitution. Abe also has the economic issue of how and when to raise the consumption tax, a move that could seriously hurt the current recovery.]

Lastly, a new Pew Research Center survey of global attitudes shows that people in the U.S. and China view each other with increasing suspicion.

According to a survey of 38,000 in 39 countries, majorities or pluralities in 23 of the nations surveyed said China either has replaced or eventually will oust the U.S. as the world’s top superpower.

In the U.S., only 47% believe America will continue to hold its lead over China, compared with 54% in 2008. In China, 2/3s believe their country has overtaken the U.S., or eventually will, and 56% say China deserves more respect. [Emphasis mine.] Do you see the further potential for a clash over some rocks in the East China Sea? China and Japan seem to be on a distinct collision course.

[The Pew survey reveals only 5% of Japanese express a positive view of China. Only 4% of Chinese see Japan favorably. 96% in Japan, and 91% in South Korea, say that China’s growing military power is a bad thing.]

Continuing, 23% of Chinese describe the U.S. relationship as hostile. Pew said China is also the only non-Islamic country where more than half the people, 54%, hold an unfavorable opinion of Americans, a big drop-off in just the past three years.

Street Bytes

--The Dow Jones and S&P 500 raced to new highs as the two finished up a fourth consecutive week, but Nasdaq, owing to a big drop by Microsoft following its dismal earnings picture, declined 0.3% on the week.

The Dow finished at 15543, up 0.5%, while the S&P gained 0.7%. Both are now up 18.6% on the year, with Nasdaq ahead 18.8%.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.30% 10-yr. 2.48% 30-yr. 3.56%

The June consumer price index rose 0.5%, but up just 0.2% ex-food and energy. For the last 12 months, the CPI has risen 1.8%, 1.7% on core.

--China increased its holdings of U.S. Treasuries in May to a record $1.316 trillion, according to Treasury Department data. Japan, the second-largest holder, cut its position to $1.11 trillion.

Net selling by private foreign investors in notes and bonds reached an all-time high in May, $29 billion, as rates were rising off the May 1 low on the 10-year of 1.61%.

--With nearly 2 million inhabitants in the 1950s, Detroit was America’s fourth-largest city and an economic engine.

Today, the population is down to 700,000 as residents flee a city with increasing crime and rapidly deteriorating basic services, including police response rates of nearly an hour. Almost 80,000 buildings are abandoned or seriously blighted and 40% of the city’s street lights don’t work.

With little tax revenue being generated, the result is a city some $19 billion in debt, so Detroit filed the largest municipal bankruptcy in the nation’s history, Thursday. And with little fallout from lawmakers in Michigan and Washington, other cities may follow.

But for Detroit’s 9,500 city employees and nearly 20,000 retirees, the pain of bankruptcy is likely to be severe. The debt could be wiped out in the process, but so could pensions.

One thing that will be interesting to watch is whether or not the city sells off its significant art collection housed at the Detroit Institute of Arts. Officials responsible for the bankruptcy say it won’t be auctioned off as much of it is protected by private covenants or state laws.

But a bankruptcy judge could attempt to force asset sales, though it’s not clear just how much to do so they’ll have.

The prior largest municipal bankruptcy was that of the $4.2 billion filing by Jefferson County, Alabama in 2011. Jefferson, which includes Birmingham, is on track to emerge from court protection by the end of the year, with bondholders slammed. Detroit’s creditors are not going to like what they end up with.

--Auto sales in India fell 9% in June vs. a year earlier...not good.

--British investigators say the cause of the fire aboard a Boeing 787 Dreamliner at Heathrow was a malfunctioning emergency transmitter powered by lithium batteries. Honeywell International is the manufacturer and British authorities urged the U.S. Federal Aviation Administration to study changing the power source for the locators, while also deactivating the transmitter system on all Dreamliners.

The British air safety regulator said, “Had this event occurred in flight it could pose a significant concern and raise challenges for the cabin crew in tackling the resulting fire.”

--Dell delayed a vote on founder Michael Dell’s plan to take the computer maker private due to a lack of support for his proposal. A shareholder vote was rescheduled for July 24.

Michael Dell and the company’s board have spent five months trying to persuade shareholders to approve the $13.65-per-share offer from Dell and his investor group.

Those in opposition want a higher price and it’s not known if Dell and his investors will increase the stakes, given the tumbling PC market.

Carl Icahn and his Southeastern Asset Management Fund, which own a combined 13% of Dell, have been leading the opposition for a higher bid.

Michael Dell isn’t allowed to vote his own shares, about 16% of the company’s stock, so that means the board needs to come up with more than 42% of the outstanding stock to get the deal done.

--According to research firm Gartner, global PC shipments fell 10.9% in the second quarter, which not only hurts Dell, but the likes of Intel and Microsoft as well. Intel’s sales declined a fourth straight quarter. The company is hoping to focus on selling its chips for use in tablets and smartphones to compensate for the PC decline, but such efforts have failed to date.

--Microsoft’s results were hurt by a $900 million writedown of its Surface tablet inventory; so much for that initiative. Consumers are focusing on mobile gadgets, as Microsoft recently cut the price on one version of Surface.

And of course the ongoing slide in PC sales hits Windows revenues, which were also below analyst estimates.

--Google’s key sales metric, average cost per click, a measure of advertising rates, fell 6% in the second quarter.

--Yahoo saw display advertising fall 13% in the quarter, while search revenue declined 9%. Profits were up 46% from the same time last year, however, due mostly to the company’s investment in China ecommerce site Alibaba.

--China’s online population has grown to 591 million as of the end of June, a 10% rise over a year ago, and 44% of the total population.

--As the Wall Street Journal’s “Heard on the Street” column notes, while IBM raised full year guidance to $16.90 a share, up from an earlier figure of $16.70, “That figure...isn’t calculated according to U.S. accounting standards – in colloquial terms, it is effectively ‘earnings before bad stuff.’...The company’s forecast for 2013 earnings per share based on U.S. accounting standards actually falls to at least $15.08 from $15.53.” [Rolfe Winkler]

Which leads you back to the revenue picture, down 3% vs. year ago for the second quarter.

--California’s economic recovery continued in June with the unemployment rate ticking down to 8.5%, the lowest in nearly five years.

But, just as in the rest of the country, a large number of the jobs increase has come in low-paying industries, with many of these of the part-time variety.

--Meanwhile, the median home price in Southern California surged 28% in June from a year earlier, outpacing any month during last decade’s housing bubble, with the median now up to $385,000 vs. $300,000 last June. [DataQuick / Los Angeles Times]

This trend can’t continue much longer, especially if mortgage rates resume their climb, though builders haven’t ratcheted up production to meet demand after they slammed on the breaks during the bust.

--President Obama’s choice to replace Ben Bernanke is most likely down to Fed vice chair Janet Yellen and former Treasury Secretary Lawrence Summers. Bernanke is set to step down when his current term expires in January. Yellen offers stability. Summers promises fireworks at his confirmation hearings.

--Editorial / Wall Street Journal

“Every revolution devours its children, but it’s still surprising to see some of ObamaCare’s keenest boosters deny paternity so soon after the birth. Witness the emotional volte-face from three top union leaders, warning that the program will ‘shatter not only our hard-earned health benefits, but destroy the foundation of the 40-hour workweek that is the backbone of the American middle class.’

“Last week’s open letter comes from James Hoffa (the Teamsters), Joseph Hansen (United Food and Commercial Workers International) and Donald Taylor (Unite-Here, a hotel and other services union). All three, who together represent three million workers, acknowledge they were once ‘strong supporters’ of the Affordable Care Act but now lament the law’s ‘perverse incentives’ that ‘are already creating nightmare scenarios.’

“The law ‘will destroy the very health and wellbeing of our members along with millions of other hardworking Americans,’ they note...

“The first union grievance is that the employer mandate is leading business to hold worker hours below 30 hours a week to comply with the Administration’s regulatory definition. Despite the one-year suspension of the mandate, many businesses that must provide insurance or pay a penalty are shifting to part-time labor, and the union chiefs explain that ‘fewer hours means less pay while also losing our current health benefits.’ Nice to know Mr. Hoffa is reading these columns.”

--The SEC filed civil charges against Steven Cohen, head of mega hedge fund SAC Capital, accusing him of failing to supervise two portfolio managers and preventing insider trading. It is the first time Cohen has been directly accused of wrongdoing in this long running and incredibly boring investigation. At this point, I just don’t care. The statute of limitations should have long run out.

--British health officials estimate the historic heat wave gripping the country (and neighboring Ireland) is responsible for up to 760 deaths; a figure that is due to double as the heat won’t break for another week. If you’ve been on Mars and didn’t know about the weather across the pond (which has been gloriously spectacular in parts of Ireland I follow daily), just turn on the British Open from Scotland this weekend.

Back in 2003, a heat wave in Europe claimed nearly 15,000 lives. 

--The head of football’s (soccer) governing body, Sepp Blatter of Fifa, said Brazil may prove to have been the wrong choice to host next year’s World Cup. Blatter is concerned about the protest movement there, amid rising discontent over the cost of building new World Cup-related facilities vs. the failure to deliver essential public services, as well as protests against government waste and corruption.

During the recent Confederations Cup, there were violent clashes outside some of the 2014 sites.

Foreign Affairs

Syria: Four weeks after President Obama pledged military support to the rebels, not one bullet has been given to the opponents of Syrian President Bashar al-Assad. On Thursday, in a visit to the Zaatari refugee camp in Jordan, U.S. Secretary of State John Kerry met with representatives of the 115,000-strong camp, all of whom appealed for the United States to create a no-fly zone and set up safe havens in Syria.

Kerry responded: “A lot of different options are under consideration. I wish it was very simple. As you know, we’ve been fighting two wars for 12 years. We are trying to help in various ways, including helping Syrian opposition fighters obtain weapons....but it is not as simple as it sounds.”

A female refugee, one of six appointed to sit down with Kerry, said: “You as the U.S. government look to Israel with respect. Cannot you do the same with the children of Syria?” [Matthew Lee / AP]

Jordan is now home to more than 600,000 Syrian refugees. The nation has zero resources to care for this mass of humanity.

The UN’s refugee chief said the other day that the conflict in Syria is the world’s worst refugee crisis in 20 years, since the Rwandan genocide, with an average of 6,000 people fleeing every day in 2013...5,000 being killed each month.

At least 6.8 million Syrians need urgent help. The UN’s Antonio Guterres said the impact of the refugee crisis on countries like Jordan was “crushing,” though the acceptance of Syrians by its neighbors was “saving hundreds of thousands of lives.”

Meanwhile, Syrian rebels said the assassination of one of their top commanders by al-Qaeda-linked militants was a declaration of war, thus opening a new front for the Western-backed fighters. The West’s vision of a future, democratic Syria is a pipedream as the civil war brings in new factions from all over the region.

Back in Washington, General Martin Dempsey, chairman of the Joint Chiefs of Staff, appeared before a Senate Armed Services Committee hearing on his nomination for a second two-year term. Dempsey was grilled by both sides of the aisle who were demanding to know why the White House hadn’t done things such as impose a no-fly zone over Syria.    Republican Senator John McCain (Ariz.) was so disgusted by Dempsey’s failure to provide the committee with his own recommendations that McCain said he will hold up Dempsey’s confirmation until he gets answers. Democratic Senator Carl Levin (Mich.), the panel’s chairman, demanded Dempsey submit within days an unclassified list of military options in Syria.

Iran: President-elect Hassan Rohani (who takes office Aug. 3), might assume more direct control over nuclear negotiations than President Ahmadinejad had. Rohani, after all, was the one-time envoy in charge of negotiations. Supreme Leader Ayatollah Khamenei, though, has the final say on all national policy decisions.

So what does Washington want? The White House appears ready to express to Rohani its desire for direct negotiations, and soon. President Obama wants to test Rohani quickly.

The p5+1 (Britain, France, U.S., Russia, China + Germany) is looking to hold talks with Iran in September.

Israel: Prime Minister Benjamin Netanyahu, in an interview with CBS’ “Face the Nation,” said the international community and the United States have “no sense of urgency” when it comes to Iran’s nuclear program, “and yet Iran is the most important, the most urgent matter of all.

“Because all the problems that we have, however important, will be dwarfed by this messianic, apocalyptic, extreme regime that would have atomic bombs. It would make a terrible, catastrophic change for the world and for the United States.”

Netanyahu’s comments showed frustration with the White House over the lack of action.

“You know, our clocks are ticking at a different pace,” he added. “We’re closer than the United States. We’re more vulnerable. And therefore, we’ll have to address this question of how to stop Iran, perhaps before the United States does.”

Concerning incoming President Rohani, whom the White House describes as a moderate compared to Ahmadinejad, Netanyahu said this:

“(Rohani’s) criticizing his predecessor for being a wolf in wolf’s clothing. His strategy is to be a wolf in sheep’s clothing, smile and build a bomb.”

Jennifer Rubin / Washington Post

“That Netanyahu’s appearance coincided with the administration’s pleas for direct talks with Iran is not accidental, I think. The Israelis, not without justification, fear the Obama administration is so desperate to avoid a decision on military action that it will engage in endless, useless diplomacy or that it will reach a meaningless agreement that gives Iran cover to continue on its merry way toward nuclear weapons capability....

“Netanyahu is right to be worried. Sanctions have not stopped progress on Iran’s nuclear program and Obama is wholeheartedly dedicated to avoiding any military action in the Middle East, let alone action that could involve a prolonged conflict. One suspects this is the first of many Israeli efforts to get the administration’s attention. But like a waiter avoiding your eye contact, the administration will scurry around, hoping that faux deal-making will buy Obama time to finish his term. But of course it will be the Iranians who put that time to use, just as North Korea did, to attain its nuclear aims.”

Separately, Secretary of State Kerry appeared to broker an agreement to restart peace talks between the Israelis and Palestinians. Chances of a true breakthrough, however, are slim and none. 

The Palestinians had refused to join negotiations over the issues of settlement building in the occupied West Bank and East Jerusalem, as well as a recognition of the 1967 borders. Israel has said talks should start with no preconditions.

As this news broke late Friday, details are sketchy. 

Egypt: There were further deadly clashes between supporters of deposed President Morsi and security forces. Prosecutors also froze the financial assets of senior leaders in the Muslim Brotherhood as part of a deepening crackdown.

Roula Khalaf / Financial Times

“Days after the overthrow of Mohamed Morsi, the Islamist president, the military decreed that his interim successor would have vast powers, appointees would draft constitutional amendments, and the country would be rushed into a seemingly unrealistic schedule of elections.

“Observers might be forgiven for concluding that, as Egypt’s first democratic experiment unravels, the role of the leading protagonists in the drama of state-building has been reversed. Mr. Morsi was criticized for ignoring the necessity for consensus, excluding others and trying to muzzle journalists. He has been replaced by military authorities that are – for now, at least – ignoring the need for consensus, excluding others and muzzling journalists, not to mention using excessive force against Islamist protesters.

“The wider impact of this should not be underestimated. In less than two weeks [Ed. now three], the Arab world’s most populous country has been rocked by a political earthquake so powerful it has shaken the whole of the Middle East. The coup in Cairo threatens to bring down with it the political transition launched in the wake of the 2011 revolts across the region.

“Mr. Morsi and his colleagues from the Muslim Brotherhood have been detained and the anti-Islamist propaganda and judiciary machines unleashed. Retired generals and policemen, all thought to be part of the old regime of Hosni Mubarak, are now paraded on television screens as strategic analysts.

“No one doubts that Mr. Morsi’s one-year presidency was disastrous. But it now falls to the coalition of youth and anti-Islamists to ensure Egypt takes a step forward rather than slipping back into authoritarianism.”

At least when it comes to Egypt’s restive Sinai, where terrorists have been pouring in, Egypt has a partner in Israel, which has allowed the Egyptian military to broadly increase its forces there, something Israel has to approve under the Camp David Accords.

Russia: Opposition leader Alexei Navalny was sentenced to five years for embezzlement on Thursday in a widely followed case. Thousands gathered outside the Kremlin to protest in response, Moscow also being the site of a Group of 20 Summit this weekend.

Navalny had organized the largest protests in 2011 against Vladimir Putin’s 13-year rule, vowing to contest the next presidential election in 2018 and put Putin and his cronies in jail if he won.

But in ruling he could never hold political office, Navalny becomes an even bigger figure.

Former Soviet leader Mikhail Gorbachev, who has been critical of Putin’s crackdown on democracy, said the verdict “left a very bad taste in the mouth.... Using the courts to fight political opponents is unacceptable,” Gorbachev said in a statement.

But then under pressure, Navalny was freed from jail pending an appeal, which means that at least for now, it seems he is being allowed to campaign for mayor of Moscow, the elections for which are Sept. 8.

What was more unusual was that prosecutors pushed for Navalny’s release on bail in an attempt to soothe the public anger, let alone international calls for justice.

As for the Edward Snowden case, he applied for temporary asylum in Russia, with President Putin saying “we have warned Mr. Snowden that any actions by him connected with harming Russian-American relations are unacceptable,” adding, “As soon as he has a chance to move somewhere, I hope he will do it.”

Pakistan: Last week I mentioned how Pakistani 16-year-old Malala Yousafzai was feted at the UN for her work on education and seeing that girls are allowed to go to school, as well as for surviving a Taliban assassination attempt.

So this week, a senior Pakistani Taliban commander wrote Malala, accusing her of “smearing” them and urging her to return home and join a madrassa.

Adnan Rasheed, in an open letter released on Wednesday, said he personally wished the attack had not happened, but then warned, “What you are doing now, you are using your tongue on the behest of the others.”

Rasheed then went on to say students should study Islam and not what the Taliban called the “satanic or secular curriculum.”

Oh yeah...go home, Malala. Nothing to fear.

But, as the Wall Street Journal reported, such Taliban views on education are becoming the norm in Pakistan and even anti-Taliban commentators are criticizing Malala for being a pawn of the West or even a CIA agent.

This is scary...that the Taliban’s paranoid worldview “has soaked deep into society, making the fight against extremism much more difficult. Many in the country, for example, still refuse to believe that Osama bin Laden was found living here in 2011.” [Saeed Shah / Wall Street Journal]

China: Hundreds protested against a proposed uranium processing plant in the southern Chinese city of Jiangmen in the latest in a series of environmental demonstrations challenging Beijing. Authorities then decided to scrap plans for the facility, with local officials saying, “The government of Heshan has decided to respect the will of the people.”

India: In the latest sign that New Delhi believes China is a bigger military threat than Pakistan, India is creating a new army corps of 50,000 troops to protect its border with China, a mountain strike corps. Actual implementation, including for budget reasons, is a ways off, but China isn’t happy.

North Korea: Panama seized a North Korean-flagged ship carrying “undeclared military cargo.” The ship was sailing from Cuba and contained “sophisticated missile equipment,” though just how sophisticated was hard to tell. The apparent parts were hidden under bags of brown sugar. The ship was originally boarded by Panamanian officials because it suspected it was loaded with drugs.

Mexico: The government captured one of the world’s most notorious drug-gang leaders in a raid near the U.S. border, Miguel Angel Trevino Morales, 40, head of the brutal Zetas cartel. Morales is believed to be singlehandedly responsible for hundreds of deaths, including the torture and murder of 72 Central American immigrants in San Fernando. He was also blamed for an atrocity a year before in which nearly 200 immigrants were massacred.

Random Musings

--Peggy Noonan / Wall Street Journal

“The IRS scandal was connected this week not just to the Washington office – that had been established – but to the office of the chief counsel.

“That is a bombshell – such a big one that it managed to emerge in spite of an unfocused, frequently off-point congressional hearing in which some members seemed to have accidentally woken up in the middle of a committee room, some seemed unaware of the implications of what their investigators had uncovered, one pretended that the investigation should end if IRS workers couldn’t say the president had personally called and told them to harass his foes, and one seemed to be holding a filibuster on Pakistan.

“Still, what landed was a bombshell. And Democrats know it. Which is why they are so desperate to make the investigation go away. They know, as Republicans do, that the chief counsel of the IRS is one of only two Obama political appointees in the entire agency....

“Those trying to get to the bottom of the scandal have to dig in, pay attention. The administration’s defenders, and their friends in the press, have made some progress in confusing the issue through misdirection and misstatement.

“This is the moment things go forward or stall. Republicans need to find out how high the scandal went and why, exactly, it went there. To do that they’ll have to up their game.”

--A Quinnipiac University survey found that 55% of Americans think Edward Snowden is a “whistle-blower” rather than a “traitor” (34%). Respondents between the ages of 19 and 29 were most likely (68%) to say he’s a whistle-blower. Of black respondents for the survey (conducted between June 28 and July 8), 43% said Snowden is a traitor, 42% said whistle-blower.

Meanwhile, remember when President Obama acted as if Snowden’s revelations weren’t anything big?

Not for nothing, but as Geoff Dyer of the Financial Times writes this week, “the self-confessed National Security Agency leaker has managed to orchestrate a very different political phenomenon: the biggest bout of anti-Americanism since the Iraq war.”

Asia, Europe, Latin America.... Dyer wrote his column for the July 13 issue of the FT. Recall on 7/5/13, I wrote some of the following, responding to Susan Rice’s comment:

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

Me: “Good grief. This woman...is flat out incompetent.”

When it comes to relations with Europe, I observed, “The spying revelations could be the straw that broke the camel’s back.

“Is it fair? Probably not. The timing of the NSA leaks, though, could not have been worse....”

--In a Quinnipiac poll, not only is President Obama’s overall approval rating down to 44%, among independents he gets a negative 36-53 rating.

--Michael Goodwin / New York Post

“The president’s listless conduct has revived comparisons to Jimmy Carter, widely regarded as the worst president in modern times. ‘Obama is actually far worse than Carter,’ a veteran Democrat insisted to me last week.

“I tend to agree because Obama’s lack of interest in critical issues is dangerous in a time of growing global disorder. Only the president can fully commit American power and prestige, and unless the president is ‘all in,’ no important policy can really succeed....

“Because presidential leadership is indispensable, the only thing worse than a bad president is an absent one. Unfortunately, with Obama, we have both.”

--Incredibly, New York could end up with Anthony Weiner as mayor and Eliot Spitzer as comptroller. Among registered Democrats, Weiner leads challenger Christine Quinn, 25-22, while Spitzer leads Scott Stringer 48-33 for the Democratic nomination.

Glenn Coleman, editor of Crain’s New York Business, opines:

“ ‘This is very serious business,’ one corporate leader in the city told Crain’s... The mayor is a very serious thing. Comptroller is very serious. And they have a big impact on the economy and quality of life. So the question is, do either of these guys deserve to do that, or would they be good at it?’ The city’s voters will define such squishy concepts as ‘deserve’ and ‘good’ in the September primaries and the November general election. I approved our publishing anonymous quotes from leading local business executives reluctantly. But I thought it instructive that so few corporate captains were willing to publicly voice their concerns. That many feared potential retribution from two famously combative politicians suggested a silent consensus that, come Jan. 1, the scandal-scarred pols could well be running New York City. Mr. Spitzer, you got our attention.”

--Former Montana governor Brian Schweitzer (Dem.) said he would not run for retiring Dem. Sen. Max Baucus’ seat, dealing a blow to Democrats’ hopes of holding the Senate. Schweitzer, it was felt, was a lock to run and would have been the favorite, but now, Democrats have to fill this slot and two other red states’ with retiring Democratic incumbents: South Dakota and West Virginia.

Three other red states are also in play with Democratic incumbents seeking reelection – Alaska, Arkansas and Louisiana, plus swing states Iowa and North Carolina.

--And, as I feared last week, Liz Cheney made it official. She’s launching a primary challenge against incumbent Wyoming Republican Sen. Mike Enzi, 69. The National Republican Senatorial Committee said, “We’ll do everything we can to make certain that Mike Enzi has help and support from us.”

--The Senate reached agreement to avert Senate Majority Leader Harry Reid’s plan to invoke the “nuclear option” to make it easier for the chamber to approve seven specific executive branch nominations. The bipartisan deal headed off a maneuver to change Senate filibuster rules to lower the maximum threshold required to approve executive nominees from 60 to 51 votes. But the agreement doesn’t stop the minority from exercising their rights in future nominating fights. Nor does it ensure bipartisan cooperation on key future issues such as the debt ceiling.

--The New York Post reports that NYPD Commissioner Ray Kelly very much wants the Homeland Security top job with the departure of Janet Napolitano. New York’s congressional delegation will put some heat on President Obama to tab Kelly.

--I wrote the following before I learned late Friday afternoon that President Obama had addressed the topic in detail before the White House press corps.

I am the ‘wait 24 hours’ guy. There’s a reason I don’t tweet. But suffice it to say I will have lots of comment next time on the president’s views about race and Trayvon.

I told you I had been following the George Zimmerman trial pretty closely, but with the verdict, I have just a few comments.

Such as in the case of Florida state attorney Angela Corey. What a vile character she is, calling Zimmerman, after his acquittal, a “murderer” in a CNN/HLN interview.

I think Tracy Martin handled himself well throughout the past 17 months, and I like his main attorney, Benjamin Crump.

It kind of cracked me up, though, how Sybrina Fulton (Trayvon’s mother) was portrayed. Understand, this is a woman who wasn’t involved in Trayvon’s life for years. Yes, it has nothing to do with the trial, and the tragedy, but I give CNN credit for long exposing this fact. Enough said.

I do agree with the following, however.

Editorial / New York Post

“When all was said and done, the Sanford jury reached a modest conclusion: The state failed to prove beyond a reasonable doubt that George Zimmerman was guilty of a crime in the tragic killing of 17-year-old Trayvon Martin.

“Not that the state didn’t try. When local police and a local prosecutor found little evidence against Zimmerman, Florida’s governor appointed a state attorney who ultimately charged him with second-degree murder. And when prosecutors saw their case collapsing, they desperately sought other, lesser charges: anything for a conviction.

“If some are now outraged by the jury’s acquittal, perhaps it’s because they were fed a steady political narrative about race when the evidence did not support it. One press outlet coined the term ‘white Hispanic’ to describe Zimmerman. Another doctored a tape of Zimmerman’s 911 call, making him sound racist when he wasn’t. And now this city’s mayoral candidates are chiming in to second-guess the jury and fan the flames.

‘The six jurors who heard all the evidence did not call George Zimmerman a hero. All they did was conclude he is not a criminal. How much better we – and the heartbroken family of Trayvon Martin – would have been if this case had not from the start been drafted into the service of other, more political agendas.”

Harvard Law School professor Alan Dershowitz: “We have elected prosecutors in this country, and this case was brought because of a political outcry. This case should never have been brought.”

George Washington University Law School professor Jonathan Turley said the prosecutor went too far from the beginning. “I thought this was overcharging. There was never a basis for a second-degree murder charge.”

--Jennifer Rubin / Washington Post

“Attorney General Eric Holder is the perfect man to run President Obama’s Justice Department; neither miss an opportunity to pander on race or distort facts to suit their partisan aims.

“Holder went to speak to the NAACP on Tuesday. It took him no time to denounce the ‘stand your ground’ laws, the Florida version of which was not invoked in the Trayvon Martin case. But of course to denounce laws of self-defense, on which the case did turn, would be both inane and unhelpful in stirring the base. So grab an issue, associate it with a hot-button topic and demagogue to audiences prepared to cast doubt on the justice system that Holder is sworn to uphold.

“But the intellectual dishonesty did not stop there. As his own Justice Department quietly tells reporters, there is no evidence of racism on which to base a civil rights case. Yet Holder bonds with his audience over another round of racial aggrievement and anger. He shares innocuous incidents (he was pulled over twice in his car and questioned while running to a movie) to involve race and establish his bona fides with those already incensed about the George Zimmerman acquittal. Does it matter the jury found ample doubt and no evidence of racism? Does it matter there was no evidence of racism unearthed by the FBI? Facts are irrelevant when you are stirring the pot of racial antagonism.”

--I subscribe to Rolling Stone for use with one of my other columns, and I enjoy columnist Matt Taibbi, but I won’t waste my time reading the article on Dzhokhar Tsarnaev.

I do have to say, though, that I am not a fan of RS publisher Jann Wenner. He’s really pretty despicable.

You see, back in 2006, Wenner denied the Dave Clark Five their rightful place in the Rock and Roll Hall of Fame when he ignored the official balloting that had them gaining the last of five spots and instead, at his own insistence, manipulated the count, placing Grandmaster Flash in the 2007 induction ceremony instead because he didn’t want to go another year without a rap act, as reported by Fox News at the time.

The Dave Clark Five were then inducted a year later, but not before lead singer and keyboard player Mike Smith had died. Dennis Payton, another founding member, died in December 2006.

It was all Jann Wenner. Some of us will never forget this fact.

Meanwhile, back to the RS cover photo of Dzhokhar, CVS and Walgreens were among the chain stores choosing not to sell the issue.

--Joe Nocera / New York Times...on Twitter

“(To me), at least – and, yes, I acknowledge I’m at the age where I’m losing the battle to keep up with technology – the negatives outweigh the positives. So much on Twitter is frivolous or self-promotional. It can bury you in information. Because people often use Twitter to react to events instantly, they can say some awfully stupid things, as Roddy White, the Atlanta Falcons receiver, did after the George Zimmerman verdict, suggesting in a tweet that the jurors ‘should go home and kill themselves.’

“With its 140-character limit, Twitter exacerbates our society-wide attention deficit disorder: Nothing can be allowed to take more than a few seconds to write or read....

“What I object to most of all is that, like other forms of social media, Twitter can be so hateful. It can bring out the worst in people, giving them license to tweet things they would never say in real life. For several years, Douglas Kass, the investor and CNBC commentator, regularly tweeted his investment thoughts; with 63,000 followers, he was one of the most popular investment gurus on Twitter. Recently, however, he decided to stop because he had received so many inexplicably nasty messages. People who opposed his investment views denounced him in the foulest language imaginable. ‘I received several life-threatening tweets,’ he told me. ‘I concluded it wasn’t worth navigating the sharks to find the good fish,’ he added.”

--There are about 500 fires or explosions linked to bug bomb devices each year in the United States, according to government statistics. I mention this because the other morning in New York, on the local news they were talking about this fire in New York’s Chinatown.

It turns out the occupant of an apartment there had set off 20 bug bombs, foggers, to deal with a bug infestation in one of her two rooms. The next morning, she set off another 20 and failed to turn off her oven’s pilot light, which led to a powerful explosion that blew out the back wall of the apartment and caused a partial collapse of the building that ignited a fire which left 12 people injured, including three critically.

Understand a single fogger is enough to treat an 800-square-foot apartment, according to the New York Times.

Plus, it seems many use foggers to treat bed bugs and they are largely ineffective in dealing with them.

--As part of a stripped-down $16.8 billion authorization bill for NASA, the House Science Committee voted to scrap President Obama’s plan for a manned mission to an asteroid in favor of returning astronauts to the moon, perhaps as soon as 2020, and ultimately sending them on to Mars.

Just send the entire U.S. government to Mars today and let the rest of us start over.

---

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

God bless America.
---

Gold closed at $1292
Oil, $108.05

Returns for the week 7/15-7/19

Dow Jones +0.5% [15543]
S&P 500 +0.7% [1692]
S&P MidCap +1.1%
Russell 2000 +1.3%
Nasdaq -0.3% [3587]

Returns for the period 1/1/13-7/19/13

Dow Jones +18.6%
S&P 500 +18.6%
S&P MidCap +20.9%
Russell 2000 +23.7%
Nasdaq +18.8%

Bulls 52.1
Bears 19.8 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

07/20/2013

For the week 7/15-7/19

[Posted: 12:00 AM ET]

Washington and Wall Street

The story in the U.S. is a simple one this week. Federal Reserve Chairman Ben Bernanke did all he could to reassure the markets that he had no “preset course” to ending the central bank’s latest bond-buying program, QE3, nor was the Fed remotely close to raising the funds rate from its current zero level.

So relax, America! Buy stocks!

If you’ve been ‘long’ this year, it’s been a most profitable one. If you’ve been ‘long’ since the historic lows of March 2009, you’re a genius. It’s a time when some like hedge fund titan David Tepper profited handsomely for recognizing early the power of the Fed to force everyone into equities, whether they wanted to be in them or not. And in forcing interest rates down, the Fed played no small role in engineering a recovery in the housing market, while improved consumer attitudes, coupled with a needed replacement cycle, led to a surge in auto sales.

Housing and autos have driven the recovery, admittedly a putrid one, but what now?

I mean the Fed has been wildly optimistic in terms of economic growth (relative to just about every other analyst on Wall Street), and has been consistently wrong, so, yes, it would certainly seem the Fed is in no position to begin tapering in September, as the consensus had it two weeks ago before the latest economic data and Bernanke’s statements on staying the course.

Here’s the thing. The Fed’s Open Market Committee meeting on Sept. 17-18 gives them the opportunity to look at July and August’s jobs reports before they make any decision to begin cutting back on their $85 billion a month in purchases of Treasuries and mortgage-backed securities.   And the fact is, as Bernanke has strongly hinted at the past two weeks in various forums, the current 7.6% unemployment rate is in no means a true picture of the real job situation in America. He knows it’s much worse.

So with a Fed ‘target’ of 6.5% before it would consider hiking the funds rate, and the situation where we are nowhere near approaching that level, especially in a true sense, anytime soon, it leads one to believe the Fed will maintain QE3 as well for some time to come, even if it involves a little pullback in buying from time to time. He’s made this very clear and the equity market has more and more confidence they have no real reason to worry. Plus the bond market is settling down, with the 10-year Treasury in the 2.50% range from its high of two weeks ago of 2.74%. The 30-year fixed mortgage rate also declined to 4.37% from 4.51% the prior week, but is still substantially higher than the 3.35% of early May.

But before I wrap up with the real labor picture, some economic data, the kind the Fed chairman is supposed to be focused on.

June retail sales came in less than expected, up just 0.4% for the month. June housing starts were significantly below expectations, 836,000, or down 9.9% from the month before, though single-family home sales were off just 0.8%. The big hit was on the multi-family side, which is always volatile.

A June reading on leading economic indicators was unchanged when a gain of 0.3% was expected. June industrial production was in line with expectations, up 0.3%. And the weekly jobless claims figure dropped to a solid 334,000 level but you all know this number can be all over the board, based on some summer intern’s calculation of ‘seasonality.’

Take all the above together and it doesn’t augur for robust growth, nor does oil at $108 per barrel, a 15-month high.

Nor, would I submit, does the corporate outlook offer much to cheer about, at least as presented this week in a slew of major reports.

For starters one sector did perform well, the banks. Citigroup, Goldman Sachs, Bank of America, and Morgan Stanley all beat on the bottom line, earnings, and all but Bank of America beat on the top line, revenues. The reports echoed the prior week’s earnings news from JPMorgan Chase and Wells Fargo.

But most acknowledge if interest rates remain elevated from the May lows in the second half of the year, this would hit the banks’ mortgage lending operations, with refinancings already falling precipitously. It’s also a fact some of the numbers reported by the banks are squirrelly. 

As to the other earnings reports, let me summarize the bigger ones I honed in on.

Johnson & Johnson exceeded on earnings per share (eps), and on the top line.

Coca-Cola matched eps expectations, but fell short on revenues, with overall sales up just one measly percent.

Yahoo exceeded on eps handily, but fell on the top line and guided lower.

American Express exceeded on the bottom line, fell short on the top.

IBM handily beat on the bottom line, fell vs. expectation on the revenue front, and further, overall revenues were down 3%. [More on their numbers below.]

Intel matched eps, but fell short on revenues, and, as in the case of IBM, its revenues were down overall, 5%. [Intel’s and IBM’s profit actually fell 29% and 17%, respectively.] Intel also guided lower over the putrid PC situation.

Google fell over $1.20 short of expectations on the earnings front, and missed on revenues.

Microsoft had its biggest miss on the bottom line in 12 years, while revenues fell short.

EBay matched on the bottom line, fell on the top line, and guided lower.

General Electric matched on the bottom line, but fell short on the top line, with overall revenues down 4%. [GE’s stock performance was saved, it seems, by the company’s biggest order backlog ever. But these guys are the squirreliest of the squirrely.]

Honeywell handily beat on the bottom line, but fell short on the top line, with overall revenues up 3% from a year ago. [Hardly the kind of growth that leads to extensive job openings.]

UnitedHealthGroup and Verizon both beat on eps, but missed on revenues.

Add all the above up and it’s difficult to paint a really rosy picture. No one except IBM among all the above guided higher in any significant way that I could see, and IBM’s basis for optimism is a joke.

Bottom line, I’ll wait to see what next week’s flood of earnings brings before drawing any sweeping conclusions, except it sure looks like the Fed’s optimistic second-half growth forecast is way off base.

So back to the job picture. It’s sickening how awful it truly is.

Yes, the official unemployment rate is 7.6%, but as Bernanke himself knows, the real rate, what’s known as U-6, which includes those who have quit looking as well as those who have had to settle for part-time work even though they want full-time positions, is 14.3% for June, up from 13.8% in May. 

But it’s even worse than this.  Gallup reports that 17.2% of the workforce is underemployed, which is actually down from the peak of 20.2% in March 2010, but hardly the stuff of robust recoveries.

Mortimer Zuckerman / Wall Street Journal

“In recent months, Americans have heard reports out of Washington and in the media that the economy is looking up – that recovery from the Great Recession is gathering steam. If only it were true. The longest and worst recession since the end of World War II has been marked by the weakest recovery from any U.S. recession in that same period.

“The jobless nature of the recovery is particularly unsettling. In June, the government’s Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000 – but there are jobs and then there are ‘jobs.’ No fewer than 557,000 of these positions were only part-time. The survey also reported that in June full-time jobs declined by 240,000, while part-time jobs soared by 360,000 and have now reached an all-time high of 28,059,000 – three million more part-time positions than when the recession began at the end of 2007.

“That’s just for starters. The survey includes part-time workers who want full-time work but can’t get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%....

“The 7.6% unemployment so common in headlines these days is utterly misleading. An estimated 22 million Americans are unemployed or underemployed; they are virtually invisible and mostly excluded from unemployment calculations that garner headlines....

“The latest unemployment report was as underwhelming as the Household Survey. The biggest gains in June came from leisure and hospitality industries, including hotels and fast-food restaurants. Of the 195,000 new payroll jobs, 75,000 were in restaurants and bars, where the average weekly paycheck is about $351, less than half the average for all other private industries. Not to mention that these positions offer fewer hours, especially in the restaurant world, which has averaged 26.1 hours per week versus 34.5 hours for all private employers.

“What’s going on? The fundamentals surely reflect the feebleness of the macroeconomic recovery that began roughly four years ago, as seen in an average gross domestic product growth rate annualized over the past 15 quarters at a miserable 2%. That’s the weakest GDP growth since World War II....This anemic growth is all we have to show for the greatest fiscal and monetary stimuli in 75 years, with fiscal deficits of over 10% of GDP for four consecutive years. The misery is not going to end soon.”

Stay the course, says Ben Bernanke. Why it’s working so well!

Europe

The Organization for Economic Cooperation and Development’s annual employment outlook has the eurozone’s jobless rate still at a record 12.3% by late 2014, vs. the current 12.2%. Greece (currently at 26.8%) and Spain (26.9%), are projected to see their rates hit 28% next year. [France 11% by end of 2014; Italy 12.5%.]

[The OECD has the U.S. rate at below 7% by end of next year.]

Separately, in May, eurozone exports to the rest of the world fell 2.3% over April. Germany’s exports to nations outside the EU fell a whopping 9% in May over April. Italian exports, though, to non-EU countries rose 3.6% in the month.

Then there are the European Union’s (all 27 nations’) car sales, which in June fell to their lowest point since 1996, down 5.6% from year ago levels.

First-half sales for the EU were down 6.6% from 2012, the lowest in 20 years. Germany’s were down 8.1% the first six months, France’s off 11.2%, Italy’s 10.3%, Spain’s 4.9%.

Renault CEO Carlos Ghosn predicted the other day that the European car market will probably shrink further in 2014 and 2015 as rising joblessness saps consumer demand further.]

But auto sales in the U.K. rose in June a 16th consecutive months, while retail sales for the month edged up over May; further confirmation of Britain’s recovery.

Oh, but as the OECD’s employment and car sales point out, the eurozone continues to have some major issues and politics has come to the fore in the southern periphery: Portugal, Greece, Cyprus, Italy and Spain....all with volatile political situations.

In Greece there was another 24-hour massive strike over the government’s austerity program that this week placed more than 25,000 state workers on notice for dismissal by end of the year in order to obtain further bailout funds. The vote in parliament to unlock the cash was 153-140, with seven abstentions. This is the first direct dismissal plan to the public sector, as 128,000 have been lopped off the rolls since the crisis began through early retirement. 1,000 a day in the private sector have been losing their jobs, however.

But you can see how the powerful labor unions would react. The tension is at the boiling point and began to boil over on Thursday with the visit by the enemy, German Finance Minister Wolfgang Schaeuble, his first trip to Athens since the crisis hit in 2009.

Schaeuble, probably fearing for his life under a massive security umbrella, praised the Greeks’ “determination,” while warning there are no “shortcuts” to austerity and that any talk of debt relief was premature. Maybe we’ll address this next year, said Schaeuble. “If Greece has done its implementation and achieved a primary surplus – then, if necessary, other measures will be negotiated,” he told reporters in Athens.

“Nobody who knows anything about the issue at hand is talking seriously about a further cut for private investors,” Schaeuble had said earlier. Last year’s debt writedown hit private investors to the tune of 53.5% on the face value of their Greek bond holdings, the biggest writedown ever.

But with the German election on Sept. 22, any further concessions aren’t in the cards for today.

Meanwhile, remember Cyprus? Their car sales for the first six months fell over 42% in June; this as GDP is now estimated to decline 24% over this year and next, following their bailout. A brutal depression.

Then you have the political situation in Portugal, Italy and Spain. Portugal’s opposition is demanding early elections over the current government’s austerity measures, mandated by the country’s bailout; Italy’s new government is on the ropes and one of the main parties, not currently in the ruling coalition, but a power broker during Silvio Berlusconi’s time as prime minister, is in hot water as one of its members called Italy’s lone black cabinet member an “orangutan.” Racism is rife in Italy, especially concerning immigrants. The austerity program also threatens the coalition.

And in Spain, there are calls and protests for Prime Minister Mariano Rajoy to resign as the former party treasurer at the center of a corruption scandal told a court he passed out thousands of euro in cash to Rajoy a year before he came to power.

Luis Barcenas admitted he was the man behind the ledgers showing Rajoy and other Popular Party figures receiving cash from a secret slush fund tied to developers. Said one Popular Party MP, “Almost everyone in the party is convinced that the situation is beyond repair.”

Rajoy refuses to step down. “I will fulfill the mandate given to me by voters,” he said. “A prime minister cannot be coming out every day to address rumors and biased information which is published.”

An editorial in the Spanish daily El Pais demanded an explanation from Rajoy.

“Out of respect for the democratic system, the citizens and his own party and voters, the head of government must give a true explanation to parliament,” it said. “Otherwise it will be impossible for him to regain his credibility.”

It doesn’t help that the allegations of secret payments come at a time when the government is demanding sacrifices of everyone else. As I noted last week, from such issues revolutions evolve.

Finally, if there is to be a decent recovery in economic activity for the eurozone, it must begin with the banks.

Editorial / The Economist

“Banks are central to Europe’s prospects. The fear, especially in peripheral economies, is a repeat of Japan’s experience in the 1990s, when ‘zombie’ banks staggered along for years, neither healthy enough to lend to firms nor weak enough to collapse. There are the same unvital signs in Europe. The average price-to-book ratio for European banks remains below one, suggesting that investors think lenders are worth more dead than alive. In America, where banks were recapitalized quickly, the ratio exceeds one. Italy’s two big lenders, UniCredit and Intesa Sanpaolo, have ratios of 0.34 and 0.42 respectively.

“The suspicion of European lenders is well-founded. The amount of shaky loans keeps climbing: worryingly, there are more non-performing loans in the Italian banking system than there is core ‘Tier-1’ capital. Lots of peripheral banks have been loading up on their own governments’ bonds: Portugal’s three biggest banks increased their holdings of Portuguese sovereign debt by 16% in the first quarter of the year. Mortgages account for even more bank assets’ and house prices keep falling – at the fastest pace on record in Spain in the first quarter....

“None of this presages a full-scale collapse: European banks have more capital than they did before the start of the crisis. But lending is being throttled....Banks in strong countries are lending less across borders. Lenders in weak countries pay more to borrow than banks in strong ones. This divergence ripples through to customers: the difference in the cost of borrowing between German and Spanish firms rose from a mere six basis points in summer 2011 to 149 basis points earlier this year.”

As I’ve been writing, Europe needs a banking union, supervised by the ECB, with a common resolution fund and a joint deposit-guarantee program. The Economist concludes:

“The eurozone will not work without a banking union. Here Germany is the block: it hints that it might consider taking on such mutual obligations in the future, but not now. The problem is that now is when the banks are half-dead. Waiting for zombies to come back to life is a fool’s game.”

China and Japan

So last week I wrote that China’s finance minister, Lou Jiwei, “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.”

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

And so on Sunday night, China released its second-quarter GDP and lo and behold it came in at 7.5%, down from 7.7% in the first quarter, and down from 2012’s rate of 7.8%.

How conveeenient, the Street mused.

From the Financial Times’ Lex column:

“China’s censors were busy with the corrector fluid over the weekend. Finance minister Lou Jiwei’s comments last week at a news conference that China was aiming for 7% growth this year, were quickly edited to read 7.5% - bang in line with the current official target. But that China’s gross domestic product growth slowed to 7.5% in the second quarter, from 7.7% in the first, and looks set to slow further, suggests that Mr. Lou’s words were indeed a Freudian slip. Beijing now has a job on its hands to ensure that this slowdown does not turn to a rout.”

Oh, those daffy Chinese and the ancient art of funny numbers.

I do believe some of them. Or at least that some of them are close. For instance the government wants home prices to decline, but in an orderly fashion so as to prevent a bubble, and has been tightening consistently for two years now, such as in mandating mandatory down payments, limits on second and third homes and the like. But June house prices rose in 69 of 70 cities, according to the government, which seems realistic when you consider that for the average Chinese worker in the middle or upper class, housing is the only investment that has worked for years now.

The government also reported that foreign direct investment increased 20% from a year earlier in June, the fastest pace in two years (probably close to the truth...as Beijing had been reporting declines in prior months), retail sales rose 13.3% in the first half (semi-accurate, I’m guessin’) and factory output increased just 9.3% in the first six months (accurate to the point the pace is slowing).

Put it all together and the economy is definitely in slowdown mode but Finance Minister Lou Jiwei said this week there would be no “large-scale fiscal stimulus,” signaling the government will tolerate slower economic growth...for now.

But there is a bigger story for the region that could impact growth in the long run and that is tensions are once again building between China and Japan.

Japan holds very important elections this Sunday for the Upper House, with Japanese Prime Minister Shinzo Abe looking to cement his support, already having that of the Lower House.

Abe wants a more militaristic, nationalistic Japan and he is focusing on building up the military to deal with threats from China, as well as North Korea.

Of particular focus for Abe are the ongoing disputes with Beijing over disputed islands in the East China and South China seas.

This week, in a trip to some small islands close to the Diaoyu Islands in the East China Sea, the prime minister vowed that he would “never make concessions” over the sovereignty of the islets, which Japan calls the Senkakus.

“I will protect people’s lives and property, our country’s territorial lands, water and air space. Japan faces a grim security environment because Chinese vessels are frequently sailing to areas close to our waters, and there are consistent provocations targeted at us.”

It was the first such visit to the area by an incumbent Japanese prime minister since 1972.

In Beijing, a foreign ministry spokesman said that China’s sovereignty over the islands was “indisputable.” “We urge Japan to respect history and stop provocative moves that impeach China’s territorial sovereignty.”

Last week, during massive joint Sino-Russian military drills, Chinese military vessels passed through a strait just north of Japan.

Abe is looking for support to amend Japan’s pacifist constitution by talking up the China threat. But it can backfire. Aug. 15 is the anniversary of the end of World War II, a time when Abe and his nationalist colleagues will inevitably visit Tokyo’s Yasukuni war shrine, where convicted war criminals are honored along the nation’s dead. China, and South Korea, will once again be outraged and look for China to allow its masses to let off a little steam. Better a focus on Japan rather than environmental issues and those brought on by a slowing economy.

None of this is good for Japan’s GDP and it’s also a time when big mistakes can be made.

[The Japanese people are split on whether or not they want changes to the constitution. Abe also has the economic issue of how and when to raise the consumption tax, a move that could seriously hurt the current recovery.]

Lastly, a new Pew Research Center survey of global attitudes shows that people in the U.S. and China view each other with increasing suspicion.

According to a survey of 38,000 in 39 countries, majorities or pluralities in 23 of the nations surveyed said China either has replaced or eventually will oust the U.S. as the world’s top superpower.

In the U.S., only 47% believe America will continue to hold its lead over China, compared with 54% in 2008. In China, 2/3s believe their country has overtaken the U.S., or eventually will, and 56% say China deserves more respect. [Emphasis mine.] Do you see the further potential for a clash over some rocks in the East China Sea? China and Japan seem to be on a distinct collision course.

[The Pew survey reveals only 5% of Japanese express a positive view of China. Only 4% of Chinese see Japan favorably. 96% in Japan, and 91% in South Korea, say that China’s growing military power is a bad thing.]

Continuing, 23% of Chinese describe the U.S. relationship as hostile. Pew said China is also the only non-Islamic country where more than half the people, 54%, hold an unfavorable opinion of Americans, a big drop-off in just the past three years.

Street Bytes

--The Dow Jones and S&P 500 raced to new highs as the two finished up a fourth consecutive week, but Nasdaq, owing to a big drop by Microsoft following its dismal earnings picture, declined 0.3% on the week.

The Dow finished at 15543, up 0.5%, while the S&P gained 0.7%. Both are now up 18.6% on the year, with Nasdaq ahead 18.8%.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.30% 10-yr. 2.48% 30-yr. 3.56%

The June consumer price index rose 0.5%, but up just 0.2% ex-food and energy. For the last 12 months, the CPI has risen 1.8%, 1.7% on core.

--China increased its holdings of U.S. Treasuries in May to a record $1.316 trillion, according to Treasury Department data. Japan, the second-largest holder, cut its position to $1.11 trillion.

Net selling by private foreign investors in notes and bonds reached an all-time high in May, $29 billion, as rates were rising off the May 1 low on the 10-year of 1.61%.

--With nearly 2 million inhabitants in the 1950s, Detroit was America’s fourth-largest city and an economic engine.

Today, the population is down to 700,000 as residents flee a city with increasing crime and rapidly deteriorating basic services, including police response rates of nearly an hour. Almost 80,000 buildings are abandoned or seriously blighted and 40% of the city’s street lights don’t work.

With little tax revenue being generated, the result is a city some $19 billion in debt, so Detroit filed the largest municipal bankruptcy in the nation’s history, Thursday. And with little fallout from lawmakers in Michigan and Washington, other cities may follow.

But for Detroit’s 9,500 city employees and nearly 20,000 retirees, the pain of bankruptcy is likely to be severe. The debt could be wiped out in the process, but so could pensions.

One thing that will be interesting to watch is whether or not the city sells off its significant art collection housed at the Detroit Institute of Arts. Officials responsible for the bankruptcy say it won’t be auctioned off as much of it is protected by private covenants or state laws.

But a bankruptcy judge could attempt to force asset sales, though it’s not clear just how much to do so they’ll have.

The prior largest municipal bankruptcy was that of the $4.2 billion filing by Jefferson County, Alabama in 2011. Jefferson, which includes Birmingham, is on track to emerge from court protection by the end of the year, with bondholders slammed. Detroit’s creditors are not going to like what they end up with.

--Auto sales in India fell 9% in June vs. a year earlier...not good.

--British investigators say the cause of the fire aboard a Boeing 787 Dreamliner at Heathrow was a malfunctioning emergency transmitter powered by lithium batteries. Honeywell International is the manufacturer and British authorities urged the U.S. Federal Aviation Administration to study changing the power source for the locators, while also deactivating the transmitter system on all Dreamliners.

The British air safety regulator said, “Had this event occurred in flight it could pose a significant concern and raise challenges for the cabin crew in tackling the resulting fire.”

--Dell delayed a vote on founder Michael Dell’s plan to take the computer maker private due to a lack of support for his proposal. A shareholder vote was rescheduled for July 24.

Michael Dell and the company’s board have spent five months trying to persuade shareholders to approve the $13.65-per-share offer from Dell and his investor group.

Those in opposition want a higher price and it’s not known if Dell and his investors will increase the stakes, given the tumbling PC market.

Carl Icahn and his Southeastern Asset Management Fund, which own a combined 13% of Dell, have been leading the opposition for a higher bid.

Michael Dell isn’t allowed to vote his own shares, about 16% of the company’s stock, so that means the board needs to come up with more than 42% of the outstanding stock to get the deal done.

--According to research firm Gartner, global PC shipments fell 10.9% in the second quarter, which not only hurts Dell, but the likes of Intel and Microsoft as well. Intel’s sales declined a fourth straight quarter. The company is hoping to focus on selling its chips for use in tablets and smartphones to compensate for the PC decline, but such efforts have failed to date.

--Microsoft’s results were hurt by a $900 million writedown of its Surface tablet inventory; so much for that initiative. Consumers are focusing on mobile gadgets, as Microsoft recently cut the price on one version of Surface.

And of course the ongoing slide in PC sales hits Windows revenues, which were also below analyst estimates.

--Google’s key sales metric, average cost per click, a measure of advertising rates, fell 6% in the second quarter.

--Yahoo saw display advertising fall 13% in the quarter, while search revenue declined 9%. Profits were up 46% from the same time last year, however, due mostly to the company’s investment in China ecommerce site Alibaba.

--China’s online population has grown to 591 million as of the end of June, a 10% rise over a year ago, and 44% of the total population.

--As the Wall Street Journal’s “Heard on the Street” column notes, while IBM raised full year guidance to $16.90 a share, up from an earlier figure of $16.70, “That figure...isn’t calculated according to U.S. accounting standards – in colloquial terms, it is effectively ‘earnings before bad stuff.’...The company’s forecast for 2013 earnings per share based on U.S. accounting standards actually falls to at least $15.08 from $15.53.” [Rolfe Winkler]

Which leads you back to the revenue picture, down 3% vs. year ago for the second quarter.

--California’s economic recovery continued in June with the unemployment rate ticking down to 8.5%, the lowest in nearly five years.

But, just as in the rest of the country, a large number of the jobs increase has come in low-paying industries, with many of these of the part-time variety.

--Meanwhile, the median home price in Southern California surged 28% in June from a year earlier, outpacing any month during last decade’s housing bubble, with the median now up to $385,000 vs. $300,000 last June. [DataQuick / Los Angeles Times]

This trend can’t continue much longer, especially if mortgage rates resume their climb, though builders haven’t ratcheted up production to meet demand after they slammed on the breaks during the bust.

--President Obama’s choice to replace Ben Bernanke is most likely down to Fed vice chair Janet Yellen and former Treasury Secretary Lawrence Summers. Bernanke is set to step down when his current term expires in January. Yellen offers stability. Summers promises fireworks at his confirmation hearings.

--Editorial / Wall Street Journal

“Every revolution devours its children, but it’s still surprising to see some of ObamaCare’s keenest boosters deny paternity so soon after the birth. Witness the emotional volte-face from three top union leaders, warning that the program will ‘shatter not only our hard-earned health benefits, but destroy the foundation of the 40-hour workweek that is the backbone of the American middle class.’

“Last week’s open letter comes from James Hoffa (the Teamsters), Joseph Hansen (United Food and Commercial Workers International) and Donald Taylor (Unite-Here, a hotel and other services union). All three, who together represent three million workers, acknowledge they were once ‘strong supporters’ of the Affordable Care Act but now lament the law’s ‘perverse incentives’ that ‘are already creating nightmare scenarios.’

“The law ‘will destroy the very health and wellbeing of our members along with millions of other hardworking Americans,’ they note...

“The first union grievance is that the employer mandate is leading business to hold worker hours below 30 hours a week to comply with the Administration’s regulatory definition. Despite the one-year suspension of the mandate, many businesses that must provide insurance or pay a penalty are shifting to part-time labor, and the union chiefs explain that ‘fewer hours means less pay while also losing our current health benefits.’ Nice to know Mr. Hoffa is reading these columns.”

--The SEC filed civil charges against Steven Cohen, head of mega hedge fund SAC Capital, accusing him of failing to supervise two portfolio managers and preventing insider trading. It is the first time Cohen has been directly accused of wrongdoing in this long running and incredibly boring investigation. At this point, I just don’t care. The statute of limitations should have long run out.

--British health officials estimate the historic heat wave gripping the country (and neighboring Ireland) is responsible for up to 760 deaths; a figure that is due to double as the heat won’t break for another week. If you’ve been on Mars and didn’t know about the weather across the pond (which has been gloriously spectacular in parts of Ireland I follow daily), just turn on the British Open from Scotland this weekend.

Back in 2003, a heat wave in Europe claimed nearly 15,000 lives. 

--The head of football’s (soccer) governing body, Sepp Blatter of Fifa, said Brazil may prove to have been the wrong choice to host next year’s World Cup. Blatter is concerned about the protest movement there, amid rising discontent over the cost of building new World Cup-related facilities vs. the failure to deliver essential public services, as well as protests against government waste and corruption.

During the recent Confederations Cup, there were violent clashes outside some of the 2014 sites.

Foreign Affairs

Syria: Four weeks after President Obama pledged military support to the rebels, not one bullet has been given to the opponents of Syrian President Bashar al-Assad. On Thursday, in a visit to the Zaatari refugee camp in Jordan, U.S. Secretary of State John Kerry met with representatives of the 115,000-strong camp, all of whom appealed for the United States to create a no-fly zone and set up safe havens in Syria.

Kerry responded: “A lot of different options are under consideration. I wish it was very simple. As you know, we’ve been fighting two wars for 12 years. We are trying to help in various ways, including helping Syrian opposition fighters obtain weapons....but it is not as simple as it sounds.”

A female refugee, one of six appointed to sit down with Kerry, said: “You as the U.S. government look to Israel with respect. Cannot you do the same with the children of Syria?” [Matthew Lee / AP]

Jordan is now home to more than 600,000 Syrian refugees. The nation has zero resources to care for this mass of humanity.

The UN’s refugee chief said the other day that the conflict in Syria is the world’s worst refugee crisis in 20 years, since the Rwandan genocide, with an average of 6,000 people fleeing every day in 2013...5,000 being killed each month.

At least 6.8 million Syrians need urgent help. The UN’s Antonio Guterres said the impact of the refugee crisis on countries like Jordan was “crushing,” though the acceptance of Syrians by its neighbors was “saving hundreds of thousands of lives.”

Meanwhile, Syrian rebels said the assassination of one of their top commanders by al-Qaeda-linked militants was a declaration of war, thus opening a new front for the Western-backed fighters. The West’s vision of a future, democratic Syria is a pipedream as the civil war brings in new factions from all over the region.

Back in Washington, General Martin Dempsey, chairman of the Joint Chiefs of Staff, appeared before a Senate Armed Services Committee hearing on his nomination for a second two-year term. Dempsey was grilled by both sides of the aisle who were demanding to know why the White House hadn’t done things such as impose a no-fly zone over Syria.    Republican Senator John McCain (Ariz.) was so disgusted by Dempsey’s failure to provide the committee with his own recommendations that McCain said he will hold up Dempsey’s confirmation until he gets answers. Democratic Senator Carl Levin (Mich.), the panel’s chairman, demanded Dempsey submit within days an unclassified list of military options in Syria.

Iran: President-elect Hassan Rohani (who takes office Aug. 3), might assume more direct control over nuclear negotiations than President Ahmadinejad had. Rohani, after all, was the one-time envoy in charge of negotiations. Supreme Leader Ayatollah Khamenei, though, has the final say on all national policy decisions.

So what does Washington want? The White House appears ready to express to Rohani its desire for direct negotiations, and soon. President Obama wants to test Rohani quickly.

The p5+1 (Britain, France, U.S., Russia, China + Germany) is looking to hold talks with Iran in September.

Israel: Prime Minister Benjamin Netanyahu, in an interview with CBS’ “Face the Nation,” said the international community and the United States have “no sense of urgency” when it comes to Iran’s nuclear program, “and yet Iran is the most important, the most urgent matter of all.

“Because all the problems that we have, however important, will be dwarfed by this messianic, apocalyptic, extreme regime that would have atomic bombs. It would make a terrible, catastrophic change for the world and for the United States.”

Netanyahu’s comments showed frustration with the White House over the lack of action.

“You know, our clocks are ticking at a different pace,” he added. “We’re closer than the United States. We’re more vulnerable. And therefore, we’ll have to address this question of how to stop Iran, perhaps before the United States does.”

Concerning incoming President Rohani, whom the White House describes as a moderate compared to Ahmadinejad, Netanyahu said this:

“(Rohani’s) criticizing his predecessor for being a wolf in wolf’s clothing. His strategy is to be a wolf in sheep’s clothing, smile and build a bomb.”

Jennifer Rubin / Washington Post

“That Netanyahu’s appearance coincided with the administration’s pleas for direct talks with Iran is not accidental, I think. The Israelis, not without justification, fear the Obama administration is so desperate to avoid a decision on military action that it will engage in endless, useless diplomacy or that it will reach a meaningless agreement that gives Iran cover to continue on its merry way toward nuclear weapons capability....

“Netanyahu is right to be worried. Sanctions have not stopped progress on Iran’s nuclear program and Obama is wholeheartedly dedicated to avoiding any military action in the Middle East, let alone action that could involve a prolonged conflict. One suspects this is the first of many Israeli efforts to get the administration’s attention. But like a waiter avoiding your eye contact, the administration will scurry around, hoping that faux deal-making will buy Obama time to finish his term. But of course it will be the Iranians who put that time to use, just as North Korea did, to attain its nuclear aims.”

Separately, Secretary of State Kerry appeared to broker an agreement to restart peace talks between the Israelis and Palestinians. Chances of a true breakthrough, however, are slim and none. 

The Palestinians had refused to join negotiations over the issues of settlement building in the occupied West Bank and East Jerusalem, as well as a recognition of the 1967 borders. Israel has said talks should start with no preconditions.

As this news broke late Friday, details are sketchy. 

Egypt: There were further deadly clashes between supporters of deposed President Morsi and security forces. Prosecutors also froze the financial assets of senior leaders in the Muslim Brotherhood as part of a deepening crackdown.

Roula Khalaf / Financial Times

“Days after the overthrow of Mohamed Morsi, the Islamist president, the military decreed that his interim successor would have vast powers, appointees would draft constitutional amendments, and the country would be rushed into a seemingly unrealistic schedule of elections.

“Observers might be forgiven for concluding that, as Egypt’s first democratic experiment unravels, the role of the leading protagonists in the drama of state-building has been reversed. Mr. Morsi was criticized for ignoring the necessity for consensus, excluding others and trying to muzzle journalists. He has been replaced by military authorities that are – for now, at least – ignoring the need for consensus, excluding others and muzzling journalists, not to mention using excessive force against Islamist protesters.

“The wider impact of this should not be underestimated. In less than two weeks [Ed. now three], the Arab world’s most populous country has been rocked by a political earthquake so powerful it has shaken the whole of the Middle East. The coup in Cairo threatens to bring down with it the political transition launched in the wake of the 2011 revolts across the region.

“Mr. Morsi and his colleagues from the Muslim Brotherhood have been detained and the anti-Islamist propaganda and judiciary machines unleashed. Retired generals and policemen, all thought to be part of the old regime of Hosni Mubarak, are now paraded on television screens as strategic analysts.

“No one doubts that Mr. Morsi’s one-year presidency was disastrous. But it now falls to the coalition of youth and anti-Islamists to ensure Egypt takes a step forward rather than slipping back into authoritarianism.”

At least when it comes to Egypt’s restive Sinai, where terrorists have been pouring in, Egypt has a partner in Israel, which has allowed the Egyptian military to broadly increase its forces there, something Israel has to approve under the Camp David Accords.

Russia: Opposition leader Alexei Navalny was sentenced to five years for embezzlement on Thursday in a widely followed case. Thousands gathered outside the Kremlin to protest in response, Moscow also being the site of a Group of 20 Summit this weekend.

Navalny had organized the largest protests in 2011 against Vladimir Putin’s 13-year rule, vowing to contest the next presidential election in 2018 and put Putin and his cronies in jail if he won.

But in ruling he could never hold political office, Navalny becomes an even bigger figure.

Former Soviet leader Mikhail Gorbachev, who has been critical of Putin’s crackdown on democracy, said the verdict “left a very bad taste in the mouth.... Using the courts to fight political opponents is unacceptable,” Gorbachev said in a statement.

But then under pressure, Navalny was freed from jail pending an appeal, which means that at least for now, it seems he is being allowed to campaign for mayor of Moscow, the elections for which are Sept. 8.

What was more unusual was that prosecutors pushed for Navalny’s release on bail in an attempt to soothe the public anger, let alone international calls for justice.

As for the Edward Snowden case, he applied for temporary asylum in Russia, with President Putin saying “we have warned Mr. Snowden that any actions by him connected with harming Russian-American relations are unacceptable,” adding, “As soon as he has a chance to move somewhere, I hope he will do it.”

Pakistan: Last week I mentioned how Pakistani 16-year-old Malala Yousafzai was feted at the UN for her work on education and seeing that girls are allowed to go to school, as well as for surviving a Taliban assassination attempt.

So this week, a senior Pakistani Taliban commander wrote Malala, accusing her of “smearing” them and urging her to return home and join a madrassa.

Adnan Rasheed, in an open letter released on Wednesday, said he personally wished the attack had not happened, but then warned, “What you are doing now, you are using your tongue on the behest of the others.”

Rasheed then went on to say students should study Islam and not what the Taliban called the “satanic or secular curriculum.”

Oh yeah...go home, Malala. Nothing to fear.

But, as the Wall Street Journal reported, such Taliban views on education are becoming the norm in Pakistan and even anti-Taliban commentators are criticizing Malala for being a pawn of the West or even a CIA agent.

This is scary...that the Taliban’s paranoid worldview “has soaked deep into society, making the fight against extremism much more difficult. Many in the country, for example, still refuse to believe that Osama bin Laden was found living here in 2011.” [Saeed Shah / Wall Street Journal]

China: Hundreds protested against a proposed uranium processing plant in the southern Chinese city of Jiangmen in the latest in a series of environmental demonstrations challenging Beijing. Authorities then decided to scrap plans for the facility, with local officials saying, “The government of Heshan has decided to respect the will of the people.”

India: In the latest sign that New Delhi believes China is a bigger military threat than Pakistan, India is creating a new army corps of 50,000 troops to protect its border with China, a mountain strike corps. Actual implementation, including for budget reasons, is a ways off, but China isn’t happy.

North Korea: Panama seized a North Korean-flagged ship carrying “undeclared military cargo.” The ship was sailing from Cuba and contained “sophisticated missile equipment,” though just how sophisticated was hard to tell. The apparent parts were hidden under bags of brown sugar. The ship was originally boarded by Panamanian officials because it suspected it was loaded with drugs.

Mexico: The government captured one of the world’s most notorious drug-gang leaders in a raid near the U.S. border, Miguel Angel Trevino Morales, 40, head of the brutal Zetas cartel. Morales is believed to be singlehandedly responsible for hundreds of deaths, including the torture and murder of 72 Central American immigrants in San Fernando. He was also blamed for an atrocity a year before in which nearly 200 immigrants were massacred.

Random Musings

--Peggy Noonan / Wall Street Journal

“The IRS scandal was connected this week not just to the Washington office – that had been established – but to the office of the chief counsel.

“That is a bombshell – such a big one that it managed to emerge in spite of an unfocused, frequently off-point congressional hearing in which some members seemed to have accidentally woken up in the middle of a committee room, some seemed unaware of the implications of what their investigators had uncovered, one pretended that the investigation should end if IRS workers couldn’t say the president had personally called and told them to harass his foes, and one seemed to be holding a filibuster on Pakistan.

“Still, what landed was a bombshell. And Democrats know it. Which is why they are so desperate to make the investigation go away. They know, as Republicans do, that the chief counsel of the IRS is one of only two Obama political appointees in the entire agency....

“Those trying to get to the bottom of the scandal have to dig in, pay attention. The administration’s defenders, and their friends in the press, have made some progress in confusing the issue through misdirection and misstatement.

“This is the moment things go forward or stall. Republicans need to find out how high the scandal went and why, exactly, it went there. To do that they’ll have to up their game.”

--A Quinnipiac University survey found that 55% of Americans think Edward Snowden is a “whistle-blower” rather than a “traitor” (34%). Respondents between the ages of 19 and 29 were most likely (68%) to say he’s a whistle-blower. Of black respondents for the survey (conducted between June 28 and July 8), 43% said Snowden is a traitor, 42% said whistle-blower.

Meanwhile, remember when President Obama acted as if Snowden’s revelations weren’t anything big?

Not for nothing, but as Geoff Dyer of the Financial Times writes this week, “the self-confessed National Security Agency leaker has managed to orchestrate a very different political phenomenon: the biggest bout of anti-Americanism since the Iraq war.”

Asia, Europe, Latin America.... Dyer wrote his column for the July 13 issue of the FT. Recall on 7/5/13, I wrote some of the following, responding to Susan Rice’s comment:

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

Me: “Good grief. This woman...is flat out incompetent.”

When it comes to relations with Europe, I observed, “The spying revelations could be the straw that broke the camel’s back.

“Is it fair? Probably not. The timing of the NSA leaks, though, could not have been worse....”

--In a Quinnipiac poll, not only is President Obama’s overall approval rating down to 44%, among independents he gets a negative 36-53 rating.

--Michael Goodwin / New York Post

“The president’s listless conduct has revived comparisons to Jimmy Carter, widely regarded as the worst president in modern times. ‘Obama is actually far worse than Carter,’ a veteran Democrat insisted to me last week.

“I tend to agree because Obama’s lack of interest in critical issues is dangerous in a time of growing global disorder. Only the president can fully commit American power and prestige, and unless the president is ‘all in,’ no important policy can really succeed....

“Because presidential leadership is indispensable, the only thing worse than a bad president is an absent one. Unfortunately, with Obama, we have both.”

--Incredibly, New York could end up with Anthony Weiner as mayor and Eliot Spitzer as comptroller. Among registered Democrats, Weiner leads challenger Christine Quinn, 25-22, while Spitzer leads Scott Stringer 48-33 for the Democratic nomination.

Glenn Coleman, editor of Crain’s New York Business, opines:

“ ‘This is very serious business,’ one corporate leader in the city told Crain’s... The mayor is a very serious thing. Comptroller is very serious. And they have a big impact on the economy and quality of life. So the question is, do either of these guys deserve to do that, or would they be good at it?’ The city’s voters will define such squishy concepts as ‘deserve’ and ‘good’ in the September primaries and the November general election. I approved our publishing anonymous quotes from leading local business executives reluctantly. But I thought it instructive that so few corporate captains were willing to publicly voice their concerns. That many feared potential retribution from two famously combative politicians suggested a silent consensus that, come Jan. 1, the scandal-scarred pols could well be running New York City. Mr. Spitzer, you got our attention.”

--Former Montana governor Brian Schweitzer (Dem.) said he would not run for retiring Dem. Sen. Max Baucus’ seat, dealing a blow to Democrats’ hopes of holding the Senate. Schweitzer, it was felt, was a lock to run and would have been the favorite, but now, Democrats have to fill this slot and two other red states’ with retiring Democratic incumbents: South Dakota and West Virginia.

Three other red states are also in play with Democratic incumbents seeking reelection – Alaska, Arkansas and Louisiana, plus swing states Iowa and North Carolina.

--And, as I feared last week, Liz Cheney made it official. She’s launching a primary challenge against incumbent Wyoming Republican Sen. Mike Enzi, 69. The National Republican Senatorial Committee said, “We’ll do everything we can to make certain that Mike Enzi has help and support from us.”

--The Senate reached agreement to avert Senate Majority Leader Harry Reid’s plan to invoke the “nuclear option” to make it easier for the chamber to approve seven specific executive branch nominations. The bipartisan deal headed off a maneuver to change Senate filibuster rules to lower the maximum threshold required to approve executive nominees from 60 to 51 votes. But the agreement doesn’t stop the minority from exercising their rights in future nominating fights. Nor does it ensure bipartisan cooperation on key future issues such as the debt ceiling.

--The New York Post reports that NYPD Commissioner Ray Kelly very much wants the Homeland Security top job with the departure of Janet Napolitano. New York’s congressional delegation will put some heat on President Obama to tab Kelly.

--I wrote the following before I learned late Friday afternoon that President Obama had addressed the topic in detail before the White House press corps.

I am the ‘wait 24 hours’ guy. There’s a reason I don’t tweet. But suffice it to say I will have lots of comment next time on the president’s views about race and Trayvon.

I told you I had been following the George Zimmerman trial pretty closely, but with the verdict, I have just a few comments.

Such as in the case of Florida state attorney Angela Corey. What a vile character she is, calling Zimmerman, after his acquittal, a “murderer” in a CNN/HLN interview.

I think Tracy Martin handled himself well throughout the past 17 months, and I like his main attorney, Benjamin Crump.

It kind of cracked me up, though, how Sybrina Fulton (Trayvon’s mother) was portrayed. Understand, this is a woman who wasn’t involved in Trayvon’s life for years. Yes, it has nothing to do with the trial, and the tragedy, but I give CNN credit for long exposing this fact. Enough said.

I do agree with the following, however.

Editorial / New York Post

“When all was said and done, the Sanford jury reached a modest conclusion: The state failed to prove beyond a reasonable doubt that George Zimmerman was guilty of a crime in the tragic killing of 17-year-old Trayvon Martin.

“Not that the state didn’t try. When local police and a local prosecutor found little evidence against Zimmerman, Florida’s governor appointed a state attorney who ultimately charged him with second-degree murder. And when prosecutors saw their case collapsing, they desperately sought other, lesser charges: anything for a conviction.

“If some are now outraged by the jury’s acquittal, perhaps it’s because they were fed a steady political narrative about race when the evidence did not support it. One press outlet coined the term ‘white Hispanic’ to describe Zimmerman. Another doctored a tape of Zimmerman’s 911 call, making him sound racist when he wasn’t. And now this city’s mayoral candidates are chiming in to second-guess the jury and fan the flames.

‘The six jurors who heard all the evidence did not call George Zimmerman a hero. All they did was conclude he is not a criminal. How much better we – and the heartbroken family of Trayvon Martin – would have been if this case had not from the start been drafted into the service of other, more political agendas.”

Harvard Law School professor Alan Dershowitz: “We have elected prosecutors in this country, and this case was brought because of a political outcry. This case should never have been brought.”

George Washington University Law School professor Jonathan Turley said the prosecutor went too far from the beginning. “I thought this was overcharging. There was never a basis for a second-degree murder charge.”

--Jennifer Rubin / Washington Post

“Attorney General Eric Holder is the perfect man to run President Obama’s Justice Department; neither miss an opportunity to pander on race or distort facts to suit their partisan aims.

“Holder went to speak to the NAACP on Tuesday. It took him no time to denounce the ‘stand your ground’ laws, the Florida version of which was not invoked in the Trayvon Martin case. But of course to denounce laws of self-defense, on which the case did turn, would be both inane and unhelpful in stirring the base. So grab an issue, associate it with a hot-button topic and demagogue to audiences prepared to cast doubt on the justice system that Holder is sworn to uphold.

“But the intellectual dishonesty did not stop there. As his own Justice Department quietly tells reporters, there is no evidence of racism on which to base a civil rights case. Yet Holder bonds with his audience over another round of racial aggrievement and anger. He shares innocuous incidents (he was pulled over twice in his car and questioned while running to a movie) to involve race and establish his bona fides with those already incensed about the George Zimmerman acquittal. Does it matter the jury found ample doubt and no evidence of racism? Does it matter there was no evidence of racism unearthed by the FBI? Facts are irrelevant when you are stirring the pot of racial antagonism.”

--I subscribe to Rolling Stone for use with one of my other columns, and I enjoy columnist Matt Taibbi, but I won’t waste my time reading the article on Dzhokhar Tsarnaev.

I do have to say, though, that I am not a fan of RS publisher Jann Wenner. He’s really pretty despicable.

You see, back in 2006, Wenner denied the Dave Clark Five their rightful place in the Rock and Roll Hall of Fame when he ignored the official balloting that had them gaining the last of five spots and instead, at his own insistence, manipulated the count, placing Grandmaster Flash in the 2007 induction ceremony instead because he didn’t want to go another year without a rap act, as reported by Fox News at the time.

The Dave Clark Five were then inducted a year later, but not before lead singer and keyboard player Mike Smith had died. Dennis Payton, another founding member, died in December 2006.

It was all Jann Wenner. Some of us will never forget this fact.

Meanwhile, back to the RS cover photo of Dzhokhar, CVS and Walgreens were among the chain stores choosing not to sell the issue.

--Joe Nocera / New York Times...on Twitter

“(To me), at least – and, yes, I acknowledge I’m at the age where I’m losing the battle to keep up with technology – the negatives outweigh the positives. So much on Twitter is frivolous or self-promotional. It can bury you in information. Because people often use Twitter to react to events instantly, they can say some awfully stupid things, as Roddy White, the Atlanta Falcons receiver, did after the George Zimmerman verdict, suggesting in a tweet that the jurors ‘should go home and kill themselves.’

“With its 140-character limit, Twitter exacerbates our society-wide attention deficit disorder: Nothing can be allowed to take more than a few seconds to write or read....

“What I object to most of all is that, like other forms of social media, Twitter can be so hateful. It can bring out the worst in people, giving them license to tweet things they would never say in real life. For several years, Douglas Kass, the investor and CNBC commentator, regularly tweeted his investment thoughts; with 63,000 followers, he was one of the most popular investment gurus on Twitter. Recently, however, he decided to stop because he had received so many inexplicably nasty messages. People who opposed his investment views denounced him in the foulest language imaginable. ‘I received several life-threatening tweets,’ he told me. ‘I concluded it wasn’t worth navigating the sharks to find the good fish,’ he added.”

--There are about 500 fires or explosions linked to bug bomb devices each year in the United States, according to government statistics. I mention this because the other morning in New York, on the local news they were talking about this fire in New York’s Chinatown.

It turns out the occupant of an apartment there had set off 20 bug bombs, foggers, to deal with a bug infestation in one of her two rooms. The next morning, she set off another 20 and failed to turn off her oven’s pilot light, which led to a powerful explosion that blew out the back wall of the apartment and caused a partial collapse of the building that ignited a fire which left 12 people injured, including three critically.

Understand a single fogger is enough to treat an 800-square-foot apartment, according to the New York Times.

Plus, it seems many use foggers to treat bed bugs and they are largely ineffective in dealing with them.

--As part of a stripped-down $16.8 billion authorization bill for NASA, the House Science Committee voted to scrap President Obama’s plan for a manned mission to an asteroid in favor of returning astronauts to the moon, perhaps as soon as 2020, and ultimately sending them on to Mars.

Just send the entire U.S. government to Mars today and let the rest of us start over.

---

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

God bless America.
---

Gold closed at $1292
Oil, $108.05

Returns for the week 7/15-7/19

Dow Jones +0.5% [15543]
S&P 500 +0.7% [1692]
S&P MidCap +1.1%
Russell 2000 +1.3%
Nasdaq -0.3% [3587]

Returns for the period 1/1/13-7/19/13

Dow Jones +18.6%
S&P 500 +18.6%
S&P MidCap +20.9%
Russell 2000 +23.7%
Nasdaq +18.8%

Bulls 52.1
Bears 19.8 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore