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05/17/2014

For the week 5/12-5/16

[Posted 12:00 AM ET]

Edition 788

Washington and Wall Street

It was a strange week for the U.S. stock market. The Dow Jones and S&P 500 hit new closing highs on Tuesday, with the S&P crossing the 1900 level before finishing the day at 1897 (and the Dow 16715), but then the markets took on gas, first, because it became apparent Europe’s recovery could hardly be called that with release of first-quarter GDP figures (let alone further confirmation inflation was less than 1.0% in euroland), and, second, Thursday was rough in part because aside from renewed growth fears, including here in the U.S., noted hedge fund operator David Tepper, who has correctly been bullish, essentially since the March 2009 bottom, turned cautious in comments at a conference in Las Vegas Wednesday night, the market not having a chance to react until Thursday.

Specifically, Tepper spoke of it being “nervous time,” pointing to Europe in noting the European Central Bank “better ease (rates) in June,” because “If they don’t, it may be too late,” as in forget punk inflation, deflation could become the bigger issue.

To be clear, Tepper wasn’t saying ‘sell,’ rather as he put it, “I’m just saying don’t be too frickin’ long right now.”

I’ll cover Europe in full shortly. Here in the U.S., the economic data has not been great recently and this week, the April retail sales figure was putrid, up just 0.1% when a rise of 0.4% was expected, unchanged ex-autos, while April industrial production was down 0.6% when a slight gain was forecast.

But on Friday, the figure on April housing starts was better than expected, up 13% to a 1.07 million annualized rate, but here we need to differentiate between the fact the lion’s share of the increase was due to construction starts on multifamily projects such as condominiums and apartment complexes, while single-family construction was up just 0.8%, continuing a poor trend for that metric.

Here’s the thing. When it comes to single-family housing it’s about affordability and it was telling this week when RealtyTrac noted that because of tougher lending standards (coupled with rising prices and supply/demand issues), 43% of sales nationwide these days are all cash.

Back to retail, as I note below, the picture was mixed in terms of earnings among the top retailers with Wal-Mart and Kohl’s missing badly, while Nordstrom’s, Dillard’s and JC Penney were among those exceeding expectations. But those beating didn’t report great gross numbers, though their shares might have run simply because expectations had been so beaten down.

Bottom line, I’ve been calling for a better economy in the U.S. and that still might come to pass (and no doubt the second quarter figure for GDP will be far better than the first’s stagnation), but there’s a reason why the 10-year Treasury hit a six-month closing low of 2.49% (before finishing the week at 2.52%). Aside from the competition for the investment dollar and the search for a safe yield, the data just hasn’t been great.

That said, I still believe the yield on the 10-year will rise significantly from here, just as I’ve been saying you’re nuts to buy some of Europe’s peripheral paper, but for different reasons.

I’m thus sticking with my belief we will get an inflation scare before year end, fed by better data, including on the wage front, and the Federal Reserve will have to begin talking about raising the funds rate sooner than later. [I get into the April inflation numbers, released this week, down below.]

So with that, let’s turn to....

Europe and Asia

Where to begin? For starters, Eurostat, the official statistical arm of the European Union, released GDP figures for the first quarter and the euro area grew just 0.2% over the previous quarter (up 0.9% year over year). But if you took out Germany, up a better than expected 0.8% (2.3% yoy...yes, not 3.2%), the rest of the euro-18 actually contracted.

France’s GDP was unchanged, with consumer spending down 0.5% for the quarter; Italy’s GDP was unexpectedly negative, down 0.1%; the Netherlands’ GDP was down a whopping 1.4% for the quarter and even though Spain’s rose 0.4%, it’s still up just 0.6% vs. year ago levels.

[Non-euro Britain was up 0.9% and 3.1% annualized as it continues to kick butt on a relative basis.]

Back to Germany, the Federal Statistics Office is still only targeting 1.7% growth for all of 2014, owing in no small part to China’s slowdown, it being Germany’s third-biggest trade partner.

And then you had the release of April auto sales for the European Union and Germany’s were down 3.6% vs. a year earlier, a shocker. Italy, supposedly in recovery mode, saw its sales rise just 1.9%.

[Overall car sales increased 4.2% for the EU28 vs. a year ago, the slowest pace in five months. They rose 8.2% in the U.K., however.]

On the inflation front, the concern of David Tepper and others, Eurostat officially pegged it at 0.7% on an annual basis for April (same as an earlier flash estimate), up from 0.5% in March, but a year earlier it had been 1.2% and the European Central Bank’s target is 2.0%. Prices are falling in Greece, Cyprus, Portugal, Slovakia, Hungary and Bulgaria.

Inflation is rising in Germany, 1.1% (ann.); France, 0.8%; Italy, 0.5%; and Spain, 0.3%. Ergo, hardly at all.

So, yes, the ECB must act when it gathers June 5. As I wrote last week, President Mario Draghi “has been a man of words, not actions,” which thus far has held him in good stead, but, “In June...he will have to take real steps,” or as David Tepper would put it, “He better frickin’ act!” [Personally, I like ‘freakin’’ better than ‘frickin’’ but it’s a matter of taste, if not choice.]

Moving along, as I noted above, I’ve been saying you’re a fool to buy the bonds of Spain or Italy, among the euro periphery set, because of their still sky-high debt levels. Yes, the yields on their 10-year paper, for example, did indeed collapse to below 3%, still helped by Draghi’s 2012 comment the ECB “would do what it takes” to save the euro.

But this week, on Thursday, there was a true rout in the bonds of the periphery members as it hit everyone; ‘Hey, if euro growth isn’t that great moving forward, then where is the revenue going to come from to service the debt?’ As in, investors will eventually see through this charade that’s been going on the past six months in particular.

Again, if you tell me these countries and the rest of Europe are going to grow at 2% plus for the next 3-5 years, then, yes, I guess the periphery nations can muddle through.

But if you don’t believe this to be the case, and I don’t, then Katy bar the door.

You want an example of what can happen? Check out Greece this week. On Thursday, the yield on the Greek 10-year surged 51 basis points, the most since June, to 6.81% (and then rose another five to 6.86% on Friday). Here, it’s about renewed political concerns over whether Prime Minister Samaras’ coalition can survive. If it doesn’t, bye-bye reform program for Greece and hello 10%+ yields all over again.

Portugal, bless their souls, is exiting the international bailout program this weekend, which is terrific, but the reality is they still have $293 billion of debt to service, the third highest in the euro region as a percentage of their economy (somewhere in the neighborhood of 125% of GDP), and as a Lisbon-based money manager told Bloomberg News, “There will now be two or three decades (emphasis mine) of lean times for the state, which will have to purge that debt burden.” If Portugal’s economy grows, they can manage. If it doesn’t, they can’t. And GDP contracted in the first quarter, a significant 0.7% over the fourth. Economists expected a rise. I submit this evidence for the jury.

[I do want to insert for the archives, and my future work, that the 10-year in Spain rallied some Friday to close the week at 2.95%, with Italy’s at 3.05%.]

Here’s the thing about Europe and the periphery. The banks aren’t lending to small- and medium-sized companies, period. The difference in loan rates for a company in Spain vs. one in Germany would be on the order of 5% or so in many cases. That’s not the way the dreamers in Brussels thought this whole experiment would work.

Which brings me to the big event of the coming week, the European Parliament elections, which are May 22-25.

Some thoughts from a Financial Times survey:

2/3s of prospective French voters believed their economy was worse than a year ago. Voters in Spain saw little change. Most voters in Italy felt the economy was weaker and 58% were less secure in their job.

In France, President Hollande’s tax increases have killed growth, to the point where new Prime Minister Valls said the “level of taxes has become intolerable,” though it was the policy of his own Socialist party. Hollande and Valls have now proposed cutting government spending, so civil servants are upset, especially upon learning their wages are being frozen until 2017.

The Brits are more optimistic these days, but on the question of immigration, 77% agree with the statement there are “too many immigrants from the EU” in their country.

More than 50% of all voters in the U.K., France, Italy, Spain and Germany believe this to be the case, and that’s right up the alley of the far-right parties, boys and girls.

Way back, when I was first beginning to explore the May 2014 Euro vote, I said if the economy was improving, of course the far right wouldn’t do as well because there wouldn’t be as hostile a feeling on the immigration issue.

Well that’s not proving to be the case, which is why this week’s GDP figures were so important. You can imagine some of the headlines in local European papers and how political parties, such as Marine Le Pen’s National Front in France, are attempting to take advantage of the dismal data.

So how well will the Eurosceptic parties do? I go back to a few weeks ago when I cited political economist Niall Ferguson and his guess it would be 16%. I’ll say 20%, which would place the bloc #1 in parliament. 

As a recent editorial in The Economist put it, “Europe faces three interconnected risks: prolonged stagnation, reform paralysis and political backlash....

“Support for the European project, always fragile, will keep falling if it fails to deliver greater prosperity. Europe’s leaders still face testing times. As de Tocqueville put it, ‘a sovereign who seeks to relieve his subjects after a long period of oppression is lost, unless he be a man of great genius.’”

[One little aside, Marine Le Pen and Britain’s Nigel Farage, leader of the far-right UKIP (which is leading the Euro polls in the U.K.), continue to feud over who is a racist. No unified front from these two. As Le Pen told the Financial Times this week, Farage’s statements against her were a ploy “intended to surpass her in the role of EU’s leading Eurosceptic,” as the FT put it, with Le Pen adding, “It’s an old story between France and England.” A last poll in France, by the way, showed 68% having a bad opinion of Le Pen, but it’s about getting 20% overall. She can worry about running for the presidency against this kind of polling data later.]

On to China....

President Xi Jinping said his nation needs to adapt to a “new normal” in the pace of economic growth, this as more bad news hit; such as a 22% drop in new building construction for the first four months, and the level of nonperforming bank loans hitting their highest level since Sept. 2008 in the first quarter, according to the China Banking Regulatory Commission, as you have the ongoing concern over asset quality on the balance sheets.

Separately, factory production in April rose 8.7% from a year earlier, fixed-asset investment was up 17.3%, and retail sales for the month rose 11.9%; all of which sound great but were less than expected and yet another sign of a slowdown, in relative terms.

I follow a few small China companies that still issue public statements to their shareholders (unlike my own long-term holding) and one, Guanwei Recycling Corp., made a telling pronouncement.

First, understand, this company has major issues with its numbers and was recently the subject of an SEC investigation involving some stock promoters, who pleaded guilty, if I remember right. 

But the point of the following is that even when these companies in China are crooked, it’s not hard to read between the lines to glean a few facts.

Mr. Chen Min, Chairman and CEO of the company, commented on sales volume declining about 22% year over year: “While the economic outlook for most of our customers going into the year was uncertain, as the quarter developed it became clear they were proceeding with much more caution than anticipated. At the same time, the labor situation in Southern China also got a lot tougher as reflected in the fact that following the Chinese Spring Festival in February, many more experienced workers than anticipated, including ours, did not return to their positions. This slowed our production and increased our labor costs as we raised wages and benefits to try to quickly attract and train new workers. This occurred as the government imposed new procedures on the industry to further improve environmental standards which also slowed production and increased our cost structure.... Unfortunately, at least for the next quarter or two, these events are likely to continue to affect year over year comparisons, unless and until we see an improvement in the domestic Chinese economy.”

That’s good insight, if I may say so myself. It’s also why you need to pay even closer attention to developments in the South China Sea (covered below). The Chinese government could easily escalate things to take the peoples’ minds off their increasingly uncertain lives.

[One other item...Hong Kong announced its GDP rose only 0.2% in the first quarter from Q4, less than expected. But the government there is maintaining its forecast of 3% to 4% growth for all of 2014, betting on a strengthening global economy in the second half.]

Lastly, in Japan, consumer confidence spiked in April over March, the biggest jump since the government started compiling data in 2000...even after the sales tax hike from 5% to 8% April 1. How can this be? Beats me. I might have to drink a Kirin and mull it over.

Actually, the Bank of Japan said further monetary easing may not be necessary. Here’s the thing. First-quarter GDP rose a whopping 5.9% on an annualized basis ahead of the tax hike as there was a buying spree. This was still far better than expected.

But the current estimate for second-quarter GDP is for a slide of 3.3% because of what was supposed to be an inevitable mini-crash in demand, with the government hoping things then stabilized again in the second half of the year, say 2% annualized growth.

Street Bytes

--Stocks finished mixed for a second week, with the Dow Jones losing 0.6% to 16491, the S&P 500 losing a fraction of a point, and Nasdaq finishing up 0.5%.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.36% 10-yr. 2.52% 30-yr. 3.35%

Lowest close of the year on the 10-year.

The inflation data was good, as in there was some inflation. April producer prices rose 0.6%, up 0.5% ex-food and energy, with the PPI up 2.1% year over year and up 1.8% on core.

Consumer prices rose 0.3%, up 0.2% on the core, and up 2.0% from a year ago, up 1.8% ex- the stuff we use and eat. The ECB would kill for these numbers. Our Federal Reserve, though,  would like to see inflation even higher, coupled with continuing growth on the labor front.

But I’m saying there is a surprise beyond this coming and that the Fed will be forced to consider raising the funds rate off zero sooner than it anticipated. That’s my story and I’m freakin’ sticking to it.

One other bond item. When I was at PIMCO, those of us in sales eagerly awaited the firm’s annual secular forum in May, when Bill Gross and the boys (and girls) would come up with their latest 3-5 year outlook, which then became our marching orders.

After the recently completed forum, PIMCO is now talking of a “new neutral,” as opposed to the “new normal” that’s been their mantra the past few years. As in a lot of nothing. Little movement in bond yields, for one; like they are pegging the 10-year to between 2.5% and 4.0%, nothing more than that. PIMCO also doesn’t believe the funds rate will exceed 2.0% during this time, which I disagree with...but...if they are right, this is good in terms of servicing the U.S. federal debt and that favorite topic of mine, interest expense. But I’m giving this a rest the balance of 2014.

--So I’ve discussed the issue of financial engineering quite a bit over the past few years, especially when it comes to IBM, and I can’t help but note the following from the Washington Post’s Steven Pearlstein:

“Instead of investing in new plants, equipment and products, instead of paying their taxes and giving a long-overdue raise to their employees, big corporations are spending their record profits – plus gobs of newly borrowed money – to buy back their own shares and those of other companies.

“The latest from Dealogic shows that U.S. companies have announced more than half a trillion dollars in mergers and acquisitions this year, 34% ahead of last year’s brisk pace....

“Meanwhile, the corporations of the (S&P 500) spent $477 billion last year buying back their own shares, a 29% increase over 2012 and the most since the peak year of 2007...

“And make no mistake: In the short term, the buyback strategy works. Stock buybacks in the S&P 500 transformed what would have been an 80% rebound from the lows of 2009 into a 178% increase, according to a study by Fortuna Advisors....

“Of the $3.4 trillion in additional debt taken on by nonfinancial corporations since 2009, nearly 87% has been sent off to shareholders in the form of dividends and stock buybacks, according to Paradarch Advisors.

“The poster child of the corporate sector for this leveraged buyout is IBM, which in the first quarter bought back more than $8 billion of its own stock, almost all of it paid for by borrowing. By reducing the number of outstanding shares, IBM has been able to maintain its earnings per share and prop up its stock price even as sales and operating profits fall....

“More significantly, IBM since 2012 has invested four times as much in stock buybacks as it has on the capital expenditures needed to grow its business over the long term.”

--General Motors Co. announced it was recalling an additional 2.7 million vehicles in the U.S. to fix various defects, bringing the total recalled this year to 12.8 million worldwide. The total cost to date is $1.5 billion.

The latest recall involves Chevy Malibus, Pontiac G6 and Saturn Auras, all of which could have wiring corrosion, leading to brake light issues, as well as possible traction and stability control malfunctions.

[Friday, GM was fined $35 million by the National Highway Traffic Safety Administration Board for delays in recalling vehicles with ignition issues; the maximum allowed by law.]

--Wal-Mart blamed the weather for its poor first-quarter performance. 

“Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales and drove operating expenses higher than expected,” said CEO Doug McMillon.

Same-store sales in the U.S. fell 1.4%, while overall revenue rose just 0.8%, missing expectations.

--Shares in JC Penney rose 18% after the company reported earnings and revenues that beat expectations. Same-store sales rose 6.2% in the three months ending May 3, while overall sales rose to 2.8 billion from 2.6 billion a year earlier.

But JCP is far from out of the woods, reporting a net loss of $352 million, though turnaround efforts clearly gained some momentum. Foot traffic in April was positive for the first time in months.

--Nordstrom shares surged 11% as its same-store sales rose 3.3%, while Dillard’s did as well after reporting a 15th-consecutive quarter of sales growth, up 2%.

--Interesting, and depressing, piece in the Journal last weekend by Suzanne Kapner and Robbie Whelan concerning the plight of the shopping mall in America these days, especially with the problems JC Penney and Sears have had.

“Nearly half of the 1,050 indoor and open air malls in the U.S. have both of those struggling chains as anchor tenants... Of those malls, nearly a quarter are struggling with sales below $300 per square foot and vacancy rates above 20%, meaning they will have a hard time finding new tenants if old ones leave.”

Only six new malls have been built since 2010, while the number of “dead malls,” those with vacancy rates over 40%, has nearly tripled since 2006 to 74 properties.

The average vacancy rate is 8% at regional malls, with the peak being 9.4% in 2011.

--So the Federal Communications Commission voted on how to regulate Internet service providers, part of the debate over ‘net neutrality,’ and it’s about how the likes of Comcast, Time Warner Cable and Verizon treat online traffic running through their pipes. Netflix and Google, for example, aren’t supposed to be treated differently from, say, this site you’re reading. Otherwise it would be “pay to play.”

Well, the FCC proposal would ban broadband providers from blocking or slowing down websites, but left the door open for them to cut separate deals with content companies for faster lanes to customers.

So on the surface you have Comcast, Verizon and AT&T against Internet companies like Google, Facebook and Amazon, who are opposed to any arrangements allowing broadband providers to charge companies extra for preferential treatment.

In a statement, Netflix Inc., which gobbles up a substantial amount of the overall Internet bandwidth, said it is “concerned that the proposed approach could legalize discrimination” in how broadband providers treat Web traffic, “harming innovation and punishing U.S. consumers.” Netflix added it “is not interested in a fast lane” on the Internet. [Gautham Nagesh and Amol Sharma / Wall Street Journal]

--Sony announced it would remain unprofitable until 2015 after a restructuring that saw it exit the PC business. It expects a loss of $489 million for the fiscal year ending March 2015, after a loss of over $1.2 billion in the prior year. Sony’s television business continues to lose out to rivals like Samsung.

--Tech bellwether Cisco Systems beat the Street for earnings and revenues as longtime CEO John Chambers said “I am pleased with the progress to return to growth.”

But revenue from switching systems, Cisco’s single largest business, continued to decline, down 6%, with orders for all products in emerging markets off 13%.

Chambers said that orders for its new Nexus 9000 router line, however, are growing rapidly, from 20 companies to 175, with a pipeline of another 1,000 customers. But the switching business would not see overall growth for “several more quarters.”

Business was strongest in the Americas, up 10%, with U.S. orders up 7%. Overall company revenue fell 5.5%, but the stock, in beating expectations, rose about 7% on the news.

--Google had an awful week as it faced calls by the EU’s highest court for a “right to be forgotten” that would allow users to request the removal of personal data.

And then Germany called for its breakup, which while it has zero power to do so, nevertheless is the prelude to the government looking into the search engine’s conduct.

--The amount of credit-card debt in the U.S. fell to the lowest levels since 2002, which isn’t a good sign for the economy. New mortgage originations dropped for the third straight quarter to $332 billion, the lowest since Q3 2011; another sign, perhaps, that home buying is less affordable.

--Speaking of which, Trulia (a real estate research firm) Chief Economist Jed Kolko said “Affordability is worsening. Prices are still rising faster than wages and income.” But buying remains cheaper than renting in all of the 100 metro areas that Trulia studied. In 20 of the 100, however, a majority of homes on the market are not affordable for middle-income buyers.

Some metro areas had particularly steep drops in affordability, including Denver, whose share of affordable homes fell to 50% from 67% in just the past year.

Akron, Ohio has the highest affordability at 86% of homes for sale.

--Southern California home prices rose at their slowest clip in more than a year, according to DataQuick. In Orange County, for example, the median price rose 7.7% from April 2013 to $576,000, while prices in San Diego County climbed 8.7% to $435,000. In March the figures were up 14.9% and 12.4% for the two, respectively.

Sales for the six-county region have fallen seven straight months. Absentee buyers, i.e., investors, accounted for 26% of all homes sold in April. [Andrew Khouri / Los Angeles Times]

--AT&T seems to be nearing a deal for DirecTV at about $50 billion, though it could take some time to finalize this, especially when it comes to gaining regulatory approval. Comcast, recall, is still seeking approval for its bid for Time Warner Cable. And then you have Sprint and a probable offer for T-Mobile U.S., which would create another challenge for regulators leery of a consolidation that would leave just three big companies in that space.

--I didn’t catch this in time as I was posting last week, but have to note the Postal Service lost $1.9 billion in its fiscal second quarter, the same amount it lost over the same period in 2013, though revenue rose $379 million to $16.7 billion, the third straight quarter with a revenue increase.

The Postal Service has defaulted on its health care payments over the last three years and it awaits Congressional legislation that would help it reduce its burden of funding benefits in advance.

The bright spot is in the shipping and packaging business, owing to the growth in online shopping. The Postal Service shipped 986 million packages in its fiscal second quarter, up from 919 million over the same time last year.

--Hillshire Brands Co. agreed to buy Pinnacle Foods Inc. for $4.3 billion, thus combining the likes of Jimmy Dean sausages and Ball Park franks with Pinnacle’s Vlasic pickles, Wish-Bone salad dressings and Birds Eye frozen veggies. Hillshire was formerly known as Sara Lee Corp.

--Darden Restaurants Inc. is selling its Red Lobster chain for $2.1 billion to private-equity firm Golden Gate Capital. Some investors aren’t happy as they were looking for Larry Lobster to be included as part of a larger Darden breakup. 

--Pfizer has committed to preserve U.K. science jobs if it wins its $106 billion bid for AstraZeneca, as Pfizer met with a House of Commons committee this week. Pfizer said its promises, including completing an AstraZeneca research center in Cambridge, were binding “as a matter of English law.”

The unions are asking the British government to block the acquisition. Pfizer’s price (upped once) will have to be upped again.

--Christie’s in New York sold a record $745 million of contemporary art, breaking its $691.6 million sale last November. Barnett Newman’s abstract “Black Fire I” sold for $84.2 million.

Joan Mitchell set a record for a female artist when her untitled colorful bouquet from 1960 sold for $11.9 million.

An Andy Warhol portrait of Marilyn Monroe sold for $41 million, far above the $18 million expected sale price.   [Kelly Crow / Wall Street Journal]

--Burger King is going to begin rolling out a “burgers for breakfast” campaign later this month at over 5,000 locations.

--For the first time, the U.S. has overtaken France as the world’s biggest market for wine, with U.S. drinkers consuming 2.9 billion liters of wine in 2013, vs. 2.8 billion in France, according to the International Organization of Vine and Wine. French consumption fell 7% from the year before (think lousy economy) while U.S. consumption grew 0.5%. Wine per head is still far higher in France, with the average French person drinking just over a bottle a week, six times more than the average U.S. consumer.

Italy is third in gross consumption of wine, followed by Germany and China. [BBC News]

--Right next door to where I reside lies Short Hills, home of the Short Hills Mall, and in a report by FindTheBest, which cited data from the U.S. Census Bureau, Shorts Hills was found to be the richest community in America, with over 69% of households making more than $150,000 annually. 51% hold advanced degrees.

--Hedge-fund promoter Anthony Scaramucci bought the rights to the television show “Wall Street Week,” which ran for 33 years on PBS, 32 of which were hosted by the late Louis Rukeyser. The new version would run weekends on CNBC, it is assumed as of this writing. For many of us in the 1980s and 90s in particular, “Wall Street Week” was must-see TV.

--“Godzilla” is expected to take in some $70 million for its opening weekend. It cost $160 million to produce. Early estimates from the insurance industry on damages are in the $20 trillion range and, frankly, I’m a little concerned about the global market reaction. I’m also going to sleep with one eye open until it goes to video. I suggest you do the same.

Foreign Affairs

Ukraine: A week from Sunday, May 25, they are supposed to hold a presidential election here. Earlier in the month, Vladimir Putin said this would represent a step “in the right direction,” but Russian officials have also said the Kremlin might not recognize the newly elected government, with the State Duma Speaker Naryshkin telling Russian television on Wednesday that the president Ukrainians will elect will not have full “legitimacy,” pointing to the 7 million people living under “essentially punitive conditions” in the eastern and southern regions.

While Russia does not have a favored candidate, the U.S. and the West do...Petro Proshenko, the candy magnate, with Washington hoping that Arseniy Yatsenyuk, currently the interim prime minister, would remain in that post.

Polish Prime Minister Donald Trusk denounced Russia for conducting a “sophisticated form of aggression” against Ukraine with last weekend’s pseudo-referendums. “Our neighbor is being broken using a democratic pretense in a way that’s provocative to the public. It is a mockery of democracy.”

The sham balloting was held in the regions of Donetsk and Luhansk, with rebels declaring independence in the two, and the Donetsk People’s Republic asking to join Russia.

Early this week, seven Ukrainian soldiers were killed in an ambush in the east. Russian Foreign Minister Sergei Lavrov said Ukraine was on the brink of “civil war.”   Ukraine’s acting defense minister said his country was embroiled in an “undeclared war with Russia.”

But some observers believe the Kremlin does not have an immediate desire to absorb southeastern Ukraine, adopting a wait and see posture. You know my “24-hour rule”? I read the other day that Putin has a “three-day rule” in reference to the fact Putin often responds three days after big events take place, which would mean May 28, perhaps.

Dmitri Trenin, director of Moscow’s Carnegie Center, says Putin “wants to create a force in the country’s east that will first and foremost represent the Russian identity and which will become part of the Ukrainian elite, where it would balance its Western-oriented representatives.” [Moscow Times]

Interim Ukrainian President Turchnyov said his government was ready to hold talks with everyone except for “those who with weapons in their hand try to wage war with their own country.”

Various roundtables with local government officials were held across Ukraine but with zero results.

Yet at week’s end, Ukraine’s richest man, Rinat Akhmetov, who owns a large portion of the mining and metals business in the heavily industrialized eastern part, marshalled his workers who then at least temporarily established control of the streets of Mariupol, a city that had fallen to the separatists, who then melted away. Akhmetov, in essence, controls hundreds of thousands of workers and after laying low for weeks, finally stepped forward to say he rejected separatism, though wants more power for the regions. 

So you have rapidly changing sentiments, maybe...but the swings in same are likely to be wild for months to come.

Just understand Akhmetov’s Metinvest is among the top five steel producers in the world. As the CEO, Yuri Ryzhenkov, told managers, and thus workers: “The most important thing you have is the steel mill. If you have the steel mill, you have jobs, salaries and stability for your families.”

It’s important to note two polls that came out this week. In a CNN survey of Ukrainians, nationwide (except Crimea), by a 56-19 margin they aligned themselves with the West, not Russia. What is highly significant about this is that before Russia’s involvement, it used to be 50-50.

A second survey, conducted by a center in Kiev, had the split between those favoring the West and those favoring Russia at 52-17. While the majority are still against joining NATO in this poll, the message is clear in both. Russian aggression is backfiring.

Meanwhile, President Putin, in a letter to European leaders, said Ukraine’s debt for Russian natural gas has reached $3.5 billion and that beginning June 1, Ukraine will have to pre-pay for gas deliveries. Talks on a compromise have failed, even after a $3.2 billion bailout from the International Monetary Fund. Ukraine wants Moscow to restore price discounts in place before the toppling of then-president Viktor Yanukovych in February.

And when it comes to the sanctions imposed on Russia and the impact on Western companies, you have the likes of McDonald’s, which receives 9% of its revenue from Russia and has already closed its three stores in Crimea; John Deere, which is cutting its full-year outlook, saying sales of its tractors and harvesters would fall “significantly” in Ukraine and Russia; and DuPont, which has a lot of agriculture business in Ukraine, where its customers are deferring or reducing seed purchases because of difficulty obtaining credit.

Just three U.S. examples, with countless European ones.

But it goes back to the opening. The U.S. and Europe have said Russia faces harsher sanctions if it disrupts the May 25 vote.

Editorial / The Economist

“Mr. Putin seems to be hoping that a grateful world, desperate to avoid conflict, will agree to what he has sought all along: a federation of Ukraine that blocks it from moving towards the European Union and NATO, as well as the uncontested annexation of Crimea. The world should not oblige. Ukraine will need to give more autonomy to its regions – but not such power that they can veto foreign policy. The West must give Ukraine aid and as much advice as its government will take.

“This crisis is far from over. Mr. Putin can turn the pressure on Ukraine back up just as easily as he seems to have turned it down. He has not relinquished Crimea, and his treatment of Ukraine has betrayed the nature of his regime. Therefore, the West should maintain today’s sanctions – and the threat of more. It should strive to lessen its dependence on Russian energy and face up to the fact that, while Mr. Putin is in power, doing business with Russia will be perilous. After all, would you trust the man who started a fire next door merely because he has suddenly offered you a bucket of water?”

Syria: Editorial / Washington Post

“The principal achievement the Obama administration might claim in an otherwise tragically failed response to Syria’s civil war is eroding. Last September President Obama brokered an agreement with Russia under which the regime of Bashar al-Assad was to give up its stockpile of chemical weapons and join the Chemical Weapons Convention, which prohibits production or use of those horrific arms.

“Yet months after the expiration of the February deadline for removing all chemical stocks from Syria’s territory, the regime not only retains a substantial stockpile but also has returned to assaulting civilian areas with chemicals. The Obama administration’s response is all too familiar: It is trying to avoid acknowledging those facts.

“Administration spokesmen boast that 92.5% of Syria’s chemical weapons and precursors have been removed from the country for destruction by the end of June. But Damascus is dragging its feet on delivering the last 27 tons of chemicals used to make deadly sarin gas. According to The Post’s Ernesto Londono and Greg Miller, U.S. officials believe the Assad regime is using the stocks as leverage to retain a network of tunnels and buildings that could be used as storage or production facilities, which the Organization for Prohibition of Chemical Weapons wants destroyed.

“Meanwhile, British, French and U.S. intelligence analysts have concluded that Syria is probably hiding part of its arsenal that it failed to declare, including stocks of sarin and mustard gas....

“Finally, evidence is piling up that Assad’s forces have been dropping bombs filled with chlorine on opposition-held areas. France’s foreign minister told reporters in Washington on Tuesday that there had been at least 14 such attacks since October. Laurent Fabius, who said ‘things would have been different’ had Mr. Obama not backed away from using force in response to a chemical weapons attack last August, said the ‘regime is still capable of producing chemical weapons and is determined to use them.’....

“In reality, Mr. Assad is being allowed to disregard his chemical weapons commitment with impunity not because there’s nothing the United States can do but because Mr. Obama chooses to do nothing.”

Meanwhile, a car bomb blast along the Syria-Turkey border killed at least 40 on Thursday. The impacted area is being fought over by two Islamist groups. Once again, civilians become the victims.

And United Nations special envoy for Syria, Lakhdar Brahimi, announced his resignation, years after taking a position he never wanted. Brahimi, at a U.N. news conference, conceded, “It’s very sad that I leave this position and leave Syria behind in such a bad state.”

It seems Brahimi, a good man, was tired of the infighting in the Security Council (read Russia and China against the U.S., Britain and France).

Iran: The International Atomic Energy Agency was to receive atomic data from Iran by Thursday and the IAEA refused to say if it had been obtained, which is probably telling and another setback for investigators.

The IAEA has been seeking more detail from Tehran on the nation’s work with “exploding bridgewire detonators,” which can trigger nuclear detonations. Iran had pledged to cooperate on this, and six other actions. If it doesn’t comply with the IAEA’s request, any claim by Iran that its nuclear work is peaceful is obviously bunk.

This week, the Washington-based Institute for Science and International Security said Iran was continuing operations at its Parchin military base that the IAEA has not been allowed to visit for over two years.

Also this week, delegates from Iran and the P5+1 countries continued their negotiations on a long-term agreement for limiting Tehran’s atomic efforts, but as independent analysts David Albright and Bruno Tertrais wrote in an op-ed for the Wall Street Journal, complete information on Iran’s nuclear activities is needed “to determine how fast the Iranian regime could construct either a crude nuclear-test device or a deliverable weapon if it chose to renege on an agreement.”

The biggest issue is just how much enriched uranium Iran will be able to keep and what kind of capacity will it be left with, and thus how long it would need to produce enough refined uranium for a bomb. [“Breakout” time.] How many centrifuges will Iran be allowed to keep and what quality?

Another issue is what to do with the heavy-water reactor at Arak, which is capable of producing plutonium upon activation. Plus Iran’s ballistic missile program will continue unimpeded as this was never part of the negotiations.

A draft accord is supposed to be produced during this current round in order to meet a July 20 target. A former French ambassador to Iran said in an interview with Bloomberg, “The parties to the negotiation are somehow condemned to succeed. On the Western side, there is no real Plan B.”

And that’s what worries Israel. An agreement for the sake of reaching an agreement. It’s also why the above opening topic is so important. The IAEA must be comfortable it can conduct intrusive inspections and not be denied access anywhere it wants to go in order to be certain a long-term deal can be implemented. If negotiations fail, the U.S. Congress has threatened harsher sanctions that would then become a big issue for the mid-term elections.

During a visit to Japan this week, Israeli Prime Minister Netanyahu drew parallels between Iran and North Korea, pointing out Japan’s concerns over the North Korean nuclear program and Israeli fears about Iran’s.

“The result of a bad agreement could be that Iran would be able to do with the world what North Korea did here, to make an agreement that keeps it very close to [building] the bomb, and then break out at an appropriate time when the world’s attention is riveted to another crisis. And the outcome, if that happens, would be very bad, and it would be like North Korea,” the prime minister said.

Netanyahu added, the P5+1 “should insist that Iran stops developing ICBMs, in addition to dismantling its capacity to make atomic bombs and atomic warheads. Why do they need ICBMs? You don’t develop ICBMs to carry a few kilograms of TNT for thousands of kilometers. You develop it only for one purpose: for nuclear weapons.”

[Separately, Iranian and Saudi officials may be trying to ease tensions between the two, with Saudi Arabia reaching out to Iran to hold talks for the purpose of making “the region as safe as possible,” as put by Saudi Foreign Minister Saud al-Faisal.]

Israel: In a global poll of anti-Semitism sponsored by the Anti-Defamation League, about a quarter of the world’s population agrees that a number of negative statements about Jews are “probably true.” The survey was conducted in 101 countries plus the Palestinian territories. The only religious group with a higher unfavorable rating in the survey than Jews was Muslims. While 38% rated Jews favorably and 21% unfavorably, for Muslims it was 47% rated them favorably and 24% unfavorably. [Christians were rated favorably by 62%, unfavorable by 15%.]

To give you a sense of the impact of extremist party Golden Dawn in Greece, 69% there could be viewed anti-Semitic according to the survey.

Interestingly, 92% would be viewed as anti-Semitic in Iraq, but ‘only’ 56% in Iran.

Separately, former Israeli Prime Minister Ehud Olmert was sentenced to six years in prison for taking bribes; the first such criminal conviction of a former head of government in Israel.

China / Vietnam / Philippines

Violence against Chinese companies in Vietnam turned deadly this week, with various death tolls being thrown around (from 2 to 20+), though with more than 100 hospitalized. The Hong Kong government upgraded its travel alert to Vietnam as Hanoi disputes the recent establishment of an oil rig by China in the disputed Paracel Islands. It is a highly flammable situation. Scary. 

[The Vietnamese government came under harsh criticism for doing nothing to stop the violence, which greatly harms the country’s long-term business reputation.]

China has vowed that despite the protests, it would continue with the drilling operation. Chinese business leaders and workers in Vietnam have been fleeing and flying back to China. Others have crossed into Cambodia (600 by one count). The violence has also hit Taiwan-based plants, some 100 of which were looted and 11 torched, according to the South China Morning Post.

A top Chinese general blamed the U.S. “pivot” to Asia for escalating tensions in the South China Sea. Fang Fenghui, chief of the general staff of the Chinese military, said during a visit to the Pentagon that Washington needs to hold an “objective view” of the disputes in the region.

“Certain countries are attempting to gain their own interest because they believe China is now developing its economy and the U.S. is adopting this Asia-Pacific rebalancing strategy.”

China claims it is drilling within 12 nautical miles – the territorial waters – of Triton Island in the Paracels, which China has controlled since a brief war with Vietnam in 1974, though Hanoi still claims them. Gen. Fang said the well in question is actually the first one for China, while other countries “have drilled actually many oil wells in the South China Sea,” he said.

Gen. Fang said he doesn’t “quite understand why there are no comments from the outside when other nations are drilling so many oil wells in the region, but when China starts to do the drilling, we instantly become a threat to the region. The external world should view this issue in an objective and fair manner.” [Financial Times]

The fact is China itself drilled many wells in the region, though not in disputed areas until now. The Global Times, a Beijing mouthpiece, backed the use of “non-peaceful” measures against Vietnam and the Philippines on Friday, as it considered war over the territorial disputes.

“The South China Sea disputes should be settled in a peaceful manner, but that doesn’t mean China can’t resort to non-peaceful measures in the face of provocation from Vietnam and the Philippines.”

China’s Foreign Minister Wang Yi said, “Vietnam bears unshirkable responsibility for the violent attacks against Chinese companies and nationals.” [South China Morning Post]

Gen. Fang was told by Vice President Biden and other U.S. officials that Beijing’s behavior was “dangerous and provocative” and must stop.

As for the Philippines, it decided to prosecute nine of 11 Chinese fishermen apprehended in the disputed Spratly Islands for poaching sea turtles. The other two were released because they were minors.

Editorial / Washington Post

“With a $1 billion oil rig the size of a football field, China has literally laid down a new marker in its ambition to dominate the South China Sea – and challenged President Obama’s ‘rebalancing’ policy in Asia, only weeks after the president’s tour of the region....

“The message of the deployment is as simple as it is provocative: The regime of Xi Jinping intends to unilaterally assert China’s sovereignty over almost all of the South China Sea without regard for the competing claims of five other countries or Mr. Obama’s newly restated commitment to uphold defense agreements with two of those nations. In that sense, the rig, like Russia’s invasion of Ukraine, is a fundamental challenge to the international order the United States has tried to preserve since the end of the Cold War....

“For years Beijing has talked with [Ed. the Philippines, Taiwan, Brunei, Indonesia and Vietnam] about establishing a code of conduct for the sea, and it discussed the possibility of joint development of oil and gas with Vietnam a few months ago.

“The move of the oil rig appears to reflect a calculation that a more aggressive policy will not meet meaningful resistance from China’s neighbors or the United States. The target of the initiative, Vietnam, is particularly vulnerable, as it lacks strong military ties with Washington and is ruled by a Communist Party with a strong, pro-Chinese faction....

“Vietnam and the Philippines could bring a case against China at an international tribunal under the Law of the Sea treaty. But Beijing is likely to shrug off that form of pressure. Most likely it will continue to act unilaterally in the region until it meets concerted resistance, whether diplomatic or military. If the United States and its allies have a plan for that, it isn’t evident.”

Personally, I’m super miffed over the poaching of the sea turtles, a protected species and punishable in the Philippines by fines of up to $200,000! I saw some pictures of the dead ones and it’s sickening. Filipino police said the haul numbered in the hundreds.

Separately, China began a construction project in the Spratlys on what could become a familiar name for all the wrong reasons, Johnson South Reef. No word on what China is building.

One last item...more than 5,000 U.S. and Filipino troops have been engaged in war games in the Philippines, focusing on maritime security.

China, Part II: In other news...A Beijing resident was criminally detained for allegedly sharing wrongful information with a widely read Chinese news website abroad and thus harming China’s national reputation. The site in question is Boxun, a Chinese-language news aggregator in the United States. Hundreds of bloggers and journalists have been arrested in recent months as part of a government crackdown; in case you’re wondering whether Facebook will ever be allowed in China, despite their taking office space there this week. The answer is ‘No!’

Western analysts are concerned China’s development of new cruise missiles raises the risk the technology could spread to other countries. Experts, according to the Global Security Newswire’s Diane Barnes, say “China’s pursuit of new antiship and land-attack cruise missiles is intended largely to prepare against possible tensions over Taiwan.” But “outside actors have previously obtained Chinese arms, which may one day include an advanced nuclear-ready cruise missile for hitting land-based targets.”

Lastly, protests continue to spread in China over environmental issues, the latest example being a demonstration against a planned waste incinerator in a city in the eastern province of Zhejiang. 39 were hurt, including ten police officers.

Nigeria: A video from Boko Haram was released on Monday, purporting to show some of the nearly 300 schoolgirls abducted on April 15, though there were conflicting reports on just how many were able to be identified by parents. The girls were huddled and chanting Koranic verses while wearing Islamic veils.

Boko Haram leader Abubakar Shekau says on the tape, “I swear to almighty Allah, you will not see them again until you release our people that you have captured.”

The Nigerian government said it would not negotiate with terrorists.  About 100 were in the video and aside from questions on whether these are the girls from the main incident, the fact is Boko Haram has been kidnapping girls in the region for a long time.

Editorial / Wall Street Journal

“[Toward the end of a speech last week to his Hollywood admirers, Barack] Obama declared that, ‘I have this remarkable title right now – President of the United States – and yet every day when I wake up, and I think about young girls in Nigeria or children caught up in the conflict in Syria – when there are times in which I want to reach out and save those kids – and having to think through what levers, what power do we have at any given moment, I think, ‘drop by drop by drop,’ that we can erode and wear down these forces that are so destructive; that we can tell a different story.’

“The moment is striking because Mr. Obama referred to two events that are different in one crucial respect from the Holocaust [Ed. this being a reason for Obama’s attendance at the USC Shoah Foundation dinner], which was ended only when U.S. troops defeated Hitler in World War II. Millions more would have died had the U.S. not intervened with military force against the Nazis.

“Yet Mr. Obama has spent his Presidency telling Americans – and the rest of the world – that the U.S. needs to withdraw from global military obligations because it often does more harm than good. In Syria, Mr. Obama has expressly rejected U.S. involvement lest America have to take some responsibility for the conflict. Yet that abdication has had its own moral consequences, including millions of refugees and some 150,000 deaths so far.

“As for Nigeria, his wife Michelle has helped to bring attention to the abduction of more than 300 schoolgirls by the Islamist group Boko Haram. She posed for a photo with #BringBackOurGirls. It’s a noble gesture, but a Twitter hashtag won’t rescue those girls. Only the threat or reality of military force will be able to that, and that almost certainly means U.S. special forces.”

Peggy Noonan / Wall Street Journal

“John McCain has it exactly right....He told CNN that as soon as the U.S. learned that hundreds of children had been kidnapped and stolen away by a rabid band of terrorists in Nigeria, we should have used ‘every asset that we have – satellite, drones, any capabilities that we had to go after them.’ He told the Daily Beast: ‘I certainly would send in U.S. troops to rescue them, in a New York minute I would, without permission of the host country.’ He added, as only Sen. McCain would: ‘I wouldn’t be waiting for some kind of permission from some guy named Goodluck Jonathan.’ That’s Nigeria’s hapless president....

“You can’t do this kind of thing every time there is a need. But – if it’s not too late, if it hasn’t been made impossible by the passage of time – you could do it this time.

“In the past few weeks, as the story of the kidnapped girls unfolded, the Obama White House reacted as what it is: reflexively political but not really good at reading anything but the feelings of its base. Which, in a narrow way, has proved enough to get them through so far.”

Charles Krauthammer / Washington Post

“Mass schoolgirl kidnapping in Nigeria – to tweet or not to tweet? Is hashtagging one’s indignation about some outrage abroad an exercise in moral narcissism or a worthy new way of standing up to bad guys?

“The answer seems rather simple. It depends on whether you have the power to do something about the outrage in question. If you do, as in the case of the Obama administration watching Russia’s slow-motion dismemberment of Ukraine, it’s simply embarrassing when the State Department spokeswoman tweets the hashtag #UnitedForUkraine.

“That is nothing but preening, a visual recapitulation of her boss’s rhetorical fatuousness when he sternly warns that if the rape of this U.S. friend continues, we are prepared to consider standing together with the ‘international community’ to decry such indecorous behavior – or some such.

“When a superpower, with multiple means at its disposal, reverts to rhetorical emptiness and hashtag activism, it has betrayed both its impotence and indifference. But if you’re an individual citizen without power, if you lack access to media, drones or special forces, then hashtagging your solidarity with the aggrieved is a fine gesture and perhaps even more....

“The American post-9/11 response to murderous jihadism has often been characterized, not least by our own president, as both excessive and morally suspect. There is a palpable weariness with the entire enterprise. Good, therefore, that new constituencies for whom jihadism and imposed Shariah law ranked low among their urgent concerns should now be awakening to the principal barbarism of our time.

“Trending now (once again): anti-jihadism, a.k.a. the War on Terror.”

Turkey: An estimated 300 were killed in a mine disaster in the western part of the country and the government could not have handled it worse, with Prime Minister Erdogan going to the scene to offer his condolences, only to declare: “This is what happens in coal mining. There is no such thing as accident-free work.”

Not exactly the sensitivity the families of the victims were looking for so they stoned his car and called him a “murderer.”

Then a video emerged of an aide kicking one of the family members when he was on the ground.

Protests then broke out around the country and labor unions went on strike to call for improved safety measures. This is going to get much worse.

South Korea: Prosecutors indicted the captain of the sunken South Korean ferry and three crew members on homicide charges Thursday, alleging negligence and failing to protect the more than 300 who died. The 11 other crew members were indicted for less serious crimes.

India: Opposition leader Narendra Modi is the new prime minister after the ruling Congress party conceded defeat in the Indian general election. When all 543 constituencies are counted, Modi’s Hindu nationalist Bharatiya Janata party (BJP) is expected to win an outright majority, perhaps 300 seats, which is huge; the first such victory for a single party in three decades. Modi, 63, would be the first Indian prime minister born after independence in 1947.

The Indian stock market hit new highs as business leaders threw their weight behind Modi’s candidacy, Modi with a solid track record on the economic front.

But he has also said more than a few controversial things about the Muslim minority, some 200 million strong. Hundreds of Muslims died at the hands of Hindu mobs in 2002 in Gujarat, where Modi had just become chief minister.

But Modi and the BJP have focused on the economy during the election campaign and steered clear of exclusively Hindu causes.

Russia: President Putin is looking to sign a massive natural gas deal with China next week in Shanghai, a deal between Gazprom and China National Petroleum Corp that would be for 30 years, once they can agree on pricing. It’s been ten years in the works and would begin no later than the end of 2018. Gazprom’s CEO Alexei Miller said the supply could be boosted to 60 billion cubic meters a year from an initially reported 38 billion. To put this in perspective, China relied on imports for nearly a third of its natural gas needs, importing 53 billion cubic meters in 2013.

And Russia announced it would deny the United States use of the International Space Station beyond 2020 and will bar export of critical rocket engines to the U.S. The motors power the Atlas rocket used by the United Launch Alliance joint venture between Lockheed Martin and Boeing. This is a big blow. For starters, that means the U.S. can’t launch military satellites until we develop an alternative. But it also provides a major opening for SpaceX and Elon Musk.  ULA, though, says it has a two-year supply of the Russian RD-180 motor.

Lastly, Russia’s Internet regulator is making waves about blocking Twitter and Facebook.

Saudi Arabia: The Kingdom reported five more deaths from Middle East Respiratory Syndrome, or MERS, bringing the death toll in the country to at least 157.

Two cases were then reported in the U.S., both having traveled from the region, and the likes of CNN went into full crisis mode.

I was writing of MERS when it first broke out, but when it comes to the U.S., I am not about to cry wolf.

That said, U.S. authorities are doing the right thing in at least posting material in airports where travelers could be arriving from the Middle East.

Thailand: Three were killed at an anti-government protest in Bangkok. I repeat...it’s not an overstatement to say this country is on a knife’s edge and civil war is a possibility. The government is trying to organize a new general election for July, after attempts at previous elections were disrupted. Prime Minister Yingluck was recently deposed and there is no real government in control these days. I wouldn’t travel there the next few months.

Afghanistan: My man Abdullah Abdullah won the endorsement of the third-place finisher in last month’s presidential election, thus ensuring AA will win the run-off slated for June 14.

Kenya: At least 10 were killed in twin bomb blasts in Nairobi on Friday, while hundreds of U.K. tourists were evacuated from the coastal resort area of Mombasa amid warnings of an attack. Al-Shabab is suspected.

The U.S., U.K. and France had all warned there was a high threat of such activity in Kenya earlier this week.

Brazil: The World Cup kicks off in four weeks, June 12, and it’s going to be quite a show; as in quite a show of police force to attempt to control the huge demonstrations that will inevitably take place, especially in Sao Paulo and Rio de Janeiro; both scenes of extensive rioting this past week.

The working class, including civil servants and teachers unions, have been upset for years on the $billions spent on building new stadiums around the country instead of on social projects and housing.

Random Musings

--Republicans really can be idiots. Strategist Karl Rove, “the architect,” distanced himself from a New York Post story that asserted Rove said he believes former secretary of state Hillary Clinton suffered “brain damage” from her head injury in 2012.

In an interview with the Washington Post, Rove then tried to walk it back some, saying, “Of course she doesn’t have brain damage,” though he insists Clinton suffered “a serious health episode.” He added that if she runs for president, “she is going to have to be forthcoming” about the details of where, how and when it happened.

Rove then goes on and on, talking of Clinton’s failure to show up at an early round of congressional hearings on Benghazi among other things.

The New York Post reported Rove made the following comments at a conference in Los Angeles in addressing Clinton’s episode in December 2012.

“Thirty days in the hospital? And when she reappears, she’s wearing glasses that are only for people who have traumatic brain injury? We need to know what’s up with that.”

For starters, Clinton was hospitalized for three days, not 30.

Here’s the thing. What is a leading Republican strategist, a man with a microphone like Rove’s, doing? If Hillary runs, yes, her health, and age (she’ll be 69 in November 2016) are legitimate issues.

But Republicans should be focused on one thing the next six months and one thing only. Win the damn Senate! The issue isn’t Hillary Clinton this summer and next fall. It’s how do you beat Kay Hagan in North Carolina? And six to ten similar situations around the country, Republicans needing to pick up six seats to then formally ‘check’ President Obama for his remaining two years, and maybe even rollback an item or two.

That’s it. Period. There is zero reason to bring up Hillary’s name, if you’re a Republican, unless you’re on the House Select Committee on Benghazi and you have a darn good reason to call her.

--I had dinner Monday night with three like-minded old friends from Thomson McKinnon Securities days...known ‘em all 30 years...and Mark R. brought up a topic I was going to address this week, that being the minimum wage.

As in Republicans have got to compromise on this, quickly, to take it off the table for the fall. We all know how prices for everything we use, for starters, food, have been rising while the minimum wage has not.

Thus far former Republican presidential candidates Mitt Romney, Tim Pawlenty, and Rick Santorum are in favor of raising it. Santorum said on MSNBC, “Let’s not make this argument that we’re for the blue-collar guy but we’re against any minimum-wage increase ever. It just makes no sense.”

Other Republicans, who like to lose elections, say raising the minimum wage does not solve the problem of job-creation, which isn’t the freakin’ point.

In a March Bloomberg News poll, 69% supported raising the minimum wage to $10.10 an hour. 65% felt the same way in a CBS News/ New York Times survey.

In the Senate recently, Republicans voted to block debate on a bill sponsored by Democrats to incrementally raise the federal minimum wage from $7.25 an hour to $10.10, with only Tennessee Republican Sen. Bob Corker voting to proceed.

--New Jersey Gov. Chris Christie’s longtime press secretary, Michael Drewniak, told New Jersey lawmakers he is confident Christie had no knowledge of or involvement in Bridgegate.

The joint legislative committee doing the investigation is run by Democrats and many Republicans are calling it a witch hunt. Drewniak previously testified as part of a federal probe.

Separately, Christie said he’s still considering a run for the presidency and that by then the bridge scandal will be a “footnote” in his career.

Maybe so, Governor. But you’re still left with the issue that will kill you. New Jersey’s economy sucks. You’re overrated.

--Is Jeb Bush going to run in 2016? As Rosalind S. Helderman writes in the Washington Post, it’s really all about Columba, his Mexican-born wife of 40 years. Columba has an “intense distaste for the public arena,” but she “may be willing to take on the burdens of a campaign.”

One Bush confidante told Helderman, “The family issues are Columba, 1, 2 and 3. It’s whether she’s up for it.”

“She’s cognizant of what a campaign would be like, and she would have to come to terms with that. He’s not going to do it over her objections,” said the confidante.

Jeb has vowed to make a decision by year end, though he’s expressed the feeling he would only run “joyfully,” if he could run a hopeful campaign.

--Ras Baraka, a frequent critic of Cory Booker, was elected mayor of Newark on Tuesday, defeating Shavar Jeffries with 53% of the vote. Baraka is the son of poet Amiri Baraka. Newark’s public-sector unions heavily supported Baraka over the moderate Jeffries (who I would have voted for).

By the way, crime in Newark has risen since 2008, with murders hitting a two-decade high of 111 in 2013; in case you were wondering, as some of us did during his tenure, why Cory Booker, now senator, was so popular; at least among the celebrity set. Newark also faces a significant budget deficit and the state may soon have to take over the finances. The city’s schools are already under a state monitor.

--Two years ago, House Majority Leader Eric Cantor (R-Va.) won his primary challenge with 80% of the vote. This June 10, however, he is in a dogfight with Tea Party activist David Brat. Cantor could still win by a sizable majority, but by all accounts he’s been struggling to resonate.

Cantor does, however, have oodles of cash in his war chest and Brat does not.

--This is too funny. Longtime Michigan Congressman John Conyers doesn’t have enough signatures to appear on the Aug. 5 primary ballot, election officials announced Tuesday. He was over 400 valid signatures short, many having been thrown out.

Conyers, 84, had three days to appeal, but if this doesn’t work he can run as a write-in. I am not a fan of the man. He was first elected to the U.S. House in 1964.

--What is it with today’s youth and their penchant for railing against certain commencement speakers. Christine Lagarde, managing director of the IMF, became the latest victim, as she withdrew her name after about 500 signed a petition objecting to her scheduled appearance at Smith College, saying the IMF’s policies were wrong.

Earlier, the likes of Condoleezza Rice (Rutgers) and human-rights activist Ayaan Hirsi Ali (Brandeis) were forced to pull out.

These kids and faculty are stupid. I’m sure they all also text and drive.

--We note the passing of Patrick Lucey, 96. Who was Patrick Lucey? Aside from being a twice elected governor of Wisconsin, your editor remembers Lucey most for being John B. Anderson’s running mate in 1980. I was a big Anderson fan. Yes, long-time readers know I voted for him and not Ronald Reagan in ’80.

Alas, as is the case with all third-party candidacies in this country, they flame out and Anderson captured only 7% of the popular vote.     

--Uh oh...a study out of Johns Hopkins Univ. School of Medicine looked at 783 men and women ages 65 and older from two villages in Tuscanny and followed them for nine years. At issue was whether resveratrol, an ingredient in red wine thought to have health benefits, promoted longevity among those eating a diet rich in the antioxidant.

Survey says? No!

Previous lab studies suggested resveratrol, also found in grapes, peanuts and chocolate, might have unique benefits in slowing aging and keeping cells healthy.

But before you dump your wine down the drain, the director of the study, Richard Semba, “suggests something else may be at work besides resveratrol, as previous studies did find a link between wine and chocolate and lower inflammation, which can hurt the heart.”

To be continued. [Angela Zimm / Bloomberg]

--Interesting piece in the New York Times by Diane Lewis on the use of pesticides among homeowners; as in, “The United States Fish and Wildlife Service says homeowners use up to 10 times more chemicals per acre than farmers do. Some of these chemicals rub off on children or pets, but most are washed with rainwater into our streams, lakes and rivers or are absorbed into our groundwater. These are the sources of our drinking water, and tests show these chemicals are indeed contaminating our water supply.”

Granted, the amounts are small and deemed “acceptable,” but they do have a cumulative effect and “disrupt” the endocrine system, that controls our bodies’ functions.

Ms. Lewis is a physician and the founder of the Great Healthy Yard Project. Her recommendation?

“Natural care of our yards and gardens is surprisingly easy. Increasing diversity in a lawn by adding clover helps supply nutrition naturally because clover fixes nitrogen from the air and makes it available to other plants. Leaving grass clippings not only returns nitrogen to the lawn, but also prevents it from drying out. Letting grass grow to four inches allows the roots to grow long so the grass can absorb more water and excess nutrients during a storm and withstand a drought. Plants that are native to your region require less water and care and support animals and wildlife, so you will see more birds and butterflies.”

And a little beer kills slugs! Don’t use premium for this, however. Any domestic will do. A six-pack of Wiedemann’s is cheap enough.

--According to NASA glaciologist Eric Rignot, the collapse of a rapidly melting glacial region of Antarctica has passed “the point of no return...The collapse of this sector of West Antarctica appears to be unstoppable.”

NASA estimates the glaciers in the Amundsen Sea region contain enough water to raise sea levels by 4 feet.

But, before you all move your house four feet up the hill, Rignot said in NASA’s statement that the Amundsen sector “will be a major contributor to sea level rise in the decades and centuries to come. A conservative estimate is it could take several centuries for all of the ice to flow into the sea.”

Ergo, no telling how many more NBA championships LeBron James will win in that timeframe. Or how many elections Republicans will blow.

That said, it is a fact that the ice fields in question are retreating rapidly, like 19 miles in parts between 1992 and 2011.

Actually, Antarctica’s ice sheets hold enough water to raise sea levels by 191 feet, though the United Nations Intergovernmental Panel on Climate Change doesn’t expect that for “thousands of years,” and I’m guessing it’s a lock a successful third party will emerge in America by that time, though the capital would no longer be Washington with such a rise in the water level. Probably Denver.

--Meanwhile, in the here and now, on average there are six hurricanes a year that form in the Atlantic basin, and this year AccuWeather.com is forecasting just two that will make landfall in the eastern United States. Last year just two formed in the region (AccuWeather had forecast five), the fewest since 1982.

So the reason for the low forecast for 2014 is the onset of El Nino in the equatorial Pacific – which increases wind shear in the Atlantic and “thus suppresses the development of tropical storms” that we can expect this season. [Richard Khavkine / Star-Ledger]

But it only takes one.

--As for the latest round of fires in California, I heard from more than one of you in the area that most of the fires were probably the result of arson. Late Thursday, Escondido police arrested an adult and a juvenile on suspicion of trying to start a fire and as I go to post, investigators were trying to determine whether the pair had any involvement with the existing fires in San Diego County.

Now I kind of like Gov. Jerry Brown, but I saw him on Wolf Blitzer’s program on CNN, Thursday, and Brown totally blamed “global warming” for the fires. Wolf pressed him on arson as a cause and Brown ignored it. Sorry, Governor. You looked like an old fool.

--A good friend, who needs to go initial-less, was attending his daughter’s graduation at the University of South Carolina the other day and Vice President Biden gave the commencement speech. Biden referred to an old TIME magazine article that said China was cranking out 600 grads for every one U.S. grad in engineering and the hard sciences and that the U.S. had to be very worried we would be surpassed on the global technology scale. Biden then asked the audience to name one great scientific or engineering discovery since that time that had come out of China. “The irony was that the proportion of Asian students (mostly mainland China) in this section of the USC graduating class in attendance was about 10%. They may not be inventing anything of major importance, but they sure keep cranking out the graduates (now U.S. trained) and...”

At this point I need to stop my friend’s commentary. Can’t say why.....

--Update: Last week I noted the passing of Cornelius Gurlitt, the son of a major Nazi-era art dealer, who was found to have 1,400 stolen works in his apartment in Munich and a place in Salzburg (which I didn’t know about until now) in 2012, though authorities didn’t say anything publicly until December of 2013.

I wrote that Gurlitt had been cooperating with German authorities who were attempting to establish the paintings’ provenance and return them to their rightful owners, but I didn’t know he had agreed just weeks before his death to bequeath his entire collection to a Swiss museum.

The Kunstmuseum Bern said news of Gurlitt’s will naming it as the heir “came like a bolt from the blue, since at no time has Mr. Gurlitt had any connection” to the museum.

But in early 2014, he signed a notarized testament. A Bavarian justice ministry spokesman, however, said Gurlitt’s previous agreement with them stands and that they have a year to find the rightful owners.

Anyway, I felt obligated to add these facts to the story.

--Kareem Abdul-Jabbar, in an op-ed for TIME:

“The best way to combat racism is to seek it out every minute of every day and expose every instance we find.”

Sorry, no time. Working on this column. Maybe Saturday afternoon.

--From TIME: “Two national parks – Utah’s Zion and California’s Yosemite – have barred visitors from flying drones, which are blamed for disturbing hikers and wildlife and creating hazards for rescue helicopters. Violators could face six months in prison and a $5,000 fine.”

I’m hoping the Nazgul go after these jerks.

--Hong Kong began destroying some of its 30-ton stockpile of seized ivory, incinerating 1.2 tons of it on Wednesday. About three tons will be processed each month. Said an official of the Convention on International Trade in Endangered Species of Flora and Fauna, “People buy ivory thinking it will go up in value. This will send a public message it will not.” [South China Morning Post]

--According to Expedia’s 2014 Road Rage Report, 7 in 10 American drivers rate their fellow drivers who text, e-mail or talk on a phone while driving as among the most aggravating motorists on the road. But more than half, 55%, admit to using a mobile phone at least some of the time while driving. According to the National Highway Traffic Safety Administration, 3,328 people died in distraction-related crashes in 2012. 43 states outlaw texting while driving. [Larry Copeland / USA TODAY]

--Interesting piece in the New York Post by Mary Kay Linge concerning teens and summer jobs. Yes, times have changed. Many teens feel there is no reason to work in the summer.

For example, back in 1978, according to the Bureau of Labor Statistics, 72% of 16-to-19-year-olds worked a summer job. Today, it is down to 40%.

--President Obama awarded the Medal of Honor to former Army Sgt. Kyle White for his heroic action in a fire fight with the Taliban in Afghanistan in November 2007.

Knocked unconscious by the blast from a rocket-propelled grenade, when he awoke, an enemy round exploded near him, sending shrapnel into his face.

Though wounded and cut off from his comrades, White braved enemy fire to rescue and tend to other injured Americans.

He was able to radio in a situation report to friendly forces, who then came to their rescue. When a helicopter arrived, White only evacuated after the other wounded men were, though his own condition was deteriorating.

White said on Tuesday, “At its core, [the medal] is a symbol of the responsibility all soldiers knowingly face when they depart for distant lands in defense of the nation.”

Thank God for the likes of Kyle White.

--Veterans Affairs Secretary Eric Shinseki was called before a Senate committee to provide answers about recent claims various VA facilities hid records of patients who waited too long for care, this following a demand by the American Legion that Shinseki resign.

Shinseki said such allegations “are completely unacceptable,” but said it was important to let the inspector general complete a review.

Sen. Richard Burr (N.C.), the top Republican on the panel, said “VA’s leadership has either failed to connect the dots or failed to address this ongoing crisis, which has resulted in patient harm and even death.”

---

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

God bless America.

---

Gold closed at $1293
Oil $102.02

Returns for the week 5/12-5/16

Dow Jones -0.6% [16491]
S&P 500 -0.03% [1877]
S&P MidCap -0.1%
Russell 2000 -0.4%
Nasdaq +0.5% [4090]

Returns for the period 1/1/14-5/16/14

Dow Jones -0.5%
S&P 500 +1.6%
S&P MidCap +0.7%
Russell 2000 -5.2%
Nasdaq -2.1%

Bulls 55.1
Bears 19.4 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Catch me on Twitter @stocksandnews

Brian Trumbore



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-05/17/2014-      
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Week in Review

05/17/2014

For the week 5/12-5/16

[Posted 12:00 AM ET]

Edition 788

Washington and Wall Street

It was a strange week for the U.S. stock market. The Dow Jones and S&P 500 hit new closing highs on Tuesday, with the S&P crossing the 1900 level before finishing the day at 1897 (and the Dow 16715), but then the markets took on gas, first, because it became apparent Europe’s recovery could hardly be called that with release of first-quarter GDP figures (let alone further confirmation inflation was less than 1.0% in euroland), and, second, Thursday was rough in part because aside from renewed growth fears, including here in the U.S., noted hedge fund operator David Tepper, who has correctly been bullish, essentially since the March 2009 bottom, turned cautious in comments at a conference in Las Vegas Wednesday night, the market not having a chance to react until Thursday.

Specifically, Tepper spoke of it being “nervous time,” pointing to Europe in noting the European Central Bank “better ease (rates) in June,” because “If they don’t, it may be too late,” as in forget punk inflation, deflation could become the bigger issue.

To be clear, Tepper wasn’t saying ‘sell,’ rather as he put it, “I’m just saying don’t be too frickin’ long right now.”

I’ll cover Europe in full shortly. Here in the U.S., the economic data has not been great recently and this week, the April retail sales figure was putrid, up just 0.1% when a rise of 0.4% was expected, unchanged ex-autos, while April industrial production was down 0.6% when a slight gain was forecast.

But on Friday, the figure on April housing starts was better than expected, up 13% to a 1.07 million annualized rate, but here we need to differentiate between the fact the lion’s share of the increase was due to construction starts on multifamily projects such as condominiums and apartment complexes, while single-family construction was up just 0.8%, continuing a poor trend for that metric.

Here’s the thing. When it comes to single-family housing it’s about affordability and it was telling this week when RealtyTrac noted that because of tougher lending standards (coupled with rising prices and supply/demand issues), 43% of sales nationwide these days are all cash.

Back to retail, as I note below, the picture was mixed in terms of earnings among the top retailers with Wal-Mart and Kohl’s missing badly, while Nordstrom’s, Dillard’s and JC Penney were among those exceeding expectations. But those beating didn’t report great gross numbers, though their shares might have run simply because expectations had been so beaten down.

Bottom line, I’ve been calling for a better economy in the U.S. and that still might come to pass (and no doubt the second quarter figure for GDP will be far better than the first’s stagnation), but there’s a reason why the 10-year Treasury hit a six-month closing low of 2.49% (before finishing the week at 2.52%). Aside from the competition for the investment dollar and the search for a safe yield, the data just hasn’t been great.

That said, I still believe the yield on the 10-year will rise significantly from here, just as I’ve been saying you’re nuts to buy some of Europe’s peripheral paper, but for different reasons.

I’m thus sticking with my belief we will get an inflation scare before year end, fed by better data, including on the wage front, and the Federal Reserve will have to begin talking about raising the funds rate sooner than later. [I get into the April inflation numbers, released this week, down below.]

So with that, let’s turn to....

Europe and Asia

Where to begin? For starters, Eurostat, the official statistical arm of the European Union, released GDP figures for the first quarter and the euro area grew just 0.2% over the previous quarter (up 0.9% year over year). But if you took out Germany, up a better than expected 0.8% (2.3% yoy...yes, not 3.2%), the rest of the euro-18 actually contracted.

France’s GDP was unchanged, with consumer spending down 0.5% for the quarter; Italy’s GDP was unexpectedly negative, down 0.1%; the Netherlands’ GDP was down a whopping 1.4% for the quarter and even though Spain’s rose 0.4%, it’s still up just 0.6% vs. year ago levels.

[Non-euro Britain was up 0.9% and 3.1% annualized as it continues to kick butt on a relative basis.]

Back to Germany, the Federal Statistics Office is still only targeting 1.7% growth for all of 2014, owing in no small part to China’s slowdown, it being Germany’s third-biggest trade partner.

And then you had the release of April auto sales for the European Union and Germany’s were down 3.6% vs. a year earlier, a shocker. Italy, supposedly in recovery mode, saw its sales rise just 1.9%.

[Overall car sales increased 4.2% for the EU28 vs. a year ago, the slowest pace in five months. They rose 8.2% in the U.K., however.]

On the inflation front, the concern of David Tepper and others, Eurostat officially pegged it at 0.7% on an annual basis for April (same as an earlier flash estimate), up from 0.5% in March, but a year earlier it had been 1.2% and the European Central Bank’s target is 2.0%. Prices are falling in Greece, Cyprus, Portugal, Slovakia, Hungary and Bulgaria.

Inflation is rising in Germany, 1.1% (ann.); France, 0.8%; Italy, 0.5%; and Spain, 0.3%. Ergo, hardly at all.

So, yes, the ECB must act when it gathers June 5. As I wrote last week, President Mario Draghi “has been a man of words, not actions,” which thus far has held him in good stead, but, “In June...he will have to take real steps,” or as David Tepper would put it, “He better frickin’ act!” [Personally, I like ‘freakin’’ better than ‘frickin’’ but it’s a matter of taste, if not choice.]

Moving along, as I noted above, I’ve been saying you’re a fool to buy the bonds of Spain or Italy, among the euro periphery set, because of their still sky-high debt levels. Yes, the yields on their 10-year paper, for example, did indeed collapse to below 3%, still helped by Draghi’s 2012 comment the ECB “would do what it takes” to save the euro.

But this week, on Thursday, there was a true rout in the bonds of the periphery members as it hit everyone; ‘Hey, if euro growth isn’t that great moving forward, then where is the revenue going to come from to service the debt?’ As in, investors will eventually see through this charade that’s been going on the past six months in particular.

Again, if you tell me these countries and the rest of Europe are going to grow at 2% plus for the next 3-5 years, then, yes, I guess the periphery nations can muddle through.

But if you don’t believe this to be the case, and I don’t, then Katy bar the door.

You want an example of what can happen? Check out Greece this week. On Thursday, the yield on the Greek 10-year surged 51 basis points, the most since June, to 6.81% (and then rose another five to 6.86% on Friday). Here, it’s about renewed political concerns over whether Prime Minister Samaras’ coalition can survive. If it doesn’t, bye-bye reform program for Greece and hello 10%+ yields all over again.

Portugal, bless their souls, is exiting the international bailout program this weekend, which is terrific, but the reality is they still have $293 billion of debt to service, the third highest in the euro region as a percentage of their economy (somewhere in the neighborhood of 125% of GDP), and as a Lisbon-based money manager told Bloomberg News, “There will now be two or three decades (emphasis mine) of lean times for the state, which will have to purge that debt burden.” If Portugal’s economy grows, they can manage. If it doesn’t, they can’t. And GDP contracted in the first quarter, a significant 0.7% over the fourth. Economists expected a rise. I submit this evidence for the jury.

[I do want to insert for the archives, and my future work, that the 10-year in Spain rallied some Friday to close the week at 2.95%, with Italy’s at 3.05%.]

Here’s the thing about Europe and the periphery. The banks aren’t lending to small- and medium-sized companies, period. The difference in loan rates for a company in Spain vs. one in Germany would be on the order of 5% or so in many cases. That’s not the way the dreamers in Brussels thought this whole experiment would work.

Which brings me to the big event of the coming week, the European Parliament elections, which are May 22-25.

Some thoughts from a Financial Times survey:

2/3s of prospective French voters believed their economy was worse than a year ago. Voters in Spain saw little change. Most voters in Italy felt the economy was weaker and 58% were less secure in their job.

In France, President Hollande’s tax increases have killed growth, to the point where new Prime Minister Valls said the “level of taxes has become intolerable,” though it was the policy of his own Socialist party. Hollande and Valls have now proposed cutting government spending, so civil servants are upset, especially upon learning their wages are being frozen until 2017.

The Brits are more optimistic these days, but on the question of immigration, 77% agree with the statement there are “too many immigrants from the EU” in their country.

More than 50% of all voters in the U.K., France, Italy, Spain and Germany believe this to be the case, and that’s right up the alley of the far-right parties, boys and girls.

Way back, when I was first beginning to explore the May 2014 Euro vote, I said if the economy was improving, of course the far right wouldn’t do as well because there wouldn’t be as hostile a feeling on the immigration issue.

Well that’s not proving to be the case, which is why this week’s GDP figures were so important. You can imagine some of the headlines in local European papers and how political parties, such as Marine Le Pen’s National Front in France, are attempting to take advantage of the dismal data.

So how well will the Eurosceptic parties do? I go back to a few weeks ago when I cited political economist Niall Ferguson and his guess it would be 16%. I’ll say 20%, which would place the bloc #1 in parliament. 

As a recent editorial in The Economist put it, “Europe faces three interconnected risks: prolonged stagnation, reform paralysis and political backlash....

“Support for the European project, always fragile, will keep falling if it fails to deliver greater prosperity. Europe’s leaders still face testing times. As de Tocqueville put it, ‘a sovereign who seeks to relieve his subjects after a long period of oppression is lost, unless he be a man of great genius.’”

[One little aside, Marine Le Pen and Britain’s Nigel Farage, leader of the far-right UKIP (which is leading the Euro polls in the U.K.), continue to feud over who is a racist. No unified front from these two. As Le Pen told the Financial Times this week, Farage’s statements against her were a ploy “intended to surpass her in the role of EU’s leading Eurosceptic,” as the FT put it, with Le Pen adding, “It’s an old story between France and England.” A last poll in France, by the way, showed 68% having a bad opinion of Le Pen, but it’s about getting 20% overall. She can worry about running for the presidency against this kind of polling data later.]

On to China....

President Xi Jinping said his nation needs to adapt to a “new normal” in the pace of economic growth, this as more bad news hit; such as a 22% drop in new building construction for the first four months, and the level of nonperforming bank loans hitting their highest level since Sept. 2008 in the first quarter, according to the China Banking Regulatory Commission, as you have the ongoing concern over asset quality on the balance sheets.

Separately, factory production in April rose 8.7% from a year earlier, fixed-asset investment was up 17.3%, and retail sales for the month rose 11.9%; all of which sound great but were less than expected and yet another sign of a slowdown, in relative terms.

I follow a few small China companies that still issue public statements to their shareholders (unlike my own long-term holding) and one, Guanwei Recycling Corp., made a telling pronouncement.

First, understand, this company has major issues with its numbers and was recently the subject of an SEC investigation involving some stock promoters, who pleaded guilty, if I remember right. 

But the point of the following is that even when these companies in China are crooked, it’s not hard to read between the lines to glean a few facts.

Mr. Chen Min, Chairman and CEO of the company, commented on sales volume declining about 22% year over year: “While the economic outlook for most of our customers going into the year was uncertain, as the quarter developed it became clear they were proceeding with much more caution than anticipated. At the same time, the labor situation in Southern China also got a lot tougher as reflected in the fact that following the Chinese Spring Festival in February, many more experienced workers than anticipated, including ours, did not return to their positions. This slowed our production and increased our labor costs as we raised wages and benefits to try to quickly attract and train new workers. This occurred as the government imposed new procedures on the industry to further improve environmental standards which also slowed production and increased our cost structure.... Unfortunately, at least for the next quarter or two, these events are likely to continue to affect year over year comparisons, unless and until we see an improvement in the domestic Chinese economy.”

That’s good insight, if I may say so myself. It’s also why you need to pay even closer attention to developments in the South China Sea (covered below). The Chinese government could easily escalate things to take the peoples’ minds off their increasingly uncertain lives.

[One other item...Hong Kong announced its GDP rose only 0.2% in the first quarter from Q4, less than expected. But the government there is maintaining its forecast of 3% to 4% growth for all of 2014, betting on a strengthening global economy in the second half.]

Lastly, in Japan, consumer confidence spiked in April over March, the biggest jump since the government started compiling data in 2000...even after the sales tax hike from 5% to 8% April 1. How can this be? Beats me. I might have to drink a Kirin and mull it over.

Actually, the Bank of Japan said further monetary easing may not be necessary. Here’s the thing. First-quarter GDP rose a whopping 5.9% on an annualized basis ahead of the tax hike as there was a buying spree. This was still far better than expected.

But the current estimate for second-quarter GDP is for a slide of 3.3% because of what was supposed to be an inevitable mini-crash in demand, with the government hoping things then stabilized again in the second half of the year, say 2% annualized growth.

Street Bytes

--Stocks finished mixed for a second week, with the Dow Jones losing 0.6% to 16491, the S&P 500 losing a fraction of a point, and Nasdaq finishing up 0.5%.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.36% 10-yr. 2.52% 30-yr. 3.35%

Lowest close of the year on the 10-year.

The inflation data was good, as in there was some inflation. April producer prices rose 0.6%, up 0.5% ex-food and energy, with the PPI up 2.1% year over year and up 1.8% on core.

Consumer prices rose 0.3%, up 0.2% on the core, and up 2.0% from a year ago, up 1.8% ex- the stuff we use and eat. The ECB would kill for these numbers. Our Federal Reserve, though,  would like to see inflation even higher, coupled with continuing growth on the labor front.

But I’m saying there is a surprise beyond this coming and that the Fed will be forced to consider raising the funds rate off zero sooner than it anticipated. That’s my story and I’m freakin’ sticking to it.

One other bond item. When I was at PIMCO, those of us in sales eagerly awaited the firm’s annual secular forum in May, when Bill Gross and the boys (and girls) would come up with their latest 3-5 year outlook, which then became our marching orders.

After the recently completed forum, PIMCO is now talking of a “new neutral,” as opposed to the “new normal” that’s been their mantra the past few years. As in a lot of nothing. Little movement in bond yields, for one; like they are pegging the 10-year to between 2.5% and 4.0%, nothing more than that. PIMCO also doesn’t believe the funds rate will exceed 2.0% during this time, which I disagree with...but...if they are right, this is good in terms of servicing the U.S. federal debt and that favorite topic of mine, interest expense. But I’m giving this a rest the balance of 2014.

--So I’ve discussed the issue of financial engineering quite a bit over the past few years, especially when it comes to IBM, and I can’t help but note the following from the Washington Post’s Steven Pearlstein:

“Instead of investing in new plants, equipment and products, instead of paying their taxes and giving a long-overdue raise to their employees, big corporations are spending their record profits – plus gobs of newly borrowed money – to buy back their own shares and those of other companies.

“The latest from Dealogic shows that U.S. companies have announced more than half a trillion dollars in mergers and acquisitions this year, 34% ahead of last year’s brisk pace....

“Meanwhile, the corporations of the (S&P 500) spent $477 billion last year buying back their own shares, a 29% increase over 2012 and the most since the peak year of 2007...

“And make no mistake: In the short term, the buyback strategy works. Stock buybacks in the S&P 500 transformed what would have been an 80% rebound from the lows of 2009 into a 178% increase, according to a study by Fortuna Advisors....

“Of the $3.4 trillion in additional debt taken on by nonfinancial corporations since 2009, nearly 87% has been sent off to shareholders in the form of dividends and stock buybacks, according to Paradarch Advisors.

“The poster child of the corporate sector for this leveraged buyout is IBM, which in the first quarter bought back more than $8 billion of its own stock, almost all of it paid for by borrowing. By reducing the number of outstanding shares, IBM has been able to maintain its earnings per share and prop up its stock price even as sales and operating profits fall....

“More significantly, IBM since 2012 has invested four times as much in stock buybacks as it has on the capital expenditures needed to grow its business over the long term.”

--General Motors Co. announced it was recalling an additional 2.7 million vehicles in the U.S. to fix various defects, bringing the total recalled this year to 12.8 million worldwide. The total cost to date is $1.5 billion.

The latest recall involves Chevy Malibus, Pontiac G6 and Saturn Auras, all of which could have wiring corrosion, leading to brake light issues, as well as possible traction and stability control malfunctions.

[Friday, GM was fined $35 million by the National Highway Traffic Safety Administration Board for delays in recalling vehicles with ignition issues; the maximum allowed by law.]

--Wal-Mart blamed the weather for its poor first-quarter performance. 

“Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales and drove operating expenses higher than expected,” said CEO Doug McMillon.

Same-store sales in the U.S. fell 1.4%, while overall revenue rose just 0.8%, missing expectations.

--Shares in JC Penney rose 18% after the company reported earnings and revenues that beat expectations. Same-store sales rose 6.2% in the three months ending May 3, while overall sales rose to 2.8 billion from 2.6 billion a year earlier.

But JCP is far from out of the woods, reporting a net loss of $352 million, though turnaround efforts clearly gained some momentum. Foot traffic in April was positive for the first time in months.

--Nordstrom shares surged 11% as its same-store sales rose 3.3%, while Dillard’s did as well after reporting a 15th-consecutive quarter of sales growth, up 2%.

--Interesting, and depressing, piece in the Journal last weekend by Suzanne Kapner and Robbie Whelan concerning the plight of the shopping mall in America these days, especially with the problems JC Penney and Sears have had.

“Nearly half of the 1,050 indoor and open air malls in the U.S. have both of those struggling chains as anchor tenants... Of those malls, nearly a quarter are struggling with sales below $300 per square foot and vacancy rates above 20%, meaning they will have a hard time finding new tenants if old ones leave.”

Only six new malls have been built since 2010, while the number of “dead malls,” those with vacancy rates over 40%, has nearly tripled since 2006 to 74 properties.

The average vacancy rate is 8% at regional malls, with the peak being 9.4% in 2011.

--So the Federal Communications Commission voted on how to regulate Internet service providers, part of the debate over ‘net neutrality,’ and it’s about how the likes of Comcast, Time Warner Cable and Verizon treat online traffic running through their pipes. Netflix and Google, for example, aren’t supposed to be treated differently from, say, this site you’re reading. Otherwise it would be “pay to play.”

Well, the FCC proposal would ban broadband providers from blocking or slowing down websites, but left the door open for them to cut separate deals with content companies for faster lanes to customers.

So on the surface you have Comcast, Verizon and AT&T against Internet companies like Google, Facebook and Amazon, who are opposed to any arrangements allowing broadband providers to charge companies extra for preferential treatment.

In a statement, Netflix Inc., which gobbles up a substantial amount of the overall Internet bandwidth, said it is “concerned that the proposed approach could legalize discrimination” in how broadband providers treat Web traffic, “harming innovation and punishing U.S. consumers.” Netflix added it “is not interested in a fast lane” on the Internet. [Gautham Nagesh and Amol Sharma / Wall Street Journal]

--Sony announced it would remain unprofitable until 2015 after a restructuring that saw it exit the PC business. It expects a loss of $489 million for the fiscal year ending March 2015, after a loss of over $1.2 billion in the prior year. Sony’s television business continues to lose out to rivals like Samsung.

--Tech bellwether Cisco Systems beat the Street for earnings and revenues as longtime CEO John Chambers said “I am pleased with the progress to return to growth.”

But revenue from switching systems, Cisco’s single largest business, continued to decline, down 6%, with orders for all products in emerging markets off 13%.

Chambers said that orders for its new Nexus 9000 router line, however, are growing rapidly, from 20 companies to 175, with a pipeline of another 1,000 customers. But the switching business would not see overall growth for “several more quarters.”

Business was strongest in the Americas, up 10%, with U.S. orders up 7%. Overall company revenue fell 5.5%, but the stock, in beating expectations, rose about 7% on the news.

--Google had an awful week as it faced calls by the EU’s highest court for a “right to be forgotten” that would allow users to request the removal of personal data.

And then Germany called for its breakup, which while it has zero power to do so, nevertheless is the prelude to the government looking into the search engine’s conduct.

--The amount of credit-card debt in the U.S. fell to the lowest levels since 2002, which isn’t a good sign for the economy. New mortgage originations dropped for the third straight quarter to $332 billion, the lowest since Q3 2011; another sign, perhaps, that home buying is less affordable.

--Speaking of which, Trulia (a real estate research firm) Chief Economist Jed Kolko said “Affordability is worsening. Prices are still rising faster than wages and income.” But buying remains cheaper than renting in all of the 100 metro areas that Trulia studied. In 20 of the 100, however, a majority of homes on the market are not affordable for middle-income buyers.

Some metro areas had particularly steep drops in affordability, including Denver, whose share of affordable homes fell to 50% from 67% in just the past year.

Akron, Ohio has the highest affordability at 86% of homes for sale.

--Southern California home prices rose at their slowest clip in more than a year, according to DataQuick. In Orange County, for example, the median price rose 7.7% from April 2013 to $576,000, while prices in San Diego County climbed 8.7% to $435,000. In March the figures were up 14.9% and 12.4% for the two, respectively.

Sales for the six-county region have fallen seven straight months. Absentee buyers, i.e., investors, accounted for 26% of all homes sold in April. [Andrew Khouri / Los Angeles Times]

--AT&T seems to be nearing a deal for DirecTV at about $50 billion, though it could take some time to finalize this, especially when it comes to gaining regulatory approval. Comcast, recall, is still seeking approval for its bid for Time Warner Cable. And then you have Sprint and a probable offer for T-Mobile U.S., which would create another challenge for regulators leery of a consolidation that would leave just three big companies in that space.

--I didn’t catch this in time as I was posting last week, but have to note the Postal Service lost $1.9 billion in its fiscal second quarter, the same amount it lost over the same period in 2013, though revenue rose $379 million to $16.7 billion, the third straight quarter with a revenue increase.

The Postal Service has defaulted on its health care payments over the last three years and it awaits Congressional legislation that would help it reduce its burden of funding benefits in advance.

The bright spot is in the shipping and packaging business, owing to the growth in online shopping. The Postal Service shipped 986 million packages in its fiscal second quarter, up from 919 million over the same time last year.

--Hillshire Brands Co. agreed to buy Pinnacle Foods Inc. for $4.3 billion, thus combining the likes of Jimmy Dean sausages and Ball Park franks with Pinnacle’s Vlasic pickles, Wish-Bone salad dressings and Birds Eye frozen veggies. Hillshire was formerly known as Sara Lee Corp.

--Darden Restaurants Inc. is selling its Red Lobster chain for $2.1 billion to private-equity firm Golden Gate Capital. Some investors aren’t happy as they were looking for Larry Lobster to be included as part of a larger Darden breakup. 

--Pfizer has committed to preserve U.K. science jobs if it wins its $106 billion bid for AstraZeneca, as Pfizer met with a House of Commons committee this week. Pfizer said its promises, including completing an AstraZeneca research center in Cambridge, were binding “as a matter of English law.”

The unions are asking the British government to block the acquisition. Pfizer’s price (upped once) will have to be upped again.

--Christie’s in New York sold a record $745 million of contemporary art, breaking its $691.6 million sale last November. Barnett Newman’s abstract “Black Fire I” sold for $84.2 million.

Joan Mitchell set a record for a female artist when her untitled colorful bouquet from 1960 sold for $11.9 million.

An Andy Warhol portrait of Marilyn Monroe sold for $41 million, far above the $18 million expected sale price.   [Kelly Crow / Wall Street Journal]

--Burger King is going to begin rolling out a “burgers for breakfast” campaign later this month at over 5,000 locations.

--For the first time, the U.S. has overtaken France as the world’s biggest market for wine, with U.S. drinkers consuming 2.9 billion liters of wine in 2013, vs. 2.8 billion in France, according to the International Organization of Vine and Wine. French consumption fell 7% from the year before (think lousy economy) while U.S. consumption grew 0.5%. Wine per head is still far higher in France, with the average French person drinking just over a bottle a week, six times more than the average U.S. consumer.

Italy is third in gross consumption of wine, followed by Germany and China. [BBC News]

--Right next door to where I reside lies Short Hills, home of the Short Hills Mall, and in a report by FindTheBest, which cited data from the U.S. Census Bureau, Shorts Hills was found to be the richest community in America, with over 69% of households making more than $150,000 annually. 51% hold advanced degrees.

--Hedge-fund promoter Anthony Scaramucci bought the rights to the television show “Wall Street Week,” which ran for 33 years on PBS, 32 of which were hosted by the late Louis Rukeyser. The new version would run weekends on CNBC, it is assumed as of this writing. For many of us in the 1980s and 90s in particular, “Wall Street Week” was must-see TV.

--“Godzilla” is expected to take in some $70 million for its opening weekend. It cost $160 million to produce. Early estimates from the insurance industry on damages are in the $20 trillion range and, frankly, I’m a little concerned about the global market reaction. I’m also going to sleep with one eye open until it goes to video. I suggest you do the same.

Foreign Affairs

Ukraine: A week from Sunday, May 25, they are supposed to hold a presidential election here. Earlier in the month, Vladimir Putin said this would represent a step “in the right direction,” but Russian officials have also said the Kremlin might not recognize the newly elected government, with the State Duma Speaker Naryshkin telling Russian television on Wednesday that the president Ukrainians will elect will not have full “legitimacy,” pointing to the 7 million people living under “essentially punitive conditions” in the eastern and southern regions.

While Russia does not have a favored candidate, the U.S. and the West do...Petro Proshenko, the candy magnate, with Washington hoping that Arseniy Yatsenyuk, currently the interim prime minister, would remain in that post.

Polish Prime Minister Donald Trusk denounced Russia for conducting a “sophisticated form of aggression” against Ukraine with last weekend’s pseudo-referendums. “Our neighbor is being broken using a democratic pretense in a way that’s provocative to the public. It is a mockery of democracy.”

The sham balloting was held in the regions of Donetsk and Luhansk, with rebels declaring independence in the two, and the Donetsk People’s Republic asking to join Russia.

Early this week, seven Ukrainian soldiers were killed in an ambush in the east. Russian Foreign Minister Sergei Lavrov said Ukraine was on the brink of “civil war.”   Ukraine’s acting defense minister said his country was embroiled in an “undeclared war with Russia.”

But some observers believe the Kremlin does not have an immediate desire to absorb southeastern Ukraine, adopting a wait and see posture. You know my “24-hour rule”? I read the other day that Putin has a “three-day rule” in reference to the fact Putin often responds three days after big events take place, which would mean May 28, perhaps.

Dmitri Trenin, director of Moscow’s Carnegie Center, says Putin “wants to create a force in the country’s east that will first and foremost represent the Russian identity and which will become part of the Ukrainian elite, where it would balance its Western-oriented representatives.” [Moscow Times]

Interim Ukrainian President Turchnyov said his government was ready to hold talks with everyone except for “those who with weapons in their hand try to wage war with their own country.”

Various roundtables with local government officials were held across Ukraine but with zero results.

Yet at week’s end, Ukraine’s richest man, Rinat Akhmetov, who owns a large portion of the mining and metals business in the heavily industrialized eastern part, marshalled his workers who then at least temporarily established control of the streets of Mariupol, a city that had fallen to the separatists, who then melted away. Akhmetov, in essence, controls hundreds of thousands of workers and after laying low for weeks, finally stepped forward to say he rejected separatism, though wants more power for the regions. 

So you have rapidly changing sentiments, maybe...but the swings in same are likely to be wild for months to come.

Just understand Akhmetov’s Metinvest is among the top five steel producers in the world. As the CEO, Yuri Ryzhenkov, told managers, and thus workers: “The most important thing you have is the steel mill. If you have the steel mill, you have jobs, salaries and stability for your families.”

It’s important to note two polls that came out this week. In a CNN survey of Ukrainians, nationwide (except Crimea), by a 56-19 margin they aligned themselves with the West, not Russia. What is highly significant about this is that before Russia’s involvement, it used to be 50-50.

A second survey, conducted by a center in Kiev, had the split between those favoring the West and those favoring Russia at 52-17. While the majority are still against joining NATO in this poll, the message is clear in both. Russian aggression is backfiring.

Meanwhile, President Putin, in a letter to European leaders, said Ukraine’s debt for Russian natural gas has reached $3.5 billion and that beginning June 1, Ukraine will have to pre-pay for gas deliveries. Talks on a compromise have failed, even after a $3.2 billion bailout from the International Monetary Fund. Ukraine wants Moscow to restore price discounts in place before the toppling of then-president Viktor Yanukovych in February.

And when it comes to the sanctions imposed on Russia and the impact on Western companies, you have the likes of McDonald’s, which receives 9% of its revenue from Russia and has already closed its three stores in Crimea; John Deere, which is cutting its full-year outlook, saying sales of its tractors and harvesters would fall “significantly” in Ukraine and Russia; and DuPont, which has a lot of agriculture business in Ukraine, where its customers are deferring or reducing seed purchases because of difficulty obtaining credit.

Just three U.S. examples, with countless European ones.

But it goes back to the opening. The U.S. and Europe have said Russia faces harsher sanctions if it disrupts the May 25 vote.

Editorial / The Economist

“Mr. Putin seems to be hoping that a grateful world, desperate to avoid conflict, will agree to what he has sought all along: a federation of Ukraine that blocks it from moving towards the European Union and NATO, as well as the uncontested annexation of Crimea. The world should not oblige. Ukraine will need to give more autonomy to its regions – but not such power that they can veto foreign policy. The West must give Ukraine aid and as much advice as its government will take.

“This crisis is far from over. Mr. Putin can turn the pressure on Ukraine back up just as easily as he seems to have turned it down. He has not relinquished Crimea, and his treatment of Ukraine has betrayed the nature of his regime. Therefore, the West should maintain today’s sanctions – and the threat of more. It should strive to lessen its dependence on Russian energy and face up to the fact that, while Mr. Putin is in power, doing business with Russia will be perilous. After all, would you trust the man who started a fire next door merely because he has suddenly offered you a bucket of water?”

Syria: Editorial / Washington Post

“The principal achievement the Obama administration might claim in an otherwise tragically failed response to Syria’s civil war is eroding. Last September President Obama brokered an agreement with Russia under which the regime of Bashar al-Assad was to give up its stockpile of chemical weapons and join the Chemical Weapons Convention, which prohibits production or use of those horrific arms.

“Yet months after the expiration of the February deadline for removing all chemical stocks from Syria’s territory, the regime not only retains a substantial stockpile but also has returned to assaulting civilian areas with chemicals. The Obama administration’s response is all too familiar: It is trying to avoid acknowledging those facts.

“Administration spokesmen boast that 92.5% of Syria’s chemical weapons and precursors have been removed from the country for destruction by the end of June. But Damascus is dragging its feet on delivering the last 27 tons of chemicals used to make deadly sarin gas. According to The Post’s Ernesto Londono and Greg Miller, U.S. officials believe the Assad regime is using the stocks as leverage to retain a network of tunnels and buildings that could be used as storage or production facilities, which the Organization for Prohibition of Chemical Weapons wants destroyed.

“Meanwhile, British, French and U.S. intelligence analysts have concluded that Syria is probably hiding part of its arsenal that it failed to declare, including stocks of sarin and mustard gas....

“Finally, evidence is piling up that Assad’s forces have been dropping bombs filled with chlorine on opposition-held areas. France’s foreign minister told reporters in Washington on Tuesday that there had been at least 14 such attacks since October. Laurent Fabius, who said ‘things would have been different’ had Mr. Obama not backed away from using force in response to a chemical weapons attack last August, said the ‘regime is still capable of producing chemical weapons and is determined to use them.’....

“In reality, Mr. Assad is being allowed to disregard his chemical weapons commitment with impunity not because there’s nothing the United States can do but because Mr. Obama chooses to do nothing.”

Meanwhile, a car bomb blast along the Syria-Turkey border killed at least 40 on Thursday. The impacted area is being fought over by two Islamist groups. Once again, civilians become the victims.

And United Nations special envoy for Syria, Lakhdar Brahimi, announced his resignation, years after taking a position he never wanted. Brahimi, at a U.N. news conference, conceded, “It’s very sad that I leave this position and leave Syria behind in such a bad state.”

It seems Brahimi, a good man, was tired of the infighting in the Security Council (read Russia and China against the U.S., Britain and France).

Iran: The International Atomic Energy Agency was to receive atomic data from Iran by Thursday and the IAEA refused to say if it had been obtained, which is probably telling and another setback for investigators.

The IAEA has been seeking more detail from Tehran on the nation’s work with “exploding bridgewire detonators,” which can trigger nuclear detonations. Iran had pledged to cooperate on this, and six other actions. If it doesn’t comply with the IAEA’s request, any claim by Iran that its nuclear work is peaceful is obviously bunk.

This week, the Washington-based Institute for Science and International Security said Iran was continuing operations at its Parchin military base that the IAEA has not been allowed to visit for over two years.

Also this week, delegates from Iran and the P5+1 countries continued their negotiations on a long-term agreement for limiting Tehran’s atomic efforts, but as independent analysts David Albright and Bruno Tertrais wrote in an op-ed for the Wall Street Journal, complete information on Iran’s nuclear activities is needed “to determine how fast the Iranian regime could construct either a crude nuclear-test device or a deliverable weapon if it chose to renege on an agreement.”

The biggest issue is just how much enriched uranium Iran will be able to keep and what kind of capacity will it be left with, and thus how long it would need to produce enough refined uranium for a bomb. [“Breakout” time.] How many centrifuges will Iran be allowed to keep and what quality?

Another issue is what to do with the heavy-water reactor at Arak, which is capable of producing plutonium upon activation. Plus Iran’s ballistic missile program will continue unimpeded as this was never part of the negotiations.

A draft accord is supposed to be produced during this current round in order to meet a July 20 target. A former French ambassador to Iran said in an interview with Bloomberg, “The parties to the negotiation are somehow condemned to succeed. On the Western side, there is no real Plan B.”

And that’s what worries Israel. An agreement for the sake of reaching an agreement. It’s also why the above opening topic is so important. The IAEA must be comfortable it can conduct intrusive inspections and not be denied access anywhere it wants to go in order to be certain a long-term deal can be implemented. If negotiations fail, the U.S. Congress has threatened harsher sanctions that would then become a big issue for the mid-term elections.

During a visit to Japan this week, Israeli Prime Minister Netanyahu drew parallels between Iran and North Korea, pointing out Japan’s concerns over the North Korean nuclear program and Israeli fears about Iran’s.

“The result of a bad agreement could be that Iran would be able to do with the world what North Korea did here, to make an agreement that keeps it very close to [building] the bomb, and then break out at an appropriate time when the world’s attention is riveted to another crisis. And the outcome, if that happens, would be very bad, and it would be like North Korea,” the prime minister said.

Netanyahu added, the P5+1 “should insist that Iran stops developing ICBMs, in addition to dismantling its capacity to make atomic bombs and atomic warheads. Why do they need ICBMs? You don’t develop ICBMs to carry a few kilograms of TNT for thousands of kilometers. You develop it only for one purpose: for nuclear weapons.”

[Separately, Iranian and Saudi officials may be trying to ease tensions between the two, with Saudi Arabia reaching out to Iran to hold talks for the purpose of making “the region as safe as possible,” as put by Saudi Foreign Minister Saud al-Faisal.]

Israel: In a global poll of anti-Semitism sponsored by the Anti-Defamation League, about a quarter of the world’s population agrees that a number of negative statements about Jews are “probably true.” The survey was conducted in 101 countries plus the Palestinian territories. The only religious group with a higher unfavorable rating in the survey than Jews was Muslims. While 38% rated Jews favorably and 21% unfavorably, for Muslims it was 47% rated them favorably and 24% unfavorably. [Christians were rated favorably by 62%, unfavorable by 15%.]

To give you a sense of the impact of extremist party Golden Dawn in Greece, 69% there could be viewed anti-Semitic according to the survey.

Interestingly, 92% would be viewed as anti-Semitic in Iraq, but ‘only’ 56% in Iran.

Separately, former Israeli Prime Minister Ehud Olmert was sentenced to six years in prison for taking bribes; the first such criminal conviction of a former head of government in Israel.

China / Vietnam / Philippines

Violence against Chinese companies in Vietnam turned deadly this week, with various death tolls being thrown around (from 2 to 20+), though with more than 100 hospitalized. The Hong Kong government upgraded its travel alert to Vietnam as Hanoi disputes the recent establishment of an oil rig by China in the disputed Paracel Islands. It is a highly flammable situation. Scary. 

[The Vietnamese government came under harsh criticism for doing nothing to stop the violence, which greatly harms the country’s long-term business reputation.]

China has vowed that despite the protests, it would continue with the drilling operation. Chinese business leaders and workers in Vietnam have been fleeing and flying back to China. Others have crossed into Cambodia (600 by one count). The violence has also hit Taiwan-based plants, some 100 of which were looted and 11 torched, according to the South China Morning Post.

A top Chinese general blamed the U.S. “pivot” to Asia for escalating tensions in the South China Sea. Fang Fenghui, chief of the general staff of the Chinese military, said during a visit to the Pentagon that Washington needs to hold an “objective view” of the disputes in the region.

“Certain countries are attempting to gain their own interest because they believe China is now developing its economy and the U.S. is adopting this Asia-Pacific rebalancing strategy.”

China claims it is drilling within 12 nautical miles – the territorial waters – of Triton Island in the Paracels, which China has controlled since a brief war with Vietnam in 1974, though Hanoi still claims them. Gen. Fang said the well in question is actually the first one for China, while other countries “have drilled actually many oil wells in the South China Sea,” he said.

Gen. Fang said he doesn’t “quite understand why there are no comments from the outside when other nations are drilling so many oil wells in the region, but when China starts to do the drilling, we instantly become a threat to the region. The external world should view this issue in an objective and fair manner.” [Financial Times]

The fact is China itself drilled many wells in the region, though not in disputed areas until now. The Global Times, a Beijing mouthpiece, backed the use of “non-peaceful” measures against Vietnam and the Philippines on Friday, as it considered war over the territorial disputes.

“The South China Sea disputes should be settled in a peaceful manner, but that doesn’t mean China can’t resort to non-peaceful measures in the face of provocation from Vietnam and the Philippines.”

China’s Foreign Minister Wang Yi said, “Vietnam bears unshirkable responsibility for the violent attacks against Chinese companies and nationals.” [South China Morning Post]

Gen. Fang was told by Vice President Biden and other U.S. officials that Beijing’s behavior was “dangerous and provocative” and must stop.

As for the Philippines, it decided to prosecute nine of 11 Chinese fishermen apprehended in the disputed Spratly Islands for poaching sea turtles. The other two were released because they were minors.

Editorial / Washington Post

“With a $1 billion oil rig the size of a football field, China has literally laid down a new marker in its ambition to dominate the South China Sea – and challenged President Obama’s ‘rebalancing’ policy in Asia, only weeks after the president’s tour of the region....

“The message of the deployment is as simple as it is provocative: The regime of Xi Jinping intends to unilaterally assert China’s sovereignty over almost all of the South China Sea without regard for the competing claims of five other countries or Mr. Obama’s newly restated commitment to uphold defense agreements with two of those nations. In that sense, the rig, like Russia’s invasion of Ukraine, is a fundamental challenge to the international order the United States has tried to preserve since the end of the Cold War....

“For years Beijing has talked with [Ed. the Philippines, Taiwan, Brunei, Indonesia and Vietnam] about establishing a code of conduct for the sea, and it discussed the possibility of joint development of oil and gas with Vietnam a few months ago.

“The move of the oil rig appears to reflect a calculation that a more aggressive policy will not meet meaningful resistance from China’s neighbors or the United States. The target of the initiative, Vietnam, is particularly vulnerable, as it lacks strong military ties with Washington and is ruled by a Communist Party with a strong, pro-Chinese faction....

“Vietnam and the Philippines could bring a case against China at an international tribunal under the Law of the Sea treaty. But Beijing is likely to shrug off that form of pressure. Most likely it will continue to act unilaterally in the region until it meets concerted resistance, whether diplomatic or military. If the United States and its allies have a plan for that, it isn’t evident.”

Personally, I’m super miffed over the poaching of the sea turtles, a protected species and punishable in the Philippines by fines of up to $200,000! I saw some pictures of the dead ones and it’s sickening. Filipino police said the haul numbered in the hundreds.

Separately, China began a construction project in the Spratlys on what could become a familiar name for all the wrong reasons, Johnson South Reef. No word on what China is building.

One last item...more than 5,000 U.S. and Filipino troops have been engaged in war games in the Philippines, focusing on maritime security.

China, Part II: In other news...A Beijing resident was criminally detained for allegedly sharing wrongful information with a widely read Chinese news website abroad and thus harming China’s national reputation. The site in question is Boxun, a Chinese-language news aggregator in the United States. Hundreds of bloggers and journalists have been arrested in recent months as part of a government crackdown; in case you’re wondering whether Facebook will ever be allowed in China, despite their taking office space there this week. The answer is ‘No!’

Western analysts are concerned China’s development of new cruise missiles raises the risk the technology could spread to other countries. Experts, according to the Global Security Newswire’s Diane Barnes, say “China’s pursuit of new antiship and land-attack cruise missiles is intended largely to prepare against possible tensions over Taiwan.” But “outside actors have previously obtained Chinese arms, which may one day include an advanced nuclear-ready cruise missile for hitting land-based targets.”

Lastly, protests continue to spread in China over environmental issues, the latest example being a demonstration against a planned waste incinerator in a city in the eastern province of Zhejiang. 39 were hurt, including ten police officers.

Nigeria: A video from Boko Haram was released on Monday, purporting to show some of the nearly 300 schoolgirls abducted on April 15, though there were conflicting reports on just how many were able to be identified by parents. The girls were huddled and chanting Koranic verses while wearing Islamic veils.

Boko Haram leader Abubakar Shekau says on the tape, “I swear to almighty Allah, you will not see them again until you release our people that you have captured.”

The Nigerian government said it would not negotiate with terrorists.  About 100 were in the video and aside from questions on whether these are the girls from the main incident, the fact is Boko Haram has been kidnapping girls in the region for a long time.

Editorial / Wall Street Journal

“[Toward the end of a speech last week to his Hollywood admirers, Barack] Obama declared that, ‘I have this remarkable title right now – President of the United States – and yet every day when I wake up, and I think about young girls in Nigeria or children caught up in the conflict in Syria – when there are times in which I want to reach out and save those kids – and having to think through what levers, what power do we have at any given moment, I think, ‘drop by drop by drop,’ that we can erode and wear down these forces that are so destructive; that we can tell a different story.’

“The moment is striking because Mr. Obama referred to two events that are different in one crucial respect from the Holocaust [Ed. this being a reason for Obama’s attendance at the USC Shoah Foundation dinner], which was ended only when U.S. troops defeated Hitler in World War II. Millions more would have died had the U.S. not intervened with military force against the Nazis.

“Yet Mr. Obama has spent his Presidency telling Americans – and the rest of the world – that the U.S. needs to withdraw from global military obligations because it often does more harm than good. In Syria, Mr. Obama has expressly rejected U.S. involvement lest America have to take some responsibility for the conflict. Yet that abdication has had its own moral consequences, including millions of refugees and some 150,000 deaths so far.

“As for Nigeria, his wife Michelle has helped to bring attention to the abduction of more than 300 schoolgirls by the Islamist group Boko Haram. She posed for a photo with #BringBackOurGirls. It’s a noble gesture, but a Twitter hashtag won’t rescue those girls. Only the threat or reality of military force will be able to that, and that almost certainly means U.S. special forces.”

Peggy Noonan / Wall Street Journal

“John McCain has it exactly right....He told CNN that as soon as the U.S. learned that hundreds of children had been kidnapped and stolen away by a rabid band of terrorists in Nigeria, we should have used ‘every asset that we have – satellite, drones, any capabilities that we had to go after them.’ He told the Daily Beast: ‘I certainly would send in U.S. troops to rescue them, in a New York minute I would, without permission of the host country.’ He added, as only Sen. McCain would: ‘I wouldn’t be waiting for some kind of permission from some guy named Goodluck Jonathan.’ That’s Nigeria’s hapless president....

“You can’t do this kind of thing every time there is a need. But – if it’s not too late, if it hasn’t been made impossible by the passage of time – you could do it this time.

“In the past few weeks, as the story of the kidnapped girls unfolded, the Obama White House reacted as what it is: reflexively political but not really good at reading anything but the feelings of its base. Which, in a narrow way, has proved enough to get them through so far.”

Charles Krauthammer / Washington Post

“Mass schoolgirl kidnapping in Nigeria – to tweet or not to tweet? Is hashtagging one’s indignation about some outrage abroad an exercise in moral narcissism or a worthy new way of standing up to bad guys?

“The answer seems rather simple. It depends on whether you have the power to do something about the outrage in question. If you do, as in the case of the Obama administration watching Russia’s slow-motion dismemberment of Ukraine, it’s simply embarrassing when the State Department spokeswoman tweets the hashtag #UnitedForUkraine.

“That is nothing but preening, a visual recapitulation of her boss’s rhetorical fatuousness when he sternly warns that if the rape of this U.S. friend continues, we are prepared to consider standing together with the ‘international community’ to decry such indecorous behavior – or some such.

“When a superpower, with multiple means at its disposal, reverts to rhetorical emptiness and hashtag activism, it has betrayed both its impotence and indifference. But if you’re an individual citizen without power, if you lack access to media, drones or special forces, then hashtagging your solidarity with the aggrieved is a fine gesture and perhaps even more....

“The American post-9/11 response to murderous jihadism has often been characterized, not least by our own president, as both excessive and morally suspect. There is a palpable weariness with the entire enterprise. Good, therefore, that new constituencies for whom jihadism and imposed Shariah law ranked low among their urgent concerns should now be awakening to the principal barbarism of our time.

“Trending now (once again): anti-jihadism, a.k.a. the War on Terror.”

Turkey: An estimated 300 were killed in a mine disaster in the western part of the country and the government could not have handled it worse, with Prime Minister Erdogan going to the scene to offer his condolences, only to declare: “This is what happens in coal mining. There is no such thing as accident-free work.”

Not exactly the sensitivity the families of the victims were looking for so they stoned his car and called him a “murderer.”

Then a video emerged of an aide kicking one of the family members when he was on the ground.

Protests then broke out around the country and labor unions went on strike to call for improved safety measures. This is going to get much worse.

South Korea: Prosecutors indicted the captain of the sunken South Korean ferry and three crew members on homicide charges Thursday, alleging negligence and failing to protect the more than 300 who died. The 11 other crew members were indicted for less serious crimes.

India: Opposition leader Narendra Modi is the new prime minister after the ruling Congress party conceded defeat in the Indian general election. When all 543 constituencies are counted, Modi’s Hindu nationalist Bharatiya Janata party (BJP) is expected to win an outright majority, perhaps 300 seats, which is huge; the first such victory for a single party in three decades. Modi, 63, would be the first Indian prime minister born after independence in 1947.

The Indian stock market hit new highs as business leaders threw their weight behind Modi’s candidacy, Modi with a solid track record on the economic front.

But he has also said more than a few controversial things about the Muslim minority, some 200 million strong. Hundreds of Muslims died at the hands of Hindu mobs in 2002 in Gujarat, where Modi had just become chief minister.

But Modi and the BJP have focused on the economy during the election campaign and steered clear of exclusively Hindu causes.

Russia: President Putin is looking to sign a massive natural gas deal with China next week in Shanghai, a deal between Gazprom and China National Petroleum Corp that would be for 30 years, once they can agree on pricing. It’s been ten years in the works and would begin no later than the end of 2018. Gazprom’s CEO Alexei Miller said the supply could be boosted to 60 billion cubic meters a year from an initially reported 38 billion. To put this in perspective, China relied on imports for nearly a third of its natural gas needs, importing 53 billion cubic meters in 2013.

And Russia announced it would deny the United States use of the International Space Station beyond 2020 and will bar export of critical rocket engines to the U.S. The motors power the Atlas rocket used by the United Launch Alliance joint venture between Lockheed Martin and Boeing. This is a big blow. For starters, that means the U.S. can’t launch military satellites until we develop an alternative. But it also provides a major opening for SpaceX and Elon Musk.  ULA, though, says it has a two-year supply of the Russian RD-180 motor.

Lastly, Russia’s Internet regulator is making waves about blocking Twitter and Facebook.

Saudi Arabia: The Kingdom reported five more deaths from Middle East Respiratory Syndrome, or MERS, bringing the death toll in the country to at least 157.

Two cases were then reported in the U.S., both having traveled from the region, and the likes of CNN went into full crisis mode.

I was writing of MERS when it first broke out, but when it comes to the U.S., I am not about to cry wolf.

That said, U.S. authorities are doing the right thing in at least posting material in airports where travelers could be arriving from the Middle East.

Thailand: Three were killed at an anti-government protest in Bangkok. I repeat...it’s not an overstatement to say this country is on a knife’s edge and civil war is a possibility. The government is trying to organize a new general election for July, after attempts at previous elections were disrupted. Prime Minister Yingluck was recently deposed and there is no real government in control these days. I wouldn’t travel there the next few months.

Afghanistan: My man Abdullah Abdullah won the endorsement of the third-place finisher in last month’s presidential election, thus ensuring AA will win the run-off slated for June 14.

Kenya: At least 10 were killed in twin bomb blasts in Nairobi on Friday, while hundreds of U.K. tourists were evacuated from the coastal resort area of Mombasa amid warnings of an attack. Al-Shabab is suspected.

The U.S., U.K. and France had all warned there was a high threat of such activity in Kenya earlier this week.

Brazil: The World Cup kicks off in four weeks, June 12, and it’s going to be quite a show; as in quite a show of police force to attempt to control the huge demonstrations that will inevitably take place, especially in Sao Paulo and Rio de Janeiro; both scenes of extensive rioting this past week.

The working class, including civil servants and teachers unions, have been upset for years on the $billions spent on building new stadiums around the country instead of on social projects and housing.

Random Musings

--Republicans really can be idiots. Strategist Karl Rove, “the architect,” distanced himself from a New York Post story that asserted Rove said he believes former secretary of state Hillary Clinton suffered “brain damage” from her head injury in 2012.

In an interview with the Washington Post, Rove then tried to walk it back some, saying, “Of course she doesn’t have brain damage,” though he insists Clinton suffered “a serious health episode.” He added that if she runs for president, “she is going to have to be forthcoming” about the details of where, how and when it happened.

Rove then goes on and on, talking of Clinton’s failure to show up at an early round of congressional hearings on Benghazi among other things.

The New York Post reported Rove made the following comments at a conference in Los Angeles in addressing Clinton’s episode in December 2012.

“Thirty days in the hospital? And when she reappears, she’s wearing glasses that are only for people who have traumatic brain injury? We need to know what’s up with that.”

For starters, Clinton was hospitalized for three days, not 30.

Here’s the thing. What is a leading Republican strategist, a man with a microphone like Rove’s, doing? If Hillary runs, yes, her health, and age (she’ll be 69 in November 2016) are legitimate issues.

But Republicans should be focused on one thing the next six months and one thing only. Win the damn Senate! The issue isn’t Hillary Clinton this summer and next fall. It’s how do you beat Kay Hagan in North Carolina? And six to ten similar situations around the country, Republicans needing to pick up six seats to then formally ‘check’ President Obama for his remaining two years, and maybe even rollback an item or two.

That’s it. Period. There is zero reason to bring up Hillary’s name, if you’re a Republican, unless you’re on the House Select Committee on Benghazi and you have a darn good reason to call her.

--I had dinner Monday night with three like-minded old friends from Thomson McKinnon Securities days...known ‘em all 30 years...and Mark R. brought up a topic I was going to address this week, that being the minimum wage.

As in Republicans have got to compromise on this, quickly, to take it off the table for the fall. We all know how prices for everything we use, for starters, food, have been rising while the minimum wage has not.

Thus far former Republican presidential candidates Mitt Romney, Tim Pawlenty, and Rick Santorum are in favor of raising it. Santorum said on MSNBC, “Let’s not make this argument that we’re for the blue-collar guy but we’re against any minimum-wage increase ever. It just makes no sense.”

Other Republicans, who like to lose elections, say raising the minimum wage does not solve the problem of job-creation, which isn’t the freakin’ point.

In a March Bloomberg News poll, 69% supported raising the minimum wage to $10.10 an hour. 65% felt the same way in a CBS News/ New York Times survey.

In the Senate recently, Republicans voted to block debate on a bill sponsored by Democrats to incrementally raise the federal minimum wage from $7.25 an hour to $10.10, with only Tennessee Republican Sen. Bob Corker voting to proceed.

--New Jersey Gov. Chris Christie’s longtime press secretary, Michael Drewniak, told New Jersey lawmakers he is confident Christie had no knowledge of or involvement in Bridgegate.

The joint legislative committee doing the investigation is run by Democrats and many Republicans are calling it a witch hunt. Drewniak previously testified as part of a federal probe.

Separately, Christie said he’s still considering a run for the presidency and that by then the bridge scandal will be a “footnote” in his career.

Maybe so, Governor. But you’re still left with the issue that will kill you. New Jersey’s economy sucks. You’re overrated.

--Is Jeb Bush going to run in 2016? As Rosalind S. Helderman writes in the Washington Post, it’s really all about Columba, his Mexican-born wife of 40 years. Columba has an “intense distaste for the public arena,” but she “may be willing to take on the burdens of a campaign.”

One Bush confidante told Helderman, “The family issues are Columba, 1, 2 and 3. It’s whether she’s up for it.”

“She’s cognizant of what a campaign would be like, and she would have to come to terms with that. He’s not going to do it over her objections,” said the confidante.

Jeb has vowed to make a decision by year end, though he’s expressed the feeling he would only run “joyfully,” if he could run a hopeful campaign.

--Ras Baraka, a frequent critic of Cory Booker, was elected mayor of Newark on Tuesday, defeating Shavar Jeffries with 53% of the vote. Baraka is the son of poet Amiri Baraka. Newark’s public-sector unions heavily supported Baraka over the moderate Jeffries (who I would have voted for).

By the way, crime in Newark has risen since 2008, with murders hitting a two-decade high of 111 in 2013; in case you were wondering, as some of us did during his tenure, why Cory Booker, now senator, was so popular; at least among the celebrity set. Newark also faces a significant budget deficit and the state may soon have to take over the finances. The city’s schools are already under a state monitor.

--Two years ago, House Majority Leader Eric Cantor (R-Va.) won his primary challenge with 80% of the vote. This June 10, however, he is in a dogfight with Tea Party activist David Brat. Cantor could still win by a sizable majority, but by all accounts he’s been struggling to resonate.

Cantor does, however, have oodles of cash in his war chest and Brat does not.

--This is too funny. Longtime Michigan Congressman John Conyers doesn’t have enough signatures to appear on the Aug. 5 primary ballot, election officials announced Tuesday. He was over 400 valid signatures short, many having been thrown out.

Conyers, 84, had three days to appeal, but if this doesn’t work he can run as a write-in. I am not a fan of the man. He was first elected to the U.S. House in 1964.

--What is it with today’s youth and their penchant for railing against certain commencement speakers. Christine Lagarde, managing director of the IMF, became the latest victim, as she withdrew her name after about 500 signed a petition objecting to her scheduled appearance at Smith College, saying the IMF’s policies were wrong.

Earlier, the likes of Condoleezza Rice (Rutgers) and human-rights activist Ayaan Hirsi Ali (Brandeis) were forced to pull out.

These kids and faculty are stupid. I’m sure they all also text and drive.

--We note the passing of Patrick Lucey, 96. Who was Patrick Lucey? Aside from being a twice elected governor of Wisconsin, your editor remembers Lucey most for being John B. Anderson’s running mate in 1980. I was a big Anderson fan. Yes, long-time readers know I voted for him and not Ronald Reagan in ’80.

Alas, as is the case with all third-party candidacies in this country, they flame out and Anderson captured only 7% of the popular vote.     

--Uh oh...a study out of Johns Hopkins Univ. School of Medicine looked at 783 men and women ages 65 and older from two villages in Tuscanny and followed them for nine years. At issue was whether resveratrol, an ingredient in red wine thought to have health benefits, promoted longevity among those eating a diet rich in the antioxidant.

Survey says? No!

Previous lab studies suggested resveratrol, also found in grapes, peanuts and chocolate, might have unique benefits in slowing aging and keeping cells healthy.

But before you dump your wine down the drain, the director of the study, Richard Semba, “suggests something else may be at work besides resveratrol, as previous studies did find a link between wine and chocolate and lower inflammation, which can hurt the heart.”

To be continued. [Angela Zimm / Bloomberg]

--Interesting piece in the New York Times by Diane Lewis on the use of pesticides among homeowners; as in, “The United States Fish and Wildlife Service says homeowners use up to 10 times more chemicals per acre than farmers do. Some of these chemicals rub off on children or pets, but most are washed with rainwater into our streams, lakes and rivers or are absorbed into our groundwater. These are the sources of our drinking water, and tests show these chemicals are indeed contaminating our water supply.”

Granted, the amounts are small and deemed “acceptable,” but they do have a cumulative effect and “disrupt” the endocrine system, that controls our bodies’ functions.

Ms. Lewis is a physician and the founder of the Great Healthy Yard Project. Her recommendation?

“Natural care of our yards and gardens is surprisingly easy. Increasing diversity in a lawn by adding clover helps supply nutrition naturally because clover fixes nitrogen from the air and makes it available to other plants. Leaving grass clippings not only returns nitrogen to the lawn, but also prevents it from drying out. Letting grass grow to four inches allows the roots to grow long so the grass can absorb more water and excess nutrients during a storm and withstand a drought. Plants that are native to your region require less water and care and support animals and wildlife, so you will see more birds and butterflies.”

And a little beer kills slugs! Don’t use premium for this, however. Any domestic will do. A six-pack of Wiedemann’s is cheap enough.

--According to NASA glaciologist Eric Rignot, the collapse of a rapidly melting glacial region of Antarctica has passed “the point of no return...The collapse of this sector of West Antarctica appears to be unstoppable.”

NASA estimates the glaciers in the Amundsen Sea region contain enough water to raise sea levels by 4 feet.

But, before you all move your house four feet up the hill, Rignot said in NASA’s statement that the Amundsen sector “will be a major contributor to sea level rise in the decades and centuries to come. A conservative estimate is it could take several centuries for all of the ice to flow into the sea.”

Ergo, no telling how many more NBA championships LeBron James will win in that timeframe. Or how many elections Republicans will blow.

That said, it is a fact that the ice fields in question are retreating rapidly, like 19 miles in parts between 1992 and 2011.

Actually, Antarctica’s ice sheets hold enough water to raise sea levels by 191 feet, though the United Nations Intergovernmental Panel on Climate Change doesn’t expect that for “thousands of years,” and I’m guessing it’s a lock a successful third party will emerge in America by that time, though the capital would no longer be Washington with such a rise in the water level. Probably Denver.

--Meanwhile, in the here and now, on average there are six hurricanes a year that form in the Atlantic basin, and this year AccuWeather.com is forecasting just two that will make landfall in the eastern United States. Last year just two formed in the region (AccuWeather had forecast five), the fewest since 1982.

So the reason for the low forecast for 2014 is the onset of El Nino in the equatorial Pacific – which increases wind shear in the Atlantic and “thus suppresses the development of tropical storms” that we can expect this season. [Richard Khavkine / Star-Ledger]

But it only takes one.

--As for the latest round of fires in California, I heard from more than one of you in the area that most of the fires were probably the result of arson. Late Thursday, Escondido police arrested an adult and a juvenile on suspicion of trying to start a fire and as I go to post, investigators were trying to determine whether the pair had any involvement with the existing fires in San Diego County.

Now I kind of like Gov. Jerry Brown, but I saw him on Wolf Blitzer’s program on CNN, Thursday, and Brown totally blamed “global warming” for the fires. Wolf pressed him on arson as a cause and Brown ignored it. Sorry, Governor. You looked like an old fool.

--A good friend, who needs to go initial-less, was attending his daughter’s graduation at the University of South Carolina the other day and Vice President Biden gave the commencement speech. Biden referred to an old TIME magazine article that said China was cranking out 600 grads for every one U.S. grad in engineering and the hard sciences and that the U.S. had to be very worried we would be surpassed on the global technology scale. Biden then asked the audience to name one great scientific or engineering discovery since that time that had come out of China. “The irony was that the proportion of Asian students (mostly mainland China) in this section of the USC graduating class in attendance was about 10%. They may not be inventing anything of major importance, but they sure keep cranking out the graduates (now U.S. trained) and...”

At this point I need to stop my friend’s commentary. Can’t say why.....

--Update: Last week I noted the passing of Cornelius Gurlitt, the son of a major Nazi-era art dealer, who was found to have 1,400 stolen works in his apartment in Munich and a place in Salzburg (which I didn’t know about until now) in 2012, though authorities didn’t say anything publicly until December of 2013.

I wrote that Gurlitt had been cooperating with German authorities who were attempting to establish the paintings’ provenance and return them to their rightful owners, but I didn’t know he had agreed just weeks before his death to bequeath his entire collection to a Swiss museum.

The Kunstmuseum Bern said news of Gurlitt’s will naming it as the heir “came like a bolt from the blue, since at no time has Mr. Gurlitt had any connection” to the museum.

But in early 2014, he signed a notarized testament. A Bavarian justice ministry spokesman, however, said Gurlitt’s previous agreement with them stands and that they have a year to find the rightful owners.

Anyway, I felt obligated to add these facts to the story.

--Kareem Abdul-Jabbar, in an op-ed for TIME:

“The best way to combat racism is to seek it out every minute of every day and expose every instance we find.”

Sorry, no time. Working on this column. Maybe Saturday afternoon.

--From TIME: “Two national parks – Utah’s Zion and California’s Yosemite – have barred visitors from flying drones, which are blamed for disturbing hikers and wildlife and creating hazards for rescue helicopters. Violators could face six months in prison and a $5,000 fine.”

I’m hoping the Nazgul go after these jerks.

--Hong Kong began destroying some of its 30-ton stockpile of seized ivory, incinerating 1.2 tons of it on Wednesday. About three tons will be processed each month. Said an official of the Convention on International Trade in Endangered Species of Flora and Fauna, “People buy ivory thinking it will go up in value. This will send a public message it will not.” [South China Morning Post]

--According to Expedia’s 2014 Road Rage Report, 7 in 10 American drivers rate their fellow drivers who text, e-mail or talk on a phone while driving as among the most aggravating motorists on the road. But more than half, 55%, admit to using a mobile phone at least some of the time while driving. According to the National Highway Traffic Safety Administration, 3,328 people died in distraction-related crashes in 2012. 43 states outlaw texting while driving. [Larry Copeland / USA TODAY]

--Interesting piece in the New York Post by Mary Kay Linge concerning teens and summer jobs. Yes, times have changed. Many teens feel there is no reason to work in the summer.

For example, back in 1978, according to the Bureau of Labor Statistics, 72% of 16-to-19-year-olds worked a summer job. Today, it is down to 40%.

--President Obama awarded the Medal of Honor to former Army Sgt. Kyle White for his heroic action in a fire fight with the Taliban in Afghanistan in November 2007.

Knocked unconscious by the blast from a rocket-propelled grenade, when he awoke, an enemy round exploded near him, sending shrapnel into his face.

Though wounded and cut off from his comrades, White braved enemy fire to rescue and tend to other injured Americans.

He was able to radio in a situation report to friendly forces, who then came to their rescue. When a helicopter arrived, White only evacuated after the other wounded men were, though his own condition was deteriorating.

White said on Tuesday, “At its core, [the medal] is a symbol of the responsibility all soldiers knowingly face when they depart for distant lands in defense of the nation.”

Thank God for the likes of Kyle White.

--Veterans Affairs Secretary Eric Shinseki was called before a Senate committee to provide answers about recent claims various VA facilities hid records of patients who waited too long for care, this following a demand by the American Legion that Shinseki resign.

Shinseki said such allegations “are completely unacceptable,” but said it was important to let the inspector general complete a review.

Sen. Richard Burr (N.C.), the top Republican on the panel, said “VA’s leadership has either failed to connect the dots or failed to address this ongoing crisis, which has resulted in patient harm and even death.”

---

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

God bless America.

---

Gold closed at $1293
Oil $102.02

Returns for the week 5/12-5/16

Dow Jones -0.6% [16491]
S&P 500 -0.03% [1877]
S&P MidCap -0.1%
Russell 2000 -0.4%
Nasdaq +0.5% [4090]

Returns for the period 1/1/14-5/16/14

Dow Jones -0.5%
S&P 500 +1.6%
S&P MidCap +0.7%
Russell 2000 -5.2%
Nasdaq -2.1%

Bulls 55.1
Bears 19.4 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Catch me on Twitter @stocksandnews

Brian Trumbore