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06/14/2014

For the week 6/9-6/13

[Posted 12:00 AM ET]

Edition 792

President Obama’s Foreign Policy...and Iraq

This has been a helluva stretch on the news front, at least for one who is committed to documenting the big issues of the day, both here and abroad, both financial and geopolitical. With the news from Iraq of a country in total turmoil I’ve had to cut back on some topics I was going to cover in more detail in order to delve into this latest crisis.

As I go to post, here is what we know of the past few days. The Islamic State of Iraq and al-Sham (ISIS...or the Islamic State of Iraq and Syria...or ISIL...the Islamic State of Iraq and the Levant), continued to spread its wings from its bases in Syria, launching its most audacious attack yet on Iraq’s second city, Mosul, in the northern part of the country. ISIS is the al-Qaeda offshoot that even al-Qaeda has distanced itself from; being too vicious when it comes to treatment of civilians. ISIS leader, Abu Bakr al-Baghdadi, was once leader of Al-Qaeda in Iraq and has his sights set on becoming the No. 1 leader of al-Qaeda overall, over Ayman al-Zawahiri.

With probably no more than a few hundred soldiers (out of a total force size of around 4,000), operating in small but highly professional units, ISIS wreaked havoc and caused tens of thousands of Iraqi troops and security personnel to strip off their uniforms and flee, or, under secret agreement, turn themselves over to ISIS as sympathizers. 

ISIS then moved on, towards Baghdad, seizing towns, military bases, equipment...they looted banks, including a reported $400 million from Mosul’s central bank...and it became an “orgy of kidnappings and executions." 500,000 initially fled the reign of terror, but by week’s end some were returning to Mosul if they shared the same Sunni brand of Islam ISIS prefers...hardline, Sharia law. The Turkish consulate in Mosul was targeted and 25 were kidnapped. Their fate is unknown. At least 1,000 militants were freed from jails by ISIS as the Iraqi government ignored prior warnings to increase security.

In Baiji, an oil refinery was reportedly taken. ISIS moved into Tikrit, the birthplace of Saddam Hussein, though there were unconfirmed reports government forces took it back on Friday.

ISIS moved into Samarra, home to the sacred Shia shrine, the Golden Mosque, some 60 miles north of Baghdad. It was a bomb attack on the shrine in 2006 that led to a two-year rampage of revenge killings between Sunni and Shia that resulted in 30,000 deaths.

Iraq’s Foreign Minister Zubari called ISIS a “mortal threat.” Turkey, a NATO member, expressed grave concern over its territorial integrity.

Iraq’s Shia-dominated government launched air strikes on Sunni insurgent positions in and around Mosul on Thursday. There were reports Iran had deployed Revolutionary Guards units to Iraq, Tehran having invested heavily in a strong Shiite-led state – the so-called Shiite crescent...stretching from Iran to Iraq, Lebanon and Syria...always being the focus. Now Sunni extremists threaten such plans. Shiite clerics issued a call to arms as volunteers stepped forward in droves to help the government.

On Friday, President Obama ruled out U.S. troops on the ground, though by late Sunday or Monday, there could be a commitment to air support of some kind, as the president asked his national security team to prepare more options.

“This poses a danger to Iraq and its people and, given the nature of these terrorists, it could pose a danger eventually to American interests as well,” said Obama.

The U.S. prematurely walked away from a relatively stable Iraq in 2011, when the last combat forces left, with no status of forces agreement for leaving some 10,000 in theatre as many of the generals and experts recommended. 

When the revolution in Syria got going the same year, the Obama administration had no idea what would happen. But your editor did.

By end of that year I was calling for the creation of safe havens, working with our ally, Turkey, who eagerly sought help from the White House. We ignored President Erdogan’s calls.

By the summer of 2012, the civil war was heating up. I noted how former defense secretary William Perry was pounding the table on a no-fly, no-drive zone in northern Syria to give the people a safe haven. But President Obama didn’t want to get involved. He threw up one straw man after another...as if many in Congress were calling for an invasion of Syria by U.S. forces. Even Sen. John McCain wasn’t advocating this. No one was. We were all talking about saving Syrians and supporting what was then a very identifiable moderate opposition. It wasn’t until late 2012 that the jihadists began to sweep in in droves, and it was around then that ISIS moved from Iraq into Syria, soon thereafter getting into conflict with al-Qaeda’s al-Nusra front, while they all fought Bashar al-Assad’s forces.

By Sept. 1, 2012, I was writing constantly of how Barack Obama just wanted to get through November and the election. 

Then on Sept. 8, 2012, I wrote the following:

Syria: The killing continues, now estimated at anywhere from 23,000 to 26,000 in the civil war, with the UN pegging the official refugee figure at over 230,000 (the unofficial number far higher), which is destabilizing to neighbors Turkey, Iraq, Jordan and Lebanon, while there is a true humanitarian catastrophe developing in Syria itself as 1.2 million have been displaced and 2.5 million are in dire need of aid. I’ll just say this in terms of the political debate taking place in the U.S. One of the Democrats’ campaign slogans is ‘Bin Laden is dead and GM is alive.’ It needs to be pointed out that at least 20,000 of the Syrian deaths could have been prevented if the White House had taken coordinated humanitarian action with Turkey early on. Not a military invasion but just the establishment of safe havens and the Obama administration could have significantly reduced the human toll.

“But it’s too late now. We missed our opportunity. The situation is indeed far more dangerous.

“It was the same situation in 2009 when President Obama missed an opportunity in Iran to support the Greens, but instead when the United States just sat back, the mullahs crushed the uprising and now look where we are there.

“It’s pathetic. It’s what infuriates me about how the president is getting a pass on his foreign policy....

“In Ankara, Turkish Prime Minister Erdogan accused the outside world of indifference on Syria, adding ‘The regime in Syria has now become a terrorist state.’”

A few weeks ago, May 28, I watched President Obama deliver the commencement address to the U.S. Military Academy at West Point in what was billed as the most important foreign policy speech of his presidency. It has bothered me ever since.

“Four of the service-members who stood in the audience when I announced a surge of our forces in Afghanistan gave their lives in that effort. More were wounded. I believe America’s security demanded those deployments. But I am haunted by those deaths. I am haunted by those wounds. And I would betray my duty to you, and to the country we love, if I sent you into harm’s way simply because I saw a problem somewhere in the world that needs fixing, or because I was worried about critics who think military intervention is the only way for America to avoid looking weak.

“Here’s my bottom line: America must always lead on the world stage. If we don’t no one else will. The military that you have joined is, and always will be, the backbone of that leadership. But U.S. military action cannot be the only – or even primary – component of our leadership in every instance. Just because we have the best hammer does not mean that every problem is a nail....

“First, let me repeat a principle I put forward at the outset of my presidency: the United States will use military force, unilaterally if necessary, when our core interests demand it – when our people are threatened; when our livelihood is at stake; or when the security of our allies is in danger. In these circumstances, we still need to ask tough questions about whether our action is proportional, effective and just. International opinion matters. But America should never ask permission to protect our people, our homeland, or our way of life.

“On the other hand, when issues of global concern that do not pose a direct threat to the United States are at stake – when crises arise that stir our conscience or push the world in a more dangerous direction – then the threshold for military action must be higher. In such circumstances, we should not go it alone. Instead, we must mobilize allies and partners to take collective action. We must broaden our tools to include diplomacy and development; sanctions and isolation; appeals to international law and – if just, necessary, and effective – multilateral military action. We must do so because collective action in these circumstances is more likely to succeed, more likely to be sustained, and less likely to lead to costly mistakes....

“But as I said last year, in taking direct action, we must uphold standards that reflect our values. That means taking strikes only when we face a continuing, imminent threat, and only where there is near certainty of no civilian casualties. For our actions should meet a simple test; we must not create more enemies than we take off the battlefield.”

The speech was a mess...one contradiction after another.

Again, I have said for years that it is all about Syria. We let it become a terrorist state, well over 160,000 have now died, the number displaced is approaching 10 million, Jordan is in extreme danger, and now we see what ISIS is doing.

And Mr. President, we have created generations of enemies when it comes to Syria.

I have been writing since virtually day one of his presidency that we would be paying the price for President Obama’s foreign policy for years to come, and it could very well be generations here too. His position among the worst presidents of all time is secure. His predecessor wasn’t much better. It’s all in these pages. Facts don’t lie.

Further opinion.....

Scott Wilson / Washington Post

“President Obama inherited two wars on taking office, one he called ‘dumb’ to his political benefit and the other he described more urgently as ‘the war we need to win.’

“It is the dumb one today that poses the most immediate challenge to his national security priorities and to his foreign policy legacy.

“Iraq is splintering, and with it both the original neo-conservative belief that a sectarian dictatorship could be made quickly into a stable democracy and Obama’s hands-off approach to the wider region.

“The Islamist insurgents now seizing cities across Iraq’s battered north grew up in Syria, whose civil war Obama has steadfastly avoided despite the grave risks it poses to the region’s delicate stability.

“Those threats of a wider regional war have been given shape. In recent days, armed Islamists spanning the Syrian border have seized Mosul, Iraq’s second city, and a string of Sunni Muslim towns, long estranged from the Shiite-led central government, that run south to the edge of Baghdad. Turkey and Iran may intervene to protect their political and security interests, and Iraq’s Kurds have already moved into the long-contested city of Kirkuk, which was abandoned by the Iraqi army.”

Sen. John McCain (R-Ariz.) said Thursday what is transpiring in Iraq represents a “colossal failure of American security policy.”

Before all this chaos, Iraq had had a bloody weekend, with 52 dying in a series of car bombs in Baghdad, while militants stormed a university in Anbar province, taking dozens of hostages. 40 were then killed in attacks in northern Iraq, most carried out by ISIS.

And Turkey said 28 Turkish truck drivers ferrying diesel to Mosul were abducted by ISIS.

David Ignatius / Washington Post

“The capture Tuesday of Mosul, the hub of northern Iraq, by al-Qaeda-linked militants is an alarm bell that violent extremists are on the rise again in the Middle East. And it’s a good time for President Obama to explain more about how he plans to fight this menace without making the mistakes of the past.

“Obama needs to alert the country to the renewed extremist threat partly to clarify the record. Just 19 months ago, he won reelection arguing that his policies had vanquished the most dangerous core elements of al-Qaeda. But the organization has morphed, and deadly new battles are ahead.

“The campaign theme that the worst terrorist threat had been licked was vividly drawn in the third debate between Obama and Republican candidate Mitt Romney, on Oct. 22, 2012.

“Romney tried to shake Obama’s optimistic narrative about al-Qaeda. ‘It’s really not on the run. It’s certainly not hiding. This is a group that is now involved in 10 or 20 countries, and it presents an enormous threat to our friends, to the world, to America long term, and we must have a comprehensive strategy to help reject this kind of extremism.’

“Obama countered Romney’s statement with his basic campaign mantra: ‘We ended the war in Iraq, refocused our attention on those who actually killed us on 9/11. And as a consequence, al-Qaeda’s core leadership has been decimated.’

“Obama scored points later in that debate when he dismissed Romney’s concerns about Iraq. ‘What I would not have done is left 10,000 troops in Iraq that would tie us down. That certainly would not help us in the Middle East.’ The transcript records Romney sputtering back: ‘I’m sorry, you actually – there was a --.’

“Obama had the better of that exchange, certainly for a war-weary United States that a few weeks later gave him a new mandate. But looking back, which picture was closer to the truth?”

Editorial / Wall Street Journal

“So much for al-Qaeda being on a path to defeat, as President Obama used to be fond of boasting....

“Since President Obama likes to describe everything he inherited from his predecessor as a ‘mess,’ it’s worth remembering that when President Bush left office Iraq was largely at peace. Civilian casualties fell from an estimated 31,400 in 2006 to 4,700 in 2009. U.S. military casualties were negligible. Then CIA Director Michael Hayden said, with good reason, that ‘al-Qaeda is on the verge of a strategic defeat in Iraq.’

“Fast forward through five years of the Administration’s indifference, and Iraq is close to exceeding the kind of chaos that engulfed it before the U.S. surge. The city of Fallujah, taken from insurgents by the Marines at a cost of 95 dead and nearly 600 wounded in November 2004, fell again to al-Qaeda in January. The Iraqi government has not been able to reclaim the entire city – just 40 miles from Baghdad. More than 1,000 Iraqi civilians were killed in May alone, according to the Iraq Body Count web site....

“The Administration’s policy of strategic neglect toward Iraq has created a situation where al-Qaeda effectively controls territories stretching for hundreds of miles through Anbar Province and into Syria. It will likely become worse for Iraq as the Assad regime consolidates its gains in Syria and gives ISIS an incentive to seek its gains further east. It will also have consequences for the territorial integrity of Iraq, as the Kurds consider independence for their already autonomous and relatively prosperous region.

“All this should serve as a warning to what we can expect in Afghanistan as the Administration replays its Iraq strategy of full withdrawal after 2016. It should also serve as a reminder of the magnitude of the strategic blunder of leaving no U.S. forces in Iraq after the country finally had a chance to serve as a new anchor of stability and U.S. influence in the region. An Iraqi army properly aided by U.S. air power would not have collapsed as it did in Mosul.

“In withdrawing from Iraq in toto, Mr. Obama put his desire to have a talking point for his re-election campaign above America’s strategic interests. Now we and the world are facing this reality. A civil war in Iraq and the birth of a terrorist haven that has the confidence, and is fast acquiring the means, to raise a banner for a new generation of jihadists, both in Iraq and beyond.”

Michael Young / Daily Star (Beirut)

“In a speech at West Point in May, President Barack Obama observed, ‘For the foreseeable future, the most direct threat to America, at home and abroad, remains terrorism, but a strategy that involves invading every country that harbors terrorist networks is naïve and unsustainable.’

“No one disagrees with the straw man Obama set up. Yet the president must admit one thing: Any solution to the ISIS problem must come from both Iraq and Syria. Obama is learning why a Syrian conflict he once recklessly qualified as ‘someone else’s civil war’ has turned into a regional danger.

“As the former U.S. envoy in Syria, Robert Ford, wrote this week in the New York Times, ‘We don’t have good choices on Syria anymore. But some are clearly worse than others. More hesitation and unwillingness to commit to enabling the moderate opposition fighters to fight more effectively both the jihadists and the regime simply hasten the day when American forces will have to intervene against al-Qaeda in Syria.’

“Ford is right. The Obama administration’s staying out of Syria at all costs has effectively meant it allowed a situation to fester that may impose its intervention at a later stage....

“By taking over Mosul, ISIS may have compelled the United States to overhaul its Syria policy. But nothing in Obama’s record makes us hopeful about his reaction. Iraq and Syria require American time and effort, which the president has been consistently unwilling to give the Middle East. The only bitter satisfaction is that a region he arrogantly thought he could ignore has just bitten a big chunk out of his leg.”

Daniel Henninger / Wall Street Journal

“The fall of Mosul, Iraq, to al-Qaeda terrorists this week is as big in its implications as Russia’s annexation of Crimea. But from the Obama presidency, barely a peep.

“Barack Obama is fiddling while the world burns. Iraq, Pakistan, Ukraine, Russia, Nigeria, Kenya, Syria. These foreign wildfires, with more surely to come, will burn unabated for two years until the United States has a new president. The one we’ve got can barely notice or doesn’t care.

“Last month this is what Barack Obama said to the 1,064 graduating cadets at the U.S. Military Academy: ‘Four and a half years later, as you graduate, the landscape has changed. We have removed our troops from Iraq. We are winding down our war in Afghanistan. Al-Qaeda’s leadership on the border region between Pakistan and Afghanistan has been decimated.’

“That let-the-sunshine-in line must have come back to the cadets, when news came Sunday that the Pakistani Taliban, who operate in that border region between Pakistan and Afghanistan, had carried out a deadly assault on the main airport in Karachi, population 9.4 million. To clarify, the five Taliban Mr. Obama exchanged for Sgt. Bowe Bergdahl are Afghan Taliban who operate on the other side of the border.

“Within 24 hours of the Taliban attack in Pakistan, Boko Haram’s terrorists in Nigeria kidnapped 20 more girls, adding to the 270 still-missing – ‘our girls,’ as they were once known....

“The big Obama bet is that Americans’ opinion-polled ‘fatigue’ with the world (if not his leadership) frees him to create a progressive domestic legacy. This Friday Mr. Obama is giving a speech to the Sioux Indians in Cannon Ball, N.D., about ‘jobs and education.’

“Meanwhile, Iraq may be transforming into (a) a second Syria or (b) a restored caliphate. Past some point, the world’s wildfires are going to consume the Obama legacy. And leave his successor a nightmare.”

Editorial / Washington Post

“For years, President Obama has been claiming credit for ‘ending wars,’ when, in fact, he was pulling the United States out of wars that were far from over. Now the pretense is becoming increasingly difficult to sustain....

“If Iraq joins Syria in full-fledged civil war, the danger to U.S. allies in Israel, Turkey, Jordan and the Kurdish region of Iraq is immense. These terrorist safe havens also pose a direct threat to the United States, according to U.S. officials. ‘We know individuals from the U.S., Canada and Europe are traveling to Syria to fight in the conflict,’ Jeh Johnson, secretary of homeland security, said earlier this year. ‘At the same time, extremists are actively trying to recruit Westerners, indoctrinate them, and see them return to their home countries with an extremist mission.’”

[Ed. This is Europe’s overwhelming No. 1 fear today.]

Editorial / Wall Street Journal

“In 2012 Anthony Blinken, then Mr. Biden’s top security adviser, boasted that, ‘What’s beyond debate’ is that ‘Iraq today is less violent, more democratic, and more prosperous. And the United States is more deeply engaged there than at any time in recent history.’....

“Contrary to what Mr. Blinken claimed in 2012, the ‘diplomatic surge’ the Administration promised for Iraq never arrived, nor did U.S. weapons.”

Last week I blasted Mr. Blinken. He’s a bad guy. He needs to go.

Editorial / USA TODAY

“At this point, the only way to roll back ISIS is to redeploy U.S. troops to Iraq on the ground. This would help the security forces reform their bad practices. It would also reignite and coordinate a Sunni tribal movement that inflicted substantial setbacks on ISIS’ forebears in the 2007-09 period.

“The presence of ground troops would allow the U.S. to exercise leverage in Iraq in pressuring the central government to integrate ordinary Sunni Arabs into political and economic life in Iraq. Without such reforms, the prospects for peace in Iraq are remote.”

Editorial / New York Post

“When in 2011 President Obama announced, against the advice of his commanders, the complete withdrawal of all U.S. forces from Iraq, he grandly declared ‘the tide of war is receding.’

“Two days later, his secretary of state, Hillary Clinton, answered critics such as John McCain, who said the president’s announcement was a victory for Iran.

“Said Mrs. Clinton: ‘No one, most particularly Iran, should miscalculate about our continuing commitment to and with the Iraqis going forward.’....

“The president’s practice has been to blame his failures on his predecessor. But in Iraq, President George W. Bush did not hand over a mess. He handed over a victory that Obama only had to sustain.

“All that the president has squandered – in a humiliation for America, a vindication for al-Qaeda, a gain for Iran and a catastrophe for long-suffering Iraqis caught in the violence.”

Washington and Wall Street

Some brief comments. The World Bank issued its revised outlook for 2014 and reduced its global growth forecast to 2.8% for 2014 vs. an initial projection in January of 3.2%. The U.S. outlook was reduced to 2.1% from 2.8% after the awful weather-induced first quarter.

[According to a Wall Street Journal survey of 48 economists, growth is seen to be rebounding 3.5% in the second quarter, after the 1% contraction in the first, and then after that 3% in the year’s last two quarters. The consensus view on the jobless rate is for it to end the year at 6.1%.]

Elsewhere, according to the WB, the Euro-area forecast for GDP remained unchanged at 1.1%; Japan is 1.3%, India 5.5% (vs. January’s 6.2% estimate); and China 7.6%.

Russia was cut to 0.5% from 2.2%, while Ukraine is now seen contracting 5% this year.

Back in the U.S., there was positive news on the budget deficit front as for the first 8 months of the fiscal year, beginning October 1, and it would appear the deficit is headed towards the Congressional Budget Office’s recent forecast for F2014 of $492 billion, vs. $680 billion in F2013, and $1 trillion+ the prior four years. Revenues are up 7%, while outlays are 2% lower. Just imagine what revenues would be if the economy was really cranking.

May retail sales came in less than expected, up just 0.1% ex-autos, while the gross figure was up 0.3%.

The Federal Reserve has an Open Market Committee meeting this week, commentary to follow.

Europe and Asia

In the eurozone, the steps the European Central Bank took about ten days ago to stimulate the economy and promote lending continue to reverberate, particularly in the credit markets. The euro currency weakened a little, which is needed to improve the pace of exports and to import inflation, rather than the past trend of importing disinflation with a rising euro (seemingly against all odds).

The ECB remains focused on inflation and their 2014 forecast that prices will rise only 0.7% vs. a target of 2.0%.

On the interest rate front, ECB Executive Board member Benoit Coeure told France radio on Saturday that eurozone rates will diverge from those in the United States and Britain for a number of years.

“Clearly what we wanted to indicate on Thursday (June 5) is the fact monetary conditions will diverge between the eurozone on one hand and the United States and the United Kingdom on the other for a long period, which will be several years.

“We are going to keep rates close to zero for an extremely long period, whereas the United States and the United Kingdom will at some point return to a cycle of rate rises.”

Separately, Greece’s GDP fell 0.9% in the first quarter, which was actually its best performance since Q3 2008. The government maintains the economy will rise 0.6% for the full year.

Spain’s Q1 GDP was up 0.4% over the prior quarter, double the rate of the entire eurozone, and while it’s dealing with still staggering 25% unemployment, there are signs the housing market has bottomed, with positive activity in the likes of Barcelona. Home prices have fallen an average 47% from the peak of 2007, according to Bloomberg News.

And the U.K. continues to rock and roll, with industrial production up 0.4% in April over March, up 3% year over year, while the rolling 3-mo. unemployment rate to April came in at 6.6%, down from 6.8% in Q1. The IMF’s Christine Lagarde admitted her organization “got it wrong” when it came to the strength of Britain’s recovery (your editor was correctly optimistic from day one vs. the other eurozone economies post-crisis), but the IMF added its voice to those warning on the U.K.’s housing bubble.

And so it was, harkening back to Benoit Coeure’s comments above, that Bank of England Governor Mark Carney warned that the first interest rate hike “could happen sooner than markets currently expect” (which is sometime in 2015). The Chancellor of the Exchequer, George Osborne, said earlier this year such a move would demonstrate the strength of the recovery, while Carney said tightening, when it occurs, will be gradual and to a level significantly below the 5% previously thought standard. [In the U.S., the norm on the funds rate is thought to be 4%.]

So rate hikes are coming soon and Osborne said the BOE would have wide latitude to restrict lending by limiting how much home buyers can borrow relative to their incomes and how much they can borrow relative to property value. Osborne added, “I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing market.”

And then there’s the European Parliament and the selection of a new president for the European Commission, a powerful position. German Chancellor Angela Merkel reaffirmed her support for Luxembourg’s Jean-Claude Juncker after meeting EU leaders critical of the choice; specifically Swedish Prime Minister Fredrik Reinfeldt, the Netherland’s Mark Rutte, and British Prime Minister David Cameron.

Since the EU parliamentary elections, who becomes the next Commission head has become a hot-button issue with the risk Britain could be pushed closer to exiting the EU if Juncker is selected.

Cameron sees Juncker as an old-style European federalist and says the EU needs someone more open to reform and reducing the power of Brussels, especially after the large-scale protest vote against the bloc in the elections.

In light of promising Britons an in-out EU membership referendum in 2017 if he is re-elected next year, Cameron said, “Obviously the approach that the European Union takes between now and then will be very important.”

EU leaders traditionally name the Commission head on their own, but new rules mean they have to “take into account” the results of the European Parliament elections.

The European People’s Party (EPP) – the largest center-right grouping, of which Juncker is a member – won the highest number of seats in May’s polls and he has argued that gives him the mandate but the EPP’s tally fell from the last vote in 2009 and they are far from an actual majority; at least they haven’t cobbled together a coalition as yet.

Which of course is where the far-right, far-left and populists come in. They demand to be heard.

Editorial / The Economist

“The European Union is in deep trouble. Growth is sluggish at best, unemployment punishingly high and deflation threatens. The European elections returned many populist, anti-EU members to the European Parliament; public support for the project has plummeted. Against this background, the squabble over who should be the next president of the European Commission, the EU’s executive arm, looks ever more like a dangerous tragicomedy: Franz Kafka meets Dario Fo [Ed. Italian playwright]....

“By even entertaining the option of Mr. Juncker, Europe’s leaders have indulged two dangerous fantasies for their union. The first is that ‘more of the same’ is an option. In fact, without reform, Europe faces stagnation or even break-up.

“The second fantasy is that the parliament is somehow more democratic than the European Council of (elected) heads of government. This is nonsense. Hardly any European voters have heard of Mr. Juncker. They treat European elections as second-order national polls. In every single EU country, turnout is much higher in national elections. Under the Lisbon treaty, the European council, ‘taking into account the elections to the European Parliament,’ is meant to nominate a candidate who is then ‘elected’ by the parliament. By insisting that it will block anybody other than Mr. Juncker, the parliament is trying to deny the European Council its prerogative.

“The folly of indulging this second fantasy could be revealed very quickly. Imagine that Mr. Juncker withdraws and Mr. (Pascal) Lamy (a French Socialist) or Ms. Lagarde is pushed forward. The European Parliament, which now believes itself the acme of democracy, might well say no. Europe will then find that its economic crisis is followed by an – entirely avoidable – constitutional one.” To be continued....

Meanwhile, remember how I indelicately hinted a few weeks that France’s Marine Le Pen, leader of the National Front party, may kind of desire that her father, Jean-Marie, founder of the FN, err, disappear? 

It was back on May Day in Paris I stood within ten feet of father and daughter and little did I know the rift between the two, which has always existed because Jean-Marie, 85, can’t keep his racist mouth shut while Marine wants to bring the FN more into the mainstream so she can run for president in 2017, was about to explode.

It was Jean-Marie, who I pointed out days before the European Parliament vote, that had uttered the slur that the way to take care of the immigration problem in France was to introduce Ebola. Somehow, Marine and the party weathered that storm.

But then this week he uttered a slur when talking about French singer Patrick Bruel, who is Jewish. Marine denounced what she called her father’s “political error” and Jean-Marie said he was “very hurt.” [Jean-Marie’s statement on Bruel had an allusion to Nazi death camp ovens.]

It ended up being the first time Marine rebuked her father in public. Jean-Marie compounded matters by saying, “I have no intention of changing my attitude.” Then he faulted his daughter’s leadership of the party he remains honorary president of.

This comes at a most inopportune time as Marine tries to form a coalition in the European Parliament, which is needed to secure funding and speaking time.

Geert Wilders, the Dutch anti-Muslim leader and the Front National’s most important ally, described Mr. Le Pen’s comment as “disgusting” and demanded an explanation from Marine.

---

Lots of news on China’s economy. Consumer prices rose 2.5% from a year earlier in May, which was up from April’s 1.8% pace but still below the government’s upper limit of 3.5%. Food prices rose a manageable 4.1%. But producer prices fell 1.4%.

May exports rose 7% over year ago levels, but imports declined 1.6%, a sign of weakness.

Industrial production last month was up a solid 8.8% over May 2013, while retail sales rose 12.5%, better than expected.

For the period January thru May, fixed-asset investment rose 17.2%, while home sales for the five months vs. the same period last year fell 9.2%.

Auto sales were up 13% in May, according to the China Automobile Dealers Association, while the state #s said they were up 13.9%. Chinese automakers now account for 21.5% of sales, a share that has been falling, while German makes command a 28.7% share. Separately, GM’s sales rose 9.2% in the month over year ago levels, while Ford’s surged 32%. Toyota’s and Nissan’s increased 3%, Honda’s were up 10%.

Premier Li Keqiang urged officials to prioritize rapid growth with “a sense of responsibility and urgency.” The government continues to stress infrastructure programs for less-developed areas, along with tax breaks for small- and medium-sized businesses.

Economist Stephen S. Roach had some thoughts on China’s service sector in an op-ed for the Wall Street Journal. To wit:

“In 2013, China’s services sector jumped to 46% of GDP – up three percentage points in two years and a larger share of GDP than construction and manufacturing combined. Consistent with the structure of other modern economies, China’s still nascent services sector could rise to 55%-60% of its GDP by 2025.”

Roach points out the U.S. is well-positioned to capture a significant share “of the coming bonanza in Chinese services. From retail chains (Wal-Mart) and leisure (Disney) to domestic transportation (United Airlines) and an array of insurance and hospital systems.”

But then you have the issue of “market access” and for that you need successful negotiations between the U.S. and China over a Bilateral Investment Treaty, or BIT. At least in the short term, I’m not as optimistic as Mr. Roach might be on the market access front.

Lastly, as the Wall Street Journal pointed out, China faces a major issue involving probable commodities fraud at a major port (which could also be an issue at other facilities), where large banks and trading companies lent large sums based on collateral of items such as copper and aluminum that may not be in the amounts declared. Citigroup, for one, could be a victim. This had been a spreading practice, where Citi, say, would loan large sums to a business understanding the loan was backed by hard assets....or so they thought. 

Turning to Japan, the government revised first-quarter GDP up to 6.7% annualized from 5.9%, as consumers and businesses increased spending ahead of the April 1 sales tax hike. GDP is expected to decline 3%+ in the second quarter.

In his latest initiative to boost growth, Prime Minister Shinzo Abe proposed cuts to corporate taxes in 2015, bringing the main rate to under 30% in a few years from 35%.

Street Bytes

--Owing to tensions in Iraq and rising oil prices, along with the World Bank’s downward revisions for global growth, stocks took it on the chin, with the Dow Jones falling for the first time in four week, down 0.9% to 16775 after hitting another new all-time high of 16945 on Tuesday. The S&P 500 also hit a new high, Tuesday, but ended down 0.7%. Nasdaq had its four-week winning streak snapped, down 0.3% to 4310.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.45% 10-yr. 2.60% 30-yr. 3.41%

Producer prices for the month of May fell 0.2% when they were expected to rise 0.1%. Ex-food and energy they declined 0.1%. For the 12 months, both figures were up 2.0%.

--The yield on Spain’s 10-year finished the week at 2.66%, Italy’s 2.78%.

--Monday marked Apple’s first stock split in nine years, 7-for-1, meaning every Apple stockholder received six additional shares for every share they owned as of June 2. The lower price, $91.40 a/o Friday’s close, could clear the way for the company to be included among the Dow 30 stocks. Previously, Apple’s price made it impractical to be included in the benchmark because the Dow’s value is calculated in a way that gives greater weight to the companies with the highest stock prices. So the selection committee has steered clear of companies with a share price above $300, with Visa Inc. being the only Dow component currently above $200.

--Citigroup is tussling with the Justice Department over Citi’s sale of shoddy mortgages in the run-up to the financial crisis. Citi is offering less than $4 billion, but the feds are seeking $10 billion. Citigroup argues it was a lesser player in the mortgage-securities market, but the government counters Citi’s bonds had a much higher percentage of bad loans.

--Intel raised its guidance for the second quarter on the heels of stronger demand for business PCs, though consumers continue to move towards tablets and smartphones. Overall, the company now expects some revenue growth for the year as compared to a previous outlook of flat sales.

But earlier in the week, Intel lost a long-running court battle with the European Union to have a 1.1 billion euro fine reduced in a case dating back to 2009, where Intel was found to have abused its dominant position in the chip market.

--Yogawear retailer Lululemon saw its shares plunge 15% after it slashed its outlook for the year and announced its CFO was retiring so he could ski more.

--Tesla Motors Inc. said it would allow others to use its intellectual property in hopes of speeding up development of electric cars by all manufacturers. CEO Elon Musk said the company would not take legal action against anyone using the technology “in good faith.”

“If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal,” Musk said.

In a call with reporters, Musk added, “We think the market’s quite big enough for everyone. It doesn’t really harm Tesla but helps the industry, and I think actually it will help Tesla, mostly with respect to attracting and motivating the world’s best technical talent.”

--Ford Motor Company lowered the fuel-economy ratings of some of its vehicles for the second time in less than a year, most of them hybrids, and will pay $125 to $1,050 in good-will to customers who own or lease about 200,000 of the cars in the United States.

--General Motors is recalling the final 500,000 cars it hadn’t recalled before. Actually, it is recalling more than 500,000 Chevrolet Camaros after finding a fault with the ignition system. GM said a driver’s knee could bump the key fob and turn it out of the ‘run’ position, causing a loss of power.

Seeing as GM can’t get the ignition function straight, I suggest it start selling horses. Maybe enlist the Amish for some ideas as well.

GM has now recalled 13 million vehicles in the U.S. this year – more than the carmaker sold in 2013.

--Dubai’s Emirates Airline cancelled an order for 70 of Airbus’ A350 wide-bodied aircraft, a big blow for Airbus. Emirates made the move after a review of its fleet requirements.

--The median home price in California climbed 0.8% in May over April to $386,000, according to DataQuick; up 13.5% from a year earlier, but the pace has been slowing.

--Revenue from online gaming in New Jersey fell $1 million in May over April to $10.4 million, the second consecutive month of declines. But, overall casino revenue in Atlantic City rose 1.3%, when you take out the Atlantic Club, which closed.

Gov. Chris Christie had estimated the casinos would rake in $1 billion in the first year in online revenue and it will now be in the $200 million range, according to analysts.

--Priceline is acquiring restaurant booking service OpenTable Inc. for about $2.6 billion in cash. 15 million book restaurants through the company.

--European taxi drivers staged large protests Wednesday to vent their anger at American taxi-hailing app Uber. The privately held San Francisco-based company – valued recently at as much as $18 billion and backed by the likes of Google and Goldman Sachs – has developed a satellite-based technology that allows users to book a taxi using its smartphone app. But taxi drivers in the likes of Paris and London say Uber circumvents local regulation over licensing and taxes that apply to regular taxi firms.

Uber, by the way, takes a 20% cut of all drivers’ receipts and reportedly booked revenue of $213 million last year. But many are questioning the $18 billion valuation.

--Thanks largely to rising stock markets, global private wealth has surged to $152 trillion, according to a report by Boston Consulting Group, with the number of millionaire households in the world rising to 16.3 million in 2013, up from 13.7 million in 2012.

High saving rates in China and India have also been key contributors.

--Billionaire Wilbur Ross sold his remaining stake in Bank of Ireland. If I have my numbers right, Ross earned about $800 million on his initial investment in just three years. Ross swept in when the bank was in trouble at the height of the country’s financial crisis. Good for him.

--Tourist entries into Israel are up 17% for the first quarter of 2014, according to the Central Bureau of Statistics. In May, a record 382,000 visitors entered Israel (292,000 arriving by air).

Tourism Minister Dr. Uzi Landau credited the upswing to recent events saying, “The visit of Pope Francis caused a significant spike in incoming tourism.” [Jerusalem Post]

--I was reading an article on Morgan Stanley by Avi Salzman of Barron’s and I couldn’t help but note this passage.

“At an internal meeting...in January 2013, the firm’s 250 top executives listened to a consultant explain how Morgan Stanley could improve. (CEO James) Gorman sat at a table nearby taking notes. As the consultant talked, he began to jot down a series of questions: ‘What do we do? How do we do it? With what result?’ Suddenly, he walked to the podium and asked the consultant for the microphone.

“ ‘I thought it was important that every employee understand in very simple language what our strategy is,’ he explains. ‘And the best way to do that would be to get up and talk about it live, not behind some set of fancy documents.’”

Boy, if I were applying for a job with Morgan Stanley, I’d want to know the above. And for anyone interviewing in any industry, this is good ammunition.

--Speaking of advice for job seekers, especially recent college graduates, great piece by Danielle Paquette in the Washington Post on new UPS CEO David Abney, who started with the company 40 years ago, working part time, loading trucks at night and studying business during the day at Delta State University in Cleveland, Miss.

“Abney, the first in his family to attend college, couldn’t afford to live on campus. He often skipped the 45-minute commute home and slept on couches in the school’s union – the portrait of a scrappy dreamer, his friends say.”

Former McDonald’s CEO James Skinner started his career as a restaurant manager trainee. Wal-Mart CEO Doug McMillon’s first job was unloading trucks at an Arkansas distribution center. GM CEO Mary Barra started off as an 18-year-old intern.

Just get your foot in the door, kids. If you show up early, stay a little later, and make your boss look good (without kissing his or her butt), you’ll do very well.

--United Continental Holdings Inc. is the latest to change its frequent-flier program to award miles based on ticket price rather than distance flown, a shift to favor bigger spenders.

--If you are traveling to Ireland on Aer Lingus, last I saw they were slated for strikes on June 16 and June 18 as talks broke down with cabin crews over work schedules, or what they call “roster changes.” The cabin crews want the same rules pilots have...work five days, then three days off. The airline says this would result in over 300 job losses.

--A rail strike in France has halted many services. Trade unions fear a merger of two networks will result in job losses.

--Detroit’s big three automakers pledged $26 million to help the city protect its art collection from being broken up or sold as part of the nation’s largest municipal bankruptcy case. The $26 million is part of an $800 million effort to insulate the city-owned Detroit Institute of Arts.

--McDonald’s Corp. continued to struggle in the U.S., with May same-store sales declining 1%; the sixth month in the past seven when sales dropped. In my own recent taste comparison between McDonald’s and Burger King, I rate McDonald’s No. 1. [Burger King’s service, however, was superior.]

--Tyson Foods Inc. raised its offer for Hillshire Brands Co. to about $7.7 billion, outbidding Pilgrim’s Pride Corp. to gain control of the maker of Jimmy Dean sausages and some hot dogs.

What a month for Hillshire, which was trading at about $36 a share when it made a bid for Pinnacle Foods Inc., but then Pilgrim’s Pride and Tyson began their bids for Hillshire, whose shares are now $61.

--According to the UN Food and Agriculture Organization, per capita fish consumption of farmed fish is forecast to rise above the level of wild fish for the first time in 2014.

But as pointed out in a piece for the Financial Times: “The growth of farmed fish is likely to pose its own challenges. There will be continued upward pressure on feed prices, which have been at high levels due to a fall in catches of anchovies and other small oil fish used as fish feed. The limited areas where fish farms can be built and constraints on water supplies impose logistical constraints.

“The most serious issue is the rise in disease affecting farmed fish.”

So what’s needed around the world are good farming processes. With demand for fish exploding, the percentage of farmed fish will only continue to surge in kind.

--ESPN reports that as part of an agreement in 2008 to promote Beats’ high-end headphones, LeBron James received a small stake in the company that, with the acquisition of Beats Electronics by Apple gave LeBron a $30 million profit.

--Phil Mickelson has been cleared in the federal investigation looking into insider-trading of Clorox shares, as the FBI and SEC found no evidence he had traded them.  In fact, as reported by the New York Times, the inclusion of Mickelson in an inquiry that is still examining the activity of Carl Icahn and sports gambler Billy Walters was a gross mistake, with erroneous information being handed to the likes of the Times by other people briefed on the matter.

But Mickelson and Walters still face an investigation into well-timed trades in Dean Foods back in 2012, with Walters supposedly pocketing $15 million and Mickelson $1 million. Mickelson has denied any wrongdoing.

So knowing the above, the government clearly played the part of a-hole in confronting Mickelson twice in the past year, seeking his cooperation. It’s also unclear whether Mickelson is a target at all in Dean Foods. Icahn has nothing to do with this one.

--Matt Lauer signed a new multi-year contract extension to remain on the “Today” show, even as ABC’s “Good Morning America” overtook “Today” after years of dominance, 16, to be exact. Lauer started in the anchor position way back in 1997 and the new deal is said to take him to 2017, at an estimated $20 million+ a year.

Foreign Affairs, cont’d...

Iran: A final draft on a long-term agreement for Iran’s nuclear program was to be in place by July 20 but writing hasn’t even commenced and leaders in the House of Representatives have written a letter to President Obama suggesting a pact with Iran restricted to it nuclear program is not enough for the chamber to lift sanctions on the country. The letter, obtained by the Jerusalem Post, says in part:

“Almost all sanctions related to Iran’s nuclear program are also related to Tehran’s advancing ballistic missile program, intensifying support for international terrorism, and other unconventional weapons programs.”

The administration concedes that any future nuclear deal will likely involve sanctions relief requiring congressional approval.

Meanwhile, Senate Foreign Relations Committee chairman Robert Menendez (D-NJ) said any deal should include the dismantlement of thousands of centrifuges, the elimination of Iran’s low-enriched uranium, a closure of its heavy-water plutonium reactor in Arak and a termination of Iran’s vast nuclear research and development program." Such a deal should also last more than 20 years, Menendez said, “at least as long as Iran has been lying to the world about its program.”

Menendez said he would also oppose extending negotiations by half a year unless negotiators come “really close to an agreement which is in line with my thought about what an agreement should be.”

For their part, a senior Iranian official said the country was “busy redesigning” a planned research reactor at the Arak plant to sharply cut its potential output of plutonium, which, if true, addresses a key dispute in the talks.

The West is worried that Arak, once operational, could supply enough plutonium for an atomic bomb, while Israel has argued any final agreement with Iran should demand the complete shutdown of the reactor, as Menendez believes.

Former Israeli Military Intelligence chief Amos Yadlin explained last year that, if the Arak reactor was allowed to become operational, it would effectively be immune from attack and the West would “be deprived of its primary ‘stick’ in its efforts to persuade Iran to forgo a military nuclear capability.”

Yadlin said that the West “would likely seek to avoid an attack on a ‘hot’ reactor, lest it cause widespread environmental damage.”

Iran says Arak is intended to produce isotopes for cancer and other medical treatments. Work on the plant was halted under the six-month interim deal struck with the P5+1 last November. [Jerusalem Post]

Of course it’s not certain what the other nations involved in the negotiations will do. French Foreign Minister Laurent Fabius, for example, said the sides are “hitting a wall” over Iran’s uranium-enrichment efforts.

“We say that there can be a few hundred centrifuges, but the Iranians want thousands,” he said. [Reuters]

Time is running out. A meeting of all six powers is scheduled for June 16-20 in Vienna.

Syria: Former U.S. ambassador to Syria, Robert S. Ford, in an op-ed for the New York Times:

“In February, I resigned as the American ambassador to Syria, after 30 years’ foreign service in Africa and the Middle East. As the situation in Syria deteriorated, I found it ever harder to justify our policy. It was time for me to leave. The media attention about my departure, however, misses the real point. What matters is that the regime of President Bashar al-Assad can drop barrel bombs on civilians and hold sham elections in parts of Damascus, but it can’t rid Syria of the terrorist groups now implanted in the ungoverned regions of eastern and central Syria.”

Ford says the White House should have been arming the moderate opposition.

[Separately, this week the Syrian Observatory for Human Rights said it had evidence 25 were tortured to death by Assad’s intelligence goons in Damascus.]

Israel: The country has a new president, Reuven “Rubi” Rivlin, replacing Shimon Peres.

Lebanon: For a sixth time, the dysfunctional Lebanese failed to elect a president. The last five times there hasn’t been a quorum in parliament with various factions, including Hizbullah, boycotting.

Egypt: Newly elected President Abdel-Fattah El-Sisi vowed to strengthen security forces to restore order as he seeks to lure investment and revive the battered economy. He also ordered police to enforce the laws on sexual assault and called for a new moral code with respect to women. The incidence of sexual assaults has been rising.

Afghanistan: The runoff in the presidential election is Saturday, with Abdullah Abdullah expected to win easily over Ashraf Ghani. It turns out the death toll in last weekend’s assassination attempt by the Taliban on Abdullah was 12.

Among the people, there is little confidence the winner of the vote will be able to secure the country and that the Afghan security forces are up to the task. Events in Iraq this week don’t help.

[Tragically, a friendly fire incident took out five American Special Operations service members when a coalition aircraft unleashed an airstrike on their position in southern Afghanistan.]

Pakistan: The Taliban staged a massive attack on Karachi (Jinnah) International Airport, resulting in at least 28 deaths, including 10 militants, with the Taliban claiming it was in response to Pakistani attacks on its civilians. Prime Minister Nawaz Sharif’s attempts to initiate peace talks with the militants are being called into question. It hardly seems as if the Taliban want peace.

Instead, what is clear is they want to overthrow the government and there are very real concerns about the safety of Pakistan’s nuclear weapons.

Ukraine: President Petro Poroshenko told Russian President Vladimir Putin that reports at week’s end of Russian tanks moving into Ukrainian territory are unacceptable. [The U.S. confirmed the reports.] Ukraine’s interior minister said three had entered rebel areas in the east, sent directly into the fight, having come across a border checkpoint controlled by rebels in the Luhansk region. Russia’s foreign ministry said the report was “another fake piece of information.”

Fighting continues in the east, with a worsening humanitarian situation in the separatist-controlled city of Slavyansk, which had a prewar population of 130,000. Zero international aid is getting in. Those fleeing to neighboring villages aren’t finding any help there either.

Putin said a gas price discount deal offered to Ukraine was designed to help its economy, but Ukraine rejected it, saying it “won’t fall into Russia’s gas trap.” Kiev was given until June 16 to begin paying off its debt to Russian state gas exporter Gazprom. It had previously received $786 million for supplies made in February and March.

Meanwhile, Russian state television has been vilifying Poroshenko on its news and talk shows. A poll by the Russian Public Opinion Research Center said one in five Russians believe the new Ukrainian leader represents the interests of “fascists, nationalists and banderites.”

In his first speech after being sworn in as president, Poroshenko said he had told Putin when the two met in Normandy that Crimea would “always be Ukrainian.”

“I don’t want war; I don’t want revenge. I want peace and I want peace to happen. Please, lay down the guns and I guarantee immunity to all those who don’t have bloodshed on their hands.”

Russia: On Monday, U.S. military jets intercepted four Russian heavy bombers that flew close to Alaska, according to the North American Aerospace Defense Command. It was thought the nuclear-capable planes were conducting bombing drills. When confronted by two U.S. F-22 fighter planes, two of the Tu-95 Russian bombers reversed course towards Russia’s far eastern territory, while the other two went south and entered the U.S. northern air defense zone, “flying as close as roughly 50 miles off the Northern California coast. Two U.S. F-15 fighter planes were then scrambled in response to intercept them.” [Global Security Newswire]

U.S. Representative Mike Conaway (R-Texas) said “Putin is doing this specifically to try to taunt the U.S. and exercise...some sort of saber-rattling, muscle-flexing kind of nonsense. Truth of the matter is we would have squashed either one of those [bombers] like baby seals.”

China: Vietnam claimed China had shifted an oil rig in disputed waters of the South China Sea, with six warships guarding the structure, while China is constructing artificial islands near the Spratlys, complete with a port and airstrip; the latter being used to enforce its new air defense identification zone over the South China Sea. 

Both sides claim their ships are being rammed by the other side. A Chinese foreign ministry spokesman said on Monday that Chinese ships had been rammed more than 1,400 times. The United States said both sides should remove all of their ships and China should remove the oil rig.

Meanwhile, similar to the issue the United States had with Russia, Japan protested to Beijing on Wednesday after Chinese fighter jets flew within 30 meters of Japanese military planes in airspace claimed by both nations. China did the same thing weeks earlier.

Japan’s defense ministry said the Chinese fighter jets came close enough to the propeller driven reconnaissance craft that the crew of one Japanese plane photographed what appeared to be missiles on the underside of the jets.

Then there is Hong Kong. Beijing issued a white paper setting the record straight, in its mind, on “one country, two systems.”

The central government holds “comprehensive jurisdiction” over Hong Kong and is the source of its autonomy, Beijing said, stressing that while the city could, in the future, choose its leader through ‘universal suffrage,’ that person must be loyal to the country.

China’s national security and interests were at stake, it added.

This isn’t anything new, but the timing was unexpected, with the State Council saying “many wrong views are currently rife in Hong Kong,” adding: “Some people are confused or lopsided in their understanding of the policy [one country, two systems] and the Basic Law.”

There is an election slated for choosing a chief executive in 2017.

The White Paper said: “The high degree of autonomy enjoyed by Hong Kong is subject to the central government’s authorization. There is no such thing called ‘residual power’ for the special administrative region,” it said.

And it also warned against “outside forces” using the city to interfere in China’s domestic affairs. [South China Morning Post]

This is a huge deal. July 1 is the anniversary of the British handover to China back in 1997 and protests are planned. If riots are sparked, martial law could be declared by Beijing. Whether it is this year or closer to 2017, I can guarantee this is explosive. The central government understands upheaval could spread to cities on the mainland. [At least they better understand this.] 

Lastly, in another worrisome development, Beijing froze further cooperation talks with Taiwan in a sign of growing displeasure over the island’s delayed ratification of a controversial free-trade agreement signed last June.

So you look at all the above, and throw in the ongoing maritime disputes with the Philippines, plus tensions on the Korean Peninsula, and as Gideon Rachman put it in the Financial Times:

“The rise in tensions in the region is now so palpable that senior political figures are sounding the alarm. A few days ago, at the Jeju Forum for Peace and Prosperity, I heard Yun Byung-se, South Korea’s foreign minister, warn that the increase in tensions in Asia means that ‘it looks like Pandora’s box is being opened.’”

It’s all about the rapid rise of China, its increased prosperity and spending on defense, and its unrelenting assertiveness about longstanding territorial claims.

Japan: Prime Minister Shinzo Abe told parliament he would boost his efforts toward restarting commercial whaling, despite a top U.N. court’s order that Tokyo must cease such activity in the Antarctic. I hope the whales ram and sink the Japanese vessels.

Brazil: Protests the first day of the World Cup, Thursday, were fairly small and at least subway workers in Sao Paulo backed down from a threatened strike (after walking out for three days), which would be disastrous.

Random Musings

--Yes, it was a political earthquake on Tuesday night in the Richmond, Virginia area when for the first time in our nation’s history, a sitting House Majority Leader, Republican Eric Cantor, was defeated in a party primary by tea party candidate and college economics professor, David Brat. And it wasn’t even close, 56% to 44%.

L. Brent Bozell, chairman of conservative group ForAmerica (sic) that targeted Cantor, said his loss “is an apocalyptic moment for the GOP establishment. The grassroots is in revolt and marching.”

Well, the nationwide poll numbers simply don’t bear this out, but Cantor was indeed a major favorite of Wall Street and big business, specifically the U.S. Chamber of Commerce and the Business Roundtable, while the tea party has been critical of the traditional wing of the GOP and associated “crony capitalism.”

For its part, big business has never been shy in voicing its dislike of the tea party.

Cantor’s defeat, though, could be a result more of particular circumstances than anything else. Some, for example, blame an inept campaign consulting team that misread the attacks on Cantor. And Cantor spent a ton of time running around the country, rather than attending to his constituents.

When Cantor finally realized he was in danger, he then launched an ad blitz that instead of destroying Brat only elevated the man by giving him name recognition he wouldn’t have otherwise had.

The upset comes as six-term Mississippi Republican Sen. Thad Cochran’s run-off against tea party favorite, state Sen. Chris McDaniel, looms on June 24. But the same night Cantor was stunningly going down, Republican Sen. Lindsey Graham easily fended off tea party challengers in South Carolina, avoiding a runoff; even though Graham was a supporter of comprehensive immigration reform, as was Cantor.

So is it a one-off? David Wasserman, House editor for the Cook Political Report, told the Washington Post:

“I think it would be very difficult for anyone to replicate Brat’s win. Cantor was in leadership. He owned the House Republicans’ capitulation on the government shutdown fight, he owned House Republicans’ flirtation with immigration reform, and he had problems his money couldn’t solve.”

One thing is for sure, immigration reform is dead, which hurts Republican efforts to woo Hispanic votes in 2016. As the Washington Post’s Chris Cillizza put it, “Brat savaged Cantor as ‘100% all-in’ on amnesty and accused him of ‘bobbing and weaving’ on the issue.”

But while the tea party organizations are now hopping on the Brat bandwagon, happy to take credit, the fact is he had little actual backing from them; rather it was talk-radio that helped his candidacy in a significant way, particularly hosts Laura Ingraham and Mark Levin. They gave Brat free press, while Ingraham campaigned for him in person.

Editorial / Wall Street Journal

“This is a chance to fix what has too often been a dysfunctional majority.

“One place to start is not by panicking into a false conclusion about the reasons for defeat. David Brat...rode a wave of popular frustration with Washington and an incumbent who had lost touch with his district. Considering the unpopularity of Congress, the surprise this year is that we haven’t seen more such upsets....

“Mr. Cantor also suffered from having to govern in a polarized Washington. That fault lies more with President Obama and the Republican kamikazes who hurt the GOP image by shutting down the government, but many grass-roots activists wanted someone to pay for that political failure. Mr. Cantor’s national travels also took him away from his district and he rarely engaged with grass-roots activists.

“Immigration opponents are claiming their issue made the difference... Mr. Cantor favored a legislative compromise to allow illegal children or young adults who were brought here by their parents to gain a path to citizenship....

“Yet immigration hasn’t hurt other GOP incumbents this year, notably South Carolina Senator Lindsey Graham. His support for last year’s Senate immigration reform made him a conservative target, yet he stuck to his principles and won easily on Tuesday.....

“Part of Mr. Cantor’s problem is that his campaign mail in his district took a harder anti-immigration line than he did in Washington, and Mr. Brat pounded at the contradiction. The lesson for House Speaker John Boehner and other reformers is that they can’t please both sides in this immigration debate. The talk-radio opponents care mainly about their media market share and they won’t support any reform, ever, that makes it easier to enter the U.S.

“The reformers need to make their case unapologetically and stick with it. Most Americans support immigration reform, and a Republican Party that wants to deport children will never build a majority coalition.”

Back to Lindsey Graham, he won with 57% of the vote against six lesser-known challengers and thus avoided a runoff. Before him, the two top-ranking Republican senators – Mitch McConnell (Ky.) and John Cornyn (Tex.) – handily defeated their primary opponents.

--Barack Obama’s favorability rating hit a new low in a Bloomberg National Poll, just 44% saying they have positive feelings about him. His job-approval rating fell to 43%. The importance of these two figures is that Obama’s popularity, or likeability, rating has always previously been more than a few points above the perception of his job performance.

58% of Americans disapprove of Obama’s handling of health care, 4 percentage points higher than in March. 57% disapprove of his management of the economy.

51% disapproved of his handling of the Bowe Bergdahl prisoner swap.

In a separate USA TODAY/Pew Research Center poll, 43% of Americans say it was wrong for Obama to make the Bergdahl deal, compared with 34% who say it was the right thing to do.

Of the 128 veterans included in the survey, by 68% to 16%, they say Obama made the wrong decision.

--William Kristol / The Weekly Standard

Regardless of the circumstances, whatever those circumstances may turn out to be, we still get an American soldier back if he’s held in captivity. Period. Full stop. We don’t condition that.

--President Barack Obama, June 3, 2014

“Lexicographers are no doubt penning learned treatises on the transformation of the words ‘period, full stop’ from a term of art in punctuation to a rhetorical device meant to...well, meant to what? The answer: Shut down debate before it begins.

“That’s what President Obama tried to do following his trade of five terrorists for one deserter. First he sought to shield himself from criticism by flanking himself in the Rose Garden with the long-suffering mom and dad of a soldier who had been behind enemy lines for five years. Then he sent his national security adviser out to try to deflect criticism by praising that soldier for serving ‘with honor and distinction’ before, supposedly, being ‘taken in battle.’ When these ploys didn’t work, the president chose to appeal to American history.

“What the president wanted above all was no debate. ‘Period, full stop’ means: This is unequivocal; this is unconditional; this is incontestable. What he said was: If you challenge this, you’re challenging ‘every mom and dad who sees a son or daughter sent over into [a] war theater’; you’re challenging a ‘sacred rule’ of the United States, one ‘that dates back to the earliest days of our revolution’; you’re asking to be labeled by the White House, using all the PR resources at its disposal, as at best uncaring, at worst un-American.

“And so the president himself and his minions have done their best, or their worst, to preclude debate and to silence criticism. Their effort has failed.... (The) administration failed because the American people didn’t fall for it. In particular, military families – the prime audience of the president and his team – didn’t fall for the administration’s spin.”

We were told to sit down and shut up. We didn’t.

Bowe Bergdahl flew home on Thursday to Brooke Army Medical Center at Fort Sam Houston for the next step in his reintegration. Army officers said Friday he had still not yet been in contact with his parents and they were not planning on traveling to Texas. 

--The FBI opened a criminal probe into scheduling practices at the Department of Veterans Affair, with FBI Director James Comey telling the House Judiciary Committee that the bureau would “follow it wherever the facts take us.”

The VA’s inspector general launched a broad review of dozens of facilities and found “systemic” problems that left 60,000 veterans experiencing long wait times for health care, while 70% of VA facilities auditors visited had used an alternative to scheduling that made wait times look much shorter. Quality of care also appears to be worsening.

More than 10% of scheduling staff were taught how to alter patient-appointment scheduling, according to the audit.

--John Podhoretz / New York Post

“From the archives of the Westchester County Oral History Project, testimony of Hillary Rodham Clinton:

“Times was hard back in ’01. I don’t mind saying. Hard. A – what’s that word? Struggle. That ware whut it was. Our time of struggle.

“It waren’t just the lumbagokeepin’ me up so bad I’d have to make myself a poultice of witch hazel and neem bark that was learned to me back in Little Rock by Chelsea’s au pair.

“It waren’t just Bill pulling the overnight shift with that slave drive Old Man Burkle which made it so he’d only just be coming home to bed on the private plane right when I had to get up to punch my clock over to the Senate.

“ ‘Course Bill was up in the Chappaqua double-wide and I was in the Washington lean-to, but I can’t offend the Lord, I allus knew where Bill was on account of the LoJack I had put in him back in ’98....

“Still, it was lonely for Bill, him there with no one to talk to but the five Secret Service agents and the stews on Old Man Burkle’s Gulfstream. He was sacrificin’, and I knowed it, and he knowed it too.

“Also we had to have a place to keep my carpet bag....

“Meantime, Chelsea needed the educating, and that school of hers, Stanford, wouldn’t accept our prize pig in trade for the spring tuition....

“I mean, what with the presidential pension, the Arkansas governor’s pension, my paycheck from the gummint, add ‘em up and that’s only 400K. I mean, thank the Lord for the Medicaid! I was fixing to apply for the Earned Income Tax Credit, was what I was gonna do....

“It waren’t until August 2001 that Bill made his book deal. Yes, it was a big ‘un, but we didn’t know he was gonna get a $15 million advance! We figgered $20,000 tops.

“Even now it’s painin’ me to recall it – the same way it pained me the day I told Diane Sawyer we was ‘dead broke.’

“Diane done paid for it later.”

--Erik Wemple / Washington Post

“A standard defense for Hillary Rodham Clinton when facing questions about Benghazi, Libya, has been to cite her commissioning of a report from the State Department’s Accountability Review Board (ARB), which took a deep look at the attacks that claimed the lives of four U.S. personnel on Sept. 11, 2012. In testimony before Congress in January 2013, Clinton said: ‘I hurried to appoint the Accountability Review Board led by Ambassador Pickering and Admiral Mullen so we could more fully understand from objective, independent examination, what went wrong and how to fix it. I have accepted every one of their recommendations.’

“In an interview with Clinton that aired last night on ABC News, anchor Diane Sawyer threw the ARB right back in the face of the former secretary of state. The two tangled over the preparedness of the U.S. diplomatic installation in Benghazi for a terrorist attack. In defending her work on this front, Clinton stressed that she had delegated the particulars of security to the experts in the field. ‘I’m not equipped to sit and look at blueprints to determine where the blast walls need to be, where the reinforcements need to be. That’s why we hire people who have that expertise,’ said Clinton, who did the interview as part of the tour for her book ‘Hard Choices.’

“Sensing an opening, Sawyer cited the documents that Clinton herself has so often cited: ‘This is the ARB: the mission was far short of standards; weak perimeter; incomplete fence; video surveillance needed repair. They said it’s a systemic failure.’

“Clinton replied, ‘Well, it was with respect to that compound.’

“The anchor continued pressing, asking Clinton whether the people might be seeking from her a ‘sentence that begins from you ‘I should have...’?’ Clinton sort of ducked that one. The accountability-heavy moment came when Sawyer’s slow and steady line of questioning on Benghazi security prompted Clinton to utter this self-contradictory and sure-to-be-repeated statement: ‘I take responsibility, but I was not making security decisions.’

“For the record, possible-presidential-candidates-in-abeyance should never attach conjunctions to their declarations of responsibility-taking....

“The fantastic grilling served up by Sawyer wasn’t exceptional just because of its smartness, its civility or its persistence. It was exceptional for the way in which it upended the emphases of Benghazi ‘scandal’ coverage.”

--From Rachel Oswald / Global Security Newswire:

“A Congressional Research Service report published on Saturday highlights a number of factors that could result in a gap in the country’s ability to conduct long-range nuclear strikes by air, among them foreign nations’ development of sophisticated anti-access and area-denial capabilities and reductions in defense spending imposed by the 2011 Budget Control Act.

“The Pentagon is planning on building a new long-range stealth bomber, but the first units are not expected to become available until the mid-2020s. In the meantime, the ability of the Air Force’s current fleet of nuclear-capable bombers ‘to get close enough to targets to employ weapons will likely continue to deteriorate’ as potential adversaries acquire more advanced air defenses, according to the report by Congress’ internal think-tank.

“ ‘Already, against today’s toughest air defenses, the B-52 and B-1 are largely regulated to standoff roles; only the B-2 is expected to get through,’ states the report by analyst Michael Miller. ‘In the years to come, the Air Force anticipates the B-2’s ability to penetrate will also decline, even though the Air Force plans to upgrade all three bombers with new systems and weapons.’”

Well this doesn’t exactly give one a warm and fuzzy feeling given China’s growing arsenal of missiles to inhibit the U.S. ability to project naval power in the Asia-Pacific.

--According to a new Quinnipiac survey, New York City Mayor Bill de Blasio’s approval rating has moved up to 51%, six points higher than in March. Only 28% disapprove. Black voters approve 66% to 14%, while among whites, 41% approve and 42% disapprove.

On the crime front, the murder rate in New York continues to fall and after five months is trending toward a full-year total under 300, which would be amazing.

But...shootings are up 13% over year ago levels. Recall, the de Blasio administration called for an end to stop-and-frisk and 10% fewer guns have been removed compared to 2013. So it could be a hot summer in more ways than one.

--Sign of the Apocalypse: “Medical authorities have suspended the license of a Seattle anesthesiologist for allegedly sending explicit ‘selfies’ and exchanging sexy text messages during surgeries.” [Lindsey Bever / Washington Post]

I won’t mention the guy’s name, but the Washington state Department of Health detailed nearly 250 text messages with sexual innuendo he exchanged during all kinds of procedures, including Cesarean deliveries and cardiac probe insertions.

--When I was grocery shopping the other day it wasn’t crowded and as I approached the checkout line, two clerks were talking about the Tracy Morgan accident and the truck driver who was charged with vehicular homicide, having been up 24 hours prior to plowing into Morgan’s van from behind. A lot of folks in New Jersey, as well as across the country, have been talking about it...the dangers of truckers on the road that aren’t following the rules when it comes to sleep breaks.

But on a related topic, Columbia University researchers performing a toxicology examination of nearly 24,000 driving fatalities concluded that marijuana contributed to 12% of traffic deaths in 2010, tripled from a decade earlier.

A NHTSA study found that drugged driving was particularly prevalent among younger motorists, as you’d suspect. One in eight high school seniors responding to a 2010 survey admitted to driving after smoking marijuana.

According to insurance.com, Colorado has seen a spike in driving fatalities in which marijuana was involved. [Matt Schmitz and Chris Woodyard / USA TODAY]

--But to end on a positive note, a UK-based oil firm, Soco International, announced it would halt its search for oil in Africa’s oldest national park in eastern Democratic Republic of Congo, Virunga, which is not only one of the most ecologically diverse places on Earth, but is also home to more than 200 endangered mountain gorillas.

Virunga has suffered from years of lawlessness and conflict between armed groups in the region and in April, the Belgian national who is head of the park was shot and seriously injured by armed men.

But the likes of South Africa’s Archbishop Desmond Tutu, Richard Branson and philanthropist Howard Buffett spoke out against Soco’s activities and they agreed to limit their work to seismic testing and would do nothing further without the approval of both the government and the World Wildlife Fund.

The 3,000-square mile park with hippos, elephants, lions, rare birds, active volcanoes and glaciated peaks was founded in 1925 by King Albert I of Belgium.

---

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

God bless America.
---

Gold closed at $1274
Oil 106.91...highest since September

Returns for the week 6/9-6/13

Dow Jones -0.9% [16775]
S&P 500 -0.7% [1936]
S&P MidCap -0.6%
Russell 2000 -2.5%
Nasdaq -0.3% [4310]

Returns for the period 1/1/14-6/13/14

Dow Jones +1.2%
S&P 500 +4.8%
S&P MidCap +4.5%
Russell 2000 -0.1%
Nasdaq +3.2%

Bulls 62.6
Bears 17.2 [Source: Investors Intelligence...danger zone, but hasn’t mattered]

Happy Father’s Day!

Have a great week. I appreciate your support.

Catch me on Twitter @stocksandnews

Brian Trumbore



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Week in Review

06/14/2014

For the week 6/9-6/13

[Posted 12:00 AM ET]

Edition 792

President Obama’s Foreign Policy...and Iraq

This has been a helluva stretch on the news front, at least for one who is committed to documenting the big issues of the day, both here and abroad, both financial and geopolitical. With the news from Iraq of a country in total turmoil I’ve had to cut back on some topics I was going to cover in more detail in order to delve into this latest crisis.

As I go to post, here is what we know of the past few days. The Islamic State of Iraq and al-Sham (ISIS...or the Islamic State of Iraq and Syria...or ISIL...the Islamic State of Iraq and the Levant), continued to spread its wings from its bases in Syria, launching its most audacious attack yet on Iraq’s second city, Mosul, in the northern part of the country. ISIS is the al-Qaeda offshoot that even al-Qaeda has distanced itself from; being too vicious when it comes to treatment of civilians. ISIS leader, Abu Bakr al-Baghdadi, was once leader of Al-Qaeda in Iraq and has his sights set on becoming the No. 1 leader of al-Qaeda overall, over Ayman al-Zawahiri.

With probably no more than a few hundred soldiers (out of a total force size of around 4,000), operating in small but highly professional units, ISIS wreaked havoc and caused tens of thousands of Iraqi troops and security personnel to strip off their uniforms and flee, or, under secret agreement, turn themselves over to ISIS as sympathizers. 

ISIS then moved on, towards Baghdad, seizing towns, military bases, equipment...they looted banks, including a reported $400 million from Mosul’s central bank...and it became an “orgy of kidnappings and executions." 500,000 initially fled the reign of terror, but by week’s end some were returning to Mosul if they shared the same Sunni brand of Islam ISIS prefers...hardline, Sharia law. The Turkish consulate in Mosul was targeted and 25 were kidnapped. Their fate is unknown. At least 1,000 militants were freed from jails by ISIS as the Iraqi government ignored prior warnings to increase security.

In Baiji, an oil refinery was reportedly taken. ISIS moved into Tikrit, the birthplace of Saddam Hussein, though there were unconfirmed reports government forces took it back on Friday.

ISIS moved into Samarra, home to the sacred Shia shrine, the Golden Mosque, some 60 miles north of Baghdad. It was a bomb attack on the shrine in 2006 that led to a two-year rampage of revenge killings between Sunni and Shia that resulted in 30,000 deaths.

Iraq’s Foreign Minister Zubari called ISIS a “mortal threat.” Turkey, a NATO member, expressed grave concern over its territorial integrity.

Iraq’s Shia-dominated government launched air strikes on Sunni insurgent positions in and around Mosul on Thursday. There were reports Iran had deployed Revolutionary Guards units to Iraq, Tehran having invested heavily in a strong Shiite-led state – the so-called Shiite crescent...stretching from Iran to Iraq, Lebanon and Syria...always being the focus. Now Sunni extremists threaten such plans. Shiite clerics issued a call to arms as volunteers stepped forward in droves to help the government.

On Friday, President Obama ruled out U.S. troops on the ground, though by late Sunday or Monday, there could be a commitment to air support of some kind, as the president asked his national security team to prepare more options.

“This poses a danger to Iraq and its people and, given the nature of these terrorists, it could pose a danger eventually to American interests as well,” said Obama.

The U.S. prematurely walked away from a relatively stable Iraq in 2011, when the last combat forces left, with no status of forces agreement for leaving some 10,000 in theatre as many of the generals and experts recommended. 

When the revolution in Syria got going the same year, the Obama administration had no idea what would happen. But your editor did.

By end of that year I was calling for the creation of safe havens, working with our ally, Turkey, who eagerly sought help from the White House. We ignored President Erdogan’s calls.

By the summer of 2012, the civil war was heating up. I noted how former defense secretary William Perry was pounding the table on a no-fly, no-drive zone in northern Syria to give the people a safe haven. But President Obama didn’t want to get involved. He threw up one straw man after another...as if many in Congress were calling for an invasion of Syria by U.S. forces. Even Sen. John McCain wasn’t advocating this. No one was. We were all talking about saving Syrians and supporting what was then a very identifiable moderate opposition. It wasn’t until late 2012 that the jihadists began to sweep in in droves, and it was around then that ISIS moved from Iraq into Syria, soon thereafter getting into conflict with al-Qaeda’s al-Nusra front, while they all fought Bashar al-Assad’s forces.

By Sept. 1, 2012, I was writing constantly of how Barack Obama just wanted to get through November and the election. 

Then on Sept. 8, 2012, I wrote the following:

Syria: The killing continues, now estimated at anywhere from 23,000 to 26,000 in the civil war, with the UN pegging the official refugee figure at over 230,000 (the unofficial number far higher), which is destabilizing to neighbors Turkey, Iraq, Jordan and Lebanon, while there is a true humanitarian catastrophe developing in Syria itself as 1.2 million have been displaced and 2.5 million are in dire need of aid. I’ll just say this in terms of the political debate taking place in the U.S. One of the Democrats’ campaign slogans is ‘Bin Laden is dead and GM is alive.’ It needs to be pointed out that at least 20,000 of the Syrian deaths could have been prevented if the White House had taken coordinated humanitarian action with Turkey early on. Not a military invasion but just the establishment of safe havens and the Obama administration could have significantly reduced the human toll.

“But it’s too late now. We missed our opportunity. The situation is indeed far more dangerous.

“It was the same situation in 2009 when President Obama missed an opportunity in Iran to support the Greens, but instead when the United States just sat back, the mullahs crushed the uprising and now look where we are there.

“It’s pathetic. It’s what infuriates me about how the president is getting a pass on his foreign policy....

“In Ankara, Turkish Prime Minister Erdogan accused the outside world of indifference on Syria, adding ‘The regime in Syria has now become a terrorist state.’”

A few weeks ago, May 28, I watched President Obama deliver the commencement address to the U.S. Military Academy at West Point in what was billed as the most important foreign policy speech of his presidency. It has bothered me ever since.

“Four of the service-members who stood in the audience when I announced a surge of our forces in Afghanistan gave their lives in that effort. More were wounded. I believe America’s security demanded those deployments. But I am haunted by those deaths. I am haunted by those wounds. And I would betray my duty to you, and to the country we love, if I sent you into harm’s way simply because I saw a problem somewhere in the world that needs fixing, or because I was worried about critics who think military intervention is the only way for America to avoid looking weak.

“Here’s my bottom line: America must always lead on the world stage. If we don’t no one else will. The military that you have joined is, and always will be, the backbone of that leadership. But U.S. military action cannot be the only – or even primary – component of our leadership in every instance. Just because we have the best hammer does not mean that every problem is a nail....

“First, let me repeat a principle I put forward at the outset of my presidency: the United States will use military force, unilaterally if necessary, when our core interests demand it – when our people are threatened; when our livelihood is at stake; or when the security of our allies is in danger. In these circumstances, we still need to ask tough questions about whether our action is proportional, effective and just. International opinion matters. But America should never ask permission to protect our people, our homeland, or our way of life.

“On the other hand, when issues of global concern that do not pose a direct threat to the United States are at stake – when crises arise that stir our conscience or push the world in a more dangerous direction – then the threshold for military action must be higher. In such circumstances, we should not go it alone. Instead, we must mobilize allies and partners to take collective action. We must broaden our tools to include diplomacy and development; sanctions and isolation; appeals to international law and – if just, necessary, and effective – multilateral military action. We must do so because collective action in these circumstances is more likely to succeed, more likely to be sustained, and less likely to lead to costly mistakes....

“But as I said last year, in taking direct action, we must uphold standards that reflect our values. That means taking strikes only when we face a continuing, imminent threat, and only where there is near certainty of no civilian casualties. For our actions should meet a simple test; we must not create more enemies than we take off the battlefield.”

The speech was a mess...one contradiction after another.

Again, I have said for years that it is all about Syria. We let it become a terrorist state, well over 160,000 have now died, the number displaced is approaching 10 million, Jordan is in extreme danger, and now we see what ISIS is doing.

And Mr. President, we have created generations of enemies when it comes to Syria.

I have been writing since virtually day one of his presidency that we would be paying the price for President Obama’s foreign policy for years to come, and it could very well be generations here too. His position among the worst presidents of all time is secure. His predecessor wasn’t much better. It’s all in these pages. Facts don’t lie.

Further opinion.....

Scott Wilson / Washington Post

“President Obama inherited two wars on taking office, one he called ‘dumb’ to his political benefit and the other he described more urgently as ‘the war we need to win.’

“It is the dumb one today that poses the most immediate challenge to his national security priorities and to his foreign policy legacy.

“Iraq is splintering, and with it both the original neo-conservative belief that a sectarian dictatorship could be made quickly into a stable democracy and Obama’s hands-off approach to the wider region.

“The Islamist insurgents now seizing cities across Iraq’s battered north grew up in Syria, whose civil war Obama has steadfastly avoided despite the grave risks it poses to the region’s delicate stability.

“Those threats of a wider regional war have been given shape. In recent days, armed Islamists spanning the Syrian border have seized Mosul, Iraq’s second city, and a string of Sunni Muslim towns, long estranged from the Shiite-led central government, that run south to the edge of Baghdad. Turkey and Iran may intervene to protect their political and security interests, and Iraq’s Kurds have already moved into the long-contested city of Kirkuk, which was abandoned by the Iraqi army.”

Sen. John McCain (R-Ariz.) said Thursday what is transpiring in Iraq represents a “colossal failure of American security policy.”

Before all this chaos, Iraq had had a bloody weekend, with 52 dying in a series of car bombs in Baghdad, while militants stormed a university in Anbar province, taking dozens of hostages. 40 were then killed in attacks in northern Iraq, most carried out by ISIS.

And Turkey said 28 Turkish truck drivers ferrying diesel to Mosul were abducted by ISIS.

David Ignatius / Washington Post

“The capture Tuesday of Mosul, the hub of northern Iraq, by al-Qaeda-linked militants is an alarm bell that violent extremists are on the rise again in the Middle East. And it’s a good time for President Obama to explain more about how he plans to fight this menace without making the mistakes of the past.

“Obama needs to alert the country to the renewed extremist threat partly to clarify the record. Just 19 months ago, he won reelection arguing that his policies had vanquished the most dangerous core elements of al-Qaeda. But the organization has morphed, and deadly new battles are ahead.

“The campaign theme that the worst terrorist threat had been licked was vividly drawn in the third debate between Obama and Republican candidate Mitt Romney, on Oct. 22, 2012.

“Romney tried to shake Obama’s optimistic narrative about al-Qaeda. ‘It’s really not on the run. It’s certainly not hiding. This is a group that is now involved in 10 or 20 countries, and it presents an enormous threat to our friends, to the world, to America long term, and we must have a comprehensive strategy to help reject this kind of extremism.’

“Obama countered Romney’s statement with his basic campaign mantra: ‘We ended the war in Iraq, refocused our attention on those who actually killed us on 9/11. And as a consequence, al-Qaeda’s core leadership has been decimated.’

“Obama scored points later in that debate when he dismissed Romney’s concerns about Iraq. ‘What I would not have done is left 10,000 troops in Iraq that would tie us down. That certainly would not help us in the Middle East.’ The transcript records Romney sputtering back: ‘I’m sorry, you actually – there was a --.’

“Obama had the better of that exchange, certainly for a war-weary United States that a few weeks later gave him a new mandate. But looking back, which picture was closer to the truth?”

Editorial / Wall Street Journal

“So much for al-Qaeda being on a path to defeat, as President Obama used to be fond of boasting....

“Since President Obama likes to describe everything he inherited from his predecessor as a ‘mess,’ it’s worth remembering that when President Bush left office Iraq was largely at peace. Civilian casualties fell from an estimated 31,400 in 2006 to 4,700 in 2009. U.S. military casualties were negligible. Then CIA Director Michael Hayden said, with good reason, that ‘al-Qaeda is on the verge of a strategic defeat in Iraq.’

“Fast forward through five years of the Administration’s indifference, and Iraq is close to exceeding the kind of chaos that engulfed it before the U.S. surge. The city of Fallujah, taken from insurgents by the Marines at a cost of 95 dead and nearly 600 wounded in November 2004, fell again to al-Qaeda in January. The Iraqi government has not been able to reclaim the entire city – just 40 miles from Baghdad. More than 1,000 Iraqi civilians were killed in May alone, according to the Iraq Body Count web site....

“The Administration’s policy of strategic neglect toward Iraq has created a situation where al-Qaeda effectively controls territories stretching for hundreds of miles through Anbar Province and into Syria. It will likely become worse for Iraq as the Assad regime consolidates its gains in Syria and gives ISIS an incentive to seek its gains further east. It will also have consequences for the territorial integrity of Iraq, as the Kurds consider independence for their already autonomous and relatively prosperous region.

“All this should serve as a warning to what we can expect in Afghanistan as the Administration replays its Iraq strategy of full withdrawal after 2016. It should also serve as a reminder of the magnitude of the strategic blunder of leaving no U.S. forces in Iraq after the country finally had a chance to serve as a new anchor of stability and U.S. influence in the region. An Iraqi army properly aided by U.S. air power would not have collapsed as it did in Mosul.

“In withdrawing from Iraq in toto, Mr. Obama put his desire to have a talking point for his re-election campaign above America’s strategic interests. Now we and the world are facing this reality. A civil war in Iraq and the birth of a terrorist haven that has the confidence, and is fast acquiring the means, to raise a banner for a new generation of jihadists, both in Iraq and beyond.”

Michael Young / Daily Star (Beirut)

“In a speech at West Point in May, President Barack Obama observed, ‘For the foreseeable future, the most direct threat to America, at home and abroad, remains terrorism, but a strategy that involves invading every country that harbors terrorist networks is naïve and unsustainable.’

“No one disagrees with the straw man Obama set up. Yet the president must admit one thing: Any solution to the ISIS problem must come from both Iraq and Syria. Obama is learning why a Syrian conflict he once recklessly qualified as ‘someone else’s civil war’ has turned into a regional danger.

“As the former U.S. envoy in Syria, Robert Ford, wrote this week in the New York Times, ‘We don’t have good choices on Syria anymore. But some are clearly worse than others. More hesitation and unwillingness to commit to enabling the moderate opposition fighters to fight more effectively both the jihadists and the regime simply hasten the day when American forces will have to intervene against al-Qaeda in Syria.’

“Ford is right. The Obama administration’s staying out of Syria at all costs has effectively meant it allowed a situation to fester that may impose its intervention at a later stage....

“By taking over Mosul, ISIS may have compelled the United States to overhaul its Syria policy. But nothing in Obama’s record makes us hopeful about his reaction. Iraq and Syria require American time and effort, which the president has been consistently unwilling to give the Middle East. The only bitter satisfaction is that a region he arrogantly thought he could ignore has just bitten a big chunk out of his leg.”

Daniel Henninger / Wall Street Journal

“The fall of Mosul, Iraq, to al-Qaeda terrorists this week is as big in its implications as Russia’s annexation of Crimea. But from the Obama presidency, barely a peep.

“Barack Obama is fiddling while the world burns. Iraq, Pakistan, Ukraine, Russia, Nigeria, Kenya, Syria. These foreign wildfires, with more surely to come, will burn unabated for two years until the United States has a new president. The one we’ve got can barely notice or doesn’t care.

“Last month this is what Barack Obama said to the 1,064 graduating cadets at the U.S. Military Academy: ‘Four and a half years later, as you graduate, the landscape has changed. We have removed our troops from Iraq. We are winding down our war in Afghanistan. Al-Qaeda’s leadership on the border region between Pakistan and Afghanistan has been decimated.’

“That let-the-sunshine-in line must have come back to the cadets, when news came Sunday that the Pakistani Taliban, who operate in that border region between Pakistan and Afghanistan, had carried out a deadly assault on the main airport in Karachi, population 9.4 million. To clarify, the five Taliban Mr. Obama exchanged for Sgt. Bowe Bergdahl are Afghan Taliban who operate on the other side of the border.

“Within 24 hours of the Taliban attack in Pakistan, Boko Haram’s terrorists in Nigeria kidnapped 20 more girls, adding to the 270 still-missing – ‘our girls,’ as they were once known....

“The big Obama bet is that Americans’ opinion-polled ‘fatigue’ with the world (if not his leadership) frees him to create a progressive domestic legacy. This Friday Mr. Obama is giving a speech to the Sioux Indians in Cannon Ball, N.D., about ‘jobs and education.’

“Meanwhile, Iraq may be transforming into (a) a second Syria or (b) a restored caliphate. Past some point, the world’s wildfires are going to consume the Obama legacy. And leave his successor a nightmare.”

Editorial / Washington Post

“For years, President Obama has been claiming credit for ‘ending wars,’ when, in fact, he was pulling the United States out of wars that were far from over. Now the pretense is becoming increasingly difficult to sustain....

“If Iraq joins Syria in full-fledged civil war, the danger to U.S. allies in Israel, Turkey, Jordan and the Kurdish region of Iraq is immense. These terrorist safe havens also pose a direct threat to the United States, according to U.S. officials. ‘We know individuals from the U.S., Canada and Europe are traveling to Syria to fight in the conflict,’ Jeh Johnson, secretary of homeland security, said earlier this year. ‘At the same time, extremists are actively trying to recruit Westerners, indoctrinate them, and see them return to their home countries with an extremist mission.’”

[Ed. This is Europe’s overwhelming No. 1 fear today.]

Editorial / Wall Street Journal

“In 2012 Anthony Blinken, then Mr. Biden’s top security adviser, boasted that, ‘What’s beyond debate’ is that ‘Iraq today is less violent, more democratic, and more prosperous. And the United States is more deeply engaged there than at any time in recent history.’....

“Contrary to what Mr. Blinken claimed in 2012, the ‘diplomatic surge’ the Administration promised for Iraq never arrived, nor did U.S. weapons.”

Last week I blasted Mr. Blinken. He’s a bad guy. He needs to go.

Editorial / USA TODAY

“At this point, the only way to roll back ISIS is to redeploy U.S. troops to Iraq on the ground. This would help the security forces reform their bad practices. It would also reignite and coordinate a Sunni tribal movement that inflicted substantial setbacks on ISIS’ forebears in the 2007-09 period.

“The presence of ground troops would allow the U.S. to exercise leverage in Iraq in pressuring the central government to integrate ordinary Sunni Arabs into political and economic life in Iraq. Without such reforms, the prospects for peace in Iraq are remote.”

Editorial / New York Post

“When in 2011 President Obama announced, against the advice of his commanders, the complete withdrawal of all U.S. forces from Iraq, he grandly declared ‘the tide of war is receding.’

“Two days later, his secretary of state, Hillary Clinton, answered critics such as John McCain, who said the president’s announcement was a victory for Iran.

“Said Mrs. Clinton: ‘No one, most particularly Iran, should miscalculate about our continuing commitment to and with the Iraqis going forward.’....

“The president’s practice has been to blame his failures on his predecessor. But in Iraq, President George W. Bush did not hand over a mess. He handed over a victory that Obama only had to sustain.

“All that the president has squandered – in a humiliation for America, a vindication for al-Qaeda, a gain for Iran and a catastrophe for long-suffering Iraqis caught in the violence.”

Washington and Wall Street

Some brief comments. The World Bank issued its revised outlook for 2014 and reduced its global growth forecast to 2.8% for 2014 vs. an initial projection in January of 3.2%. The U.S. outlook was reduced to 2.1% from 2.8% after the awful weather-induced first quarter.

[According to a Wall Street Journal survey of 48 economists, growth is seen to be rebounding 3.5% in the second quarter, after the 1% contraction in the first, and then after that 3% in the year’s last two quarters. The consensus view on the jobless rate is for it to end the year at 6.1%.]

Elsewhere, according to the WB, the Euro-area forecast for GDP remained unchanged at 1.1%; Japan is 1.3%, India 5.5% (vs. January’s 6.2% estimate); and China 7.6%.

Russia was cut to 0.5% from 2.2%, while Ukraine is now seen contracting 5% this year.

Back in the U.S., there was positive news on the budget deficit front as for the first 8 months of the fiscal year, beginning October 1, and it would appear the deficit is headed towards the Congressional Budget Office’s recent forecast for F2014 of $492 billion, vs. $680 billion in F2013, and $1 trillion+ the prior four years. Revenues are up 7%, while outlays are 2% lower. Just imagine what revenues would be if the economy was really cranking.

May retail sales came in less than expected, up just 0.1% ex-autos, while the gross figure was up 0.3%.

The Federal Reserve has an Open Market Committee meeting this week, commentary to follow.

Europe and Asia

In the eurozone, the steps the European Central Bank took about ten days ago to stimulate the economy and promote lending continue to reverberate, particularly in the credit markets. The euro currency weakened a little, which is needed to improve the pace of exports and to import inflation, rather than the past trend of importing disinflation with a rising euro (seemingly against all odds).

The ECB remains focused on inflation and their 2014 forecast that prices will rise only 0.7% vs. a target of 2.0%.

On the interest rate front, ECB Executive Board member Benoit Coeure told France radio on Saturday that eurozone rates will diverge from those in the United States and Britain for a number of years.

“Clearly what we wanted to indicate on Thursday (June 5) is the fact monetary conditions will diverge between the eurozone on one hand and the United States and the United Kingdom on the other for a long period, which will be several years.

“We are going to keep rates close to zero for an extremely long period, whereas the United States and the United Kingdom will at some point return to a cycle of rate rises.”

Separately, Greece’s GDP fell 0.9% in the first quarter, which was actually its best performance since Q3 2008. The government maintains the economy will rise 0.6% for the full year.

Spain’s Q1 GDP was up 0.4% over the prior quarter, double the rate of the entire eurozone, and while it’s dealing with still staggering 25% unemployment, there are signs the housing market has bottomed, with positive activity in the likes of Barcelona. Home prices have fallen an average 47% from the peak of 2007, according to Bloomberg News.

And the U.K. continues to rock and roll, with industrial production up 0.4% in April over March, up 3% year over year, while the rolling 3-mo. unemployment rate to April came in at 6.6%, down from 6.8% in Q1. The IMF’s Christine Lagarde admitted her organization “got it wrong” when it came to the strength of Britain’s recovery (your editor was correctly optimistic from day one vs. the other eurozone economies post-crisis), but the IMF added its voice to those warning on the U.K.’s housing bubble.

And so it was, harkening back to Benoit Coeure’s comments above, that Bank of England Governor Mark Carney warned that the first interest rate hike “could happen sooner than markets currently expect” (which is sometime in 2015). The Chancellor of the Exchequer, George Osborne, said earlier this year such a move would demonstrate the strength of the recovery, while Carney said tightening, when it occurs, will be gradual and to a level significantly below the 5% previously thought standard. [In the U.S., the norm on the funds rate is thought to be 4%.]

So rate hikes are coming soon and Osborne said the BOE would have wide latitude to restrict lending by limiting how much home buyers can borrow relative to their incomes and how much they can borrow relative to property value. Osborne added, “I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing market.”

And then there’s the European Parliament and the selection of a new president for the European Commission, a powerful position. German Chancellor Angela Merkel reaffirmed her support for Luxembourg’s Jean-Claude Juncker after meeting EU leaders critical of the choice; specifically Swedish Prime Minister Fredrik Reinfeldt, the Netherland’s Mark Rutte, and British Prime Minister David Cameron.

Since the EU parliamentary elections, who becomes the next Commission head has become a hot-button issue with the risk Britain could be pushed closer to exiting the EU if Juncker is selected.

Cameron sees Juncker as an old-style European federalist and says the EU needs someone more open to reform and reducing the power of Brussels, especially after the large-scale protest vote against the bloc in the elections.

In light of promising Britons an in-out EU membership referendum in 2017 if he is re-elected next year, Cameron said, “Obviously the approach that the European Union takes between now and then will be very important.”

EU leaders traditionally name the Commission head on their own, but new rules mean they have to “take into account” the results of the European Parliament elections.

The European People’s Party (EPP) – the largest center-right grouping, of which Juncker is a member – won the highest number of seats in May’s polls and he has argued that gives him the mandate but the EPP’s tally fell from the last vote in 2009 and they are far from an actual majority; at least they haven’t cobbled together a coalition as yet.

Which of course is where the far-right, far-left and populists come in. They demand to be heard.

Editorial / The Economist

“The European Union is in deep trouble. Growth is sluggish at best, unemployment punishingly high and deflation threatens. The European elections returned many populist, anti-EU members to the European Parliament; public support for the project has plummeted. Against this background, the squabble over who should be the next president of the European Commission, the EU’s executive arm, looks ever more like a dangerous tragicomedy: Franz Kafka meets Dario Fo [Ed. Italian playwright]....

“By even entertaining the option of Mr. Juncker, Europe’s leaders have indulged two dangerous fantasies for their union. The first is that ‘more of the same’ is an option. In fact, without reform, Europe faces stagnation or even break-up.

“The second fantasy is that the parliament is somehow more democratic than the European Council of (elected) heads of government. This is nonsense. Hardly any European voters have heard of Mr. Juncker. They treat European elections as second-order national polls. In every single EU country, turnout is much higher in national elections. Under the Lisbon treaty, the European council, ‘taking into account the elections to the European Parliament,’ is meant to nominate a candidate who is then ‘elected’ by the parliament. By insisting that it will block anybody other than Mr. Juncker, the parliament is trying to deny the European Council its prerogative.

“The folly of indulging this second fantasy could be revealed very quickly. Imagine that Mr. Juncker withdraws and Mr. (Pascal) Lamy (a French Socialist) or Ms. Lagarde is pushed forward. The European Parliament, which now believes itself the acme of democracy, might well say no. Europe will then find that its economic crisis is followed by an – entirely avoidable – constitutional one.” To be continued....

Meanwhile, remember how I indelicately hinted a few weeks that France’s Marine Le Pen, leader of the National Front party, may kind of desire that her father, Jean-Marie, founder of the FN, err, disappear? 

It was back on May Day in Paris I stood within ten feet of father and daughter and little did I know the rift between the two, which has always existed because Jean-Marie, 85, can’t keep his racist mouth shut while Marine wants to bring the FN more into the mainstream so she can run for president in 2017, was about to explode.

It was Jean-Marie, who I pointed out days before the European Parliament vote, that had uttered the slur that the way to take care of the immigration problem in France was to introduce Ebola. Somehow, Marine and the party weathered that storm.

But then this week he uttered a slur when talking about French singer Patrick Bruel, who is Jewish. Marine denounced what she called her father’s “political error” and Jean-Marie said he was “very hurt.” [Jean-Marie’s statement on Bruel had an allusion to Nazi death camp ovens.]

It ended up being the first time Marine rebuked her father in public. Jean-Marie compounded matters by saying, “I have no intention of changing my attitude.” Then he faulted his daughter’s leadership of the party he remains honorary president of.

This comes at a most inopportune time as Marine tries to form a coalition in the European Parliament, which is needed to secure funding and speaking time.

Geert Wilders, the Dutch anti-Muslim leader and the Front National’s most important ally, described Mr. Le Pen’s comment as “disgusting” and demanded an explanation from Marine.

---

Lots of news on China’s economy. Consumer prices rose 2.5% from a year earlier in May, which was up from April’s 1.8% pace but still below the government’s upper limit of 3.5%. Food prices rose a manageable 4.1%. But producer prices fell 1.4%.

May exports rose 7% over year ago levels, but imports declined 1.6%, a sign of weakness.

Industrial production last month was up a solid 8.8% over May 2013, while retail sales rose 12.5%, better than expected.

For the period January thru May, fixed-asset investment rose 17.2%, while home sales for the five months vs. the same period last year fell 9.2%.

Auto sales were up 13% in May, according to the China Automobile Dealers Association, while the state #s said they were up 13.9%. Chinese automakers now account for 21.5% of sales, a share that has been falling, while German makes command a 28.7% share. Separately, GM’s sales rose 9.2% in the month over year ago levels, while Ford’s surged 32%. Toyota’s and Nissan’s increased 3%, Honda’s were up 10%.

Premier Li Keqiang urged officials to prioritize rapid growth with “a sense of responsibility and urgency.” The government continues to stress infrastructure programs for less-developed areas, along with tax breaks for small- and medium-sized businesses.

Economist Stephen S. Roach had some thoughts on China’s service sector in an op-ed for the Wall Street Journal. To wit:

“In 2013, China’s services sector jumped to 46% of GDP – up three percentage points in two years and a larger share of GDP than construction and manufacturing combined. Consistent with the structure of other modern economies, China’s still nascent services sector could rise to 55%-60% of its GDP by 2025.”

Roach points out the U.S. is well-positioned to capture a significant share “of the coming bonanza in Chinese services. From retail chains (Wal-Mart) and leisure (Disney) to domestic transportation (United Airlines) and an array of insurance and hospital systems.”

But then you have the issue of “market access” and for that you need successful negotiations between the U.S. and China over a Bilateral Investment Treaty, or BIT. At least in the short term, I’m not as optimistic as Mr. Roach might be on the market access front.

Lastly, as the Wall Street Journal pointed out, China faces a major issue involving probable commodities fraud at a major port (which could also be an issue at other facilities), where large banks and trading companies lent large sums based on collateral of items such as copper and aluminum that may not be in the amounts declared. Citigroup, for one, could be a victim. This had been a spreading practice, where Citi, say, would loan large sums to a business understanding the loan was backed by hard assets....or so they thought. 

Turning to Japan, the government revised first-quarter GDP up to 6.7% annualized from 5.9%, as consumers and businesses increased spending ahead of the April 1 sales tax hike. GDP is expected to decline 3%+ in the second quarter.

In his latest initiative to boost growth, Prime Minister Shinzo Abe proposed cuts to corporate taxes in 2015, bringing the main rate to under 30% in a few years from 35%.

Street Bytes

--Owing to tensions in Iraq and rising oil prices, along with the World Bank’s downward revisions for global growth, stocks took it on the chin, with the Dow Jones falling for the first time in four week, down 0.9% to 16775 after hitting another new all-time high of 16945 on Tuesday. The S&P 500 also hit a new high, Tuesday, but ended down 0.7%. Nasdaq had its four-week winning streak snapped, down 0.3% to 4310.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.45% 10-yr. 2.60% 30-yr. 3.41%

Producer prices for the month of May fell 0.2% when they were expected to rise 0.1%. Ex-food and energy they declined 0.1%. For the 12 months, both figures were up 2.0%.

--The yield on Spain’s 10-year finished the week at 2.66%, Italy’s 2.78%.

--Monday marked Apple’s first stock split in nine years, 7-for-1, meaning every Apple stockholder received six additional shares for every share they owned as of June 2. The lower price, $91.40 a/o Friday’s close, could clear the way for the company to be included among the Dow 30 stocks. Previously, Apple’s price made it impractical to be included in the benchmark because the Dow’s value is calculated in a way that gives greater weight to the companies with the highest stock prices. So the selection committee has steered clear of companies with a share price above $300, with Visa Inc. being the only Dow component currently above $200.

--Citigroup is tussling with the Justice Department over Citi’s sale of shoddy mortgages in the run-up to the financial crisis. Citi is offering less than $4 billion, but the feds are seeking $10 billion. Citigroup argues it was a lesser player in the mortgage-securities market, but the government counters Citi’s bonds had a much higher percentage of bad loans.

--Intel raised its guidance for the second quarter on the heels of stronger demand for business PCs, though consumers continue to move towards tablets and smartphones. Overall, the company now expects some revenue growth for the year as compared to a previous outlook of flat sales.

But earlier in the week, Intel lost a long-running court battle with the European Union to have a 1.1 billion euro fine reduced in a case dating back to 2009, where Intel was found to have abused its dominant position in the chip market.

--Yogawear retailer Lululemon saw its shares plunge 15% after it slashed its outlook for the year and announced its CFO was retiring so he could ski more.

--Tesla Motors Inc. said it would allow others to use its intellectual property in hopes of speeding up development of electric cars by all manufacturers. CEO Elon Musk said the company would not take legal action against anyone using the technology “in good faith.”

“If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal,” Musk said.

In a call with reporters, Musk added, “We think the market’s quite big enough for everyone. It doesn’t really harm Tesla but helps the industry, and I think actually it will help Tesla, mostly with respect to attracting and motivating the world’s best technical talent.”

--Ford Motor Company lowered the fuel-economy ratings of some of its vehicles for the second time in less than a year, most of them hybrids, and will pay $125 to $1,050 in good-will to customers who own or lease about 200,000 of the cars in the United States.

--General Motors is recalling the final 500,000 cars it hadn’t recalled before. Actually, it is recalling more than 500,000 Chevrolet Camaros after finding a fault with the ignition system. GM said a driver’s knee could bump the key fob and turn it out of the ‘run’ position, causing a loss of power.

Seeing as GM can’t get the ignition function straight, I suggest it start selling horses. Maybe enlist the Amish for some ideas as well.

GM has now recalled 13 million vehicles in the U.S. this year – more than the carmaker sold in 2013.

--Dubai’s Emirates Airline cancelled an order for 70 of Airbus’ A350 wide-bodied aircraft, a big blow for Airbus. Emirates made the move after a review of its fleet requirements.

--The median home price in California climbed 0.8% in May over April to $386,000, according to DataQuick; up 13.5% from a year earlier, but the pace has been slowing.

--Revenue from online gaming in New Jersey fell $1 million in May over April to $10.4 million, the second consecutive month of declines. But, overall casino revenue in Atlantic City rose 1.3%, when you take out the Atlantic Club, which closed.

Gov. Chris Christie had estimated the casinos would rake in $1 billion in the first year in online revenue and it will now be in the $200 million range, according to analysts.

--Priceline is acquiring restaurant booking service OpenTable Inc. for about $2.6 billion in cash. 15 million book restaurants through the company.

--European taxi drivers staged large protests Wednesday to vent their anger at American taxi-hailing app Uber. The privately held San Francisco-based company – valued recently at as much as $18 billion and backed by the likes of Google and Goldman Sachs – has developed a satellite-based technology that allows users to book a taxi using its smartphone app. But taxi drivers in the likes of Paris and London say Uber circumvents local regulation over licensing and taxes that apply to regular taxi firms.

Uber, by the way, takes a 20% cut of all drivers’ receipts and reportedly booked revenue of $213 million last year. But many are questioning the $18 billion valuation.

--Thanks largely to rising stock markets, global private wealth has surged to $152 trillion, according to a report by Boston Consulting Group, with the number of millionaire households in the world rising to 16.3 million in 2013, up from 13.7 million in 2012.

High saving rates in China and India have also been key contributors.

--Billionaire Wilbur Ross sold his remaining stake in Bank of Ireland. If I have my numbers right, Ross earned about $800 million on his initial investment in just three years. Ross swept in when the bank was in trouble at the height of the country’s financial crisis. Good for him.

--Tourist entries into Israel are up 17% for the first quarter of 2014, according to the Central Bureau of Statistics. In May, a record 382,000 visitors entered Israel (292,000 arriving by air).

Tourism Minister Dr. Uzi Landau credited the upswing to recent events saying, “The visit of Pope Francis caused a significant spike in incoming tourism.” [Jerusalem Post]

--I was reading an article on Morgan Stanley by Avi Salzman of Barron’s and I couldn’t help but note this passage.

“At an internal meeting...in January 2013, the firm’s 250 top executives listened to a consultant explain how Morgan Stanley could improve. (CEO James) Gorman sat at a table nearby taking notes. As the consultant talked, he began to jot down a series of questions: ‘What do we do? How do we do it? With what result?’ Suddenly, he walked to the podium and asked the consultant for the microphone.

“ ‘I thought it was important that every employee understand in very simple language what our strategy is,’ he explains. ‘And the best way to do that would be to get up and talk about it live, not behind some set of fancy documents.’”

Boy, if I were applying for a job with Morgan Stanley, I’d want to know the above. And for anyone interviewing in any industry, this is good ammunition.

--Speaking of advice for job seekers, especially recent college graduates, great piece by Danielle Paquette in the Washington Post on new UPS CEO David Abney, who started with the company 40 years ago, working part time, loading trucks at night and studying business during the day at Delta State University in Cleveland, Miss.

“Abney, the first in his family to attend college, couldn’t afford to live on campus. He often skipped the 45-minute commute home and slept on couches in the school’s union – the portrait of a scrappy dreamer, his friends say.”

Former McDonald’s CEO James Skinner started his career as a restaurant manager trainee. Wal-Mart CEO Doug McMillon’s first job was unloading trucks at an Arkansas distribution center. GM CEO Mary Barra started off as an 18-year-old intern.

Just get your foot in the door, kids. If you show up early, stay a little later, and make your boss look good (without kissing his or her butt), you’ll do very well.

--United Continental Holdings Inc. is the latest to change its frequent-flier program to award miles based on ticket price rather than distance flown, a shift to favor bigger spenders.

--If you are traveling to Ireland on Aer Lingus, last I saw they were slated for strikes on June 16 and June 18 as talks broke down with cabin crews over work schedules, or what they call “roster changes.” The cabin crews want the same rules pilots have...work five days, then three days off. The airline says this would result in over 300 job losses.

--A rail strike in France has halted many services. Trade unions fear a merger of two networks will result in job losses.

--Detroit’s big three automakers pledged $26 million to help the city protect its art collection from being broken up or sold as part of the nation’s largest municipal bankruptcy case. The $26 million is part of an $800 million effort to insulate the city-owned Detroit Institute of Arts.

--McDonald’s Corp. continued to struggle in the U.S., with May same-store sales declining 1%; the sixth month in the past seven when sales dropped. In my own recent taste comparison between McDonald’s and Burger King, I rate McDonald’s No. 1. [Burger King’s service, however, was superior.]

--Tyson Foods Inc. raised its offer for Hillshire Brands Co. to about $7.7 billion, outbidding Pilgrim’s Pride Corp. to gain control of the maker of Jimmy Dean sausages and some hot dogs.

What a month for Hillshire, which was trading at about $36 a share when it made a bid for Pinnacle Foods Inc., but then Pilgrim’s Pride and Tyson began their bids for Hillshire, whose shares are now $61.

--According to the UN Food and Agriculture Organization, per capita fish consumption of farmed fish is forecast to rise above the level of wild fish for the first time in 2014.

But as pointed out in a piece for the Financial Times: “The growth of farmed fish is likely to pose its own challenges. There will be continued upward pressure on feed prices, which have been at high levels due to a fall in catches of anchovies and other small oil fish used as fish feed. The limited areas where fish farms can be built and constraints on water supplies impose logistical constraints.

“The most serious issue is the rise in disease affecting farmed fish.”

So what’s needed around the world are good farming processes. With demand for fish exploding, the percentage of farmed fish will only continue to surge in kind.

--ESPN reports that as part of an agreement in 2008 to promote Beats’ high-end headphones, LeBron James received a small stake in the company that, with the acquisition of Beats Electronics by Apple gave LeBron a $30 million profit.

--Phil Mickelson has been cleared in the federal investigation looking into insider-trading of Clorox shares, as the FBI and SEC found no evidence he had traded them.  In fact, as reported by the New York Times, the inclusion of Mickelson in an inquiry that is still examining the activity of Carl Icahn and sports gambler Billy Walters was a gross mistake, with erroneous information being handed to the likes of the Times by other people briefed on the matter.

But Mickelson and Walters still face an investigation into well-timed trades in Dean Foods back in 2012, with Walters supposedly pocketing $15 million and Mickelson $1 million. Mickelson has denied any wrongdoing.

So knowing the above, the government clearly played the part of a-hole in confronting Mickelson twice in the past year, seeking his cooperation. It’s also unclear whether Mickelson is a target at all in Dean Foods. Icahn has nothing to do with this one.

--Matt Lauer signed a new multi-year contract extension to remain on the “Today” show, even as ABC’s “Good Morning America” overtook “Today” after years of dominance, 16, to be exact. Lauer started in the anchor position way back in 1997 and the new deal is said to take him to 2017, at an estimated $20 million+ a year.

Foreign Affairs, cont’d...

Iran: A final draft on a long-term agreement for Iran’s nuclear program was to be in place by July 20 but writing hasn’t even commenced and leaders in the House of Representatives have written a letter to President Obama suggesting a pact with Iran restricted to it nuclear program is not enough for the chamber to lift sanctions on the country. The letter, obtained by the Jerusalem Post, says in part:

“Almost all sanctions related to Iran’s nuclear program are also related to Tehran’s advancing ballistic missile program, intensifying support for international terrorism, and other unconventional weapons programs.”

The administration concedes that any future nuclear deal will likely involve sanctions relief requiring congressional approval.

Meanwhile, Senate Foreign Relations Committee chairman Robert Menendez (D-NJ) said any deal should include the dismantlement of thousands of centrifuges, the elimination of Iran’s low-enriched uranium, a closure of its heavy-water plutonium reactor in Arak and a termination of Iran’s vast nuclear research and development program." Such a deal should also last more than 20 years, Menendez said, “at least as long as Iran has been lying to the world about its program.”

Menendez said he would also oppose extending negotiations by half a year unless negotiators come “really close to an agreement which is in line with my thought about what an agreement should be.”

For their part, a senior Iranian official said the country was “busy redesigning” a planned research reactor at the Arak plant to sharply cut its potential output of plutonium, which, if true, addresses a key dispute in the talks.

The West is worried that Arak, once operational, could supply enough plutonium for an atomic bomb, while Israel has argued any final agreement with Iran should demand the complete shutdown of the reactor, as Menendez believes.

Former Israeli Military Intelligence chief Amos Yadlin explained last year that, if the Arak reactor was allowed to become operational, it would effectively be immune from attack and the West would “be deprived of its primary ‘stick’ in its efforts to persuade Iran to forgo a military nuclear capability.”

Yadlin said that the West “would likely seek to avoid an attack on a ‘hot’ reactor, lest it cause widespread environmental damage.”

Iran says Arak is intended to produce isotopes for cancer and other medical treatments. Work on the plant was halted under the six-month interim deal struck with the P5+1 last November. [Jerusalem Post]

Of course it’s not certain what the other nations involved in the negotiations will do. French Foreign Minister Laurent Fabius, for example, said the sides are “hitting a wall” over Iran’s uranium-enrichment efforts.

“We say that there can be a few hundred centrifuges, but the Iranians want thousands,” he said. [Reuters]

Time is running out. A meeting of all six powers is scheduled for June 16-20 in Vienna.

Syria: Former U.S. ambassador to Syria, Robert S. Ford, in an op-ed for the New York Times:

“In February, I resigned as the American ambassador to Syria, after 30 years’ foreign service in Africa and the Middle East. As the situation in Syria deteriorated, I found it ever harder to justify our policy. It was time for me to leave. The media attention about my departure, however, misses the real point. What matters is that the regime of President Bashar al-Assad can drop barrel bombs on civilians and hold sham elections in parts of Damascus, but it can’t rid Syria of the terrorist groups now implanted in the ungoverned regions of eastern and central Syria.”

Ford says the White House should have been arming the moderate opposition.

[Separately, this week the Syrian Observatory for Human Rights said it had evidence 25 were tortured to death by Assad’s intelligence goons in Damascus.]

Israel: The country has a new president, Reuven “Rubi” Rivlin, replacing Shimon Peres.

Lebanon: For a sixth time, the dysfunctional Lebanese failed to elect a president. The last five times there hasn’t been a quorum in parliament with various factions, including Hizbullah, boycotting.

Egypt: Newly elected President Abdel-Fattah El-Sisi vowed to strengthen security forces to restore order as he seeks to lure investment and revive the battered economy. He also ordered police to enforce the laws on sexual assault and called for a new moral code with respect to women. The incidence of sexual assaults has been rising.

Afghanistan: The runoff in the presidential election is Saturday, with Abdullah Abdullah expected to win easily over Ashraf Ghani. It turns out the death toll in last weekend’s assassination attempt by the Taliban on Abdullah was 12.

Among the people, there is little confidence the winner of the vote will be able to secure the country and that the Afghan security forces are up to the task. Events in Iraq this week don’t help.

[Tragically, a friendly fire incident took out five American Special Operations service members when a coalition aircraft unleashed an airstrike on their position in southern Afghanistan.]

Pakistan: The Taliban staged a massive attack on Karachi (Jinnah) International Airport, resulting in at least 28 deaths, including 10 militants, with the Taliban claiming it was in response to Pakistani attacks on its civilians. Prime Minister Nawaz Sharif’s attempts to initiate peace talks with the militants are being called into question. It hardly seems as if the Taliban want peace.

Instead, what is clear is they want to overthrow the government and there are very real concerns about the safety of Pakistan’s nuclear weapons.

Ukraine: President Petro Poroshenko told Russian President Vladimir Putin that reports at week’s end of Russian tanks moving into Ukrainian territory are unacceptable. [The U.S. confirmed the reports.] Ukraine’s interior minister said three had entered rebel areas in the east, sent directly into the fight, having come across a border checkpoint controlled by rebels in the Luhansk region. Russia’s foreign ministry said the report was “another fake piece of information.”

Fighting continues in the east, with a worsening humanitarian situation in the separatist-controlled city of Slavyansk, which had a prewar population of 130,000. Zero international aid is getting in. Those fleeing to neighboring villages aren’t finding any help there either.

Putin said a gas price discount deal offered to Ukraine was designed to help its economy, but Ukraine rejected it, saying it “won’t fall into Russia’s gas trap.” Kiev was given until June 16 to begin paying off its debt to Russian state gas exporter Gazprom. It had previously received $786 million for supplies made in February and March.

Meanwhile, Russian state television has been vilifying Poroshenko on its news and talk shows. A poll by the Russian Public Opinion Research Center said one in five Russians believe the new Ukrainian leader represents the interests of “fascists, nationalists and banderites.”

In his first speech after being sworn in as president, Poroshenko said he had told Putin when the two met in Normandy that Crimea would “always be Ukrainian.”

“I don’t want war; I don’t want revenge. I want peace and I want peace to happen. Please, lay down the guns and I guarantee immunity to all those who don’t have bloodshed on their hands.”

Russia: On Monday, U.S. military jets intercepted four Russian heavy bombers that flew close to Alaska, according to the North American Aerospace Defense Command. It was thought the nuclear-capable planes were conducting bombing drills. When confronted by two U.S. F-22 fighter planes, two of the Tu-95 Russian bombers reversed course towards Russia’s far eastern territory, while the other two went south and entered the U.S. northern air defense zone, “flying as close as roughly 50 miles off the Northern California coast. Two U.S. F-15 fighter planes were then scrambled in response to intercept them.” [Global Security Newswire]

U.S. Representative Mike Conaway (R-Texas) said “Putin is doing this specifically to try to taunt the U.S. and exercise...some sort of saber-rattling, muscle-flexing kind of nonsense. Truth of the matter is we would have squashed either one of those [bombers] like baby seals.”

China: Vietnam claimed China had shifted an oil rig in disputed waters of the South China Sea, with six warships guarding the structure, while China is constructing artificial islands near the Spratlys, complete with a port and airstrip; the latter being used to enforce its new air defense identification zone over the South China Sea. 

Both sides claim their ships are being rammed by the other side. A Chinese foreign ministry spokesman said on Monday that Chinese ships had been rammed more than 1,400 times. The United States said both sides should remove all of their ships and China should remove the oil rig.

Meanwhile, similar to the issue the United States had with Russia, Japan protested to Beijing on Wednesday after Chinese fighter jets flew within 30 meters of Japanese military planes in airspace claimed by both nations. China did the same thing weeks earlier.

Japan’s defense ministry said the Chinese fighter jets came close enough to the propeller driven reconnaissance craft that the crew of one Japanese plane photographed what appeared to be missiles on the underside of the jets.

Then there is Hong Kong. Beijing issued a white paper setting the record straight, in its mind, on “one country, two systems.”

The central government holds “comprehensive jurisdiction” over Hong Kong and is the source of its autonomy, Beijing said, stressing that while the city could, in the future, choose its leader through ‘universal suffrage,’ that person must be loyal to the country.

China’s national security and interests were at stake, it added.

This isn’t anything new, but the timing was unexpected, with the State Council saying “many wrong views are currently rife in Hong Kong,” adding: “Some people are confused or lopsided in their understanding of the policy [one country, two systems] and the Basic Law.”

There is an election slated for choosing a chief executive in 2017.

The White Paper said: “The high degree of autonomy enjoyed by Hong Kong is subject to the central government’s authorization. There is no such thing called ‘residual power’ for the special administrative region,” it said.

And it also warned against “outside forces” using the city to interfere in China’s domestic affairs. [South China Morning Post]

This is a huge deal. July 1 is the anniversary of the British handover to China back in 1997 and protests are planned. If riots are sparked, martial law could be declared by Beijing. Whether it is this year or closer to 2017, I can guarantee this is explosive. The central government understands upheaval could spread to cities on the mainland. [At least they better understand this.] 

Lastly, in another worrisome development, Beijing froze further cooperation talks with Taiwan in a sign of growing displeasure over the island’s delayed ratification of a controversial free-trade agreement signed last June.

So you look at all the above, and throw in the ongoing maritime disputes with the Philippines, plus tensions on the Korean Peninsula, and as Gideon Rachman put it in the Financial Times:

“The rise in tensions in the region is now so palpable that senior political figures are sounding the alarm. A few days ago, at the Jeju Forum for Peace and Prosperity, I heard Yun Byung-se, South Korea’s foreign minister, warn that the increase in tensions in Asia means that ‘it looks like Pandora’s box is being opened.’”

It’s all about the rapid rise of China, its increased prosperity and spending on defense, and its unrelenting assertiveness about longstanding territorial claims.

Japan: Prime Minister Shinzo Abe told parliament he would boost his efforts toward restarting commercial whaling, despite a top U.N. court’s order that Tokyo must cease such activity in the Antarctic. I hope the whales ram and sink the Japanese vessels.

Brazil: Protests the first day of the World Cup, Thursday, were fairly small and at least subway workers in Sao Paulo backed down from a threatened strike (after walking out for three days), which would be disastrous.

Random Musings

--Yes, it was a political earthquake on Tuesday night in the Richmond, Virginia area when for the first time in our nation’s history, a sitting House Majority Leader, Republican Eric Cantor, was defeated in a party primary by tea party candidate and college economics professor, David Brat. And it wasn’t even close, 56% to 44%.

L. Brent Bozell, chairman of conservative group ForAmerica (sic) that targeted Cantor, said his loss “is an apocalyptic moment for the GOP establishment. The grassroots is in revolt and marching.”

Well, the nationwide poll numbers simply don’t bear this out, but Cantor was indeed a major favorite of Wall Street and big business, specifically the U.S. Chamber of Commerce and the Business Roundtable, while the tea party has been critical of the traditional wing of the GOP and associated “crony capitalism.”

For its part, big business has never been shy in voicing its dislike of the tea party.

Cantor’s defeat, though, could be a result more of particular circumstances than anything else. Some, for example, blame an inept campaign consulting team that misread the attacks on Cantor. And Cantor spent a ton of time running around the country, rather than attending to his constituents.

When Cantor finally realized he was in danger, he then launched an ad blitz that instead of destroying Brat only elevated the man by giving him name recognition he wouldn’t have otherwise had.

The upset comes as six-term Mississippi Republican Sen. Thad Cochran’s run-off against tea party favorite, state Sen. Chris McDaniel, looms on June 24. But the same night Cantor was stunningly going down, Republican Sen. Lindsey Graham easily fended off tea party challengers in South Carolina, avoiding a runoff; even though Graham was a supporter of comprehensive immigration reform, as was Cantor.

So is it a one-off? David Wasserman, House editor for the Cook Political Report, told the Washington Post:

“I think it would be very difficult for anyone to replicate Brat’s win. Cantor was in leadership. He owned the House Republicans’ capitulation on the government shutdown fight, he owned House Republicans’ flirtation with immigration reform, and he had problems his money couldn’t solve.”

One thing is for sure, immigration reform is dead, which hurts Republican efforts to woo Hispanic votes in 2016. As the Washington Post’s Chris Cillizza put it, “Brat savaged Cantor as ‘100% all-in’ on amnesty and accused him of ‘bobbing and weaving’ on the issue.”

But while the tea party organizations are now hopping on the Brat bandwagon, happy to take credit, the fact is he had little actual backing from them; rather it was talk-radio that helped his candidacy in a significant way, particularly hosts Laura Ingraham and Mark Levin. They gave Brat free press, while Ingraham campaigned for him in person.

Editorial / Wall Street Journal

“This is a chance to fix what has too often been a dysfunctional majority.

“One place to start is not by panicking into a false conclusion about the reasons for defeat. David Brat...rode a wave of popular frustration with Washington and an incumbent who had lost touch with his district. Considering the unpopularity of Congress, the surprise this year is that we haven’t seen more such upsets....

“Mr. Cantor also suffered from having to govern in a polarized Washington. That fault lies more with President Obama and the Republican kamikazes who hurt the GOP image by shutting down the government, but many grass-roots activists wanted someone to pay for that political failure. Mr. Cantor’s national travels also took him away from his district and he rarely engaged with grass-roots activists.

“Immigration opponents are claiming their issue made the difference... Mr. Cantor favored a legislative compromise to allow illegal children or young adults who were brought here by their parents to gain a path to citizenship....

“Yet immigration hasn’t hurt other GOP incumbents this year, notably South Carolina Senator Lindsey Graham. His support for last year’s Senate immigration reform made him a conservative target, yet he stuck to his principles and won easily on Tuesday.....

“Part of Mr. Cantor’s problem is that his campaign mail in his district took a harder anti-immigration line than he did in Washington, and Mr. Brat pounded at the contradiction. The lesson for House Speaker John Boehner and other reformers is that they can’t please both sides in this immigration debate. The talk-radio opponents care mainly about their media market share and they won’t support any reform, ever, that makes it easier to enter the U.S.

“The reformers need to make their case unapologetically and stick with it. Most Americans support immigration reform, and a Republican Party that wants to deport children will never build a majority coalition.”

Back to Lindsey Graham, he won with 57% of the vote against six lesser-known challengers and thus avoided a runoff. Before him, the two top-ranking Republican senators – Mitch McConnell (Ky.) and John Cornyn (Tex.) – handily defeated their primary opponents.

--Barack Obama’s favorability rating hit a new low in a Bloomberg National Poll, just 44% saying they have positive feelings about him. His job-approval rating fell to 43%. The importance of these two figures is that Obama’s popularity, or likeability, rating has always previously been more than a few points above the perception of his job performance.

58% of Americans disapprove of Obama’s handling of health care, 4 percentage points higher than in March. 57% disapprove of his management of the economy.

51% disapproved of his handling of the Bowe Bergdahl prisoner swap.

In a separate USA TODAY/Pew Research Center poll, 43% of Americans say it was wrong for Obama to make the Bergdahl deal, compared with 34% who say it was the right thing to do.

Of the 128 veterans included in the survey, by 68% to 16%, they say Obama made the wrong decision.

--William Kristol / The Weekly Standard

Regardless of the circumstances, whatever those circumstances may turn out to be, we still get an American soldier back if he’s held in captivity. Period. Full stop. We don’t condition that.

--President Barack Obama, June 3, 2014

“Lexicographers are no doubt penning learned treatises on the transformation of the words ‘period, full stop’ from a term of art in punctuation to a rhetorical device meant to...well, meant to what? The answer: Shut down debate before it begins.

“That’s what President Obama tried to do following his trade of five terrorists for one deserter. First he sought to shield himself from criticism by flanking himself in the Rose Garden with the long-suffering mom and dad of a soldier who had been behind enemy lines for five years. Then he sent his national security adviser out to try to deflect criticism by praising that soldier for serving ‘with honor and distinction’ before, supposedly, being ‘taken in battle.’ When these ploys didn’t work, the president chose to appeal to American history.

“What the president wanted above all was no debate. ‘Period, full stop’ means: This is unequivocal; this is unconditional; this is incontestable. What he said was: If you challenge this, you’re challenging ‘every mom and dad who sees a son or daughter sent over into [a] war theater’; you’re challenging a ‘sacred rule’ of the United States, one ‘that dates back to the earliest days of our revolution’; you’re asking to be labeled by the White House, using all the PR resources at its disposal, as at best uncaring, at worst un-American.

“And so the president himself and his minions have done their best, or their worst, to preclude debate and to silence criticism. Their effort has failed.... (The) administration failed because the American people didn’t fall for it. In particular, military families – the prime audience of the president and his team – didn’t fall for the administration’s spin.”

We were told to sit down and shut up. We didn’t.

Bowe Bergdahl flew home on Thursday to Brooke Army Medical Center at Fort Sam Houston for the next step in his reintegration. Army officers said Friday he had still not yet been in contact with his parents and they were not planning on traveling to Texas. 

--The FBI opened a criminal probe into scheduling practices at the Department of Veterans Affair, with FBI Director James Comey telling the House Judiciary Committee that the bureau would “follow it wherever the facts take us.”

The VA’s inspector general launched a broad review of dozens of facilities and found “systemic” problems that left 60,000 veterans experiencing long wait times for health care, while 70% of VA facilities auditors visited had used an alternative to scheduling that made wait times look much shorter. Quality of care also appears to be worsening.

More than 10% of scheduling staff were taught how to alter patient-appointment scheduling, according to the audit.

--John Podhoretz / New York Post

“From the archives of the Westchester County Oral History Project, testimony of Hillary Rodham Clinton:

“Times was hard back in ’01. I don’t mind saying. Hard. A – what’s that word? Struggle. That ware whut it was. Our time of struggle.

“It waren’t just the lumbagokeepin’ me up so bad I’d have to make myself a poultice of witch hazel and neem bark that was learned to me back in Little Rock by Chelsea’s au pair.

“It waren’t just Bill pulling the overnight shift with that slave drive Old Man Burkle which made it so he’d only just be coming home to bed on the private plane right when I had to get up to punch my clock over to the Senate.

“ ‘Course Bill was up in the Chappaqua double-wide and I was in the Washington lean-to, but I can’t offend the Lord, I allus knew where Bill was on account of the LoJack I had put in him back in ’98....

“Still, it was lonely for Bill, him there with no one to talk to but the five Secret Service agents and the stews on Old Man Burkle’s Gulfstream. He was sacrificin’, and I knowed it, and he knowed it too.

“Also we had to have a place to keep my carpet bag....

“Meantime, Chelsea needed the educating, and that school of hers, Stanford, wouldn’t accept our prize pig in trade for the spring tuition....

“I mean, what with the presidential pension, the Arkansas governor’s pension, my paycheck from the gummint, add ‘em up and that’s only 400K. I mean, thank the Lord for the Medicaid! I was fixing to apply for the Earned Income Tax Credit, was what I was gonna do....

“It waren’t until August 2001 that Bill made his book deal. Yes, it was a big ‘un, but we didn’t know he was gonna get a $15 million advance! We figgered $20,000 tops.

“Even now it’s painin’ me to recall it – the same way it pained me the day I told Diane Sawyer we was ‘dead broke.’

“Diane done paid for it later.”

--Erik Wemple / Washington Post

“A standard defense for Hillary Rodham Clinton when facing questions about Benghazi, Libya, has been to cite her commissioning of a report from the State Department’s Accountability Review Board (ARB), which took a deep look at the attacks that claimed the lives of four U.S. personnel on Sept. 11, 2012. In testimony before Congress in January 2013, Clinton said: ‘I hurried to appoint the Accountability Review Board led by Ambassador Pickering and Admiral Mullen so we could more fully understand from objective, independent examination, what went wrong and how to fix it. I have accepted every one of their recommendations.’

“In an interview with Clinton that aired last night on ABC News, anchor Diane Sawyer threw the ARB right back in the face of the former secretary of state. The two tangled over the preparedness of the U.S. diplomatic installation in Benghazi for a terrorist attack. In defending her work on this front, Clinton stressed that she had delegated the particulars of security to the experts in the field. ‘I’m not equipped to sit and look at blueprints to determine where the blast walls need to be, where the reinforcements need to be. That’s why we hire people who have that expertise,’ said Clinton, who did the interview as part of the tour for her book ‘Hard Choices.’

“Sensing an opening, Sawyer cited the documents that Clinton herself has so often cited: ‘This is the ARB: the mission was far short of standards; weak perimeter; incomplete fence; video surveillance needed repair. They said it’s a systemic failure.’

“Clinton replied, ‘Well, it was with respect to that compound.’

“The anchor continued pressing, asking Clinton whether the people might be seeking from her a ‘sentence that begins from you ‘I should have...’?’ Clinton sort of ducked that one. The accountability-heavy moment came when Sawyer’s slow and steady line of questioning on Benghazi security prompted Clinton to utter this self-contradictory and sure-to-be-repeated statement: ‘I take responsibility, but I was not making security decisions.’

“For the record, possible-presidential-candidates-in-abeyance should never attach conjunctions to their declarations of responsibility-taking....

“The fantastic grilling served up by Sawyer wasn’t exceptional just because of its smartness, its civility or its persistence. It was exceptional for the way in which it upended the emphases of Benghazi ‘scandal’ coverage.”

--From Rachel Oswald / Global Security Newswire:

“A Congressional Research Service report published on Saturday highlights a number of factors that could result in a gap in the country’s ability to conduct long-range nuclear strikes by air, among them foreign nations’ development of sophisticated anti-access and area-denial capabilities and reductions in defense spending imposed by the 2011 Budget Control Act.

“The Pentagon is planning on building a new long-range stealth bomber, but the first units are not expected to become available until the mid-2020s. In the meantime, the ability of the Air Force’s current fleet of nuclear-capable bombers ‘to get close enough to targets to employ weapons will likely continue to deteriorate’ as potential adversaries acquire more advanced air defenses, according to the report by Congress’ internal think-tank.

“ ‘Already, against today’s toughest air defenses, the B-52 and B-1 are largely regulated to standoff roles; only the B-2 is expected to get through,’ states the report by analyst Michael Miller. ‘In the years to come, the Air Force anticipates the B-2’s ability to penetrate will also decline, even though the Air Force plans to upgrade all three bombers with new systems and weapons.’”

Well this doesn’t exactly give one a warm and fuzzy feeling given China’s growing arsenal of missiles to inhibit the U.S. ability to project naval power in the Asia-Pacific.

--According to a new Quinnipiac survey, New York City Mayor Bill de Blasio’s approval rating has moved up to 51%, six points higher than in March. Only 28% disapprove. Black voters approve 66% to 14%, while among whites, 41% approve and 42% disapprove.

On the crime front, the murder rate in New York continues to fall and after five months is trending toward a full-year total under 300, which would be amazing.

But...shootings are up 13% over year ago levels. Recall, the de Blasio administration called for an end to stop-and-frisk and 10% fewer guns have been removed compared to 2013. So it could be a hot summer in more ways than one.

--Sign of the Apocalypse: “Medical authorities have suspended the license of a Seattle anesthesiologist for allegedly sending explicit ‘selfies’ and exchanging sexy text messages during surgeries.” [Lindsey Bever / Washington Post]

I won’t mention the guy’s name, but the Washington state Department of Health detailed nearly 250 text messages with sexual innuendo he exchanged during all kinds of procedures, including Cesarean deliveries and cardiac probe insertions.

--When I was grocery shopping the other day it wasn’t crowded and as I approached the checkout line, two clerks were talking about the Tracy Morgan accident and the truck driver who was charged with vehicular homicide, having been up 24 hours prior to plowing into Morgan’s van from behind. A lot of folks in New Jersey, as well as across the country, have been talking about it...the dangers of truckers on the road that aren’t following the rules when it comes to sleep breaks.

But on a related topic, Columbia University researchers performing a toxicology examination of nearly 24,000 driving fatalities concluded that marijuana contributed to 12% of traffic deaths in 2010, tripled from a decade earlier.

A NHTSA study found that drugged driving was particularly prevalent among younger motorists, as you’d suspect. One in eight high school seniors responding to a 2010 survey admitted to driving after smoking marijuana.

According to insurance.com, Colorado has seen a spike in driving fatalities in which marijuana was involved. [Matt Schmitz and Chris Woodyard / USA TODAY]

--But to end on a positive note, a UK-based oil firm, Soco International, announced it would halt its search for oil in Africa’s oldest national park in eastern Democratic Republic of Congo, Virunga, which is not only one of the most ecologically diverse places on Earth, but is also home to more than 200 endangered mountain gorillas.

Virunga has suffered from years of lawlessness and conflict between armed groups in the region and in April, the Belgian national who is head of the park was shot and seriously injured by armed men.

But the likes of South Africa’s Archbishop Desmond Tutu, Richard Branson and philanthropist Howard Buffett spoke out against Soco’s activities and they agreed to limit their work to seismic testing and would do nothing further without the approval of both the government and the World Wildlife Fund.

The 3,000-square mile park with hippos, elephants, lions, rare birds, active volcanoes and glaciated peaks was founded in 1925 by King Albert I of Belgium.

---

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

God bless America.
---

Gold closed at $1274
Oil 106.91...highest since September

Returns for the week 6/9-6/13

Dow Jones -0.9% [16775]
S&P 500 -0.7% [1936]
S&P MidCap -0.6%
Russell 2000 -2.5%
Nasdaq -0.3% [4310]

Returns for the period 1/1/14-6/13/14

Dow Jones +1.2%
S&P 500 +4.8%
S&P MidCap +4.5%
Russell 2000 -0.1%
Nasdaq +3.2%

Bulls 62.6
Bears 17.2 [Source: Investors Intelligence...danger zone, but hasn’t mattered]

Happy Father’s Day!

Have a great week. I appreciate your support.

Catch me on Twitter @stocksandnews

Brian Trumbore