Stocks and News
Home | Week in Review Process | Terms of Use | About UsContact Us
   Articles Go Fund Me All-Species List Hot Spots Go Fund Me
Week in Review   |  Bar Chat    |  Hot Spots    |   Dr. Bortrum    |   Wall St. History
Week-in-Review
  Search Our Archives: 
 

 

Week in Review

http://www.gofundme.com/s3h2w8

AddThis Feed Button

   

07/05/2014

For the week 6/30-7/4

[Posted Noon ET, Friday]

Edition 795

Washington and Wall Street

Last weekend, after I posted my column, the Bank for International Settlements (BIS), usually called the “central banks’ central bank,” warned that “euphoric” financial markets have become detached from the reality of a lingering post-crisis malaise.

The BIS urged policy makers to begin to normalize interest rates.

“The risk of normalizing too late and too gradually should not be underestimated,” the BIS said, adding, in its annual report:

“Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.”

The BIS said low interest rates had helped increase demand for higher risk assets, including stocks, real estate and corporate bonds. And, while global growth has improved, it is still well below pre-crisis levels.

“Growth has disappointed even as financial markets have roared: The transmission chain seems to be badly impaired,” the BIS said.

But wait...there’s more! The BIS warned of the risks brewing in emerging markets and banking crises, including most notably China.

“Particularly for countries in the late stages of financial booms, the trade-off is now between the risk of bringing forward the downward leg of the cycle and that of suffering a bigger bust later on,” it said. [Financial Times, BBC News]

Editorial / Wall Street Journal

“The big financial news over the weekend, other than betting on the World Cup, is that the world’s premier central bankers club is now warning the world about each other. [The BIS] issued a report warning that global monetary policies are reaching their useful limit and may be contributing to financial excesses that could turn out badly if central bankers aren’t careful....

“That’s not news for anyone paying attention to financial markets. Assets prices have been buoyant, and any given day brings reports of investors looking for bigger game....

“The BIS report cites several pungent facts, such as greater risk-taking in syndicated loans – ‘for instance, credit granted to lower-rated leveraged loans’ exceeded 40% of new loans for much of 2013. ‘This share was higher than during the pre-crisis period from 2005 to mid-2007’ and ‘fewer and fewer of the new loans featured creditor protection in the form of covenants.’

“All of this is especially notable because the BIS is warning about the policies its own fraternity brothers have been pursuing. [Claudio] Borgio [of the BIS] also has more credibility than most as a forecaster because he was one of those warning about the building financial excesses a decade ago. If Alan Greenspan and Ben Bernanke had listened to him as they were keeping the fed funds rate at 1% for a year amid economic growth of nearly 4%, we might have avoided much pain.”

So the U.S. markets absorbed all the above and hit new all-time highs this week. Kind of funny.

Oh, there was some solid economic news to celebrate – more in a bit – but Federal Reserve Chair Janet Yellen said that the central bank should basically ignore calls for raising interest rates, even though the domestic economy (forgetting the first-quarter GDP figure) is doing better and she and her cohorts are just fueling future financial crises.

On Wednesday, in a presentation at the International Monetary Fund, Yellen said: “I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns.”

Granted, Yellen sees “pockets of increased risk-taking” in the financial system, but then she gave her take on a sudden new-age theory regarding a “macroprudential approach, a combination of multiagency oversight, attention to bank capital and liquidity, and regulatory pressure to create buffers against failure,” as reported by Craig Torres and Christine Idzelis of Bloomberg.

As in, I guess, everything’s in play. Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago, told Bloomberg:

“She’s reflecting and also moving toward the leading edge of what’s going on in central bank management of bubbles and the view of bubbles.”

And that, sports fans, is why I’ve never dated an economist.

Look. If nothing else I’ve been consistent. As in I’ve blasted the Fed for screwing savers with its zero interest rate policy.

If you are retired, living on fixed income, with $100,000 in savings, $2,000 on your savings account at a 2% interest rate is significant. $40 a week means a nice meal with the Missus, or a movie plus some ice cream (or four beers)...you get the picture. And that means, perhaps, an extra job at the restaurant, the bar, the movie theater.

You will never convince me that zero interest rates, well beyond what was appropriate, benefited the U.S. economy more so than leaving savers with some crumbs. The growth figures since the economy bottomed in 2009 bear that out. This recovery has been lousy.

But now things appear to be looking up, finally, and I have also discounted the awful first quarter, save for what it means for overall 2014 growth, because I have written the economy will indeed come back and we will have an inflation scare as a result. This will force the Fed and Yellen to act sooner than they’ve been telling us in finally beginning to normalize interest rates, though I have to admit, I’m wrestling with PIMCO’s “new neutral,” that the new normalization means a funds rate of 2% rather than, say, 4%. I don’t agree...but I’ll keep an open mind.

The only fly in the ointment for those who are optimistic remains the ability of geopolitics to squash confidence, especially when it comes to the business community and capital spending plans.

So the week started out with another strong reading from the Chicago purchasing managers folks, 62.6 on manufacturing for June, while the ISM manufacturing PMI for the month was an equally solid 55.3, both just slightly below expectations.

An ISM reading on the service sector for June was strong, 61.0.

Readings on factory orders and construction spending for May, however, were not as good, down 0.5% in the former, up 0.1% in the latter.

But the continuing strong trend in readings for both manufacturing and services set us up for another solid jobs report and on Thursday we learned the economy created 288,000 in June, completing the best five-month stretch of job creation since early 2006 (including upward revisions to May, now 224,000, and April, 304,000...the best single month since Jan. 2012).

The unemployment rate fell from 6.3% to 6.1%, the lowest since September 2008, giving the White House something to crow about.

But much of the job growth is coming in lower-wage sectors, while actual wage growth is at just 2.0% over the past year. Not good....though a big part of my inflation thesis is that true wage growth is coming.

Further, as detailed below, auto sales for June were at their strongest annual pace since 2006.

But back to Yellen and the Fed, the unemployment rate of 6.1% is already at their yearend target of 6.0%; further evidence it’s going to begin to look downright comical if the Fed doesn’t start talking about raising rates early in 2015, rather than mid-year or later.

Now, though, it’s about earnings and the second-quarter reports we are about to be bombarded with. We need to see the quality improve, with real top-line sales growth, and we need to hear CEOs talk about spending some of their cash on new plant and equipment.

We also need to see signs the consumer is coming back. If this doesn’t materialize then, yes, the first-quarter contraction of nearly 3% was about more than just cold and snow.

Europe and Asia

European Central Bank President Mario Draghi announced the ECB would begin holding its policy meetings every six weeks rather than each month, and, starting in January 2015, will publish regular accounts of its deliberations, which is in line with the likes of the Bank of England, U.S. Federal Reserve and the Bank of Tokyo.

Thursday, the ECB left its main refinancing rate at 0.15%, and announced that it would remain at that level for an “extended period” of time, while the ECB will continue to charge a fee of 0.1% on banks’ deposits parked in its coffers in its ongoing attempt to stimulate lending, while also countering the threat of deflation. 

Draghi also offered more details on the ECB’s so-called targeted longer-term refinancing operations, whereby banks can borrow up to 400bn euro this coming September and December, as well as an additional 600bn in 2015 and 2016 should they beat lending targets set by the ECB.

“The risks surrounding the economic outlook for the euro area remain on the downside,” Draghi said, singling out geopolitical risks and global financial market risks as threats to the recovery.

As for the data, some of it bore out Draghi’s continued caution.

The eurozone flash estimate on inflation for June is still just 0.5%.

Markit’s final June reading on manufacturing came in at 51.8 vs. 52.2 in May, the slowest reading in 7 months, but nonetheless 12 straight months above 50, the dividing line between growth and contraction.

Spain’s manufacturing PMI was 54.6, an 84-month high.

Italy’s was 52.6, a 3-month low.

Germany’s was 52.0, an 8-month low.

France came in at 48.2, a 6-month low.

Greece was 49.4, a 7-month low and rather troubling, given we’ve been told recovery is taking hold here.

The final eurozone composite reading on both manufacturing and services was 52.8 for June vs. 53.5 in May.

Eurozone retails sales for May over April, however, were unchanged.

So the recovery is losing momentum, according to the readings, but it is still growth for the eurozone as a whole, albeit of the highly fragile variety.

As for unemployment, the euro area 18 (EA18) rate for May was 11.6%, same as April and down just slightly from 12.0% in May 2013.

Some representative rates...

Germany 5.1% (reminder...Eurostat computes this differently than the German government, which pegs the rate at 6.7%, if I recall correctly); France 10.1%; Italy 12.6% (vs. 12.1% May 2013); Ireland 12.0% (down from 13.9% May 13); Greece 26.8% (March); Spain 25.1% (vs. 26.2% May 13).

[Non-euro U.K. 6.6%]

On the youth unemployment front, you still have some staggering figures...Greece 57.7% (March); Spain 54.0%; Italy 43.0%; Portugal 34.8%.

There simply cannot be a lasting recovery without the unemployment rate across the eurozone declining in a substantial way, a la the United States.

A few Euro bits....

--The U.K.’s manufacturing PMI rose to 57.5 in June, with a new-orders component surging to 61.1, one of the fastest rates ever.

But U.K. home prices also continue to soar, particularly in London. According to Nationwide Building Society, prices in London increased almost 26% in the second quarter from a year earlier, while national values rose 11.8% in June from the same month in 2013.

Home prices in London rose 7.6% in the second quarter from the first and the average value of a home there is now 30% above the 2007 high. Yikes.

Germany saw its factory orders fall 1.7% in May from April, with exports down 1.2% for the month. Business sentiment has also been declining. But the Bundesbank continues to estimate GDP will come in at 1.9% for 2014, 2.0% for next year, while the ECB is projecting German growth at just 1.0% this year.

Ireland’s Central Statistics Office announced that GDP rose at a 5.1% annual rate in the first quarter of 2014, just like in the days of the Celtic Tiger. Exports are booming. There is mounting optimism the government will reach its target of reducing the budget deficit from 7.2% of GDP last year to 4.8% this year.

In fact, optimism is so strong the yield on Ireland’s 10-year paper is just 2.31%! Compare that to the U.S. Confidence that the ECB will continue to be most accommodative drove Spain’s 10-year yield back down to 2.65% and Italy’s to 2.81% by week’s end. You know where I stand on this. Give it time. I’ll be right.

European equities, by the way, rose for a fourth straight quarter.

Finally, European Commission president-designate Jean-Claude Juncker called British Prime Minister David Cameron, saying he is “fully committed to finding solutions for the political concerns of the U.K.” German finance minister Wolfgang Schauble said his county would do everything in its power to keep Britain in the EU. We’ll know a lot more in just the next six months.

Turning to Asia...

In China, HSBC’s final manufacturing PMI reading for June was a solid 50.7 vs. 50.4 in May. The official state PMI was 51.0. A sub-index for new orders was at its highest in more than two years.

HSBC also said the service PMI for last month was 53.1 vs. 50.7 in May.

In Japan, the unemployment rate was at a 16-year low in May, 3.5%, while industrial production rose 0.5% in May after dropping 2.8% in April, the month the sales tax rise went into effect.

Large companies are sending signals they are lifting their capital spending plans thru next March (the end of the fiscal year), which is very encouraging, but wage gains are still lagging inflation, so the risks to consumer spending remain.

Prime Minister Shinzo Abe reiterated he is committed to his “third arrow,” structural reform of the corporate tax code. He is also convinced the dip in consumption following the tax hike is temporary.

Street Bytes

--Stocks continued on their record ways, with the Dow Jones finishing up 1.3% on the holiday-shortened week to end at a new high, 17068, while the S&P 500 gained 1.3% as well to close at its new high of 1985. Nasdaq gained 2% to 4485, so its March 2000 record close of 5048 is getting closer and closer.

But I do have to note that for all the euphoria, the Dow is up just 3.0% for the year, while the S&P 500 and Nasdaq are both up 7.4%. It’s not 2013 all over again, yet. [New readers need to know I thought the major indices would decline 2% to 5% in 2014.]

For the archives, in the first six months of 2014, the Dow was up 1.5%, the S&P 6.1% and Nasdaq 5.5%.

And according to the Wall Street Journal, for the first time since 1993, all six of the following rose in the first half: Barron’s gold index, the Dow Jones / UBS Commodity index, the 10-year Treasury, the MSCI world indexes for both developed and emerging markets, and the Dow Jones Industrial Average.

As Ronald Reagan would have said, “Not bad... not bad at all.”

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.51% 10-yr. 2.64% 30-yr. 3.47%

The longer end of the curve picked up 10-11 basis points on the stronger economic data.

--Auto sales in the U.S. rose 1.2% to 1.4 million in June, raising the annualized selling rate to 16.98 million, the highest pace since July 2006, according to Autodata Corp.

For the first half, sales were up 4.3% over the same period a year ago.

Despite all of General Motors’ recall news, sales edged up 1% in June, while Chrysler’s rose 9% vs. a year ago, Toyota’s were up 3%, and Nissan’s 5%.

But Ford’s fell 6%, ditto Honda. Ford slowed sales to fleet buyers, such as rental-car companies, while preparing its new, aluminum-bodied F-series pickup truck.

Volkswagen AG’s U.S. unit reported a 22% decline.

--But speaking of GM, it recalled another 8.45 million vehicles on Monday for defects including ignition and electrical malfunctions, as in unintended ignition key rotation, with most of the impacted cars being Chevy Malibu models from 1997 to 2005 and Cadillac CTS cars from the 2003 to 2014 model years. Among this latest batch of recalls, GM said it’s aware of seven crashes, eight injuries and three fatalities.

That brings the total recalled by GM this year to 29 million cars and trucks in North America – “a number greater than the company’s combined U.S. sales for the years 2005 through 2013.” [Wall Street Journal]

The automaker also disclosed it expects to take a charge of as much as $1.2 billion for recall-related repairs announced in the second quarter.

As for the compensation fund for recall victims, Kenneth Feinberg – the man appointed by GM to deal with the issue – said the company will not put a cap on the amount it will pay to victims, while promising swift payments of more than $1 million for families of those who died. Feinberg said each case will be different, based on estimated future earnings the victim would have accumulated. For instance, he cited the example of a 25-year-old married woman with two children who was earning $46,000 a year at the time of her accident. She would receive $4 million. Those with life-altering catastrophic injuries could receive more.

--BNP Paribas, one of the world’s largest banks, pleaded guilty to criminal charges of defying U.S. economic sanctions against Sudan, Iran and Cuba and will pay a record $9 billion fine; the first time a major bank has pleaded guilty in a case of this kind.

BNP was accused of falsifying records from 2004 through 2012 to conceal its funneling of billions of dollars from the three nations.

Assistant Atty. Gen. Leslie R. Caldwell said that the bank had been put on notice as early as 2007 that the U.S. regarded its practices as illegal but the French banking giant continued to pursue them.

The FBI and A.G. vow they will be bringing more cases against the banks, some domestic based, in the near future.

BNP did not lose its banking license in New York as part of the settlement, but it will be prohibited from certain activities for one year.

--JPMorgan Chase & Co. CEO Jamie Dimon announced he’ll be starting treatment for throat cancer, raising succession questions.

Dimon told employees and shareholders his condition is curable and that he’ll continue running the firm “as normal” during eight weeks of radiation and chemotherapy at Memorial Sloan Kettering Cancer Center in New York.

Dimon, 58, has led JPMorgan since the end of 2005. He said his only real restriction will be in curtailing travel during his treatments.

Dimon wrote he wants to remain CEO for an additional five years. “The prognosis from my doctors is excellent, the cancer was caught quickly and my condition is curable.”

Gordon Smith, who heads the consumer bank, is the most likely candidate to take over on an interim basis if needed.

Mike Cavanagh, once seen as a potential successor to Dimon, left in March to become co-chief operating officer of private-equity firm Carlyle Group LP.

--This Fourth of July weekend is going to be the costliest for motorists since 2008 with a national average of $3.68 a gallon for regular grade gas, up 17 cents from last year but well below the all-time $4.11 record set just after July 4, 2008.

It’s all about speculation on whether Iraq’s considerable reserves in the south of the country are threatened by the current war.

--ExxonMobil announced it is investing $1 billion in its refinery in Antwerp, Belgium, a major vote of confidence in the beleaguered European energy industry. Exxon believes it can grow certain segments, such as diesel fuel, even as demand for petrol declines; while it estimates that energy accounts for about 60% of the costs of a refinery in Europe, compared to just 30% in the U.S., to give you a sense of America’s competitive advantage these days.

Exxon is also urging European governments not to block imports of heavy crude from Canada’s oil sands. [Financial Times]

--In its latest yearly review of energy statistics, BP raised its global oil reserves estimate by 1.1% to 1,687.9 billion barrels, which is enough oil to last the world 53.3 years at current production rates.

A good portion of the growth in oil reserves comes from the United States. According to BP, the U.S. has 44.2 billion barrels of oil reserves, up 26% from what it previously thought. BP’s figure for the U.S. is more optimistic than that of the U.S. Energy Information Administration.

--Nearly a quarter of a million metal and engineering workers in South Africa went on strike on Tuesday to demand higher pay. The National Union of Metalworkers of South Africa, the largest union in the country, is demanding a 12% wage increase, while the employers are offering 7 to 8%.

A recent five-month strike by platinum workers cost the mining companies $2 billion in lost revenue, which led to a contraction in the overall economy in the first quarter.

--Following the Supreme Court ruling against it, online video startup Aereo Inc. said last Saturday it was suspending operations while it re-evaluates its strategy. The court had ruled Aereo violated copyrights on programming, dealing a death blow.

--Gillian Tett / Financial Times...on gender bias in the computing world – “a pattern that has been getting worse, not better, in recent years.”

“The numbers are shocking. Back in the mid-1980s, women represented 30-40 percent of all university students in computing science courses in the U.K. and U.S. A similar proportion of women worked in this nascent industry, too. But, as the sector has grown, the female proportion has plunged: today barely one-tenth of all U.S. students studying computer science are women, and, as Susan Wojcicki, chief executive of YouTube, recently lamented in a blog post: ‘Fewer than 1 percent of high school girls express interest in majoring in computer science.’”

--A former employee at Facebook revealed researchers were given virtually free rein to manipulate the news feeds and sometimes the emotions of the site’s users without their knowledge.

The company’s data science team is said to have operated with zero supervision and little corporate oversight, as first reported by the Wall Street Journal.

Andrew Ledvina, who worked as a Facebook data scientist from February 2012 to July 2013, said: “They’re always trying to alter people’s behavior.”

Facebook said it has imposed stricter controls.

--As reported by Bettina Boxall in the Los Angeles Times, “Southern Californians have fallen far short of achieving the 20% voluntary cut in water use sought by Gov. Jerry Brown in the face of the deep drought afflicting every corner of the state.

“A recent statewide survey found that urban water use in coastal Southern California declined by only 5% from January through May.”

While this seems pathetic, some local officials say the small decline is due mainly to prior conservation successes.

--According to an exhaustive study in Consumer Reports, McDonald’s makes the worst burgers, KFC offers the worst chicken, and Taco Bell sells the worst burritos.

This was one of the more extensive CR surveys ever, as it polled 32,405 subscribers.

McDonald’s was last of 21 burger chains. At the top was a regional chain, The Habit Burger Grill, along with fellow California chain, In-N-Out.

Personally, I have no problem with McDonald’s quality.

KFC ranked last of eight chicken chains. Chick-fil-A was tops.

Taco Bell was last of eight Mexican chains. Chipotle was on top.

One other; Sbarro was rated last among 10 national pizza brands, though here we all have local operators to go to.

--The government forecasts that consumer beef prices will increase as much as 6.5% this year vs. 4% for both pork and chicken. The average retail price on fresh beef in May rose 12% from a year earlier.

Beef sales volume fell 0.6% from a year earlier for the first four months of 2014. Funny how that works.

--According to Travel & Leisure magazine’s annual survey, Virgin America was named the nation’s top airline for a seventh consecutive year. JetBlue was No. 2 in the USA.

Internationally, Singapore Airlines and Emirates were tabbed as the best in the world.

Oregon’s Portland International Airport was named the best in the United States. [Don’t disagree with this. Pleasant lounges with good work spaces.]

Internationally, Singapore’s Changi Airport repeated as No. 1, with Hong Kong number two.

--As reported by Julie Makinen in the Los Angeles Times, “China’s box office grew more than 22% in the first half of 2014, to $2.2 billion, and U.S. titles such as ‘Transformers: Age of Extinction’ and ‘X-Men: Days of Future Past’ helped imported films grab more than half of all ticket sales in the world’s second-biggest movie market.”

But the government continues to severely limit the number of imported films that can be shown, with July and August typically off-limits. That said, the ones that get through can do as much business in China as they do in the U.S.

--California holds nine out of 10 of the nation’s “hot spots” when it comes to auto theft, the National Insurance Crime Bureau reports. The top three are in California’s farm belt – Bakersfield, Fresno and Modesto, so if you live in one of those communities, I’d just put the car in the garage and walk or ride a bike.

--Caesars Entertainment Corp. said it is closing the Showboat casino-hotel in Atlantic City, another big blow for the resort and the casino’s more than 2,000 employees, who apparently didn’t see this coming.

Showboat joins the Atlantic Club, which closed its doors in January. A.C. has been hit hard by new competition in Pennsylvania and New York in particular.

At its peak in 2006, gambling revenue in Atlantic City hit $5.2 billion, but has plummeted to $2.86 billion in 2013. 

--As reported by Bloomberg’s Shai Oster: “China is facing an epidemic of overwork, to hear the state-controlled press and Chinese social media tell it. About 600,000 a year die from working too hard, according to the China Youth Daily. China Radio International in April reported a toll of 1,600 every day....

“ ‘China is still a rising economy, and people are still buying into that hardworking ethos,’ said Jeff Kingston, director of Asian Studies at the Japan campus of Temple University in Tokyo. ‘They haven’t yet achieved the affluenza that led to questioning in Japan of norms and values.’”

Death from overwork encompasses deaths from stroke, heart attack, cerebral hemorrhage or other sudden causes related to demands of the workplace. Excessive overtime is a huge issue in China. No sympathy from moi.

Foreign Affairs

Iraq:

The Islamist militant group ISIS announced it was establishing a caliphate, an Islamic state, in the territories it controls from Aleppo in Syria to the west of Baghdad. It also proclaimed Abu Bakr al-Baghdadi as caliph and “leader for Muslims everywhere.”

In an audio recording released on a website used by ISIS, Baghdadi said:

“Those who can immigrate to the Islamic State should immigrate, as immigration to the house of Islam is a duty.

“Rush, O Muslims to your state. It is your state. Syria is not for Syrians and Iraq is not for Iraqis. The land is for the Muslims, all Muslims. This is my advice to you. If you hold to it you will conquer Rome and own the world, if Allah wills.” [Damien McElroy / Daily Telegraph]

Baghdadi also called on jihadi fighters to escalate fighting in the holy month of Ramadan, which began last Sunday.

“In this virtuous month or in any other month, there is no deed better than jihad in the path of Allah, so take advantage of this opportunity and walk the path of your righteous predecessors.”

The speech came hours after Iraq’s parliament, meeting for the first time since the April election, failed to appoint a new leadership amid the divisions between Shiite, Sunni and Kurdish MPs.

Parliament was to elect a speaker, first, which would lead to the selection of a prime minister within 45 days. Prime Minister Nouri al-Maliki was a lock for a third term until the ISIS offensive and now his closest allies are turning on him, even as he resists efforts to oust him.

But on Tuesday, Sunnis and Kurds walked out during the first session. Prospects for a unity government already seem dashed. Parliament isn’t scheduled to meet again for at least another week, leaving Maliki as a caretaker, rejected by the Sunnis and Kurds.

Maliki’s State of Law coalition is the biggest group in parliament, but it has failed to nominate a successor to Maliki, let alone endorse him for another term.

As Maliki struggles to survive, he has accepted military support from Iran and Russia. Last Sunday, Russia delivered 12 fighter jets to Baghdad. Iran has deployed hundreds of troops from its elite Revolutionary Guard Corps to reinforce its Shiite ally.

As for the United States, President Obama continued to rule out sending American combat troops back to Iraq, but he authorized sending an additional 200 to bolster security at the Embassy in Baghdad as well as the city’s international airport, bringing the total to about 750 in Baghdad, including Special Forces. The U.S. has also delivered 100 new laser-guided Hellfire missiles to Iraq.

Separately, Israeli Prime Minister Benjamin Netanyahu expressed open support for Kurdish independence. In a policy address last weekend, Netanyahu said among the challenges facing Israel was the need to build cooperation with moderate countries in the region to fend off the likes of ISIS.

“It is upon us to support the international efforts to strengthen Jordan, and we support the Kurds’ aspiration for independence,” he said. The Kurds are a “fighting people that have proven political commitment and political moderation, and they’re also worthy of their own political independence.” [Los Angeles Times]

Kurdish leader Massoud Barzani said he will hold an independence referendum within months.

“We will hold a referendum in Kurdistan and we will respect and be bound by the decision of our people and hope that others will do likewise,” he told the BBC Tuesday.

The United Nations said that more than 2,600 people were killed* in Iraq in June, 1,700 of which were said to be civilians, with nearly 900 Iraqi security forces falling victim.

*The initial reported toll of 2,417 did not include Anbar province, where Health Ministry officials said later 244 civilians had been killed.

The death toll was four times that of May, before ISIS launched its offensive, and it was the highest number killed since 2008, when 7,000 died over the entire year.

On the ground this week, it was first reported that Iraq’s army had “routed” ISIS in a major offensive to retake the northern city of Tikrit, but later we learned otherwise, that ISIS had repelled the attack. Otherwise, reports on the ground have been sketchy.

Friday, Iraq’s military denied reports it had abandoned its positions along the border with Saudi Arabia, amid reports (al-Arabiya TV) that the Saudis had deployed 30,000 soldiers along the 560-mile frontier to prevent attacks by ISIS and like groups.

Opinion....

Editorial / Washington Post

“These are heady times for the Islamic State of Iraq and Syria (ISIS).   It controls a wide swath of territory across the two countries in its name and boasts on the Internet of obliterating the boundary drawn by the French and British nearly a century ago. In conquering Mosul and other cities, it has come into possession of a vast trove of equipment, weapons and money to add to the bankroll that already enabled it to wage war with little apparent concern for financial constraints.   Foreign fighters, including a significant minority that carries Western passports, flock to its black banner. And for those whom ISIS cannot recruit with ideology or cash, there is the stark reality that, within its domain, opposition means death. Certainly that was the message sent by the group’s massacre of at least 150 unarmed men in Tikrit, publicized by ISIS and confirmed in excruciating detail in a new Human Rights Watch report.

“So when people speak with resignation, or even a certain optimism, about the supposedly inevitable breakup of Iraq into Sunni, Shiite and Kurdish enclaves, they need to understand that the first of those three potential entities would be ruled, at least initially, by ISIS – with all the danger that entails for the people under the organization’s heel and for the rest of the world....Once entrenched in Iraq, it can be expected to promote terrorism everywhere, including in the United States and Europe....

“Congress should...press the administration to explain its broader strategy. We think the president is right to be pushing Iraqi politicians to form an inclusive government for which a multi-sectarian army would be willing to fight. But if that fails, it still will be intolerable, as President Obama has said, for the United States to allow a jihadist state to become established. Congress should ask him to explain his fallback plan.”

Editorial / Wall Street Journal

“The jihadists of the Islamic State of Iraq and al Sham continue to consolidate their grip on Sunni Iraq. They control most major cities, they took over the border crossings with Jordan...and now they’re re-opening banks and government offices and establishing political control.

“Welcome to the new Middle East caliphate, a state whose leader is considered the religious and political successor to the prophet Mohammed and is thus sovereign over all Muslims. The last time a caliphate was based in Baghdad was 1258, the year it was conquered by the ravaging Mongols. Now the jihadists aim to do the ravaging, and it isn’t clear that the Obama administration has a plan to depose them.

“It’s important to understand how large a setback for American interests and security this is. Establishing a caliphate in the Middle East was the main political project of Osama bin Laden’s life. Current al-Qaeda leader Ayman al Zawahiri once said a new caliphate would signal a turning of world history ‘against the empire of the United States and the world’s Jewish government.’....

“Perhaps Mr. Obama imagines there is no point in playing ‘Whack-A-Mole,’ as he put it, ‘wherever these terrorist organizations may pop up.’ But the core contention of all jihadist groups is that supposed superpowers like the U.S. always weary of a long fight, and that powerful weapons are of no use in timid hands.

“Perhaps the government in Baghdad will pull together politically and militarily to halt ISIS and take back the cities it so swiftly seized. But hoping to get lucky is not a strategy. Meantime, brush up on your Islamic history and terminology. A mere 13 years after the U.S. chased al-Qaeda and the Taliban from Afghanistan, and a mere three years after bin Laden’s death, the terror master’s political project is returning to life on President Obama’s watch.”

Zvi Mazel / Jerusalem Post

“From the start of the so-called Arab spring, America has time and time again initiated moves which set it at odds with traditional allies in the Middle East, to the extent that today it can only watch impotently developments in the region.

“Iraq is a case in point. ISIS is a jihadist terrorist organization that has already taken large areas in Syria and made significant gains in Iraq.  It is now in the process of setting up a hard-core Islamic state in the heart of the Middle East.

“Washington, apparently taken completely by surprise, finds itself in the same camp as Iran, its sworn enemy. Obviously it is to be deplored that Arab countries in the region are unequal to the task of overcoming an organization numbering no more than a few thousand terrorists. On the other hand, since the end of World War II these countries have squandered their efforts and their resources in internecine warfare and in the conflict with Israel, secure in the knowledge that the U.S. or the Soviet Union would come to the rescue if needed.

“The greatest world power thus finds itself not only without a viable course of action in Iraq, but without the allies that might have made such a course possible.

“Washington seems to have grasped the extent of its predicament. Secretary of State John Kerry has been making the rounds of Arab states to see whether he can cobble together a coalition to act in Syria and Iraq. He came to Cairo bearing gifts, and pledged to unfreeze speedily the dispatch of Apache helicopters badly needed by Egypt to fight jihadist terrorists in the Sinai Peninsula.

“That freeze, together with most of America’s military aid, had been intended to ‘punish’ the Egyptian people and the army that had dared to topple a ‘democratically elected president.’

“Washington has yet to understand that truly democratic elections in the Middle East – except in Israel – will entail a profound cultural evolution enshrining the rights of the individual, gender equality, and tolerance towards minorities.

“No amount of pressure will change the reality in Egypt. Kerry promised to unfreeze the supply of all military aid, though he hinted that Cairo should progress toward greater democracy. It will not help to bridge the gap between the two countries, since the leaders of Egypt as well as most Egyptians are deeply offended by what they see as an undeserved snub.

“Having gotten rid of the Muslim Brotherhood they thought that America would applaud and offer them help. There are signs that Washington has grasped at last the importance of Egypt as a stabilizing factor in the region....

“The disintegration of the Ottoman Empire after World War I led to the arbitrary creation of artificial entities; boundaries were drawn with no ethnic or tribal considerations with bitter enemies condemned to live together. These countries are today paying the price of constant squabbling and lack of economic progress.

“From Libya to Somalia, Sudan, Syria, Iraq, and Yemen (with Lebanon not far behind), Muslim states can no longer ensure personal security and basic services to their peoples – who often resort to flight, leading to an unprecedented number of refugees.

“Can something still be done to reverse that relentless trend? It is highly doubtful.

“America, having painted itself into a corner, will watch helplessly as chaos spreads and threatens the West.”

Finally, it seems clear that al-Qaeda now feels the need to compete with ISIS for funding and recruits, and for this reason al-Qaeda would appear desperate to launch a major strike against the West. Baghdadi’s declaration of a caliphate is a threat to al-Qaeda’s leadership in the jihadist cause. Al-Qaeda in the Arabian Peninsula, the Yemeni group, has long been dedicated to the goal of carrying out attacks on the United States.

3,000 Europeans, North Americans and Australians are fighting in Iraq and Syria, according to security analysts. It’s all about what they do when they return home.

Israel: The bodies of kidnapped Israeli teenagers Gil-Ad Shaer, Eyal Yifrah and Naftali Fraenkel were discovered in a shallow grave on Monday near where they were taken 17 days earlier.

Prime Minister Netanyahu said: “They were kidnapped and murdered in cold blood by beasts. Satan has not yet invented vengeance for the blood of a small child. Hamas is responsible and Hamas will pay.”

But a senior Hamas official warned Israel against any reprisals, saying it would open “the gates of hell.”

More than 400 Palestinians were arrested in the huge manhunt and five Palestinians were killed.

Hamas launched countless rocket attacks against southern Israel from Gaza during the period in which the search went on.

In response to the discovery of the bodies, Israel then bombed 34 specific targets in Gaza the first night. 20 more rockets were fired into Israel from the Strip, then another 40 within 24 hours by Thursday night.

Israeli police identified two suspects and the military blew up the entrances to their homes. Hamas and Fatah said they were not responsible. The bodies were said to be found on land belonging to the family of one of those wanted.

On Tuesday, scores of Israeli right-wing protesters rioted in downtown Jerusalem, demanding revenge.

But then on Wednesday, a Palestinian youth was found dead in Jerusalem in what appeared to be a revenge attack.

The U.S. and U.N. condemned the abduction and murder of the Palestinian, with U.S. Secretary of State John Kerry calling it “sickening” while the U.N. demanded justice over the “despicable act.”

Palestinian President Mahmoud Abbas accused Jewish settlers of killing Mohammed Abu Khdair, calling for the “strongest punishment against the murderers if [Israel] truly wants peace.”

Hamas was quoted by Agence France-Presse as telling Israeli leaders: “Our people will not let this crime pass... You will pay the price for these crimes.”

Prime Minister Netanyahu said it was “despicable” and ordered police to work “as quickly as possible to find out who was behind the heinous murder of the youth.”

The family of Naftali Fraenkel issued a statement: “If the Arab youth was murdered because of nationalistic motives then this is a horrible and horrendous act.”

Clashes erupted in the Arab district of Shufat in East Jerusalem, outside the teenager’s home. Rioting continued for over 12 hours with scores injured.

As I go to post, Egypt is attempting to broker a truce between Hamas and Israel.

Iran: Foreign Minister Mohammad Javad Zarif said his nation would not “kneel” to other countries seeking to defuse the nuclear standoff by the July 20 deadline. Tehran is “willing to take concrete measures to guarantee that our nuclear program will always remain peaceful,” Zarif said, but that Iran didn’t go to the negotiating table because of sanctions.

British Foreign Minister William Hague said the P5+1 would “not accept a deal at any price. A deal that does not provide sufficient assurances that Iran will not develop a nuclear weapon is not in the interests of the U.K., the region or the international community.”

Yes, it’s crunch time. Two weeks to go.

Syria: The U.S. has taken custody of Syrian chemical-warfare agents at a port in Italy, which as you can imagine worries locals in Gioia Tauro. The U.S. vessel MV Cape Ray will neutralize the deadly substances at sea.

Jordan: While the government of King Abdullah has strengthened its border with Iraq to prevent an invasion by ISIS, officials in Amman are increasingly concerned about a homegrown movement and the threat it poses. Anti-government demonstrations have begun to spring up.

China: At least 500,000 took to the streets of Hong Kong to demand genuine democracy and express their anger at Beijing’s declaration of its authority over Hong Kong in the white paper I wrote about weeks ago.

Professor Lau Siu-kai, vice-chairman of the Chinese Association of Hong Kong and Macau Studies, told the South China Morning Post: “It is difficult for the central government to change its stance simply because of the massive turnout. I’m worried the escalating confrontation between Beijing and Hongkongers could result in bloody conflicts.”

Gee, where have you heard that before? 

The People’s Daily said putting patriots in charge of the city was in line with “the principles of heaven and earth.” It said late paramount leader Deng Xiaoping defined patriots as those “who loyally support China’s exercise of sovereignty over Hong Kong, and those who do not impair [its] prosperity and stability.”

500 people holding an overnight sit-in after the rally in the central business district were arrested.

Editorial / Wall Street Journal

“About half a million people marched through downtown Hong Kong Tuesday with a message for Beijing: We won’t accept sham democracy. The high turnout reflects anger that China’s central government is backtracking on its promise to hold a free and fair election for the city’s chief executive in 2017.

“Tuesday’s rally followed a 10-day unofficial referendum organized by the pro-democracy coalition Occupy Central With Love and Peace. Hong Kong residents were invited to support several different nomination systems other than those put forward by pro-Beijing parties. Nearly 800,000 people, or 22% of the electorate, participated....

“The referendum also affirmed that most Hongkongers want to see a compromise with Beijing rather than confrontation....

“Driving turnout for the referendum and the march was a white paper issued last month by China’s State Council condemning Hongkongers’ ‘wrong views.’ It underscored Beijing’s ‘comprehensive jurisdiction’ over the city’s 7.2 million residents, and demanded patriotism – that is, subordination to the Communist Party – from local officials and judges....

“If in the coming months Beijing refuses to compromise in the face of peaceful demands to keep its promises, civil disobedience may be justified. In that event, Hong Kong’s civic leaders will deserve the world’s support.”

I first told you months ago this is going to get very ugly. It’s inevitable. I also continue to believe it has the potential to rock the Chinese mainland.

The Chinese government mouthpiece, the Global Times, warned on Wednesday that Hong Kong faces becoming the next Ukraine or Thailand if it embraces a period of “political upheaval.”

We also learned today, Friday, that five protest organizers were arrested for obstruction of police duties, which is an outrage, though the charges should be minor. Also, the 500 detained for the sit-in were released without being charged. Another demonstration is set for later in the year.

[As to the term “Hongkongers,” the Journal labels them “Hong Kongers.” I am sticking with the former as written in the South China Morning Post, which is out of Hong Kong.]

On another issue, a leading Chinese analyst told the Sydney Morning Herald’s John Garnaut that political leaders in Beijing are committed to a strategy that will cause territorial disputes to get worse.

As reported by Garnaut: “The result,” said Professor Shi Yinhong of People’s University, “was that leaders on all sides were locked into self-reinforcing cycles of aggression, with U.S.-anchored ‘defensive’ coalitions perceived to be ‘offensive’ in Beijing.

“He said China would continue on its current trajectory because of popular nationalism, dynamics within the armed forces ‘and of course also our top leaders’ personal beliefs and strategic personalities.’

“And that’s why the increasingly militarized disputes across the East China Sea, the South China Sea and also along the spine of the Himalayas are going to get worse.

“ ‘This kind of tension between China and the U.S. and U.S. allies will deteriorate rather than improve,’ said Professor Shi.”

Meanwhile, Chinese President Xi Jinping began a state visit to South Korea on Thursday, in a move clearly designed to drive a wedge between Washington and Seoul.

Interestingly, Xi has yet to go to Pyongyang, nor has he invited Kim Jong-un to Beijing.

Xi’s visit is also days after Japan amended its pacifist Constitution to allow its military to assert itself abroad, which isn’t going over well with both China and South Korea. So a great opportunity for Xi on many levels.

Earlier, last Sunday, Xi vowed that no violations of territorial integrity will be tolerated and, in a veiled attack on the United States, said no nation should be allowed to monopolize global affairs.

Individual nations should be allowed to choose their own path of development, and China opposed the overthrow of legitimate governments of other nations out of “selfish interests.”

Xi added a “new architecture of Asia-Pacific security” was needed.

Back to Japan, the Cabinet resolution lifting the ban on “collective self-defense,” or aiding a friendly country under attack, was welcomed in Washington.

Chinese Foreign Ministry spokesman Hong Lei told a news conference in Beijing: “China opposes the Japanese fabricating a China threat to promote its domestic political agenda.”

Japanese conservatives say the Constitution’s war-renouncing Article 9 has excessively limited Japan’s ability to defend itself and that a rising China means Japan’s policies must be more flexible.

North Korea: Pyongyang, crying for attention, concluded its third missile test in the past week on Wednesday by firing two short-range rockets from a launcher into the Sea of Japan. On Sunday, the North fired two short-range ballistic missiles, thereby violating a U.N. ban. [The ban doesn’t include the kind of launchers used Wednesday.]

And then Pyongyang announced it was prepared to indict two Americans detained on charges of unspecified “hostile acts” against the country. North Korea has also been holding U.S. tour operator Kenneth Bae since late 2012.

Ukraine: The foreign ministers of Ukraine and Russia backed a new cease-fire plan Wednesday as a Kiev government assault apparently drove separatists from their stronghold in the city of Donetsk.

On Monday, President Poroshenko let a unilateral cease-fire expire (one in which 27 Ukrainian troops had been killed during the “truce”) and re-launched a government offensive across the eastern part of the country.

Donetsk had been an industrial city of one million before the separatists moved in three months ago and much of the civilian population has fled. A reported tens of thousands have crossed into Russia from the Donetsk and Luhansk regions. According to the U.N., some 110,000 Ukrainian refugees have gone to Russia since the start of the year, while 54,000 have left their homes and moved elsewhere in Ukraine. Needless to say, this rancor doesn’t bode well for the Kiev government even if it does fully retake the east. The pro-West government is having difficulty rebuilding trust.

On Thursday, Poroshenko shook up his Defense Ministry, appointing new leadership throughout the ranks. Intelligence leaks have been leading to ambushes of Ukrainian soldiers, let alone the longtime issue of corruption in the military. Poroshenko vowed to create armed forces “capable of fighting and winning.” The new Defense Minister, Valeriy Heletey, has promised the army would retake Crimea.

As for Vladimir Putin, he is still smarting from Ukraine’s entrance into a new trade agreement with the European Union two weeks ago, while expressing his “deep concern about the rise in deaths among the civilian population and sharp increase in refugees.”

The death toll in the fighting since April is approximately 1,250, according to various sources; made up of 200 Ukrainian soldiers, 250 civilians, and a reported 800 rebels.

Meanwhile, the flow of tourists to Crimea has dropped 35% in the first half of this year. Traditionally, 2/3s of the 6 million tourists that travel there came from Ukraine.

Finally, five journalists have been killed in Ukraine covering the conflict.

France: Ex-President Nicolas Sarkozy was placed under formal investigation for influence peddling, with Sarkozy saying the case against him was “grotesque” and that he is being used for “political ends.”

It is alleged Sarkozy sought insider information from a judge about an inquiry into illegal campaign funding and the allegations are a major blow to his dreams of challenging again for the presidency in 2017.

In a television interview, Sarkozy said: “I say to all those who are listening or watching that I have never betrayed them and have never committed an act against the Republic’s principles and the rule of law.”

Sarkozy was also angered by the way he was rounded up and detained, saying there “was an intention to humiliate” him.

The former president blames left-wing elements in the justice system, including one judge who is a member of a left-wing trade union which was openly hostile to Sarkozy when he was leading the country.

A judge will now determine whether there is sufficient evidence to charge him, and were he convicted at trial, influence-peddling can lead to a prison sentence of up to 10 years.

Sarkozy was president from 2007 to 2012 and the inquiry is examining whether he received illegal donations for the 2007 campaign from the late Libyan leader Muammar Gaddafi.

Brazil: I wasn’t going to comment on the conduct surrounding the World Cup until it was over, and I will still hold off on making any broad, sweeping statements, but what a tragic embarrassment to have that construction accident in Belo Horizonte, where Tuesday’s semifinal is scheduled to be played.

An overpass, that was supposed to have been completed before the Cup started, but wasn’t, collapsed onto several vehicles, killing at least two and injuring numerous others.

At least eight construction workers died building the 12 stadiums that are being used for the tournament.

Random Musings

--According to the latest Quinnipiac University survey, President Obama has a 40% job approval rating, with 53% disapproving. Only 37% approve of his handling of foreign policy, a low, with 57% disapproving. The negative rating on the president’s handling of ObamaCare is 40-58.

When asked who was the worst president, post-World War II, Obama now leads at 33%, though I don’t put much stock in this one since most of those being polled haven’t a clue when it comes to history.

One survey question that was interesting, however, is the sentiment that the country would be better off with Mitt Romney as president by a 45-38 margin. That bodes well for Republicans come November.

--President Obama announced he would begin using his executive authority to bolster the border after declaring Republicans were responsible for killing any chances of immigration reform this year.

“America cannot wait forever for them to act,” Obama said of Republican lawmakers. “That’s why today I’m beginning a new effort to fix as much of our immigration system as I can on my own, without Congress.”

Aside from some tweaks to the administration’s existing deportation procedures with the recent wave of children crossing the border, it’s unclear what else he is prepared to do.

Immigration reform was Obama’s top legislative priority this year, so further delay is a win for conservatives who saw the granting of legal status to those living in the U.S. illegally as amnesty. It also avoids a bruising battle in an election year.

But Republicans still have the same problem – attracting more of the Hispanic vote.

However, support for President Obama overall has been plummeting among Hispanics, as noted in this space earlier in the year. At the same time, business groups are increasingly miffed at Republicans, particularly in the House. 

And as for the communities along the border, and those miles away suddenly being forced to take in the latest influx, well you’ve seen the stories. It’s getting ugly.

Obama does need Congress’ support for his separate request for $2 billion to help officials deal with the immediate issues.

Editorial / Wall Street Journal

“Immigration reform has finally collapsed in Congress for this year, and President Obama and House Republicans are both responsible. The larger loss is for America’s economy and dynamism, but as a political matter Republicans are likely to pay the steeper price.

“On Monday Mr. Obama chastised Republicans for the failure, but it took two not to tango. The President now says he’ll act unilaterally, but his threat all along that he would do so is one reason so many Republicans concluded that they couldn’t trust him to honestly implement any reform. One price of Mr. Obama’s legal abuses is that few in Congress think he will faithfully execute any law as written.

“The President is also responsible for the current spectacle of federal incompetence at the border with Mexico....

“Immigration reform requires some confidence that the federal government can police the border, implement E-Verify for new business hires, and manage revamped guest-worker programs. The televised sight of chaos on the border has been a godsend to GOP nativists.

“Many Democrats also didn’t really want reform. They’d rather retain the issue as a political bludgeon to further portray Republicans as anti-Hispanic and anti-Asian. They figure this will drive Democratic turnout in a few key Senate races in November, and all but guarantee a Democratic presidential victory in 2016. They’re delighted to change the campaign subject from the VA, ObamaCare, the IRS and the summer of jihad to the GOP’s anti-immigration wing.

“Yet none of that absolves the House GOP from failing to even hold a reform vote this year. Immigration and trade are the two pro-growth issues on which a bipartisan compromise should be possible, and the Senate proved it by passing its bill last year....

“The fallout from failure now will be more partisan blame-shifting and suspicion. The President will try to please his base, and bait the GOP’s restrictionist wing, by easing deportations by executive order as the election nears. Many Republicans will take the bait and overreact, increasing the perception of the GOP as hostile to minorities....

“Meanwhile, the American economy will be the biggest loser....

“At the low-wage end of the economy, jobs go begging in agriculture, hospitality and in some places construction. At the high end, the U.S. needs more engineers, software designers, biologists and so much more. America’s loss of human capital will become the rest of the world’s gain, as potential immigrants return to China and India or settle in Canada or Australia. An America growing at a dispiriting 2% for five years amid declining real incomes needs better from its political class.”

--President Obama nominated former Procter & Gamble CEO, Bob McDonald, to take over the Department of Veterans Affairs. McDonald is a West Point graduate who served in the Army for five years before embarking on his career at P&G.

While the pick has been largely praised, some are concerned that McDonald has no medical background.

--The Supreme Court ruled 5-4 that corporations can hold religious objections that allow them to opt out of the ObamaCare requirement that they cover contraceptives for women. The ruling means the administration must find other ways of providing free contraception to women who are covered under objecting companies’ health insurance plans.

Whereas two years ago, Chief Justice Roberts cast the pivotal vote saving ObamaCare in the midst of the 2012 campaign, on Monday, he sided with the four justices who would have struck down the law in its entirety.

The Court stressed the ruling applies only to corporations under the control of a small number of people, in this case the craft-store chain Hobby Lobby Stores Inc.

More broadly, the decision marks an expansion of corporate rights. Justice Samuel Alito, writing for the court, noted safeguarding the religious rights of corporations “protects the religious liberty of the humans who own and control those companies.”

Writing for the minority, Justice Ruth Bader Ginsburg said: “The court, I fear, has ventured into a minefield” in that it could foster employee objections to other types of health-care coverage.

White House spokesman Josh Earnest told reporters the decision “jeopardizes the health of women” and added, “We will work with Congress to make sure that any women affected by this decision will still have coverage.”

--The Centers for Medicare and Medicaid Services told the New York Post that only 425,000 of 2.9 million problematic applications for ObamaCare where “inconsistencies” existed have been resolved, leaving 85% that have not after nine months of trying.

As reported by Geoff Earle, “Most of the problems involve certifying citizenship and income, key components of the national health plan....

“In 77% of the applications under scrutiny, federal records differed from what applicants submitted on those two key qualifications.”

--Michael Goodwin / New York Post

“Say this for President Obama: He’s got an uncanny ability to block out distractions and keep his eye on the ball.

“Facing a horrific expansion of terrorism in the Mideast, a meltdown of public support at home and major rebukes by the Supreme Court, the president remains fixated on No. 1.

“ ‘I’m finding lately I just want to say what’s on my mind,’ he told a Minneapolis audience Friday, and then ticked off a series of complaints about – surprise – Republicans.

“ ‘They don’t do anything, except block me and call me names,’ he said. ‘If they were more interested in growing the economy for you and the issues that you are talking about instead of trying to mess with me, we would be doing a lot better.’

“He wasn’t finished: ‘The critics, the cynics in Washington, they’ve written me off more times than I can count. But cynicism doesn’t invent the Internet. Cynicism doesn’t give women the right to vote.’

“There you have it: the presidential mind in Year 6. Don’t cry for Argentina – cry for me!

“Self-pity is never admirable in a public figure, but it seems to be Obama’s default emotion when the going gets tough. Because everything is about him, the whole world is personal.

“He is a victim of a vast conspiracy that includes everything from global upheaval to a domestic mood going from simmer to boil. If only everybody would just shut up and do what he says, all would be well.

“Alas, Obama is right about one thing. His presidency and the country are at a crossroads. The problem is that his response – woe is me – means things almost certainly will get worse before they get better.”

--Edward Luce / Financial Times

“In much of the world, the Predator drone symbolizes U.S. power. It is ubiquitous, stealthy and can strike at any moment. They patrol the skies of central Asia, North Africa, the Arabian peninsula – and now Iraq. Other countries have nuclear weapons and aircraft carriers. But nobody else can match the lethal ingenuity of America’s Hellfire missile. Little surprise that two U.S. presidents – George W. Bush, and now Barack Obama – have resorted to them so frequently. But their heyday is waning. America’s unipolar drone moment is ending.

“Mr. Obama’s chief problem is their speedy adoption around the world. Unlike nuclear weapons, there is no treaty governing the use of military drones. For roughly a decade, the Central Intelligence Agency has been able to strike targets pretty much with impunity – and blanket deniability. Of America’s partners, only the UK has been deemed fit for export. But others, including Iran, whose drones also patrol the same Iraqi skies as their U.S. counterparts, have reverse engineered the unmanned aerial vehicle with relative ease. China is even exporting drones. Last month Saudi Arabia became its first big customer. Within five years, many countries, some of them highly unsavory, will possess military drones, says the Rand Corporation.

“All of which poses a quandary for Mr. Obama and whoever succeeds him.... At the moment, Mr. Obama can order drone assassinations without having to admit it, or explain himself to anyone. Hundreds of militants have been killed in Pakistan, Yemen, and elsewhere. But hundreds more civilians, perhaps thousands, have also been accidentally killed.

“It is inconceivable the U.S. would tolerate another country, even an ally, operating with the same scope and secrecy. Yet it would be ill-placed to object if they did. Imagine if China decided to take out Uighur separatists in Afghanistan or further afield.... As set out last week by the Stimson Center, a security think-tank, China’s president would refuse to acknowledge the strikes on grounds of national security, just like Mr. Obama. The same would apply to Vladimir Putin if he ordered drone strikes in eastern Ukraine. And so on. The threat of drone multipolarity is real – and potentially endless. Yet America’s moral suasion would be worthless....

“Just as education is the answer to the rise of robots in the labor market, so terrorism can only be defeated by intelligence and smarter diplomacy. In the skies, and on the ground, there are no easy answers. With the rest of the world droning up, the U.S. has no choice but to wise up.”

--As reported by the Wall Street Journal, “Bill and Hillary Clinton helped raise more than $1 billion from U.S. companies and industry donors during two decades on the national stage through campaigns, paid speeches and a network of organizations advancing their political and policy goals.”

Needless to say, those deep ties should prove beneficial should Hillary run in 2016. Rick Hohlt, a lobbyist and fundraiser for Republican Party presidential candidates, told the Journal:

“Clinton Inc. is going to be the most formidable fundraising operation for the Democrats in the history of the country. Period. Exclamation point. It sure causes concern.”

The Journal tally includes speaking fees and donations to Bill Clinton’s 1992 and ’96 presidential campaigns; the Democratic National Committee during his eight years in office; Hillary’s bids for Senate and president; and the family’s nonprofit entity – The Bill, Hillary and Chelsea Clinton Foundation.

The Clintons raised between $2 billion and $3 billion from all sources, with between $1.3 billion and $2 billion coming from industry sources.

--The Washington Post reported that among the previously undisclosed speaking fees Hillary Clinton collected was one for $251,000 from a donor fund for Clinton to speak at the Univ. of Connecticut in April. Understand, UConn just raised tuition 6.5%. Clinton also received $300,000 to speak at UCLA in March and is to be paid $225,000 for a scheduled speech at UNLV in October.

At a supposed time of austerity on our nation’s campuses, some student groups and teachers aren’t happy.

Hillary has also been paid for speeches at five other schools this year, including Colgate University, and if she took in her standard $200,000 fee, that would mean she will take in at least $1.8 million in speaking income from universities in the past nine months.

“At UNLV, where officials have agreed to raise tuition 17% over the next four years, student government leaders have written Clinton asking her to return the planned $225,000 fee to the university” and if she does not, they say, they’ll protest her appearance.

--The national Highway Trust Fund’s balance is going to hit zero next month, delaying or reducing significantly future bridge and highway repairs until Congress comes up with a way to boost funding. The Congressional Budget Office estimated the fund will bring in $33 billion in revenue this year and spend $45 billion, mostly in disbursements to the states.    The revenue is from the 18.4-cent-per-gallon gas tax.

Sens. Bob Corker (R-Tenn.) and Chris Murphy (D-Conn.) have proposed slowly raising the gasoline tax and offsetting this new revenue with an extension of unrelated tax cuts.

Others have proposed to dramatically scale back the Highway Trust Fund in favor of giving the states more flexibility to plan and finance their own programs. [Wall Street Journal]

Bottom line...we have an increasingly Third World infrastructure.

--The World Health Organization said the death toll from the largest and deadliest Ebola outbreak ever stood at 467 as of Tuesday, out of 759 known cases. But what’s even worse is that the Red Cross and Doctors Without Borders have had to suspend operations in southeast Guinea because locals are blaming the healthcare workers with spreading the disease. One group of Red Cross workers was surrounded by men with knives and threatened.

This isn’t good. There are more than 60 outbreak sites. The WHO is trying to get national and traditional leaders to send out a message to combat superstition and mistrust, and to convey how important it is for infected people to seek treatment.

Officials say there are dozens of people known to be infected who have run away or evaded treatment centers. [Los Angeles Times]

--Last Saturday, June 28, was the 100th anniversary of the assassination of Austrian Archduke Franz Ferdinand that set in motion the First World War. In ‘celebration,’ Bosnian Serbs unveiled a bronze statue of assassin Gavrilo Princip. He is revered by Serb nationalists who credit him with freeing Bosnia and Serbia from occupation by the Hapsburg and Ottoman empires.

--Regarding Team USA’s performance in the World Cup, it was a nice run, but it’s clear we need to develop some real skill players if we are to ever make the finals. That said, we are all raising our glass to Tim Howard.

--From Sandy Banks / Los Angeles Times:

“America’s doctors have joined the chorus urging parents to read daily to their children, instead of handing over iPads or parking the kids in front of the TV.

“The American Academy of Pediatrics launched its ‘literacy promotion’ campaign this week, citing the influence of early literary experience on children’s brain development and their ultimate academic success.

“The initiative raises the bar for both parents and doctors: Parents should read aloud to their children every day, from infancy until at least kindergarten. Pediatricians should talk about reading at every checkup, and hand out age-appropriate books to low-income patients.”

May I recommend Jeff Pearlman’s “The Bad Guys Won!”...the story of the 1986 New York Mets. Uproarious brawling, boozing and bimbo-chasing.

And Terry Pluto’s “Loose Balls,” the definitive history of the American Basketball Association. Your children will be spellbound at the tales of Marvin “Bad News” Barnes.

Then again, these may not be age-appropriate. Never mind....

--The Defense Department estimates 71% of the roughly 34 million 17- to 24-year-olds in the U.S. would fail to qualify to enlist in the military if they tried, which doesn’t include those that would be turned away for appearance, such as for tattoos.

The biggest issues are medical, including due to obesity, as well as felony convictions and prescription-drug use for attention-deficit disorder.

The U.S. Army enlistment requirements include no tattoos on fingers, neck or face and no ear gauges (that create large holes in earlobes). I saw a service-worker the other day with large holes in his earlobe, an otherwise good-looking and nice guy, and felt like shaking him. “What the heck did you do that for?!” It was uncomfortable to look at.

Major Gen. Allen Batschelet, commanding general of U.S. Army Recruiting Command, told the Journal, “The quality of people willing to serve has been declining rapidly.”

--Staff Sgt. Ryan Pitts is going to be awarded the Medal of Honor on July 21 for his heroism in the Battle of Wanat, Afghanistan, in which nine paratroopers died.

--In reading Army Times I learned of four American servicemen who died in action, stories I had not heard before; combat in Helmand Province, June 20 and 25.

Marine Sgt. Thomas Z. Spitzer, 23, New Braunfels, TX; Marine Lance Cpl. Brandon J. Garabrant, 19, Peterborough, NH; Marine Staff Sgt. David H. Stewart, 34, Stafford, VA; Marine Lance Cpl. Adam F. Wolff, 25, Cedar Rapids, IA. The number of U.S. servicemen and women killed in Afghanistan is now 2,330.

---

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

Happy Birthday, America.
---

Gold closed at $1320 [Thursday’s close]
Oil $104.07

Returns for the week 6/30-7/4

Dow Jones +1.3% [17068]
S&P 500 +1.3% [1985]
S&P MidCap +1.2%
Russell 2000 +1.6%
Nasdaq +2.0% [4485]

Returns for the period 1/1/14-7/4/14

Dow Jones +3.0%
S&P 500 +7.4%
S&P MidCap +7.6%
Russell 2000 +3.8%
Nasdaq +7.4%

Bulls 57.6
Bears 16.1 [Source: Investors Intelligence]

Dr. Bortrum posted a new column.

Have a great week. I appreciate your support.

Brian Trumbore



AddThis Feed Button

-07/05/2014-      
Web Epoch NJ Web Design  |  (c) Copyright 2016 StocksandNews.com, LLC.

Week in Review

07/05/2014

For the week 6/30-7/4

[Posted Noon ET, Friday]

Edition 795

Washington and Wall Street

Last weekend, after I posted my column, the Bank for International Settlements (BIS), usually called the “central banks’ central bank,” warned that “euphoric” financial markets have become detached from the reality of a lingering post-crisis malaise.

The BIS urged policy makers to begin to normalize interest rates.

“The risk of normalizing too late and too gradually should not be underestimated,” the BIS said, adding, in its annual report:

“Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.”

The BIS said low interest rates had helped increase demand for higher risk assets, including stocks, real estate and corporate bonds. And, while global growth has improved, it is still well below pre-crisis levels.

“Growth has disappointed even as financial markets have roared: The transmission chain seems to be badly impaired,” the BIS said.

But wait...there’s more! The BIS warned of the risks brewing in emerging markets and banking crises, including most notably China.

“Particularly for countries in the late stages of financial booms, the trade-off is now between the risk of bringing forward the downward leg of the cycle and that of suffering a bigger bust later on,” it said. [Financial Times, BBC News]

Editorial / Wall Street Journal

“The big financial news over the weekend, other than betting on the World Cup, is that the world’s premier central bankers club is now warning the world about each other. [The BIS] issued a report warning that global monetary policies are reaching their useful limit and may be contributing to financial excesses that could turn out badly if central bankers aren’t careful....

“That’s not news for anyone paying attention to financial markets. Assets prices have been buoyant, and any given day brings reports of investors looking for bigger game....

“The BIS report cites several pungent facts, such as greater risk-taking in syndicated loans – ‘for instance, credit granted to lower-rated leveraged loans’ exceeded 40% of new loans for much of 2013. ‘This share was higher than during the pre-crisis period from 2005 to mid-2007’ and ‘fewer and fewer of the new loans featured creditor protection in the form of covenants.’

“All of this is especially notable because the BIS is warning about the policies its own fraternity brothers have been pursuing. [Claudio] Borgio [of the BIS] also has more credibility than most as a forecaster because he was one of those warning about the building financial excesses a decade ago. If Alan Greenspan and Ben Bernanke had listened to him as they were keeping the fed funds rate at 1% for a year amid economic growth of nearly 4%, we might have avoided much pain.”

So the U.S. markets absorbed all the above and hit new all-time highs this week. Kind of funny.

Oh, there was some solid economic news to celebrate – more in a bit – but Federal Reserve Chair Janet Yellen said that the central bank should basically ignore calls for raising interest rates, even though the domestic economy (forgetting the first-quarter GDP figure) is doing better and she and her cohorts are just fueling future financial crises.

On Wednesday, in a presentation at the International Monetary Fund, Yellen said: “I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns.”

Granted, Yellen sees “pockets of increased risk-taking” in the financial system, but then she gave her take on a sudden new-age theory regarding a “macroprudential approach, a combination of multiagency oversight, attention to bank capital and liquidity, and regulatory pressure to create buffers against failure,” as reported by Craig Torres and Christine Idzelis of Bloomberg.

As in, I guess, everything’s in play. Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago, told Bloomberg:

“She’s reflecting and also moving toward the leading edge of what’s going on in central bank management of bubbles and the view of bubbles.”

And that, sports fans, is why I’ve never dated an economist.

Look. If nothing else I’ve been consistent. As in I’ve blasted the Fed for screwing savers with its zero interest rate policy.

If you are retired, living on fixed income, with $100,000 in savings, $2,000 on your savings account at a 2% interest rate is significant. $40 a week means a nice meal with the Missus, or a movie plus some ice cream (or four beers)...you get the picture. And that means, perhaps, an extra job at the restaurant, the bar, the movie theater.

You will never convince me that zero interest rates, well beyond what was appropriate, benefited the U.S. economy more so than leaving savers with some crumbs. The growth figures since the economy bottomed in 2009 bear that out. This recovery has been lousy.

But now things appear to be looking up, finally, and I have also discounted the awful first quarter, save for what it means for overall 2014 growth, because I have written the economy will indeed come back and we will have an inflation scare as a result. This will force the Fed and Yellen to act sooner than they’ve been telling us in finally beginning to normalize interest rates, though I have to admit, I’m wrestling with PIMCO’s “new neutral,” that the new normalization means a funds rate of 2% rather than, say, 4%. I don’t agree...but I’ll keep an open mind.

The only fly in the ointment for those who are optimistic remains the ability of geopolitics to squash confidence, especially when it comes to the business community and capital spending plans.

So the week started out with another strong reading from the Chicago purchasing managers folks, 62.6 on manufacturing for June, while the ISM manufacturing PMI for the month was an equally solid 55.3, both just slightly below expectations.

An ISM reading on the service sector for June was strong, 61.0.

Readings on factory orders and construction spending for May, however, were not as good, down 0.5% in the former, up 0.1% in the latter.

But the continuing strong trend in readings for both manufacturing and services set us up for another solid jobs report and on Thursday we learned the economy created 288,000 in June, completing the best five-month stretch of job creation since early 2006 (including upward revisions to May, now 224,000, and April, 304,000...the best single month since Jan. 2012).

The unemployment rate fell from 6.3% to 6.1%, the lowest since September 2008, giving the White House something to crow about.

But much of the job growth is coming in lower-wage sectors, while actual wage growth is at just 2.0% over the past year. Not good....though a big part of my inflation thesis is that true wage growth is coming.

Further, as detailed below, auto sales for June were at their strongest annual pace since 2006.

But back to Yellen and the Fed, the unemployment rate of 6.1% is already at their yearend target of 6.0%; further evidence it’s going to begin to look downright comical if the Fed doesn’t start talking about raising rates early in 2015, rather than mid-year or later.

Now, though, it’s about earnings and the second-quarter reports we are about to be bombarded with. We need to see the quality improve, with real top-line sales growth, and we need to hear CEOs talk about spending some of their cash on new plant and equipment.

We also need to see signs the consumer is coming back. If this doesn’t materialize then, yes, the first-quarter contraction of nearly 3% was about more than just cold and snow.

Europe and Asia

European Central Bank President Mario Draghi announced the ECB would begin holding its policy meetings every six weeks rather than each month, and, starting in January 2015, will publish regular accounts of its deliberations, which is in line with the likes of the Bank of England, U.S. Federal Reserve and the Bank of Tokyo.

Thursday, the ECB left its main refinancing rate at 0.15%, and announced that it would remain at that level for an “extended period” of time, while the ECB will continue to charge a fee of 0.1% on banks’ deposits parked in its coffers in its ongoing attempt to stimulate lending, while also countering the threat of deflation. 

Draghi also offered more details on the ECB’s so-called targeted longer-term refinancing operations, whereby banks can borrow up to 400bn euro this coming September and December, as well as an additional 600bn in 2015 and 2016 should they beat lending targets set by the ECB.

“The risks surrounding the economic outlook for the euro area remain on the downside,” Draghi said, singling out geopolitical risks and global financial market risks as threats to the recovery.

As for the data, some of it bore out Draghi’s continued caution.

The eurozone flash estimate on inflation for June is still just 0.5%.

Markit’s final June reading on manufacturing came in at 51.8 vs. 52.2 in May, the slowest reading in 7 months, but nonetheless 12 straight months above 50, the dividing line between growth and contraction.

Spain’s manufacturing PMI was 54.6, an 84-month high.

Italy’s was 52.6, a 3-month low.

Germany’s was 52.0, an 8-month low.

France came in at 48.2, a 6-month low.

Greece was 49.4, a 7-month low and rather troubling, given we’ve been told recovery is taking hold here.

The final eurozone composite reading on both manufacturing and services was 52.8 for June vs. 53.5 in May.

Eurozone retails sales for May over April, however, were unchanged.

So the recovery is losing momentum, according to the readings, but it is still growth for the eurozone as a whole, albeit of the highly fragile variety.

As for unemployment, the euro area 18 (EA18) rate for May was 11.6%, same as April and down just slightly from 12.0% in May 2013.

Some representative rates...

Germany 5.1% (reminder...Eurostat computes this differently than the German government, which pegs the rate at 6.7%, if I recall correctly); France 10.1%; Italy 12.6% (vs. 12.1% May 2013); Ireland 12.0% (down from 13.9% May 13); Greece 26.8% (March); Spain 25.1% (vs. 26.2% May 13).

[Non-euro U.K. 6.6%]

On the youth unemployment front, you still have some staggering figures...Greece 57.7% (March); Spain 54.0%; Italy 43.0%; Portugal 34.8%.

There simply cannot be a lasting recovery without the unemployment rate across the eurozone declining in a substantial way, a la the United States.

A few Euro bits....

--The U.K.’s manufacturing PMI rose to 57.5 in June, with a new-orders component surging to 61.1, one of the fastest rates ever.

But U.K. home prices also continue to soar, particularly in London. According to Nationwide Building Society, prices in London increased almost 26% in the second quarter from a year earlier, while national values rose 11.8% in June from the same month in 2013.

Home prices in London rose 7.6% in the second quarter from the first and the average value of a home there is now 30% above the 2007 high. Yikes.

Germany saw its factory orders fall 1.7% in May from April, with exports down 1.2% for the month. Business sentiment has also been declining. But the Bundesbank continues to estimate GDP will come in at 1.9% for 2014, 2.0% for next year, while the ECB is projecting German growth at just 1.0% this year.

Ireland’s Central Statistics Office announced that GDP rose at a 5.1% annual rate in the first quarter of 2014, just like in the days of the Celtic Tiger. Exports are booming. There is mounting optimism the government will reach its target of reducing the budget deficit from 7.2% of GDP last year to 4.8% this year.

In fact, optimism is so strong the yield on Ireland’s 10-year paper is just 2.31%! Compare that to the U.S. Confidence that the ECB will continue to be most accommodative drove Spain’s 10-year yield back down to 2.65% and Italy’s to 2.81% by week’s end. You know where I stand on this. Give it time. I’ll be right.

European equities, by the way, rose for a fourth straight quarter.

Finally, European Commission president-designate Jean-Claude Juncker called British Prime Minister David Cameron, saying he is “fully committed to finding solutions for the political concerns of the U.K.” German finance minister Wolfgang Schauble said his county would do everything in its power to keep Britain in the EU. We’ll know a lot more in just the next six months.

Turning to Asia...

In China, HSBC’s final manufacturing PMI reading for June was a solid 50.7 vs. 50.4 in May. The official state PMI was 51.0. A sub-index for new orders was at its highest in more than two years.

HSBC also said the service PMI for last month was 53.1 vs. 50.7 in May.

In Japan, the unemployment rate was at a 16-year low in May, 3.5%, while industrial production rose 0.5% in May after dropping 2.8% in April, the month the sales tax rise went into effect.

Large companies are sending signals they are lifting their capital spending plans thru next March (the end of the fiscal year), which is very encouraging, but wage gains are still lagging inflation, so the risks to consumer spending remain.

Prime Minister Shinzo Abe reiterated he is committed to his “third arrow,” structural reform of the corporate tax code. He is also convinced the dip in consumption following the tax hike is temporary.

Street Bytes

--Stocks continued on their record ways, with the Dow Jones finishing up 1.3% on the holiday-shortened week to end at a new high, 17068, while the S&P 500 gained 1.3% as well to close at its new high of 1985. Nasdaq gained 2% to 4485, so its March 2000 record close of 5048 is getting closer and closer.

But I do have to note that for all the euphoria, the Dow is up just 3.0% for the year, while the S&P 500 and Nasdaq are both up 7.4%. It’s not 2013 all over again, yet. [New readers need to know I thought the major indices would decline 2% to 5% in 2014.]

For the archives, in the first six months of 2014, the Dow was up 1.5%, the S&P 6.1% and Nasdaq 5.5%.

And according to the Wall Street Journal, for the first time since 1993, all six of the following rose in the first half: Barron’s gold index, the Dow Jones / UBS Commodity index, the 10-year Treasury, the MSCI world indexes for both developed and emerging markets, and the Dow Jones Industrial Average.

As Ronald Reagan would have said, “Not bad... not bad at all.”

--U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.51% 10-yr. 2.64% 30-yr. 3.47%

The longer end of the curve picked up 10-11 basis points on the stronger economic data.

--Auto sales in the U.S. rose 1.2% to 1.4 million in June, raising the annualized selling rate to 16.98 million, the highest pace since July 2006, according to Autodata Corp.

For the first half, sales were up 4.3% over the same period a year ago.

Despite all of General Motors’ recall news, sales edged up 1% in June, while Chrysler’s rose 9% vs. a year ago, Toyota’s were up 3%, and Nissan’s 5%.

But Ford’s fell 6%, ditto Honda. Ford slowed sales to fleet buyers, such as rental-car companies, while preparing its new, aluminum-bodied F-series pickup truck.

Volkswagen AG’s U.S. unit reported a 22% decline.

--But speaking of GM, it recalled another 8.45 million vehicles on Monday for defects including ignition and electrical malfunctions, as in unintended ignition key rotation, with most of the impacted cars being Chevy Malibu models from 1997 to 2005 and Cadillac CTS cars from the 2003 to 2014 model years. Among this latest batch of recalls, GM said it’s aware of seven crashes, eight injuries and three fatalities.

That brings the total recalled by GM this year to 29 million cars and trucks in North America – “a number greater than the company’s combined U.S. sales for the years 2005 through 2013.” [Wall Street Journal]

The automaker also disclosed it expects to take a charge of as much as $1.2 billion for recall-related repairs announced in the second quarter.

As for the compensation fund for recall victims, Kenneth Feinberg – the man appointed by GM to deal with the issue – said the company will not put a cap on the amount it will pay to victims, while promising swift payments of more than $1 million for families of those who died. Feinberg said each case will be different, based on estimated future earnings the victim would have accumulated. For instance, he cited the example of a 25-year-old married woman with two children who was earning $46,000 a year at the time of her accident. She would receive $4 million. Those with life-altering catastrophic injuries could receive more.

--BNP Paribas, one of the world’s largest banks, pleaded guilty to criminal charges of defying U.S. economic sanctions against Sudan, Iran and Cuba and will pay a record $9 billion fine; the first time a major bank has pleaded guilty in a case of this kind.

BNP was accused of falsifying records from 2004 through 2012 to conceal its funneling of billions of dollars from the three nations.

Assistant Atty. Gen. Leslie R. Caldwell said that the bank had been put on notice as early as 2007 that the U.S. regarded its practices as illegal but the French banking giant continued to pursue them.

The FBI and A.G. vow they will be bringing more cases against the banks, some domestic based, in the near future.

BNP did not lose its banking license in New York as part of the settlement, but it will be prohibited from certain activities for one year.

--JPMorgan Chase & Co. CEO Jamie Dimon announced he’ll be starting treatment for throat cancer, raising succession questions.

Dimon told employees and shareholders his condition is curable and that he’ll continue running the firm “as normal” during eight weeks of radiation and chemotherapy at Memorial Sloan Kettering Cancer Center in New York.

Dimon, 58, has led JPMorgan since the end of 2005. He said his only real restriction will be in curtailing travel during his treatments.

Dimon wrote he wants to remain CEO for an additional five years. “The prognosis from my doctors is excellent, the cancer was caught quickly and my condition is curable.”

Gordon Smith, who heads the consumer bank, is the most likely candidate to take over on an interim basis if needed.

Mike Cavanagh, once seen as a potential successor to Dimon, left in March to become co-chief operating officer of private-equity firm Carlyle Group LP.

--This Fourth of July weekend is going to be the costliest for motorists since 2008 with a national average of $3.68 a gallon for regular grade gas, up 17 cents from last year but well below the all-time $4.11 record set just after July 4, 2008.

It’s all about speculation on whether Iraq’s considerable reserves in the south of the country are threatened by the current war.

--ExxonMobil announced it is investing $1 billion in its refinery in Antwerp, Belgium, a major vote of confidence in the beleaguered European energy industry. Exxon believes it can grow certain segments, such as diesel fuel, even as demand for petrol declines; while it estimates that energy accounts for about 60% of the costs of a refinery in Europe, compared to just 30% in the U.S., to give you a sense of America’s competitive advantage these days.

Exxon is also urging European governments not to block imports of heavy crude from Canada’s oil sands. [Financial Times]

--In its latest yearly review of energy statistics, BP raised its global oil reserves estimate by 1.1% to 1,687.9 billion barrels, which is enough oil to last the world 53.3 years at current production rates.

A good portion of the growth in oil reserves comes from the United States. According to BP, the U.S. has 44.2 billion barrels of oil reserves, up 26% from what it previously thought. BP’s figure for the U.S. is more optimistic than that of the U.S. Energy Information Administration.

--Nearly a quarter of a million metal and engineering workers in South Africa went on strike on Tuesday to demand higher pay. The National Union of Metalworkers of South Africa, the largest union in the country, is demanding a 12% wage increase, while the employers are offering 7 to 8%.

A recent five-month strike by platinum workers cost the mining companies $2 billion in lost revenue, which led to a contraction in the overall economy in the first quarter.

--Following the Supreme Court ruling against it, online video startup Aereo Inc. said last Saturday it was suspending operations while it re-evaluates its strategy. The court had ruled Aereo violated copyrights on programming, dealing a death blow.

--Gillian Tett / Financial Times...on gender bias in the computing world – “a pattern that has been getting worse, not better, in recent years.”

“The numbers are shocking. Back in the mid-1980s, women represented 30-40 percent of all university students in computing science courses in the U.K. and U.S. A similar proportion of women worked in this nascent industry, too. But, as the sector has grown, the female proportion has plunged: today barely one-tenth of all U.S. students studying computer science are women, and, as Susan Wojcicki, chief executive of YouTube, recently lamented in a blog post: ‘Fewer than 1 percent of high school girls express interest in majoring in computer science.’”

--A former employee at Facebook revealed researchers were given virtually free rein to manipulate the news feeds and sometimes the emotions of the site’s users without their knowledge.

The company’s data science team is said to have operated with zero supervision and little corporate oversight, as first reported by the Wall Street Journal.

Andrew Ledvina, who worked as a Facebook data scientist from February 2012 to July 2013, said: “They’re always trying to alter people’s behavior.”

Facebook said it has imposed stricter controls.

--As reported by Bettina Boxall in the Los Angeles Times, “Southern Californians have fallen far short of achieving the 20% voluntary cut in water use sought by Gov. Jerry Brown in the face of the deep drought afflicting every corner of the state.

“A recent statewide survey found that urban water use in coastal Southern California declined by only 5% from January through May.”

While this seems pathetic, some local officials say the small decline is due mainly to prior conservation successes.

--According to an exhaustive study in Consumer Reports, McDonald’s makes the worst burgers, KFC offers the worst chicken, and Taco Bell sells the worst burritos.

This was one of the more extensive CR surveys ever, as it polled 32,405 subscribers.

McDonald’s was last of 21 burger chains. At the top was a regional chain, The Habit Burger Grill, along with fellow California chain, In-N-Out.

Personally, I have no problem with McDonald’s quality.

KFC ranked last of eight chicken chains. Chick-fil-A was tops.

Taco Bell was last of eight Mexican chains. Chipotle was on top.

One other; Sbarro was rated last among 10 national pizza brands, though here we all have local operators to go to.

--The government forecasts that consumer beef prices will increase as much as 6.5% this year vs. 4% for both pork and chicken. The average retail price on fresh beef in May rose 12% from a year earlier.

Beef sales volume fell 0.6% from a year earlier for the first four months of 2014. Funny how that works.

--According to Travel & Leisure magazine’s annual survey, Virgin America was named the nation’s top airline for a seventh consecutive year. JetBlue was No. 2 in the USA.

Internationally, Singapore Airlines and Emirates were tabbed as the best in the world.

Oregon’s Portland International Airport was named the best in the United States. [Don’t disagree with this. Pleasant lounges with good work spaces.]

Internationally, Singapore’s Changi Airport repeated as No. 1, with Hong Kong number two.

--As reported by Julie Makinen in the Los Angeles Times, “China’s box office grew more than 22% in the first half of 2014, to $2.2 billion, and U.S. titles such as ‘Transformers: Age of Extinction’ and ‘X-Men: Days of Future Past’ helped imported films grab more than half of all ticket sales in the world’s second-biggest movie market.”

But the government continues to severely limit the number of imported films that can be shown, with July and August typically off-limits. That said, the ones that get through can do as much business in China as they do in the U.S.

--California holds nine out of 10 of the nation’s “hot spots” when it comes to auto theft, the National Insurance Crime Bureau reports. The top three are in California’s farm belt – Bakersfield, Fresno and Modesto, so if you live in one of those communities, I’d just put the car in the garage and walk or ride a bike.

--Caesars Entertainment Corp. said it is closing the Showboat casino-hotel in Atlantic City, another big blow for the resort and the casino’s more than 2,000 employees, who apparently didn’t see this coming.

Showboat joins the Atlantic Club, which closed its doors in January. A.C. has been hit hard by new competition in Pennsylvania and New York in particular.

At its peak in 2006, gambling revenue in Atlantic City hit $5.2 billion, but has plummeted to $2.86 billion in 2013. 

--As reported by Bloomberg’s Shai Oster: “China is facing an epidemic of overwork, to hear the state-controlled press and Chinese social media tell it. About 600,000 a year die from working too hard, according to the China Youth Daily. China Radio International in April reported a toll of 1,600 every day....

“ ‘China is still a rising economy, and people are still buying into that hardworking ethos,’ said Jeff Kingston, director of Asian Studies at the Japan campus of Temple University in Tokyo. ‘They haven’t yet achieved the affluenza that led to questioning in Japan of norms and values.’”

Death from overwork encompasses deaths from stroke, heart attack, cerebral hemorrhage or other sudden causes related to demands of the workplace. Excessive overtime is a huge issue in China. No sympathy from moi.

Foreign Affairs

Iraq:

The Islamist militant group ISIS announced it was establishing a caliphate, an Islamic state, in the territories it controls from Aleppo in Syria to the west of Baghdad. It also proclaimed Abu Bakr al-Baghdadi as caliph and “leader for Muslims everywhere.”

In an audio recording released on a website used by ISIS, Baghdadi said:

“Those who can immigrate to the Islamic State should immigrate, as immigration to the house of Islam is a duty.

“Rush, O Muslims to your state. It is your state. Syria is not for Syrians and Iraq is not for Iraqis. The land is for the Muslims, all Muslims. This is my advice to you. If you hold to it you will conquer Rome and own the world, if Allah wills.” [Damien McElroy / Daily Telegraph]

Baghdadi also called on jihadi fighters to escalate fighting in the holy month of Ramadan, which began last Sunday.

“In this virtuous month or in any other month, there is no deed better than jihad in the path of Allah, so take advantage of this opportunity and walk the path of your righteous predecessors.”

The speech came hours after Iraq’s parliament, meeting for the first time since the April election, failed to appoint a new leadership amid the divisions between Shiite, Sunni and Kurdish MPs.

Parliament was to elect a speaker, first, which would lead to the selection of a prime minister within 45 days. Prime Minister Nouri al-Maliki was a lock for a third term until the ISIS offensive and now his closest allies are turning on him, even as he resists efforts to oust him.

But on Tuesday, Sunnis and Kurds walked out during the first session. Prospects for a unity government already seem dashed. Parliament isn’t scheduled to meet again for at least another week, leaving Maliki as a caretaker, rejected by the Sunnis and Kurds.

Maliki’s State of Law coalition is the biggest group in parliament, but it has failed to nominate a successor to Maliki, let alone endorse him for another term.

As Maliki struggles to survive, he has accepted military support from Iran and Russia. Last Sunday, Russia delivered 12 fighter jets to Baghdad. Iran has deployed hundreds of troops from its elite Revolutionary Guard Corps to reinforce its Shiite ally.

As for the United States, President Obama continued to rule out sending American combat troops back to Iraq, but he authorized sending an additional 200 to bolster security at the Embassy in Baghdad as well as the city’s international airport, bringing the total to about 750 in Baghdad, including Special Forces. The U.S. has also delivered 100 new laser-guided Hellfire missiles to Iraq.

Separately, Israeli Prime Minister Benjamin Netanyahu expressed open support for Kurdish independence. In a policy address last weekend, Netanyahu said among the challenges facing Israel was the need to build cooperation with moderate countries in the region to fend off the likes of ISIS.

“It is upon us to support the international efforts to strengthen Jordan, and we support the Kurds’ aspiration for independence,” he said. The Kurds are a “fighting people that have proven political commitment and political moderation, and they’re also worthy of their own political independence.” [Los Angeles Times]

Kurdish leader Massoud Barzani said he will hold an independence referendum within months.

“We will hold a referendum in Kurdistan and we will respect and be bound by the decision of our people and hope that others will do likewise,” he told the BBC Tuesday.

The United Nations said that more than 2,600 people were killed* in Iraq in June, 1,700 of which were said to be civilians, with nearly 900 Iraqi security forces falling victim.

*The initial reported toll of 2,417 did not include Anbar province, where Health Ministry officials said later 244 civilians had been killed.

The death toll was four times that of May, before ISIS launched its offensive, and it was the highest number killed since 2008, when 7,000 died over the entire year.

On the ground this week, it was first reported that Iraq’s army had “routed” ISIS in a major offensive to retake the northern city of Tikrit, but later we learned otherwise, that ISIS had repelled the attack. Otherwise, reports on the ground have been sketchy.

Friday, Iraq’s military denied reports it had abandoned its positions along the border with Saudi Arabia, amid reports (al-Arabiya TV) that the Saudis had deployed 30,000 soldiers along the 560-mile frontier to prevent attacks by ISIS and like groups.

Opinion....

Editorial / Washington Post

“These are heady times for the Islamic State of Iraq and Syria (ISIS).   It controls a wide swath of territory across the two countries in its name and boasts on the Internet of obliterating the boundary drawn by the French and British nearly a century ago. In conquering Mosul and other cities, it has come into possession of a vast trove of equipment, weapons and money to add to the bankroll that already enabled it to wage war with little apparent concern for financial constraints.   Foreign fighters, including a significant minority that carries Western passports, flock to its black banner. And for those whom ISIS cannot recruit with ideology or cash, there is the stark reality that, within its domain, opposition means death. Certainly that was the message sent by the group’s massacre of at least 150 unarmed men in Tikrit, publicized by ISIS and confirmed in excruciating detail in a new Human Rights Watch report.

“So when people speak with resignation, or even a certain optimism, about the supposedly inevitable breakup of Iraq into Sunni, Shiite and Kurdish enclaves, they need to understand that the first of those three potential entities would be ruled, at least initially, by ISIS – with all the danger that entails for the people under the organization’s heel and for the rest of the world....Once entrenched in Iraq, it can be expected to promote terrorism everywhere, including in the United States and Europe....

“Congress should...press the administration to explain its broader strategy. We think the president is right to be pushing Iraqi politicians to form an inclusive government for which a multi-sectarian army would be willing to fight. But if that fails, it still will be intolerable, as President Obama has said, for the United States to allow a jihadist state to become established. Congress should ask him to explain his fallback plan.”

Editorial / Wall Street Journal

“The jihadists of the Islamic State of Iraq and al Sham continue to consolidate their grip on Sunni Iraq. They control most major cities, they took over the border crossings with Jordan...and now they’re re-opening banks and government offices and establishing political control.

“Welcome to the new Middle East caliphate, a state whose leader is considered the religious and political successor to the prophet Mohammed and is thus sovereign over all Muslims. The last time a caliphate was based in Baghdad was 1258, the year it was conquered by the ravaging Mongols. Now the jihadists aim to do the ravaging, and it isn’t clear that the Obama administration has a plan to depose them.

“It’s important to understand how large a setback for American interests and security this is. Establishing a caliphate in the Middle East was the main political project of Osama bin Laden’s life. Current al-Qaeda leader Ayman al Zawahiri once said a new caliphate would signal a turning of world history ‘against the empire of the United States and the world’s Jewish government.’....

“Perhaps Mr. Obama imagines there is no point in playing ‘Whack-A-Mole,’ as he put it, ‘wherever these terrorist organizations may pop up.’ But the core contention of all jihadist groups is that supposed superpowers like the U.S. always weary of a long fight, and that powerful weapons are of no use in timid hands.

“Perhaps the government in Baghdad will pull together politically and militarily to halt ISIS and take back the cities it so swiftly seized. But hoping to get lucky is not a strategy. Meantime, brush up on your Islamic history and terminology. A mere 13 years after the U.S. chased al-Qaeda and the Taliban from Afghanistan, and a mere three years after bin Laden’s death, the terror master’s political project is returning to life on President Obama’s watch.”

Zvi Mazel / Jerusalem Post

“From the start of the so-called Arab spring, America has time and time again initiated moves which set it at odds with traditional allies in the Middle East, to the extent that today it can only watch impotently developments in the region.

“Iraq is a case in point. ISIS is a jihadist terrorist organization that has already taken large areas in Syria and made significant gains in Iraq.  It is now in the process of setting up a hard-core Islamic state in the heart of the Middle East.

“Washington, apparently taken completely by surprise, finds itself in the same camp as Iran, its sworn enemy. Obviously it is to be deplored that Arab countries in the region are unequal to the task of overcoming an organization numbering no more than a few thousand terrorists. On the other hand, since the end of World War II these countries have squandered their efforts and their resources in internecine warfare and in the conflict with Israel, secure in the knowledge that the U.S. or the Soviet Union would come to the rescue if needed.

“The greatest world power thus finds itself not only without a viable course of action in Iraq, but without the allies that might have made such a course possible.

“Washington seems to have grasped the extent of its predicament. Secretary of State John Kerry has been making the rounds of Arab states to see whether he can cobble together a coalition to act in Syria and Iraq. He came to Cairo bearing gifts, and pledged to unfreeze speedily the dispatch of Apache helicopters badly needed by Egypt to fight jihadist terrorists in the Sinai Peninsula.

“That freeze, together with most of America’s military aid, had been intended to ‘punish’ the Egyptian people and the army that had dared to topple a ‘democratically elected president.’

“Washington has yet to understand that truly democratic elections in the Middle East – except in Israel – will entail a profound cultural evolution enshrining the rights of the individual, gender equality, and tolerance towards minorities.

“No amount of pressure will change the reality in Egypt. Kerry promised to unfreeze the supply of all military aid, though he hinted that Cairo should progress toward greater democracy. It will not help to bridge the gap between the two countries, since the leaders of Egypt as well as most Egyptians are deeply offended by what they see as an undeserved snub.

“Having gotten rid of the Muslim Brotherhood they thought that America would applaud and offer them help. There are signs that Washington has grasped at last the importance of Egypt as a stabilizing factor in the region....

“The disintegration of the Ottoman Empire after World War I led to the arbitrary creation of artificial entities; boundaries were drawn with no ethnic or tribal considerations with bitter enemies condemned to live together. These countries are today paying the price of constant squabbling and lack of economic progress.

“From Libya to Somalia, Sudan, Syria, Iraq, and Yemen (with Lebanon not far behind), Muslim states can no longer ensure personal security and basic services to their peoples – who often resort to flight, leading to an unprecedented number of refugees.

“Can something still be done to reverse that relentless trend? It is highly doubtful.

“America, having painted itself into a corner, will watch helplessly as chaos spreads and threatens the West.”

Finally, it seems clear that al-Qaeda now feels the need to compete with ISIS for funding and recruits, and for this reason al-Qaeda would appear desperate to launch a major strike against the West. Baghdadi’s declaration of a caliphate is a threat to al-Qaeda’s leadership in the jihadist cause. Al-Qaeda in the Arabian Peninsula, the Yemeni group, has long been dedicated to the goal of carrying out attacks on the United States.

3,000 Europeans, North Americans and Australians are fighting in Iraq and Syria, according to security analysts. It’s all about what they do when they return home.

Israel: The bodies of kidnapped Israeli teenagers Gil-Ad Shaer, Eyal Yifrah and Naftali Fraenkel were discovered in a shallow grave on Monday near where they were taken 17 days earlier.

Prime Minister Netanyahu said: “They were kidnapped and murdered in cold blood by beasts. Satan has not yet invented vengeance for the blood of a small child. Hamas is responsible and Hamas will pay.”

But a senior Hamas official warned Israel against any reprisals, saying it would open “the gates of hell.”

More than 400 Palestinians were arrested in the huge manhunt and five Palestinians were killed.

Hamas launched countless rocket attacks against southern Israel from Gaza during the period in which the search went on.

In response to the discovery of the bodies, Israel then bombed 34 specific targets in Gaza the first night. 20 more rockets were fired into Israel from the Strip, then another 40 within 24 hours by Thursday night.

Israeli police identified two suspects and the military blew up the entrances to their homes. Hamas and Fatah said they were not responsible. The bodies were said to be found on land belonging to the family of one of those wanted.

On Tuesday, scores of Israeli right-wing protesters rioted in downtown Jerusalem, demanding revenge.

But then on Wednesday, a Palestinian youth was found dead in Jerusalem in what appeared to be a revenge attack.

The U.S. and U.N. condemned the abduction and murder of the Palestinian, with U.S. Secretary of State John Kerry calling it “sickening” while the U.N. demanded justice over the “despicable act.”

Palestinian President Mahmoud Abbas accused Jewish settlers of killing Mohammed Abu Khdair, calling for the “strongest punishment against the murderers if [Israel] truly wants peace.”

Hamas was quoted by Agence France-Presse as telling Israeli leaders: “Our people will not let this crime pass... You will pay the price for these crimes.”

Prime Minister Netanyahu said it was “despicable” and ordered police to work “as quickly as possible to find out who was behind the heinous murder of the youth.”

The family of Naftali Fraenkel issued a statement: “If the Arab youth was murdered because of nationalistic motives then this is a horrible and horrendous act.”

Clashes erupted in the Arab district of Shufat in East Jerusalem, outside the teenager’s home. Rioting continued for over 12 hours with scores injured.

As I go to post, Egypt is attempting to broker a truce between Hamas and Israel.

Iran: Foreign Minister Mohammad Javad Zarif said his nation would not “kneel” to other countries seeking to defuse the nuclear standoff by the July 20 deadline. Tehran is “willing to take concrete measures to guarantee that our nuclear program will always remain peaceful,” Zarif said, but that Iran didn’t go to the negotiating table because of sanctions.

British Foreign Minister William Hague said the P5+1 would “not accept a deal at any price. A deal that does not provide sufficient assurances that Iran will not develop a nuclear weapon is not in the interests of the U.K., the region or the international community.”

Yes, it’s crunch time. Two weeks to go.

Syria: The U.S. has taken custody of Syrian chemical-warfare agents at a port in Italy, which as you can imagine worries locals in Gioia Tauro. The U.S. vessel MV Cape Ray will neutralize the deadly substances at sea.

Jordan: While the government of King Abdullah has strengthened its border with Iraq to prevent an invasion by ISIS, officials in Amman are increasingly concerned about a homegrown movement and the threat it poses. Anti-government demonstrations have begun to spring up.

China: At least 500,000 took to the streets of Hong Kong to demand genuine democracy and express their anger at Beijing’s declaration of its authority over Hong Kong in the white paper I wrote about weeks ago.

Professor Lau Siu-kai, vice-chairman of the Chinese Association of Hong Kong and Macau Studies, told the South China Morning Post: “It is difficult for the central government to change its stance simply because of the massive turnout. I’m worried the escalating confrontation between Beijing and Hongkongers could result in bloody conflicts.”

Gee, where have you heard that before? 

The People’s Daily said putting patriots in charge of the city was in line with “the principles of heaven and earth.” It said late paramount leader Deng Xiaoping defined patriots as those “who loyally support China’s exercise of sovereignty over Hong Kong, and those who do not impair [its] prosperity and stability.”

500 people holding an overnight sit-in after the rally in the central business district were arrested.

Editorial / Wall Street Journal

“About half a million people marched through downtown Hong Kong Tuesday with a message for Beijing: We won’t accept sham democracy. The high turnout reflects anger that China’s central government is backtracking on its promise to hold a free and fair election for the city’s chief executive in 2017.

“Tuesday’s rally followed a 10-day unofficial referendum organized by the pro-democracy coalition Occupy Central With Love and Peace. Hong Kong residents were invited to support several different nomination systems other than those put forward by pro-Beijing parties. Nearly 800,000 people, or 22% of the electorate, participated....

“The referendum also affirmed that most Hongkongers want to see a compromise with Beijing rather than confrontation....

“Driving turnout for the referendum and the march was a white paper issued last month by China’s State Council condemning Hongkongers’ ‘wrong views.’ It underscored Beijing’s ‘comprehensive jurisdiction’ over the city’s 7.2 million residents, and demanded patriotism – that is, subordination to the Communist Party – from local officials and judges....

“If in the coming months Beijing refuses to compromise in the face of peaceful demands to keep its promises, civil disobedience may be justified. In that event, Hong Kong’s civic leaders will deserve the world’s support.”

I first told you months ago this is going to get very ugly. It’s inevitable. I also continue to believe it has the potential to rock the Chinese mainland.

The Chinese government mouthpiece, the Global Times, warned on Wednesday that Hong Kong faces becoming the next Ukraine or Thailand if it embraces a period of “political upheaval.”

We also learned today, Friday, that five protest organizers were arrested for obstruction of police duties, which is an outrage, though the charges should be minor. Also, the 500 detained for the sit-in were released without being charged. Another demonstration is set for later in the year.

[As to the term “Hongkongers,” the Journal labels them “Hong Kongers.” I am sticking with the former as written in the South China Morning Post, which is out of Hong Kong.]

On another issue, a leading Chinese analyst told the Sydney Morning Herald’s John Garnaut that political leaders in Beijing are committed to a strategy that will cause territorial disputes to get worse.

As reported by Garnaut: “The result,” said Professor Shi Yinhong of People’s University, “was that leaders on all sides were locked into self-reinforcing cycles of aggression, with U.S.-anchored ‘defensive’ coalitions perceived to be ‘offensive’ in Beijing.

“He said China would continue on its current trajectory because of popular nationalism, dynamics within the armed forces ‘and of course also our top leaders’ personal beliefs and strategic personalities.’

“And that’s why the increasingly militarized disputes across the East China Sea, the South China Sea and also along the spine of the Himalayas are going to get worse.

“ ‘This kind of tension between China and the U.S. and U.S. allies will deteriorate rather than improve,’ said Professor Shi.”

Meanwhile, Chinese President Xi Jinping began a state visit to South Korea on Thursday, in a move clearly designed to drive a wedge between Washington and Seoul.

Interestingly, Xi has yet to go to Pyongyang, nor has he invited Kim Jong-un to Beijing.

Xi’s visit is also days after Japan amended its pacifist Constitution to allow its military to assert itself abroad, which isn’t going over well with both China and South Korea. So a great opportunity for Xi on many levels.

Earlier, last Sunday, Xi vowed that no violations of territorial integrity will be tolerated and, in a veiled attack on the United States, said no nation should be allowed to monopolize global affairs.

Individual nations should be allowed to choose their own path of development, and China opposed the overthrow of legitimate governments of other nations out of “selfish interests.”

Xi added a “new architecture of Asia-Pacific security” was needed.

Back to Japan, the Cabinet resolution lifting the ban on “collective self-defense,” or aiding a friendly country under attack, was welcomed in Washington.

Chinese Foreign Ministry spokesman Hong Lei told a news conference in Beijing: “China opposes the Japanese fabricating a China threat to promote its domestic political agenda.”

Japanese conservatives say the Constitution’s war-renouncing Article 9 has excessively limited Japan’s ability to defend itself and that a rising China means Japan’s policies must be more flexible.

North Korea: Pyongyang, crying for attention, concluded its third missile test in the past week on Wednesday by firing two short-range rockets from a launcher into the Sea of Japan. On Sunday, the North fired two short-range ballistic missiles, thereby violating a U.N. ban. [The ban doesn’t include the kind of launchers used Wednesday.]

And then Pyongyang announced it was prepared to indict two Americans detained on charges of unspecified “hostile acts” against the country. North Korea has also been holding U.S. tour operator Kenneth Bae since late 2012.

Ukraine: The foreign ministers of Ukraine and Russia backed a new cease-fire plan Wednesday as a Kiev government assault apparently drove separatists from their stronghold in the city of Donetsk.

On Monday, President Poroshenko let a unilateral cease-fire expire (one in which 27 Ukrainian troops had been killed during the “truce”) and re-launched a government offensive across the eastern part of the country.

Donetsk had been an industrial city of one million before the separatists moved in three months ago and much of the civilian population has fled. A reported tens of thousands have crossed into Russia from the Donetsk and Luhansk regions. According to the U.N., some 110,000 Ukrainian refugees have gone to Russia since the start of the year, while 54,000 have left their homes and moved elsewhere in Ukraine. Needless to say, this rancor doesn’t bode well for the Kiev government even if it does fully retake the east. The pro-West government is having difficulty rebuilding trust.

On Thursday, Poroshenko shook up his Defense Ministry, appointing new leadership throughout the ranks. Intelligence leaks have been leading to ambushes of Ukrainian soldiers, let alone the longtime issue of corruption in the military. Poroshenko vowed to create armed forces “capable of fighting and winning.” The new Defense Minister, Valeriy Heletey, has promised the army would retake Crimea.

As for Vladimir Putin, he is still smarting from Ukraine’s entrance into a new trade agreement with the European Union two weeks ago, while expressing his “deep concern about the rise in deaths among the civilian population and sharp increase in refugees.”

The death toll in the fighting since April is approximately 1,250, according to various sources; made up of 200 Ukrainian soldiers, 250 civilians, and a reported 800 rebels.

Meanwhile, the flow of tourists to Crimea has dropped 35% in the first half of this year. Traditionally, 2/3s of the 6 million tourists that travel there came from Ukraine.

Finally, five journalists have been killed in Ukraine covering the conflict.

France: Ex-President Nicolas Sarkozy was placed under formal investigation for influence peddling, with Sarkozy saying the case against him was “grotesque” and that he is being used for “political ends.”

It is alleged Sarkozy sought insider information from a judge about an inquiry into illegal campaign funding and the allegations are a major blow to his dreams of challenging again for the presidency in 2017.

In a television interview, Sarkozy said: “I say to all those who are listening or watching that I have never betrayed them and have never committed an act against the Republic’s principles and the rule of law.”

Sarkozy was also angered by the way he was rounded up and detained, saying there “was an intention to humiliate” him.

The former president blames left-wing elements in the justice system, including one judge who is a member of a left-wing trade union which was openly hostile to Sarkozy when he was leading the country.

A judge will now determine whether there is sufficient evidence to charge him, and were he convicted at trial, influence-peddling can lead to a prison sentence of up to 10 years.

Sarkozy was president from 2007 to 2012 and the inquiry is examining whether he received illegal donations for the 2007 campaign from the late Libyan leader Muammar Gaddafi.

Brazil: I wasn’t going to comment on the conduct surrounding the World Cup until it was over, and I will still hold off on making any broad, sweeping statements, but what a tragic embarrassment to have that construction accident in Belo Horizonte, where Tuesday’s semifinal is scheduled to be played.

An overpass, that was supposed to have been completed before the Cup started, but wasn’t, collapsed onto several vehicles, killing at least two and injuring numerous others.

At least eight construction workers died building the 12 stadiums that are being used for the tournament.

Random Musings

--According to the latest Quinnipiac University survey, President Obama has a 40% job approval rating, with 53% disapproving. Only 37% approve of his handling of foreign policy, a low, with 57% disapproving. The negative rating on the president’s handling of ObamaCare is 40-58.

When asked who was the worst president, post-World War II, Obama now leads at 33%, though I don’t put much stock in this one since most of those being polled haven’t a clue when it comes to history.

One survey question that was interesting, however, is the sentiment that the country would be better off with Mitt Romney as president by a 45-38 margin. That bodes well for Republicans come November.

--President Obama announced he would begin using his executive authority to bolster the border after declaring Republicans were responsible for killing any chances of immigration reform this year.

“America cannot wait forever for them to act,” Obama said of Republican lawmakers. “That’s why today I’m beginning a new effort to fix as much of our immigration system as I can on my own, without Congress.”

Aside from some tweaks to the administration’s existing deportation procedures with the recent wave of children crossing the border, it’s unclear what else he is prepared to do.

Immigration reform was Obama’s top legislative priority this year, so further delay is a win for conservatives who saw the granting of legal status to those living in the U.S. illegally as amnesty. It also avoids a bruising battle in an election year.

But Republicans still have the same problem – attracting more of the Hispanic vote.

However, support for President Obama overall has been plummeting among Hispanics, as noted in this space earlier in the year. At the same time, business groups are increasingly miffed at Republicans, particularly in the House. 

And as for the communities along the border, and those miles away suddenly being forced to take in the latest influx, well you’ve seen the stories. It’s getting ugly.

Obama does need Congress’ support for his separate request for $2 billion to help officials deal with the immediate issues.

Editorial / Wall Street Journal

“Immigration reform has finally collapsed in Congress for this year, and President Obama and House Republicans are both responsible. The larger loss is for America’s economy and dynamism, but as a political matter Republicans are likely to pay the steeper price.

“On Monday Mr. Obama chastised Republicans for the failure, but it took two not to tango. The President now says he’ll act unilaterally, but his threat all along that he would do so is one reason so many Republicans concluded that they couldn’t trust him to honestly implement any reform. One price of Mr. Obama’s legal abuses is that few in Congress think he will faithfully execute any law as written.

“The President is also responsible for the current spectacle of federal incompetence at the border with Mexico....

“Immigration reform requires some confidence that the federal government can police the border, implement E-Verify for new business hires, and manage revamped guest-worker programs. The televised sight of chaos on the border has been a godsend to GOP nativists.

“Many Democrats also didn’t really want reform. They’d rather retain the issue as a political bludgeon to further portray Republicans as anti-Hispanic and anti-Asian. They figure this will drive Democratic turnout in a few key Senate races in November, and all but guarantee a Democratic presidential victory in 2016. They’re delighted to change the campaign subject from the VA, ObamaCare, the IRS and the summer of jihad to the GOP’s anti-immigration wing.

“Yet none of that absolves the House GOP from failing to even hold a reform vote this year. Immigration and trade are the two pro-growth issues on which a bipartisan compromise should be possible, and the Senate proved it by passing its bill last year....

“The fallout from failure now will be more partisan blame-shifting and suspicion. The President will try to please his base, and bait the GOP’s restrictionist wing, by easing deportations by executive order as the election nears. Many Republicans will take the bait and overreact, increasing the perception of the GOP as hostile to minorities....

“Meanwhile, the American economy will be the biggest loser....

“At the low-wage end of the economy, jobs go begging in agriculture, hospitality and in some places construction. At the high end, the U.S. needs more engineers, software designers, biologists and so much more. America’s loss of human capital will become the rest of the world’s gain, as potential immigrants return to China and India or settle in Canada or Australia. An America growing at a dispiriting 2% for five years amid declining real incomes needs better from its political class.”

--President Obama nominated former Procter & Gamble CEO, Bob McDonald, to take over the Department of Veterans Affairs. McDonald is a West Point graduate who served in the Army for five years before embarking on his career at P&G.

While the pick has been largely praised, some are concerned that McDonald has no medical background.

--The Supreme Court ruled 5-4 that corporations can hold religious objections that allow them to opt out of the ObamaCare requirement that they cover contraceptives for women. The ruling means the administration must find other ways of providing free contraception to women who are covered under objecting companies’ health insurance plans.

Whereas two years ago, Chief Justice Roberts cast the pivotal vote saving ObamaCare in the midst of the 2012 campaign, on Monday, he sided with the four justices who would have struck down the law in its entirety.

The Court stressed the ruling applies only to corporations under the control of a small number of people, in this case the craft-store chain Hobby Lobby Stores Inc.

More broadly, the decision marks an expansion of corporate rights. Justice Samuel Alito, writing for the court, noted safeguarding the religious rights of corporations “protects the religious liberty of the humans who own and control those companies.”

Writing for the minority, Justice Ruth Bader Ginsburg said: “The court, I fear, has ventured into a minefield” in that it could foster employee objections to other types of health-care coverage.

White House spokesman Josh Earnest told reporters the decision “jeopardizes the health of women” and added, “We will work with Congress to make sure that any women affected by this decision will still have coverage.”

--The Centers for Medicare and Medicaid Services told the New York Post that only 425,000 of 2.9 million problematic applications for ObamaCare where “inconsistencies” existed have been resolved, leaving 85% that have not after nine months of trying.

As reported by Geoff Earle, “Most of the problems involve certifying citizenship and income, key components of the national health plan....

“In 77% of the applications under scrutiny, federal records differed from what applicants submitted on those two key qualifications.”

--Michael Goodwin / New York Post

“Say this for President Obama: He’s got an uncanny ability to block out distractions and keep his eye on the ball.

“Facing a horrific expansion of terrorism in the Mideast, a meltdown of public support at home and major rebukes by the Supreme Court, the president remains fixated on No. 1.

“ ‘I’m finding lately I just want to say what’s on my mind,’ he told a Minneapolis audience Friday, and then ticked off a series of complaints about – surprise – Republicans.

“ ‘They don’t do anything, except block me and call me names,’ he said. ‘If they were more interested in growing the economy for you and the issues that you are talking about instead of trying to mess with me, we would be doing a lot better.’

“He wasn’t finished: ‘The critics, the cynics in Washington, they’ve written me off more times than I can count. But cynicism doesn’t invent the Internet. Cynicism doesn’t give women the right to vote.’

“There you have it: the presidential mind in Year 6. Don’t cry for Argentina – cry for me!

“Self-pity is never admirable in a public figure, but it seems to be Obama’s default emotion when the going gets tough. Because everything is about him, the whole world is personal.

“He is a victim of a vast conspiracy that includes everything from global upheaval to a domestic mood going from simmer to boil. If only everybody would just shut up and do what he says, all would be well.

“Alas, Obama is right about one thing. His presidency and the country are at a crossroads. The problem is that his response – woe is me – means things almost certainly will get worse before they get better.”

--Edward Luce / Financial Times

“In much of the world, the Predator drone symbolizes U.S. power. It is ubiquitous, stealthy and can strike at any moment. They patrol the skies of central Asia, North Africa, the Arabian peninsula – and now Iraq. Other countries have nuclear weapons and aircraft carriers. But nobody else can match the lethal ingenuity of America’s Hellfire missile. Little surprise that two U.S. presidents – George W. Bush, and now Barack Obama – have resorted to them so frequently. But their heyday is waning. America’s unipolar drone moment is ending.

“Mr. Obama’s chief problem is their speedy adoption around the world. Unlike nuclear weapons, there is no treaty governing the use of military drones. For roughly a decade, the Central Intelligence Agency has been able to strike targets pretty much with impunity – and blanket deniability. Of America’s partners, only the UK has been deemed fit for export. But others, including Iran, whose drones also patrol the same Iraqi skies as their U.S. counterparts, have reverse engineered the unmanned aerial vehicle with relative ease. China is even exporting drones. Last month Saudi Arabia became its first big customer. Within five years, many countries, some of them highly unsavory, will possess military drones, says the Rand Corporation.

“All of which poses a quandary for Mr. Obama and whoever succeeds him.... At the moment, Mr. Obama can order drone assassinations without having to admit it, or explain himself to anyone. Hundreds of militants have been killed in Pakistan, Yemen, and elsewhere. But hundreds more civilians, perhaps thousands, have also been accidentally killed.

“It is inconceivable the U.S. would tolerate another country, even an ally, operating with the same scope and secrecy. Yet it would be ill-placed to object if they did. Imagine if China decided to take out Uighur separatists in Afghanistan or further afield.... As set out last week by the Stimson Center, a security think-tank, China’s president would refuse to acknowledge the strikes on grounds of national security, just like Mr. Obama. The same would apply to Vladimir Putin if he ordered drone strikes in eastern Ukraine. And so on. The threat of drone multipolarity is real – and potentially endless. Yet America’s moral suasion would be worthless....

“Just as education is the answer to the rise of robots in the labor market, so terrorism can only be defeated by intelligence and smarter diplomacy. In the skies, and on the ground, there are no easy answers. With the rest of the world droning up, the U.S. has no choice but to wise up.”

--As reported by the Wall Street Journal, “Bill and Hillary Clinton helped raise more than $1 billion from U.S. companies and industry donors during two decades on the national stage through campaigns, paid speeches and a network of organizations advancing their political and policy goals.”

Needless to say, those deep ties should prove beneficial should Hillary run in 2016. Rick Hohlt, a lobbyist and fundraiser for Republican Party presidential candidates, told the Journal:

“Clinton Inc. is going to be the most formidable fundraising operation for the Democrats in the history of the country. Period. Exclamation point. It sure causes concern.”

The Journal tally includes speaking fees and donations to Bill Clinton’s 1992 and ’96 presidential campaigns; the Democratic National Committee during his eight years in office; Hillary’s bids for Senate and president; and the family’s nonprofit entity – The Bill, Hillary and Chelsea Clinton Foundation.

The Clintons raised between $2 billion and $3 billion from all sources, with between $1.3 billion and $2 billion coming from industry sources.

--The Washington Post reported that among the previously undisclosed speaking fees Hillary Clinton collected was one for $251,000 from a donor fund for Clinton to speak at the Univ. of Connecticut in April. Understand, UConn just raised tuition 6.5%. Clinton also received $300,000 to speak at UCLA in March and is to be paid $225,000 for a scheduled speech at UNLV in October.

At a supposed time of austerity on our nation’s campuses, some student groups and teachers aren’t happy.

Hillary has also been paid for speeches at five other schools this year, including Colgate University, and if she took in her standard $200,000 fee, that would mean she will take in at least $1.8 million in speaking income from universities in the past nine months.

“At UNLV, where officials have agreed to raise tuition 17% over the next four years, student government leaders have written Clinton asking her to return the planned $225,000 fee to the university” and if she does not, they say, they’ll protest her appearance.

--The national Highway Trust Fund’s balance is going to hit zero next month, delaying or reducing significantly future bridge and highway repairs until Congress comes up with a way to boost funding. The Congressional Budget Office estimated the fund will bring in $33 billion in revenue this year and spend $45 billion, mostly in disbursements to the states.    The revenue is from the 18.4-cent-per-gallon gas tax.

Sens. Bob Corker (R-Tenn.) and Chris Murphy (D-Conn.) have proposed slowly raising the gasoline tax and offsetting this new revenue with an extension of unrelated tax cuts.

Others have proposed to dramatically scale back the Highway Trust Fund in favor of giving the states more flexibility to plan and finance their own programs. [Wall Street Journal]

Bottom line...we have an increasingly Third World infrastructure.

--The World Health Organization said the death toll from the largest and deadliest Ebola outbreak ever stood at 467 as of Tuesday, out of 759 known cases. But what’s even worse is that the Red Cross and Doctors Without Borders have had to suspend operations in southeast Guinea because locals are blaming the healthcare workers with spreading the disease. One group of Red Cross workers was surrounded by men with knives and threatened.

This isn’t good. There are more than 60 outbreak sites. The WHO is trying to get national and traditional leaders to send out a message to combat superstition and mistrust, and to convey how important it is for infected people to seek treatment.

Officials say there are dozens of people known to be infected who have run away or evaded treatment centers. [Los Angeles Times]

--Last Saturday, June 28, was the 100th anniversary of the assassination of Austrian Archduke Franz Ferdinand that set in motion the First World War. In ‘celebration,’ Bosnian Serbs unveiled a bronze statue of assassin Gavrilo Princip. He is revered by Serb nationalists who credit him with freeing Bosnia and Serbia from occupation by the Hapsburg and Ottoman empires.

--Regarding Team USA’s performance in the World Cup, it was a nice run, but it’s clear we need to develop some real skill players if we are to ever make the finals. That said, we are all raising our glass to Tim Howard.

--From Sandy Banks / Los Angeles Times:

“America’s doctors have joined the chorus urging parents to read daily to their children, instead of handing over iPads or parking the kids in front of the TV.

“The American Academy of Pediatrics launched its ‘literacy promotion’ campaign this week, citing the influence of early literary experience on children’s brain development and their ultimate academic success.

“The initiative raises the bar for both parents and doctors: Parents should read aloud to their children every day, from infancy until at least kindergarten. Pediatricians should talk about reading at every checkup, and hand out age-appropriate books to low-income patients.”

May I recommend Jeff Pearlman’s “The Bad Guys Won!”...the story of the 1986 New York Mets. Uproarious brawling, boozing and bimbo-chasing.

And Terry Pluto’s “Loose Balls,” the definitive history of the American Basketball Association. Your children will be spellbound at the tales of Marvin “Bad News” Barnes.

Then again, these may not be age-appropriate. Never mind....

--The Defense Department estimates 71% of the roughly 34 million 17- to 24-year-olds in the U.S. would fail to qualify to enlist in the military if they tried, which doesn’t include those that would be turned away for appearance, such as for tattoos.

The biggest issues are medical, including due to obesity, as well as felony convictions and prescription-drug use for attention-deficit disorder.

The U.S. Army enlistment requirements include no tattoos on fingers, neck or face and no ear gauges (that create large holes in earlobes). I saw a service-worker the other day with large holes in his earlobe, an otherwise good-looking and nice guy, and felt like shaking him. “What the heck did you do that for?!” It was uncomfortable to look at.

Major Gen. Allen Batschelet, commanding general of U.S. Army Recruiting Command, told the Journal, “The quality of people willing to serve has been declining rapidly.”

--Staff Sgt. Ryan Pitts is going to be awarded the Medal of Honor on July 21 for his heroism in the Battle of Wanat, Afghanistan, in which nine paratroopers died.

--In reading Army Times I learned of four American servicemen who died in action, stories I had not heard before; combat in Helmand Province, June 20 and 25.

Marine Sgt. Thomas Z. Spitzer, 23, New Braunfels, TX; Marine Lance Cpl. Brandon J. Garabrant, 19, Peterborough, NH; Marine Staff Sgt. David H. Stewart, 34, Stafford, VA; Marine Lance Cpl. Adam F. Wolff, 25, Cedar Rapids, IA. The number of U.S. servicemen and women killed in Afghanistan is now 2,330.

---

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

Happy Birthday, America.
---

Gold closed at $1320 [Thursday’s close]
Oil $104.07

Returns for the week 6/30-7/4

Dow Jones +1.3% [17068]
S&P 500 +1.3% [1985]
S&P MidCap +1.2%
Russell 2000 +1.6%
Nasdaq +2.0% [4485]

Returns for the period 1/1/14-7/4/14

Dow Jones +3.0%
S&P 500 +7.4%
S&P MidCap +7.6%
Russell 2000 +3.8%
Nasdaq +7.4%

Bulls 57.6
Bears 16.1 [Source: Investors Intelligence]

Dr. Bortrum posted a new column.

Have a great week. I appreciate your support.

Brian Trumbore