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08/03/2013

For the week 7/29-8/2

[Posted 12:00 AM ET]

Wall Street and Washington

There were three big events on the U.S. financial front this week: a first reading on second-quarter GDP, the Federal Reserve’s Open Market Committee meeting, and the July labor report.

The flash estimate on GDP came in better than expected, 1.7%, but then in a revision of the economy that the Bureau of Economic Analysis conducts every five years or so, the first quarter’s growth figure was revised down from 1.8% to 1.1%. So the U.S. economy averaged 1.4% for the first two quarters.

Compared with the prior three months, the U.S. actually grew less than the U.K. in the April-to-June period, 0.4% vs. the U.K.’s 0.6%.

Consumer spending, which accounts for about 70% of U.S. GDP, was also less in the second quarter than the first, 1.8% compared with 2.3%.

But with the BEA’s revisions, the U.S. economy actually grew by 2.8% in 2012, up from its previous estimate of 2.2%, while the recession, which lasted from December 2007 to June 2009, saw the economy contract 4.3%, better than the previous estimate of a 4.7% drop.

The changes are due to a re-measuring of the size of the economy that takes into account the impact of research and development spending, as well as that of intellectual property, including artistic creations such as movies and syndication revenues (see Seinfeld), changes the Wall Street Journal views as “long-overdue,” even as “The current not-so-great economic recovery trudges on.”

“The revised GDP numbers also sharpen the historical understanding of the policies that have promoted robust growth – and those that haven’t,” the Journal opines. To wit:

Average Annual GDP Growth

1929-2012...3.3%
1959-2012...3.4
2002-2012...1.8
2009-2012...2.4

Quarterly GDP Growth

QIV 2012...0.1
QI 2013.....1.1
QII 2013....1.7

Source: Bureau of Economic Analysis

Wall Street Journal:

“As the GDP revisions remind us, the challenge for the U.S. economy is to get back to the prosperous 3.3% growth rate that has been the American norm. Many economists are predicting that growth will revive in the second half, perhaps assuming that the second quarter results mean the Federal Reserve will maintain its current policy for even longer. We hope they’re right about growth, because by any measure the Obama years and policies ought to make Americans nostalgic for the good old days.”

Speaking of the Fed, it held its last Open Market Committee meeting before a critical one already looming, September 17-18, and while not a single human on the planet expected the Fed to change its existing interest rate or bond-buying stances, there was some hope it would offer a clue as to when it will begin pulling back on the latter. But the Fed, in its statement, offered no such clues.

The only change in the official language was a labeling of economic growth as “modest” as opposed to the past statement’s use of “moderate.” Otherwise, no indication on the timing for trimming, or tapering, bond purchases.

So it’s back to an analysis of the data. A July ISM report on manufacturing came in stronger than expected, 55.4, the best level since June 2011, while readings on construction spending and factory orders were less than expected, though these were June readings.

Which brings us to Friday’s jobs report for July and what a downer it proved to be...only 162,000 on the non-farm payroll front vs. expectations of 183,000, with whisper numbers exceeding 200,000; plus May and June were revised downward.

Further, the private sector only created 161,000 and 85,000 of the jobs were in the low-paying retail and food services and hospitality sectors, thus continuing a depressing trend for this putrid recovery. Average hourly earnings also declined for the first time since last October.

The unemployment rate, though, fell to 7.4%, though “U-6,” which includes those involuntarily working part-time or “marginally attached” to the labor force is still at 14.0%.

Prior to the 8:30 a.m. release of the employment data, however, the yield on the 10-year Treasury had climbed back to 2.75%, the intraday peak set on July 8, on the expectation a strong number would encourage the Fed to begin tapering in September as many economists expect.

The poor figure, though, sent the 10-year back to 2.60% by the close on Friday. Once again, the bond market is racked with uncertainty. The August labor number, released Sept. 6, becomes even more critical in judging what the Fed is likely to do some 12 days later.

There was some other economic news. Jobless claims hit a five-year low at 326,000 and the S&P/Case-Shiller barometer on home values for May showed a 12.2% increase over May 2012 for its 20-city index. The decline off the 2006 peak, once as great as 35.1% in March 2012, is now 24.4%. Dallas and Denver have hit new all-time peaks. Over the 12 months ending May 2013, San Francisco is up 24.5%, Las Vegas 23.3%, and Phoenix up 20.6%.

Meanwhile, Congress goes off for its five-week summer break without any progress whatsoever on the budget front. Upon their return on Sept. 9, there will be but three weeks to reach agreement on dealing with the sequester and to fund federal agencies for fiscal 2014, which starts Oct. 1, and then a few weeks after that, Treasury faces the risk of default unless an agreement is reached on the debt ceiling.

As if that’s not depressing enough, you have Senate Majority Leader Harry Reid issuing a warning to fellow Democrat, Sen. Max Baucus of Montana, chairman of the finance committee, not to proceed with an overhaul of the tax code unless there is “significant revenue” to be generated from the effort.

Reid, in an interview with the Wall Street Journal, went public in his disagreement with Baucus.

“I’ve explained this to Sen. Baucus. I don’t want anyone going into these negotiations with the illusion that they can come back with a small [revenue increase] number, and we’ll gobble it up under the guise of tax reform.”

Reid added “it would be a waste of time” to enter into negotiations with Sen. Orrin Hatch (R-Utah), Sen. Baucus’ GOP counterpart on the finance panel.

So if you were praying for real tax reform you can forget it. Any hope has just been extinguished. Baucus, after all, had already announced he was not running for re-election in 2014 and thus was devoting his remaining time to producing a true rewrite of the federal tax code.

It sucks.

Couple the above with President Obama’s fanning of the class warfare flames and one gets depressed further. In an interview with the New York Times, Obama said in part:

“If we don’t do anything (about the struggles of the middle class), then growth will be slower than it should be. Unemployment will not go down as fast as it should. Income inequality will continue to rise. That’s not a future that we should accept.”

Obama then said the country’s struggle over race would not be eased until Washington began addressing the fear of many people that financial stability is unattainable.

“Racial tensions won’t get better; they may get worse, because people will feel as if they’ve got to compete with some other group to get scraps from a shrinking pot,” Obama said.

Finally, The Economist had the following take on the issues faced in Detroit and many other American cities and states.

“Nearly half of Detroit’s liabilities stem from promises of pensions and health care to its workers when they retire. American states and cities typically offer their employees defined-benefit pensions based on years of service and final salary. These are supposed to be covered by funds set aside for the purpose. By the states’ own estimates, their pension pots are only 73% funded. That is bad enough, but nearly all states apply an optimistic discount rate to their obligations, making the liabilities seem smaller than they are. If a more sober one is applied, the true ratio is a terrifying 48%. And many states are much worse. The hole in Illinois’ pension pot is equivalent to 241% of its annual tax revenues: for Connecticut, the figure is 190%; for Kentucky, 141%; for New Jersey, 137%.

“By one recent estimate, the total pension gap for the states is $2.7 trillion, or 17% of GDP. That understates the mess, because it omits both the unfunded pension figure for cities and the health-care promises made to retired government workers of all sorts. In Detroit’s case, the bill for their medical benefits ($5.7 billion) was even larger than its pension hole ($3.5 billion).

“Some of this is the unfortunate side-effect of a happy trend: Americans are living longer, even in Detroit, so promises to pensioners are costlier to keep. But the problem is also political. Governors and mayors have long offered fat pensions to public servants, thus buying votes today and sending the bill to future taxpayers. They have also allowed some startling abuses. Some bureaucrats are promoted just before retirement or allowed to rack up lots of overtime, raising their final-salary pension for the rest of their lives. Or their unions win annual cost-of-living adjustments far above inflation. A watchdog in Rhode Island calculated that a retired local fire chief would be pulling in $800,000 a year if he lived to 100, for example. More than 20,000 retired public servants in California receive pensions of over $100,000.”

Europe

Euro equity markets continued to rally on the feeling the region has finally bottomed. The unemployment rate for all 27 nations in the European Union ticked down in June to 10.9% from 11.0% in May, but for the 17-nation eurozone remained unchanged at 12.1%.

A reading on July manufacturing, however, came in at 50.3 for the euro-17, as compiled by Markit, compared with 48.8 in June, a two-year high. Germany’s PMI was 50.7 vs. 48.6 the prior month (though German retail sales for June fell 1.5% from May), Italy’s climbed to 50.4, best since May 2011, France’s PMI rose to 49.7 from 48.4, and even Greece rose to 47.0. Non-euro Britain saw its manufacturing PMI for July rise to 54.6, a 28-month high.

But Spain’s PMI ticked down to 49.8 in July from 50.0 in June.

Back to the employment data. Spain’s unemployment rate is 26.3% and Greece’s 26.9% (April). [The IMF this week warned that Spain’s rate could be stuck above 25% for at least five more years.]

The youth jobless rate in Spain is up to 56.1%, while the youth rate in Greece is at 58.7% (April). Portugal’s is 41.0% and Italy’s is 39.1%. The youth unemployment rate for the entire EU-17 is 23.9%.

But wait...there’s more! [For those who aren’t convinced the worst is necessarily over.]

Spain’s National Statistics Office reported second-quarter GDP fell 0.1% over Q1, an 8th straight quarterly fall. [Year-on-year, down 1.7%.] And as I’ve been pounding the table on for years now, Spain still isn’t addressing its bad loan issue with total honesty. It is trying, I grant you. A bad bank was created, Sareb, which has taken on about 200,000 real estate related assets, including 107,000 properties, 76,000 of which are empty homes. Home prices have declined 35% from the peak, but there are further declines to come.

About 680 million euros of the 11.4 billion of real estate on the bad bank’s books represent uncompleted housing developments, according to a story in Bloomberg by Charles Penty and Esteban Duarte. Many of these empty developments are beginning to be bulldozed.

Italy’s banks are saddled with massive bad debt, with non-performing loans surging 22% in May from the same month in 2012, according to the Italian Banking Association. Lending by Italian banks to the private sector dropped 3.3% in June from a year earlier.

In Greece, the IMF said that in order to bring Greek debt levels back to a manageable level, Athens must be relieved further of debts it owes to eurozone governments totaling 4% of GDP, or 7.4 billion euro within the next two years. [Peter Spiegel / Financial Times]

Greek sovereign debt, after all the bailout money that has flooded in, is expected to peak at 176% of GDP this year.

But if the IMF is talking about further writedowns on top of those agreed to in December, can you imagine how the Germans will react? It’s suddenly a renewed campaign issue for German Chancellor Angela Merkel, less than two months from the critical Sept. 22 vote there, after which all hell could break loose all over again. The entire eurozone is on ‘pause’ until the German election, which is why many had wished the IMF had kept its mouth shut until October.

Further, as the Wall Street Journal’s editorial board points out:

“(In) pushing the European Union and the European Central Bank to forgive some of what Greece’s government owes them, the IMF is making a very different kind of case. The IMF wants Athens to stiff Brussels and Frankfurt so that Athens can fully pay back...the IMF.

“This is rich. The Fund report notes fearfully that ‘if the (bailout) program were to go irretrievably off-track and euro area member states did not continue to support Greece, the capacity to repay the Fund would likely be insufficient.’...

“The Greek government, as Wednesday’s report emphasizes, is responsible for failing in almost every instance to hold up its end of the bailout. The Fund now expects privatizations of state assets to yield 22 billion euro through 2020, less than half as much revenue as was predicted in March 2012.

“Yet there’s no erasing the complicity of Greece’s international creditors – all of them – in shaping the rescue’s ruinous outcome. The projections in Wednesday’s IMF report show that starting next year Greece will each year pay back more to the Fund than it borrows. The country’s total net obligation to the Fund is expected to peak this year at 16.9% of GDP, an amount Athens is supposed to spend the next 13 years paying down.

“If there is another restructuring of Greece’s bonds, eurozone governments will naturally be first in the line of fire. But the IMF, for its own role in Greece’s plight, deserves to play a part too.”

Finally, you have the politics of the region. Embattled Spanish Prime Minister Mariano Rajoy was forced to appear before parliament and admit he made mistakes in trusting a disgraced former Popular Party colleague, but he insisted claims he was corrupt were “lies and manipulations” and again refused to resign.

But the evidence Rajoy received illegal payments from a slush fund seems strong and there have been anti-government protests across the country, though not as yet of the truly serious variety.

Rajoy used his time before parliament to tout the recovering economy, saying a continued focus on the scandal was damaging Spain’s image. The main opposition leader from the Socialist Party said Rajoy was not in the chamber to debate the state of the economy.

And in Italy, former Prime Minister Silvio Berlusconi had his 4-year prison sentence upheld by the country’s highest court, a ruling he cannot appeal, though at age 76, he is unlikely to go to jail and faces probably a year of house arrest. The high court ordered a further judicial review on whether Berlusconi should be barred from holding public office.

Berlusconi unleashed an emotional nine-minute video in response to the verdict in a tax fraud case.

“No one can understand the onslaught of real violence that has been directed against me following an incredible series of accusations and trials that don’t have any foundation in reality,” he said.

Describing the more than 50 court cases he has faced, Berlusconi said it was all “genuine judicial harassment that is unmatched in the civilized world.”

“In exchange for the commitments I have made over almost 20 years in favor of my country and coming almost at the end of my public life, I have been rewarded with accusations and a verdict that is founded on absolutely nothing, that takes away my personal freedom and my political rights.”

For now, Berlusconi remains a senator and leader of the center-right People of Freedom Party (PDL), pending the court’s review of the ban on holding public office. The PDL is part of Italy’s ruling coalition and for now there is no talk of a dissolution of the government and new elections.

China and Japan

Beijing ordered a nationwide audit of all government debt, which is a bit unsettling though at the same time encouraging for the long-term. The focus is on local governments, many of whom borrowed heavily after the financial crisis to try to sustain growth rates. The last audit, published in 2011, showed that local governments took up 80% of total bank lending at the end of 2010.  The borrowings were generally split between infrastructure projects (road and rail) and property construction. Many of these just aren’t financially viable.

At the same time, China reported an increase in its manufacturing PMI for July to 50.3 vs. 50.1 in June. But HSBC released its final figure on PMI in China was unchanged at 47.7 from the earlier flash estimate. Recall, HSBC focuses mainly on small and private industry, while the official government reading looks at larger state-owned enterprises that indeed may have been faring better due to government support. [Then again, who the hell knows with these guys.]

What is certain is that the government does want to continue to rebalance the economy towards consumption.

Turning to Japan, Tokyo quietly sent a top diplomat to Beijing for two days of talks in an attempt to tone down the rhetoric between the two. Prime Minister Shinzo Abe later said he hoped “to promote unconditional, frank dialogue.”

August 15 is the key date. It would appear that Abe is not going to visit the Yasukuni shrine where the souls of some war criminals are honored. Right-wingers mark the end of World War II and Abe doesn’t need to be seen sticking it to China and South Korea at this time.

On the economic front, factory output for the month of June fell the most in more than two years, down 3.3% month on month, worse than expected, while household spending also fell 0.4% when a gain was projected. But Abenomics remains on track.

The big debate is April’s looming sales tax hike and whether this would derail the economic recovery. The Bank of Japan said this week it was not concerned. Prime Minister Abe is not so certain.

Remember, it’s about Japan’s massive public debt burden, the world’s largest, and government credibility in global financial markets that Japan has a handle on its finances. A lot more on this topic in coming months. Aren’t you excited? Time for a Sapporo, sports fans. 

Street Bytes

--Stocks weighed all the evidence and decided to power higher, new highs for the Dow Jones (15658) and S&P 500 (1709), up 0.6% and 1.1%, respectively on the week. For the Dow its winning streak is at six. Both are up 20% on the year. Nasdaq is up 22% after a 2.1% gain.

Ex-financials, S&P 500 revenues for the second quarter are only supposed to be up 1%; earnings actually down nearly 1%, according to Thomson Reuters.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.30% 10-yr. 2.60% 30-yr. 3.69%

In a meeting with House Democrats, President Obama strongly defended Larry Summers against criticism from the left of his party, who are opposing Summers’ potential nomination to fill the slot of the soon-to-be departing Ben Bernanke. Janet Yellen, the vice-chair of the Fed, remains the other leading contender.

--The Australian dollar slipped to its lowest level in three years against the U.S. dollar, which is good for the nation’s exporters, but consumers are getting whacked by higher gas prices.

Australia’s manufacturing index fell to 42 last month. The last reading above 50 was in February 2012, a good indicator of the state of things in China, Australia’s largest market. So the fall in the Aussie dollar hasn’t been enough to turn around the challenging environment.

[And now Australia faces a Sept. 7 snap election that promises to be very intense.]

--My favorite barometer for China, gambling revenues in Macau, rose 20% in July year-on-year, boosted by an increase in the number of Chinese visitors. July’s revenue number was the third strongest of the year. It’s all about the expanding middle-class, even as the slower economy has led to a decline in wealthy customers. Visits from mainland China rose 20% in June vs. year ago figures.

[I’ve been remiss in not reporting the Macau numbers as regularly as I used to. Gaming revenue was up 15.3% in the first half of the year vs. 2012, up more than 20% in June and 13.5% in May.]

--The European Union and China reached an agreement on a contentious trade dispute over solar panels. China is thus now freezing investigations into European wine exports, offering comfort to winemakers in France, Italy and Spain.

--Taiwan’s economy grew 2.3% in the second quarter over a year ago, slightly better than expected and above the first-quarter growth rate of 1.7%. Last week South Korea had announced the same 2.3% growth for its second quarter. For both economies, though, it’s all about China.

--A New York jury found former Goldman Sachs trader Fabrice Tourre, “Fabulous Fab,” as he called himself, liable for fraud in the run up to the financial crisis in 2008 by misleading investors about complex mortgage investments that ended up costing investors $1 billion. 

It was two years ago that disclosure of emails by the SEC revealed Tourre’s role, including one where he wrote:

“Only potential survivor, the Fabulous Fab...standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

Goldman Sachs settled its case with the SEC in 2010, paying $550 million without admitting or denying any wrongdoing.

[Separately, a long-time Bloomberg editor was fired after publishing an incorrect headline on the company’s terminals worldwide: “BREAKING: Fabrice Tourre Wins SEC case claiming fraud in $1 billion CDO deal.” He corrected it moments later...but it was too late to save his job.]

--Automakers sold more than 1.3 million cars and trucks in the U.S. last month, a 14% jump over the same month a year earlier. According to Autodata, auto sales are running at a 15.67 million rate this year, which would be the most since 2007’s 16.1 million. [July’s pace was the best since 2006 for the month.]

GM reported a 16% gain from a year ago, Ford 11%, Chrysler 11%, Toyota’s U.S. sales rose 17%, Honda’s 21%, Nissan’s 11%, but VW’s fell 3%.

[Earlier, Chrysler announced its net income in the second quarter rose 16% to $507 million, the eighth straight quarterly profit for the Fiat SpA unit.]

--On the heels of its super earnings report from a week earlier, shares in Facebook hit the $38 IPO price for the first time since the May 17, 2012 offering, with the shares having bottomed at $17.55 last September. They closed Friday at $38.05.

--Dell shares rose 5% on Friday after the firm’s board accepted a new slightly sweetened buyout offer from founder Michael Dell. A vote will be held September 12. Carl Icahn, with an 8.7% stake, began a legal challenge to Dell’s plans.

--Proctor & Gamble soundly beat expectations for the second quarter, but the company did report a 48% drop in net income from a year ago. Net sales rose 2%. AG Lafley, P&G’s newly returned CEO, vowed to exit some product categories after his predecessor’s helter-skelter rapid expansion into new emerging markets.

--Exxon Mobil reported its lowest quarterly profit in more than three years, with net income falling 57% compared with year ago levels. Exxon’s production of oil and gas fell for a ninth straight quarter and earnings missed estimates by the most since 2002.

--BP CEO Bob Dudley on the ongoing class action lawsuits resulting from the 2010 Gulf oil spill.

“The biggest beneficiaries that I can see broadly are plaintiffs’ attorneys themselves, who are not just collecting fees on behalf of claims that have been submitted but also their own firms which are submitting large claims.

“This is not right, it’s not good for American business...that’s why we’re vigorously protesting it. It happens all the time in the U.S. with this class action plaintiff system which is an industry and a business model.”

I totally concur with Mr. Dudley.

--J.C. Penney denied reports that its key vendors are stopping merchandise shipments because of credit problems. The stock tanked 10% on Tuesday after a New York Post report said commercial lender CIT had stopped supporting deliveries from manufacturers to JCP.

--Activist hedge fund manager Bill Ackman disclosed his biggest bet ever, $2.2 billion in industrial gas company Air Products of Allentown, Pa., calling it “a great business that is undervalued.” Ackman has already lost hundreds of millions on his $1 billion short position in Herbalife, with reports George Soros joined Carl Icahn in taking a significant stake in the nutritional supplements company, on top of a solid earnings report from HLF. Ackman also has a stake in J.C. Penney on the long side.

--Shares in LinkedIn rose 10% after revenue came in 59% higher than a year ago and ahead of estimates. Net income in the quarter was $44.5 million vs. $18.1 million in the comparable period.

--Amazon.com Inc. said it is going to begin filling more than 5,000 full-time warehouse jobs and about 2,000 customer service positions. The warehouse jobs are at 17 distribution centers across the U.S., though these aren’t exactly high-paying positions. President Obama toured a distribution center in Chattanooga, Tenn. this week. 

--Saks Fifth Avenue agreed to be acquired by the Canada-based owner of Lord & Taylor (Hudson’s Bay), with Saks then exiting some of its less-desirable locations and replacing them with the L&T brand.

In turn, Hudson’s Bay will open seven Saks stores in Canada. Saks, under terms of the  agreement, is allowed to solicit higher bids than Hudson’s.

--Natural food seller Sprouts Farmers Market saw its shares more than double on their first day of trading. The company, which operates over 160 natural grocery stores mostly in the Southwest, priced the shares at $18, but on its first day Thursday, they closed at $40. Sprouts opened its first store in Chandler, Ariz., in 2002. Sprouts competes with the likes of Whole Foods Market.

--The co-founder of the Russian Internet search engine Yandex, Ilya Segalovich, died at the age of 48. A tumor was discovered in his head and within two days, “his brain burnt out,” according to the CEO, from malignant meningitis. Poor guy. Segalovich was kept on life support for a few days after as doctors hoped for a miracle that didn’t occur. From what I know, this was a good man who contributed his time and money to work with Russian orphanages.

--CBS Corp. had its biggest second quarter ever, with revenue and profits climbing 11%. Entertainment revenue, which includes the CBS broadcast network, rose 18% from a year earlier. 

--Shares in the world’s potash makers plunged on word the largest producer, Russia’s Uralkali, pulled out of its alliance with Belaruskali, with prices for the product expected to drop 25% following the breakup of the marketing cartel. Uralkali will now market potash on its own and focus on expanding volume, a crushing blow for an industry known for tightly controlling supply.

--JPMorgan Chase struck a $410 million settlement with the Federal Energy Regulatory Commission, which had accused the bank of manipulating electricity prices.

--Omnicom and Publicis announced a merger last Sunday that creates the largest ad company in the world. Between them, they accounted for $22.7 billion in revenue last year, more than the current highest ad firm, WPP. It’s about the business of Big Data: collecting and selling the personal information of millions of consumers that the likes of Google and Facebook are exploiting.

--There are definitely signs of an overheated housing market in Southern California. In the six-county Southland, “In May, investors flipped 1,377 homes – a level not seen since the height of the housing boom, when investors turned over 1,394 homes in June 2005, according to real estate research firm DataQuick. The firm defines flipping as buying and reselling a home within six months.” [Cale Ottens / Los Angeles Times]

The median home price in the Southland rose 28% in June to $385,000 – a record year-over-year gain, as reported by DataQuick.

--Shares in struggling telecom equipment maker Alcatel-Lucent rose on stronger growth in its U.S. market, as well as the announcement mobile chip maker Qualcomm had taken a small stake as part of a research partnership.

Long ago, I introduced the Lucent lawn indicator at its North American headquarters (Murray Hill, N.J.), which I used to live three blocks from.  These days I drive by once a week and I’m here to tell you, the lawn has never looked better. [As opposed to the condition of the vast acreage fronting HQ, which looked like crap, before the stock cratered.]

It’s not just the abundant rainfall we’ve had in this area. I see gardeners there all the time. Alcatel-Lucent may indeed have bottomed.

--Saudi Arabia said one more man has died from the new respiratory virus related to SARS, bringing to 39 the number of deadly cases in the kingdom. It’s still all about the Hajj in October and risks of the virus going global via the pilgrims attending from all over.

--The value of the jewels stolen from a luxury hotel in Cannes on Sunday was put at over $120 million, making it the biggest diamond robbery in history. A lone thief made off with earrings, rings and necklaces, dropping some multimillion-dollar jewelry on the pavement as he made his getaway from the Carlton Hotel.

The previous record was a diamond theft in Antwerp back in 2003, when an Italian gang made off with about $100 million in gems and cash.

The jewels at the Carlton were part of an exhibition by Leviev, a firm owned by Lefv Leviev, an Israeli billionaire nicknamed the King of Diamonds.

“Wielding an automatic pistol, the thief threatened three security guards, and two sales representatives and their manager, but fired no shots.

“He grabbed a bag containing two cases, which were filled with 72 pieces of diamond jewelry.” [Adam Sage / London Times]

Foreign Affairs

Iran: Hassan Rohani takes over as president Aug. 4. Israeli Prime Minister Netanyahu has called Rohani a “wolf in sheep’s clothing,” with Iran continuing to make progress on the nuclear weapons front. President Obama has repeatedly said the U.S. “will do what is necessary” to keep Iran from acquiring nukes. On Friday, Rohani said Israel’s occupation of Palestinian land had inflicted a “wound” on the Muslim world.

[An earlier report by Iran’s student news agency had quoted Rohani as saying the wound “needs to be removed.” But this was later retracted.]

Acting on its own, the U.S. House voted 400-20 Wednesday to hit Iran with the toughest sanctions yet on its nuclear program. The bill would basically block Iran from selling any oil abroad. Rep. Ed Royce (R-CA), chairman of the House Foreign Affairs Committee and a co-sponsor of the measure, said, “Iran may have a new president, but its march toward a nuclear program continues.”

The Senate voiced strong support for the House bill, with 76 senators signing a letter sent to Obama calling on the White House to toughen sanctions. “Iran has used negotiations in the past to stall for time,” the letter reads in part, “And in any event, Khamenei is the ultimate decision-maker for Iran’s nuclear program.” The White House previously said it wants Congress to hold off until after it is clear what Rohani’s stance will be on a resumption of talks.

But as the House and Senate know, it’s not about Rohani. It’s about Supreme Leader Ayatollah Ali Khamenei and his ideas on the direction of Iran’s nuclear weapons program.

Amir Taheri / New York Post

“The ‘Supreme Guide’ believes the United States is in terminal decline and that Iran need not be accommodating. If Rohani is of use, it’s to hoodwink Washington with formal negotiations to prevent military action during the final phase of U.S. decline.

“Second: Earlier this month, Rohani spoke of ‘fresh opportunities’ regarding ties with Washington. Khamenei reacted in a speech, ruling out any thaw in relations. ‘Americans are dishonest, illogical and untrustworthy,’ he said. He also referred to the United States as ‘the enemy of humanity.’”

Separately, China repeated its opposition to tougher U.S. sanctions on Iran, the success of which depends on China, Iran’s top customer, which has repeatedly said it opposes unilateral sanctions.

Earlier, outgoing President Ahmadinejad said Iran is poised to activate 5,000 more uranium enrichment centrifuges, on top of the 12,000 now running.

And an Iranian diplomat denied media claims Russian President Putin is meeting with Rohani in Tehran in August.

Israel: Last Sunday, the cabinet paved the way for negotiations with the Palestinians by voting 13-7 to empower a ministerial committee to release 104 Palestinians prisoners over the next nine months.

The prisoners, all incarcerated for attacks that took place prior to the 1993 Oslo Accords, are to be released in four different stages. Such a release ensures the Palestinians uphold their commitments during the initial nine months of negotiations not to take unilateral actions against Israel at the U.N. or other international forums, as the Palestinians have threatened to do in the past.

Prime Minister Netanyahu, in discussing the prisoner release, told the cabinet:

“It is not easy for the ministers. It is not easy especially for the families, the bereaved families, whose heart I understand. But there are moments in which tough decisions must be made for the good of the country and this is one of those moments. I believe that resuming the diplomatic process at this time is important for the State of Israel, both in order to try to bring about an end to the conflict and given the complex reality in our region, especially the security challenges from Syria and Iran.”

Talks were held in Washington this week, setting the stage for the first formal negotiations between the two sides in nearly three years to be held within two weeks either in Israel or the West Bank, with the goal of a comprehensive agreement within nine months, according to Secretary of State John Kerry.

But Palestinian Authority President Mahmoud Abbas laid out his vision, saying no Israeli settlers or border forces could remain in a future Palestinian state and that Palestinians deem illegal all Jewish settlement building within the land occupied in the 1967 Six Days War.

In a briefing to mostly Egyptian journalists, Abbas said, “In a final solution, we would not see the presence of a single Israeli – civilian or soldier – on our lands. An international, multinational presence like in Sinai, Lebanon and Syria – we are with that,” he said.

Abbas also signaled no change in his stance of no Jewish settlements on the West Bank. What to do about the 360,000 people living in some 150 Jewish settlements there will be at the core of negotiations, if they last more than a week or two.

For its part, Israel opposes the use of the 1967 frontiers as a basis for talks and wants to keep building in the West Bank.

Syria: On Thursday, President Bashar al-Assad said, “If we in Syria were not sure of victory, we would not have had the will to...persevere in the face of more than two years of aggression.”

Government troops continue to make progress against the rebels in Homs, though the rebels apparently carried out a successful attack on an arms depot in the city that killed at least 40 on Thursday.

But as Michael Peel of the Financial Times reported:

“As the battle between a regime backed by Shia foreign powers and a rebel movement dominated by members of Syria’s Sunni majority grows ever more intense, extremists inside and outside the country have stepped up efforts to cast the conflict as the epicenter of an existential fight between the two main branches of Islam. The conflict has mobilized fighters ranging from Sunni jihadists to members of the Lebanese Shia militant group Hizbullah – and triggered a debate over whether Syria will be the spark for a sectarian cataclysm in the wider Middle East.” [i.e., see Iraq]

Egypt: Speaking from Pakistan on Thursday, Secretary of State Kerry praised Egypt’s military ouster of President Mohammed Morsi.

“In effect, they were restoring democracy,” Kerry said. “The military did not take over, to the best of our judgment – so far, so far – to run the country. There’s a civilian government.” Kerry then mumbled something about being concerned over the violence.

Egypt’s cabinet ordered a police crackdown on protesters, this after over 100 members of the Muslim Brotherhood have been killed since Morsi’s ouster, 82 in a pro-Morsi protest in Cairo last weekend.

The cabinet announced protest camps at two Cairo squares posed a “threat to national security.”

“The government has decided to take all necessary measures to confront and end these dangers, and tasks the interior minister to do all that is necessary in this regard, in accordance with the constitution and law,” read a statement.

Mohammed Badie, the supreme leader of the Brotherhood who is a fugitive, attacked Gen. al-Sisi, the head of the armed forces, saying he was leading a “bloody regime” and urging his followers to stand fast.

Catherine Ashton, the EU foreign policy chief, was allowed to see Morsi, who she said is well, but the location was kept secret.

Editorial / Washington Post

“Erasing the Muslim Brotherhood from Egypt’s political scene – as Gen. Sisi seems intent on doing – is impossible. To attempt it is to play with fire. It could create a schism that would put Egypt on a road toward civil war with dire consequences. Violent uprisings in Syria and Egypt at the same time would be particularly dangerous for Israel, the United States’ strongest ally in the region. Bringing Egypt back from the edge of disaster ought to be one of Mr. Obama’s most urgent priorities, and that may require rethinking his policy. Forbearance and obfuscation haven’t done the trick.”

[In a separate example of the violence in Egypt these days, at least 15 people were killed Monday night in a brawl between Cairo street vendors over space, including 13 who were burned to death. A shop owner, upset over the vendors setting up outside his establishment, shot and killed two of them. The rest of the vendors then set his shop on fire, killing the owner and his employees.]

Iraq: The U.N. mission in Baghdad reported that 1,057 Iraqis were killed in July, making it the most violent month in more than five years. According to the Iraq representative, 4,137 civilians have been killed thus far in 2013. Gyorgy Busztin said, “Iraq’s political leaders must take immediate and decisive action to stop the senseless bloodshed.”

Clearly, the dark days of the peak of the anti-U.S. insurgency in 2006-07 have returned.

Afghanistan: Only 28% of Americans say the war here has been worth fighting, the lowest number on record, according to a Washington Post/ABC News survey. Only 43% say the war has contributed to long-term U.S. security, the first time that number has dipped below 50% in the past four years.

1,319 civilians were killed in Afghanistan in the first half of 2013, vs. 1,158 in the first six months of 2012, raising questions whether the Afghan Army and security forces can protect the population as the American-led NATO operation winds down. The Taliban is blamed for at least 90% of the casualties, according to a new U.N. report.

Libya: More than a thousand inmates escaped a prison Saturday outside Benghazi. The country’s prime minister said, “Special forces were present and could have got the situation under control by using their arms but they had received orders not (to use) their weapons on citizens....so the citizens opened the doors to the prisoners.” [Esam Mohamed / AP] Oh brother.

Pakistan: Speaking of prison breaks, about two weeks ago you had the massive breakout at Abu Ghraib in Iraq. Some 500 are still said to be loose, many al-Qaeda types.   This past Tuesday, the Taliban launched a massive attack on a Pakistani prison that led to 250 prisoners being released, including 40 to 50 “hard-core terrorists,” according to a Pakistani official.

Separately, former Pakistani President Pervez Musharraf is about to be charged with the alleged murder of ex-Prime Minister Benazir Bhutto.

Tunisia: Gunmen killed at least eight Tunisian soldiers Monday who were trying to track down Islamist militants in a remote part of the country.

Russia: The Kremlin granted Edward Snowden temporary asylum for one year, allowing him to leave the Moscow airport and travel anywhere in Russia.

In a statement issued on the WikiLeaks website, Snowden said: “Over the past eight weeks we have seen the Obama administration show no respect for international or domestic law, but in the end the law is winning.

“I thank the Russian Federation for granting me asylum in accordance with its laws and international obligations.”

President Obama is slated to meet with President Putin on the sidelines of a G20 summit in early September in Saint Petersburg.

White House spokesman Jay Carney said: “We’re extremely disappointed that the Russian government would take this step despite our very clear and lawful requests in public and in private to have Mr. Snowden expelled to the United States to face the charges against him.

“We’re evaluating the utility of a summit in light of this and other issues.”

U.S. Senator Robert Menendez (D-NJ), chairman of the Senate Foreign Relations Committee, described Thursday’s development as “a setback to U.S.-Russia relations.”

“Edward Snowden is a fugitive who belongs in a United States courtroom, not a free man deserving of asylum in Russia,” said Menendez.

Sen. John McCain (R-Ariz.), said Russia’s actions were “a disgrace and a deliberate effort to embarrass the United States.”

“It is a slap in the face of all Americans. Now is the time to fundamentally rethink our relationship with Putin’s Russia. We need to deal with the Russia that is, not the Russia we might wish for,” said McCain.

More than half of Russians have a positive opinion of Snowden, according to a poll conducted by independent research group Levada this week.

Snowden’s temporary refugee status will expire July 31, 2014, after which he can be extended for another year or upgraded to 5-year permanent asylum, according to the Moscow Times. Snowden is apparently going to look for a job as a human rights activist.

Editorial / New York Post

“Is America still a superpower? Russian President Vladimir Putin sure doesn’t think so, a point he made clear yesterday by granting refuge to one of our biggest traitors, Edward Snowden.

“Snowden’s leaks have done untold, irreparable harm. He’s wanted on federal felony charges and has been hiding in a Moscow airport. America asked Russia to hand him over, but Putin had no fear of consequences by instead granting Snowden asylum, the international equivalent of aiding and abetting and a blatant nose-thumb to America.

“Nor has Putin helped on other vital matters, like stopping Iran’s nuclear drive or ending the brutality of Syria’s Bashar al-Assad. Quite the opposite: he’s been sending weapons and military equipment to Assad and the terrorist group Hizbullah, including anti-ship missiles that U.S. and Israeli officials see as a direct threat. Yesterday, the New York Times reported that Russia is believed to be sending ‘technical experts’ to Syria to help set up new missile systems.”

Editorial / Wall Street Journal

“Russia’s decision to grant Edward Snowden asylum is a hostile act against the United States. If it forces the Obama Administration to shed its blinders and rethink America’s indulgent relationship with Vladimir Putin’s regime, then at least this sorry affair might have a silver lining....

“What was that President Obama said about having ‘restored America’s standing in the world?’....

“In June, Secretary of State John Kerry had vowed that Russia would suffer ‘without any question, some effect, an impact on the relationship and consequences’ for harboring Mr. Snowden. This threat had no seeming effect on Mr. Putin, whose government has now given the American a one-year, renewable residence permit. Perhaps they’ll throw in some tickets to the Sochi Olympics.

“And why should Mr. Putin be worried? This White House has always looked away from Russian misbehavior....

“It may be too late to move the useless G20 confab, but the least President Obama can do is skip his Moscow sitdown....

“The Snowden affair has been a world-class debacle, from his access to NSA secrets as a fresh-faced consultant, to the diplomatic stiff-arm by Hong Kong and China, to the Administration’s inept and half-hearted defense of U.S. antiterror surveillance, and now to humiliation at the hands of the Kremlin. Presidential amateur hour is getting expensive to U.S. interests and security.”

China: President Xi Jinping told a Communist Party Politburo meeting on Wednesday that becoming a maritime power was a priority, with Xi vowing to further explore maritime resources.

“Oceans and seas have an increasingly important strategic status regarding global competition in the spheres of politics, economic development, military and technology,” he said.

China’s neighbors are thrilled.

The West should also be scared by a report from the London Times that it appears China now has (or soon will have) three operational nuclear-armed submarines due to reports China has secretly trained six crews to man them. [One crew off, one crew on for each of the three.]

The number three is significant because one sub would be used for training, one would be in for maintenance, and one would be operational and armed with 12 missiles capable of being launched against the United States.

But some say the Chinese made submarines, while quiet, would be detected by both the Japanese and U.S. military.

“As it stands, China separates its arsenal of nuclear warheads from the missiles that deliver them to ensure that control is not given to individual commanders in the field. In order to perform their role as deterrents, China’s nuclear submarines would depend upon Beijing trusting a single individual with its most powerful weapons.” [Leo Lewis and Michael Evans / London Times]

On other matters, China has cracked down on more than 100 privately-run news websites, what the government calls a move against extortionists, but what critics say is a campaign against citizen journalists.

And the environmental minister said that air pollution had become so severe that the country could “no longer afford further delays in its cleanup efforts.”

As reported by the South China Morning Post, “Air quality in 74 major cities was deemed unsafe for nearly half of the days in the first six months of this year, with the area comprising Beijing Tianjin-Hebei found to be the most polluted region.”

The Wall Street Journal had a piece last weekend addressing how pollution also is severely impacting the soil.

“Estimates from state-affiliated researchers say that anywhere between 8% and 20% of China’s arable land, some 25 to 60 million acres, may now be contaminated with heavy metals. A loss of even 5% could be disastrous, taking China below the ‘red line’ of 296 million acres of arable land that are currently needed, according to the government, to feed the country’s 1.35 billion people.”

Zimbabwe: Morgan Tsvangirai, who is making his third bid to unseat 89-year-old President Robert Mugabe (2002 and 2008 being the others), called this week’s parliamentary and presidential election a “huge farce.” Mugabe seemed headed to a resounding victory, with the Electoral commission saying his Zanu-PF party had won 137 out of 186 seats declared thus far in the 210-seat parliament. Nothing on the presidential race as yet. The thing is, Tsvangirai has been a disappointment after failing to push for greater change while in the unity government.

The African Union observer mission’s head said the elections were “free, honest and credible,” but earlier the same group said the poll was “seriously compromised.”

Now that’s a farce.

Mali: This country held its first presidential election since a rebellion and coup nearly fractured it last year and it passed peacefully. Credit the French, who intervened to defeat an al-Qaeda-linked militia that was threatening to take over Mali.

Yes, the nation could remain geographically divided if the north doesn’t find the election results credible and legitimate, but there’s hope this works out. However, I just saw a contentious run-off is now in order.

Random Musings

--Pete Yost and Matt Apuzzo / AP:

“President Barack Obama’s national security team acknowledged for the first time Wednesday that, when investigating one suspected terrorist, it can read and store the phone records of millions of Americans.

“Since it was revealed recently that the National Security Agency puts the phone records of every American into a database, the Obama administration has assured the nation that such records are rarely searched and, when they are, officials target only suspected international terrorists.

“Meanwhile, at a hacker convention in Las Vegas on Wednesday, the head of the NSA said government methods used to collect telephone and email data helped foil 54 terror plots – a figure that drew open skepticism from lawmakers back in Washington. ‘Not by any stretch can you get 54 terrorist plots,’ said the chairman of the Senate Judiciary Committee, Sen. Patrick Leahy, D-Vt.”

Earlier in July in the House, Rep. James Sensenbrenner, R-Wis., told top intelligence officials, that lawmakers had never intended the NSA to build a database of every phone call in America. “You’ve got a problem,” said Sensenbrenner.

What we learned in the Senate hearing this week is that the NSA said it conducted 300 searches of its telephone database last year. But with the “hop” or “chain” analysis, we are finding out this could mean scrutinizing tens or even hundreds of millions of people.

Sen. Dick Durbin of Illinois, the No. 2 Democrat in the Senate, said, “So what has been described as a discrete program, to go after people who would cause us harm, when you look at the reach of this program, it envelopes a substantial number of Americans.”

John Inglis, the NSA’s deputy director, conceded NSA officials “try to be judicious” about conducting hop analysis.

Of course without Edward Snowden’s leaks, we never would have known about these programs.

I totally agree with Sen. Leahy:

“There’s always going to be dots to collect, analyze and try to connect. Government is already collecting data on millions of innocent Americans on a daily basis based on a secret legal interpretation of a statute that does not on its face appear to authorize this kind of bulk collection. So what’s going to be next? When is enough enough?”

I have said from day one that I didn’t mind the government collecting phone records but was dead set against the bulk collection of emails, assuming the government was not listening in or creating transcripts of every phone call, but it could read your emails under sketchy legal precedent.

Now it is totally unclear just what the government is doing with phone calls, while it seems obvious the other facets of its data collecting are subject to major abuse.

Meanwhile, locally, New Jersey Gov. Chris Christie and Kentucky Sen. Rand Paul have been going at it in a dispute over national security and federal disaster aid, though by week’s end both probable 2016 contenders for the Republican presidential nomination were beginning to tone down the rhetoric.

Christie had targeted politicians like Paul, blaming them for a dangerous “strain of libertarianism.” Christie noted he did not bring up Paul’s name, the moderator of a forum he was attending did.

The day after, Paul accused Christie and the leaders of other states that receive federal Sandy aid of having a “gimme gimme gimme” attitude.

Christie then went after Paul’s pork barrel spending. Paul called Christie the “king of bacon” for lobbying and spending billions in disaster relief dollars.

What is clear is there is going to be one helluva battle for the soul of the Republican Party.

--Army Pfc. Bradley Manning was acquitted Tuesday of the most serious charge he faced, aiding the enemy, though he still faces life in prison for his conviction on 20 lesser charges.

In a military court-martial, prosecutors were able to convince Army Col. Denise Lind that the reams of documents Manning passed on to WikiLeaks constituted violations of the Espionage Act. Manning’s lawyers maintained he handed over information that he believed would not harm the United States.

Manning’s family said in a statement, “Brad loves his country and was proud to wear its uniforms.”

Hardly. Manning harvested 700,000 classified military and diplomatic files that he then turned over to those who only seek to do the U.S. harm.

Maj. Ashden Fein, speaking for the prosecution, said, “He was not a whistleblower; he was a traitor.” But this was difficult to prove because Manning wasn’t technically passing information directly to an enemy agent, though the government argued he had to have known what he was handing WikiLeaks would have been of benefit to al-Qaeda.

Of course technology has changed the espionage game and the nature of threats to the United States so the rules and laws have to be modernized.

Most expect the case to be appealed up to the Supreme Court.

The Manning conviction makes it more likely WikiLeaks founder Julian Assange will be prosecuted as a co-conspirator.

And WikiLeaks also played a role in helping National Security Agency leaker Edward Snowden get from Hong Kong to Moscow.

Assange himself remains in the Embassy of Ecuador in London, where he has now been for more than a year, while there is still a Swedish warrant for his arrest.

--Phony scandals, Mr. President? Jake Tapper / CNN:

“Sources now tell CNN dozens of people working for the CIA were on the ground (when four Americans were killed at the consulate in Benghazi last September), and that the agency is going to great lengths to make sure whatever it was doing remains a secret.

“CNN has learned the CIA is involved in what one source calls an unprecedented attempt to keep the spy agency’s Benghazi secrets from ever leaking out.

“Since January, some CIA operatives involved in the agency’s missions in Libya, have been subjected to frequent, even monthly polygraph examinations, according to a source with deep inside knowledge of the agency’s workings.

“The goal of the questioning, according to sources, is to find out if anyone is talking to the media or Congress....

“In exclusive communications obtained by CNN, one insider writes, ‘You don’t just jeopardize yourself, you jeopardize your family as well.’”

--Defense Secretary Chuck Hagel laid out a plan to slash spending drastically at the Pentagon should the sequester remain in place, saying the cuts he outlined didn’t amount to “crying wolf.”

Among the options is shrinking the Army from 490,000 under current targets to a force as small as 380,000, while the Navy could lose two aircraft carriers and the Air Force numerous bombers and transport aircraft (read older C-130 cargo planes).

The alternative, Hagel said, would be to eliminate militarywide modernization programs.

“The balance we strike between capability, capacity and readiness will determine the composition and size of the force for years to come,” he said.

--This is not a pleasant topic...from Army Times:

“While the Army’s intense public attention has been focused on suicides, domestic violence and sex assaults in the ranks...an epidemic of child abuse inside the Army is so under the radar that even top brass were unaware of its scope and an alarming spike in cases. Nearly 30,000 children have suffered abuse or neglect in Army homes over the past decade, an Army Times investigation show.

“Beatings, torture and starvation claimed the lives of 118 Army children.

“More than 1,400 children were subjected to sexual abuse....

“The Army’s rate of child abuse was 4.5 cases per 1,000 children for 2011. The civilian rate was 27.4 per 1,000 children, according to the Children’s Bureau of the Department of Health and Human Services.

“But the number of Army cases has spiked 28 percent between 2008 and 2011, while the number of civilian cases has increased by 1.1 percent.”

Last year’s 3,698 reported cases of abuse and neglect represented a 40 percent increase over the 2,626 in 2009.

While it’s easy to blame the spike “with the grind of the wars in Iraq and Afghanistan...a policy of allowing people with criminal backgrounds into the ranks” is not helping.

The abuse is committed about half by soldiers and the other half by civilians, mostly spouses.

--According to Monday’s Quinnipiac University Polling Institute survey of likely Democratic primary voters, in the New York City mayoral race, City Council Speaker Christine Quinn leads the pack with 26%. Anthony Weiner is fourth at 16%. 53% said he should withdraw from the race. A previous survey, taken before the latest sexting revelations, had Weiner on top with 26%.

--Editorial / New York post

“Mike Bloomberg may be on his way out. But this week his better angels were at work, and we do well to pay attention. Here are just a few highlights:

“ * The irresponsibility of Eliot Spitzer. In reaction to a campaign based on putting a bullseye on Wall Street, the mayor pointed out the obvious: It’s not helpful to have a candidate targeting for political purposes our leading industry, one whose taxes effectively pay for our cops and firefighters.

“ * Retroactive pay raises for city workers. Unions representing the city’s 300,000 government workers are demanding $7.8 billion in retroactive raises. Bloomberg says ‘reasonable’ raises going forward are fine, but the next mayor must not be bullied into giving in to demands that would hurt our economy and possibly double our already sky-high income taxes.

“ * Crime. Though successful policing has brought crime to record lows, the City Council has passed two bills that threaten our safety – one mandating an inspector general to second-guess police, the other opening cops to more lawsuits. Bloomberg vetoed both this week. Even if overridden, he’s at least forcing accountability....

“The mayor’s wisdom suggests that one of his greatest contributions to New York could be ensuring that the candidates hoping to succeed him aren’t allowed to ignore the vital issues he’s raised here.”

I have not been one to criticize Mayor Bloomberg on his nanny state tendencies. I couldn’t give a damn. Plus I drink beer...not soda...and I never smoked.

New York City is so spoiled after 20 years of Bloomberg and Giuliani. If I lived there, and I’ve certainly visited enough over the years, one issue is above the others...crime.

Gotham is in for a rude awakening given the field of candidates it has today, and assuming Ray Kelly departs for Washington and the Homeland Security position.

The only thing that will keep New York from spiraling down is a return of William Bratton.

Otherwise, I’d ‘short’ the Big Apple, friends.

--NBC announced it would produce a four-hour mini-series on Hillary Clinton. CNN then said its film division would produce a documentary on her. The latter is to be released in 2014.

As for the NBC production, it would star Diane Lane.

Noooo! Not my favorite actress in the world!!! [For you younger guys out there, just understand when you get to be my age....]

Anyway, the script will begin with Clinton living in the White House as her husband is serving the second of his two terms. 

--On April 20, 2012, Daniel Chong, then an engineering student at UC San Diego, went to a house near campus to smoke marijuana with friends and found himself swept up in a DEA raid. [I never realized April 20 is a traditional counterculture day for such things.]

Officers found large quantities of drugs and ecstasy pills. Chong, though, didn’t know the house had been under surveillance for days.

So Chong and eight others were taken into custody. After being questioned briefly at the DEA facility in San Diego, he was told he would be released.

Tony Perry / Los Angeles Times:

“But, for reasons that remain unclear, Chong was left for five days in a 5-by-10-foot windowless room without food, water or toilet facilities. He quickly lost weight and was able to slip out of a pair of handcuffs.

“He suffered hallucinations. He tried to break a fire sprinkler to get water but failed. Instead he said he had to drink his own urine to survive. He screamed for help but soon became too weak. For the final two days, Chong was in the dark.

“Fearing that he would die, Chong broke his glasses and scrawled the message, ‘Sorry, mom,’ on his arm.

“When he was discovered by DEA employees, Chong was covered in his own feces and severely dehydrated. He was rushed to a hospital, close to kidney failure and breathing with difficulty. He spent five days in the hospital.”

This week, Chong was awarded $4.1 million from the federal government to settle his claim for maltreatment. This kid deserves it.

--Ariel Castro was sentenced to life without parole plus 1,000 years for abducting the three women in Cleveland. One of them, Michelle Knight, 32, wept as she delivered her victim impact statement before Castro.

“I spent 11 years in hell. Now your hell is just beginning. You will face hell for eternity.

“From this moment on, I will not let you define me, or affect who I am. I will live on, you will die a little every day.”

She was the only victim to speak at the hearing.

Castro gave a rambling statement, telling the court in part he was “driven by sex” but claiming “I’m a normal person.”

There are all kinds of ways I’d like to see Castro’s life end, but I’ll keep them to myself.

As for Michelle Knight, Amanda Berry and Gina DeJesus, may they find peace. They deserve our prayers.

--A Los Angeles Times study of the L.A. Department of Water and Power found that since 2010, the department has paid employees more than $35.5 million for 103,802 extra sick days, the equivalent of 415 years of lost productivity.

The Times exam of data obtained under the California Public Records Act found thousands of employees took paid days off well beyond the agency’s nominal 10-day-a-year cap on sick days.

Yet another reason why America is incredibly overrated.

[The L.A. DPW is now changing its policy to require employees who are out sick for more than three days to provide a doctor’s note. Congratulations to the L.A. Times for a job well done.]

--The following local story is incredibly depressing, especially when you see the pictures of the innocent victim. From the Star-Ledger’s Anthony J. Machcinski:

“A New York bus driver accused of being on a cellphone before a crash that claimed the life of an 8-month-old girl in West New York yesterday will make his first court appearance in Jersey City tomorrow morning on death by auto charges, authorities said.

“Idowu Daramola, 48, of New York...was issued summonses for reckless driving and for using a cellphone while operating a motor vehicle.”

The bus suddenly veered out of control, jumped a curb, and crashed into a lamppost, “which struck the baby in her carriage...The bus then slammed into a tree, another lamppost and into a parked car.

“When the bus hit the parked car, it created a chain reaction that involved at least three other parked cars, one of which was occupied by four people who were taken to area hospitals for minor injuries, officials said.”

It’s so sickening. He was texting. When are people going to learn?! And imagine the police officer who immediately was at the scene, trying desperately to give the baby CPR. The officer told the Ledger, “After CPR, she was gasping every third breath I gave her,” he said. But the little girl died in the ambulance.

--Pope Francis had quite a week in Brazil. You never know what the long-lasting impact will be, but when you are able to bring three million together, as Francis did at Copacabana beach last Sunday for a Mass at the end of his historic trip, you have to call it a success.

“Do not be afraid to go and to bring Christ into every area of life, to the fringes of society, even to those who seem farthest away, most indifferent,” he said.

Some 39% of all Catholics are Latin American, the biggest regional group in the Church, though in Brazil and elsewhere, the Church has been losing out to the Pentecostal movement and evangelical Protestants.

But at least for one week, Brazilians and others across the continent saw an energetic pontiff who spoke about taking back their church.

“At times,” Francis said, “we lose people because they don’t understand what we are saying, because we have forgotten the language of simplicity and import an intellectualism foreign to our people. Without the grammar of simplicity, the church loses the very conditions which make it possible to fish for God in the deep waters of his mystery.”

--July was the hottest month in Ireland in 120 years. Parts of China, including Shanghai, experienced their hottest July in 140 years. Shanghai had 24 days in the month where the temperature hit 95 degrees or higher, including its highest ever, 105. But before you know it, we’ll all be bitching about winter.

--And with the U.S. issuing a world-wide terrorism alert, specifically pointing to al-Qaeda in the Arabian Peninsula, I guess they weren't defeated after all...as a certain presidential candidate last year wanted us to believe.

---

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

God bless America.
---

Gold closed at $1310
Oil, $106.94

Returns for the week 7/29-8/2

Dow Jones +0.6% [15658]
S&P 500 +1.1% [1709]
S&P MidCap +2.1%
Russell 2000 +1.1%
Nasdaq +2.1% [3689]

Returns for the period 1/1/13-8/2/13

Dow Jones +19.5%
S&P 500 +19.9%
S&P MidCap +22.9%
Russell 2000 +24.8%
Nasdaq +22.2%

Bulls 48.4
Bears 19.6 [Source: Investors Intelligence]

Dr. Bortrum posted a new column. All about his hip surgery.

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

08/03/2013

For the week 7/29-8/2

[Posted 12:00 AM ET]

Wall Street and Washington

There were three big events on the U.S. financial front this week: a first reading on second-quarter GDP, the Federal Reserve’s Open Market Committee meeting, and the July labor report.

The flash estimate on GDP came in better than expected, 1.7%, but then in a revision of the economy that the Bureau of Economic Analysis conducts every five years or so, the first quarter’s growth figure was revised down from 1.8% to 1.1%. So the U.S. economy averaged 1.4% for the first two quarters.

Compared with the prior three months, the U.S. actually grew less than the U.K. in the April-to-June period, 0.4% vs. the U.K.’s 0.6%.

Consumer spending, which accounts for about 70% of U.S. GDP, was also less in the second quarter than the first, 1.8% compared with 2.3%.

But with the BEA’s revisions, the U.S. economy actually grew by 2.8% in 2012, up from its previous estimate of 2.2%, while the recession, which lasted from December 2007 to June 2009, saw the economy contract 4.3%, better than the previous estimate of a 4.7% drop.

The changes are due to a re-measuring of the size of the economy that takes into account the impact of research and development spending, as well as that of intellectual property, including artistic creations such as movies and syndication revenues (see Seinfeld), changes the Wall Street Journal views as “long-overdue,” even as “The current not-so-great economic recovery trudges on.”

“The revised GDP numbers also sharpen the historical understanding of the policies that have promoted robust growth – and those that haven’t,” the Journal opines. To wit:

Average Annual GDP Growth

1929-2012...3.3%
1959-2012...3.4
2002-2012...1.8
2009-2012...2.4

Quarterly GDP Growth

QIV 2012...0.1
QI 2013.....1.1
QII 2013....1.7

Source: Bureau of Economic Analysis

Wall Street Journal:

“As the GDP revisions remind us, the challenge for the U.S. economy is to get back to the prosperous 3.3% growth rate that has been the American norm. Many economists are predicting that growth will revive in the second half, perhaps assuming that the second quarter results mean the Federal Reserve will maintain its current policy for even longer. We hope they’re right about growth, because by any measure the Obama years and policies ought to make Americans nostalgic for the good old days.”

Speaking of the Fed, it held its last Open Market Committee meeting before a critical one already looming, September 17-18, and while not a single human on the planet expected the Fed to change its existing interest rate or bond-buying stances, there was some hope it would offer a clue as to when it will begin pulling back on the latter. But the Fed, in its statement, offered no such clues.

The only change in the official language was a labeling of economic growth as “modest” as opposed to the past statement’s use of “moderate.” Otherwise, no indication on the timing for trimming, or tapering, bond purchases.

So it’s back to an analysis of the data. A July ISM report on manufacturing came in stronger than expected, 55.4, the best level since June 2011, while readings on construction spending and factory orders were less than expected, though these were June readings.

Which brings us to Friday’s jobs report for July and what a downer it proved to be...only 162,000 on the non-farm payroll front vs. expectations of 183,000, with whisper numbers exceeding 200,000; plus May and June were revised downward.

Further, the private sector only created 161,000 and 85,000 of the jobs were in the low-paying retail and food services and hospitality sectors, thus continuing a depressing trend for this putrid recovery. Average hourly earnings also declined for the first time since last October.

The unemployment rate, though, fell to 7.4%, though “U-6,” which includes those involuntarily working part-time or “marginally attached” to the labor force is still at 14.0%.

Prior to the 8:30 a.m. release of the employment data, however, the yield on the 10-year Treasury had climbed back to 2.75%, the intraday peak set on July 8, on the expectation a strong number would encourage the Fed to begin tapering in September as many economists expect.

The poor figure, though, sent the 10-year back to 2.60% by the close on Friday. Once again, the bond market is racked with uncertainty. The August labor number, released Sept. 6, becomes even more critical in judging what the Fed is likely to do some 12 days later.

There was some other economic news. Jobless claims hit a five-year low at 326,000 and the S&P/Case-Shiller barometer on home values for May showed a 12.2% increase over May 2012 for its 20-city index. The decline off the 2006 peak, once as great as 35.1% in March 2012, is now 24.4%. Dallas and Denver have hit new all-time peaks. Over the 12 months ending May 2013, San Francisco is up 24.5%, Las Vegas 23.3%, and Phoenix up 20.6%.

Meanwhile, Congress goes off for its five-week summer break without any progress whatsoever on the budget front. Upon their return on Sept. 9, there will be but three weeks to reach agreement on dealing with the sequester and to fund federal agencies for fiscal 2014, which starts Oct. 1, and then a few weeks after that, Treasury faces the risk of default unless an agreement is reached on the debt ceiling.

As if that’s not depressing enough, you have Senate Majority Leader Harry Reid issuing a warning to fellow Democrat, Sen. Max Baucus of Montana, chairman of the finance committee, not to proceed with an overhaul of the tax code unless there is “significant revenue” to be generated from the effort.

Reid, in an interview with the Wall Street Journal, went public in his disagreement with Baucus.

“I’ve explained this to Sen. Baucus. I don’t want anyone going into these negotiations with the illusion that they can come back with a small [revenue increase] number, and we’ll gobble it up under the guise of tax reform.”

Reid added “it would be a waste of time” to enter into negotiations with Sen. Orrin Hatch (R-Utah), Sen. Baucus’ GOP counterpart on the finance panel.

So if you were praying for real tax reform you can forget it. Any hope has just been extinguished. Baucus, after all, had already announced he was not running for re-election in 2014 and thus was devoting his remaining time to producing a true rewrite of the federal tax code.

It sucks.

Couple the above with President Obama’s fanning of the class warfare flames and one gets depressed further. In an interview with the New York Times, Obama said in part:

“If we don’t do anything (about the struggles of the middle class), then growth will be slower than it should be. Unemployment will not go down as fast as it should. Income inequality will continue to rise. That’s not a future that we should accept.”

Obama then said the country’s struggle over race would not be eased until Washington began addressing the fear of many people that financial stability is unattainable.

“Racial tensions won’t get better; they may get worse, because people will feel as if they’ve got to compete with some other group to get scraps from a shrinking pot,” Obama said.

Finally, The Economist had the following take on the issues faced in Detroit and many other American cities and states.

“Nearly half of Detroit’s liabilities stem from promises of pensions and health care to its workers when they retire. American states and cities typically offer their employees defined-benefit pensions based on years of service and final salary. These are supposed to be covered by funds set aside for the purpose. By the states’ own estimates, their pension pots are only 73% funded. That is bad enough, but nearly all states apply an optimistic discount rate to their obligations, making the liabilities seem smaller than they are. If a more sober one is applied, the true ratio is a terrifying 48%. And many states are much worse. The hole in Illinois’ pension pot is equivalent to 241% of its annual tax revenues: for Connecticut, the figure is 190%; for Kentucky, 141%; for New Jersey, 137%.

“By one recent estimate, the total pension gap for the states is $2.7 trillion, or 17% of GDP. That understates the mess, because it omits both the unfunded pension figure for cities and the health-care promises made to retired government workers of all sorts. In Detroit’s case, the bill for their medical benefits ($5.7 billion) was even larger than its pension hole ($3.5 billion).

“Some of this is the unfortunate side-effect of a happy trend: Americans are living longer, even in Detroit, so promises to pensioners are costlier to keep. But the problem is also political. Governors and mayors have long offered fat pensions to public servants, thus buying votes today and sending the bill to future taxpayers. They have also allowed some startling abuses. Some bureaucrats are promoted just before retirement or allowed to rack up lots of overtime, raising their final-salary pension for the rest of their lives. Or their unions win annual cost-of-living adjustments far above inflation. A watchdog in Rhode Island calculated that a retired local fire chief would be pulling in $800,000 a year if he lived to 100, for example. More than 20,000 retired public servants in California receive pensions of over $100,000.”

Europe

Euro equity markets continued to rally on the feeling the region has finally bottomed. The unemployment rate for all 27 nations in the European Union ticked down in June to 10.9% from 11.0% in May, but for the 17-nation eurozone remained unchanged at 12.1%.

A reading on July manufacturing, however, came in at 50.3 for the euro-17, as compiled by Markit, compared with 48.8 in June, a two-year high. Germany’s PMI was 50.7 vs. 48.6 the prior month (though German retail sales for June fell 1.5% from May), Italy’s climbed to 50.4, best since May 2011, France’s PMI rose to 49.7 from 48.4, and even Greece rose to 47.0. Non-euro Britain saw its manufacturing PMI for July rise to 54.6, a 28-month high.

But Spain’s PMI ticked down to 49.8 in July from 50.0 in June.

Back to the employment data. Spain’s unemployment rate is 26.3% and Greece’s 26.9% (April). [The IMF this week warned that Spain’s rate could be stuck above 25% for at least five more years.]

The youth jobless rate in Spain is up to 56.1%, while the youth rate in Greece is at 58.7% (April). Portugal’s is 41.0% and Italy’s is 39.1%. The youth unemployment rate for the entire EU-17 is 23.9%.

But wait...there’s more! [For those who aren’t convinced the worst is necessarily over.]

Spain’s National Statistics Office reported second-quarter GDP fell 0.1% over Q1, an 8th straight quarterly fall. [Year-on-year, down 1.7%.] And as I’ve been pounding the table on for years now, Spain still isn’t addressing its bad loan issue with total honesty. It is trying, I grant you. A bad bank was created, Sareb, which has taken on about 200,000 real estate related assets, including 107,000 properties, 76,000 of which are empty homes. Home prices have declined 35% from the peak, but there are further declines to come.

About 680 million euros of the 11.4 billion of real estate on the bad bank’s books represent uncompleted housing developments, according to a story in Bloomberg by Charles Penty and Esteban Duarte. Many of these empty developments are beginning to be bulldozed.

Italy’s banks are saddled with massive bad debt, with non-performing loans surging 22% in May from the same month in 2012, according to the Italian Banking Association. Lending by Italian banks to the private sector dropped 3.3% in June from a year earlier.

In Greece, the IMF said that in order to bring Greek debt levels back to a manageable level, Athens must be relieved further of debts it owes to eurozone governments totaling 4% of GDP, or 7.4 billion euro within the next two years. [Peter Spiegel / Financial Times]

Greek sovereign debt, after all the bailout money that has flooded in, is expected to peak at 176% of GDP this year.

But if the IMF is talking about further writedowns on top of those agreed to in December, can you imagine how the Germans will react? It’s suddenly a renewed campaign issue for German Chancellor Angela Merkel, less than two months from the critical Sept. 22 vote there, after which all hell could break loose all over again. The entire eurozone is on ‘pause’ until the German election, which is why many had wished the IMF had kept its mouth shut until October.

Further, as the Wall Street Journal’s editorial board points out:

“(In) pushing the European Union and the European Central Bank to forgive some of what Greece’s government owes them, the IMF is making a very different kind of case. The IMF wants Athens to stiff Brussels and Frankfurt so that Athens can fully pay back...the IMF.

“This is rich. The Fund report notes fearfully that ‘if the (bailout) program were to go irretrievably off-track and euro area member states did not continue to support Greece, the capacity to repay the Fund would likely be insufficient.’...

“The Greek government, as Wednesday’s report emphasizes, is responsible for failing in almost every instance to hold up its end of the bailout. The Fund now expects privatizations of state assets to yield 22 billion euro through 2020, less than half as much revenue as was predicted in March 2012.

“Yet there’s no erasing the complicity of Greece’s international creditors – all of them – in shaping the rescue’s ruinous outcome. The projections in Wednesday’s IMF report show that starting next year Greece will each year pay back more to the Fund than it borrows. The country’s total net obligation to the Fund is expected to peak this year at 16.9% of GDP, an amount Athens is supposed to spend the next 13 years paying down.

“If there is another restructuring of Greece’s bonds, eurozone governments will naturally be first in the line of fire. But the IMF, for its own role in Greece’s plight, deserves to play a part too.”

Finally, you have the politics of the region. Embattled Spanish Prime Minister Mariano Rajoy was forced to appear before parliament and admit he made mistakes in trusting a disgraced former Popular Party colleague, but he insisted claims he was corrupt were “lies and manipulations” and again refused to resign.

But the evidence Rajoy received illegal payments from a slush fund seems strong and there have been anti-government protests across the country, though not as yet of the truly serious variety.

Rajoy used his time before parliament to tout the recovering economy, saying a continued focus on the scandal was damaging Spain’s image. The main opposition leader from the Socialist Party said Rajoy was not in the chamber to debate the state of the economy.

And in Italy, former Prime Minister Silvio Berlusconi had his 4-year prison sentence upheld by the country’s highest court, a ruling he cannot appeal, though at age 76, he is unlikely to go to jail and faces probably a year of house arrest. The high court ordered a further judicial review on whether Berlusconi should be barred from holding public office.

Berlusconi unleashed an emotional nine-minute video in response to the verdict in a tax fraud case.

“No one can understand the onslaught of real violence that has been directed against me following an incredible series of accusations and trials that don’t have any foundation in reality,” he said.

Describing the more than 50 court cases he has faced, Berlusconi said it was all “genuine judicial harassment that is unmatched in the civilized world.”

“In exchange for the commitments I have made over almost 20 years in favor of my country and coming almost at the end of my public life, I have been rewarded with accusations and a verdict that is founded on absolutely nothing, that takes away my personal freedom and my political rights.”

For now, Berlusconi remains a senator and leader of the center-right People of Freedom Party (PDL), pending the court’s review of the ban on holding public office. The PDL is part of Italy’s ruling coalition and for now there is no talk of a dissolution of the government and new elections.

China and Japan

Beijing ordered a nationwide audit of all government debt, which is a bit unsettling though at the same time encouraging for the long-term. The focus is on local governments, many of whom borrowed heavily after the financial crisis to try to sustain growth rates. The last audit, published in 2011, showed that local governments took up 80% of total bank lending at the end of 2010.  The borrowings were generally split between infrastructure projects (road and rail) and property construction. Many of these just aren’t financially viable.

At the same time, China reported an increase in its manufacturing PMI for July to 50.3 vs. 50.1 in June. But HSBC released its final figure on PMI in China was unchanged at 47.7 from the earlier flash estimate. Recall, HSBC focuses mainly on small and private industry, while the official government reading looks at larger state-owned enterprises that indeed may have been faring better due to government support. [Then again, who the hell knows with these guys.]

What is certain is that the government does want to continue to rebalance the economy towards consumption.

Turning to Japan, Tokyo quietly sent a top diplomat to Beijing for two days of talks in an attempt to tone down the rhetoric between the two. Prime Minister Shinzo Abe later said he hoped “to promote unconditional, frank dialogue.”

August 15 is the key date. It would appear that Abe is not going to visit the Yasukuni shrine where the souls of some war criminals are honored. Right-wingers mark the end of World War II and Abe doesn’t need to be seen sticking it to China and South Korea at this time.

On the economic front, factory output for the month of June fell the most in more than two years, down 3.3% month on month, worse than expected, while household spending also fell 0.4% when a gain was projected. But Abenomics remains on track.

The big debate is April’s looming sales tax hike and whether this would derail the economic recovery. The Bank of Japan said this week it was not concerned. Prime Minister Abe is not so certain.

Remember, it’s about Japan’s massive public debt burden, the world’s largest, and government credibility in global financial markets that Japan has a handle on its finances. A lot more on this topic in coming months. Aren’t you excited? Time for a Sapporo, sports fans. 

Street Bytes

--Stocks weighed all the evidence and decided to power higher, new highs for the Dow Jones (15658) and S&P 500 (1709), up 0.6% and 1.1%, respectively on the week. For the Dow its winning streak is at six. Both are up 20% on the year. Nasdaq is up 22% after a 2.1% gain.

Ex-financials, S&P 500 revenues for the second quarter are only supposed to be up 1%; earnings actually down nearly 1%, according to Thomson Reuters.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.30% 10-yr. 2.60% 30-yr. 3.69%

In a meeting with House Democrats, President Obama strongly defended Larry Summers against criticism from the left of his party, who are opposing Summers’ potential nomination to fill the slot of the soon-to-be departing Ben Bernanke. Janet Yellen, the vice-chair of the Fed, remains the other leading contender.

--The Australian dollar slipped to its lowest level in three years against the U.S. dollar, which is good for the nation’s exporters, but consumers are getting whacked by higher gas prices.

Australia’s manufacturing index fell to 42 last month. The last reading above 50 was in February 2012, a good indicator of the state of things in China, Australia’s largest market. So the fall in the Aussie dollar hasn’t been enough to turn around the challenging environment.

[And now Australia faces a Sept. 7 snap election that promises to be very intense.]

--My favorite barometer for China, gambling revenues in Macau, rose 20% in July year-on-year, boosted by an increase in the number of Chinese visitors. July’s revenue number was the third strongest of the year. It’s all about the expanding middle-class, even as the slower economy has led to a decline in wealthy customers. Visits from mainland China rose 20% in June vs. year ago figures.

[I’ve been remiss in not reporting the Macau numbers as regularly as I used to. Gaming revenue was up 15.3% in the first half of the year vs. 2012, up more than 20% in June and 13.5% in May.]

--The European Union and China reached an agreement on a contentious trade dispute over solar panels. China is thus now freezing investigations into European wine exports, offering comfort to winemakers in France, Italy and Spain.

--Taiwan’s economy grew 2.3% in the second quarter over a year ago, slightly better than expected and above the first-quarter growth rate of 1.7%. Last week South Korea had announced the same 2.3% growth for its second quarter. For both economies, though, it’s all about China.

--A New York jury found former Goldman Sachs trader Fabrice Tourre, “Fabulous Fab,” as he called himself, liable for fraud in the run up to the financial crisis in 2008 by misleading investors about complex mortgage investments that ended up costing investors $1 billion. 

It was two years ago that disclosure of emails by the SEC revealed Tourre’s role, including one where he wrote:

“Only potential survivor, the Fabulous Fab...standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

Goldman Sachs settled its case with the SEC in 2010, paying $550 million without admitting or denying any wrongdoing.

[Separately, a long-time Bloomberg editor was fired after publishing an incorrect headline on the company’s terminals worldwide: “BREAKING: Fabrice Tourre Wins SEC case claiming fraud in $1 billion CDO deal.” He corrected it moments later...but it was too late to save his job.]

--Automakers sold more than 1.3 million cars and trucks in the U.S. last month, a 14% jump over the same month a year earlier. According to Autodata, auto sales are running at a 15.67 million rate this year, which would be the most since 2007’s 16.1 million. [July’s pace was the best since 2006 for the month.]

GM reported a 16% gain from a year ago, Ford 11%, Chrysler 11%, Toyota’s U.S. sales rose 17%, Honda’s 21%, Nissan’s 11%, but VW’s fell 3%.

[Earlier, Chrysler announced its net income in the second quarter rose 16% to $507 million, the eighth straight quarterly profit for the Fiat SpA unit.]

--On the heels of its super earnings report from a week earlier, shares in Facebook hit the $38 IPO price for the first time since the May 17, 2012 offering, with the shares having bottomed at $17.55 last September. They closed Friday at $38.05.

--Dell shares rose 5% on Friday after the firm’s board accepted a new slightly sweetened buyout offer from founder Michael Dell. A vote will be held September 12. Carl Icahn, with an 8.7% stake, began a legal challenge to Dell’s plans.

--Proctor & Gamble soundly beat expectations for the second quarter, but the company did report a 48% drop in net income from a year ago. Net sales rose 2%. AG Lafley, P&G’s newly returned CEO, vowed to exit some product categories after his predecessor’s helter-skelter rapid expansion into new emerging markets.

--Exxon Mobil reported its lowest quarterly profit in more than three years, with net income falling 57% compared with year ago levels. Exxon’s production of oil and gas fell for a ninth straight quarter and earnings missed estimates by the most since 2002.

--BP CEO Bob Dudley on the ongoing class action lawsuits resulting from the 2010 Gulf oil spill.

“The biggest beneficiaries that I can see broadly are plaintiffs’ attorneys themselves, who are not just collecting fees on behalf of claims that have been submitted but also their own firms which are submitting large claims.

“This is not right, it’s not good for American business...that’s why we’re vigorously protesting it. It happens all the time in the U.S. with this class action plaintiff system which is an industry and a business model.”

I totally concur with Mr. Dudley.

--J.C. Penney denied reports that its key vendors are stopping merchandise shipments because of credit problems. The stock tanked 10% on Tuesday after a New York Post report said commercial lender CIT had stopped supporting deliveries from manufacturers to JCP.

--Activist hedge fund manager Bill Ackman disclosed his biggest bet ever, $2.2 billion in industrial gas company Air Products of Allentown, Pa., calling it “a great business that is undervalued.” Ackman has already lost hundreds of millions on his $1 billion short position in Herbalife, with reports George Soros joined Carl Icahn in taking a significant stake in the nutritional supplements company, on top of a solid earnings report from HLF. Ackman also has a stake in J.C. Penney on the long side.

--Shares in LinkedIn rose 10% after revenue came in 59% higher than a year ago and ahead of estimates. Net income in the quarter was $44.5 million vs. $18.1 million in the comparable period.

--Amazon.com Inc. said it is going to begin filling more than 5,000 full-time warehouse jobs and about 2,000 customer service positions. The warehouse jobs are at 17 distribution centers across the U.S., though these aren’t exactly high-paying positions. President Obama toured a distribution center in Chattanooga, Tenn. this week. 

--Saks Fifth Avenue agreed to be acquired by the Canada-based owner of Lord & Taylor (Hudson’s Bay), with Saks then exiting some of its less-desirable locations and replacing them with the L&T brand.

In turn, Hudson’s Bay will open seven Saks stores in Canada. Saks, under terms of the  agreement, is allowed to solicit higher bids than Hudson’s.

--Natural food seller Sprouts Farmers Market saw its shares more than double on their first day of trading. The company, which operates over 160 natural grocery stores mostly in the Southwest, priced the shares at $18, but on its first day Thursday, they closed at $40. Sprouts opened its first store in Chandler, Ariz., in 2002. Sprouts competes with the likes of Whole Foods Market.

--The co-founder of the Russian Internet search engine Yandex, Ilya Segalovich, died at the age of 48. A tumor was discovered in his head and within two days, “his brain burnt out,” according to the CEO, from malignant meningitis. Poor guy. Segalovich was kept on life support for a few days after as doctors hoped for a miracle that didn’t occur. From what I know, this was a good man who contributed his time and money to work with Russian orphanages.

--CBS Corp. had its biggest second quarter ever, with revenue and profits climbing 11%. Entertainment revenue, which includes the CBS broadcast network, rose 18% from a year earlier. 

--Shares in the world’s potash makers plunged on word the largest producer, Russia’s Uralkali, pulled out of its alliance with Belaruskali, with prices for the product expected to drop 25% following the breakup of the marketing cartel. Uralkali will now market potash on its own and focus on expanding volume, a crushing blow for an industry known for tightly controlling supply.

--JPMorgan Chase struck a $410 million settlement with the Federal Energy Regulatory Commission, which had accused the bank of manipulating electricity prices.

--Omnicom and Publicis announced a merger last Sunday that creates the largest ad company in the world. Between them, they accounted for $22.7 billion in revenue last year, more than the current highest ad firm, WPP. It’s about the business of Big Data: collecting and selling the personal information of millions of consumers that the likes of Google and Facebook are exploiting.

--There are definitely signs of an overheated housing market in Southern California. In the six-county Southland, “In May, investors flipped 1,377 homes – a level not seen since the height of the housing boom, when investors turned over 1,394 homes in June 2005, according to real estate research firm DataQuick. The firm defines flipping as buying and reselling a home within six months.” [Cale Ottens / Los Angeles Times]

The median home price in the Southland rose 28% in June to $385,000 – a record year-over-year gain, as reported by DataQuick.

--Shares in struggling telecom equipment maker Alcatel-Lucent rose on stronger growth in its U.S. market, as well as the announcement mobile chip maker Qualcomm had taken a small stake as part of a research partnership.

Long ago, I introduced the Lucent lawn indicator at its North American headquarters (Murray Hill, N.J.), which I used to live three blocks from.  These days I drive by once a week and I’m here to tell you, the lawn has never looked better. [As opposed to the condition of the vast acreage fronting HQ, which looked like crap, before the stock cratered.]

It’s not just the abundant rainfall we’ve had in this area. I see gardeners there all the time. Alcatel-Lucent may indeed have bottomed.

--Saudi Arabia said one more man has died from the new respiratory virus related to SARS, bringing to 39 the number of deadly cases in the kingdom. It’s still all about the Hajj in October and risks of the virus going global via the pilgrims attending from all over.

--The value of the jewels stolen from a luxury hotel in Cannes on Sunday was put at over $120 million, making it the biggest diamond robbery in history. A lone thief made off with earrings, rings and necklaces, dropping some multimillion-dollar jewelry on the pavement as he made his getaway from the Carlton Hotel.

The previous record was a diamond theft in Antwerp back in 2003, when an Italian gang made off with about $100 million in gems and cash.

The jewels at the Carlton were part of an exhibition by Leviev, a firm owned by Lefv Leviev, an Israeli billionaire nicknamed the King of Diamonds.

“Wielding an automatic pistol, the thief threatened three security guards, and two sales representatives and their manager, but fired no shots.

“He grabbed a bag containing two cases, which were filled with 72 pieces of diamond jewelry.” [Adam Sage / London Times]

Foreign Affairs

Iran: Hassan Rohani takes over as president Aug. 4. Israeli Prime Minister Netanyahu has called Rohani a “wolf in sheep’s clothing,” with Iran continuing to make progress on the nuclear weapons front. President Obama has repeatedly said the U.S. “will do what is necessary” to keep Iran from acquiring nukes. On Friday, Rohani said Israel’s occupation of Palestinian land had inflicted a “wound” on the Muslim world.

[An earlier report by Iran’s student news agency had quoted Rohani as saying the wound “needs to be removed.” But this was later retracted.]

Acting on its own, the U.S. House voted 400-20 Wednesday to hit Iran with the toughest sanctions yet on its nuclear program. The bill would basically block Iran from selling any oil abroad. Rep. Ed Royce (R-CA), chairman of the House Foreign Affairs Committee and a co-sponsor of the measure, said, “Iran may have a new president, but its march toward a nuclear program continues.”

The Senate voiced strong support for the House bill, with 76 senators signing a letter sent to Obama calling on the White House to toughen sanctions. “Iran has used negotiations in the past to stall for time,” the letter reads in part, “And in any event, Khamenei is the ultimate decision-maker for Iran’s nuclear program.” The White House previously said it wants Congress to hold off until after it is clear what Rohani’s stance will be on a resumption of talks.

But as the House and Senate know, it’s not about Rohani. It’s about Supreme Leader Ayatollah Ali Khamenei and his ideas on the direction of Iran’s nuclear weapons program.

Amir Taheri / New York Post

“The ‘Supreme Guide’ believes the United States is in terminal decline and that Iran need not be accommodating. If Rohani is of use, it’s to hoodwink Washington with formal negotiations to prevent military action during the final phase of U.S. decline.

“Second: Earlier this month, Rohani spoke of ‘fresh opportunities’ regarding ties with Washington. Khamenei reacted in a speech, ruling out any thaw in relations. ‘Americans are dishonest, illogical and untrustworthy,’ he said. He also referred to the United States as ‘the enemy of humanity.’”

Separately, China repeated its opposition to tougher U.S. sanctions on Iran, the success of which depends on China, Iran’s top customer, which has repeatedly said it opposes unilateral sanctions.

Earlier, outgoing President Ahmadinejad said Iran is poised to activate 5,000 more uranium enrichment centrifuges, on top of the 12,000 now running.

And an Iranian diplomat denied media claims Russian President Putin is meeting with Rohani in Tehran in August.

Israel: Last Sunday, the cabinet paved the way for negotiations with the Palestinians by voting 13-7 to empower a ministerial committee to release 104 Palestinians prisoners over the next nine months.

The prisoners, all incarcerated for attacks that took place prior to the 1993 Oslo Accords, are to be released in four different stages. Such a release ensures the Palestinians uphold their commitments during the initial nine months of negotiations not to take unilateral actions against Israel at the U.N. or other international forums, as the Palestinians have threatened to do in the past.

Prime Minister Netanyahu, in discussing the prisoner release, told the cabinet:

“It is not easy for the ministers. It is not easy especially for the families, the bereaved families, whose heart I understand. But there are moments in which tough decisions must be made for the good of the country and this is one of those moments. I believe that resuming the diplomatic process at this time is important for the State of Israel, both in order to try to bring about an end to the conflict and given the complex reality in our region, especially the security challenges from Syria and Iran.”

Talks were held in Washington this week, setting the stage for the first formal negotiations between the two sides in nearly three years to be held within two weeks either in Israel or the West Bank, with the goal of a comprehensive agreement within nine months, according to Secretary of State John Kerry.

But Palestinian Authority President Mahmoud Abbas laid out his vision, saying no Israeli settlers or border forces could remain in a future Palestinian state and that Palestinians deem illegal all Jewish settlement building within the land occupied in the 1967 Six Days War.

In a briefing to mostly Egyptian journalists, Abbas said, “In a final solution, we would not see the presence of a single Israeli – civilian or soldier – on our lands. An international, multinational presence like in Sinai, Lebanon and Syria – we are with that,” he said.

Abbas also signaled no change in his stance of no Jewish settlements on the West Bank. What to do about the 360,000 people living in some 150 Jewish settlements there will be at the core of negotiations, if they last more than a week or two.

For its part, Israel opposes the use of the 1967 frontiers as a basis for talks and wants to keep building in the West Bank.

Syria: On Thursday, President Bashar al-Assad said, “If we in Syria were not sure of victory, we would not have had the will to...persevere in the face of more than two years of aggression.”

Government troops continue to make progress against the rebels in Homs, though the rebels apparently carried out a successful attack on an arms depot in the city that killed at least 40 on Thursday.

But as Michael Peel of the Financial Times reported:

“As the battle between a regime backed by Shia foreign powers and a rebel movement dominated by members of Syria’s Sunni majority grows ever more intense, extremists inside and outside the country have stepped up efforts to cast the conflict as the epicenter of an existential fight between the two main branches of Islam. The conflict has mobilized fighters ranging from Sunni jihadists to members of the Lebanese Shia militant group Hizbullah – and triggered a debate over whether Syria will be the spark for a sectarian cataclysm in the wider Middle East.” [i.e., see Iraq]

Egypt: Speaking from Pakistan on Thursday, Secretary of State Kerry praised Egypt’s military ouster of President Mohammed Morsi.

“In effect, they were restoring democracy,” Kerry said. “The military did not take over, to the best of our judgment – so far, so far – to run the country. There’s a civilian government.” Kerry then mumbled something about being concerned over the violence.

Egypt’s cabinet ordered a police crackdown on protesters, this after over 100 members of the Muslim Brotherhood have been killed since Morsi’s ouster, 82 in a pro-Morsi protest in Cairo last weekend.

The cabinet announced protest camps at two Cairo squares posed a “threat to national security.”

“The government has decided to take all necessary measures to confront and end these dangers, and tasks the interior minister to do all that is necessary in this regard, in accordance with the constitution and law,” read a statement.

Mohammed Badie, the supreme leader of the Brotherhood who is a fugitive, attacked Gen. al-Sisi, the head of the armed forces, saying he was leading a “bloody regime” and urging his followers to stand fast.

Catherine Ashton, the EU foreign policy chief, was allowed to see Morsi, who she said is well, but the location was kept secret.

Editorial / Washington Post

“Erasing the Muslim Brotherhood from Egypt’s political scene – as Gen. Sisi seems intent on doing – is impossible. To attempt it is to play with fire. It could create a schism that would put Egypt on a road toward civil war with dire consequences. Violent uprisings in Syria and Egypt at the same time would be particularly dangerous for Israel, the United States’ strongest ally in the region. Bringing Egypt back from the edge of disaster ought to be one of Mr. Obama’s most urgent priorities, and that may require rethinking his policy. Forbearance and obfuscation haven’t done the trick.”

[In a separate example of the violence in Egypt these days, at least 15 people were killed Monday night in a brawl between Cairo street vendors over space, including 13 who were burned to death. A shop owner, upset over the vendors setting up outside his establishment, shot and killed two of them. The rest of the vendors then set his shop on fire, killing the owner and his employees.]

Iraq: The U.N. mission in Baghdad reported that 1,057 Iraqis were killed in July, making it the most violent month in more than five years. According to the Iraq representative, 4,137 civilians have been killed thus far in 2013. Gyorgy Busztin said, “Iraq’s political leaders must take immediate and decisive action to stop the senseless bloodshed.”

Clearly, the dark days of the peak of the anti-U.S. insurgency in 2006-07 have returned.

Afghanistan: Only 28% of Americans say the war here has been worth fighting, the lowest number on record, according to a Washington Post/ABC News survey. Only 43% say the war has contributed to long-term U.S. security, the first time that number has dipped below 50% in the past four years.

1,319 civilians were killed in Afghanistan in the first half of 2013, vs. 1,158 in the first six months of 2012, raising questions whether the Afghan Army and security forces can protect the population as the American-led NATO operation winds down. The Taliban is blamed for at least 90% of the casualties, according to a new U.N. report.

Libya: More than a thousand inmates escaped a prison Saturday outside Benghazi. The country’s prime minister said, “Special forces were present and could have got the situation under control by using their arms but they had received orders not (to use) their weapons on citizens....so the citizens opened the doors to the prisoners.” [Esam Mohamed / AP] Oh brother.

Pakistan: Speaking of prison breaks, about two weeks ago you had the massive breakout at Abu Ghraib in Iraq. Some 500 are still said to be loose, many al-Qaeda types.   This past Tuesday, the Taliban launched a massive attack on a Pakistani prison that led to 250 prisoners being released, including 40 to 50 “hard-core terrorists,” according to a Pakistani official.

Separately, former Pakistani President Pervez Musharraf is about to be charged with the alleged murder of ex-Prime Minister Benazir Bhutto.

Tunisia: Gunmen killed at least eight Tunisian soldiers Monday who were trying to track down Islamist militants in a remote part of the country.

Russia: The Kremlin granted Edward Snowden temporary asylum for one year, allowing him to leave the Moscow airport and travel anywhere in Russia.

In a statement issued on the WikiLeaks website, Snowden said: “Over the past eight weeks we have seen the Obama administration show no respect for international or domestic law, but in the end the law is winning.

“I thank the Russian Federation for granting me asylum in accordance with its laws and international obligations.”

President Obama is slated to meet with President Putin on the sidelines of a G20 summit in early September in Saint Petersburg.

White House spokesman Jay Carney said: “We’re extremely disappointed that the Russian government would take this step despite our very clear and lawful requests in public and in private to have Mr. Snowden expelled to the United States to face the charges against him.

“We’re evaluating the utility of a summit in light of this and other issues.”

U.S. Senator Robert Menendez (D-NJ), chairman of the Senate Foreign Relations Committee, described Thursday’s development as “a setback to U.S.-Russia relations.”

“Edward Snowden is a fugitive who belongs in a United States courtroom, not a free man deserving of asylum in Russia,” said Menendez.

Sen. John McCain (R-Ariz.), said Russia’s actions were “a disgrace and a deliberate effort to embarrass the United States.”

“It is a slap in the face of all Americans. Now is the time to fundamentally rethink our relationship with Putin’s Russia. We need to deal with the Russia that is, not the Russia we might wish for,” said McCain.

More than half of Russians have a positive opinion of Snowden, according to a poll conducted by independent research group Levada this week.

Snowden’s temporary refugee status will expire July 31, 2014, after which he can be extended for another year or upgraded to 5-year permanent asylum, according to the Moscow Times. Snowden is apparently going to look for a job as a human rights activist.

Editorial / New York Post

“Is America still a superpower? Russian President Vladimir Putin sure doesn’t think so, a point he made clear yesterday by granting refuge to one of our biggest traitors, Edward Snowden.

“Snowden’s leaks have done untold, irreparable harm. He’s wanted on federal felony charges and has been hiding in a Moscow airport. America asked Russia to hand him over, but Putin had no fear of consequences by instead granting Snowden asylum, the international equivalent of aiding and abetting and a blatant nose-thumb to America.

“Nor has Putin helped on other vital matters, like stopping Iran’s nuclear drive or ending the brutality of Syria’s Bashar al-Assad. Quite the opposite: he’s been sending weapons and military equipment to Assad and the terrorist group Hizbullah, including anti-ship missiles that U.S. and Israeli officials see as a direct threat. Yesterday, the New York Times reported that Russia is believed to be sending ‘technical experts’ to Syria to help set up new missile systems.”

Editorial / Wall Street Journal

“Russia’s decision to grant Edward Snowden asylum is a hostile act against the United States. If it forces the Obama Administration to shed its blinders and rethink America’s indulgent relationship with Vladimir Putin’s regime, then at least this sorry affair might have a silver lining....

“What was that President Obama said about having ‘restored America’s standing in the world?’....

“In June, Secretary of State John Kerry had vowed that Russia would suffer ‘without any question, some effect, an impact on the relationship and consequences’ for harboring Mr. Snowden. This threat had no seeming effect on Mr. Putin, whose government has now given the American a one-year, renewable residence permit. Perhaps they’ll throw in some tickets to the Sochi Olympics.

“And why should Mr. Putin be worried? This White House has always looked away from Russian misbehavior....

“It may be too late to move the useless G20 confab, but the least President Obama can do is skip his Moscow sitdown....

“The Snowden affair has been a world-class debacle, from his access to NSA secrets as a fresh-faced consultant, to the diplomatic stiff-arm by Hong Kong and China, to the Administration’s inept and half-hearted defense of U.S. antiterror surveillance, and now to humiliation at the hands of the Kremlin. Presidential amateur hour is getting expensive to U.S. interests and security.”

China: President Xi Jinping told a Communist Party Politburo meeting on Wednesday that becoming a maritime power was a priority, with Xi vowing to further explore maritime resources.

“Oceans and seas have an increasingly important strategic status regarding global competition in the spheres of politics, economic development, military and technology,” he said.

China’s neighbors are thrilled.

The West should also be scared by a report from the London Times that it appears China now has (or soon will have) three operational nuclear-armed submarines due to reports China has secretly trained six crews to man them. [One crew off, one crew on for each of the three.]

The number three is significant because one sub would be used for training, one would be in for maintenance, and one would be operational and armed with 12 missiles capable of being launched against the United States.

But some say the Chinese made submarines, while quiet, would be detected by both the Japanese and U.S. military.

“As it stands, China separates its arsenal of nuclear warheads from the missiles that deliver them to ensure that control is not given to individual commanders in the field. In order to perform their role as deterrents, China’s nuclear submarines would depend upon Beijing trusting a single individual with its most powerful weapons.” [Leo Lewis and Michael Evans / London Times]

On other matters, China has cracked down on more than 100 privately-run news websites, what the government calls a move against extortionists, but what critics say is a campaign against citizen journalists.

And the environmental minister said that air pollution had become so severe that the country could “no longer afford further delays in its cleanup efforts.”

As reported by the South China Morning Post, “Air quality in 74 major cities was deemed unsafe for nearly half of the days in the first six months of this year, with the area comprising Beijing Tianjin-Hebei found to be the most polluted region.”

The Wall Street Journal had a piece last weekend addressing how pollution also is severely impacting the soil.

“Estimates from state-affiliated researchers say that anywhere between 8% and 20% of China’s arable land, some 25 to 60 million acres, may now be contaminated with heavy metals. A loss of even 5% could be disastrous, taking China below the ‘red line’ of 296 million acres of arable land that are currently needed, according to the government, to feed the country’s 1.35 billion people.”

Zimbabwe: Morgan Tsvangirai, who is making his third bid to unseat 89-year-old President Robert Mugabe (2002 and 2008 being the others), called this week’s parliamentary and presidential election a “huge farce.” Mugabe seemed headed to a resounding victory, with the Electoral commission saying his Zanu-PF party had won 137 out of 186 seats declared thus far in the 210-seat parliament. Nothing on the presidential race as yet. The thing is, Tsvangirai has been a disappointment after failing to push for greater change while in the unity government.

The African Union observer mission’s head said the elections were “free, honest and credible,” but earlier the same group said the poll was “seriously compromised.”

Now that’s a farce.

Mali: This country held its first presidential election since a rebellion and coup nearly fractured it last year and it passed peacefully. Credit the French, who intervened to defeat an al-Qaeda-linked militia that was threatening to take over Mali.

Yes, the nation could remain geographically divided if the north doesn’t find the election results credible and legitimate, but there’s hope this works out. However, I just saw a contentious run-off is now in order.

Random Musings

--Pete Yost and Matt Apuzzo / AP:

“President Barack Obama’s national security team acknowledged for the first time Wednesday that, when investigating one suspected terrorist, it can read and store the phone records of millions of Americans.

“Since it was revealed recently that the National Security Agency puts the phone records of every American into a database, the Obama administration has assured the nation that such records are rarely searched and, when they are, officials target only suspected international terrorists.

“Meanwhile, at a hacker convention in Las Vegas on Wednesday, the head of the NSA said government methods used to collect telephone and email data helped foil 54 terror plots – a figure that drew open skepticism from lawmakers back in Washington. ‘Not by any stretch can you get 54 terrorist plots,’ said the chairman of the Senate Judiciary Committee, Sen. Patrick Leahy, D-Vt.”

Earlier in July in the House, Rep. James Sensenbrenner, R-Wis., told top intelligence officials, that lawmakers had never intended the NSA to build a database of every phone call in America. “You’ve got a problem,” said Sensenbrenner.

What we learned in the Senate hearing this week is that the NSA said it conducted 300 searches of its telephone database last year. But with the “hop” or “chain” analysis, we are finding out this could mean scrutinizing tens or even hundreds of millions of people.

Sen. Dick Durbin of Illinois, the No. 2 Democrat in the Senate, said, “So what has been described as a discrete program, to go after people who would cause us harm, when you look at the reach of this program, it envelopes a substantial number of Americans.”

John Inglis, the NSA’s deputy director, conceded NSA officials “try to be judicious” about conducting hop analysis.

Of course without Edward Snowden’s leaks, we never would have known about these programs.

I totally agree with Sen. Leahy:

“There’s always going to be dots to collect, analyze and try to connect. Government is already collecting data on millions of innocent Americans on a daily basis based on a secret legal interpretation of a statute that does not on its face appear to authorize this kind of bulk collection. So what’s going to be next? When is enough enough?”

I have said from day one that I didn’t mind the government collecting phone records but was dead set against the bulk collection of emails, assuming the government was not listening in or creating transcripts of every phone call, but it could read your emails under sketchy legal precedent.

Now it is totally unclear just what the government is doing with phone calls, while it seems obvious the other facets of its data collecting are subject to major abuse.

Meanwhile, locally, New Jersey Gov. Chris Christie and Kentucky Sen. Rand Paul have been going at it in a dispute over national security and federal disaster aid, though by week’s end both probable 2016 contenders for the Republican presidential nomination were beginning to tone down the rhetoric.

Christie had targeted politicians like Paul, blaming them for a dangerous “strain of libertarianism.” Christie noted he did not bring up Paul’s name, the moderator of a forum he was attending did.

The day after, Paul accused Christie and the leaders of other states that receive federal Sandy aid of having a “gimme gimme gimme” attitude.

Christie then went after Paul’s pork barrel spending. Paul called Christie the “king of bacon” for lobbying and spending billions in disaster relief dollars.

What is clear is there is going to be one helluva battle for the soul of the Republican Party.

--Army Pfc. Bradley Manning was acquitted Tuesday of the most serious charge he faced, aiding the enemy, though he still faces life in prison for his conviction on 20 lesser charges.

In a military court-martial, prosecutors were able to convince Army Col. Denise Lind that the reams of documents Manning passed on to WikiLeaks constituted violations of the Espionage Act. Manning’s lawyers maintained he handed over information that he believed would not harm the United States.

Manning’s family said in a statement, “Brad loves his country and was proud to wear its uniforms.”

Hardly. Manning harvested 700,000 classified military and diplomatic files that he then turned over to those who only seek to do the U.S. harm.

Maj. Ashden Fein, speaking for the prosecution, said, “He was not a whistleblower; he was a traitor.” But this was difficult to prove because Manning wasn’t technically passing information directly to an enemy agent, though the government argued he had to have known what he was handing WikiLeaks would have been of benefit to al-Qaeda.

Of course technology has changed the espionage game and the nature of threats to the United States so the rules and laws have to be modernized.

Most expect the case to be appealed up to the Supreme Court.

The Manning conviction makes it more likely WikiLeaks founder Julian Assange will be prosecuted as a co-conspirator.

And WikiLeaks also played a role in helping National Security Agency leaker Edward Snowden get from Hong Kong to Moscow.

Assange himself remains in the Embassy of Ecuador in London, where he has now been for more than a year, while there is still a Swedish warrant for his arrest.

--Phony scandals, Mr. President? Jake Tapper / CNN:

“Sources now tell CNN dozens of people working for the CIA were on the ground (when four Americans were killed at the consulate in Benghazi last September), and that the agency is going to great lengths to make sure whatever it was doing remains a secret.

“CNN has learned the CIA is involved in what one source calls an unprecedented attempt to keep the spy agency’s Benghazi secrets from ever leaking out.

“Since January, some CIA operatives involved in the agency’s missions in Libya, have been subjected to frequent, even monthly polygraph examinations, according to a source with deep inside knowledge of the agency’s workings.

“The goal of the questioning, according to sources, is to find out if anyone is talking to the media or Congress....

“In exclusive communications obtained by CNN, one insider writes, ‘You don’t just jeopardize yourself, you jeopardize your family as well.’”

--Defense Secretary Chuck Hagel laid out a plan to slash spending drastically at the Pentagon should the sequester remain in place, saying the cuts he outlined didn’t amount to “crying wolf.”

Among the options is shrinking the Army from 490,000 under current targets to a force as small as 380,000, while the Navy could lose two aircraft carriers and the Air Force numerous bombers and transport aircraft (read older C-130 cargo planes).

The alternative, Hagel said, would be to eliminate militarywide modernization programs.

“The balance we strike between capability, capacity and readiness will determine the composition and size of the force for years to come,” he said.

--This is not a pleasant topic...from Army Times:

“While the Army’s intense public attention has been focused on suicides, domestic violence and sex assaults in the ranks...an epidemic of child abuse inside the Army is so under the radar that even top brass were unaware of its scope and an alarming spike in cases. Nearly 30,000 children have suffered abuse or neglect in Army homes over the past decade, an Army Times investigation show.

“Beatings, torture and starvation claimed the lives of 118 Army children.

“More than 1,400 children were subjected to sexual abuse....

“The Army’s rate of child abuse was 4.5 cases per 1,000 children for 2011. The civilian rate was 27.4 per 1,000 children, according to the Children’s Bureau of the Department of Health and Human Services.

“But the number of Army cases has spiked 28 percent between 2008 and 2011, while the number of civilian cases has increased by 1.1 percent.”

Last year’s 3,698 reported cases of abuse and neglect represented a 40 percent increase over the 2,626 in 2009.

While it’s easy to blame the spike “with the grind of the wars in Iraq and Afghanistan...a policy of allowing people with criminal backgrounds into the ranks” is not helping.

The abuse is committed about half by soldiers and the other half by civilians, mostly spouses.

--According to Monday’s Quinnipiac University Polling Institute survey of likely Democratic primary voters, in the New York City mayoral race, City Council Speaker Christine Quinn leads the pack with 26%. Anthony Weiner is fourth at 16%. 53% said he should withdraw from the race. A previous survey, taken before the latest sexting revelations, had Weiner on top with 26%.

--Editorial / New York post

“Mike Bloomberg may be on his way out. But this week his better angels were at work, and we do well to pay attention. Here are just a few highlights:

“ * The irresponsibility of Eliot Spitzer. In reaction to a campaign based on putting a bullseye on Wall Street, the mayor pointed out the obvious: It’s not helpful to have a candidate targeting for political purposes our leading industry, one whose taxes effectively pay for our cops and firefighters.

“ * Retroactive pay raises for city workers. Unions representing the city’s 300,000 government workers are demanding $7.8 billion in retroactive raises. Bloomberg says ‘reasonable’ raises going forward are fine, but the next mayor must not be bullied into giving in to demands that would hurt our economy and possibly double our already sky-high income taxes.

“ * Crime. Though successful policing has brought crime to record lows, the City Council has passed two bills that threaten our safety – one mandating an inspector general to second-guess police, the other opening cops to more lawsuits. Bloomberg vetoed both this week. Even if overridden, he’s at least forcing accountability....

“The mayor’s wisdom suggests that one of his greatest contributions to New York could be ensuring that the candidates hoping to succeed him aren’t allowed to ignore the vital issues he’s raised here.”

I have not been one to criticize Mayor Bloomberg on his nanny state tendencies. I couldn’t give a damn. Plus I drink beer...not soda...and I never smoked.

New York City is so spoiled after 20 years of Bloomberg and Giuliani. If I lived there, and I’ve certainly visited enough over the years, one issue is above the others...crime.

Gotham is in for a rude awakening given the field of candidates it has today, and assuming Ray Kelly departs for Washington and the Homeland Security position.

The only thing that will keep New York from spiraling down is a return of William Bratton.

Otherwise, I’d ‘short’ the Big Apple, friends.

--NBC announced it would produce a four-hour mini-series on Hillary Clinton. CNN then said its film division would produce a documentary on her. The latter is to be released in 2014.

As for the NBC production, it would star Diane Lane.

Noooo! Not my favorite actress in the world!!! [For you younger guys out there, just understand when you get to be my age....]

Anyway, the script will begin with Clinton living in the White House as her husband is serving the second of his two terms. 

--On April 20, 2012, Daniel Chong, then an engineering student at UC San Diego, went to a house near campus to smoke marijuana with friends and found himself swept up in a DEA raid. [I never realized April 20 is a traditional counterculture day for such things.]

Officers found large quantities of drugs and ecstasy pills. Chong, though, didn’t know the house had been under surveillance for days.

So Chong and eight others were taken into custody. After being questioned briefly at the DEA facility in San Diego, he was told he would be released.

Tony Perry / Los Angeles Times:

“But, for reasons that remain unclear, Chong was left for five days in a 5-by-10-foot windowless room without food, water or toilet facilities. He quickly lost weight and was able to slip out of a pair of handcuffs.

“He suffered hallucinations. He tried to break a fire sprinkler to get water but failed. Instead he said he had to drink his own urine to survive. He screamed for help but soon became too weak. For the final two days, Chong was in the dark.

“Fearing that he would die, Chong broke his glasses and scrawled the message, ‘Sorry, mom,’ on his arm.

“When he was discovered by DEA employees, Chong was covered in his own feces and severely dehydrated. He was rushed to a hospital, close to kidney failure and breathing with difficulty. He spent five days in the hospital.”

This week, Chong was awarded $4.1 million from the federal government to settle his claim for maltreatment. This kid deserves it.

--Ariel Castro was sentenced to life without parole plus 1,000 years for abducting the three women in Cleveland. One of them, Michelle Knight, 32, wept as she delivered her victim impact statement before Castro.

“I spent 11 years in hell. Now your hell is just beginning. You will face hell for eternity.

“From this moment on, I will not let you define me, or affect who I am. I will live on, you will die a little every day.”

She was the only victim to speak at the hearing.

Castro gave a rambling statement, telling the court in part he was “driven by sex” but claiming “I’m a normal person.”

There are all kinds of ways I’d like to see Castro’s life end, but I’ll keep them to myself.

As for Michelle Knight, Amanda Berry and Gina DeJesus, may they find peace. They deserve our prayers.

--A Los Angeles Times study of the L.A. Department of Water and Power found that since 2010, the department has paid employees more than $35.5 million for 103,802 extra sick days, the equivalent of 415 years of lost productivity.

The Times exam of data obtained under the California Public Records Act found thousands of employees took paid days off well beyond the agency’s nominal 10-day-a-year cap on sick days.

Yet another reason why America is incredibly overrated.

[The L.A. DPW is now changing its policy to require employees who are out sick for more than three days to provide a doctor’s note. Congratulations to the L.A. Times for a job well done.]

--The following local story is incredibly depressing, especially when you see the pictures of the innocent victim. From the Star-Ledger’s Anthony J. Machcinski:

“A New York bus driver accused of being on a cellphone before a crash that claimed the life of an 8-month-old girl in West New York yesterday will make his first court appearance in Jersey City tomorrow morning on death by auto charges, authorities said.

“Idowu Daramola, 48, of New York...was issued summonses for reckless driving and for using a cellphone while operating a motor vehicle.”

The bus suddenly veered out of control, jumped a curb, and crashed into a lamppost, “which struck the baby in her carriage...The bus then slammed into a tree, another lamppost and into a parked car.

“When the bus hit the parked car, it created a chain reaction that involved at least three other parked cars, one of which was occupied by four people who were taken to area hospitals for minor injuries, officials said.”

It’s so sickening. He was texting. When are people going to learn?! And imagine the police officer who immediately was at the scene, trying desperately to give the baby CPR. The officer told the Ledger, “After CPR, she was gasping every third breath I gave her,” he said. But the little girl died in the ambulance.

--Pope Francis had quite a week in Brazil. You never know what the long-lasting impact will be, but when you are able to bring three million together, as Francis did at Copacabana beach last Sunday for a Mass at the end of his historic trip, you have to call it a success.

“Do not be afraid to go and to bring Christ into every area of life, to the fringes of society, even to those who seem farthest away, most indifferent,” he said.

Some 39% of all Catholics are Latin American, the biggest regional group in the Church, though in Brazil and elsewhere, the Church has been losing out to the Pentecostal movement and evangelical Protestants.

But at least for one week, Brazilians and others across the continent saw an energetic pontiff who spoke about taking back their church.

“At times,” Francis said, “we lose people because they don’t understand what we are saying, because we have forgotten the language of simplicity and import an intellectualism foreign to our people. Without the grammar of simplicity, the church loses the very conditions which make it possible to fish for God in the deep waters of his mystery.”

--July was the hottest month in Ireland in 120 years. Parts of China, including Shanghai, experienced their hottest July in 140 years. Shanghai had 24 days in the month where the temperature hit 95 degrees or higher, including its highest ever, 105. But before you know it, we’ll all be bitching about winter.

--And with the U.S. issuing a world-wide terrorism alert, specifically pointing to al-Qaeda in the Arabian Peninsula, I guess they weren't defeated after all...as a certain presidential candidate last year wanted us to believe.

---

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

God bless America.
---

Gold closed at $1310
Oil, $106.94

Returns for the week 7/29-8/2

Dow Jones +0.6% [15658]
S&P 500 +1.1% [1709]
S&P MidCap +2.1%
Russell 2000 +1.1%
Nasdaq +2.1% [3689]

Returns for the period 1/1/13-8/2/13

Dow Jones +19.5%
S&P 500 +19.9%
S&P MidCap +22.9%
Russell 2000 +24.8%
Nasdaq +22.2%

Bulls 48.4
Bears 19.6 [Source: Investors Intelligence]

Dr. Bortrum posted a new column. All about his hip surgery.

Have a great week. I appreciate your support.

Brian Trumbore