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06/21/2014

For the week 6/16-6/20

[Posted 12:00 AM ET]

Edition 793

Iraq...and Obama’s Foreign Policy

And we’re back...back in Iraq, that is. I said my piece last time. It’s always been about Syria; we blew it royally there and we’re reaping the whirlwind. Dexter Filkins, a reporter who covered the Iraq War extensively, was on Jake Tapper the other day and Filkins, when talking about 2 ½ years ago and our exit from the place, said, “There weren’t a lot of people who wanted to stay in Iraq.”

Well there were a lot of people who thought it was a mistake to just leave, too, but to stay required leadership, and a correct reading of the geopolitics of the time and we’ve learned President Obama clearly didn’t want to remain involved...he was disinterested, just as he appeared in his Thursday press conference, pathetically, when he announced the United States was sending 300 “advisers” (read troops / special forces) to help Iraq’s military deal with the onslaught by ISIS (Islamic State of Iraq and Syria), or ISIL (Islamic State in Iraq and the Levant, as the White House is referring to the Islamists). This was in addition to the 275 troops that are being sent to fortify the Embassy in Baghdad.

Obama stopped short of openly calling for the ouster of Prime Minister Nouri al-Maliki, but stressed Iraq’s leadership must do more to accommodate the country’s ethnic and religious minorities.

“American forces will not be returning to combat in Iraq, but we will help Iraqis as they take the fight to terrorists who threaten the Iraqi people, the region and American interests as well,” Obama said.

The president added that “going forward, we will be prepared to take targeted and precise military action if and when we determine that the situation on the ground requires it,” i.e., airstrikes are a distinct possibility; though Obama also said “the United States will not pursue military actions that support one sect inside of Iraq at the expense of another.”

“Above all, Iraqi leaders must rise above their differences and come together around a political plan for Iraq’s future,” Obama said. “Now, it’s not the place for the United States to choose Iraq’s leaders. It is clear, though, that only leaders that can govern with an inclusive agenda are going to be able to truly bring the Iraqi people together and help them through this crisis.” [William Branigin / Washington Post]

The Maliki government has requested U.S. “air power,” but the administration has told Congress a bombing campaign would be difficult.

Kenneth Pollack, a senior fellow at the Brookings Institution’s Saban Center for Middle East Policy in Washington, told Bloomberg, Iraq has been driven to its current state of turmoil by “a whole variety of actions by a variety of different Iraqi leaders, but first and foremost among them is Prime Minister Maliki.” It was Maliki’s purging Sunnis from the military and arbitrary actions favoring Shiites that alienated Iraqi minorities, Pollack said.

Virtually all are in agreement. It’s too late for Maliki to now mend fences. He has to go. It didn’t help his cause that on Friday, revered Shia figure, Grand Ayatollah Ali al-Sistani, called for a new government.

Meanwhile, over the course of the past week we saw ISIS execute a reported 1,700 Iraqi air force recruits, some of it on gruesome video. ISIS continued to take territory, with Baghdad still in its crosshairs, while appearing to control at least part of a major oil refinery in Baiji that is important in terms of the gasoline flow for the surrounding area, which could impact the Iraqi army’s ability to move around, while oil majors like ExxonMobil and BP are pulling their personnel out, which means they aren’t about to return anytime soon. 

It’s just very depressing, especially for those who served in the Iraq War and had been able to feel good about their efforts

Oh, I worry all the time about Jordan, outside of Israel our prime ally in the region, which is an eventual target of ISIS, and while you may not care about the Saudis, we don’t want an uprising in the Kingdom. And Turkey has very serious issues to deal with these days.

But of equal or greater immediate concern is all these jihadis doing their thing in Iraq and Syria, and elsewhere, including Nigeria, Somalia, Yemen and Kenya, who are receiving good training and can easily infiltrate Europe and the United States (gee, through Mexico). European leaders have been sounding the alarm all year. ‘These guys will eventually come home,’ and the last thing this fragile global economy needs is a wave of terror attacks in Paris, London and Madrid, let alone the unthinkable here.

It’s depressing because you really see how there is no end to this. The United States has lost the respect of so many of our old friends. We have lost all credibility. And sitting back watching it all is a Russia that is rapidly modernizing its military, and China, as well as that crazy kid sitting in Pyongyang with his explosive toys that every expert agrees are becoming more and more of a direct threat to the United States.

So sorry, friends. We desperately need real leadership and the only leaders in the purest sense of the word around the globe these days go by the names of Putin and Xi.

Opinion....

Editorial / Wall Street Journal

“So President Obama now says he will send ‘up to 300’ military advisers to Iraq to help reverse the advance of al-Qaeda, but not to do any fighting. He may agree to air strikes, but only ‘if and when’ the situation absolutely requires it. Though the immediate threat to Iraq comes from Sunni terrorists, he ‘will not pursue military actions’ that support one sect at the expense of another.

“And while ‘it’s not our job to choose Iraq’s leaders,’ the administration is making no secret of its desire to see Iraqi Prime Minister Nouri al-Maliki cashiered in favor of a more ‘inclusive’ leader. The supposed marionette of U.S. intervention in 2003 Ahmed Chalabi is being floated as one possibility, in what would be an irony for the ages.

“Amid this exquisite policy calibration announced by Mr. Obama at Thursday’s press conference, we have to ask: What does the President intend to accomplish – other than to offer the appearance of action and strategy?

“It can’t be the battlefield defeat of the Islamic State of Iraq and al-Sham, or ISIS. We would support that goal if the administration were serious about committing the resources and time to achieve it. The creation of an al-Qaedastan stretching across central Syria and Iraq and commanding sizable military and economic resources represents a direct threat to the U.S., irrespective of domestic Iraqi or regional considerations.

“But a detachment of ‘up to’ 300 military advisers won’t do the job, with or without the occasional targeted strike, especially as the president is already citing the risks of ‘mission creep.’....

“If the administration really wants to sideline the prime minister, it would need to offer him a face-saving deal that would allow him a graceful exit from power in exchange for meaningful U.S. commitments to defeat ISIS. What the administration can’t do is presume to dictate Iraqi politics as if we had 170,000 troops in the country.

“In international politics, influence is a function of power, and commitment is a prerequisite to achievement. If Mr. Obama were serious about the threat posed by ISIS and the possible breakup of Iraq, he would not be making the token commitments he made Thursday.   It may take some of our liberal friends a while to understand that what the president proposed isn’t a strategy; it is a feint. America’s enemies in Mosul and Tehran will have spotted it right away.”

Charles Krauthammer / Washington Post

“Yes, it is true that there was no al-Qaeda in Iraq when George W. Bush took office. But it is equally true that there was essentially no al-Qaeda in Iraq remaining when Barack Obama took office.

“Which makes Bush responsible for the terrible costs incurred to defeat the 2003-09 jihadist war engendered by his invasion. We can debate forever whether those costs were worth it, but what is not debatable is Obama’s responsibility for the return of the Islamist insurgency that had been routed by the time he became president....

“The result? ‘A sovereign, stable and self-reliant Iraq.’ That’s not Bush congratulating himself. That’s Obama in December 2011 describing the Iraq we were leaving behind. He called it ‘an extraordinary achievement.’

“Which Obama proceeded to throw away. David Petraeus had won the war. Obama’s one task was to conclude a status-of-forces agreement (SOFA) to solidify the gains. By Obama’s own admission – in the case he’s now making for a status-of-forces agreement with Afghanistan – such agreements are necessary ‘because after all the sacrifices we’ve made, we want to preserve the gains’ achieved by war.

“Which is what made his failure to do so in Iraq so disastrous. His excuse was his inability to get immunity for U.S. soldiers. Nonsense. Bush had worked out a compromise in his 2008 SOFA, as we have done with allies everywhere....

“Moreover, as historian Max Boot has pointed out, Obama insisted on parliamentary ratification, which the Iraqis explained was not just impossible but unnecessary. So Obama ordered a full withdrawal. And with it disappeared U.S. influence in curbing sectarianism, mediating among factions and providing both intelligence and tactical advice to Iraqi forces now operating on their own....

“Faced with a de facto jihadi state spanning both countries, a surprised Obama now has little choice but to try to re-create overnight, from scratch and in miniature, the kind of U.S. presence – providing intelligence, tactical advice and perhaps even air support – he abjured three years ago.

“His announcement Thursday that he is sending 300 military advisers is the beginning of that re-creation – a pale substitute for what we long should have had in place but the only option Obama has left himself.”

David Ignatius / Washington Post

“Good policy for Iraq and Syria can’t rely on military force alone. The United States’ misadventures after the 2003 invasion of Iraq surely teach that lesson. What will stabilize this part of the world (slowly, slowly) is political action backed by military power – conducted under a series of umbrellas: The first umbrella is a new Iraqi unity government; the second is a U.S.-Iranian dialogue that draws in Saudi Arabia and its GCC [Gulf Cooperation Council] partners; the third is an international coalition backed by the United Nations.

“One irony of the current Iraqi mess is that the only stable area is Kurdistan, whose leader, Barzani, is probably the strongest political figure in the country. If Iran balks at removing Maliki in Baghdad, the United States should respond by deepening its ties with the Kurds – a step on the way to an independent Kurdistan and a new map for the Middle East.”

Richard Haass / Financial Times

“So what is to be done? There are calls to attack ISIS directly or to provide increased support to the Iraqi government, or both. Such actions might slow the rate of ISIS advance but it is far from clear they would make a decisive or lasting difference. No amount of outside help is a substitute for a government that acts in a way that makes most Iraqis prepared to fight for it.

“So it is probably just a matter of time before we see the break-up of Iraq into an Iran-dominated south; an independent Kurdish area in the north; and an area to the northwest of Baghdad contested by ISIS and an Iran-backed Iraqi government. U.S. actions in this scenario could involve some help for the Iraqi government, if it meaningfully broadened its political base. Alternatively, the U.S. could simply carry out counter-terrorist strikes as required. The U.S. should also move to shore up the Kurdish area, possibly linking aid to a commitment by the Kurds not to expand their de facto ‘state’ beyond the borders of Iraq lest Turkey and others join the fray.

“This would make for awkward regional politics, putting the U.S. on the same side as Iran inside Iraq – even as it opposed Iran in Syria against much the same forces. Also, acting militarily would fly in the face of Mr. Obama’s desire to assuage the U.S. popular desire to avoid more involvement in the Middle East.

“Whatever the politics, the U.S. and its partners cannot limit their efforts to Iraq. A strong case can be made to provide meaningful help to anti-regime but non-jihadist forces in Syria, which would make it impossible for ISIS to focus on Iraq. More economic assistance is needed for Jordan, already burdened by millions of Syrian refugees.

“The administration will want to rethink its decision to pull all U.S. forces out of Afghanistan by the end of 2016.”

Michael Wilner / Jerusalem Post

“(As) President Barack Obama weighs military action against the group [ISIS], administration officials suggest the U.S. has so extracted itself from Iraq that Washington’s ability to strike targets with precision has been significantly diminished.

“We know that ISIS’ current campaign, dubbed Operation Soldier’s Harvest, began in October 2013 with the explicit aim of cementing control of territory for the formation of a caliphate, erasing borders imposed by a colonial West and reimposing strict Shari’a law. With Ramadan approaching on June 28, we can expect ISIS will attempt a spectacular finish to this campaign phase.”

Editorial / Washington Post

“(A) frank acknowledgement of the Baghdad government’s flaws must be tempered by an equally clear assessment of the enemy it now faces. If an ISIS-dominated ‘caliphate’ were to take root in the swath of Syrian and Iraqi territory the group now controls, it would be a base of operations for terrorist strikes around the world, including the United States. It also would be a harsh dictatorship in which ‘apostates’ - defined as anyone who does not accept ISIS’ brand of puritanical Islam – face summary execution. Eager as it was to resume its advance, ISIS still found time to burn the Assyrian church in Mosul. Nor is it in the interest of the United States, or the region, to leave Mr. Maliki totally reliant on Iran, whose covert forces reportedly are already on the ground, ready to assist him against ISIS and, presumably, gain even greater regional power for Tehran.

“The temptation to let Iraq fend for itself is strong and, given the history, understandable. Some may even see a chance for stability in reconfiguring the country along its sectarian Sunni, Shiite and Kurdish lines. But there are no neat dividing lines. A breakup of Iraq is likely to bring endless violence to its people and many others around the world. Not to do everything possible to avert that outcome would be a dereliction, and one that Americans might greatly regret for years to come.”

One side bar: Much is being made of ISIS’ capture of a key Hussein-era factory for chemical weapons. As in, what the heck?

But this facility was taken out during the 1991 Gulf War and as former weapons inspector David Kay said on Friday, UN inspectors encased any remaining loose shells by 1998. Then in 2003, the U.S. saw that Saddam had tried to access the remaining articles after the UN left, but the weapons had been long been degraded and were more dangerous to any trying to handle them.

Bottom line this facility was no mystery and should not be a concern even if under the control of ISIS. David Kay said he hoped the terrorists tried to poke around. They’d only kill themselves.

Washington and Wall Street

The Federal Reserve’s Open Market Committee gathered this week and the big story was how Chair Janet Yellen and her band of merry men and women played down the risk of higher inflation, almost to the point of absurdity.

The Fed did cut the monthly pace of its bond buying another $10 billion to $35 billion, so it will wind this up by year end, and of course it didn’t do anything on the rate front as it kept the language of its accompanying statement virtually identical to the last one, which was virtually identical to the one before.

“Economic activity has rebounded in recent months,” said the Fed in its statement. Household spending is rising moderately, business spending is recovering, though the “recovery in housing...remained slow.” The funds rate is to stay low “for a considerable time.”

Janet Yellen then said of inflation at her press conference: “The recent evidence we have seen, abstracting from the noise, suggests that we are moving back gradually over time toward our 2 percent objective and I see things roughly in line with where we expected inflation to be.”

The Fed thus kept its inflation forecasts almost unchanged, edging them up a fraction to 1.6% for this year and predicting below target inflation all the way until the end of 2016. So it is choosing to ignore stronger price numbers that we have been seeing, as in this week’s May CPI that had prices rising 0.4%, 0.3% ex-food and energy; 2.1% for the 12 months, up 1.9% on core.

The Fed’s preferred personal consumption expenditures index in April was 1.6%, but this is expected to hit 2.0% shortly, ergo the target.

I have been careful not to cry wolf on the inflation subject in the U.S. for years. Yes, I knew there was significant inflation in the things you and I use, but I argued this didn’t matter when it came to Fed policy because they would stick to their preferred data points. Real inflation, on the other hand, does impact the pace of economic activity, I argued, and that is reflected in our tepid recovery. It’s been about real wages and real spending power.

But in my outlook for 2014, I specifically said we would have a true inflation scare this year and interest rates would soar (in relative terms) and I said we would finish the year close to 4.0% (3.5% to 4.0% was my range, if I recall correctly). I’ll stick with that.

The New York Post had a story by Elizabeth Hagen and Natalie O’Neill the other day and here are some of the stats they cited for the “barbecue-season bummer”.

“The cost of ground beef has gone up 11 percent, pork has increased 9.4 percent and fish has spiked 4.2 percent since last spring, according to U.S. Department of Labor statistics.”

One official at Associated Supermarket in Manhattan said he has worked in the grocery business for 30 years and “I’ve never seen increases like this – where they jump as much as this.”

This gentleman talked about costs for beef, tilapia and pork chops all rising between 30 and 40 cents per pound since last year.

Meat, poultry and fish prices have risen an average of 7.7 percent nationally.

Now this is but a small sample, but then you have oil. Yes, we are in the midst of an Iraq-generated price spike, but who knows where we go from here on this front?   The International Energy Agency said global oil demand will rise from 91.4 million barrels per day in 2014’s first quarter to 94 million during its last three months. What if Iraq’s supplies in the south come under fire? What if Libya’s picture doesn’t improve?

But the Fed is not worried about inflation through 2016. Seeing as they also lowered their GDP projection this week for 2014 from 2.8%-3.0% to 2.1%-2.3%, because it hit them that winter really sucked (the IMF just reached this conclusion themselves, lowering U.S. growth from 2.8% to 2.0%) it’s not as if the Fed has a great track record on the prediction front. In fact they have been way too optimistic about the recovery since 2009. And I haven’t even touched on wage pressures, which are certainly beginning to percolate.

Oh well, lots to talk about over the coming months. In other economic news, May industrial production came in a little better than expected, up 0.6%, while housing starts for the month came in at 1 million, basically in line, though below April’s pace.

Perhaps Robert Samuelson of the Washington Post summed up today’s environment best:

“Post-crisis economic commentary has consistently misjudged the outlook. It has underestimated the crisis’ psychological effects on consumers and business managers. The past is less a guide to the future because the financial crisis and Great Recession are, in living memory, unique events. That’s why the economy remains an enigma.”

Europe and Asia

We’ve hit a lull in the amount of data being released but one figure this week was emblematic of the kind of recovery Europe and the eurozone are seeing, EU car sales, or registrations as they call them across the pond; up 4.5% in May year over year, though up 6.9% for the first five months so the recent pace is slower.

The U.K.’s auto sales, however, befitting its No. 1 economy these days, rose 7.7%, yoy, while Germany’s were up 5.2%.

But France’s rose only 0.3% in May and Italy’s were down 3.8%.

Back to Britain, yes, the economy is growing at a 3%+ clip, but you have a serious real estate bubble. Various statistics reveal a probable top. The Office of National Statistics said London home prices were up 18.7% in April from a year earlier, up 9.9% across the U.K., but a different survey revealed London prices were down 0.5% in June over May.

Separately, the inflation rate in the U.K. for May was 1.5%, but May retail sales fell 0.5% over April, the first decline in four months.

In Germany, investor and business confidence fell a sixth month in a row in June as the Bundesbank reiterated second-quarter GDP is expected to grow only “slightly.”

The IMF weighed in on the eurozone, warning the European Central Bank “inflation is worryingly low, including in the core countries,” not that the ECB doesn’t already know this, while the IMF urged U.S.-style quantitative easing. While the German government has backed the ECB’s zero interest rates, German bankers are increasingly complaining that ECB policies unfairly punish savers, just as the Fed is doing in the U.S.

Speaking of rates, I’m trying to give you a sense of Spanish and Italian bond yields each week and the yield on Spain’s 10-year rose to 2.72% from 2.66%, 6/14, while Italy’s rose from 2.72% to 2.95%. I’ve been beating a dead horse...the paper in these two has come too far too fast...but I recognize yields could remain at historically low levels for a while to come given ECB policy.

But I can’t help but note the following from Wolfgang Munchau of the Financial Times.

“The Europeans have barely begun to deleverage. In Spain and Ireland the process has at least started. But it will take years, maybe decades, until it is completed.

“Take Portugal, which is about to exit its support program from the European Stability Mechanism and the International Monetary Fund. Its private sector debt reached a peak of 226.7 percent of gross domestic product in 2009. It was still 220.4 percent at the end of 2013. S&P has run a simulation under which Portugal’s private debt could fall to 178 percent of GDP by 2020.

“That is still a big number. But it may be too optimistic. Portugal and other peripheral eurozone countries will need to deleverage and simultaneously deflate their prices to become more competitive. What makes it even harder is that inflation in the eurozone has been falling. Low inflation raises the real value of future debt, and reduces the ability to cut prices.

“Is it feasible? Today’s market consensus says yes: the eurozone crisis is over. Yes, there was some upheaval at last month’s European parliament elections, but we will muddle through politically. Surveys tell us that European businesses are becoming optimistic. Investors are exuberant. I am often hearing how great the mood in Spain seems to be. All’s well that ends well.

“The implication of House of Debt [Ed. recent book by Atif Mian and Amir Sufi] and the S&P study [by Moritz Kraemer] is that the conventional market view of the post-crisis environment is dead wrong. The most likely trajectory is a long period of slow growth, low inflation, and a constant threat of insolvency and political insurrection. If the private sector were to reduce debt in such an environment, certainly on the scale as suggested by S&P, it would be a lot harder and possibly bloodier than any of the adjustment we have seen so far.

“When the Japanese private sector began to deleverage in the early 1990s, the government increased its debt to absorb the shock. The Europeans did the same to some extent during the crisis as well. Spain, for example, was able to maintain large deficits. But from 2016, the strictures of the eurozone’s fiscal compact will kick in and force an acceleration in fiscal consolidation. The new fiscal rules will amplify the effects of private sector deleveraging. The bottom line is that the total post-crisis adjustment will be much more brutal than it was in Japan 20 years ago.

“In such an environment I would expect the political backlash to get more serious.”

Lastly, regarding the European Parliament and the selection of the head of the executive arm, president of the European Commission, it appears it will be Jean-Claude Juncker, despite the vocal campaign by British Prime Minister David Cameron against his candidacy.

This is a big blow not only to Cameron, but to the cause of keeping the U.K. inside the EU. It epitomizes Britain’s helplessness against the federalist EU insider. The formal selection of Juncker could come as early as next week.

Turning to China, Premier Li Keqiang said on Monday he was confident the growth rate would hit 7.5% this year. Writing in Britain’s London Times on the eve of his visit to London, Li said slowing growth was normal and not a problem.

“China’s economy needs to grow at a proper rate, expected to be around 7.5% this year,” he wrote. “It is slower than the past, but normal.”

“Despite considerable downward pressure, China’s economy is moving on a steady course. We will continue to make anticipatory and moderate adjustments when necessary. We are well prepared to defuse various risks. We are confident that this year’s growth target will be met.”

But this week some of the fundamentals weren’t that great. Foreign direct investment fell in May to the lowest level in 16 months, down 6.7% year over year.

And new-home prices fell in half the cities tracked by the government for the first time in two years, which isn’t all bad, we just need to monitor the pace of the needed slowdown in this sector.

Prices fell in 35 of the 70 cities monitored by the National Bureau of Statistics, just 0.3% from April.

But developers are beginning to cut prices and buyers are sensing they can get a much better deal down the road, so the market could worsen rapidly. Home sales fell 11% in May from May 2013.

The real estate industry accounts for about a fifth of China’s GDP and JPMorgan Chase & Co. is among those warning of a potential crisis with developers that have had trouble obtaining financing, and/or from “property trusts” that lend money to smaller builders and face record repayments next year, just as the market is cooling.

In Japan, exports in May fell 2.7% from year ago levels, the first decline in 15 months, while imports declined 3.6%, both worse than expected. Exports to the U.S. were down 2.8%, the first drop in 17 months, while they rose only 0.4% to China.

After the revised 6.7% annualized growth rate of the first quarter, fueled by consumption ahead of the April 1 sales tax hike, it was expected that the Japanese economy would decline about 3.5% or so in the second, and then, it is hoped, activity will normalize around a 2% annualized rate, with inflation rising to the government’s 2% target.

But the Bank of Japan’s Haruhiko Kuroda is urging, in stronger terms than normal for someone in his position, that Prime Minister Shinzo Abe fire his “third arrow” of reform or risk squandering the efforts of the past 18 months in reviving the nation’s economy.

The first two arrows were rapid monetary expansion, which Kuroda has said he’s taken care of, and fiscal stimulus, but now economic reforms are needed to reverse the decline in prices that has crimped growth. Abe is to unveil his “growth strategy” around June 27.

Financial markets need to be convinced that Japan’s economy is revving up after decades of stagnation, but also that there is a strategy for reining in the world’s heaviest public debt load.

Street Bytes

--The Dow Jones and S&P 500 finished up all five days this week, with both hitting record highs, the Dow up 1.0% to 16947 and the S&P up 1.4% to 1962. Nasdaq added 1.3%.

But this latest run has been marked by a total lack of volatility, with Friday marking the 45th straight day the S&P closed up or down less than 1%, the longest such stretch since 1995.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.46% 10-yr. 2.61% 30-yr. 3.43%

Basically unchanged on the week, despite the Fed speak.

--Argentina is searching for ways to skirt a U.S. Supreme Court ruling obligating it to make good on old liabilities and avoid default, specifically to pay about $1.5 billion to bondholders, a sum that could rise to $15 billion in claims from holders of defaulted bonds that didn’t participate in two debt exchanges related to the country’s 2001 default. Officials overseeing South America’s second-largest economy have concluded Argentina doesn’t have sufficient reserves to pay its obligations. 

Disobeying the court order would only further isolate the country. Central bank reserves (from which Argentina pays all its debts) have fallen 25% in the past year to $28.8 billion and Standard & Poor’s downgraded Argentina to CCC-, nine levels below investment grade.

The IMF said it was concerned about “broader systemic implications.”

Argentina’s President Cristina Kirchner said her country will meet its obligations, “But one has to distinguish between a negotiation and extortion.”

--In her second Congressional hearing this year, General Motors CEO Mary Barra said she was not aware of an email from a GM engineer that warned of a “serious safety problem” with ignition switches in the 2006 Chevrolet Impala the engineer was driving, adding it could lead to “a big recall.” The hearing came days after GM announced another recall of 3.2 million cars due to ignition switch issues, bringing the total this year to 44 million, far more than it sold in 2013. The recall actions have cost GM at least $2 billion this year.

--Amazon introduced the Amazon Fire smartphone on Wednesday. CEO Jeff Bezos said, “Fire Phone puts everything you love about Amazon in the palm of your hand.” It ships July 25 on AT&T’s wireless network starting at $199 for a 32 GB model with a two-year contract.

--Shares in database software giant Oracle fell sharply after its earnings in the latest quarter were far short of expectations, while revenues also missed analysts’ forecasts, up only 3% from the year before. As the company shifts more heavily toward cloud applications (belatedly), it is trying to emphasize its growth rate in this segment, up 25% in the quarter, though it still represented only 3% of overall revenues. [Your editor roots for Workday in this space.]

--German engineering giant Siemens AG and Mitsubishi Heavy Industries Ltd. sweetened their joint proposal for French industrial giant Alstom SA, this after General Electric had revised its bid for Alstom’s energy business. The French government is directly involved in the negotiations for fear jobs would be at stake and seems to favor the Siemens/Mitsubishi offer at this point.

This is exactly what I wrote Friday morning...and how wrong I was.

Because by end of the day, GE had won the bid, but on the condition that the French government acquire a 20 percent stake. As I go to post, Siemens is poised to admit defeat.

--From the Wall Street Journal: “Prosecutors are gathering evidence for a grand-jury probe into whether congressional staff helped tip Wall Street traders to a change in health-care policy, an indication the long-running investigation has entered a more serious phase.”

A top congressional health-care aide is at the center of the case, with criminal and civil investigations examining whether anyone in the government illegally passed on nonpublic information. The Journal initially reported on suspicious activity in 2013 related to certain stocks jumping moments before the government announced news favorable for those companies.

--According to a study by two professors from New York University and McGill University, a quarter of all public company deals from 1996 through the end of 2012 involved some kind of insider trading. The professors examined stock option movements in the 30 days before a deal was announced to reach their conclusions. The professors also conclude, the SEC litigated only “about 4.7% of the 1,859 M&A deals included in our sample.” [Andrew Ross Sorkin / New York Times]

--North Dakota’s Department of Mineral Resources said the state is now producing a million barrels of oil a day; Texas, Alaska and California being the only other states to reach this mark. The vast majority of North Dakota’s crude comes from the Bakken shale formation.

--But the news from North Dakota was only part of the story this week. U.S. production of liquid petroleum is surpassing its previous peak, reached in 1970. As Ed Crooks of the Financial Times put it: “Four decades of decline in U.S. oil output have been reversed in just five years of growth.”

The U.S. is already the world’s largest producer of oil and gas, taken together, and is in the top three for oil alone, alongside Russia and Saudi Arabia.

--China continues to block several Google services, the disruptions beginning about five days before the 25th anniversary of the Tiananmen Square massacre. But while the government has blocked Google before, temporarily, some say this prolonged disruption seems to be a possibly long-term crackdown on the Internet giant.

--Chinese Web giant Alibaba, which is expected to go public shortly in the biggest offering in history, said revenue in the fourth-quarter ended in March grew by 39% to $1.9 billion, compared with 71% growth the previous year.

Overall, revenue grew 38.7% over the last fiscal year, compared to 52.1% last year and 72.4% in fiscal 2012.

Shares in Yahoo!, which owns a 23% stake in Alibaba, fell on the news.

--Cocoa prices have jumped to three-year highs on the back of soaring demand for chocolate across Asia. Over the past five years, demand in Asia has risen 29%, compared with a fall of 1% in Europe over the same period.

--FedEx reported solid fiscal fourth-quarter earnings gains with revenue in the freight segment up 12% to $1.55 billion for the quarter. Overall revenue rose 3.5% to $11.8 billion, above projections. Profit also exceeded Street forecasts.

--The Revel Casino Hotel in Atlantic City is close to shutting down, warning staff it will do so this summer unless it can find a buyer in bankruptcy court. This is no small deal. Revel is a $2.4 billion project that has been losing money since day one. This is actually the second bankruptcy filing in two years. The first one wiped out 82% of Revel’s $1.5 billion in debt.

--U.S. medical device maker Medtronic Inc. is acquiring Covidien Plc for $42.9 billion in cash and stock. Medtronic will move its executive base to Ireland in the latest transaction aimed at lowering corporate tax rates abroad, what is now known as an “inversion.”

Democrats in Congress have called for new restrictions on such deals, but the solution is a total overhaul of the corporate tax code, though the chances of this happening anytime soon are nil.

About ten days ago the European Commission announced it was looking into Apple’s Irish tax affairs.

--The beer market in Russia fell 8% last year and 5% in the first quarter, hurt by restrictions on sales put in place as President Putin seeks to promote healthy lifestyles. Beer sales are actually down 25% since 2008.

--In an interview on CNBC, Elon Musk (Tesla / SpaceX) spoke to his fear of artificial intelligence (think: “The Terminator”), calling it dangerous and inexorable and that we need to make sure there are good outcomes, not bad ones. I’m sleeping with one eye open.

--“Godzilla” topped the mainland China box office last week, taking in $38.2 million in its first three days of release, so it’s likely to top $100 million there, which is strong.

--A stamp described as the world’s rarest sold for $9.5 million at auction. Sotheby’s said the “British Guiana One-Cent Black on Magenta” went to a phone bidder who chose not to be publicly identified.

The previous auction record for a single stamp was $2.2 million.

The previous owner, John E. duPont, heir to the chemical company fortune, paid $935,000 for it in 1980. DuPont was later convicted of murder and died in prison in 2010.

Foreign Affairs, cont’d....

Iran: The P5+1 (U.S., U.K., France, Russia, China and Germany) and Iran met for five days this week in Vienna, the fifth round of talks on Tehran’s nuclear program, with both sides warning of major differences as they attempt to draft an accord before the July 20 deadline. Iran seems to be amenable to pushing back the deadline further (why wouldn’t they be?), while President Obama is said to be concerned how a further extension would play out when it comes to the electorate and the midterm elections in November. Plus he is certain to seek Congressional approval and that won’t be easy to obtain.

[Late word Friday is there are three competing proposals being circulated. China’s envoy said the parties had agreed on a general “framework.” There is also a story, though, that Iran won’t accept the P5+1’s “excessive demands.” The next round is July 2.]

Syria: The civil war continued unabated. A car bomb on Friday in central Hama province killed at least 34 in a Syrian-government controlled village.

The government has been pounding ISIS bases in eastern Syria, according to the Britain-based Syrian Observatory for Human Rights.

Earlier, insurgents claimed they killed 40 regime troops last weekend when they detonated a building in east Damascus. [Daily Star]

Agence France-Presse reported that international inspectors said Syrian combatants appear to have employed agents like chlorine in “systematic” strikes.

Israel: Israeli troops killed a Palestinian teenager in the occupied West Bank today and arrested 25 people, bringing the week-long total to at least 330 incarcerated, including 240 from Hamas, which Israel accuses of kidnapping three Israeli teenagers who went missing near a Jewish settlement on June 13. This is an incredibly dangerous situation.

Israel has searched some 1,150 sites in the territory and while Palestinian President Mahmoud Abbas has condemned the kidnappings, he has also blasted Israel for the extent of its raids.

Hamas has not claimed responsibility for the kidnappings, but a spokesman said in Gaza on Thursday, “regardless of who was responsible...the Palestinian people have the right to use all forms of resistance in order to liberate land and people.” [Irish Independent]

But here’s the question. Where is the international outrage over the kidnappings? Israel’s ambassador to the UN, Ron Prosor, on Tuesday:

“It has been five days since our boys went missing. I ask the international community – where are you? Where are you? The kidnappings took place 10 days after Fatah and Hamas formed a unity government. All those in the international community who rushed to bless this marriage, should look into the eyes of the heartbroken parents and have the courage to take responsibility by condemning the kidnapping.”

Hamas threatened to ignite a third intifada “when enough pressure is exerted on the Palestinian people,” a senior Hamas official said on Thursday. [Jerusalem Post] Five members of Hamas were killed in an explosion in a tunnel in the Gaza Strip on Thursday, cause unknown.

Ukraine: While Iraq draws all the attention, it was a week of large-scale violence in Ukraine as NATO-Secretary-General Anders Fogh Rasmussen said Thursday, Russia has resumed a military buildup near Ukraine, calling it “a very regrettable step backward.”

“I can confirm that we now see a new Russian military buildup – at least a few thousand more Russian troops deployed to the Ukrainian border – and we see troop maneuvers in the neighborhood of Ukraine,” Rasmussen said in London.

“If they are deployed to seal the border and stop the flow of weapons and fighters that would be a positive step. But that is not what we are seeing.”

NATO had said in late May that the bulk of the original 40,000-strong Russian force had pulled back.

On Wednesday, Ukrainian President Petro Poroshenko offered a unilateral cease-fire as next week, foreign ministers and leaders of the European Union are scheduled to hold meetings at which Russian-Ukraine relations will be the main topic of discussion; including whether to impose further economic sanctions on Moscow.

Poroshenko has unveiled a 14-point peace plan that includes a promise for constitutional changes granting regional governments more authority and tax-raising powers. The rebels would have to immediately disarm.

But on Thursday and Friday, Ukrainian government forces said 300 separatists had been killed about 60 miles from the border with Russia. While the figure couldn’t be confirmed, a rebel commander said the rebels had sustained “heavy losses” when they were outgunned by government forces backed with heavy armor. The government said seven of its own had been killed.

Prior to this battle, the U.N. reported 356 people were known to have been killed since mid-April, among them 257 civilians and 86 Ukrainian military personnel, including the 49 who were killed last weekend when separatists shot down a military transport plane with a shoulder-launched missile as it approached Luhansk airport. No details were provided on the other 13.

But Friday, Ukraine announced a week-long unilateral cease-fire in its easternmost regions after the U.S. imposed some minor sanctions and accused Russia of providing new military aid to separatists. We’ll see. Insurgents are to lay down their arms and those who haven’t committed any serious crimes will be offered amnesty and safe passage out of the country. The separatists have said they would reject a cease-fire.

Meanwhile, Ukraine’s interim foreign minister, Andrii Deshchytsia, who is said to be a colorful character, angered Russians in a big way when he at first pleaded with protesters to halt their violence outside the Russian Embassy in Kiev. He told them that Ukraine has an obligation to defend embassies and stressed that he was not asking them to stop protesting, but to be peaceful after they had broken all the windows in the Embassy.

“I am ready to be here with you and say, ‘Russia, get out of Ukraine,’” he said. Then he spoke the following, which caused an international incident. “Putin is a d---head, yes.” At which point many of the protesters chanted along. Russian leaders voiced their extreme displeasure.

Finally, on the natural gas front, a pipeline fire blamed by Kiev on sabotage threatened gas flows to Europe, though I haven’t seen an update the past few days, except that there don’t appear to be any supply issues for Europe for months to come. It’s more about Ukraine building up inventories by the end of summer for next winter. Presidents Putin and Poroshenko talked Tuesday night about gas supplies to Ukraine and unpaid bills. The deaths of two Russian reporters were also raised by Moscow.

Libya: Ahmed Abu Khatalla, said to be a ringleader for the attack on the consulate in Benghazi, Sept. 11, 2012, was captured by U.S. Special Forces in Libya and is being brought to the U.S. to stand trial. Khatalla was first put on a ship where he could be questioned for intelligence purposes. I’m not going to raise a ruckus over why it took so long when various media outlets had interviews with Khatalla over a year ago inside Libya.

China: Beijing said it is moving a second oil rig closer to Vietnam’s coast, as China presses its territorial claims and continues its search for resources in disputed waters of the South China Sea. The “600-meter-long” rig is being towed southeast of Hainan Island and China’s Maritime Safety Administration said on its website that vessels in the area should give it wide berth. I’ll say.

But in this case, Vietnam is not expected to protest loudly because the second rig will lie far to the north of the politically sensitive Paracel Islands, where ships from the two countries have been ramming each other like bumper cars for more than 40 days after China placed its first rig there.

China’s state oil behemoth, CNOOC, has said it plans four new projects scheduled to come onstream in the western and eastern South China Sea in the second half of 2014. It’s not clear if the first two are two of the four, but CNOOC did say it would increase by up to a third its annual capital spending for 2014 to almost $20 billion.

Vietnam and China did hold talks this week, supposedly to ease tensions over the ramming incidents accompanying the placement of the first rig near the Paracels, though it seemed the talks resulted in zero progress. [South China Morning Post]

Turning to health matters, in what is being described as a landmark study, we learned Beijingers spend one-fourth of their lives sick, according to a World Health Organization-recommended indicator, “Health-adjusted life expectancy” (Hale). What it means is that while people in Beijing have a life expectancy on par with that of advanced countries, life quality is not ideal, according to the director of China’s Centre for Disease Control and Prevention. You can blame pollution for a lot of the resultant illnesses.

Speaking of which, from the South China Morning Post and Reuters:

“Complaints about Beijing’s air pollution more than doubled in the first five months of the year, authorities said, pointing to a sign of rising public anger about the cost of rapid economic growth in the city.”

More than 70% of the environment-related complaints submitted to Beijing authorities from January to May concerned air pollution.

Yup...for years I’ve been writing it’s coming...full-blown rioting over environmental issues in this country, perhaps sooner than even I thought. Officials are desperate to be seen as being on the side of the people, encouraging the public to participate in campaigns against violators.

And there is this one....

“Large colonies of micro-organisms – some capable of causing serious disease – have been discovered inside pipelines carrying drinking water to homes in most major mainland cities, the South China Morning Post has learned.

“Fortunately, most people habitually boil water before drinking, killing off the organisms and reducing the risk of outbreaks. But many foreign visitors are unaware of the issue and often drink from the tap.”

Afghanistan: Abdullah Abdullah, who handily won the first round of voting for president, suddenly said he is boycotting the vote count for the final round* (runoff) because of alleged fraud, asking the Election Commission to stop the counting process immediately.

*At least 50 people were killed across the country as the Taliban sought to disrupt the process.

What Abdullah is looking at is a surge in voting from the first round to the second in eastern Afghanistan, which is opponent Ashraf Ghani’s base. In the eastern province of Khost, for example, the commission’s initial tally showed that more than 400,000 voters cast ballots on Saturday, up from 113,000 in the first round. But Khost’s entire population, according to the last census, is 549,000 and one-third of them would be children. Ergo, it’s impossible. Ditto nearby Paktika, where 390,000 votes were cast and the population is 414,000. [Margherita Stancati / Wall Street Journal]

This isn’t good. The preliminary results are to be released July 2, final tally July 22.

Editorial / Army Times

“Critics of the failure of U.S. and Iraqi leaders to forge a deal to leave a residual U.S. force in place after 2011 have new voice. Such a force could have deterred such uprisings while continuing to train Iraqi forces and stabilize the new government.

“Against this backdrop, U.S. and Afghan leaders now negotiate the exit of American forces from that country.

“Like Iraq, Afghanistan is riven with tribal and religious differences – stoking a similar fear that without a continued U.S. presence, Afghanistan’s return to a chaotic terrorist safe haven is all but inevitable.

“So as U.S. leaders try to determine how to respond to the crisis in Iraq, the explosive events unfolding there must inform future U.S. strategy for Afghanistan.

“Otherwise, the strategic and diplomatic failures in Iraq are likely to be inexcusably repeated.”

But now we have to wait to see how the politics shakes out.

Pakistan: The government claimed Pakistani military airstrikes on militant hideouts in the northwestern tribal region bordering Afghanistan killed as many as 100 in the second strike on the region following the deadly attack on the Karachi airport a week earlier. Many of the dead were said to be Uzbeks, as well as Taliban, both claiming responsibility for the Karachi attack.

Kenya: Somalia’s al-Shabab group was responsible for a series of attacks that killed at least 64 this week, with at least 12 women also abducted. 50 were missing following the first raid on Mpeketoni that killed 49. Al-Shabab said it was revenge for the presence of Kenyan troops in Somalia and the killing of Muslims.

The U.S., U.K. and Australia are among the governments advising their citizens against travel to coastal areas of the country.

Canada: The government has conditionally approved a pipeline to bring oil from the Alberta oil sands to the Pacific coast. Known as the Northern Gateway, it is expected to transport 525,000 barrels a day to Asia-bound tankers. First Nations groups and environmentalists have long been vehemently opposed.

Prime Minister Stephen Harper has said diversifying Canada’s oil sands production is essential, especially after Washington has jerked their good neighbor around by delaying a decision on the Keystone XL pipeline. Enbridge, the pipeline owner, said the project would result in 3,000 construction jobs and 560 long-term ones.

Spain: King Juan Carlos formally abdicated and turned over the throne to Crown Prince Felipe, who then became king at midnight, Wednesday, and was publicly proclaimed the new monarch in the Spanish parliament the next day.

In a national poll, 53% of Spaniards say they want to keep the monarchy, with 37% saying they want a republic. The young want it abolished. Those 55 and older want to keep the current system, and those aged 35-54 are split down the middle.

Meanwhile, Spain’s reign as World Cup champion went up in flames, losing to Chile 2-0, after getting blasted by the Netherlands, 5-1.

Random Musings

--The results of a new Wall Street Journal/NBC News poll are devastating for President Obama. His overall job approval is 41%, matching a previous low, and only 37% approve of his handling of foreign policy, a new low. And 54% of those polled say they no longer feel the president “is able to lead the country and get the job done,” compared with 42% who say he could.

Also, 41% said the administration’s performance has gotten worse over the past year, compared with 15% who noted improvement. [Who the heck are those 15%?]

Other findings: 65% don’t believe the war in Afghanistan was worthwhile. 

Obama has lost significant ground among Hispanics, with only 44% approving of his job performance today vs. 67% who did in January 2013.

More than six in 10 Americans said they believe climate change is either “a serious problem” requiring “immediate action” or a big enough concern that “some action should be taken.” Only 13% said the fears were “unwarranted.”

Daniel Henninger / Wall Street Journal

“With 2 ½ years left in the Obama presidency, it is at least an open question what will be left of it by December 2016. Or us.

“In this week’s Wall Street Journal/NBC poll, conducted as the disintegration of Iraq began, Mr. Obama’s approval rating has fallen to 41% and his handling of foreign policy to 37%.

“Respondents to this poll know what is going on in the world – Ukraine destabilized, Iraq disintegrating, their economy eternally recovering.

“Mr. Obama’s world this week consisted of flying to the University of California-Irvine to give a speech about a) himself and b) climate change. On Wednesday he was in New York City for a midtown fundraiser, an LGBT fundraiser and a third, $32,000 per person fundraiser at the home of Vogue editor Anna Wintour.

“The Hill newspaper ran a piece earlier wondering if Mr. Obama is ‘done with Washington.’ Jamal Simmons, a Democratic strategist, says, ‘He’s never really made it a secret he’s not a fan of this place.’ Or Syria. Or Ukraine. Or Iraq.....

“If there’s one Obama foreign-policy decision that sticks in anyone’s mind it is the ‘red line’ in Syria. It was Mr. Obama’s decision last September, at Vladimir Putin’s invitation, to step back from his own criteria for punishing Syria’s Bashar Assad if he used chemical weapons against his own people. The voters now tanking Mr. Obama’s foreign affairs number don’t think it’s just random bad luck that Russian tanks ended up in Ukraine and some al-Qaeda group they’ve never heard of took over half of Iraq in two days. The world is slipping beyond President Obama’s control, or interest. From here on out, it – and we – are in God’s hands.”

--Last Saturday, before his golf round, President Obama told the graduates at the University of California-Irvine that it will take their passion and youthful spirit to overcome naysayers who don’t believe climate change is a threat.

“There’s going to be a stubborn status quo, and there are going to be people determined to stymie your efforts to bring about change. There are going to be people who say you shouldn’t bother. I’ve got some experience with this myself.” [Referring to congressional criticism over the administration’s new carbon pollution regulations that impact the coal industry in a big way.]

Progress on climate change will be measured in “disasters averted, lives spared,” the president said.

“Can you imagine a more worthy legacy than protecting the world?” Obama said. “I ask you to help us leave that legacy.”

First off, Mr. President. Tell the Chinese.

Second, you could have saved over 120,000 lives by establishing a no-fly zone in Syria, with many in future generations choosing to admire America, rather than creating generations of future terrorists...but I digress.

--In a CNN/ORC International poll, only 37% of Americans are satisfied with the administration’s response to the September 2012 assault on the U.S. diplomatic compound in Benghazi. 43% are satisfied with Hillary Clinton’s role in the matter, while 55% have a negative view.

61% surveyed think the administration has generally been dishonest in providing information about Benghazi in the aftermath of the attack.

Separately, in an astonishing factoid, we learned this week that Chelsea Clinton was paid $600,000 a year for a special correspondent’s job at NBC News. As Nia-Malika Henderson of the Washington Post observed, in relation to Hillary’s book tour and her stumbles on the family’s finances and being “broke” when they left the White House, “Chelsea Clinton’s salary embodies the kind of passed-down privilege available to a select few, often based on birth rather than merit.”

Which is why, as Ms. Henderson observes, some Democrats swoon over a potential Elizabeth Warren candidacy. As Warren declared in an April interview on The Daily Show with Jon Stewart:

“It’s tough out there, it really is a rigged game. It’s set up over and over and over that the rich get richer and the powerful get more powerful. They have all the advantages of concentrated money and concentrated power. All we got on the other side is, we’ve got our voices and our votes. And if we get out there and make something out of them, that’s how we make a difference. That’s it.”

I swear...I’m more ticked off about the Chelsea Clinton revelation than just about anything else on the domestic front these days.

--As expected, House Republicans overwhelmingly elected Rep. Kevin McCarthy of California to be majority leader and Rep. Steve Scalise (Louisiana) to be majority whip. I have to admit I was never a McCarthy fan, for no particular reason, but he has impressed me more recently in his public pronouncements. He is also aligned with the business-friendly establishment, while Scalise is more conservative in his beliefs and will act as a bridge between conservatives and the more moderate Speaker, John Boehner, and McCarthy.

--In a new Gallup poll, only 7% of Americans have confidence in Congress, a new low. In 1973, the first year Gallup asked the question, the figure was 42%. By contrast, 74% have a “great deal” or “a lot of confidence” in the military.

--Editorial / Wall Street Journal

“The IRS is now telling Congress that it has lost the emails of no fewer than seven IRS employees central to the targeting of conservative nonprofits, though that’s only half the outrage. There’s also the IRS’s quiet admission that it has spent most of the past year willfully defying Congress.

“After informing Congress on Friday that it can’t find two years of email from former Director of Exempt Organizations Lois Lerner, House Ways and Means Chairman Dave Camp revealed Tuesday that the IRS can’t produce records for six more employees whose hard drives also supposedly failed. These six happen to have been central to the IRS crackdown on conservative groups, and the lost emails were sent when the targeting took place, including in 2010 and 2011. The six include Nicole Flax, former chief of staff to former IRS Commissioner Steven Miller.

“There’s an equally disturbing IRS confession contained in its Friday letter to Congress. Some history: House Oversight Chairman Darrell Issa as early as June 4, 2013 asked the IRS to provide ‘all documents and communications sent by, received by, or copied to Lois Lerner’ between Jan. 1, 2009 and the present.’ Note the ‘all.’....

“In other words, the IRS has from the start been picking and choosing which of Ms. Lerner’s emails it deigned to show Congress. And it did so despite knowing that Congress wanted everything.

“The IRS filter has delayed the investigation and denied Congress access to important information. Congressional investigators learned only last week that Ms. Lerner corresponded with the Justice Department about potentially prosecuting conservative nonprofits....

“And now we get the disappearance of seven hard drives. Ms. Lerner’s hard drive, by the way, appears to have ‘crashed’ in June 2011, not long after Mr. Camp first asked the IRS if there was any political targeting going on. She denied it.”

Current IRS Commissioner John Koskinen testified before Congress on Friday and was grilled over the loss of the emails. He had learned of the outlines of the computer problems in February, told Congress they would receive Lerner’s emails, but then didn’t inform lawmakers until last Friday of the extent of the problems.

Ways and Means Chairman Dave Camp (R., Mich.) said, “You say that you’ve lost the emails, but what you’ve lost is all credibility.”

Rep. Paul Ryan (R., Wis.) told Koskinen, “You learned about this months ago. You just told us. This is not being forthcoming. This is being misleading again... I don’t – I don’t believe you.”

I loved another line of Ryan’s; that the IRS asks us taxpayers to save records for seven years in case we’re audited, but the IRS itself can’t save emails for six months.

--Edward Luce / Financial Times

“Mr. Obama has all the drones and F-22 fighter jets he needs to strike whatever targets he wants. But experience has taught him the limits of warfare from the skies. Mike Tyson, retired U.S. boxer, once said that everyone has a plan until you get punched in the face. Mr. Obama’s plan was to end the wars in Iraq and Afghanistan and he stuck to it. As he set out in his recent West Point speech, he also plans, where possible, to replace U.S. military engagement with diplomacy and economic statecraft. And, of course, he had a dream to replace America’s red state/blue state division with a post-partisan U.S. that worked together to solve problems. All of these hopes are now repeatedly punching him in the face. Little surprise, then, that he sounds wistful about what it is to be in the loneliest job in the world.

“Doubtless Mrs. Clinton and others believe they can do it better. Why else would they want the job? A case can be made that Mr. Obama raised expectations too high, that he has handled the job too passively and that he still has time to put a do-nothing Congress to shame. Of these, the first has the most force. Mr. Obama came to power on a wave of unquenchable hope. Today he talks about ‘hitting singles’ rather than home runs. And he is looking every longingly to his place in history.

“Competition is hotting up between Chicago, New York and Hawaii to host the Obama presidential library. Mr. Obama is reportedly spending a lot of time thinking about it. According to a profile in Politico, the Obamas have decided they will live in New York after they leave the White House. Last year he spent 46 days on the golf course, up from 30 in his previous highest year.

“It is as if he is already winding down. ‘Just last night I was talking about life and art, big interesting things, and now we’re back to the miniscule things on politics,’ Mr. Obama complained after a dinner last month with Italian intellectuals in Rome. His cabin fever is tangible. On the plus side, there are only two-and-a-half years to go.”

Oh, it’s going to be a long 30 months.

--Wisconsin prosecutors claim Republican Gov. Scott Walker was at the center of an illegal campaign fundraising scheme as he and several Republican senators sought to survive a 2012 recall election. No charges have been filed against Walker or any of his staffers, but it definitely hurts Walker as he runs for another term in November, let alone his 2016 presidential aspirations.

--The UN refugee agency said the number of people forced to flee their homes because of war or persecution exceeded 50 million in 2013, the first time since World War II. The overall figure is 51.2 million, six million higher than the year before.

--It recently came to light that on June 5 and June 10, a total of 13 planes flying over Europe disappeared from radar screens in two “unprecedented” blackouts, leading to reports stating air traffic control systems had been hacked. A subsequent investigation has been unable to reach any conclusions. The planes all continued with their flights with air traffic controllers relying on voice communications alone.

Der Kurier, an Austrian newspaper, suggested it was a targeted cyber attack and that the aircrafts’ transponders may have been interfered with, but, this would have required the use of a satellite.

There was another story that a NATO electronic warfare exercise in Hungary may have been the cause, but Hungary’s defense ministry denied this was the case, saying the technology used was weak. Plus, the second incident occurred after the exercise had been completed.

Sure looks like a dry run for something more than a bit sinister.

--President Obama announced he intends to use his executive authority to create the world’s largest marine sanctuary in the south-central Pacific Ocean. The proposed sanctuary would expand from about 225,000 square-kilometers to more than two million square kilometers in a U.S.-controlled Pacific Ocean area between Hawaii and American Samoa.

Previously, President George W. Bush created what was at the time the world’s largest marine sanctuary, protecting 140,000 square-miles of water off the Hawaiian islands.

Apparently, the only commercial activity that will be affected by the new Obama sanctuary is tuna fishing, so I’m guessing word is spreading quickly in Tuna Nation to travel to the region now that a safe haven has been established. Of course the same president couldn’t create safe havens for Syrians early on in their civil war...but I digress.

--It is estimated there are twice as many rats (the actual rodent kind) in New York City as there are inhabitants (2 Xs 8.4 million). The city is launching war on them.

Guess what neighborhood is the city’s most-infested? The South Bronx around Yankee Stadium! Ding ding ding! “Inspectors gave a failing grade for infestation to at least 13 percent of more than 3,000 locations inspected in that area.” [Verena Dobnik / AP]

--New Jersey passed its medical marijuana law in 2009, with the first dispensary opening in December 2012. It was expected tens of thousands of patients in the state would avail themselves of it.

Instead, the Star-ledger learned that only 2,342 patients have signed up, and last week the president of one of the three dispensaries announced he was quitting because he couldn’t keep working for no pay.

Gov. Chris Christie has argued the medical marijuana program is just “a front for legalization.”

Meanwhile, on Thursday, New York Gov. Andrew Cuomo and leaders of the state legislature reached agreement on a deal to legalize some forms of medical marijuana.

--An article published in Esquire Friday quotes two anonymous sources familiar with the ongoing investigation into Bridgegate who claim the U.S. Attorney’s office is “near-certain” to indict several former officials of the Port Authority of New York and New Jersey and the Christie administration, in the hope they will then testify against the governor.

The article claims Christie is in danger of being fingered by his own former appointees or members of his administration.

--I’ve been writing of how concerned some experts are that we are taking undue risks at the Centers for Disease Control regarding the handling of some diseases/viruses still in existence for testing purposes. Ironically, then, it was announced on Thursday that up to 75 people (now 84)  working at the CDC may have been exposed to live anthrax and are receiving treatment.

“The U.S. health agency said researchers in a high-level biosecurity laboratory failed to follow proper procedures and did not inactivate the bacteria.

“CDC said the exposure occurred in Atlanta at the weekend and no-one has yet shown symptoms.” [BBC News]

--Finally, President Obama awarded the Medal of Honor on Thursday to Marine Cpl. William Kyle Carpenter, who is not only a battlefield hero, but a modern medical miracle after he was ravaged by a grenade blast while attempting to shield a fellow Marine from harm.

Carpenter still bears the scars of that Nov. 21, 2010 act, but he’s sky-dived and run a marathon. I mean this is a soldier whose vital signs had flat-lined numerous times after he was injured. Obama recalled:

“I want you to consider what Kyle has endured just to stand here today: More than two and a half years in the hospital; grueling rehabilitation; brain surgery to remove shrapnel from his head; nearly 40 surgeries to repair a collapsed lung, fractured fingers, a shattered arm broken in more than 30 places; multiple skin grafts. He has a new prosthetic eye, new teeth, and one hell of a smile.”

That he does. God bless Cpl. Kyle Carpenter.
---

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

God bless America.
---

Gold closed at $1316
Oil $106.83

Returns for the week 6/16-6/20

Dow Jones +1.0% [16947]
S&P 500 +1.4% [1962]
S&P MidCap +1.6%
Russell 2000 +2.2%
Nasdaq +1.3% [4368]

Returns for the period 1/1/14-6/20/14

Dow Jones +2.2%
S&P 500 +6.2%
S&P MidCap +6.2%
Russell 2000 +2.1%
Nasdaq +4.6%

Bulls 61.4
Bears 16.3 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

New readers...check out my iPad app.

Brian Trumbore



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-06/21/2014-      
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Week in Review

06/21/2014

For the week 6/16-6/20

[Posted 12:00 AM ET]

Edition 793

Iraq...and Obama’s Foreign Policy

And we’re back...back in Iraq, that is. I said my piece last time. It’s always been about Syria; we blew it royally there and we’re reaping the whirlwind. Dexter Filkins, a reporter who covered the Iraq War extensively, was on Jake Tapper the other day and Filkins, when talking about 2 ½ years ago and our exit from the place, said, “There weren’t a lot of people who wanted to stay in Iraq.”

Well there were a lot of people who thought it was a mistake to just leave, too, but to stay required leadership, and a correct reading of the geopolitics of the time and we’ve learned President Obama clearly didn’t want to remain involved...he was disinterested, just as he appeared in his Thursday press conference, pathetically, when he announced the United States was sending 300 “advisers” (read troops / special forces) to help Iraq’s military deal with the onslaught by ISIS (Islamic State of Iraq and Syria), or ISIL (Islamic State in Iraq and the Levant, as the White House is referring to the Islamists). This was in addition to the 275 troops that are being sent to fortify the Embassy in Baghdad.

Obama stopped short of openly calling for the ouster of Prime Minister Nouri al-Maliki, but stressed Iraq’s leadership must do more to accommodate the country’s ethnic and religious minorities.

“American forces will not be returning to combat in Iraq, but we will help Iraqis as they take the fight to terrorists who threaten the Iraqi people, the region and American interests as well,” Obama said.

The president added that “going forward, we will be prepared to take targeted and precise military action if and when we determine that the situation on the ground requires it,” i.e., airstrikes are a distinct possibility; though Obama also said “the United States will not pursue military actions that support one sect inside of Iraq at the expense of another.”

“Above all, Iraqi leaders must rise above their differences and come together around a political plan for Iraq’s future,” Obama said. “Now, it’s not the place for the United States to choose Iraq’s leaders. It is clear, though, that only leaders that can govern with an inclusive agenda are going to be able to truly bring the Iraqi people together and help them through this crisis.” [William Branigin / Washington Post]

The Maliki government has requested U.S. “air power,” but the administration has told Congress a bombing campaign would be difficult.

Kenneth Pollack, a senior fellow at the Brookings Institution’s Saban Center for Middle East Policy in Washington, told Bloomberg, Iraq has been driven to its current state of turmoil by “a whole variety of actions by a variety of different Iraqi leaders, but first and foremost among them is Prime Minister Maliki.” It was Maliki’s purging Sunnis from the military and arbitrary actions favoring Shiites that alienated Iraqi minorities, Pollack said.

Virtually all are in agreement. It’s too late for Maliki to now mend fences. He has to go. It didn’t help his cause that on Friday, revered Shia figure, Grand Ayatollah Ali al-Sistani, called for a new government.

Meanwhile, over the course of the past week we saw ISIS execute a reported 1,700 Iraqi air force recruits, some of it on gruesome video. ISIS continued to take territory, with Baghdad still in its crosshairs, while appearing to control at least part of a major oil refinery in Baiji that is important in terms of the gasoline flow for the surrounding area, which could impact the Iraqi army’s ability to move around, while oil majors like ExxonMobil and BP are pulling their personnel out, which means they aren’t about to return anytime soon. 

It’s just very depressing, especially for those who served in the Iraq War and had been able to feel good about their efforts

Oh, I worry all the time about Jordan, outside of Israel our prime ally in the region, which is an eventual target of ISIS, and while you may not care about the Saudis, we don’t want an uprising in the Kingdom. And Turkey has very serious issues to deal with these days.

But of equal or greater immediate concern is all these jihadis doing their thing in Iraq and Syria, and elsewhere, including Nigeria, Somalia, Yemen and Kenya, who are receiving good training and can easily infiltrate Europe and the United States (gee, through Mexico). European leaders have been sounding the alarm all year. ‘These guys will eventually come home,’ and the last thing this fragile global economy needs is a wave of terror attacks in Paris, London and Madrid, let alone the unthinkable here.

It’s depressing because you really see how there is no end to this. The United States has lost the respect of so many of our old friends. We have lost all credibility. And sitting back watching it all is a Russia that is rapidly modernizing its military, and China, as well as that crazy kid sitting in Pyongyang with his explosive toys that every expert agrees are becoming more and more of a direct threat to the United States.

So sorry, friends. We desperately need real leadership and the only leaders in the purest sense of the word around the globe these days go by the names of Putin and Xi.

Opinion....

Editorial / Wall Street Journal

“So President Obama now says he will send ‘up to 300’ military advisers to Iraq to help reverse the advance of al-Qaeda, but not to do any fighting. He may agree to air strikes, but only ‘if and when’ the situation absolutely requires it. Though the immediate threat to Iraq comes from Sunni terrorists, he ‘will not pursue military actions’ that support one sect at the expense of another.

“And while ‘it’s not our job to choose Iraq’s leaders,’ the administration is making no secret of its desire to see Iraqi Prime Minister Nouri al-Maliki cashiered in favor of a more ‘inclusive’ leader. The supposed marionette of U.S. intervention in 2003 Ahmed Chalabi is being floated as one possibility, in what would be an irony for the ages.

“Amid this exquisite policy calibration announced by Mr. Obama at Thursday’s press conference, we have to ask: What does the President intend to accomplish – other than to offer the appearance of action and strategy?

“It can’t be the battlefield defeat of the Islamic State of Iraq and al-Sham, or ISIS. We would support that goal if the administration were serious about committing the resources and time to achieve it. The creation of an al-Qaedastan stretching across central Syria and Iraq and commanding sizable military and economic resources represents a direct threat to the U.S., irrespective of domestic Iraqi or regional considerations.

“But a detachment of ‘up to’ 300 military advisers won’t do the job, with or without the occasional targeted strike, especially as the president is already citing the risks of ‘mission creep.’....

“If the administration really wants to sideline the prime minister, it would need to offer him a face-saving deal that would allow him a graceful exit from power in exchange for meaningful U.S. commitments to defeat ISIS. What the administration can’t do is presume to dictate Iraqi politics as if we had 170,000 troops in the country.

“In international politics, influence is a function of power, and commitment is a prerequisite to achievement. If Mr. Obama were serious about the threat posed by ISIS and the possible breakup of Iraq, he would not be making the token commitments he made Thursday.   It may take some of our liberal friends a while to understand that what the president proposed isn’t a strategy; it is a feint. America’s enemies in Mosul and Tehran will have spotted it right away.”

Charles Krauthammer / Washington Post

“Yes, it is true that there was no al-Qaeda in Iraq when George W. Bush took office. But it is equally true that there was essentially no al-Qaeda in Iraq remaining when Barack Obama took office.

“Which makes Bush responsible for the terrible costs incurred to defeat the 2003-09 jihadist war engendered by his invasion. We can debate forever whether those costs were worth it, but what is not debatable is Obama’s responsibility for the return of the Islamist insurgency that had been routed by the time he became president....

“The result? ‘A sovereign, stable and self-reliant Iraq.’ That’s not Bush congratulating himself. That’s Obama in December 2011 describing the Iraq we were leaving behind. He called it ‘an extraordinary achievement.’

“Which Obama proceeded to throw away. David Petraeus had won the war. Obama’s one task was to conclude a status-of-forces agreement (SOFA) to solidify the gains. By Obama’s own admission – in the case he’s now making for a status-of-forces agreement with Afghanistan – such agreements are necessary ‘because after all the sacrifices we’ve made, we want to preserve the gains’ achieved by war.

“Which is what made his failure to do so in Iraq so disastrous. His excuse was his inability to get immunity for U.S. soldiers. Nonsense. Bush had worked out a compromise in his 2008 SOFA, as we have done with allies everywhere....

“Moreover, as historian Max Boot has pointed out, Obama insisted on parliamentary ratification, which the Iraqis explained was not just impossible but unnecessary. So Obama ordered a full withdrawal. And with it disappeared U.S. influence in curbing sectarianism, mediating among factions and providing both intelligence and tactical advice to Iraqi forces now operating on their own....

“Faced with a de facto jihadi state spanning both countries, a surprised Obama now has little choice but to try to re-create overnight, from scratch and in miniature, the kind of U.S. presence – providing intelligence, tactical advice and perhaps even air support – he abjured three years ago.

“His announcement Thursday that he is sending 300 military advisers is the beginning of that re-creation – a pale substitute for what we long should have had in place but the only option Obama has left himself.”

David Ignatius / Washington Post

“Good policy for Iraq and Syria can’t rely on military force alone. The United States’ misadventures after the 2003 invasion of Iraq surely teach that lesson. What will stabilize this part of the world (slowly, slowly) is political action backed by military power – conducted under a series of umbrellas: The first umbrella is a new Iraqi unity government; the second is a U.S.-Iranian dialogue that draws in Saudi Arabia and its GCC [Gulf Cooperation Council] partners; the third is an international coalition backed by the United Nations.

“One irony of the current Iraqi mess is that the only stable area is Kurdistan, whose leader, Barzani, is probably the strongest political figure in the country. If Iran balks at removing Maliki in Baghdad, the United States should respond by deepening its ties with the Kurds – a step on the way to an independent Kurdistan and a new map for the Middle East.”

Richard Haass / Financial Times

“So what is to be done? There are calls to attack ISIS directly or to provide increased support to the Iraqi government, or both. Such actions might slow the rate of ISIS advance but it is far from clear they would make a decisive or lasting difference. No amount of outside help is a substitute for a government that acts in a way that makes most Iraqis prepared to fight for it.

“So it is probably just a matter of time before we see the break-up of Iraq into an Iran-dominated south; an independent Kurdish area in the north; and an area to the northwest of Baghdad contested by ISIS and an Iran-backed Iraqi government. U.S. actions in this scenario could involve some help for the Iraqi government, if it meaningfully broadened its political base. Alternatively, the U.S. could simply carry out counter-terrorist strikes as required. The U.S. should also move to shore up the Kurdish area, possibly linking aid to a commitment by the Kurds not to expand their de facto ‘state’ beyond the borders of Iraq lest Turkey and others join the fray.

“This would make for awkward regional politics, putting the U.S. on the same side as Iran inside Iraq – even as it opposed Iran in Syria against much the same forces. Also, acting militarily would fly in the face of Mr. Obama’s desire to assuage the U.S. popular desire to avoid more involvement in the Middle East.

“Whatever the politics, the U.S. and its partners cannot limit their efforts to Iraq. A strong case can be made to provide meaningful help to anti-regime but non-jihadist forces in Syria, which would make it impossible for ISIS to focus on Iraq. More economic assistance is needed for Jordan, already burdened by millions of Syrian refugees.

“The administration will want to rethink its decision to pull all U.S. forces out of Afghanistan by the end of 2016.”

Michael Wilner / Jerusalem Post

“(As) President Barack Obama weighs military action against the group [ISIS], administration officials suggest the U.S. has so extracted itself from Iraq that Washington’s ability to strike targets with precision has been significantly diminished.

“We know that ISIS’ current campaign, dubbed Operation Soldier’s Harvest, began in October 2013 with the explicit aim of cementing control of territory for the formation of a caliphate, erasing borders imposed by a colonial West and reimposing strict Shari’a law. With Ramadan approaching on June 28, we can expect ISIS will attempt a spectacular finish to this campaign phase.”

Editorial / Washington Post

“(A) frank acknowledgement of the Baghdad government’s flaws must be tempered by an equally clear assessment of the enemy it now faces. If an ISIS-dominated ‘caliphate’ were to take root in the swath of Syrian and Iraqi territory the group now controls, it would be a base of operations for terrorist strikes around the world, including the United States. It also would be a harsh dictatorship in which ‘apostates’ - defined as anyone who does not accept ISIS’ brand of puritanical Islam – face summary execution. Eager as it was to resume its advance, ISIS still found time to burn the Assyrian church in Mosul. Nor is it in the interest of the United States, or the region, to leave Mr. Maliki totally reliant on Iran, whose covert forces reportedly are already on the ground, ready to assist him against ISIS and, presumably, gain even greater regional power for Tehran.

“The temptation to let Iraq fend for itself is strong and, given the history, understandable. Some may even see a chance for stability in reconfiguring the country along its sectarian Sunni, Shiite and Kurdish lines. But there are no neat dividing lines. A breakup of Iraq is likely to bring endless violence to its people and many others around the world. Not to do everything possible to avert that outcome would be a dereliction, and one that Americans might greatly regret for years to come.”

One side bar: Much is being made of ISIS’ capture of a key Hussein-era factory for chemical weapons. As in, what the heck?

But this facility was taken out during the 1991 Gulf War and as former weapons inspector David Kay said on Friday, UN inspectors encased any remaining loose shells by 1998. Then in 2003, the U.S. saw that Saddam had tried to access the remaining articles after the UN left, but the weapons had been long been degraded and were more dangerous to any trying to handle them.

Bottom line this facility was no mystery and should not be a concern even if under the control of ISIS. David Kay said he hoped the terrorists tried to poke around. They’d only kill themselves.

Washington and Wall Street

The Federal Reserve’s Open Market Committee gathered this week and the big story was how Chair Janet Yellen and her band of merry men and women played down the risk of higher inflation, almost to the point of absurdity.

The Fed did cut the monthly pace of its bond buying another $10 billion to $35 billion, so it will wind this up by year end, and of course it didn’t do anything on the rate front as it kept the language of its accompanying statement virtually identical to the last one, which was virtually identical to the one before.

“Economic activity has rebounded in recent months,” said the Fed in its statement. Household spending is rising moderately, business spending is recovering, though the “recovery in housing...remained slow.” The funds rate is to stay low “for a considerable time.”

Janet Yellen then said of inflation at her press conference: “The recent evidence we have seen, abstracting from the noise, suggests that we are moving back gradually over time toward our 2 percent objective and I see things roughly in line with where we expected inflation to be.”

The Fed thus kept its inflation forecasts almost unchanged, edging them up a fraction to 1.6% for this year and predicting below target inflation all the way until the end of 2016. So it is choosing to ignore stronger price numbers that we have been seeing, as in this week’s May CPI that had prices rising 0.4%, 0.3% ex-food and energy; 2.1% for the 12 months, up 1.9% on core.

The Fed’s preferred personal consumption expenditures index in April was 1.6%, but this is expected to hit 2.0% shortly, ergo the target.

I have been careful not to cry wolf on the inflation subject in the U.S. for years. Yes, I knew there was significant inflation in the things you and I use, but I argued this didn’t matter when it came to Fed policy because they would stick to their preferred data points. Real inflation, on the other hand, does impact the pace of economic activity, I argued, and that is reflected in our tepid recovery. It’s been about real wages and real spending power.

But in my outlook for 2014, I specifically said we would have a true inflation scare this year and interest rates would soar (in relative terms) and I said we would finish the year close to 4.0% (3.5% to 4.0% was my range, if I recall correctly). I’ll stick with that.

The New York Post had a story by Elizabeth Hagen and Natalie O’Neill the other day and here are some of the stats they cited for the “barbecue-season bummer”.

“The cost of ground beef has gone up 11 percent, pork has increased 9.4 percent and fish has spiked 4.2 percent since last spring, according to U.S. Department of Labor statistics.”

One official at Associated Supermarket in Manhattan said he has worked in the grocery business for 30 years and “I’ve never seen increases like this – where they jump as much as this.”

This gentleman talked about costs for beef, tilapia and pork chops all rising between 30 and 40 cents per pound since last year.

Meat, poultry and fish prices have risen an average of 7.7 percent nationally.

Now this is but a small sample, but then you have oil. Yes, we are in the midst of an Iraq-generated price spike, but who knows where we go from here on this front?   The International Energy Agency said global oil demand will rise from 91.4 million barrels per day in 2014’s first quarter to 94 million during its last three months. What if Iraq’s supplies in the south come under fire? What if Libya’s picture doesn’t improve?

But the Fed is not worried about inflation through 2016. Seeing as they also lowered their GDP projection this week for 2014 from 2.8%-3.0% to 2.1%-2.3%, because it hit them that winter really sucked (the IMF just reached this conclusion themselves, lowering U.S. growth from 2.8% to 2.0%) it’s not as if the Fed has a great track record on the prediction front. In fact they have been way too optimistic about the recovery since 2009. And I haven’t even touched on wage pressures, which are certainly beginning to percolate.

Oh well, lots to talk about over the coming months. In other economic news, May industrial production came in a little better than expected, up 0.6%, while housing starts for the month came in at 1 million, basically in line, though below April’s pace.

Perhaps Robert Samuelson of the Washington Post summed up today’s environment best:

“Post-crisis economic commentary has consistently misjudged the outlook. It has underestimated the crisis’ psychological effects on consumers and business managers. The past is less a guide to the future because the financial crisis and Great Recession are, in living memory, unique events. That’s why the economy remains an enigma.”

Europe and Asia

We’ve hit a lull in the amount of data being released but one figure this week was emblematic of the kind of recovery Europe and the eurozone are seeing, EU car sales, or registrations as they call them across the pond; up 4.5% in May year over year, though up 6.9% for the first five months so the recent pace is slower.

The U.K.’s auto sales, however, befitting its No. 1 economy these days, rose 7.7%, yoy, while Germany’s were up 5.2%.

But France’s rose only 0.3% in May and Italy’s were down 3.8%.

Back to Britain, yes, the economy is growing at a 3%+ clip, but you have a serious real estate bubble. Various statistics reveal a probable top. The Office of National Statistics said London home prices were up 18.7% in April from a year earlier, up 9.9% across the U.K., but a different survey revealed London prices were down 0.5% in June over May.

Separately, the inflation rate in the U.K. for May was 1.5%, but May retail sales fell 0.5% over April, the first decline in four months.

In Germany, investor and business confidence fell a sixth month in a row in June as the Bundesbank reiterated second-quarter GDP is expected to grow only “slightly.”

The IMF weighed in on the eurozone, warning the European Central Bank “inflation is worryingly low, including in the core countries,” not that the ECB doesn’t already know this, while the IMF urged U.S.-style quantitative easing. While the German government has backed the ECB’s zero interest rates, German bankers are increasingly complaining that ECB policies unfairly punish savers, just as the Fed is doing in the U.S.

Speaking of rates, I’m trying to give you a sense of Spanish and Italian bond yields each week and the yield on Spain’s 10-year rose to 2.72% from 2.66%, 6/14, while Italy’s rose from 2.72% to 2.95%. I’ve been beating a dead horse...the paper in these two has come too far too fast...but I recognize yields could remain at historically low levels for a while to come given ECB policy.

But I can’t help but note the following from Wolfgang Munchau of the Financial Times.

“The Europeans have barely begun to deleverage. In Spain and Ireland the process has at least started. But it will take years, maybe decades, until it is completed.

“Take Portugal, which is about to exit its support program from the European Stability Mechanism and the International Monetary Fund. Its private sector debt reached a peak of 226.7 percent of gross domestic product in 2009. It was still 220.4 percent at the end of 2013. S&P has run a simulation under which Portugal’s private debt could fall to 178 percent of GDP by 2020.

“That is still a big number. But it may be too optimistic. Portugal and other peripheral eurozone countries will need to deleverage and simultaneously deflate their prices to become more competitive. What makes it even harder is that inflation in the eurozone has been falling. Low inflation raises the real value of future debt, and reduces the ability to cut prices.

“Is it feasible? Today’s market consensus says yes: the eurozone crisis is over. Yes, there was some upheaval at last month’s European parliament elections, but we will muddle through politically. Surveys tell us that European businesses are becoming optimistic. Investors are exuberant. I am often hearing how great the mood in Spain seems to be. All’s well that ends well.

“The implication of House of Debt [Ed. recent book by Atif Mian and Amir Sufi] and the S&P study [by Moritz Kraemer] is that the conventional market view of the post-crisis environment is dead wrong. The most likely trajectory is a long period of slow growth, low inflation, and a constant threat of insolvency and political insurrection. If the private sector were to reduce debt in such an environment, certainly on the scale as suggested by S&P, it would be a lot harder and possibly bloodier than any of the adjustment we have seen so far.

“When the Japanese private sector began to deleverage in the early 1990s, the government increased its debt to absorb the shock. The Europeans did the same to some extent during the crisis as well. Spain, for example, was able to maintain large deficits. But from 2016, the strictures of the eurozone’s fiscal compact will kick in and force an acceleration in fiscal consolidation. The new fiscal rules will amplify the effects of private sector deleveraging. The bottom line is that the total post-crisis adjustment will be much more brutal than it was in Japan 20 years ago.

“In such an environment I would expect the political backlash to get more serious.”

Lastly, regarding the European Parliament and the selection of the head of the executive arm, president of the European Commission, it appears it will be Jean-Claude Juncker, despite the vocal campaign by British Prime Minister David Cameron against his candidacy.

This is a big blow not only to Cameron, but to the cause of keeping the U.K. inside the EU. It epitomizes Britain’s helplessness against the federalist EU insider. The formal selection of Juncker could come as early as next week.

Turning to China, Premier Li Keqiang said on Monday he was confident the growth rate would hit 7.5% this year. Writing in Britain’s London Times on the eve of his visit to London, Li said slowing growth was normal and not a problem.

“China’s economy needs to grow at a proper rate, expected to be around 7.5% this year,” he wrote. “It is slower than the past, but normal.”

“Despite considerable downward pressure, China’s economy is moving on a steady course. We will continue to make anticipatory and moderate adjustments when necessary. We are well prepared to defuse various risks. We are confident that this year’s growth target will be met.”

But this week some of the fundamentals weren’t that great. Foreign direct investment fell in May to the lowest level in 16 months, down 6.7% year over year.

And new-home prices fell in half the cities tracked by the government for the first time in two years, which isn’t all bad, we just need to monitor the pace of the needed slowdown in this sector.

Prices fell in 35 of the 70 cities monitored by the National Bureau of Statistics, just 0.3% from April.

But developers are beginning to cut prices and buyers are sensing they can get a much better deal down the road, so the market could worsen rapidly. Home sales fell 11% in May from May 2013.

The real estate industry accounts for about a fifth of China’s GDP and JPMorgan Chase & Co. is among those warning of a potential crisis with developers that have had trouble obtaining financing, and/or from “property trusts” that lend money to smaller builders and face record repayments next year, just as the market is cooling.

In Japan, exports in May fell 2.7% from year ago levels, the first decline in 15 months, while imports declined 3.6%, both worse than expected. Exports to the U.S. were down 2.8%, the first drop in 17 months, while they rose only 0.4% to China.

After the revised 6.7% annualized growth rate of the first quarter, fueled by consumption ahead of the April 1 sales tax hike, it was expected that the Japanese economy would decline about 3.5% or so in the second, and then, it is hoped, activity will normalize around a 2% annualized rate, with inflation rising to the government’s 2% target.

But the Bank of Japan’s Haruhiko Kuroda is urging, in stronger terms than normal for someone in his position, that Prime Minister Shinzo Abe fire his “third arrow” of reform or risk squandering the efforts of the past 18 months in reviving the nation’s economy.

The first two arrows were rapid monetary expansion, which Kuroda has said he’s taken care of, and fiscal stimulus, but now economic reforms are needed to reverse the decline in prices that has crimped growth. Abe is to unveil his “growth strategy” around June 27.

Financial markets need to be convinced that Japan’s economy is revving up after decades of stagnation, but also that there is a strategy for reining in the world’s heaviest public debt load.

Street Bytes

--The Dow Jones and S&P 500 finished up all five days this week, with both hitting record highs, the Dow up 1.0% to 16947 and the S&P up 1.4% to 1962. Nasdaq added 1.3%.

But this latest run has been marked by a total lack of volatility, with Friday marking the 45th straight day the S&P closed up or down less than 1%, the longest such stretch since 1995.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.46% 10-yr. 2.61% 30-yr. 3.43%

Basically unchanged on the week, despite the Fed speak.

--Argentina is searching for ways to skirt a U.S. Supreme Court ruling obligating it to make good on old liabilities and avoid default, specifically to pay about $1.5 billion to bondholders, a sum that could rise to $15 billion in claims from holders of defaulted bonds that didn’t participate in two debt exchanges related to the country’s 2001 default. Officials overseeing South America’s second-largest economy have concluded Argentina doesn’t have sufficient reserves to pay its obligations. 

Disobeying the court order would only further isolate the country. Central bank reserves (from which Argentina pays all its debts) have fallen 25% in the past year to $28.8 billion and Standard & Poor’s downgraded Argentina to CCC-, nine levels below investment grade.

The IMF said it was concerned about “broader systemic implications.”

Argentina’s President Cristina Kirchner said her country will meet its obligations, “But one has to distinguish between a negotiation and extortion.”

--In her second Congressional hearing this year, General Motors CEO Mary Barra said she was not aware of an email from a GM engineer that warned of a “serious safety problem” with ignition switches in the 2006 Chevrolet Impala the engineer was driving, adding it could lead to “a big recall.” The hearing came days after GM announced another recall of 3.2 million cars due to ignition switch issues, bringing the total this year to 44 million, far more than it sold in 2013. The recall actions have cost GM at least $2 billion this year.

--Amazon introduced the Amazon Fire smartphone on Wednesday. CEO Jeff Bezos said, “Fire Phone puts everything you love about Amazon in the palm of your hand.” It ships July 25 on AT&T’s wireless network starting at $199 for a 32 GB model with a two-year contract.

--Shares in database software giant Oracle fell sharply after its earnings in the latest quarter were far short of expectations, while revenues also missed analysts’ forecasts, up only 3% from the year before. As the company shifts more heavily toward cloud applications (belatedly), it is trying to emphasize its growth rate in this segment, up 25% in the quarter, though it still represented only 3% of overall revenues. [Your editor roots for Workday in this space.]

--German engineering giant Siemens AG and Mitsubishi Heavy Industries Ltd. sweetened their joint proposal for French industrial giant Alstom SA, this after General Electric had revised its bid for Alstom’s energy business. The French government is directly involved in the negotiations for fear jobs would be at stake and seems to favor the Siemens/Mitsubishi offer at this point.

This is exactly what I wrote Friday morning...and how wrong I was.

Because by end of the day, GE had won the bid, but on the condition that the French government acquire a 20 percent stake. As I go to post, Siemens is poised to admit defeat.

--From the Wall Street Journal: “Prosecutors are gathering evidence for a grand-jury probe into whether congressional staff helped tip Wall Street traders to a change in health-care policy, an indication the long-running investigation has entered a more serious phase.”

A top congressional health-care aide is at the center of the case, with criminal and civil investigations examining whether anyone in the government illegally passed on nonpublic information. The Journal initially reported on suspicious activity in 2013 related to certain stocks jumping moments before the government announced news favorable for those companies.

--According to a study by two professors from New York University and McGill University, a quarter of all public company deals from 1996 through the end of 2012 involved some kind of insider trading. The professors examined stock option movements in the 30 days before a deal was announced to reach their conclusions. The professors also conclude, the SEC litigated only “about 4.7% of the 1,859 M&A deals included in our sample.” [Andrew Ross Sorkin / New York Times]

--North Dakota’s Department of Mineral Resources said the state is now producing a million barrels of oil a day; Texas, Alaska and California being the only other states to reach this mark. The vast majority of North Dakota’s crude comes from the Bakken shale formation.

--But the news from North Dakota was only part of the story this week. U.S. production of liquid petroleum is surpassing its previous peak, reached in 1970. As Ed Crooks of the Financial Times put it: “Four decades of decline in U.S. oil output have been reversed in just five years of growth.”

The U.S. is already the world’s largest producer of oil and gas, taken together, and is in the top three for oil alone, alongside Russia and Saudi Arabia.

--China continues to block several Google services, the disruptions beginning about five days before the 25th anniversary of the Tiananmen Square massacre. But while the government has blocked Google before, temporarily, some say this prolonged disruption seems to be a possibly long-term crackdown on the Internet giant.

--Chinese Web giant Alibaba, which is expected to go public shortly in the biggest offering in history, said revenue in the fourth-quarter ended in March grew by 39% to $1.9 billion, compared with 71% growth the previous year.

Overall, revenue grew 38.7% over the last fiscal year, compared to 52.1% last year and 72.4% in fiscal 2012.

Shares in Yahoo!, which owns a 23% stake in Alibaba, fell on the news.

--Cocoa prices have jumped to three-year highs on the back of soaring demand for chocolate across Asia. Over the past five years, demand in Asia has risen 29%, compared with a fall of 1% in Europe over the same period.

--FedEx reported solid fiscal fourth-quarter earnings gains with revenue in the freight segment up 12% to $1.55 billion for the quarter. Overall revenue rose 3.5% to $11.8 billion, above projections. Profit also exceeded Street forecasts.

--The Revel Casino Hotel in Atlantic City is close to shutting down, warning staff it will do so this summer unless it can find a buyer in bankruptcy court. This is no small deal. Revel is a $2.4 billion project that has been losing money since day one. This is actually the second bankruptcy filing in two years. The first one wiped out 82% of Revel’s $1.5 billion in debt.

--U.S. medical device maker Medtronic Inc. is acquiring Covidien Plc for $42.9 billion in cash and stock. Medtronic will move its executive base to Ireland in the latest transaction aimed at lowering corporate tax rates abroad, what is now known as an “inversion.”

Democrats in Congress have called for new restrictions on such deals, but the solution is a total overhaul of the corporate tax code, though the chances of this happening anytime soon are nil.

About ten days ago the European Commission announced it was looking into Apple’s Irish tax affairs.

--The beer market in Russia fell 8% last year and 5% in the first quarter, hurt by restrictions on sales put in place as President Putin seeks to promote healthy lifestyles. Beer sales are actually down 25% since 2008.

--In an interview on CNBC, Elon Musk (Tesla / SpaceX) spoke to his fear of artificial intelligence (think: “The Terminator”), calling it dangerous and inexorable and that we need to make sure there are good outcomes, not bad ones. I’m sleeping with one eye open.

--“Godzilla” topped the mainland China box office last week, taking in $38.2 million in its first three days of release, so it’s likely to top $100 million there, which is strong.

--A stamp described as the world’s rarest sold for $9.5 million at auction. Sotheby’s said the “British Guiana One-Cent Black on Magenta” went to a phone bidder who chose not to be publicly identified.

The previous auction record for a single stamp was $2.2 million.

The previous owner, John E. duPont, heir to the chemical company fortune, paid $935,000 for it in 1980. DuPont was later convicted of murder and died in prison in 2010.

Foreign Affairs, cont’d....

Iran: The P5+1 (U.S., U.K., France, Russia, China and Germany) and Iran met for five days this week in Vienna, the fifth round of talks on Tehran’s nuclear program, with both sides warning of major differences as they attempt to draft an accord before the July 20 deadline. Iran seems to be amenable to pushing back the deadline further (why wouldn’t they be?), while President Obama is said to be concerned how a further extension would play out when it comes to the electorate and the midterm elections in November. Plus he is certain to seek Congressional approval and that won’t be easy to obtain.

[Late word Friday is there are three competing proposals being circulated. China’s envoy said the parties had agreed on a general “framework.” There is also a story, though, that Iran won’t accept the P5+1’s “excessive demands.” The next round is July 2.]

Syria: The civil war continued unabated. A car bomb on Friday in central Hama province killed at least 34 in a Syrian-government controlled village.

The government has been pounding ISIS bases in eastern Syria, according to the Britain-based Syrian Observatory for Human Rights.

Earlier, insurgents claimed they killed 40 regime troops last weekend when they detonated a building in east Damascus. [Daily Star]

Agence France-Presse reported that international inspectors said Syrian combatants appear to have employed agents like chlorine in “systematic” strikes.

Israel: Israeli troops killed a Palestinian teenager in the occupied West Bank today and arrested 25 people, bringing the week-long total to at least 330 incarcerated, including 240 from Hamas, which Israel accuses of kidnapping three Israeli teenagers who went missing near a Jewish settlement on June 13. This is an incredibly dangerous situation.

Israel has searched some 1,150 sites in the territory and while Palestinian President Mahmoud Abbas has condemned the kidnappings, he has also blasted Israel for the extent of its raids.

Hamas has not claimed responsibility for the kidnappings, but a spokesman said in Gaza on Thursday, “regardless of who was responsible...the Palestinian people have the right to use all forms of resistance in order to liberate land and people.” [Irish Independent]

But here’s the question. Where is the international outrage over the kidnappings? Israel’s ambassador to the UN, Ron Prosor, on Tuesday:

“It has been five days since our boys went missing. I ask the international community – where are you? Where are you? The kidnappings took place 10 days after Fatah and Hamas formed a unity government. All those in the international community who rushed to bless this marriage, should look into the eyes of the heartbroken parents and have the courage to take responsibility by condemning the kidnapping.”

Hamas threatened to ignite a third intifada “when enough pressure is exerted on the Palestinian people,” a senior Hamas official said on Thursday. [Jerusalem Post] Five members of Hamas were killed in an explosion in a tunnel in the Gaza Strip on Thursday, cause unknown.

Ukraine: While Iraq draws all the attention, it was a week of large-scale violence in Ukraine as NATO-Secretary-General Anders Fogh Rasmussen said Thursday, Russia has resumed a military buildup near Ukraine, calling it “a very regrettable step backward.”

“I can confirm that we now see a new Russian military buildup – at least a few thousand more Russian troops deployed to the Ukrainian border – and we see troop maneuvers in the neighborhood of Ukraine,” Rasmussen said in London.

“If they are deployed to seal the border and stop the flow of weapons and fighters that would be a positive step. But that is not what we are seeing.”

NATO had said in late May that the bulk of the original 40,000-strong Russian force had pulled back.

On Wednesday, Ukrainian President Petro Poroshenko offered a unilateral cease-fire as next week, foreign ministers and leaders of the European Union are scheduled to hold meetings at which Russian-Ukraine relations will be the main topic of discussion; including whether to impose further economic sanctions on Moscow.

Poroshenko has unveiled a 14-point peace plan that includes a promise for constitutional changes granting regional governments more authority and tax-raising powers. The rebels would have to immediately disarm.

But on Thursday and Friday, Ukrainian government forces said 300 separatists had been killed about 60 miles from the border with Russia. While the figure couldn’t be confirmed, a rebel commander said the rebels had sustained “heavy losses” when they were outgunned by government forces backed with heavy armor. The government said seven of its own had been killed.

Prior to this battle, the U.N. reported 356 people were known to have been killed since mid-April, among them 257 civilians and 86 Ukrainian military personnel, including the 49 who were killed last weekend when separatists shot down a military transport plane with a shoulder-launched missile as it approached Luhansk airport. No details were provided on the other 13.

But Friday, Ukraine announced a week-long unilateral cease-fire in its easternmost regions after the U.S. imposed some minor sanctions and accused Russia of providing new military aid to separatists. We’ll see. Insurgents are to lay down their arms and those who haven’t committed any serious crimes will be offered amnesty and safe passage out of the country. The separatists have said they would reject a cease-fire.

Meanwhile, Ukraine’s interim foreign minister, Andrii Deshchytsia, who is said to be a colorful character, angered Russians in a big way when he at first pleaded with protesters to halt their violence outside the Russian Embassy in Kiev. He told them that Ukraine has an obligation to defend embassies and stressed that he was not asking them to stop protesting, but to be peaceful after they had broken all the windows in the Embassy.

“I am ready to be here with you and say, ‘Russia, get out of Ukraine,’” he said. Then he spoke the following, which caused an international incident. “Putin is a d---head, yes.” At which point many of the protesters chanted along. Russian leaders voiced their extreme displeasure.

Finally, on the natural gas front, a pipeline fire blamed by Kiev on sabotage threatened gas flows to Europe, though I haven’t seen an update the past few days, except that there don’t appear to be any supply issues for Europe for months to come. It’s more about Ukraine building up inventories by the end of summer for next winter. Presidents Putin and Poroshenko talked Tuesday night about gas supplies to Ukraine and unpaid bills. The deaths of two Russian reporters were also raised by Moscow.

Libya: Ahmed Abu Khatalla, said to be a ringleader for the attack on the consulate in Benghazi, Sept. 11, 2012, was captured by U.S. Special Forces in Libya and is being brought to the U.S. to stand trial. Khatalla was first put on a ship where he could be questioned for intelligence purposes. I’m not going to raise a ruckus over why it took so long when various media outlets had interviews with Khatalla over a year ago inside Libya.

China: Beijing said it is moving a second oil rig closer to Vietnam’s coast, as China presses its territorial claims and continues its search for resources in disputed waters of the South China Sea. The “600-meter-long” rig is being towed southeast of Hainan Island and China’s Maritime Safety Administration said on its website that vessels in the area should give it wide berth. I’ll say.

But in this case, Vietnam is not expected to protest loudly because the second rig will lie far to the north of the politically sensitive Paracel Islands, where ships from the two countries have been ramming each other like bumper cars for more than 40 days after China placed its first rig there.

China’s state oil behemoth, CNOOC, has said it plans four new projects scheduled to come onstream in the western and eastern South China Sea in the second half of 2014. It’s not clear if the first two are two of the four, but CNOOC did say it would increase by up to a third its annual capital spending for 2014 to almost $20 billion.

Vietnam and China did hold talks this week, supposedly to ease tensions over the ramming incidents accompanying the placement of the first rig near the Paracels, though it seemed the talks resulted in zero progress. [South China Morning Post]

Turning to health matters, in what is being described as a landmark study, we learned Beijingers spend one-fourth of their lives sick, according to a World Health Organization-recommended indicator, “Health-adjusted life expectancy” (Hale). What it means is that while people in Beijing have a life expectancy on par with that of advanced countries, life quality is not ideal, according to the director of China’s Centre for Disease Control and Prevention. You can blame pollution for a lot of the resultant illnesses.

Speaking of which, from the South China Morning Post and Reuters:

“Complaints about Beijing’s air pollution more than doubled in the first five months of the year, authorities said, pointing to a sign of rising public anger about the cost of rapid economic growth in the city.”

More than 70% of the environment-related complaints submitted to Beijing authorities from January to May concerned air pollution.

Yup...for years I’ve been writing it’s coming...full-blown rioting over environmental issues in this country, perhaps sooner than even I thought. Officials are desperate to be seen as being on the side of the people, encouraging the public to participate in campaigns against violators.

And there is this one....

“Large colonies of micro-organisms – some capable of causing serious disease – have been discovered inside pipelines carrying drinking water to homes in most major mainland cities, the South China Morning Post has learned.

“Fortunately, most people habitually boil water before drinking, killing off the organisms and reducing the risk of outbreaks. But many foreign visitors are unaware of the issue and often drink from the tap.”

Afghanistan: Abdullah Abdullah, who handily won the first round of voting for president, suddenly said he is boycotting the vote count for the final round* (runoff) because of alleged fraud, asking the Election Commission to stop the counting process immediately.

*At least 50 people were killed across the country as the Taliban sought to disrupt the process.

What Abdullah is looking at is a surge in voting from the first round to the second in eastern Afghanistan, which is opponent Ashraf Ghani’s base. In the eastern province of Khost, for example, the commission’s initial tally showed that more than 400,000 voters cast ballots on Saturday, up from 113,000 in the first round. But Khost’s entire population, according to the last census, is 549,000 and one-third of them would be children. Ergo, it’s impossible. Ditto nearby Paktika, where 390,000 votes were cast and the population is 414,000. [Margherita Stancati / Wall Street Journal]

This isn’t good. The preliminary results are to be released July 2, final tally July 22.

Editorial / Army Times

“Critics of the failure of U.S. and Iraqi leaders to forge a deal to leave a residual U.S. force in place after 2011 have new voice. Such a force could have deterred such uprisings while continuing to train Iraqi forces and stabilize the new government.

“Against this backdrop, U.S. and Afghan leaders now negotiate the exit of American forces from that country.

“Like Iraq, Afghanistan is riven with tribal and religious differences – stoking a similar fear that without a continued U.S. presence, Afghanistan’s return to a chaotic terrorist safe haven is all but inevitable.

“So as U.S. leaders try to determine how to respond to the crisis in Iraq, the explosive events unfolding there must inform future U.S. strategy for Afghanistan.

“Otherwise, the strategic and diplomatic failures in Iraq are likely to be inexcusably repeated.”

But now we have to wait to see how the politics shakes out.

Pakistan: The government claimed Pakistani military airstrikes on militant hideouts in the northwestern tribal region bordering Afghanistan killed as many as 100 in the second strike on the region following the deadly attack on the Karachi airport a week earlier. Many of the dead were said to be Uzbeks, as well as Taliban, both claiming responsibility for the Karachi attack.

Kenya: Somalia’s al-Shabab group was responsible for a series of attacks that killed at least 64 this week, with at least 12 women also abducted. 50 were missing following the first raid on Mpeketoni that killed 49. Al-Shabab said it was revenge for the presence of Kenyan troops in Somalia and the killing of Muslims.

The U.S., U.K. and Australia are among the governments advising their citizens against travel to coastal areas of the country.

Canada: The government has conditionally approved a pipeline to bring oil from the Alberta oil sands to the Pacific coast. Known as the Northern Gateway, it is expected to transport 525,000 barrels a day to Asia-bound tankers. First Nations groups and environmentalists have long been vehemently opposed.

Prime Minister Stephen Harper has said diversifying Canada’s oil sands production is essential, especially after Washington has jerked their good neighbor around by delaying a decision on the Keystone XL pipeline. Enbridge, the pipeline owner, said the project would result in 3,000 construction jobs and 560 long-term ones.

Spain: King Juan Carlos formally abdicated and turned over the throne to Crown Prince Felipe, who then became king at midnight, Wednesday, and was publicly proclaimed the new monarch in the Spanish parliament the next day.

In a national poll, 53% of Spaniards say they want to keep the monarchy, with 37% saying they want a republic. The young want it abolished. Those 55 and older want to keep the current system, and those aged 35-54 are split down the middle.

Meanwhile, Spain’s reign as World Cup champion went up in flames, losing to Chile 2-0, after getting blasted by the Netherlands, 5-1.

Random Musings

--The results of a new Wall Street Journal/NBC News poll are devastating for President Obama. His overall job approval is 41%, matching a previous low, and only 37% approve of his handling of foreign policy, a new low. And 54% of those polled say they no longer feel the president “is able to lead the country and get the job done,” compared with 42% who say he could.

Also, 41% said the administration’s performance has gotten worse over the past year, compared with 15% who noted improvement. [Who the heck are those 15%?]

Other findings: 65% don’t believe the war in Afghanistan was worthwhile. 

Obama has lost significant ground among Hispanics, with only 44% approving of his job performance today vs. 67% who did in January 2013.

More than six in 10 Americans said they believe climate change is either “a serious problem” requiring “immediate action” or a big enough concern that “some action should be taken.” Only 13% said the fears were “unwarranted.”

Daniel Henninger / Wall Street Journal

“With 2 ½ years left in the Obama presidency, it is at least an open question what will be left of it by December 2016. Or us.

“In this week’s Wall Street Journal/NBC poll, conducted as the disintegration of Iraq began, Mr. Obama’s approval rating has fallen to 41% and his handling of foreign policy to 37%.

“Respondents to this poll know what is going on in the world – Ukraine destabilized, Iraq disintegrating, their economy eternally recovering.

“Mr. Obama’s world this week consisted of flying to the University of California-Irvine to give a speech about a) himself and b) climate change. On Wednesday he was in New York City for a midtown fundraiser, an LGBT fundraiser and a third, $32,000 per person fundraiser at the home of Vogue editor Anna Wintour.

“The Hill newspaper ran a piece earlier wondering if Mr. Obama is ‘done with Washington.’ Jamal Simmons, a Democratic strategist, says, ‘He’s never really made it a secret he’s not a fan of this place.’ Or Syria. Or Ukraine. Or Iraq.....

“If there’s one Obama foreign-policy decision that sticks in anyone’s mind it is the ‘red line’ in Syria. It was Mr. Obama’s decision last September, at Vladimir Putin’s invitation, to step back from his own criteria for punishing Syria’s Bashar Assad if he used chemical weapons against his own people. The voters now tanking Mr. Obama’s foreign affairs number don’t think it’s just random bad luck that Russian tanks ended up in Ukraine and some al-Qaeda group they’ve never heard of took over half of Iraq in two days. The world is slipping beyond President Obama’s control, or interest. From here on out, it – and we – are in God’s hands.”

--Last Saturday, before his golf round, President Obama told the graduates at the University of California-Irvine that it will take their passion and youthful spirit to overcome naysayers who don’t believe climate change is a threat.

“There’s going to be a stubborn status quo, and there are going to be people determined to stymie your efforts to bring about change. There are going to be people who say you shouldn’t bother. I’ve got some experience with this myself.” [Referring to congressional criticism over the administration’s new carbon pollution regulations that impact the coal industry in a big way.]

Progress on climate change will be measured in “disasters averted, lives spared,” the president said.

“Can you imagine a more worthy legacy than protecting the world?” Obama said. “I ask you to help us leave that legacy.”

First off, Mr. President. Tell the Chinese.

Second, you could have saved over 120,000 lives by establishing a no-fly zone in Syria, with many in future generations choosing to admire America, rather than creating generations of future terrorists...but I digress.

--In a CNN/ORC International poll, only 37% of Americans are satisfied with the administration’s response to the September 2012 assault on the U.S. diplomatic compound in Benghazi. 43% are satisfied with Hillary Clinton’s role in the matter, while 55% have a negative view.

61% surveyed think the administration has generally been dishonest in providing information about Benghazi in the aftermath of the attack.

Separately, in an astonishing factoid, we learned this week that Chelsea Clinton was paid $600,000 a year for a special correspondent’s job at NBC News. As Nia-Malika Henderson of the Washington Post observed, in relation to Hillary’s book tour and her stumbles on the family’s finances and being “broke” when they left the White House, “Chelsea Clinton’s salary embodies the kind of passed-down privilege available to a select few, often based on birth rather than merit.”

Which is why, as Ms. Henderson observes, some Democrats swoon over a potential Elizabeth Warren candidacy. As Warren declared in an April interview on The Daily Show with Jon Stewart:

“It’s tough out there, it really is a rigged game. It’s set up over and over and over that the rich get richer and the powerful get more powerful. They have all the advantages of concentrated money and concentrated power. All we got on the other side is, we’ve got our voices and our votes. And if we get out there and make something out of them, that’s how we make a difference. That’s it.”

I swear...I’m more ticked off about the Chelsea Clinton revelation than just about anything else on the domestic front these days.

--As expected, House Republicans overwhelmingly elected Rep. Kevin McCarthy of California to be majority leader and Rep. Steve Scalise (Louisiana) to be majority whip. I have to admit I was never a McCarthy fan, for no particular reason, but he has impressed me more recently in his public pronouncements. He is also aligned with the business-friendly establishment, while Scalise is more conservative in his beliefs and will act as a bridge between conservatives and the more moderate Speaker, John Boehner, and McCarthy.

--In a new Gallup poll, only 7% of Americans have confidence in Congress, a new low. In 1973, the first year Gallup asked the question, the figure was 42%. By contrast, 74% have a “great deal” or “a lot of confidence” in the military.

--Editorial / Wall Street Journal

“The IRS is now telling Congress that it has lost the emails of no fewer than seven IRS employees central to the targeting of conservative nonprofits, though that’s only half the outrage. There’s also the IRS’s quiet admission that it has spent most of the past year willfully defying Congress.

“After informing Congress on Friday that it can’t find two years of email from former Director of Exempt Organizations Lois Lerner, House Ways and Means Chairman Dave Camp revealed Tuesday that the IRS can’t produce records for six more employees whose hard drives also supposedly failed. These six happen to have been central to the IRS crackdown on conservative groups, and the lost emails were sent when the targeting took place, including in 2010 and 2011. The six include Nicole Flax, former chief of staff to former IRS Commissioner Steven Miller.

“There’s an equally disturbing IRS confession contained in its Friday letter to Congress. Some history: House Oversight Chairman Darrell Issa as early as June 4, 2013 asked the IRS to provide ‘all documents and communications sent by, received by, or copied to Lois Lerner’ between Jan. 1, 2009 and the present.’ Note the ‘all.’....

“In other words, the IRS has from the start been picking and choosing which of Ms. Lerner’s emails it deigned to show Congress. And it did so despite knowing that Congress wanted everything.

“The IRS filter has delayed the investigation and denied Congress access to important information. Congressional investigators learned only last week that Ms. Lerner corresponded with the Justice Department about potentially prosecuting conservative nonprofits....

“And now we get the disappearance of seven hard drives. Ms. Lerner’s hard drive, by the way, appears to have ‘crashed’ in June 2011, not long after Mr. Camp first asked the IRS if there was any political targeting going on. She denied it.”

Current IRS Commissioner John Koskinen testified before Congress on Friday and was grilled over the loss of the emails. He had learned of the outlines of the computer problems in February, told Congress they would receive Lerner’s emails, but then didn’t inform lawmakers until last Friday of the extent of the problems.

Ways and Means Chairman Dave Camp (R., Mich.) said, “You say that you’ve lost the emails, but what you’ve lost is all credibility.”

Rep. Paul Ryan (R., Wis.) told Koskinen, “You learned about this months ago. You just told us. This is not being forthcoming. This is being misleading again... I don’t – I don’t believe you.”

I loved another line of Ryan’s; that the IRS asks us taxpayers to save records for seven years in case we’re audited, but the IRS itself can’t save emails for six months.

--Edward Luce / Financial Times

“Mr. Obama has all the drones and F-22 fighter jets he needs to strike whatever targets he wants. But experience has taught him the limits of warfare from the skies. Mike Tyson, retired U.S. boxer, once said that everyone has a plan until you get punched in the face. Mr. Obama’s plan was to end the wars in Iraq and Afghanistan and he stuck to it. As he set out in his recent West Point speech, he also plans, where possible, to replace U.S. military engagement with diplomacy and economic statecraft. And, of course, he had a dream to replace America’s red state/blue state division with a post-partisan U.S. that worked together to solve problems. All of these hopes are now repeatedly punching him in the face. Little surprise, then, that he sounds wistful about what it is to be in the loneliest job in the world.

“Doubtless Mrs. Clinton and others believe they can do it better. Why else would they want the job? A case can be made that Mr. Obama raised expectations too high, that he has handled the job too passively and that he still has time to put a do-nothing Congress to shame. Of these, the first has the most force. Mr. Obama came to power on a wave of unquenchable hope. Today he talks about ‘hitting singles’ rather than home runs. And he is looking every longingly to his place in history.

“Competition is hotting up between Chicago, New York and Hawaii to host the Obama presidential library. Mr. Obama is reportedly spending a lot of time thinking about it. According to a profile in Politico, the Obamas have decided they will live in New York after they leave the White House. Last year he spent 46 days on the golf course, up from 30 in his previous highest year.

“It is as if he is already winding down. ‘Just last night I was talking about life and art, big interesting things, and now we’re back to the miniscule things on politics,’ Mr. Obama complained after a dinner last month with Italian intellectuals in Rome. His cabin fever is tangible. On the plus side, there are only two-and-a-half years to go.”

Oh, it’s going to be a long 30 months.

--Wisconsin prosecutors claim Republican Gov. Scott Walker was at the center of an illegal campaign fundraising scheme as he and several Republican senators sought to survive a 2012 recall election. No charges have been filed against Walker or any of his staffers, but it definitely hurts Walker as he runs for another term in November, let alone his 2016 presidential aspirations.

--The UN refugee agency said the number of people forced to flee their homes because of war or persecution exceeded 50 million in 2013, the first time since World War II. The overall figure is 51.2 million, six million higher than the year before.

--It recently came to light that on June 5 and June 10, a total of 13 planes flying over Europe disappeared from radar screens in two “unprecedented” blackouts, leading to reports stating air traffic control systems had been hacked. A subsequent investigation has been unable to reach any conclusions. The planes all continued with their flights with air traffic controllers relying on voice communications alone.

Der Kurier, an Austrian newspaper, suggested it was a targeted cyber attack and that the aircrafts’ transponders may have been interfered with, but, this would have required the use of a satellite.

There was another story that a NATO electronic warfare exercise in Hungary may have been the cause, but Hungary’s defense ministry denied this was the case, saying the technology used was weak. Plus, the second incident occurred after the exercise had been completed.

Sure looks like a dry run for something more than a bit sinister.

--President Obama announced he intends to use his executive authority to create the world’s largest marine sanctuary in the south-central Pacific Ocean. The proposed sanctuary would expand from about 225,000 square-kilometers to more than two million square kilometers in a U.S.-controlled Pacific Ocean area between Hawaii and American Samoa.

Previously, President George W. Bush created what was at the time the world’s largest marine sanctuary, protecting 140,000 square-miles of water off the Hawaiian islands.

Apparently, the only commercial activity that will be affected by the new Obama sanctuary is tuna fishing, so I’m guessing word is spreading quickly in Tuna Nation to travel to the region now that a safe haven has been established. Of course the same president couldn’t create safe havens for Syrians early on in their civil war...but I digress.

--It is estimated there are twice as many rats (the actual rodent kind) in New York City as there are inhabitants (2 Xs 8.4 million). The city is launching war on them.

Guess what neighborhood is the city’s most-infested? The South Bronx around Yankee Stadium! Ding ding ding! “Inspectors gave a failing grade for infestation to at least 13 percent of more than 3,000 locations inspected in that area.” [Verena Dobnik / AP]

--New Jersey passed its medical marijuana law in 2009, with the first dispensary opening in December 2012. It was expected tens of thousands of patients in the state would avail themselves of it.

Instead, the Star-ledger learned that only 2,342 patients have signed up, and last week the president of one of the three dispensaries announced he was quitting because he couldn’t keep working for no pay.

Gov. Chris Christie has argued the medical marijuana program is just “a front for legalization.”

Meanwhile, on Thursday, New York Gov. Andrew Cuomo and leaders of the state legislature reached agreement on a deal to legalize some forms of medical marijuana.

--An article published in Esquire Friday quotes two anonymous sources familiar with the ongoing investigation into Bridgegate who claim the U.S. Attorney’s office is “near-certain” to indict several former officials of the Port Authority of New York and New Jersey and the Christie administration, in the hope they will then testify against the governor.

The article claims Christie is in danger of being fingered by his own former appointees or members of his administration.

--I’ve been writing of how concerned some experts are that we are taking undue risks at the Centers for Disease Control regarding the handling of some diseases/viruses still in existence for testing purposes. Ironically, then, it was announced on Thursday that up to 75 people (now 84)  working at the CDC may have been exposed to live anthrax and are receiving treatment.

“The U.S. health agency said researchers in a high-level biosecurity laboratory failed to follow proper procedures and did not inactivate the bacteria.

“CDC said the exposure occurred in Atlanta at the weekend and no-one has yet shown symptoms.” [BBC News]

--Finally, President Obama awarded the Medal of Honor on Thursday to Marine Cpl. William Kyle Carpenter, who is not only a battlefield hero, but a modern medical miracle after he was ravaged by a grenade blast while attempting to shield a fellow Marine from harm.

Carpenter still bears the scars of that Nov. 21, 2010 act, but he’s sky-dived and run a marathon. I mean this is a soldier whose vital signs had flat-lined numerous times after he was injured. Obama recalled:

“I want you to consider what Kyle has endured just to stand here today: More than two and a half years in the hospital; grueling rehabilitation; brain surgery to remove shrapnel from his head; nearly 40 surgeries to repair a collapsed lung, fractured fingers, a shattered arm broken in more than 30 places; multiple skin grafts. He has a new prosthetic eye, new teeth, and one hell of a smile.”

That he does. God bless Cpl. Kyle Carpenter.
---

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

God bless America.
---

Gold closed at $1316
Oil $106.83

Returns for the week 6/16-6/20

Dow Jones +1.0% [16947]
S&P 500 +1.4% [1962]
S&P MidCap +1.6%
Russell 2000 +2.2%
Nasdaq +1.3% [4368]

Returns for the period 1/1/14-6/20/14

Dow Jones +2.2%
S&P 500 +6.2%
S&P MidCap +6.2%
Russell 2000 +2.1%
Nasdaq +4.6%

Bulls 61.4
Bears 16.3 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

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Brian Trumbore