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08/31/2013

For the week 8/26-8/30

[Posted 10:30 PM ET, Friday]

Syria

I have been writing for months now that eventually the markets would be forced to deal with the spreading conflagration in the Middle East as the war in Syria increasingly spilled over into the likes of Iraq and Lebanon, while threatening the stability of Jordan. This week Wall Street finally took notice.

As in virtually every other major topic that defines our world, I have covered the civil war in Syria as closely as anyone, week after week. My position has been consistent.  Back in the second half of 2011 and early 2012, as the situation spiraled out of control, I said the United States should work together with its NATO ally, Turkey, to create a safe haven, secured with a no-fly zone, and which would have allowed the U.S., France, etc. to help supply the freedom fighters.

Going back to Week in Review, June 4, 2011, actually, I wrote some of the following:

“The death toll in the protests here continues to climb, well over 1,000 with another 10,000+ being detained. The cases of torture are growing commensurately as well, including children, as beaten bodes are returned to their families....

“One thing that is different now from the start of the uprising is that a real opposition is attempting to form, with leaders meeting in Turkey the other day, while foreign journalists continue to be barred. President Obama must take a harder, more public stance, and not just trot out the by now discredited Hillary Clinton for a few inane comments.”

As the war progressed, and the death toll soared to the current 100,000+, I grew increasingly frustrated.

In Week in Review, November 17, 2012, I wrote:

“As I’ve been saying all year, we ignore foreign policy at our own peril and President Obama is on the verge of being overwhelmed.....

“The UN estimates four million inside Syria will need sweeping humanitarian aid by next year, with 750,000+ refugees having fled to Turkey, Jordan, Lebanon and Iraq by year end.

“I was particularly upset when during President Obama’s press conference, he said, when asked about the White House’s reaction to the ever-unfolding calamity in Syria, ‘You know, we’ve committed hundreds of millions of dollars of humanitarian aid to help folks both inside of Syria and outside of Syria.’

“But I told you just the other day that the UN says it needs $348 million to get the humanitarian mission done (assuming they can ensure safety for aid convoys...not the case today) and yet the UN has received only $157 million thus far, so if the United States has ‘committed hundreds of millions,’ the UN hasn’t seen it, Mr. President.

“What’s sickening is that the window of opportunity has long closed. We will have zero influence over whoever ends up in control in the country, and chances are that at this point Syria will break into four or five little fiefdoms, with terrorists running rampant.

“And just as Syria is on Obama, if Jordan goes that’s on him as well.”

Nine months later this stands the test of time. I gave up last year. I was right. It was indeed too late then and is very much so today. By our inaction, we unleashed the whirlwind. As I’ve written countless times before, we will be paying for President Obama’s incoherent foreign policy for generations to come.

---

This week started with confirmation of the sarin gas attack on a Damascus suburb, Aug. 21, with an initial estimated death toll of between 350 and 1,000. U.S. Secretary of State John Kerry said Bashar al-Assad’s responsibility for the use of chemical weapons was “undeniable” and that President Barack Obama would make an “informed decision” about the U.S. response to what Kerry called a “moral obscenity.”

Kerry said on Monday that “while investigators are gathering additional evidence on the ground, our understanding of what has already happened in Syria is grounded in facts, informed by conscience and guided by common sense.”

“We know the Syrian regime maintains custody of these chemical weapons...(and) has been determined to clear the opposition from those very places where the attacks took place. And with our own eyes, we have all of us become witnesses.”

Russian President Vladimir Putin warned the West against a strike, with the Kremlin predicting “extremely dangerous consequences.”

British Prime Minister David Cameron recalled parliament from summer holiday to debate the need for military action.

French President Francois Hollande said action needed to be taken.

U.S. Republican Senator John McCain said the West needed to reverse Assad’s momentum, take out his airfields and get arms into the right hands. He spoke of the deteriorating situation in Iraq, the destabilization of Lebanon and Jordan, the 100,000 “slaughtered” and now two million refugees, one million of which are children.

UN weapons inspectors on the ground in Damascus were finally allowed into the suspected gas attack area but it was too late to be credible.

Iran echoed Russia in warning the U.S. not to cross “the red line of the Syrian front and any crossing of Syria’s red line will have severe consequences.”

A strike seemed imminent, though the White House was insanely telegraphing every detail of a potential attack.

Yet all the while, as a Pew Research Center poll showed, 60% of Americans said the U.S. should not interfere in Syria’s civil war, with just 9% believing Obama should act. Support grew to only 25% if chemical weapons use was proved. [An NBC/Wall Street Journal survey showed 79% of Americans want congressional approval first before the White House makes its move.]

Then, in a stunning development, British Prime Minister David Cameron suffered a stinging rebuke in the House of Commons as it voted against a motion for force. It was clear. The legacy of the failed war in Iraq loomed large worldwide in the debate over responding to Syria’s WMD use, even if this was comparing apples to oranges.

Following Cameron’s defeat, the White House issued a statement: “The U.S. will continue to consult with the UK government – one of our closest allies and friends. As we’ve said, President Obama’s decision-making will be guided by what is in the best interests of the United States. He believes that there are core interests at stake for the United States and that countries who violate international norms regarding chemical weapons need to be held accountable.”

The United States continued to position a naval task force in the Mediterranean. Russia is moving more resources into the region as well, though it already has a naval base in Syria at Tartus.

200 House members from both parties have signed letters calling on the president to seek formal congressional approval for military action.

Others, such as Democratic Senator Robert Menendez (N.J.), and Republican Senator Bob Corker (Tenn.), said after an administration briefing on Thursday that the president already has the power to act under the War Powers Act and that they were convinced of the evidence of chemical weapons use that could be tied directly to Assad.

Then Friday afternoon, Secretary of State Kerry made a forceful case for military intervention, laying out the (declassified) evidence for pinning responsibility on Assad* and his government. U.S. intelligence, Kerry said, has “high confidence” in Assad’s culpability, citing knowledge of direct conversations concerning the attack, while we tracked the movements of regime WMD units before and after the strike. Kerry said the attack killed 1,429 Syrians, including 426 children.

“The American people are tired of war,” Kerry said. “But fatigue does not absolve us of our responsibility.” Kerry added, “History would judge us all extraordinarily harshly” if the United States failed to respond.

*But, what Kerry didn’t mention is that the declassified report doesn’t actually show Assad himself ordered the attack. This is no small issue. As one analyst told Bloomberg, “They either can’t address it publicly or they don’t have the information.”

The timetable couldn’t be worse. President Obama goes to Russia for a G20 meeting in St. Petersburg on Tuesday. He couldn’t possibly initiate action while gone. But when he returns, Congress has a ton on its plate...many of the issues requiring immediate action. 

In the end, aside from Obama’s need to save face, it’s all about Iran. New President Hasan Rohani said his government would cooperate with Russia to prevent a strike against Syria, which he called an “open violation” of international law. Iran, of course, is sitting back just waiting to see how Obama handles this and whether he acts at all.

With the coalition having collapsed, with only France still pledging to back a potential American operation as of Friday, what will be the blowback? How will Syria respond to being attacked? What will Iran and Hizbullah do? Will it be a big enough issue for Iran to activate its sleeper cells in the United States (including those of its proxy, Hizbullah)?

Sleep with one eye open, friends.

---

As with all major topics, this is a week requiring I include some extensive opinion from all sides as I continue to build the world’s greatest history of our times.

Walter Russell Mead / Wall Street Journal

“(The Obama administration), rightfully concerned about the costs of intervention in Syria, failed to grasp early enough just how much it would cost to stay out of this ugly situation. As the war has dragged on, the humanitarian toll has grown to obscene proportions (far worse than anything that would have happened in Libya without intervention), communal and sectarian hatreds have become poisonous almost ensuring more bloodletting and ethnic and religious cleansing, and instability has spread from Syria into Iraq, Lebanon and even Turkey. All of these problems grow worse the longer the war goes on – but it is becoming harder and costlier almost day by day to intervene.

“But beyond these problems, the failure to intervene early in Syria (when ‘leading from behind’ might well have worked) has handed important victories to both the terrorists and the Russia-Iran axis, and has seriously eroded the Obama administration’s standing with important allies. Russia and Iran backed Bashar al-Assad; the president called for his overthrow – and failed to achieve it. To hardened realists in Middle Eastern capitals, this is conclusive proof that the American president is irredeemably weak. His failure to seize the opportunity for what the Russians and Iranians fear would have been an easy win in Syria cannot be explained by them in any other way.

“This is dangerous. Just as Nikita Khrushchev concluded that President Kennedy was weak and incompetent after the Bay of Pigs failure and the botched Vienna summit, and then proceeded to test the American president from Cuba to Berlin, so President Vladimir Putin and Supreme Leader Ayatollah Ali Khamenei now believe they are dealing with a dithering and indecisive American leader, and are calibrating their policies accordingly. Khrushchev was wrong about Kennedy, and President Obama’s enemies are also underestimating him, but those underestimates can create dangerous crises before they are corrected.

“If American policy in Syria has been a boon to the Russians and Iranians, it has been a godsend to the terrorists. The prolongation of the war has allowed terrorist and radical groups to establish themselves as leaders in the Sunni fight against the Shiite enemy. A reputation badly tarnished by both their atrocities and their defeat in Iraq has been polished and enhanced by what is seen as their courage and idealism in Syria.”

Editorial / Financial Times

“(While) the U.S. has slowly deliberated how to react at each turn of events, the region’s big powers have rushed in to back their Sunni or Shia clients. In Egypt, Saudi Arabia and the UAE are bankrolling the newly resurgent military. In Syria, Iran and Hizbullah are shoring up Mr. Assad. America has been outmaneuvered. 

“The question now is whether the White House will go on allowing its influence to wane. Can it articulate a strategy for engagement? Will it draw a line under Mr. Assad’s atrocities? Or will its Middle East policy go on drifting?”

Bret Stephens / Wall Street Journal

“Should President Obama decide to order a military strike against Syria, his main order of business must be to kill Bashar Assad. Also, Bashar’s brother and principal henchman, Maher. Also, everyone else in the Assad family with a claim on political power. Also, all of the political symbols of the Assad family’s power, including all of their official or unofficial residences. The use of chemical weapons against one’s own citizens plumbs depths of barbarity matched in recent history only by Saddam Hussein. A civilized world cannot tolerate it. It must demonstrate that the penalty for it will be acutely personal and inescapably fatal.

“Maybe this strikes some readers as bloody-minded. But I don’t see how a president who ran for his second term boasting about how he ‘got’ Osama bin Laden – one bullet to the head and another to the heart – has any grounds to quarrel with the concept.

“As it is, a strike directed straight at the Syrian dictator and his family is the only military option that will not run afoul of the only red line Mr. Obama is adamant about: not getting drawn into a protracted Syrian conflict. And it is the one option that has a chance to pay strategic dividends from what will inevitably be a symbolic action.”

Ralph Peters / New York Post

“You might as well try to teach a snake to juggle as hope the Obama administration will think strategically. The ‘peace president’ is about to embark on his third military adventure, this time in Syria, without having learned the lessons of his botched efforts in Afghanistan and Libya. He hasn’t even learned from the Bush administration’s mistakes – which he mocked with such delight.

“Before launching a single cruise missile toward Syria, Team Obama needs to be sure it has a good answer to the question, ‘What comes next?’

“If Obama does a Clinton and churns up some sand with do-nothing cruise-missile strikes, it will only encourage the Assad regime. But if our president hits Assad hard and precipitates regime change, then what?

“If al-Qaeda and local Islamists seize Damascus, what will we do? The enfeebled ‘moderate opposition’ we back rhetorically couldn’t dislodge hardcore jihadis, no matter how many weapons we sent (the jihadis would simply confiscate the gear)....

“Exactly which American vital security interests are at stake in Syria, Mr. President? Your credibility? Put a number on it. How many American lives is your blather about red lines worth?”

Tony Blair / London Times

“If we do not intervene to support freedom and democracy in Egypt and Syria, the Middle East faces catastrophe....

“Western policy is at a crossroads: commentary or action; shaping events or reacting to them. After the long and painful campaigns in Iraq and Afghanistan, I understand every impulse to stay clear of the turmoil, to watch but not to intervene, to ratchet up language but not to engage in the hard, even harsh business of changing reality on the ground. But we have collectively to understand the consequences of wringing our hands instead of putting them to work.

“People wince at the thought of intervention. But contemplate the future consequence of inaction and shudder: Syria mired in carnage between the brutality of Assad and various affiliates of al-Qaeda, a breeding ground of extremism infinitely more dangerous than Afghanistan in the 1990s; Egypt in chaos, with the West, however unfairly, looking as if it is giving succor to those who would turn it into a Sunni version of Iran. Iran still – despite its new president – a theocratic dictatorship, with a nuclear bomb. Our allies dismayed. Our enemies emboldened. Ourselves in confusion. This is a nightmare scenario but it is not far-fetched.”

[Blair then offers a description of the Muslim Brotherhood that I will post separately Monday on my “Hot Spots column.]

Tony Blair, continuing....

“In Syria, we know what is happening. We know it is wrong to let it happen. But leave aside any moral argument and just think of our interests for a moment. Syria, disintegrated, divided in blood, the nations around it destabilized, waves of terrorism rolling over the population of the region; Assad in power in the richest part of the country; Iran, with Russia’s support, ascendant; a bitter sectarian fury running the Syrian eastern hinterland – and us, apparently impotent. I hear people talking as if there was nothing we could do: the Syrian defense systems are too powerful, the issues too complex, and in any event, why take sides since they’re all as bad as each other?

“But others are taking sides. They’re not terrified of the prospect of intervention. They’re intervening. To support an assault on civilians not seen since the dark days of Saddam.

“It is time we took a side: the side of the people who want what we want; who see our societies for all their faults as something to admire; who know that they should not be faced with a choice between tyranny and theocracy. I detest the implicit notion behind so much of our commentary – that the Arabs or even worse, the people of Islam are unable to understand what a free society looks like, that they can’t be trusted with something so modern as a polity where religion is in its proper place. It isn’t true. What is true is that there is a life-and-death struggle going on about the future of Islam and the attempt by extreme ideologues to create a political Islam at odds both with the open-minded tradition of Islam and the modern world....

“I know as one of the architects of policy after 9/11 the controversy, anguish and cost of the decisions taken. I understand why, now, the pendulum has swung so heavily the other way. But it is not necessary to revert to that policy to make a difference. And the forces that made those interventions in Iraq and Afghanistan so difficult are of course the very forces at the heart of the storm today.

“They have to be defeated. We should defeat them, however long it takes; because otherwise they will not disappear. They will grow stronger until, at a later time, there will be another crossroads and this time there will be no choice.”

David Brooks / New York Times

“What’s the biggest threat to world peace right now? Despite the horror, it’s not chemical weapons in Syria. It’s not even, for the moment, an Iranian nuclear weapon. Instead, it’s the possibility of a wave of sectarian strife building across the Middle East.

“The Syrian civil conflict is both a proxy war and a combustion point for spreading waves of violence. This didn’t start out as a religious war. But both Sunni and Shiite power players are seizing on religious symbols and sowing sectarian passions that are rippling across the region. The Saudi and Iranian powers hover in the background fueling each side.

“As the death toll in Syria rises to Rwanda-like proportions, images of mass killings draw holy warriors from countries near and far. The radical groups are the most effective fighters and control the tempo of events. The Syrian opposition groups are themselves split violently along sectarian lines so that the country seems to face a choice between anarchy and atrocity.

“Meanwhile, the strife appears to be spreading....

“Poison gas in Syria is horrendous, but the real inferno is regional. When you look at all the policy options for dealing with the Syria situation, they are all terrible or too late. The job now is to try to wall off the situation to prevent something just as bad but much more sprawling.”

Charles Krauthammer / Washington Post

“So much for the element of surprise. Into his third year of dithering, two years after declaring Assad had to go, one year after drawing – then erasing – his own red line on chemical weapons, Barack Obama has been stirred to action.

“Or more accurately, shamed into action. Which is the worst possible reason. A president doesn’t commit soldiers to a war for which he has zero enthusiasm. Nor does one go to war for demonstration purposes.

“Want to send a message? Call Western Union. A Tomahawk missile is for killing. A serious instrument of war demands a serious purpose....

“There are risks to any attack. Blowback terror from Syria and its terrorist allies. Threatened retaliation by Iran or Hizbullah on Israel – that could lead to a guns-of-August regional conflagration. Moreover, a mere punitive pinprick after which Assad emerges from the smoke intact and emboldened would demonstrate nothing but U.S. weakness and ineffectiveness.”

Editorial / London Times

“Parliament had the luxury yesterday of debating at length the quality of the evidence of Syria’s use of chemical weapons and the legality of responding with force. It was better to have the debate than to scrap it, because no military intervention should be undertaken lightly.

“The result of the vote, however, was a disaster. It was a disaster for the Prime Minister who misjudged his party. It was a disaster for the country, which turned its back on its tradition of standing up to tyranny. It was a disaster for the western alliance, split apart by British failure to stand with its allies. And most important of all, it was a disaster for the people of Syria, who know that they have fewer friends in their hour of need....

“If the U.S. fails to respond decisively to the massacre of more than 1,000 civilians in Ghouta last week, its credibility as an ally to Israel, Turkey, Jordan and other vital regional players will be damaged, possibly beyond repair. The same would be true of its ability to deter other renegade regimes from using or acquiring chemical weapons.”

Fouad Ajami / Bloomberg

“Syria is the moral and strategic test that U.S. President Barack Obama neither sought nor wanted. He had done his best to avert his gaze from its horrors. He, the self-styled orator, had said very little about the grief of Syria and the pain of its children. When he spoke of Syria, it often sounded as though he was speaking of Iraq – the prism through which he saw the foreign world and its threats.....

“History will record for Obama that it was Bashar al-Assad who dragged him into this fight. Obama had made much of the distinction between wars of choice and wars of necessity. He is said to have pondered theories of just and unjust wars. To this Syrian ordeal, he came late in the hour, after the barbarisms, after the veritable destruction of Syria’s nationhood, after the jihadis had carved out their emirates. It doesn’t matter much whether this entanglement is one of choice or of necessity. This is only partly a hand that Barack Obama was dealt. To a greater extent, he has shaped the conflict with the passivity he opted for in a standoff with a petty dictator who should have been thwarted long before.”

George Will / Washington Post

“Characterizing the 2011 Libyan project with weirdly passive syntax (‘It is our military that is being volunteered by others to carry out missions’), he explained his sashay into Libya’s civil war as preemptive: ‘I refused to wait for the images of slaughter and mass graves before taking action.’

“With characteristic self-satisfaction, Obama embraced the doctrine ‘R2P’ – responsibility to protect civilians – and Libya looked like an opportunity for an inexpensive morality gesture using high explosives.

“Last August, R2P reappeared when he startled his staff by offhandedly saying of Syria’s poison gas: ‘A red line for us is we start seeing a whole bunch of chemical weapons moving around or being utilized.’ The interesting metric ‘whole bunch’ made his principle mostly a loophole and advertised his reluctance to intervene, a reluctance more sensible than his words last week: Syria’s recidivism regarding gas is ‘going to require America’s attention and hopefully the entire international community’s attention.’ Regarding that entirety: If ‘community’ connotes substantial shared values and objectives, what community would encompass Denmark, Congo, Canada, North Korea, Portugal, Cuba, Norway, Iran, Britain, Saudi Arabia, Poland and Yemen?....

“Obama is as dismissive of ‘red lines’ he draws as he is of laws others enact. Last week, a State Department spokeswoman said his red line regarding chemical weapons was first crossed ‘a couple of months ago’ and ‘the president took action’ – presumably, announcing (non-lethal) aid to Syrian rebels – although ‘we’re not going to outline the inventory of what we did.’

“The administration now would do well to do something that the head of it has an irresistible urge not to do: Stop talking.

“If a fourth military intervention is coming, it will not be to decisively alter events, which we cannot do, in a nation vital to U.S. interests, which Syria is not. Rather, its purpose will be to rescue Obama from his words.”

Washington and Wall Street

In light of the above, and continued uncertainty over future Federal Reserve actions, stocks fell on the week, the fourth straight decline for the Dow Jones.

There is also renewed concern over the agenda President Obama and Congress face when the latter returns on Sept. 9. A new budget for the fiscal year beginning October 1, including what to do with the sequester; addressing the debt ceiling; the implementation of certain facets of Obamacare; and who knows what in the Middle East that could for starters lead to even higher oil prices that would impact the economic recovery.

Regarding the debt ceiling, which will be hit mid-October, Treasury Secretary Jack Lew told CNBC, “The president’s been very clear we are not going to be negotiating over the debt limit.”

“Congress has already authorized funding, committed us to make expenditures. We’re now in the place where the only question is will we pay the bills that the United States has incurred. The only way to do that is for Congress to act, for it to act quickly.”

Well, the fact is the president will indeed have to negotiate with Congress, as much as he doesn’t want to. There may be broad agreement to avoid a repeat of the 2011 showdown that roiled financial markets, but Lew had to acknowledge there is nothing on the table yet.

One thing is certain, it is going to be helter-skelter the last three weeks of September and on into October, even if Congress and the president agree on a continuing resolution that kicks the hard decisions down the road another few months, like until end of the year. That’s just as bad.

As for the Federal Reserve and its looming decision, GDP in the second quarter was revised sharply upwards from 1.7% to 2.5%, which is a far cry from the 1.1% annualized pace of the first quarter.

But if you’re thinking we’re now off to the races, understand it’s going to be tough to attain 2.5% in the second half with the remaining domestic and global uncertainty (let alone part of the revision for the quarter involved the building of inventories). So I don’t know if the Fed can begin to pull back from its $85 billion in monthly bond buying when they next convene Sept. 17-18, based on just the GDP improvement.

And while the interest rate picture has stabilized the past few weeks, the 10-year at 2.78% is still over 1.00% above the May lows of 1.60% and clearly the housing market is taking a pause while it adjusts to this probable new reality and 30-year fixed mortgages of 4.50% (or probably higher) vs. 3.30%.

Pending home sales in July, for example, dropped 1.3%, the most this year, while the S&P/Case-Shiller housing index for June, up 12.1% over June 2012 for both the 10- and 20-city indexes, is nonetheless showing signs of deceleration.

Next week, the Fed’s eyes, as well as the Street’s, will be on Friday’s release of the August jobs picture, the last big data point before the Fed next meets. I still say that if they want to maintain their credibility, they can’t begin to taper in September unless we see a monster number on the labor front.

And of course the Fed can’t ignore any developments in the Middle East, including unintended consequences of U.S. military action, without trying to gauge the impact, if any, on consumer and business sentiment.

Switching gears, Kennedy Elliott and David Fahrenthold of the Washington Post had an extensive piece on spending trends in Washington.

“Since 2011, spending has shrunk, but it still remains near historic highs. When the numbers are adjusted for inflation, spending has decreased about 5 percent in the psat few years.

“ ‘For all the brave talk, one single fact has trumped all this great rhetoric. Most of the people who came in saying, ‘We’re going to change Washington,’ simply didn’t understand Washington,’ said Steve Bell, a longtime Republican staffer who now works at the Bipartisan Policy Center.

“Bell’s point is that today’s politicians do not understand the political forces that produce and then protect inefficient programs. Or the difficulty of changing the social-benefit programs – such as Medicare and Social Security – that spend the bulk of Washington’s money.”

Mandatory spending on programs like Medicare, Social Security and food stamps has fallen less than 1 percent since 2010, while “discretionary” expenses, a much smaller pot of money, has fallen by 14%. “That reduction is partially due to the winding-down of a stimulus and two wars, as well as to ‘sequestration’ and other budget cuts imposed since 2010.”

Also, on the issue of federal employment, Kennedy Elliott and David Fahrenthold note:

“Today, the government workforce includes 2.7 million civilian employees, including postal workers...It also includes 1.4 million active-duty members of the military....

“But those numbers are still incomplete. They do not count a vast number of other people who also do the government’s work: private contractors who do federal work full-time. It’s hard to judge the actual size of the government – or the actual scope of its work – without knowing how many of these people exist.

“The Obama administration doesn’t. It was supposed to have started counting these contractors: Congress ordered it in 2009. But the formal regulations haven’t been finalized. So there is still no full count.”

One educated guess, though, pegs it at 1.7 million full-time contractors, which would make the size of the federal workforce 5.8 million.

Europe

For all the talk of an incipient recovery in the eurozone, there will be no sustained growth, especially at annualized rates of greater than 2%, which the region desperately needs just to keep government debt at existing levels, unless you see an increase in bank lending and across borders within the euro area since 2008, there has instead been a $2.2 trillion reduction in same. You also continue to have a situation where there is a huge difference in funding costs for corporations in the euro north vs. those in the periphery. For example the difference in funding between Spanish and German firms is about 1.50% currently, despite the improvement in Spain’s bond market. Who do you think continues to have the advantage?

Speaking of the periphery, Greece remains in the headlines. The finance minister, Yannis Stournaras, said: “If there is need for further support to Greece, it will be in the order of about 10bn euros ($13.2bn), or much smaller than the previous programs.” 

While that sounds just dandy, seeing as Greece has received two prior bailouts totaling 240bn euro, German Chancellor Angela Merkel, now just three weeks from a critical election, said all kinds of things about Greece this week.

For starters, Merkel’s opponents are calling into question her previous remarks that Greece won’t need another bailout, along with her claim that she will not allow Greece to write down any more debt, which would hit Germany and other lenders:

“I am expressly warning against a haircut. It could trigger a domino effect of uncertainty with the result that the readiness of private investors to invest in the eurozone again falls to nothing,” said the chancellor.

But the prior week, German Finance Minister Wolfgang Schaeuble said Greece would need another bailout to plug a forthcoming funding gap.

Back to Stournaras, he said on Sunday that Greece would not accept any more forced spending cuts from its partners.

“We are not talking about a new bailout but an economic support package without new [austerity] terms.”

[The troika of lenders – the European Commission, European Central Bank and the IMF – will be reviewing Greece’s aid program this fall.]

Merkel, though, already hated in Greece, further infuriated the people there when she told supporters at a campaign stop that her predecessor, Gerhard Schroder, never should have allowed Greece into the eurozone in 2001.

So the chancellor’s hopes of keeping Greece off the agenda until after the Sept. 22 vote have unraveled, thanks in no small part to Schaeuble’s talk of a third bailout.

A spokesman for Greece’s main opposition party, Syriza, said, “Her comments cannot be justified. For there to be such a statement made in public by Mrs. Merkel, even if there is a pre-election period in Germany, is at the very least irresponsible.

“The extreme policies of austerity enforced by Germany are testing European cohesion.”

Merkel, who according to an Emnid poll is still up 15 points on her rival, Social Democrat Peer Steinbruck (who’s a dolt), has wanted to limit the campaign to debate over the shape of Germany’s economy, but while other items such as Syria and U.S. surveillance programs have cropped up, Steinbruck has vowed to pin Merkel down on the true costs of rescuing Greece and he will get that opportunity in the only live television debate on Sunday.

On the economic front, while Germany’s economy improved in the second quarter, retail sales fell in July for a second consecutive month. But German business confidence is at a 16-month high and the jobless rate remains at a two-decade low.

In France, President Francois Hollande’s Socialist Government was warned by Olli Rehn, chief economist for the European Union, that the French economy’s fragile recovery could fizzle out if it kept raising taxes.

Rehn said, “The tax increases in France have reached their fateful point. Raising new taxes would break growth and weigh on employment.”

Last May, on a different topic, the European Commission, the EU’s executive arm, called on President Hollande to increase both the minimum and full pension ages, and demanded a review of the many exemptions in the French system.

This week, Hollande unveiled his pension reform plan, raising the level and duration of contributions but avoiding many of the measures the EU had requested.

For instance, Hollande, afraid of the kind of social unrest that accompanied previous reform efforts, opted not to raise the current minimum retirement age of 62 that Brussels called for.

Hollande also didn’t change the contribution period required to earn a full pension before 2020, but after will rise from the present period of 41.5 years to 43 years by 2035, so at least this means most will have to work beyond the age of 62 to earn a full pension.

Business leaders were furious, even though there were no further apparent corporate tax increases. Hollande seemed to do nothing more than placate the unions and merely postponed the moment of truth for France’s heavily-indebted pension system.

A big problem, as the EC knows, is the “special” pension regimes that apply to different industries in the public sector. For instance, train drivers can still retire at 50 and employees of the EDF, the electricity group, at 55. 

Meanwhile, life expectancy in France, 70 in 1963, is up to 81.6. State pensions in France represent 12.8% of GDP, compared with 10.1% in Germany and 5.9% in the UK.

Bruno Le Maire, a leading center-right politician, said, “This Government is so cowardly, so incapable of outlining a perspective for the French that its only solution to any difficulty is a new tax. Francois Hollande has no idea where he is going.”

Nicolas Barre, editor of Les Echos, the financial daily, said: “The scandal is that France borrow 10bn euro every year on the markets to pay its pensions. A real reform would tackle the question of the legal retirement age, and Francois Hollande has excluded that. The consequence is that we are not looking at reform but a papering over the cracks.” [London Times, Financial Times, BBC News]

Turning to Spain, the government revised the economic contraction in 2012 to 1.6% from 1.4%, but there are signs of bottoming. Exports rose 6% in the second quarter and tourism is improving significantly, a key here.

But banks’ bad loans jumped to a record 11.6% of total lending in June and that figure is expected to peak at a staggering 16% sometime in 2014. I continue to maintain that because of Spain’s still collapsing housing sector, the bad loan problem is even worse.

And in Italy, watch the period around Sept. 9, when a Senate committee is to begin hearing arguments on whether to eject former prime minister Silvio Berlusconi from parliament following his recent conviction on tax fraud. Members of Berlusconi’s center-right party have warned that if their leader is expelled, they would bring down the government; the PDL (People of Freedom) party being in a coalition with Prime Minister Enrico Letta’s PD (Democratic Party).

Street Bytes

--The Dow Jones fell 1.3% to finish the week at 14810, down 4.4% for August, its worst performance of the year, while the S&P 500 lost 1.8% on the week, 3.1% for the month (worst since May 2012). Nasdaq declined 1.9% (just 1% for August).

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.40% 10-yr. 2.78% 30-yr. 3.70%

Bond superstar Jeffrey Gundlach of DoubleLine Capital LP, who as recently as June predicted the yield on the 10-year would fall to as low as 1.7% by the end of the year, has now reversed course and is calling for 3.00%+ this year.

--A few other economic releases of note this week:

July durable goods (big-ticket items) declined a much greater than expected 7.3%, -0.6% ex-transportation. The Chicago Purchasing Managers Index for August, a first look at manufacturing in the month, was 53.0, as expected. And personal income and personal consumption for the month of July both rose 0.1%, not great on the latter in particular.

--As Japanese Prime Minister Shinzo Abe prepared to issue a final decision on raising the country’s sales tax in two stages from 5% to 10%, beginning next April, the government expects to spend a record $257 billion to service its debt during the next fiscal year (April 1), according to a document obtained by Reuters. By comparison, the interest expense in the U.S. for the fiscal year ending Sept. 30 is going to be around $223 billion.

As I’ve been writing, Abe must approve the tax hike as part of a program to repair Japan’s finances, but he is getting pushback from those concerned the increase will kill the budding recovery.

Meanwhile, on the important issue of inflation, consumer prices, excluding food, rose by 0.7% in July from a year earlier, the fastest pace in nearly five years. Abe and the Bank of Japan have made ending deflation a chief policy goal, though the better environment for July was mainly the result of rising fuel prices rather than an increase in domestic demand.

--Canada’s GDP rose at an annualized pace of 1.7% in the second quarter, after expanding at a revised rate of 2.2% in Q1.

--Brazil’s economy grew by 3.3% in the second quarter, year over year and better than expected. But for all of 2013, growth is slated to come in at 2.5%.

--India’s growth for Q2 was 4.4%, slower than the first quarter’s annualized rate of 4.8%. This is not good.

--Neil Shah / Wall Street Journal

“Four years into the economic recovery, U.S. workers’ pay still isn’t even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show.”

--Back to the S&P/Case-Shiller home price index for June, the largest year-over-year increases were 24.9% and 24.5% in Las Vegas and San Francisco. New York exhibited the smallest rise at 3.3%.

--Even with lower prices on corn and soybeans, U.S. net farm income in 2013 will be $120.6 billion, down from a February forecast of $128.2 billion, but still substantially ahead of 2011’s record $118 billion.

--Hedge fund manager Bill Ackman abandoned his 39 million share position in J.C. Penney, 18% of the company, losing about 50% or $490 million. He had paid an average $25 a share and sold it out at $12.60.

--The Federal Housing Finance Agency is demanding JPMorgan Chase pay more than $6 billion to settle allegations it mis-sold securities in the run-up to the financial crisis. Back in 2011, the FHFA sued 18 banks, including JPMorgan, and singled out JPM for false claims related to $33 billion of mortgage-backed securities. The bank is expected to eventually settle for an amount in the $billions. JPM recently announced it has existing reserves of $6.8 billion to handle various legal issues that continue to come up.

Last month UBS settled for $885 million in a similar case where original losses were estimated at about $1.15 billion, though JPM is being accused of fraud, which wasn’t the case with UBS. [Financial Times]

--The parent company of American Airlines, AMR Corp., reported a $292 million profit for July, a monthly record for the company according to a monthly filing required by the U.S. Bankruptcy Court.

In a letter to employees, AMR CEO Tom Horton called the financial report a sign that “we are completing one of the most successful turnarounds in aviation history.”

So, this kind of hurts AMR’s justification for merging with US Airways, which is now being challenged by the U.S. Justice Department.

I have to admit. I find this performance startling. [It was actually $349 million in operating profit before $57 million in reorganization fees.]

--Billabong, the iconic Aussie surfwear outfit created in 1973 that turned into a world brand, “is now essentially worthless after the parent company declared a massive $859.5 million loss for fiscal year 2013,” or $300 million greater than expected, due to sales collapses across its key regions, including the Americas. Global sales were down 13.5% for 2012-13.

As reported by the Sydney Morning Herald, “The company said its Billabong brand was essentially worthless, a fact which would stun many investors and fans of the famous surf and streetwear brand.”

The company is trying to reorganize but is being swamped by hipper brands, let alone the overall downturn in retail around the world.

--Donald Trump was sued by New York Attorney General Eric Schneiderman, who accused Trump of using an unlicensed university real estate program to scam would-be real estate investors. Trump faces a similar California federal court suit.

Trump shot back, calling the attorney general a “lightweight” who “sues a school with a 98% approval rating but doesn’t go after billion $ fraudsters all over Wall Street.”

--Merrill Lynch settled a racial discrimination lawsuit for $160 million, which could affect as many as 1,200 employees. In the initial suit filed by George McReynolds, who worked at Merrill for 30 years, he alleged African-American workers were encouraged to pursue clerical positions in a segregated workforce and if they did become brokers, were not offered much in terms of support. At the time the suit was filed, only 2% of Merrill Lynch’s employees were African-American, even though Merrill had signed an agreement with the Equal Employment Opportunity Commission to increase the percentage to 6.5%.

--What an awful story involving Zurich Insurance Group. The CFO committed suicide and then the chairman, Josef Ackermann, abruptly stepped down, saying the finance chief’s family felt he shouldered some of the responsibility for the death, with the chairman being mentioned in the suicide note. Ackermann had been on board a year and a half after running Deutsche Bank AG for a decade. Profits have been declining at the insurance giant.

--The SEC has asked big retailers to come clean on their online sales volumes. Many of them tout that sales have increased by double digits when they issue their earnings reports, but then when pressed by the SEC to provide actual dollar figures, they often, as in the case of Target, confess that “digital sales represented an immaterial amount of total sales.”

The SEC is concerned the retailers are hyping their online presence. Another example was Wal-Mart, which as part of its second-quarter earnings call, talked of a 30% increase in global online sales, but when pressed by the SEC to quantify this, Wal-Mart said web-based sales contributed 0.1 to 0.2 percentage points to Wal-Mart’s 2.4% increase in U.S. comparable-store sales in fiscal 2013.

Online purchases were still just 5.8% of total U.S. retail sales in the second quarter. [Wall Street Journal]

Boy, somewhere in a box sitting in one of my two storage places, I have reports I subscribed to when I started StocksandNews in 1999, showing how by 2010 online spending would account for 20% or more of total retail sales.

--We note the passing of Muriel Siebert, 80. Siebert started as a trainee on Wall Street and became the first woman to own a seat on the New York Stock Exchange. She went on to found the brokerage firm bearing her name, Muriel Siebert & Co., which went public in 1996 as Siebert Financial Corp. She took a leave of absence from the company in 1977, to serve as superintendent of banking for the State of New York under Gov. Hugh Carey. It turned out to be a chaotic time for the banking industry as interest rates soared. Siebert was active in persuading stronger institutions to help out weaker ones.

--The New York Post reported that CNBC’s ratings in August were the worst for the network in 20 years. In the key 25 to 54 demographic, CNBC attracted an average of just 37,000 viewers over a 24-hour period. The peak was January 2002 when it drew 162,000 in the key demo. Jim Cramer’s “Mad Money” is among the individual programs that declined the most.

But to be fair, August was a rough month for other cable channels, with Fox News Channel falling 24% in the 25 to 54 demo, while MSNBC was off 32%. CNN, though, saw its audience grow 13%. [I’m a big Wolf Blitzer “Situation Room” fan at 5:00 p.m., and love that the network is coming back with a new “Crossfire,” which used to be a favorite of mine. But why the heck is it airing the show at 6:30! That’s when I’m watching network news. Don’t they understand my schedule?]

--The NFL reached agreement with 4,500 former players to resolve concussion-related lawsuits in a $765 million settlement that funds medical exams, research and provides some concussion-related compensation. The settlement would mean the NFL won’t have to disclose internal files about what it knew concerning concussion-linked brain problems. It also allows the league, which opens regular season play on Thursday, to change the conversation and refocus on the action on the field...at least it hopes this is the case.

But as NBC’s Bob Costas pointed out following the federal judge’s decision, here’s what we do know. Participation in youth football has dropped significantly. The future of the sport is not good.

--From The Moscow Times:

“At least half of the items in circulation on Russia’s antiques market are counterfeits, which cost scammed collectors millions of rubles every year, according to antiques experts and law enforcement agencies.

“Dishonest dealers and a lack of quality experts are the core of the problem.”

So you’ve been warned, in case you were going antiquing in Moscow this weekend.

Foreign Affairs, cont’d

Iran: A report from the UN’s International Atomic Energy Agency – the first since Hasan Rohani was installed as the new president – confirms that Iran has installed 1,000 advanced uranium enrichment centrifuges and is set to test them.

Iraq: 2013 has seen one wave after another of horrific violence, including attacks on Sunday and Monday that killed over 125. Iraq is hurtling toward renewed civil war. Most of the larger-scale attacks are the responsibility of the resurgent al-Qaeda in Iraq. The nation’s security forces seem totally incapable of stopping the violence.

Egypt: There has been a period of relative calm in the country, the military having largely crushed the Muslim Brotherhood. Now authorities are going after other dissidents, who are then branded as Islamists even though they are not. As reported by the New York Times’ David Kirkpatrick, “In Suez this month, police and military forces breaking up a steelworkers strike charged that its organizers were part of a Brotherhood plot to destabilize Egypt.”

As a result of the crackdown, splits are emerging in the Islamist movement, with some groups offering to call off street protests if the government agrees to ease pressure on them. A journalist and analyst told the AP’s Maggie Michael: “They want to lift pressure on their groups and jump off the Muslim Brotherhood boat that is sinking right now. Everyone is searching for a way out but it is too late.”

Separately, Islamists in Coptic Christian communities are forcing the Copts to pay bribes to ensure they won’t be targeted, the revival of a seventh-century tax levied on non-Muslims.

And as I go to post, there are reports that renewed protests have killed at least six people across the country on Friday.

China: Bo Xilai’s trial for corruption and abuse of power wrapped up, with Bo, formerly one of the most powerful men in the country, confessing he had had an extramarital affair, which cast new light on the state of mind of his wife, who was convicted last year of murdering British businessman Neil Heywood.

Without getting into all of the specifics of the court proceedings, due to a poor performance by prosecutors, analysts believe that what was supposed to be a well-scripted show trial has veered badly off course and turned into a debacle for the current party leadership. Most now believe that while Bo will be convicted, because he has to be, the sentence will have to be a very light one. He should learn his fate soon.

On a different matter, China’s foreign minister warned that Beijing will “not shy away from problems” in disputed Asian waters, while admitting at a meeting of Asean foreign ministers in the Chinese capital that “Currently the South China Sea situation is stable and when we look at other places in the world, we should dearly cherish it.’

And lots of tidbits this week...

--There has been public outrage over the arrest of a teenage son of a prominent Chinese general in a gang rape case, an incident that is stirring resentment against the offspring of the political elite. Li Tianyi, 17, is one of five accused of assaulting a woman in a Beijing hotel in February, according to state media. Li said he was drunk and had no knowledge of the alleged assault. As reported by the South China Morning Post, a politics professor at Renmin University observed, “The general public is worried that his family, because of their relationships and power, will be able to use their connections. In China, this kind of privilege is very powerful. It is omnipresent. The people’s fears are not groundless.”

--“A six-year-old boy in China had his eyes gouged out, blinding him for life, in a gruesome attack that may have been carried out by a ruthless organ trafficker, reports say.

“Family members found the boy covered in blood some three to four hours after he went missing while playing outside...

“The child’s eyes were found nearby but the corneas were missing, reports said, implying that an organ trafficker was behind the harrowing attack.” [Sydney Morning Herald]

--New Zealand announced that after 195 tests in New Zealand and the U.S., scientists have concluded the bacteria found early this month in China in baby formula and other products was not a potentially deadly form of botulism but instead something far more innocent.

Well this sucks. New Zealand’s giant Fonterra cooperative was forced to remove its products from Chinese shelves and now it has to rebuild what had been a strong brand for all its dairy products on the mainland and elsewhere. China was easily Fonterra’s biggest customer, but it was Chinese officials who first banned the products, with others such as Russia and Vietnam then following suit.

--Photos of a small Asian boy, aided by a woman, urinating into a rubbish bin at an upscale shopping mall in the Vancouver, Canada area went viral and sparked yet another debate about Chinese behaving badly.   The suburb where the mall is, Richmond, is North America’s most Chinese municipality, with 80% of the population Chinese in the district where the mall is located. The CBC made it a lead story and the backlash was considerable. [South China Morning Post]

--In another instance of Chinese behaving badly, a group of Chinese tourists on a Singapore Airlines flight refused to hand over 30 sets of stainless steel tableware, Chinese media reported.

“It was only after repeated warnings from a tour guide that these passengers agreed to hand them back to flight attendants.”

The tour guide reportedly said, “Stop hurting the reputation of Chinese people.”

Oh, you can imagine the conversation later among the Singapore Air girls.

North Korea: The ex-girlfriend of Kim Jong Un was executed, according to South Korea’s largest daily newspaper. Hyon Song Wol, a popular singer in North Korea, was killed by firing squad, along with 11 members of her orchestra for filming themselves having sex and selling the videos. Family members of those executed were sent to prison camps. There had been persistent rumors that Kim and Hyon were still having an affair.

Editorial / Wall Street Journal

“The manic cruelty of the North Korean regime, reaching from the bottom of society to its upper echelons, may sometimes seem like a subject best suited for parody. But it was no joke for Hyon, her fellow musicians or their families. That’s something for South Korea, the Obama Administration and the rest of the civilized world to remember when they seek the next rapprochement with the Kims.”

Also, distressingly, late Friday we learned Pyongyang had rescinded an invitation for a senior U.S. diplomat on a mission to secure the release of an American Christian missionary currently imprisoned on charges of acting against the state. No explanation was given

Russia: Supporters of Moscow mayoral candidate and activist, Aleksei Navalny, staged a rally on Sunday that attracted a sizable crowd, estimated at 5,000 to 7,000, and then Navalny was detained for a spell to discuss violations in holding the demonstration. Ten campaign workers were also detained on misdemeanor charges. Just your basic unnecessary harassment. The election is Sept. 8. Navalny’s campaign manager thinks his candidate can get 25%, which would be a strong showing.

In the Edward Snowden case, a pro-Kremlin Russian newspaper reported that officials there became involved with Snowden’s attempt to evade U.S. justice earlier than previously thought and was assisting him before he arrived in Moscow. The newspaper, Kommersant, claims Snowden actually spent several days in the Russian consulate in Hong Kong, before flying to Moscow on June 23. It is thought he was invited to go to Russia.

Britain: Early in the week, a YouGov poll for the London Times found support for firing British missiles against military sites in Syria was just 22%, while those in opposition came in at 51%. Prime Minister Cameron’s spokesman said, “The Prime Minister is acutely aware of the deep concerns in the country caused by what happened over Iraq.  That’s why we are committed to taking action to deal with this war crime, but taking action in the right way, proceeding on a consensual basis.”

Cameron then made his case to parliament, only to go down in flames.

Francis Elliot / London Times

“David Cameron was dealt the worst humiliation of his premiership last night after MPs, recalled to approve a military strike on the Syrian regime, rejected even a watered down expression of support.

“After the defeat, a stunned Prime Minister said it was clear that Parliament, reflecting public opinion, did not want to see British military action.

“ ‘I get that and the Government will act accordingly,’ he said after a coalition motion expressing support in principle for intervention was defeated by 13 votes.

“Ed Miliband, who led Labour in voting against the motion, condemned Mr. Cameron’s ‘cavalier and reckless’ leadership and declared that UK military action in Syria was now ‘off the agenda.’”

Turning humiliation into further embarrassment, four of Cameron’s ministers didn’t vote, apparently because they didn’t hear the call to assemble.

The importance of this issue on British politics writ large cannot be overstated. Cameron’s low popularity numbers were stabilizing and on the verge of rising due to an improving economy. But the 2015 election was supposed to be about Britain’s role in the European Union, first and foremost. An embarrassment on Syria just reflects poorly on his overall leadership skills, further fodder for his opponents.

Janan Ganesh / Financial Times

“(After) several months of good form, the prime minister looks weaker than at any time since taking office more than three years ago. Failing to win over Liberal Democrat MPs in his coalition government is one thing. Being defied by his own Tories is quite another. Prime ministers are simply not supposed to lose House of Commons votes on major matters of foreign policy.”

Czech Republic: This is disturbing. Neo-Nazi thugs staged demonstrations against Roma (Gypsies) in eight towns across the country. In the town of Ostrava, riot police made 60 arrests as a mob of 600-800 neo-Nazis tried to attack a Roma community. Other gatherings involved hundreds of far-right extremists.

Separately, in the city of Kosice in Eastern Slovakia, the European Commission demanded a wall be removed that was built for segregating a Roma neighborhood. I have some strong family roots in this place, by the way.

Random Musings

--In the latest Quinnipiac poll of likely Democratic primary voters for the New York City mayoral race, Bill de Blasio surged ahead of the competition with 36% to City Council Speaker Christine Quinn’s 21 and Bill Thompson’s 20. A. Weiner is down to 8. The danger for Quinn and Thompson is de Blasio is suddenly near the 40% threshold that would prevent a run-off. [A Times/Siena College poll has de Blasio ahead of Thompson, 32-18, with Quinn at 17.]

There is no doubt that, as I said a few weeks ago, de Blasio’s campaign commercial featuring his 15-year-old black son has proved to be extremely effective, as is his ‘tax the rich’ message among an electorate tired of 12 years under billionaire Michael Bloomberg. 

For his part, Thompson’s campaign line is, “I’ll end stop and frisk and get illegal guns off the street.”

How?
 
The primary is Sept. 10.

Meanwhile, in the comptroller’s race, Manhattan Borough President Scott Stringer has come from 19 points down on Aug. 14 to tie Eliot Spitzer 46-46 in another Quinnipiac University survey. [But a Siena poll, released Friday, had Spitzer ahead 50-35.]

--In New Jersey, Gov. Chris Christie’s lead over Democratic challenger Barbara Buono is up to 24 points, 50-26, while Newark Mayor Cory Booker leads his Republican challenger for the Senate seat of the late Frank Lautenberg, Steve Lonegan, 50-22, both according to a Fairleigh Dickinson University PublicMind poll.

But Booker made news this week when he responded to persistent rumors he is gay.

“People who think I’m gay, some part of me thinks it’s wonderful, because I want to challenge people on their homophobia. I love seeing on Twitter when someone says I’m gay, and I say, ‘so what does it matter if I am?’ So be it.”

To which Lonegan first said he didn’t care about Booker’s lifestyle, then in an interview with Newsmax, said, “Maybe that helps to get him the gay vote by acting ambiguous. It’s kind of weird. As a guy, I personally like being a guy. I don’t know if you saw the stories last year. They’ve been out for quite a bit about how he likes to go out at three o’clock in the morning for a manicure and a pedicure.”

Lonegan continued: “I don’t like going out in the middle of the night, or any time of the day, for a manicure and pedicure. It was described as his peculiar fetish... I have a more peculiar fetish. I like a good Scotch and a cigar. That’s my fetish but we’ll just compare the two.”

Uh oh....the state’s leading gay rights advocacy group accused Lonegan of being homophobic.

Booker responded, “It’s just really sad. It’s just disheartening to hear somebody in this day and age in the United States of America to say basically that gay men are not men – that they’re not guys. It’s shocking to one’s conscience.”

--One of my favorite Republican senators, South Carolina’s Lindsey Graham, is under fire from the state’s conservatives for, among other things, reaching across the aisle on immigration, and for spending so much time out of the state. As reported by the New York Times’ Kim Severson, “Tea Party supporters called (Graham) a community organizer for the Muslim Brotherhood when, instead of heading home for the Congressional break this month, he went to Egypt at the request of the president.”

Well that’s stupid. The Tea Party stance, that is. But this 2014 race will be interesting to follow.

--Major Nidal Hasan received the death penalty for murdering 13 people at Fort Hood, Texas. Unfortunately, he won’t be put to death right away, if ever, because of the lengthy appeal process, probably at least four years according to military officials. As it’s a military court that convicted and sentenced him, execution requires the approval of the Fort Hood commanding general and the president in order for it to take place.

--The Justice Department announced it would not interfere with the enforcement of voter-approved laws that allow recreational pot use in Washington state and Colorado, which means other states (such as Oregon and Alaska) will likely consider similar laws. Whatever. Just don’t text and drive.

--Clive Cookson / Financial Times

“Biomedical scientists have turned human stem-calls into pea-sized mini-brains with a neural structure similar to the brain of a developing embryo.

“These ‘cerebral organoids,’ as they are termed formally, are the best living model of a human brain created so far.

“The scientists at the Institute of Molecular Biotechnology of the Austrian Academy of Sciences in Vienna...hope to apply the technique to more complex conditions such as autism and schizophrenia, for which no good animal models are available.”

--At a major international scientific conference in Florence, Italy, research was presented that supports an idea that life may have started on Mars before arriving here. It’s highly complex, involving how atoms first came together to make up the crucial molecular components of living organisms, but as Professor Steven Benner told BBC News, “The evidence seems to be building that we are actually all Martians; that life started on Mars and came to Earth on a rock. [Ed. via meteorites.]

“It’s lucky that we ended up here, nevertheless – as certainly Earth has been the better of the two planets for sustaining life. If our hypothetical Martian ancestors had remained on Mars, there may not have been a story to tell.”

At least I wouldn’t have wasted my life being a Mets and Jets fan.

--Liberia, with an education system that is still a mess a decade after 14 years of civil war ended, recently had 25,000 students take this year’s university entrance exam and all 25,000 failed.

Some suspect foul play because it seems there is no capacity in the university system, so the results were doctored.

--How cool is it that if you write Pope Francis an actual letter, he just may pick up the phone and call you, as was the case for 19-year-old Stefano Cabizza, a teen from northern Italy who wrote a letter to the Pope after attending his mass at the papal summer retreat. Cabizza shared his worries about finding a job after graduation.

Three days after writing, Cabizza picked up the phone. “This is the Pope.”

“I couldn’t believe it,” the teen told The Telegraph. “We laughed and joked for about eight minutes.”

Francis told Cabizza he had actually called earlier but the first time he wasn’t home.   The Pope also called a local man whose brother had been murdered. Michele Ferri said he was startled to pick up the phone and hear someone say, “Ciao Michele, it’s Pope Francis.”

“He told me he had cried when he read the letter I had written him,” Ferri told The Guardian.

Supposedly the Pope loves to talk soccer, but don’t bring up Vatican policy or scandal.

--I have to admit, it’s only in the last 15 years or so that I came to fully appreciate the greatness of Martin Luther King Jr. [I’ve recognized since day one that the extended King family, save for the late Coretta Scott King, is nothing but a bunch of shysters. Look how they have handled the King Foundation.]

But when it comes to perceptions of Black America from outside the race, you would be dishonest if you didn’t admit our attitudes are shaped by the realities of the lack of a strong family dynamic and the crime rate.

By now, every American knows that 72% of black children in this country are born out of wedlock. George Will is fond of bringing up the late, great Sen. Daniel Patrick Moynihan (another I failed to appreciate during his prime) who was so ahead of his time that back in 1963,  in a study he authored, Moynihan decried the breakdown of the African American family unit...when the percentage born out of wedlock was 24! 

As for crime, Ashby Jones and Arian Campo-Flores of the Wall Street Journal reported the following that sums up the issue succinctly.

“Five decades after marchers converged on Washington to hear Martin Luther King Jr. deliver his ‘I Have A Dream’ speech, African-Americans have made notable strides in areas such as educational attainment and civil and economic rights.

“But one grim problem has become much worse: the extent to which violent crime touches African-American life.

“While the overall U.S. murder rate fell over the past several years, the number of black male victims rose – many coming at the hands of black perpetrators. More than half of the nation’s homicide victims are African-American, though blacks make up only 14% of the population. And over the past 50 years, incarceration rates have risen for blacks, especially among men.”

This comes as blacks have significantly closed the education gap with whites, including a high school graduation rate of 86% in 2012, compared with 92% for white adults, according to a Pew Research Center analysis.

But, “The number of black male murder victims rose more than 10% from 2000 to 2010,” according to an analysis of data published last year by the Journal.

In his speech commemorating this week’s anniversary, President Obama said of the violence, “The shadow of poverty casts a pall over our youth, their lives a fortress of substandard schools and diminished prospects, inadequate health care and perennial violence....

“If we’re honest with ourselves, we’ll admit that during the course of 50 years, there were times when some of us, claiming to push for change, lost our way. The anguish of assassinations set off self-defeating riots. Legitimate grievances against police brutality tipped into excuse-making for criminal behavior.”

Back to Dr. King...Jon Meacham / TIME:

“It is tempting to romanticize the words King spoke before the Lincoln Memorial. To do so, however, cheapens the courage of the known and the unknown nonviolent soldiers of freedom who faced – and often paid – the ultimate price for daring America to live up to the implications of the Declarations of Independence and become a country in which liberty was innate and universal, not particular to station, creed or color. The true honor we can give to King and his comrades is not to render them as fantastical figures in a Manichaean struggle but to see them as human beings who summoned the will to make the rest of us be the people we ought to be....

“However unreachable King’s dream seems to be on this side of paradise, though, we must try. Like the promises of the Declaration of Independence or the Gettysburg Address or FDR’s First Inaugural (‘The only thing we have to fear is fear itself’), the promises of King’s ‘I Have A Dream’ sermon can be kept only if the nation is mindful of what Lincoln called ‘the better angels of our nature.’ In his words to the March on Washington, Martin Luther King Jr. gave us a standard against which we could forever measure ourselves and our nation. So long as his dream proves elusive, then our union remains imperfect.”

--Finally, we honor U.S. Army Staff Sgt. Ty Carter, who was awarded the Medal of Honor on Monday by President Obama for his heroics in the Afghan battle at Combat Outpost Keating, where 53 American troops fought back against 300 Taliban fighters in the mountain valley. Eight U.S. soldiers died in the fight. Earlier this year, Clinton Romesha, a former Army staff sergeant, was also awarded the Medal of Honor for his role in the battle for the outpost.

---

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

God bless America.

---

Gold closed at $1395...unchanged after climbing above $1425
Oil, $107.65

Returns for the week 8/26-8/30

Dow Jones -1.3% [14810]
S&P 500 -1.8% [1632]
S&P MidCap -2.8%
Russell 2000 -2.6%
Nasdaq -1.9% [3589]

Returns for the period 1/1/13-8/30/13

Dow Jones +13.0%
S&P 500 +14.5%
S&P MidCap +16.0%
Russell 2000 +19.0%
Nasdaq +18.9%

Bulls 38.1...lowest since Nov. ‘12
Bears 23.8 [Source: Investors Intelligence...reminder, contrarian indicator. Last Nov. was a good time to buy.]

Enjoy the holiday. I appreciate your support.

Brian Trumbore



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-08/31/2013-      
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Week in Review

08/31/2013

For the week 8/26-8/30

[Posted 10:30 PM ET, Friday]

Syria

I have been writing for months now that eventually the markets would be forced to deal with the spreading conflagration in the Middle East as the war in Syria increasingly spilled over into the likes of Iraq and Lebanon, while threatening the stability of Jordan. This week Wall Street finally took notice.

As in virtually every other major topic that defines our world, I have covered the civil war in Syria as closely as anyone, week after week. My position has been consistent.  Back in the second half of 2011 and early 2012, as the situation spiraled out of control, I said the United States should work together with its NATO ally, Turkey, to create a safe haven, secured with a no-fly zone, and which would have allowed the U.S., France, etc. to help supply the freedom fighters.

Going back to Week in Review, June 4, 2011, actually, I wrote some of the following:

“The death toll in the protests here continues to climb, well over 1,000 with another 10,000+ being detained. The cases of torture are growing commensurately as well, including children, as beaten bodes are returned to their families....

“One thing that is different now from the start of the uprising is that a real opposition is attempting to form, with leaders meeting in Turkey the other day, while foreign journalists continue to be barred. President Obama must take a harder, more public stance, and not just trot out the by now discredited Hillary Clinton for a few inane comments.”

As the war progressed, and the death toll soared to the current 100,000+, I grew increasingly frustrated.

In Week in Review, November 17, 2012, I wrote:

“As I’ve been saying all year, we ignore foreign policy at our own peril and President Obama is on the verge of being overwhelmed.....

“The UN estimates four million inside Syria will need sweeping humanitarian aid by next year, with 750,000+ refugees having fled to Turkey, Jordan, Lebanon and Iraq by year end.

“I was particularly upset when during President Obama’s press conference, he said, when asked about the White House’s reaction to the ever-unfolding calamity in Syria, ‘You know, we’ve committed hundreds of millions of dollars of humanitarian aid to help folks both inside of Syria and outside of Syria.’

“But I told you just the other day that the UN says it needs $348 million to get the humanitarian mission done (assuming they can ensure safety for aid convoys...not the case today) and yet the UN has received only $157 million thus far, so if the United States has ‘committed hundreds of millions,’ the UN hasn’t seen it, Mr. President.

“What’s sickening is that the window of opportunity has long closed. We will have zero influence over whoever ends up in control in the country, and chances are that at this point Syria will break into four or five little fiefdoms, with terrorists running rampant.

“And just as Syria is on Obama, if Jordan goes that’s on him as well.”

Nine months later this stands the test of time. I gave up last year. I was right. It was indeed too late then and is very much so today. By our inaction, we unleashed the whirlwind. As I’ve written countless times before, we will be paying for President Obama’s incoherent foreign policy for generations to come.

---

This week started with confirmation of the sarin gas attack on a Damascus suburb, Aug. 21, with an initial estimated death toll of between 350 and 1,000. U.S. Secretary of State John Kerry said Bashar al-Assad’s responsibility for the use of chemical weapons was “undeniable” and that President Barack Obama would make an “informed decision” about the U.S. response to what Kerry called a “moral obscenity.”

Kerry said on Monday that “while investigators are gathering additional evidence on the ground, our understanding of what has already happened in Syria is grounded in facts, informed by conscience and guided by common sense.”

“We know the Syrian regime maintains custody of these chemical weapons...(and) has been determined to clear the opposition from those very places where the attacks took place. And with our own eyes, we have all of us become witnesses.”

Russian President Vladimir Putin warned the West against a strike, with the Kremlin predicting “extremely dangerous consequences.”

British Prime Minister David Cameron recalled parliament from summer holiday to debate the need for military action.

French President Francois Hollande said action needed to be taken.

U.S. Republican Senator John McCain said the West needed to reverse Assad’s momentum, take out his airfields and get arms into the right hands. He spoke of the deteriorating situation in Iraq, the destabilization of Lebanon and Jordan, the 100,000 “slaughtered” and now two million refugees, one million of which are children.

UN weapons inspectors on the ground in Damascus were finally allowed into the suspected gas attack area but it was too late to be credible.

Iran echoed Russia in warning the U.S. not to cross “the red line of the Syrian front and any crossing of Syria’s red line will have severe consequences.”

A strike seemed imminent, though the White House was insanely telegraphing every detail of a potential attack.

Yet all the while, as a Pew Research Center poll showed, 60% of Americans said the U.S. should not interfere in Syria’s civil war, with just 9% believing Obama should act. Support grew to only 25% if chemical weapons use was proved. [An NBC/Wall Street Journal survey showed 79% of Americans want congressional approval first before the White House makes its move.]

Then, in a stunning development, British Prime Minister David Cameron suffered a stinging rebuke in the House of Commons as it voted against a motion for force. It was clear. The legacy of the failed war in Iraq loomed large worldwide in the debate over responding to Syria’s WMD use, even if this was comparing apples to oranges.

Following Cameron’s defeat, the White House issued a statement: “The U.S. will continue to consult with the UK government – one of our closest allies and friends. As we’ve said, President Obama’s decision-making will be guided by what is in the best interests of the United States. He believes that there are core interests at stake for the United States and that countries who violate international norms regarding chemical weapons need to be held accountable.”

The United States continued to position a naval task force in the Mediterranean. Russia is moving more resources into the region as well, though it already has a naval base in Syria at Tartus.

200 House members from both parties have signed letters calling on the president to seek formal congressional approval for military action.

Others, such as Democratic Senator Robert Menendez (N.J.), and Republican Senator Bob Corker (Tenn.), said after an administration briefing on Thursday that the president already has the power to act under the War Powers Act and that they were convinced of the evidence of chemical weapons use that could be tied directly to Assad.

Then Friday afternoon, Secretary of State Kerry made a forceful case for military intervention, laying out the (declassified) evidence for pinning responsibility on Assad* and his government. U.S. intelligence, Kerry said, has “high confidence” in Assad’s culpability, citing knowledge of direct conversations concerning the attack, while we tracked the movements of regime WMD units before and after the strike. Kerry said the attack killed 1,429 Syrians, including 426 children.

“The American people are tired of war,” Kerry said. “But fatigue does not absolve us of our responsibility.” Kerry added, “History would judge us all extraordinarily harshly” if the United States failed to respond.

*But, what Kerry didn’t mention is that the declassified report doesn’t actually show Assad himself ordered the attack. This is no small issue. As one analyst told Bloomberg, “They either can’t address it publicly or they don’t have the information.”

The timetable couldn’t be worse. President Obama goes to Russia for a G20 meeting in St. Petersburg on Tuesday. He couldn’t possibly initiate action while gone. But when he returns, Congress has a ton on its plate...many of the issues requiring immediate action. 

In the end, aside from Obama’s need to save face, it’s all about Iran. New President Hasan Rohani said his government would cooperate with Russia to prevent a strike against Syria, which he called an “open violation” of international law. Iran, of course, is sitting back just waiting to see how Obama handles this and whether he acts at all.

With the coalition having collapsed, with only France still pledging to back a potential American operation as of Friday, what will be the blowback? How will Syria respond to being attacked? What will Iran and Hizbullah do? Will it be a big enough issue for Iran to activate its sleeper cells in the United States (including those of its proxy, Hizbullah)?

Sleep with one eye open, friends.

---

As with all major topics, this is a week requiring I include some extensive opinion from all sides as I continue to build the world’s greatest history of our times.

Walter Russell Mead / Wall Street Journal

“(The Obama administration), rightfully concerned about the costs of intervention in Syria, failed to grasp early enough just how much it would cost to stay out of this ugly situation. As the war has dragged on, the humanitarian toll has grown to obscene proportions (far worse than anything that would have happened in Libya without intervention), communal and sectarian hatreds have become poisonous almost ensuring more bloodletting and ethnic and religious cleansing, and instability has spread from Syria into Iraq, Lebanon and even Turkey. All of these problems grow worse the longer the war goes on – but it is becoming harder and costlier almost day by day to intervene.

“But beyond these problems, the failure to intervene early in Syria (when ‘leading from behind’ might well have worked) has handed important victories to both the terrorists and the Russia-Iran axis, and has seriously eroded the Obama administration’s standing with important allies. Russia and Iran backed Bashar al-Assad; the president called for his overthrow – and failed to achieve it. To hardened realists in Middle Eastern capitals, this is conclusive proof that the American president is irredeemably weak. His failure to seize the opportunity for what the Russians and Iranians fear would have been an easy win in Syria cannot be explained by them in any other way.

“This is dangerous. Just as Nikita Khrushchev concluded that President Kennedy was weak and incompetent after the Bay of Pigs failure and the botched Vienna summit, and then proceeded to test the American president from Cuba to Berlin, so President Vladimir Putin and Supreme Leader Ayatollah Ali Khamenei now believe they are dealing with a dithering and indecisive American leader, and are calibrating their policies accordingly. Khrushchev was wrong about Kennedy, and President Obama’s enemies are also underestimating him, but those underestimates can create dangerous crises before they are corrected.

“If American policy in Syria has been a boon to the Russians and Iranians, it has been a godsend to the terrorists. The prolongation of the war has allowed terrorist and radical groups to establish themselves as leaders in the Sunni fight against the Shiite enemy. A reputation badly tarnished by both their atrocities and their defeat in Iraq has been polished and enhanced by what is seen as their courage and idealism in Syria.”

Editorial / Financial Times

“(While) the U.S. has slowly deliberated how to react at each turn of events, the region’s big powers have rushed in to back their Sunni or Shia clients. In Egypt, Saudi Arabia and the UAE are bankrolling the newly resurgent military. In Syria, Iran and Hizbullah are shoring up Mr. Assad. America has been outmaneuvered. 

“The question now is whether the White House will go on allowing its influence to wane. Can it articulate a strategy for engagement? Will it draw a line under Mr. Assad’s atrocities? Or will its Middle East policy go on drifting?”

Bret Stephens / Wall Street Journal

“Should President Obama decide to order a military strike against Syria, his main order of business must be to kill Bashar Assad. Also, Bashar’s brother and principal henchman, Maher. Also, everyone else in the Assad family with a claim on political power. Also, all of the political symbols of the Assad family’s power, including all of their official or unofficial residences. The use of chemical weapons against one’s own citizens plumbs depths of barbarity matched in recent history only by Saddam Hussein. A civilized world cannot tolerate it. It must demonstrate that the penalty for it will be acutely personal and inescapably fatal.

“Maybe this strikes some readers as bloody-minded. But I don’t see how a president who ran for his second term boasting about how he ‘got’ Osama bin Laden – one bullet to the head and another to the heart – has any grounds to quarrel with the concept.

“As it is, a strike directed straight at the Syrian dictator and his family is the only military option that will not run afoul of the only red line Mr. Obama is adamant about: not getting drawn into a protracted Syrian conflict. And it is the one option that has a chance to pay strategic dividends from what will inevitably be a symbolic action.”

Ralph Peters / New York Post

“You might as well try to teach a snake to juggle as hope the Obama administration will think strategically. The ‘peace president’ is about to embark on his third military adventure, this time in Syria, without having learned the lessons of his botched efforts in Afghanistan and Libya. He hasn’t even learned from the Bush administration’s mistakes – which he mocked with such delight.

“Before launching a single cruise missile toward Syria, Team Obama needs to be sure it has a good answer to the question, ‘What comes next?’

“If Obama does a Clinton and churns up some sand with do-nothing cruise-missile strikes, it will only encourage the Assad regime. But if our president hits Assad hard and precipitates regime change, then what?

“If al-Qaeda and local Islamists seize Damascus, what will we do? The enfeebled ‘moderate opposition’ we back rhetorically couldn’t dislodge hardcore jihadis, no matter how many weapons we sent (the jihadis would simply confiscate the gear)....

“Exactly which American vital security interests are at stake in Syria, Mr. President? Your credibility? Put a number on it. How many American lives is your blather about red lines worth?”

Tony Blair / London Times

“If we do not intervene to support freedom and democracy in Egypt and Syria, the Middle East faces catastrophe....

“Western policy is at a crossroads: commentary or action; shaping events or reacting to them. After the long and painful campaigns in Iraq and Afghanistan, I understand every impulse to stay clear of the turmoil, to watch but not to intervene, to ratchet up language but not to engage in the hard, even harsh business of changing reality on the ground. But we have collectively to understand the consequences of wringing our hands instead of putting them to work.

“People wince at the thought of intervention. But contemplate the future consequence of inaction and shudder: Syria mired in carnage between the brutality of Assad and various affiliates of al-Qaeda, a breeding ground of extremism infinitely more dangerous than Afghanistan in the 1990s; Egypt in chaos, with the West, however unfairly, looking as if it is giving succor to those who would turn it into a Sunni version of Iran. Iran still – despite its new president – a theocratic dictatorship, with a nuclear bomb. Our allies dismayed. Our enemies emboldened. Ourselves in confusion. This is a nightmare scenario but it is not far-fetched.”

[Blair then offers a description of the Muslim Brotherhood that I will post separately Monday on my “Hot Spots column.]

Tony Blair, continuing....

“In Syria, we know what is happening. We know it is wrong to let it happen. But leave aside any moral argument and just think of our interests for a moment. Syria, disintegrated, divided in blood, the nations around it destabilized, waves of terrorism rolling over the population of the region; Assad in power in the richest part of the country; Iran, with Russia’s support, ascendant; a bitter sectarian fury running the Syrian eastern hinterland – and us, apparently impotent. I hear people talking as if there was nothing we could do: the Syrian defense systems are too powerful, the issues too complex, and in any event, why take sides since they’re all as bad as each other?

“But others are taking sides. They’re not terrified of the prospect of intervention. They’re intervening. To support an assault on civilians not seen since the dark days of Saddam.

“It is time we took a side: the side of the people who want what we want; who see our societies for all their faults as something to admire; who know that they should not be faced with a choice between tyranny and theocracy. I detest the implicit notion behind so much of our commentary – that the Arabs or even worse, the people of Islam are unable to understand what a free society looks like, that they can’t be trusted with something so modern as a polity where religion is in its proper place. It isn’t true. What is true is that there is a life-and-death struggle going on about the future of Islam and the attempt by extreme ideologues to create a political Islam at odds both with the open-minded tradition of Islam and the modern world....

“I know as one of the architects of policy after 9/11 the controversy, anguish and cost of the decisions taken. I understand why, now, the pendulum has swung so heavily the other way. But it is not necessary to revert to that policy to make a difference. And the forces that made those interventions in Iraq and Afghanistan so difficult are of course the very forces at the heart of the storm today.

“They have to be defeated. We should defeat them, however long it takes; because otherwise they will not disappear. They will grow stronger until, at a later time, there will be another crossroads and this time there will be no choice.”

David Brooks / New York Times

“What’s the biggest threat to world peace right now? Despite the horror, it’s not chemical weapons in Syria. It’s not even, for the moment, an Iranian nuclear weapon. Instead, it’s the possibility of a wave of sectarian strife building across the Middle East.

“The Syrian civil conflict is both a proxy war and a combustion point for spreading waves of violence. This didn’t start out as a religious war. But both Sunni and Shiite power players are seizing on religious symbols and sowing sectarian passions that are rippling across the region. The Saudi and Iranian powers hover in the background fueling each side.

“As the death toll in Syria rises to Rwanda-like proportions, images of mass killings draw holy warriors from countries near and far. The radical groups are the most effective fighters and control the tempo of events. The Syrian opposition groups are themselves split violently along sectarian lines so that the country seems to face a choice between anarchy and atrocity.

“Meanwhile, the strife appears to be spreading....

“Poison gas in Syria is horrendous, but the real inferno is regional. When you look at all the policy options for dealing with the Syria situation, they are all terrible or too late. The job now is to try to wall off the situation to prevent something just as bad but much more sprawling.”

Charles Krauthammer / Washington Post

“So much for the element of surprise. Into his third year of dithering, two years after declaring Assad had to go, one year after drawing – then erasing – his own red line on chemical weapons, Barack Obama has been stirred to action.

“Or more accurately, shamed into action. Which is the worst possible reason. A president doesn’t commit soldiers to a war for which he has zero enthusiasm. Nor does one go to war for demonstration purposes.

“Want to send a message? Call Western Union. A Tomahawk missile is for killing. A serious instrument of war demands a serious purpose....

“There are risks to any attack. Blowback terror from Syria and its terrorist allies. Threatened retaliation by Iran or Hizbullah on Israel – that could lead to a guns-of-August regional conflagration. Moreover, a mere punitive pinprick after which Assad emerges from the smoke intact and emboldened would demonstrate nothing but U.S. weakness and ineffectiveness.”

Editorial / London Times

“Parliament had the luxury yesterday of debating at length the quality of the evidence of Syria’s use of chemical weapons and the legality of responding with force. It was better to have the debate than to scrap it, because no military intervention should be undertaken lightly.

“The result of the vote, however, was a disaster. It was a disaster for the Prime Minister who misjudged his party. It was a disaster for the country, which turned its back on its tradition of standing up to tyranny. It was a disaster for the western alliance, split apart by British failure to stand with its allies. And most important of all, it was a disaster for the people of Syria, who know that they have fewer friends in their hour of need....

“If the U.S. fails to respond decisively to the massacre of more than 1,000 civilians in Ghouta last week, its credibility as an ally to Israel, Turkey, Jordan and other vital regional players will be damaged, possibly beyond repair. The same would be true of its ability to deter other renegade regimes from using or acquiring chemical weapons.”

Fouad Ajami / Bloomberg

“Syria is the moral and strategic test that U.S. President Barack Obama neither sought nor wanted. He had done his best to avert his gaze from its horrors. He, the self-styled orator, had said very little about the grief of Syria and the pain of its children. When he spoke of Syria, it often sounded as though he was speaking of Iraq – the prism through which he saw the foreign world and its threats.....

“History will record for Obama that it was Bashar al-Assad who dragged him into this fight. Obama had made much of the distinction between wars of choice and wars of necessity. He is said to have pondered theories of just and unjust wars. To this Syrian ordeal, he came late in the hour, after the barbarisms, after the veritable destruction of Syria’s nationhood, after the jihadis had carved out their emirates. It doesn’t matter much whether this entanglement is one of choice or of necessity. This is only partly a hand that Barack Obama was dealt. To a greater extent, he has shaped the conflict with the passivity he opted for in a standoff with a petty dictator who should have been thwarted long before.”

George Will / Washington Post

“Characterizing the 2011 Libyan project with weirdly passive syntax (‘It is our military that is being volunteered by others to carry out missions’), he explained his sashay into Libya’s civil war as preemptive: ‘I refused to wait for the images of slaughter and mass graves before taking action.’

“With characteristic self-satisfaction, Obama embraced the doctrine ‘R2P’ – responsibility to protect civilians – and Libya looked like an opportunity for an inexpensive morality gesture using high explosives.

“Last August, R2P reappeared when he startled his staff by offhandedly saying of Syria’s poison gas: ‘A red line for us is we start seeing a whole bunch of chemical weapons moving around or being utilized.’ The interesting metric ‘whole bunch’ made his principle mostly a loophole and advertised his reluctance to intervene, a reluctance more sensible than his words last week: Syria’s recidivism regarding gas is ‘going to require America’s attention and hopefully the entire international community’s attention.’ Regarding that entirety: If ‘community’ connotes substantial shared values and objectives, what community would encompass Denmark, Congo, Canada, North Korea, Portugal, Cuba, Norway, Iran, Britain, Saudi Arabia, Poland and Yemen?....

“Obama is as dismissive of ‘red lines’ he draws as he is of laws others enact. Last week, a State Department spokeswoman said his red line regarding chemical weapons was first crossed ‘a couple of months ago’ and ‘the president took action’ – presumably, announcing (non-lethal) aid to Syrian rebels – although ‘we’re not going to outline the inventory of what we did.’

“The administration now would do well to do something that the head of it has an irresistible urge not to do: Stop talking.

“If a fourth military intervention is coming, it will not be to decisively alter events, which we cannot do, in a nation vital to U.S. interests, which Syria is not. Rather, its purpose will be to rescue Obama from his words.”

Washington and Wall Street

In light of the above, and continued uncertainty over future Federal Reserve actions, stocks fell on the week, the fourth straight decline for the Dow Jones.

There is also renewed concern over the agenda President Obama and Congress face when the latter returns on Sept. 9. A new budget for the fiscal year beginning October 1, including what to do with the sequester; addressing the debt ceiling; the implementation of certain facets of Obamacare; and who knows what in the Middle East that could for starters lead to even higher oil prices that would impact the economic recovery.

Regarding the debt ceiling, which will be hit mid-October, Treasury Secretary Jack Lew told CNBC, “The president’s been very clear we are not going to be negotiating over the debt limit.”

“Congress has already authorized funding, committed us to make expenditures. We’re now in the place where the only question is will we pay the bills that the United States has incurred. The only way to do that is for Congress to act, for it to act quickly.”

Well, the fact is the president will indeed have to negotiate with Congress, as much as he doesn’t want to. There may be broad agreement to avoid a repeat of the 2011 showdown that roiled financial markets, but Lew had to acknowledge there is nothing on the table yet.

One thing is certain, it is going to be helter-skelter the last three weeks of September and on into October, even if Congress and the president agree on a continuing resolution that kicks the hard decisions down the road another few months, like until end of the year. That’s just as bad.

As for the Federal Reserve and its looming decision, GDP in the second quarter was revised sharply upwards from 1.7% to 2.5%, which is a far cry from the 1.1% annualized pace of the first quarter.

But if you’re thinking we’re now off to the races, understand it’s going to be tough to attain 2.5% in the second half with the remaining domestic and global uncertainty (let alone part of the revision for the quarter involved the building of inventories). So I don’t know if the Fed can begin to pull back from its $85 billion in monthly bond buying when they next convene Sept. 17-18, based on just the GDP improvement.

And while the interest rate picture has stabilized the past few weeks, the 10-year at 2.78% is still over 1.00% above the May lows of 1.60% and clearly the housing market is taking a pause while it adjusts to this probable new reality and 30-year fixed mortgages of 4.50% (or probably higher) vs. 3.30%.

Pending home sales in July, for example, dropped 1.3%, the most this year, while the S&P/Case-Shiller housing index for June, up 12.1% over June 2012 for both the 10- and 20-city indexes, is nonetheless showing signs of deceleration.

Next week, the Fed’s eyes, as well as the Street’s, will be on Friday’s release of the August jobs picture, the last big data point before the Fed next meets. I still say that if they want to maintain their credibility, they can’t begin to taper in September unless we see a monster number on the labor front.

And of course the Fed can’t ignore any developments in the Middle East, including unintended consequences of U.S. military action, without trying to gauge the impact, if any, on consumer and business sentiment.

Switching gears, Kennedy Elliott and David Fahrenthold of the Washington Post had an extensive piece on spending trends in Washington.

“Since 2011, spending has shrunk, but it still remains near historic highs. When the numbers are adjusted for inflation, spending has decreased about 5 percent in the psat few years.

“ ‘For all the brave talk, one single fact has trumped all this great rhetoric. Most of the people who came in saying, ‘We’re going to change Washington,’ simply didn’t understand Washington,’ said Steve Bell, a longtime Republican staffer who now works at the Bipartisan Policy Center.

“Bell’s point is that today’s politicians do not understand the political forces that produce and then protect inefficient programs. Or the difficulty of changing the social-benefit programs – such as Medicare and Social Security – that spend the bulk of Washington’s money.”

Mandatory spending on programs like Medicare, Social Security and food stamps has fallen less than 1 percent since 2010, while “discretionary” expenses, a much smaller pot of money, has fallen by 14%. “That reduction is partially due to the winding-down of a stimulus and two wars, as well as to ‘sequestration’ and other budget cuts imposed since 2010.”

Also, on the issue of federal employment, Kennedy Elliott and David Fahrenthold note:

“Today, the government workforce includes 2.7 million civilian employees, including postal workers...It also includes 1.4 million active-duty members of the military....

“But those numbers are still incomplete. They do not count a vast number of other people who also do the government’s work: private contractors who do federal work full-time. It’s hard to judge the actual size of the government – or the actual scope of its work – without knowing how many of these people exist.

“The Obama administration doesn’t. It was supposed to have started counting these contractors: Congress ordered it in 2009. But the formal regulations haven’t been finalized. So there is still no full count.”

One educated guess, though, pegs it at 1.7 million full-time contractors, which would make the size of the federal workforce 5.8 million.

Europe

For all the talk of an incipient recovery in the eurozone, there will be no sustained growth, especially at annualized rates of greater than 2%, which the region desperately needs just to keep government debt at existing levels, unless you see an increase in bank lending and across borders within the euro area since 2008, there has instead been a $2.2 trillion reduction in same. You also continue to have a situation where there is a huge difference in funding costs for corporations in the euro north vs. those in the periphery. For example the difference in funding between Spanish and German firms is about 1.50% currently, despite the improvement in Spain’s bond market. Who do you think continues to have the advantage?

Speaking of the periphery, Greece remains in the headlines. The finance minister, Yannis Stournaras, said: “If there is need for further support to Greece, it will be in the order of about 10bn euros ($13.2bn), or much smaller than the previous programs.” 

While that sounds just dandy, seeing as Greece has received two prior bailouts totaling 240bn euro, German Chancellor Angela Merkel, now just three weeks from a critical election, said all kinds of things about Greece this week.

For starters, Merkel’s opponents are calling into question her previous remarks that Greece won’t need another bailout, along with her claim that she will not allow Greece to write down any more debt, which would hit Germany and other lenders:

“I am expressly warning against a haircut. It could trigger a domino effect of uncertainty with the result that the readiness of private investors to invest in the eurozone again falls to nothing,” said the chancellor.

But the prior week, German Finance Minister Wolfgang Schaeuble said Greece would need another bailout to plug a forthcoming funding gap.

Back to Stournaras, he said on Sunday that Greece would not accept any more forced spending cuts from its partners.

“We are not talking about a new bailout but an economic support package without new [austerity] terms.”

[The troika of lenders – the European Commission, European Central Bank and the IMF – will be reviewing Greece’s aid program this fall.]

Merkel, though, already hated in Greece, further infuriated the people there when she told supporters at a campaign stop that her predecessor, Gerhard Schroder, never should have allowed Greece into the eurozone in 2001.

So the chancellor’s hopes of keeping Greece off the agenda until after the Sept. 22 vote have unraveled, thanks in no small part to Schaeuble’s talk of a third bailout.

A spokesman for Greece’s main opposition party, Syriza, said, “Her comments cannot be justified. For there to be such a statement made in public by Mrs. Merkel, even if there is a pre-election period in Germany, is at the very least irresponsible.

“The extreme policies of austerity enforced by Germany are testing European cohesion.”

Merkel, who according to an Emnid poll is still up 15 points on her rival, Social Democrat Peer Steinbruck (who’s a dolt), has wanted to limit the campaign to debate over the shape of Germany’s economy, but while other items such as Syria and U.S. surveillance programs have cropped up, Steinbruck has vowed to pin Merkel down on the true costs of rescuing Greece and he will get that opportunity in the only live television debate on Sunday.

On the economic front, while Germany’s economy improved in the second quarter, retail sales fell in July for a second consecutive month. But German business confidence is at a 16-month high and the jobless rate remains at a two-decade low.

In France, President Francois Hollande’s Socialist Government was warned by Olli Rehn, chief economist for the European Union, that the French economy’s fragile recovery could fizzle out if it kept raising taxes.

Rehn said, “The tax increases in France have reached their fateful point. Raising new taxes would break growth and weigh on employment.”

Last May, on a different topic, the European Commission, the EU’s executive arm, called on President Hollande to increase both the minimum and full pension ages, and demanded a review of the many exemptions in the French system.

This week, Hollande unveiled his pension reform plan, raising the level and duration of contributions but avoiding many of the measures the EU had requested.

For instance, Hollande, afraid of the kind of social unrest that accompanied previous reform efforts, opted not to raise the current minimum retirement age of 62 that Brussels called for.

Hollande also didn’t change the contribution period required to earn a full pension before 2020, but after will rise from the present period of 41.5 years to 43 years by 2035, so at least this means most will have to work beyond the age of 62 to earn a full pension.

Business leaders were furious, even though there were no further apparent corporate tax increases. Hollande seemed to do nothing more than placate the unions and merely postponed the moment of truth for France’s heavily-indebted pension system.

A big problem, as the EC knows, is the “special” pension regimes that apply to different industries in the public sector. For instance, train drivers can still retire at 50 and employees of the EDF, the electricity group, at 55. 

Meanwhile, life expectancy in France, 70 in 1963, is up to 81.6. State pensions in France represent 12.8% of GDP, compared with 10.1% in Germany and 5.9% in the UK.

Bruno Le Maire, a leading center-right politician, said, “This Government is so cowardly, so incapable of outlining a perspective for the French that its only solution to any difficulty is a new tax. Francois Hollande has no idea where he is going.”

Nicolas Barre, editor of Les Echos, the financial daily, said: “The scandal is that France borrow 10bn euro every year on the markets to pay its pensions. A real reform would tackle the question of the legal retirement age, and Francois Hollande has excluded that. The consequence is that we are not looking at reform but a papering over the cracks.” [London Times, Financial Times, BBC News]

Turning to Spain, the government revised the economic contraction in 2012 to 1.6% from 1.4%, but there are signs of bottoming. Exports rose 6% in the second quarter and tourism is improving significantly, a key here.

But banks’ bad loans jumped to a record 11.6% of total lending in June and that figure is expected to peak at a staggering 16% sometime in 2014. I continue to maintain that because of Spain’s still collapsing housing sector, the bad loan problem is even worse.

And in Italy, watch the period around Sept. 9, when a Senate committee is to begin hearing arguments on whether to eject former prime minister Silvio Berlusconi from parliament following his recent conviction on tax fraud. Members of Berlusconi’s center-right party have warned that if their leader is expelled, they would bring down the government; the PDL (People of Freedom) party being in a coalition with Prime Minister Enrico Letta’s PD (Democratic Party).

Street Bytes

--The Dow Jones fell 1.3% to finish the week at 14810, down 4.4% for August, its worst performance of the year, while the S&P 500 lost 1.8% on the week, 3.1% for the month (worst since May 2012). Nasdaq declined 1.9% (just 1% for August).

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.40% 10-yr. 2.78% 30-yr. 3.70%

Bond superstar Jeffrey Gundlach of DoubleLine Capital LP, who as recently as June predicted the yield on the 10-year would fall to as low as 1.7% by the end of the year, has now reversed course and is calling for 3.00%+ this year.

--A few other economic releases of note this week:

July durable goods (big-ticket items) declined a much greater than expected 7.3%, -0.6% ex-transportation. The Chicago Purchasing Managers Index for August, a first look at manufacturing in the month, was 53.0, as expected. And personal income and personal consumption for the month of July both rose 0.1%, not great on the latter in particular.

--As Japanese Prime Minister Shinzo Abe prepared to issue a final decision on raising the country’s sales tax in two stages from 5% to 10%, beginning next April, the government expects to spend a record $257 billion to service its debt during the next fiscal year (April 1), according to a document obtained by Reuters. By comparison, the interest expense in the U.S. for the fiscal year ending Sept. 30 is going to be around $223 billion.

As I’ve been writing, Abe must approve the tax hike as part of a program to repair Japan’s finances, but he is getting pushback from those concerned the increase will kill the budding recovery.

Meanwhile, on the important issue of inflation, consumer prices, excluding food, rose by 0.7% in July from a year earlier, the fastest pace in nearly five years. Abe and the Bank of Japan have made ending deflation a chief policy goal, though the better environment for July was mainly the result of rising fuel prices rather than an increase in domestic demand.

--Canada’s GDP rose at an annualized pace of 1.7% in the second quarter, after expanding at a revised rate of 2.2% in Q1.

--Brazil’s economy grew by 3.3% in the second quarter, year over year and better than expected. But for all of 2013, growth is slated to come in at 2.5%.

--India’s growth for Q2 was 4.4%, slower than the first quarter’s annualized rate of 4.8%. This is not good.

--Neil Shah / Wall Street Journal

“Four years into the economic recovery, U.S. workers’ pay still isn’t even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show.”

--Back to the S&P/Case-Shiller home price index for June, the largest year-over-year increases were 24.9% and 24.5% in Las Vegas and San Francisco. New York exhibited the smallest rise at 3.3%.

--Even with lower prices on corn and soybeans, U.S. net farm income in 2013 will be $120.6 billion, down from a February forecast of $128.2 billion, but still substantially ahead of 2011’s record $118 billion.

--Hedge fund manager Bill Ackman abandoned his 39 million share position in J.C. Penney, 18% of the company, losing about 50% or $490 million. He had paid an average $25 a share and sold it out at $12.60.

--The Federal Housing Finance Agency is demanding JPMorgan Chase pay more than $6 billion to settle allegations it mis-sold securities in the run-up to the financial crisis. Back in 2011, the FHFA sued 18 banks, including JPMorgan, and singled out JPM for false claims related to $33 billion of mortgage-backed securities. The bank is expected to eventually settle for an amount in the $billions. JPM recently announced it has existing reserves of $6.8 billion to handle various legal issues that continue to come up.

Last month UBS settled for $885 million in a similar case where original losses were estimated at about $1.15 billion, though JPM is being accused of fraud, which wasn’t the case with UBS. [Financial Times]

--The parent company of American Airlines, AMR Corp., reported a $292 million profit for July, a monthly record for the company according to a monthly filing required by the U.S. Bankruptcy Court.

In a letter to employees, AMR CEO Tom Horton called the financial report a sign that “we are completing one of the most successful turnarounds in aviation history.”

So, this kind of hurts AMR’s justification for merging with US Airways, which is now being challenged by the U.S. Justice Department.

I have to admit. I find this performance startling. [It was actually $349 million in operating profit before $57 million in reorganization fees.]

--Billabong, the iconic Aussie surfwear outfit created in 1973 that turned into a world brand, “is now essentially worthless after the parent company declared a massive $859.5 million loss for fiscal year 2013,” or $300 million greater than expected, due to sales collapses across its key regions, including the Americas. Global sales were down 13.5% for 2012-13.

As reported by the Sydney Morning Herald, “The company said its Billabong brand was essentially worthless, a fact which would stun many investors and fans of the famous surf and streetwear brand.”

The company is trying to reorganize but is being swamped by hipper brands, let alone the overall downturn in retail around the world.

--Donald Trump was sued by New York Attorney General Eric Schneiderman, who accused Trump of using an unlicensed university real estate program to scam would-be real estate investors. Trump faces a similar California federal court suit.

Trump shot back, calling the attorney general a “lightweight” who “sues a school with a 98% approval rating but doesn’t go after billion $ fraudsters all over Wall Street.”

--Merrill Lynch settled a racial discrimination lawsuit for $160 million, which could affect as many as 1,200 employees. In the initial suit filed by George McReynolds, who worked at Merrill for 30 years, he alleged African-American workers were encouraged to pursue clerical positions in a segregated workforce and if they did become brokers, were not offered much in terms of support. At the time the suit was filed, only 2% of Merrill Lynch’s employees were African-American, even though Merrill had signed an agreement with the Equal Employment Opportunity Commission to increase the percentage to 6.5%.

--What an awful story involving Zurich Insurance Group. The CFO committed suicide and then the chairman, Josef Ackermann, abruptly stepped down, saying the finance chief’s family felt he shouldered some of the responsibility for the death, with the chairman being mentioned in the suicide note. Ackermann had been on board a year and a half after running Deutsche Bank AG for a decade. Profits have been declining at the insurance giant.

--The SEC has asked big retailers to come clean on their online sales volumes. Many of them tout that sales have increased by double digits when they issue their earnings reports, but then when pressed by the SEC to provide actual dollar figures, they often, as in the case of Target, confess that “digital sales represented an immaterial amount of total sales.”

The SEC is concerned the retailers are hyping their online presence. Another example was Wal-Mart, which as part of its second-quarter earnings call, talked of a 30% increase in global online sales, but when pressed by the SEC to quantify this, Wal-Mart said web-based sales contributed 0.1 to 0.2 percentage points to Wal-Mart’s 2.4% increase in U.S. comparable-store sales in fiscal 2013.

Online purchases were still just 5.8% of total U.S. retail sales in the second quarter. [Wall Street Journal]

Boy, somewhere in a box sitting in one of my two storage places, I have reports I subscribed to when I started StocksandNews in 1999, showing how by 2010 online spending would account for 20% or more of total retail sales.

--We note the passing of Muriel Siebert, 80. Siebert started as a trainee on Wall Street and became the first woman to own a seat on the New York Stock Exchange. She went on to found the brokerage firm bearing her name, Muriel Siebert & Co., which went public in 1996 as Siebert Financial Corp. She took a leave of absence from the company in 1977, to serve as superintendent of banking for the State of New York under Gov. Hugh Carey. It turned out to be a chaotic time for the banking industry as interest rates soared. Siebert was active in persuading stronger institutions to help out weaker ones.

--The New York Post reported that CNBC’s ratings in August were the worst for the network in 20 years. In the key 25 to 54 demographic, CNBC attracted an average of just 37,000 viewers over a 24-hour period. The peak was January 2002 when it drew 162,000 in the key demo. Jim Cramer’s “Mad Money” is among the individual programs that declined the most.

But to be fair, August was a rough month for other cable channels, with Fox News Channel falling 24% in the 25 to 54 demo, while MSNBC was off 32%. CNN, though, saw its audience grow 13%. [I’m a big Wolf Blitzer “Situation Room” fan at 5:00 p.m., and love that the network is coming back with a new “Crossfire,” which used to be a favorite of mine. But why the heck is it airing the show at 6:30! That’s when I’m watching network news. Don’t they understand my schedule?]

--The NFL reached agreement with 4,500 former players to resolve concussion-related lawsuits in a $765 million settlement that funds medical exams, research and provides some concussion-related compensation. The settlement would mean the NFL won’t have to disclose internal files about what it knew concerning concussion-linked brain problems. It also allows the league, which opens regular season play on Thursday, to change the conversation and refocus on the action on the field...at least it hopes this is the case.

But as NBC’s Bob Costas pointed out following the federal judge’s decision, here’s what we do know. Participation in youth football has dropped significantly. The future of the sport is not good.

--From The Moscow Times:

“At least half of the items in circulation on Russia’s antiques market are counterfeits, which cost scammed collectors millions of rubles every year, according to antiques experts and law enforcement agencies.

“Dishonest dealers and a lack of quality experts are the core of the problem.”

So you’ve been warned, in case you were going antiquing in Moscow this weekend.

Foreign Affairs, cont’d

Iran: A report from the UN’s International Atomic Energy Agency – the first since Hasan Rohani was installed as the new president – confirms that Iran has installed 1,000 advanced uranium enrichment centrifuges and is set to test them.

Iraq: 2013 has seen one wave after another of horrific violence, including attacks on Sunday and Monday that killed over 125. Iraq is hurtling toward renewed civil war. Most of the larger-scale attacks are the responsibility of the resurgent al-Qaeda in Iraq. The nation’s security forces seem totally incapable of stopping the violence.

Egypt: There has been a period of relative calm in the country, the military having largely crushed the Muslim Brotherhood. Now authorities are going after other dissidents, who are then branded as Islamists even though they are not. As reported by the New York Times’ David Kirkpatrick, “In Suez this month, police and military forces breaking up a steelworkers strike charged that its organizers were part of a Brotherhood plot to destabilize Egypt.”

As a result of the crackdown, splits are emerging in the Islamist movement, with some groups offering to call off street protests if the government agrees to ease pressure on them. A journalist and analyst told the AP’s Maggie Michael: “They want to lift pressure on their groups and jump off the Muslim Brotherhood boat that is sinking right now. Everyone is searching for a way out but it is too late.”

Separately, Islamists in Coptic Christian communities are forcing the Copts to pay bribes to ensure they won’t be targeted, the revival of a seventh-century tax levied on non-Muslims.

And as I go to post, there are reports that renewed protests have killed at least six people across the country on Friday.

China: Bo Xilai’s trial for corruption and abuse of power wrapped up, with Bo, formerly one of the most powerful men in the country, confessing he had had an extramarital affair, which cast new light on the state of mind of his wife, who was convicted last year of murdering British businessman Neil Heywood.

Without getting into all of the specifics of the court proceedings, due to a poor performance by prosecutors, analysts believe that what was supposed to be a well-scripted show trial has veered badly off course and turned into a debacle for the current party leadership. Most now believe that while Bo will be convicted, because he has to be, the sentence will have to be a very light one. He should learn his fate soon.

On a different matter, China’s foreign minister warned that Beijing will “not shy away from problems” in disputed Asian waters, while admitting at a meeting of Asean foreign ministers in the Chinese capital that “Currently the South China Sea situation is stable and when we look at other places in the world, we should dearly cherish it.’

And lots of tidbits this week...

--There has been public outrage over the arrest of a teenage son of a prominent Chinese general in a gang rape case, an incident that is stirring resentment against the offspring of the political elite. Li Tianyi, 17, is one of five accused of assaulting a woman in a Beijing hotel in February, according to state media. Li said he was drunk and had no knowledge of the alleged assault. As reported by the South China Morning Post, a politics professor at Renmin University observed, “The general public is worried that his family, because of their relationships and power, will be able to use their connections. In China, this kind of privilege is very powerful. It is omnipresent. The people’s fears are not groundless.”

--“A six-year-old boy in China had his eyes gouged out, blinding him for life, in a gruesome attack that may have been carried out by a ruthless organ trafficker, reports say.

“Family members found the boy covered in blood some three to four hours after he went missing while playing outside...

“The child’s eyes were found nearby but the corneas were missing, reports said, implying that an organ trafficker was behind the harrowing attack.” [Sydney Morning Herald]

--New Zealand announced that after 195 tests in New Zealand and the U.S., scientists have concluded the bacteria found early this month in China in baby formula and other products was not a potentially deadly form of botulism but instead something far more innocent.

Well this sucks. New Zealand’s giant Fonterra cooperative was forced to remove its products from Chinese shelves and now it has to rebuild what had been a strong brand for all its dairy products on the mainland and elsewhere. China was easily Fonterra’s biggest customer, but it was Chinese officials who first banned the products, with others such as Russia and Vietnam then following suit.

--Photos of a small Asian boy, aided by a woman, urinating into a rubbish bin at an upscale shopping mall in the Vancouver, Canada area went viral and sparked yet another debate about Chinese behaving badly.   The suburb where the mall is, Richmond, is North America’s most Chinese municipality, with 80% of the population Chinese in the district where the mall is located. The CBC made it a lead story and the backlash was considerable. [South China Morning Post]

--In another instance of Chinese behaving badly, a group of Chinese tourists on a Singapore Airlines flight refused to hand over 30 sets of stainless steel tableware, Chinese media reported.

“It was only after repeated warnings from a tour guide that these passengers agreed to hand them back to flight attendants.”

The tour guide reportedly said, “Stop hurting the reputation of Chinese people.”

Oh, you can imagine the conversation later among the Singapore Air girls.

North Korea: The ex-girlfriend of Kim Jong Un was executed, according to South Korea’s largest daily newspaper. Hyon Song Wol, a popular singer in North Korea, was killed by firing squad, along with 11 members of her orchestra for filming themselves having sex and selling the videos. Family members of those executed were sent to prison camps. There had been persistent rumors that Kim and Hyon were still having an affair.

Editorial / Wall Street Journal

“The manic cruelty of the North Korean regime, reaching from the bottom of society to its upper echelons, may sometimes seem like a subject best suited for parody. But it was no joke for Hyon, her fellow musicians or their families. That’s something for South Korea, the Obama Administration and the rest of the civilized world to remember when they seek the next rapprochement with the Kims.”

Also, distressingly, late Friday we learned Pyongyang had rescinded an invitation for a senior U.S. diplomat on a mission to secure the release of an American Christian missionary currently imprisoned on charges of acting against the state. No explanation was given

Russia: Supporters of Moscow mayoral candidate and activist, Aleksei Navalny, staged a rally on Sunday that attracted a sizable crowd, estimated at 5,000 to 7,000, and then Navalny was detained for a spell to discuss violations in holding the demonstration. Ten campaign workers were also detained on misdemeanor charges. Just your basic unnecessary harassment. The election is Sept. 8. Navalny’s campaign manager thinks his candidate can get 25%, which would be a strong showing.

In the Edward Snowden case, a pro-Kremlin Russian newspaper reported that officials there became involved with Snowden’s attempt to evade U.S. justice earlier than previously thought and was assisting him before he arrived in Moscow. The newspaper, Kommersant, claims Snowden actually spent several days in the Russian consulate in Hong Kong, before flying to Moscow on June 23. It is thought he was invited to go to Russia.

Britain: Early in the week, a YouGov poll for the London Times found support for firing British missiles against military sites in Syria was just 22%, while those in opposition came in at 51%. Prime Minister Cameron’s spokesman said, “The Prime Minister is acutely aware of the deep concerns in the country caused by what happened over Iraq.  That’s why we are committed to taking action to deal with this war crime, but taking action in the right way, proceeding on a consensual basis.”

Cameron then made his case to parliament, only to go down in flames.

Francis Elliot / London Times

“David Cameron was dealt the worst humiliation of his premiership last night after MPs, recalled to approve a military strike on the Syrian regime, rejected even a watered down expression of support.

“After the defeat, a stunned Prime Minister said it was clear that Parliament, reflecting public opinion, did not want to see British military action.

“ ‘I get that and the Government will act accordingly,’ he said after a coalition motion expressing support in principle for intervention was defeated by 13 votes.

“Ed Miliband, who led Labour in voting against the motion, condemned Mr. Cameron’s ‘cavalier and reckless’ leadership and declared that UK military action in Syria was now ‘off the agenda.’”

Turning humiliation into further embarrassment, four of Cameron’s ministers didn’t vote, apparently because they didn’t hear the call to assemble.

The importance of this issue on British politics writ large cannot be overstated. Cameron’s low popularity numbers were stabilizing and on the verge of rising due to an improving economy. But the 2015 election was supposed to be about Britain’s role in the European Union, first and foremost. An embarrassment on Syria just reflects poorly on his overall leadership skills, further fodder for his opponents.

Janan Ganesh / Financial Times

“(After) several months of good form, the prime minister looks weaker than at any time since taking office more than three years ago. Failing to win over Liberal Democrat MPs in his coalition government is one thing. Being defied by his own Tories is quite another. Prime ministers are simply not supposed to lose House of Commons votes on major matters of foreign policy.”

Czech Republic: This is disturbing. Neo-Nazi thugs staged demonstrations against Roma (Gypsies) in eight towns across the country. In the town of Ostrava, riot police made 60 arrests as a mob of 600-800 neo-Nazis tried to attack a Roma community. Other gatherings involved hundreds of far-right extremists.

Separately, in the city of Kosice in Eastern Slovakia, the European Commission demanded a wall be removed that was built for segregating a Roma neighborhood. I have some strong family roots in this place, by the way.

Random Musings

--In the latest Quinnipiac poll of likely Democratic primary voters for the New York City mayoral race, Bill de Blasio surged ahead of the competition with 36% to City Council Speaker Christine Quinn’s 21 and Bill Thompson’s 20. A. Weiner is down to 8. The danger for Quinn and Thompson is de Blasio is suddenly near the 40% threshold that would prevent a run-off. [A Times/Siena College poll has de Blasio ahead of Thompson, 32-18, with Quinn at 17.]

There is no doubt that, as I said a few weeks ago, de Blasio’s campaign commercial featuring his 15-year-old black son has proved to be extremely effective, as is his ‘tax the rich’ message among an electorate tired of 12 years under billionaire Michael Bloomberg. 

For his part, Thompson’s campaign line is, “I’ll end stop and frisk and get illegal guns off the street.”

How?
 
The primary is Sept. 10.

Meanwhile, in the comptroller’s race, Manhattan Borough President Scott Stringer has come from 19 points down on Aug. 14 to tie Eliot Spitzer 46-46 in another Quinnipiac University survey. [But a Siena poll, released Friday, had Spitzer ahead 50-35.]

--In New Jersey, Gov. Chris Christie’s lead over Democratic challenger Barbara Buono is up to 24 points, 50-26, while Newark Mayor Cory Booker leads his Republican challenger for the Senate seat of the late Frank Lautenberg, Steve Lonegan, 50-22, both according to a Fairleigh Dickinson University PublicMind poll.

But Booker made news this week when he responded to persistent rumors he is gay.

“People who think I’m gay, some part of me thinks it’s wonderful, because I want to challenge people on their homophobia. I love seeing on Twitter when someone says I’m gay, and I say, ‘so what does it matter if I am?’ So be it.”

To which Lonegan first said he didn’t care about Booker’s lifestyle, then in an interview with Newsmax, said, “Maybe that helps to get him the gay vote by acting ambiguous. It’s kind of weird. As a guy, I personally like being a guy. I don’t know if you saw the stories last year. They’ve been out for quite a bit about how he likes to go out at three o’clock in the morning for a manicure and a pedicure.”

Lonegan continued: “I don’t like going out in the middle of the night, or any time of the day, for a manicure and pedicure. It was described as his peculiar fetish... I have a more peculiar fetish. I like a good Scotch and a cigar. That’s my fetish but we’ll just compare the two.”

Uh oh....the state’s leading gay rights advocacy group accused Lonegan of being homophobic.

Booker responded, “It’s just really sad. It’s just disheartening to hear somebody in this day and age in the United States of America to say basically that gay men are not men – that they’re not guys. It’s shocking to one’s conscience.”

--One of my favorite Republican senators, South Carolina’s Lindsey Graham, is under fire from the state’s conservatives for, among other things, reaching across the aisle on immigration, and for spending so much time out of the state. As reported by the New York Times’ Kim Severson, “Tea Party supporters called (Graham) a community organizer for the Muslim Brotherhood when, instead of heading home for the Congressional break this month, he went to Egypt at the request of the president.”

Well that’s stupid. The Tea Party stance, that is. But this 2014 race will be interesting to follow.

--Major Nidal Hasan received the death penalty for murdering 13 people at Fort Hood, Texas. Unfortunately, he won’t be put to death right away, if ever, because of the lengthy appeal process, probably at least four years according to military officials. As it’s a military court that convicted and sentenced him, execution requires the approval of the Fort Hood commanding general and the president in order for it to take place.

--The Justice Department announced it would not interfere with the enforcement of voter-approved laws that allow recreational pot use in Washington state and Colorado, which means other states (such as Oregon and Alaska) will likely consider similar laws. Whatever. Just don’t text and drive.

--Clive Cookson / Financial Times

“Biomedical scientists have turned human stem-calls into pea-sized mini-brains with a neural structure similar to the brain of a developing embryo.

“These ‘cerebral organoids,’ as they are termed formally, are the best living model of a human brain created so far.

“The scientists at the Institute of Molecular Biotechnology of the Austrian Academy of Sciences in Vienna...hope to apply the technique to more complex conditions such as autism and schizophrenia, for which no good animal models are available.”

--At a major international scientific conference in Florence, Italy, research was presented that supports an idea that life may have started on Mars before arriving here. It’s highly complex, involving how atoms first came together to make up the crucial molecular components of living organisms, but as Professor Steven Benner told BBC News, “The evidence seems to be building that we are actually all Martians; that life started on Mars and came to Earth on a rock. [Ed. via meteorites.]

“It’s lucky that we ended up here, nevertheless – as certainly Earth has been the better of the two planets for sustaining life. If our hypothetical Martian ancestors had remained on Mars, there may not have been a story to tell.”

At least I wouldn’t have wasted my life being a Mets and Jets fan.

--Liberia, with an education system that is still a mess a decade after 14 years of civil war ended, recently had 25,000 students take this year’s university entrance exam and all 25,000 failed.

Some suspect foul play because it seems there is no capacity in the university system, so the results were doctored.

--How cool is it that if you write Pope Francis an actual letter, he just may pick up the phone and call you, as was the case for 19-year-old Stefano Cabizza, a teen from northern Italy who wrote a letter to the Pope after attending his mass at the papal summer retreat. Cabizza shared his worries about finding a job after graduation.

Three days after writing, Cabizza picked up the phone. “This is the Pope.”

“I couldn’t believe it,” the teen told The Telegraph. “We laughed and joked for about eight minutes.”

Francis told Cabizza he had actually called earlier but the first time he wasn’t home.   The Pope also called a local man whose brother had been murdered. Michele Ferri said he was startled to pick up the phone and hear someone say, “Ciao Michele, it’s Pope Francis.”

“He told me he had cried when he read the letter I had written him,” Ferri told The Guardian.

Supposedly the Pope loves to talk soccer, but don’t bring up Vatican policy or scandal.

--I have to admit, it’s only in the last 15 years or so that I came to fully appreciate the greatness of Martin Luther King Jr. [I’ve recognized since day one that the extended King family, save for the late Coretta Scott King, is nothing but a bunch of shysters. Look how they have handled the King Foundation.]

But when it comes to perceptions of Black America from outside the race, you would be dishonest if you didn’t admit our attitudes are shaped by the realities of the lack of a strong family dynamic and the crime rate.

By now, every American knows that 72% of black children in this country are born out of wedlock. George Will is fond of bringing up the late, great Sen. Daniel Patrick Moynihan (another I failed to appreciate during his prime) who was so ahead of his time that back in 1963,  in a study he authored, Moynihan decried the breakdown of the African American family unit...when the percentage born out of wedlock was 24! 

As for crime, Ashby Jones and Arian Campo-Flores of the Wall Street Journal reported the following that sums up the issue succinctly.

“Five decades after marchers converged on Washington to hear Martin Luther King Jr. deliver his ‘I Have A Dream’ speech, African-Americans have made notable strides in areas such as educational attainment and civil and economic rights.

“But one grim problem has become much worse: the extent to which violent crime touches African-American life.

“While the overall U.S. murder rate fell over the past several years, the number of black male victims rose – many coming at the hands of black perpetrators. More than half of the nation’s homicide victims are African-American, though blacks make up only 14% of the population. And over the past 50 years, incarceration rates have risen for blacks, especially among men.”

This comes as blacks have significantly closed the education gap with whites, including a high school graduation rate of 86% in 2012, compared with 92% for white adults, according to a Pew Research Center analysis.

But, “The number of black male murder victims rose more than 10% from 2000 to 2010,” according to an analysis of data published last year by the Journal.

In his speech commemorating this week’s anniversary, President Obama said of the violence, “The shadow of poverty casts a pall over our youth, their lives a fortress of substandard schools and diminished prospects, inadequate health care and perennial violence....

“If we’re honest with ourselves, we’ll admit that during the course of 50 years, there were times when some of us, claiming to push for change, lost our way. The anguish of assassinations set off self-defeating riots. Legitimate grievances against police brutality tipped into excuse-making for criminal behavior.”

Back to Dr. King...Jon Meacham / TIME:

“It is tempting to romanticize the words King spoke before the Lincoln Memorial. To do so, however, cheapens the courage of the known and the unknown nonviolent soldiers of freedom who faced – and often paid – the ultimate price for daring America to live up to the implications of the Declarations of Independence and become a country in which liberty was innate and universal, not particular to station, creed or color. The true honor we can give to King and his comrades is not to render them as fantastical figures in a Manichaean struggle but to see them as human beings who summoned the will to make the rest of us be the people we ought to be....

“However unreachable King’s dream seems to be on this side of paradise, though, we must try. Like the promises of the Declaration of Independence or the Gettysburg Address or FDR’s First Inaugural (‘The only thing we have to fear is fear itself’), the promises of King’s ‘I Have A Dream’ sermon can be kept only if the nation is mindful of what Lincoln called ‘the better angels of our nature.’ In his words to the March on Washington, Martin Luther King Jr. gave us a standard against which we could forever measure ourselves and our nation. So long as his dream proves elusive, then our union remains imperfect.”

--Finally, we honor U.S. Army Staff Sgt. Ty Carter, who was awarded the Medal of Honor on Monday by President Obama for his heroics in the Afghan battle at Combat Outpost Keating, where 53 American troops fought back against 300 Taliban fighters in the mountain valley. Eight U.S. soldiers died in the fight. Earlier this year, Clinton Romesha, a former Army staff sergeant, was also awarded the Medal of Honor for his role in the battle for the outpost.

---

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

God bless America.

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Gold closed at $1395...unchanged after climbing above $1425
Oil, $107.65

Returns for the week 8/26-8/30

Dow Jones -1.3% [14810]
S&P 500 -1.8% [1632]
S&P MidCap -2.8%
Russell 2000 -2.6%
Nasdaq -1.9% [3589]

Returns for the period 1/1/13-8/30/13

Dow Jones +13.0%
S&P 500 +14.5%
S&P MidCap +16.0%
Russell 2000 +19.0%
Nasdaq +18.9%

Bulls 38.1...lowest since Nov. ‘12
Bears 23.8 [Source: Investors Intelligence...reminder, contrarian indicator. Last Nov. was a good time to buy.]

Enjoy the holiday. I appreciate your support.

Brian Trumbore