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08/09/2014

For the week 8/4-8/8

[Posted 12:00 AM ET]

Edition 800

Washington and Wall Street

From an NBC News/Wall Street Journal survey:

64% of Americans are dissatisfied with the economy, 35% satisfied.

76% of adults lack confidence that their children’s generation will have a better life than they do – an all-time high.

71% think the country is on the wrong track, up 8 points just since June.

60% think the U.S. is in a state of decline.

President Obama has a 40% approval rating, a new low in the survey, while his disapproval rating of 54% matches a previous high.

36% approve of Obama’s handling of foreign policy, compared with the 60% who disapprove – his worst-ever marks....and before this week’s awful news.

In world affairs, 19% believe the U.S. should be more active, 47% think we should be less active. That’s about leadership, or lack thereof.

Sen. Bob Corker (R-Tenn.) / Washington Post...written prior to the administration moves in Iraq.

“Those around the world who are looking to the United States for support against intimidation, oppression or outright massacres have learned a tough lesson in the past few years: This U.S. president, despite his bold pronouncements and moral posturing, cannot be counted on.

“In Syria, President Obama declared that the brutal dictator Bashar al-Assad ‘must go.’ The U.S. ambassador in that country and other administration officials openly encouraged opposition groups campaigning against the Assad regime. Yet when it came time to organize and provide lethal assistance to moderate opposition groups to help defend them against Assad’s attacks, the president turned away....

“In the absence of a U.S.-led effort to empower moderates, other regional powers began to fund extremists. Now, responding to the slaughter on the ground and congressional initiative, the administration has endorsed more overt assistance, but with no useful details and no sense of urgency. It appears it could be way too little and way too late....

“Today, after three years of bold rhetoric divorced from reality, 170,000 Syrians are dead, and we are not innocent bystanders. The president encouraged the opposition to swallow deadly risks, then left them mostly hanging. Extremist groups from Syria have surged into Iraq, seizing key territory and resources, and are threatening to completely undo the progress of years of U.S. sacrifice....

“The president’s empty promises and unreliability are at their most acute in Eastern Europe. Our tepid response to Russian aggression in Ukraine for nearly five months emboldened Putin, directly and undermining U.S. interests and making Europe, and thus the United States, less secure....

“I support the president’s desire to avoid ‘stupid’ wars and to ‘steadily advance the interests of the American people and our partnership with folks around the world,’ but, time and again, this president proves that he is uncomfortable being commander in chief and implements policies unsteadily and at odds with his stated goals, further undermining our credibility with these very partners. More often than not, the president doesn’t hit singles and doubles; he just balks.

“This is an unfortunate learning moment for those counting on support from the United States in the Middle East, in Europe and everywhere else. But under this president, it’s just where we are. It is hard to watch.”

Back in January, the New Yorker’s David Remnick interviewed President Obama. It took me a awhile to get around to reading the lengthy piece, but on 3/27/14 in my “Hot Spots” column I quoted Obama saying what is now becoming an albatross around his neck.

Speaking of ISIS, which in January was better known as an al-Qaeda faction, the president said of them as they flew their flag over Fallujah:

“The analogy we use around here sometimes, and I think is accurate, is if a jayvee team puts on Lakers uniforms that doesn’t make them Kobe Bryant. I think there is a distinction between the capacity and reach of a bin Laden and a network that is actively planning major terrorist plots against the homeland versus jihadists who are engaged in various local power struggles and disputes, often sectarian.”

Well, after ISIS terrorized millions in Syria and now Iraq, displacing at least 200,000, killing thousands, and directly threatening 40,000 on a mountain, with families already burying the dead in shallow graves due to starvation and lack of water, Obama went before the American people on Thursday night and said some of the following:

“I ran for this office in part to end our war in Iraq and welcome our troops home. I will not allow the United States to be dragged into fighting another war in Iraq, so even as we support Iraqis as they take the fight to these terrorists, American combat troops will not be returning to fight in Iraq.”

And this:

“Earlier this week, one Iraqi cried that there is no one coming to help. Well, today America is coming to help.”

I immediately thought of Syria. I wrote two years ago, this month, that we had blown it there. ‘It was over.’ Obama was sending up straw men, that his opponents wanted an invasion of Syria, while I, and a few others, was calling for the establishment of a no-fly zone, that then ally and NATO member Turkey was pleading for. The White House countered Americans would be put at risk.

I have written at least 25 times since then that Syria is Obama’s legacy.  167,000 of the estimated 170,000 dead have come since the summer of 2012.

So it’s sickening to hear the president say on Thursday, “Today America is coming to help.”

I have written countless times that it’s always been about Syria. From that civil war, all other chaos has flowed.

But today we have yet another line in the sand, Irbil. Will we truly commit to help the Kurds? By the time needed military aid arrives, will it be too late? 

Can we even save the Yazidis? The Pentagon couldn’t find nine of the first pallets we dropped in our airlift.

What a depressing time. A terrorist threat that is growing exponentially, Christians being exterminated throughout the Middle East, trade wars, worsening cyberespionage, looming fullscale cyberwarfare, an electrical grid that is massively exposed, an ill-informed, grossly apathetic people that is “tired of war,” but was never asked to sacrifice, and a president who is now threatening the likes of James Buchanan as worst this nation has ever had.

President Obama with his new actions in Iraq is simply flailing away. It’s embarrassing. It’s dangerous. 

---

Turning to the U.S. economy, after the crush of data the prior week, there was a limited amount this past one, with June factory orders up a better than expected 1.1%, while the July ISM reading on services was 58.7, the strongest since December 2005.

Aside from the impact of geopolitical events, it’s still about the Federal Reserve and when it will be forced to hike the funds rate off the zero level. According to the latest survey of economists for the Wall Street Journal, GDP is pegged at just shy of 3% in the third and fourth quarters, which would put growth over the full year at 2%.

Europe and Asia

The European Central Bank held the line on interest rates for a second consecutive month and President Mario Draghi insisted the eurozone’s recovery remained on track, while admitting threats to growth were “heightened” by crises in Ukraine and the Middle East. The trade war between Russia and the West could be a killer.

Draghi was hardly reassuring, especially given some of the recent data, and he had to acknowledge that eurozone momentum had weakened in the second quarter amid the rise in political tensions.

“There is no doubt that if you look at the world today, you’ll see that geopolitical risks have increased all over the world: we have the Russian-Ukrainian crisis, Iraq, Gaza, Syria, and Libya,” said Draghi. “And some of them, like the situation in Ukraine and Russia, will have a greater impact on the euro area than they certainly have on other parts of the world.”

Draghi also blamed euro governments for failing to boost reforms, especially in Italy, which fell back into recession in the second quarter, we learned this week; Draghi saying Italy, the eurozone’s third-largest economy, was suffering from excessive business regulations. And he called out France’s Francois Hollande, who wants more ECB action, while Draghi says this will do little to help France unless Hollande’s government tackle’s structural economic flaws.

Regarding the euro currency, which has finally fallen a bit against the dollar since the start of June, a needed occurrence for eurozone companies dependent on exports, Draghi said:

“Markets have perceived that....monetary policies in the euro [area] and the United States are, and are going to stay, on a diverging path. The fundamentals for a weaker exchange rate are much better than they were two or three months ago.”

Euro area bond yields hit historic lows, with the 10-year German bund hitting a low of 1.02%, before closing the week at 1.05%. Germany’s two-year note traded with a negative yield, meaning investors holding to maturity will receive less than they paid to buy it.

France’s 10-year hit a new low, 1.46%. The Netherlands is at 1.24%. Finland, which has all kinds of economic problems (see “Russia” discussion) nonetheless saw the yield on its 10-year at 1.17%. Insane.

But there was a little sanity in some market action. The difference (spread) between German bunds and the 10-year bonds of the periphery nations widened. Spain’s 10-year finished the week at 2.55%, just a slight improvement on the week, while Italy’s ended up unchanged at 2.81%, meaning the spread widened with Germany, as it should. Of course rates for Italian and Spanish paper are still far too low vs. reality, but for now they continue to be seen as “safe havens” given the investment alternatives.

To beat a dead horse, if Europe grows, including in Italy, they’ll be able to service their debt. If the economies don’t grow, and Italy sure hasn’t, then the day of reckoning in the credit markets will yet come...all over again.

Eurozone GDP figures are due out next week and there is no cause for optimism.

Some specifics....

In Italy, GDP in the second quarter fell 0.2% after a 0.1% decline in the first, thus attaining the classical definition of recession, two consecutive quarters of negative growth. 39-year-old Prime Minister Matteo Renzi’s reform program is falling flat and the people are growing restless. Last week I noted how unemployment is actually rising in Italy, especially among the young.

Italian bank, Monte dei Paschi di Siena, the world’s oldest surviving bank, reported a larger-than-expected loss, $240 million for the second quarter, three times what analysts’ forecast and the bank’s ninth consecutive quarterly loss.

But on Friday, senators in Italy did vote in favor of sweeping reforms that could lead to dramatic reductions in the size and power of the upper house of parliament, which Renzi has been highlighting as part of his plan to lift the economy out of its doldrums. [I’m not an expert on Italian parliamentary politics but it seems the passage of a reform bill may still require a referendum and the issue isn’t over.]

The Bank of Italy lowered its growth forecast for this year to 0.2 percent, less than a third of its previous prediction.

Portugal’s Banco Espirito Santo collapsed, with Portugal’s central bank creating a new company to house BES depositors, employees, and senior creditors...the good bank...while the second company, the bad bank, will hold all the crapola (such as BES’ investment in agriculture, the health sector and Angola), with equity and junior bondholders suffering mightily, though to what extent won’t be known until the assets in the bad bank are disposed of. BES had been Portugal’s largest listed lender, but the shares were delisted. 

Portugal’s central bank governor said “The plan carries no risk to public finances or taxpayers. There was an urgent need to adopt a solution to guarantee the protection of deposits and assure the stability of the banking system.”

[Draghi said the collapse of BES would not require taxpayer funds nor inflict damage on the overall financial system in the eurozone.]

The Portuguese government is funding the good bank (Novo Banco) with 4.9bn euro from its bailout fund. Eventually the good bank gets sold off and the loan is repaid...at least that’s the plan.

But as I’ve said many times before, it’s about a total lack of transparency, not just with BES, but with many of Europe’s banks...and not just in the periphery. They simply aren’t as strong as U.S. banks, period, and there will be many more BES-type situations to come if the eurozone economy continues to stagnate rather than grow at a solid clip.

Germany reported a huge plunge in factory orders for the month of June, down 3.2% from May, as Russian sanctions were beginning to bite. Exports fell 4.1% in June over May, down 10.4% to the euro area. Some are saying the German economy contracted in the second quarter.

A Markit (sic) barometer of retail sales in the eurozone in July hit a 14-month low at 47.6. France was at 45.6; Italy at 43.4.

A final reading on the services PMI for the eurozone in July was 54.2.

The U.K., though, saw its July services PMI soar to 59.1 from 57.5 in June. Industrial production was up 0.3% in June from May. And new home prices rose to a record in July, according to Acadata; up 9.9% year over year.

Finally, on the issue of anti-Semitism in Europe, Britain’s Foreign Secretary Phillip Hammond said the other day in an interview with the Sunday Telegraph that he has already “seen an upturn in anti-Semitic rhetoric” as a result of Israel’s offensive in Gaza.

Hammond said the British public is “deeply disturbed” by the suffering of the people of Gaza.

“The British public has a strong sense that the situation of the civilian population in Gaza is intolerable and must be addressed – and we agree with them.

“What has struck me most looking at my own constituency in-box as well as the thousands of emails that I’m receiving from the general public here is that it isn’t just the Muslim community that’s reacting to this. It’s a broad swathe of British public opinion that feels deeply disturbed by what it is seeing on its television screens coming out of Gaza,” Hammond told the Telegraph.

A UK Jewish advisory body said last week that anti-Semitic incidents in Britain had risen to a near-record level, as reported by the Jerusalem Post.

A story in The Economist noted the following:

“Israel remains much surer of its friendship with America. But even here, tempers have frayed....

“Polls show that Americans overwhelmingly sympathize with Israelis more than with Palestinians... But they also show a widening generational split. Younger Americans are far likelier than older ones to say Israel is more responsible than Hamas for the fighting in Gaza. [Ed. thanks to the vile Internet.] A recent Gallup poll found a majority of those under 30 thought Israel’s actions in Gaza unjustified. Baby-boomers whose views were shaped by Israel’s wars against Soviet-aligned Arab states in 1967 and 1973 may still see Israel as a plucky little David standing up to Goliath. But for many younger Americans, who have mainly seen a powerful Israel occupying the West Bank and battering Hamas, the picture is different.”

This week I received a report from an old friend, Bob C., who I’ve known about 40 years. Naval Academy grad, Marine, fighter pilot...now a commercial airline pilot for a major carrier...who just came back from Ireland, a first for his family as they explored their family roots. I had given Bob my advice on his trip route and was awaiting his thoughts. He included the following:

“Huge amounts of anti-Semitism, both in person in Ireland and on all sorts of different European T.V. stations, bubbled up to the surface with the Israel-Gaza gig going on... Un(believable)! We’ve got to get our heads on straight and realize Hamas and others have been using mosques, schools, children, etc. to shield themselves from getting their butts whipped for as far back as when I first joined the Marine Corps. The press coverage and blatant anti-Semitism was disgusting!”

I’ve written of this looming threat, now obviously growing in a big way, for years. 

Next week, I’m letting loose. 

Turning to Asia, in China, the July services PMI was 54.2 vs. 55.0 in June and a 6-month low. HSBC’s own July services reading was down to 50.0 from 53.1 in June, a record low since HSBC began tracking this in 2005.

Falling home prices and declining new construction continue to hit the economy.

But China did report an unexpected surge in exports for July, up 14.5% from a year earlier, double expectations, while imports dropped 1.6%, resulting in a record trade surplus of $47.3 billion for the month.

Exports to the European Union rose 17% from July 2013, and shipments to the U.S. jumped 12.3%, the best performance here since November. Exports to the rest of Asia increased 11.9%.

Put it all together, including an earlier reading on manufacturing in China that showed marked improvement, and you have a mixed picture.

Separately, the Chinese government excluded Apple iPads and MacBook laptops from the list of products that can be bought with public money because of security concerns amid escalating tensions between Washington and Beijing over claims of hacking and cyberspying. Earlier, Microsoft’s Windows 8 operating system was excluded from government purchases.

In Japan, there are growing signs the rebound from April’s sales tax hike is anemic, far worse than the government of Shinzo Abe expected, and needs.

Street Bytes

--The Dow Jones and S&P 500 broke two-week losing streaks solely on the heels of Friday’s strong rally, precipitated solely by rumors of de-escalation in Ukraine, with the Dow finishing up 0.4% to 16553, while the S&P gained 0.3%. Nasdaq advanced 0.4% on the week.

--Richard Morgan / New York Post, on one of my favorite topics, financial engineering.

“S&P 500 companies have allocated twice the cash to buybacks than to dividends in the first quarter, statistics show. There were $82 billion in dividends paid in the three months ended March 31.

“Indeed, of the $3.70 gain in S&P 500 operating EPS between the third quarter of 2011 and the first quarter of 2013, less than half, or just $1.50, was attributable to organic growth, according to a study by J.P. Morgan.  The remaining $2.20 – or 60 percent of the EPS gain – was the result of buybacks.”

Apple...IBM...those are some of your poster childs.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.44% 10-yr. 2.42% 30-yr. 3.23%

The 10-year broke out of its 2.44% - 2.66% trading range as the yield fell to 2.36% by Friday morning in a flight to safety, but then rose to 2.42% by day’s end with the seemingly better news from Ukraine and the rally in equities.

--Fed Chair Janet Yellen said the other day that valuations for high-yield, junk bonds “appear stretched” and the past week saw record withdrawals from mutual funds and exchange traded funds that buy such securities; $7.1 billion worth for the week ended Aug. 6, according to Lipper data. That is the fourth straight week of redemptions from junk bonds. Average yields on the paper have jumped from a record low of 4.82% in June to 5.78% on Thursday. [Vivianne Rodrigues / Financial Times]

--The World Health Organization declared the worst Ebola outbreak on record is an “extraordinary event” and a public health risk to other countries.

“The possible consequences of further international spread are particularly serious in view of the virulence of the virus. A coordinated international response is deemed essential to stop and reverse the international spread of Ebola.” 932 had died as of Aug. 6.

I’ve been writing that it’s the threat to the regional economy that is a huge concern and as this current epidemic represents the first time Ebola has appeared in West Africa, the likes of Liberia, Sierra Leone and Guinea were totally unprepared and their health systems are overwhelmed.

Health-care workers also aren’t taking appropriate precautions. At least six who came in contact with Liberian-American consultant, Patrick Sawyer, who got sick during his air travel between Monrovia, Liberia, and Lagos, Nigeria, have been confirmed as infected and isolated. At least one has died, as did Sawyer.

Clearly, the two Americans now being treated in Atlanta made basic mistakes to catch it themselves. These workers are under unbelievable stress, with few breaks, and in many working with inferior equipment, and mistakes are being made, many probably because they’re just plain tired. Like a tired pilot or driver.

Also, a lack of border controls has allowed infected people who didn’t seek medical attention, for various reasons, including suspicion and fear, to travel freely between countries.

Finally, as for the “secret serums” being employed and tested, it is far too early to say any of them are the cure, even if the two Americans, for example, who are being treated with ZMapp, recover. It’s possible they would have recovered on their own. Not everyone dies that comes down with Ebola, remember. You need full clinical trials to prove the efficacy.

--Bank of America and the Justice Department are closing in on a deal in which the bank will pay $16 billion to $17 billion to resolve mortgage-related misconduct in the run-up to the financial crisis. This would set a record for fines and damages in a civil settlement between the U.S. government and a company, eclipsing a $13 billion deal struck between the Justice Department and J.P. Morgan Chase & Co. in a similar mortgage-related case.

BofA’s legal tab could now be as high as $23 billion after an earlier $6 billion settlement with the Federal Housing Finance Agency over other mortgage issues.

Editorial / Wall Street Journal

“If you thought the last financial crisis was expensive, wait until taxpayers see how much it costs to rescue banks when they have to do it all on their own. The U.S. Department of Justice aims to extract as much as $17 billion from Bank of America for the crime of taking problems off Washington’s hands in 2008.

“Regulators were high-fiving when the bank bought Countrywide Financial and then Merrill Lynch during the crisis. But now Washington seems intent on making bank shareholders pay again for the problems that caused these firms to need a rescue in the first place. Come the next crisis, CEOs will know to run in the other direction when the government offers a deal on a failing firm. And when private capital flees, guess whose money will be used to prop up the banking system.

“In some earlier post-crisis settlements, the feds at least pretended that the cases were about making mortgage investors or borrowers whole. But the pending Bank of America settlement appears to consist largely of a penalty for alleged mortgage sins committed by the two failing companies the feds wanted the bank to buy, and in one case pressured it to buy.

“The new game at Justice seems to be to come up with a big dollar figure to be paid by bank shareholders – big enough to persuade progressives that the department is being tough on Wall Street – and then fill in the blanks on the alleged legal violations. So we can’t say for sure what the final deal will claim the bank did. But BofA must be taking the fall for Countrywide and Merrill Lynch because the bank itself originated only 4% of the bad mortgage paper for which it is now responsible....

“Bank of America finished repaying its $45 billion in TARP loans in 2009. But we wonder if its shareholders will ever stop paying Washington for the deals Washington wanted – and even demanded – during the crisis.”

--Malaysia Airlines, which has been teetering financially after two catastrophic disasters in four months, MH370 and MH17, is being taken private by Malaysia’s sovereign wealth fund in a rescue plan where the airline will be restructured and its shares delisted.

Minority shareholders will receive a small premium to the recent closing price, though 29% over the average-weighted price of the past three months. [But we’re still talking pennies.]

The sovereign wealth fund, Khazanah, already owned 69% of the airline and it said, “Nothing less” than a complete overhaul is required to save a national emblem of the country’s success going back to the 1980s.

Malaysia Airlines’ board still must approve the proposal. The airline, post MH17, was burning through $1.6 million a day.

--Ed Hammond / Financial Times

“Tuesday, August 5, 2014 is likely to go down as one of the darker days in the history of Wall Street’s mergers and acquisitions market.

“In the space of a few fraught hours, bid proposals worth more than $100 billion collapsed, sparking concern about the sustainability of a transaction boom that has gathered pace since the start of the year.”

First, you had 21st Century Fox’s $71bn attempt to buy Time Warner, called off by Rupert Murdoch, who blamed the death of the deal on Time Warner’s refusal “to explore an offer which was highly compelling.”

Murdoch had announced three weeks earlier he was going after Time Warner. In response to his pulling back Time Warner shares fell 14% immediately. Fox’s shares rose 7%.

Then, two hours later, Sprint, and its Japanese investor, walked away from an informal bid to acquire rival carrier T-Mobile USA.

But here, the issue seems to have been regulators more than anything else, seeing as a deal would have merged the third- and fourth-largest mobile phone operators.

--With the collapse of the Time Warner / Fox, and Sprint / T-Mobile deals, Wall Street banks such as Citigroup, Goldman Sachs and J.P. Morgan Chase have lost out on an estimated $400 million in investment banking fees.

--Time Warner CEO Jeff Bewkes argued Time Warner’s own growth plan will create more value than any proposal Rupert Murdoch had to offer. Time Warner’s earnings exceeded analyst expectations, up 10%, though revenues, up 3%, missed. 

21st Century Fox saw its net income fall 1.1% for the quarter, but revenue soared 17% from a year ago on the strength of global box office successes, including “X-Men: Days of Future Past” and “Rio 2.”

--Netflix’ subscriber revenue was greater than Time Warner’s HBO unit for the first time ever last quarter, a major coup for Netflix CEO Reed Hastings. Just two years ago, HBO had nearly double Netflix’ subscriber revenue.

--CBS reported earnings that exceeded Wall Street’s expectations, thanks to financial engineering (stock buybacks, which the company announced it was doubling), even as CBS suffered on the advertising side from the loss of the NCAA college basketball semifinals. Revenue fell 5.4% in the quarter from a year ago.

--Walt Disney Co. said fiscal third-quarter earnings rose 22% on double-digit revenue increases, beating expectations. The Studio division continues to benefit from the animated blockbuster “Frozen.”

--Re/code reports Apple’s iPhone 6 will be launched Sept. 9. The screen size will be stretched from 4.7 to 5.5 inches and have a faster processor.

--Canada and the European Union have agreed to the final text for a free trade agreement that will cut tariffs between the two by 98% and could boost trade by 20%, or about $20 billion. This also might provide a blueprint for a final deal between the EU and U.S.

--The latest survey by the Kaiser Family Foundation, a nonpartisan think tank, found that 53% of the public had an unfavorable view of the Affordable Care Act, more than the previous peak of 51% in October 2011.

But 60% said they would rather see the law changed than repealed entirely, while the portion who like the law has stayed somewhat steady at 37%.

--Meanwhile, last week I wrote of how opponents and proponents for ObamaCare will pick apart the 2015 premium increase data to buttress their respective cases and opponents can point to Florida, where “Premiums for individual major medical plans that are compliant with the ACA regulatory requirement will go up an average of 13.2% in 2015, according to data provided to the Florida Office of Insurance Regulation (Office) by insurance providers....

“The rising premiums come on the heels of a 37% average increase in the combined individual and small group plan rates in 2014, per a study released in April by Morgan Stanley. That confirms predictions the Office made last year of premium increases of 30-40% for the individual market plans and 5-20% for the small group market plans for plan year 2014.” [Wall Street Journal]

--Last week I also wrote of the exploding situation with the Social Security disability-insurance program and how the total in benefits was $140 billion last year, up from $78.2 billion in 2004.”

But when I wrote of this, I admit to not thinking of the whole PTSD predicament. That is until I read a Los Angeles Times piece by Alan Zarembo from Sunday that notes:

“Depending on severity, veterans with PTSD can receive up to $3,000 a month tax-free, making the disorder the biggest contributor to the growth of a disability system in which payments have more than doubled to $49 billion since 2002.” [Ed. the military side.]

“ ‘It’s an open secret that a large chunk of patients are flat-out malingering,’ said Christopher Frueh, a University of Hawaii psychologist who spent 15 years treating PTSD in the VA system....

“The number of veterans on the disability rolls for the disorder has climbed from 133,745 to more than 656,000 over the last 13 years. [Ed. of course that is the time of Iraq and Afghanistan, but that is a massive number...the 520,000 difference. It is totally unrealistic, as well.]....

“Many veterans – including those receiving disability pay – make substantial progress with treatment, (the VA said).

“Among the most encouraging results came in a study published last year in JAMA Psychiatry. It looked at 1,888 veterans who began a treatment known as prolonged exposure therapy. Nearly 800 went on to fall below the threshold for PTSD on a standard assessment scale. Their traumas included combat, sexual violence and painful childhood experiences.

“In the VA disability system, however, the disorder is usually permanent.

“Of the 572,612 veterans on the disability rolls for PTSD at the end of 2012, 1,868 – a third of 1% - saw a reduction in their ratings the next year, according to statistics provided by the VA.

“Even some veterans whose diagnosis falls under deep suspicion have managed to keep their disability ratings.”

The difference in those two percentages is unreal.

Last week, in talking of the disability program in general, I said, “Many of us are flat-out crooks.” I stand by that. 

--Newsstand sales of U.S. consumer magazines dropped 12% in the first half of the year vs. 2013, while paid subscriptions declined 1.8%, according to figures from the Alliance for Audited Media.

Total average circulation – paid and newsstand – fell 1.9% in the first half.

--Retail-bacon prices have risen to the highest levels since at least 1980, largely because of pig flu, but the worst of the virus is over and supplies of hogs are growing again. Prices will come down. Lower feed prices are helping as well.

--McDonald’s reported dreadful same-store sales for July, with global comps down 2.5%; including down 3.2% in the U.S. and 7.3% in Asia. Regarding the latter, earlier the company said the latest food scare in China was hurting results across Asia, after one of its main meat suppliers was found by the Chinese government to be distributing expired meat and doctoring production dates.  McDonald’s has 2,000 locations in China and 3,100 in Japan.

[Burger King also dropped the same supplier in China. BK has 200 restaurants there.]

--CVS Caremark Corp. said its second-quarter earnings rose 11%, with the pharmacy operator boosting its earnings guidance for the year, as revenue rose 11% as well, above expectations.

The pharmacy services business posted 16% sales growth.

You know what I am buying at my local CVS increasingly? Snacks. They always have a superior sale on one of my favorites, like Chex Mix.

--Investors pulled $830 million out of Bill Gross’ PIMCO Total Return Fund in July, a 15th straight month of redemptions, though the pace dropped sharply from a month earlier when it was $4.5 billion. Assets are still $223.1 billion at the end of July, after hitting a record $292.9 billion in April 2013. It remains the world’s biggest bond fund by assets.

--Donald Trump is rather torqued off that two bankrupt Atlantic City casinos still bear his name, five years after he gave up anything to do with them. 

Trump filed suit demanding his name be stripped, particularly because the properties have fallen into disrepair, tarnishing his image.

Trump said on Tuesday, “I’ve been away from Atlantic City for many years. People think we operate (the company), and we don’t. It’s not us. It’s not me.”

--The number of passengers at New York and New Jersey airports grew 2% to 55.7 million, during the first six months of this year, compared with 2013. JFK International soared 7.4%. Interestingly, Atlantic City International Airport, having gained a new airline service, grew 8.8% to more than 600,000 passengers.

In contrast, LaGuardia and Newark Liberty were flat. [The fifth that is part of the calculations, Stewart International (Orange County, N.Y.), saw traffic rise 6.9% to 150,000.]

--Wine fraudster Rudy Kurniawan, 37, was sentenced to 10 years in jail and ordered to pay $20 million, plus $28 million in restitution to victims, for his role in selling millions of dollars’ worth of fake wine. Among those swept up in the fraud was billionaire William Koch.

Kurniawan is the first person ever to go to jail for selling fake wine in the U.S. He was found guilty of mixing fine wines with newer vintages in his kitchen and then passing them off as far more expensive wines in a scheme that ran from 2004 to 2012.

It is not known, nor will it probably ever be known, just how many fake bottles he sold. In 2006 alone, it was believed he sold up to 12,000 bottles at auction.

“But authorities were said to have found thousands of labels for fine Burgundy and Bordeaux wine along with full, unlabeled bottles in Kurniawan’s home,” as reported by BBC News.

--Google and Barnes & Noble are teaming up to go after Amazon by offering fast, cheap delivery of books. Buyers in Manhattan, West Los Angeles and the San Francisco Bay Area will be able to get same-day deliveries from local Barnes & Noble stores through Google’s fledgling delivery service. At the same time, Amazon announced it was expanding its same-day delivery service to 10 cities from four. [New York Times]

--Talk about a nightmare. Qantas passengers spent a night on the floor of Los Angeles Airport (LAX) after their flight to Sydney was delayed 23 hours. At first it was announced there was an issue with the on-board cooling system, but the initial delay was compounded when it was learned the cabin crew had exceeded maximum work hours and needed to be replaced. And then Sydney Airport’s curfew (no landings between 11 pm and 6 am) caused further distress.

--With the anniversary of World War I being commemorated this week across those European nations most involved, I was reading a piece in the Moscow Times by Alexey Eremenko (WWI not being a big topic in Russia, especially vs. the cult-like status accorded World War II, or the war against Napoleon), and he notes:

“(The) country weathered the pressure of war well: Russia’s GDP only began to sink two years after the start of combat in 1916, at which point it lost a modest 10 percent...

“By comparison, the GDP shrunk 48 percent during the Civil War [Ed. 1917-1921 in total...some say thru 1922], between 1918 and 1919,” according to a study out of Warwick University in Britain and Moscow’s New Economic School.

Just thought that was staggering. 48 percent.

And that’s your international economic history tidbit for the week.

--But wait...there’s more!

The Great Retreat for Russia that was in 1915 (they then rallied back in 1916 behind their brilliant General Aleksey Brusilov to break the back of the Austro-Hungarian army, though at a cost of 1.6 million Russian soldiers), was caused by “Ammo Hunger.” The demand was for 1.5 million artillery shells per month, and Russia could produce only 650,000 over the whole of 1914.

But, within a year, Russia was cranking out nearly 800,000 shells per month, according to a study put out by Forbes Russia last year.

Russia had also been importing TNT for shells before the war from Germany, ironically, but then it began stockpiling huge amounts made domestically.

What’s the lesson in terms of today? Never underestimate the potential of the Russian war machine.

Foreign Affairs

Russia / Ukraine: Fears grew Russia was preparing “direct intervention” in Ukraine, as Poland’s prime minister, Donald Tusk, said Wednesday, after Polish Foreign Minister Sikorski had expressed like concerns on Tuesday, as the tit-for-tat between the West and Russia over Moscow’s support for separatists in eastern Ukraine ratcheted up a few levels.

As Russia sharply increased the number of troops and heavy weapons positioned on Ukraine’s eastern border, 20,000 deployed in battle-ready formation, according to NATO, Russian Prime Minister Dmitry Medvedev announced during a government session: “Russia is imposing a full ban on deliveries of beef, pork, fruit and vegetables, poultry, fish, cheese, milk and dairy products from the European Union, the United States, Australia, Canada and Norway.”

As the Moscow Times reported: “The move – which is likely to slash consumer choice in supermarkets, hike Russia’s already high inflation rate and force interest rates up – follows Putin’s signing of a decree on Wednesday ordering the government to bar food imports from countries that have imposed sanctions, ‘with the purpose of ensuring Russia’s safety.’”

Medvedev said the food import ban will last one year, though one assumes it would be rescinded should some kind of political agreement be reached.

The imports affected by the sanctions amount to more than half of the total value of food exported to Russia from the above listed countries and nearly a quarter of Russia’s food imports last year, according to Reuters, citing data from the International Trade Center.

Russia’s agriculture minister said the government would look to other sources, including South America, Central Asia, China, Israel and Belarus.

But the costs, say fish imports from South American rather than existing ones from Norway, will be high. Fruit and vegetables come winter will be a big problem.

Bloomberg’s Kati Pohjanpalo reported on the plight of Finland, as one example of the impact Russia’s sanctions will have on those it is targeting in retaliation.

14% of Finland’s trade comes from Russia, including for dairy and cheese. Valio Oy, a cooperative dairy producer, accounts for about 40% of Finnish food exports, but on Thursday, the CEO said the company “halted all production lines making goods for sale in Russia. They will remain halted until we can sell in Russia again.”

Finland’s economy was struggling mightily before this hit, with unemployment rising and GDP contracting the most recent two consecutive quarters (recession).

Finland also imports 80% of its energy products from Russia.

For its part, Germany cancelled a contract supplying Russia with a $150 million combat simulation center, highlighting its toughening stance towards the Kremlin. A poll for broadcaster ARD released Friday showed the German people are backing their government, with 82% of Germans saying Russia can’t be trusted, with 70% saying tougher sanctions are the right thing to do. Back in March, only 38% supported economic sanctions against Moscow.

And Japan unveiled details of financial sanctions against 40 individuals and two groups involved in the annexation of Crimea and the destabilization of eastern Ukraine, as Tokyo joined the West in pressing Moscow to use its influence with the separatists.

Another sanctions-related tidbit...as many as 27,000 Russian tourists were stranded abroad with the collapse of a Russian tour firm, Labirint, which suspended operations, blaming the “negative political and economic situation” and a deterioration in the exchange rate, while Dobrolet, a Russian budget airline, grounded its planes. It had been flying from Moscow to Crimea, but was placed on an EU sanctions list last week.

Meanwhile...on the ground, another Ukrainian fighter jet was shot down on Thursday as it flew low over rebel-held territory. The plane crashed about 40 km from the site of Malaysia Airlines flight MH17.

On Thursday, the Ukrainian army announced it was scrapping a ceasefire around the MH17 crash site after international investigators said they were suspending operations because of ongoing fighting.

But Ukraine’s defense minister said his forces were making significant progress against the rebels, even as civilians in the rebel-held cities of Donetsk and Luhansk prepared for a siege. The U.N. warned of an increasing humanitarian crisis in the region, with wrecked infrastructure and limited access to power and water. At least 1,500 have been killed since April.

Ukrainian Prime Minister Yatsenyuk’s office has been the victim of one massive cyberattack after another, as reported by the Financial Times. Many of Ukraine’s embassies have also been infected with a “virulent cyber espionage weapon linked to Russia.” “Sensitive diplomatic information has been made available to the perpetrators of the attack as a result.”

The culprit is the “Snake” malware, also known as Ouroboros, the tail-swallowing serpent of Greek mythology. The campaign against the prime minister’s office actually started in 2012 and has been ongoing, as revealed by Symantec and the FT’s intelligence sources.

Editorial / Wall Street Journal

“NATO’s promise of collective security rests on the notion that aggression against one member of the Atlantic alliance triggers a response from all. Yet Russia’s swift, stealthy operation to annex Crimea and destabilize eastern Ukraine has cast doubt on the alliance’s capacity to fulfill that promise. What can NATO realistically do if Vladimir Putin sets his sights on the Baltic states?

“The latest warning comes in a new report by the Defense Committee of the U.K. House of Commons. The report surveys NATO’s widening conventional capability gap with Russia, highlights the Kremlin’s aggressive nuclear posture and points to the doctrinal limitations that could hamstring a response to the next round of aggression.

“Its stark conclusion: ‘NATO is currently not well-prepared for a Russian threat against a NATO Member State.’ Case in point: The British Army now fields a grand total of 156 main battle tanks, amounting to a single regiment. Russia has more than 2,800 active main battle tanks, according to a 2013 study by the International Institute for Strategic Studies. The committee notes that the Kremlin has unveiled an ambitious plan to expand and modernize Russia’s conventional forces, with the aim to increase the proportion of conventional assets classed as ‘modern’ to 70% by 2020, up from 10% in 2012.

“Then there is Russia’s bold nuclear-force posture. ‘Russia sees its strategic nuclear forces as a key deterrent to potential Western intervention or belated response to Russian aggression,’ the committee notes. ‘Russia dedicates a third of its Defense budget to them.’ Moscow has at least twice since 2009 simulated nuclear strikes, including one targeting Warsaw. By contrast, the Obama Administration earlier this year announced plans for sharp, and unilateral, cuts to the U.S. strategic force well ahead of the 2018 deadline set by the New Start treaty.

“The committee’s most important findings relate to outdated doctrines that could prevent the alliance from keeping pace with Moscow’s sophisticated, evolving strategy. A linchpin of Russian strategy is what the committee calls ‘ambiguous warfare.’ As one Russian defense theorist puts it, ambiguous warfare involves using irregular forces, cyberattacks and information warfare to ‘neutralize adversary actions without resorting to weapons (through indirect actions), by exercising information superiority.’

“The trouble ambiguous warfare poses to NATO is that the alliance’s collective-defense obligations, and the strategic doctrines pinned to them, call for responding to ‘armed’ assaults.”

On another issue, David E. Sanger and William J. Broad of the New York Times reported on the end of a reciprocal arrangement between U.S. and Russian nuclear scientists whereby the two sides visited each other’s atomic sites to work on projects ranging from energy to planetary defense (“defense from asteroids,” for example).

Earlier this year, the Energy Department canceled the meetings and lab visits. This program had been a success in building relations between the two.

Lastly, Edward Snowden was granted another three-year residency permit this week as Putin continues to tweak the U.S. At the same time, Putin tightened the screws on free expression on the Internet further. As the Wall Street Journal opined, “We missed the protests from Mr. Snowden and his collaborator Glenn Greenwald.”

Iraq: ISIS launched a new front in Iraq, hitting Kurdish defenses in the north, seizing control of the country’s largest Christian town and sending tens of thousands fleeing in panic.

The Kurds, previously seen to have a strong fighting force, retreated amid the onslaught, pleading for assistance, including heavy weapons to combat that which ISIS has captured in overrunning Iraqi arms depots earlier. The United States hasn’t supplied the Kurds with updated military hardware since 2003, Washington afraid of upsetting the floundering central government in Baghdad, even though the Kurds, next to the Israelis, are our best friends in the region.

By Thursday, Kurdish forces had pulled out of three towns, putting ISIS within 40 miles of the Kurdish regional capital of Irbil.

The Christian town of Sinjar was taken by ISIS a few days earlier, with an estimated 40,000 members of the minority Yazidi sect fleeing to Mount Sinjar, where they were facing imminent death; ISIS having given the Christians a choice: convert to Islam, remain Christian but pay special taxes, or be killed.

One Kurdish soldier in Qaraqosh was asked by a local why the troops were withdrawing from the town, and the soldier replied: “If we kill 100 [militants], 200 more will come, they are like ants and we don’t have enough ammunition.” [Loveday Morris / Washington Post]

Former U.S. ambassador to Iraq, Christopher Hill, said: “What we are dealing with is something that goes beyond just the question of Baghdad’s governance. We’re dealing with forces there, specifically ISIS, that threaten a larger war in the Middle East.”

The Wall Street Journal’s Carol E. Lee and Felicia Schwartz noted:

“The last time Mr. Obama authorized military strikes was in Libya in March 2011. Even then, with the U.S. leading a coalition of nations, he showed himself to be a reluctant warrior.

“Just as Mr. Obama touted the withdrawal of American forces from Iraq during his re-election campaign, White House officials initially pointed to the intervention in Libya as a model for the kinds of coalitions that could sustain a military intervention. A recent surge in violence there has quieted that view.

“Mr. Obama and Vice President Joe Biden, whose son served in Iraq, pointed to the withdrawal of U.S. forces as part of their legacy. ‘We were able to turn lemons into lemonade here,’ Mr. Biden said in a 2011 interview during his flight from Baghdad to Erbil on a trip to mark the end of the war with the Wall Street Journal.”

Editorial / Wall Street Journal

“Perhaps history will mark this as the week that President Obama recognized that evil unimpeded will devour everything before it.  We say perhaps because with this President you never know.

“President Obama said Thursday night he authorized limited air strikes against the Islamic State in Iraq and al-Sham (ISIS) to stop the Sunni jihadists from carrying out a genocide in northern Iraq. What he didn’t do, but should, is make a larger U.S. military commitment against ISIS both to avert a humanitarian catastrophe and protect American security interests.

“After routing Iraq’s army from Mosul and most of northern Iraq in June, ISIS has grown as a military force. It captured significant war materiel, including armored U.S. Humvees, and has attracted hardened jihadist fighters from Syria and elsewhere. In addition to the sums it looted from Mosul’s banks, the group has the potential to gain access to revenue from oil fields in northern Iraq.

“ISIS is also threatening the obliteration of the Christian population in northern Iraq. An assault by ISIS’s forces in northern Nineveh province has emptied towns of their Christian populations. Some 40,000 Yazidis, a minority who have lived in Iraq for a millennia, are now isolated with little food or water on Mount Sinjar. ISIS controls all roads out and has proven it will have no compunction to slaughter those who try to flee.

“When ISIS captured Mosul, it often painted an ‘N’ on the houses of Christians, denoting they are of Nazareth, the birthplace of Jesus. The Christians’ confiscated properties have been given to Muslims. Ancient Christian churches have been razed. The self-proclaimed ‘Islamic State’ is a barbaric, pre-modern movement whose goal is to expand its dominion with mass killings. Unresisted, it will not stop....

“If Kurdistan falls under its control, ISIS would move to consolidate its power in Syria and destabilize Jordan. The Islamic State’s base of power and financing assured, it would export skilled jihadists to destabilize political and economic life throughout the Middle East. It is a fantasy to believe the killers on view this week in Nineveh province will stay out of Europe or the U.S....

“It’s clear now that his decision to withdraw all U.S. troops in 2011 was a strategic and increasingly a moral disaster. The President – which is to say the United States – bears responsibility now for the humanitarian catastrophe occurring in Iraq, just as it did for the mass flight of Vietnam’s boat people, some two million, after the Communist triumph in the 1970s.

“As always, there are risks to a renewed U.S. presence. Surely, though, that risk is many times greater today because the U.S. failed to field a residual force three years ago that would have prevented the march of jihadists in Iraq. Absent greater U.S. military intervention now, the march will continue.”

Zalmay Khalilzad / Washington Post...a few days ago

“Should it capture and control the Mosul dam – Iraq’s largest – the Islamic State would hold hostage the precious water supply of millions of Iraqis. If it decided to destroy the dam, it could put people as far south as Baghdad at risk of deadly flooding. Just the threat of doing so would give the extremists much leverage....

“The United States needs to reconsider its thinking on the timing of security assistance. There are different views on how Washington should sequence additional assistance to the Iraqis, including direct U.S. attacks on Islamic State targets. One view is that the United States should condition such support on the selection of a new prime minister and the formation of a broadly accepted unity government in Baghdad. There was merit to this logic before the Islamic State’s recent gains, but now the threat is escalating so fast that waiting could have catastrophic consequences. Irbil, Baghdad and Mosul are operating on a different timeline than Washington.

“Given the great expansion of the threat, U.S. support should be expedited....

“The situation in Iraq is extraordinarily urgent. The Islamic State has become a lethal and capable military force with control over oil fields and infrastructure critical to all of Iraq. It recruits from around the world, and it poses a threat to vital U.S. interests in Iraq, the Middle East and, potentially, the U.S. homeland. To contain, reverse and defeat it requires adjusting our plans based on developments on the ground. Now is the time to do so.”

As to the ongoing formation of a new Iraqi government and the fate of Prime Minister Nouri al-Maliki, Iran no longer believes he can hold his country together and is looking for an alternative to combat ISIS, but there are few viable options.

Tehran is more concerned with a stable Iraq than with standing by Maliki at this point. Iran is said to be lukewarm on the perceived frontrunner, Ahmad Chalabi.

Israel / Gaza: With about four hours to go in a 72-hour cease-fire agreement on Friday, two rockets were launched from the Gaza Strip into Israel. Then as the cease-fire formally expired, Hamas, or Islamic Jihad, launched more than 18 rockets from Gaza at Israel, with at least 14 hitting open areas, two intercepted above the city of Ashkelon. By afternoon, at least 52 had been fired.

Israel retaliated, with Prime Minister Benjamin Netanyahu accusing Hamas of ignoring an offer for the cease-fire to be extended. Netanyahu said the military was under orders to respond “forcefully.”

An extended cease-fire was being negotiated in Cairo, where Hamas’ political representatives were holding out for a lifting of Israel’s economic embargo on Gaza as a condition for continuing the cease-fire (along with the release of West Bank Palestinians who were rearrested over the past two months and the construction of a seaport in Gaza). Israel is seeking the disarmament of the Strip, which Hamas will never agree to.

Hamas’ military wing has threatened to shut down air traffic at Ben Gurion International Airport.

Hard-line Israeli Economics Minister Naftali Bennett said, “Israel must recall its delegation to Cairo immediately. This is a moment of trial for Israeli deterrence in coming years. The response must be stiff.”

The negotiations in Cairo were without senior U.S. representation...just between Israel and Hamas, with Egypt moderating. Secretary of State Kerry had shot himself in the foot by opting for negotiations through Qatar and Turkey a few weeks earlier, which miffed Israelis of all political stripes as Kerry seemed to be favoring Hamas by working through two of its supporters.

The truce had been the longest pause in fighting that has killed 1,900 Palestinians and 67 Israelis since the war started on July 8.

Finally, last weekend, Israel announced the Israeli soldier believed abducted by Hamas in Gaza, Lt. Hadar Goldin, had been killed in action as he and his unit were preparing to destroy one of the tunnels when they came under attack. It was not clear if he was killed by friendly fire aimed at the Hamas unit that had grabbed him.

[A recent Pew poll of Americans revealed that when it comes to the question: “Who is to blame for the current violence in the Middle East (specifically over Gaza)?”...60% of Republicans blame Hamas, 13% Israel; while 29% of Democrats blame Hamas, 26% Israel. The NBC/Wall Street Journal survey had 34% of all Americans favoring the Israeli side, vs. just 4% favoring the Palestinians. 53% treat both sides the same.]

Lebanon: In a major surprise, former Lebanese Prime Minister Saad Hariri unexpectedly returned to Lebanon on Friday after being in self-imposed exile for 3 ½ years, this as tensions were heightened in a big way with an ISIS attack across the Syrian border; the first wide-scale incursion by Syrian militants into Lebanon.

Hariri left in January 2011 after his government was brought down by Hizbullah and its allies. Prior to his return, Hariri said Lebanon was receiving a $1 billion Saudi grant to help the country’s security apparatuses crush terrorism. Hariri gave details about the grant from the Saudi port city of Jiddah. Saudi Arabia was the main sponsor of Saad’s father, Rafik. Saad said his immediate mission was to oversee use of the grant.

As to the fight in the border town of Arsal, part of the Bekaa Valley, the general area is home to a third of the 1.1 million registered Syrian refugees in Lebanon and the refugees are angry the Lebanese military is blocking those in Arsal from moving further inland and away from ISIS (while many natives in Arsal are Syrian sympathizers).

The Lebanese Army lost 14 soldiers in the early fighting around the city, with a reported 50 militants killed. Under a cease-fire agreement with the Lebanese Army, the militants began to withdraw.

Libya: According to the Libyan Health Ministry, 179 were killed in clashes between rival militias last week in Tripoli over the capital’s airport as well as in Benghazi.

Editorial / Washington Post

“Three years after U.S. and NATO forces helped liberate Libya from the dictatorship of Moammar Gaddafi, the country is beginning to look a lot like another nation where an abrupt U.S. disengagement following a civil war led to chaos: Afghanistan in the 1990s. In Libya, heavily armed militias are battling for control of Tripoli and Benghazi as well as the international airport. The United States, France and other Western governments involved in the 2011 military intervention have evacuated their diplomats and abandoned their embassies. A U.N. mission that was supposed to help broker political accords also left.

“Last month in Benghazi, the Ansar al-Sharia militia, which has ties to al-Qaeda and was involved in the Sept. 11, 2012, assault that killed the U.S. ambassador there, stormed a military base and then declared the city the seat of an ‘Islamic emirate.’ That’s what the Taliban called Afghanistan. According to The Post’s Karen DeYoung, some U.S. counterterrorism officials believe Libya’s Islamists could seek to align themselves with the Islamic State, the al-Qaeda offshoot that controls western Iraq and eastern Syria. Whether or not that happens, it’s not hard to foresee eastern Libya becoming a launching pad for terrorist attacks against nearby Europe or even the U.S. homeland.

“U.S. and Western responsibility for this mess is heavy. Having tipped the outcome of the war against the Gaddafi regime, NATO quickly exited Libya, which was left with no army or political institutions but was awash in weapons. Repeated Libyan requests for assistance in restoring security were brushed off; a small-scale NATO training program based outside the country was little more than symbolic....

“The Obama administration has done its best to ignore Libya’s collapse, even as Republicans in Congress obsess over conspiracy theories about the 2012 Benghazi attack. Administration officials continue to peddle the empty line that ‘Libya’s challenges can really only be solved by the Libyans themselves,’ as Secretary of State John Kerry put it this week....

“Pacification of Libya would probably require another Western intervention and a peacekeeping force, coupled with a far more robust international mediation mission. The chances that such an intervention will be mounted, of course, are miniscule; the Obama administration would almost certainly not endorse it.

“Of course, the notion that the United States should intervene against the budding al-Qaeda menace in Afghanistan during the 1990s also was dismissed as fanciful. After the attacks of Sept. 11, 2001, recriminations were plentiful. Yet the lessons of Afghanistan seem to have been lost in U.S. policy toward the contemporary Middle East.”

Afghanistan: Secretary of State Kerry was forced to go back to Kabul on Thursday to referee the ongoing election dispute between presidential candidates Ashraf Ghani and Abdullah Abdullah. 

After allegations by Abdullah of massive fraud in the June 14 runoff brought the country to the brink of civil war, Kerry intervened last month to get the two sides to agree to a full audit of votes cast under the supervision of the U.N.

Plus the two sides agreed to a power-sharing agreement, whereby the loser had representation in the new government.

But the audit has made minimal progress as Ghani and Abdullah’s representatives squabble over the issue of what to do with fraudulent votes.

So instead of the election being a confidence-building measure, it has been the opposite.

The audit isn’t even 20% complete.

Separately, a U.S. two-star general, Maj. Gen. Harold J. Greene, was killed when an individual wearing an Afghan military uniform opened fire on a group of soldiers at a training camp. He was the most senior U.S. officer to have died in the war in Afghanistan, and the most senior to die in a war zone since Vietnam. The gunman was killed in the attack. A German brigadier general was also injured.

Such “green-on-blue” insider attacks have been on the decline since 2012, when at least 61 coalition forces were killed by Afghans wearing uniforms.

The next day, two attacks by Afghan police officers claimed the lives of 11 of their fellow officers

One positive item. Before Congress left for its holiday, the Senate passed legislation that grants an additional 1,000 visas to Afghan interpreters who have worked for the U.S. military, with the House having passed similar legislation. This was long overdue.

China: From Keith Zhai / South China Morning Post

“President Xi Jinping told top officials he was disregarding ‘life, death and reputation’ to fight corruption in a terse speech signaling a possible dispute and doubts among party elites over the campaign....

“Xi was believed to have made the remark in a closed-door Politburo meeting on June 26, details of which were publicly revealed only when a city newspaper...on Monday reported that local officials received instructions from the president....

“Xi said ‘the two armies of corruption and anti-corruption are in confrontation, and are in a stalemate,’ adding that the leadership vowed to see the anti-graft campaign to the very end.”

The paper’s article was soon deleted from its website, apparently after receiving a gag order from propaganda authorities.

One reason put forward for Xi’s sweeping anti-graft campaign is that corruption has been undermining the People’s Liberation Army and its fighting capabilities.

On the foreign policy front, it was reported on Monday that Japan and China are trying to arrange two-way talks between their leaders at an APEC summit in Beijing in November, which would be a big positive and mark a shift in stance by Beijing.

But then on Tuesday, Japan, in its second defense review published by the government of Shinzo Abe, took aim at what it called “profoundly dangerous acts” by China to exert control of waters between the two countries (East China Sea) that could lead to “unintended consequences” in the region, with fears of a potential military clash growing.

So the next day, Wednesday, Chinese coastguard ships sailed into waters off the Japanese-controlled Diaoyus (Senkaku islands in Japan).

The issuance of the white paper will hardly make it easier to bring the two leaders together.

Beijing did invite Washington to cooperate in financing and building infrastructure in Africa, which was a rare positive development these days. It seems China and the U.S. have been working on a proposed $12 billion dam project in the Democratic Republic of Congo, what would be the world’s largest hydropower complex.

But in terms of future cooperation between the two, China’s lack of transparency is a major impediment.

Elsewhere, at least 75 people were killed in an industrial explosion in Kunshan, a car parts factory owned by a Taiwanese-backed company. Dust ignited spark plugs in a workshop, causing the explosion.

37 civilians and 59 “terrorists” were killed in a terror attack in Xinjiang, home to China’s mainly Muslim Uighur minority. Police arrested 215. The attack was apparently perpetrated by a knife-wielding gang.

And the government announced plans to ban the use of coal in Beijing by the end of 2020. But even with the ban, coal use is expected to soar in China.

Turkey: Prime Minister Erdogan is the favorite to win Sunday’s presidential election, with Erdogan trying to tie himself to Mustafa Kemal Ataturk in the pantheon of transformative Turkish leaders, though critics say he is undermining Ataturk’s legacy; Ataturk having forged a system of government based on a strict separation of church and state. [Mosque and state, in actuality.]

Nigeria: Boko Haram killed at least another 50 after storming a town in the northeastern part of the country. This week a risk consultancy firm, Maplecroft, said 3,477 were killed in terrorist attacks in Nigeria from July 2013 to June 2014, with at least another 200 dead in July. The difference today is Boko Haram is now taking actual land rather than just launching hit-and-run attacks. In this respect it is beginning to act like ISIS.

Random Musings

--The New York Times’ Nicole Perlroth and David Gelles broke the story that “A Russian crime ring has amassed the largest known collection of stolen Internet credentials, including 1.2 billion username and password combinations and more than 500 million email addresses, security researchers say.

“The records, discovered by Hold Security, a firm in Milwaukee, include confidential material gathered from 420,000 websites, ranging from household names to small Internet sites. Hold Security has a history of uncovering significant hacks, including the theft last year of tens of millions of records from Adobe Systems.”

Hold Security didn’t disclose the names of the sites impacted, in part because some of the companies that were compromised remain vulnerable.

The discovery (which the Times verified through various independent checks), dwarfs any other identity theft episode.

Alex Holden, the founder of Hold Security, said he saw no connection between the hackers and the Russian government.

The most worrisome aspect of this mammoth theft, as noted by Lillian Ablon, a security researcher at the RAND Corporation, is “The ability to attack is certainly outpacing the ability to defend.” Companies ultimately just “patch and pay.”

--On top of this massive breach, the U.S. government revealed that the firm it uses to perform background checks for the likes of the Department of Homeland Security, U.S. Investigations Services LLC, was the victim itself of a “state-sponsored attack” of its network that may have led to the theft of information of employees of DHS, so the FBI informed all 240,000 to be on the lookout for problems with their financial accounts.

The relationship between USIS and the government has been temporarily suspended. [Dion Nissenbaum / Wall Street Journal...the Washington Post first reported this.]

--In the above-mentioned NBC/Wall Street Journal poll, Congress’ approval rating is 14%, but when you break it down by party, 54% view Republicans negatively and just 19% positively, while Democrats were viewed favorably by 31%, with 46% having a negative bent.

That’s not good for Republicans in individual races, one would think, though the same survey looked at the 12 states with the most competitive Senate elections and 58% of voters in the 12 disapprove of Obama’s performance.

Karl Rove / Wall Street Journal...slightly different take on the Senate.

“Unlike 2010, when the big story was the epic gains of Republicans in the House, this year’s midterms will mostly be about the Senate. And this summer has been unkind to Democrats hoping to keep the upper chamber.

“Two weeks ago the New York Times reported that Montana Democrat John Walsh plagiarized much of his 2007 Army War College master’s thesis. Montana’s two largest papers have called for him to end his campaign; one suggested he resign the Senate seat he was appointed to in February to complete the term of Max Baucus, who became ambassador to China.

“Even before the plagiarism story broke, Republican Congressman Steve Daines had a double-digit lead. Now Democrats are unlikely to win even if Majority Leader Harry Reid forces Mr. Walsh to resign* by the Monday deadline for replacing him on the ballot.

“In Logan, W. Va., on Saturday, a coal miner asked Democratic hopeful Natalie Tennant why she supported President Obama. She didn’t have a good answer. Her campaign chairman awkwardly explained that ‘because on most of his policies and stuff she supports’ the president. The campaign later said he misspoke, but the damage was done.

“In states where Mr. Obama is unpopular, candidates are tempted to distance themselves. This makes them look shifty and disloyal and could alienate the president’s supporters. But not separating themselves can be lethal....

“(So will) Republicans coast to a Senate victory? On July 15, the Washington Post Election Lab gave Republicans an 86% likelihood of taking the Senate. This week Nate Silver of FiveThirtyEight rated the GOP’s chances ‘in the neighborhood of 60-40,’ the same percentage as the New York Times and CBS concluded from their July 27 YouGov survey.”

But it’s still too early, and as Rove points out, there are too few nonpartisan surveys and “Pollsters are still working to understand the impact of the increasing number of cellphone-only households.”

The GOP also continues to be outspent in the states where Democrats are most vulnerable.

*Sen. John Walsh did drop his election campaign Thursday amid the plagiarism allegations. Now the Montana Democratic Party must hold a nominating convention to come up with a replacement by Aug. 20. Former Gov. Brian Schweitzer, once deemed a shoe-in, has insisted he is not interested and told the AP on Thursday he will not run.

Rep. Daines should now pick up a key seat for the GOP.

Finally, a Pew Research Center survey reveals Republican voters don’t have the intensity they did in 2010, which as Rove notes speaks to Obama’s “strategy of division: Believing he can’t persuade independents, he hopes to whip his left-wing base into a frenzy emphasizing especially cultural issues like abortion and contraception.”

--Kansas Republican Sen. Pat Roberts beat back a Tea Party challenge in Tuesday’s Republican primary. Roberts has been representing the state, first as a Congressman, then as a senator, since 1981.

Tennessee Republican Senator Lamar Alexander also beat back a Tea Party challenger in a Thursday primary. 

--In local politics, Sen. Cory Booker has a surprisingly small lead over his unknown Republican opponent, Jeff Bell. Booker leads only 47 to 37 percent, according to a Quinnipiac University survey. Among New Jersey voters, Booker has just a 47 percent approval rating. I’m kind of surprised by both figures.

Personally, I’ve known of Bell a long time. He lost to Bill Bradley in a 1978 U.S. Senate race.

Separately, in a hypothetical 2016 matchup, Quinnipiac found Hillary Clinton would defeat Gov. Chris Christie 50 to 42 percent in my home state. Christie is viewed favorably by 47 percent of N.J. voters, 47 percent disapproving. [47 being this week’s magic number.]

Clinton would defeat Jeb Bush in New Jersey 54-34; and Rand Paul 55-35.

As for President Obama’s popularity in New Jersey, 44 percent view him positively, 52 percent negatively.

--In New York, Gov. Andrew Cuomo’s approval fell to 53% in a Wall Street Journal/NBC 4 New York/Marist poll, the lowest since he took office in 2011, though he still maintains a 31-point lead over his Republican challenger in November’s gubernatorial election.

[There was a time when Cuomo’s approval rating was in the 70s.]

The federal investigation into the disbanding of his Moreland Commission, that was to be looking into public corruption, hasn’t taken hold with the public it would seem. But the Wall Street Journal reported on Friday that the Feds are “looking closely at whether anyone in the administration encouraged the commission to avoid referring cases to Albany District Attorney David Soares, according to people familiar with the matter.”

--The issue with Toledo’s water, where a two-day ban was necessitated by an algae bloom in Lake Erie does not bode well for that city’s future. If you were a business thinking of locating operations there, you’d be foolish not to put this episode into your equation.

The suspected cause of the toxin that resulted from the algae was undoubtedly nitrogen and phosphorus, which normally comes from runoff of over-fertilized fields and lawns, or runoff from livestock pens.

Residents and businesses should not rest easy believing this to be a one-time event.

--Bizarre piece in Navy Times on a just completed investigation into Capt. Greg Gombert of the cruiser Cowpens, one of the U.S. fleet’s foremost surface combatants.

Gombert came down with flu-like symptoms back in January that confined him to his cabin for a week, but as he was recovering, he contracted temporary facial paralysis, a non-life threatening disorder that feels like a minor stroke.

So Gombert holed up in his cabin further and turned over most of the responsibilities of the ship to the next most senior officer, Lt. Cmdr. Destiny Savage, the ship’s chief engineer who became “acting CO,” officials now say, and essentially ran the ship, including during operations, such as taking fuel from an oiler as little as 150 feet away in heavy seas, that she was in no way qualified for.

The report concluded that for as long as two months, Gombert left his cabin for just a few minutes a day and “Navy officials say they were in the dark about Gombert’s illness and seclusion,” let alone Savage’s temporarily filling the CO’s duties, which turned the Cowpens’ last months of a Western Pacific cruise into a “veritable Twilight Zone.”

Gombert was fired in June, two months after the ship returned from its seven-month deployment, the third Cowpens CO to be canned since 2010.

Oh, and while there was said to be nothing physical between Gombert and Savage, the two “had formed a questionable relationship between a senior and junior officer. They hung out in his in-port cabin in civvies. She made his bed and cooked his meals in his private galley. They stayed in hotel rooms together and, in at least one instance, were seen on liberty holding hands.”

But, again, “there is no evidence in the report that the relationship was otherwise physical,” sports fans! [David Larter / Navy Times]

--We note the passing of former Reagan press secretary, James Brady, 73. It was March 30, 1981, that Brady suffered a devastating head wound as part of the assassination attempt on the president outside the Washington Hilton Hotel.

Ever after, Brady, and wife Sarah, crusaded for gun control and a federal law requiring a background check on handgun buyers bears Brady’s name.

[Friday, the medical examiner ruled Brady’s death a ‘homicide.’ To be continued.]

--So you know that giant Siberian crater that was recently discovered? How was it created?

From Terrence McCoy / Sydney Morning Herald:

“Researchers have long contended that the epicenter of global warming is also furthest from the reach of humanity. It’s in the barren landscapes of the frozen north, where red-cheeked children wear fur, the sun barely rises in the winter and temperatures can plunge to 50 degrees below zero. Such a place is the Yamal Peninsula in Siberia, translated as ‘the ends of the earth,’ a desolate spit of land where a group called the Nenets live.”

So this one particular crater, 60 meters in diameter, may have been caused by methane gas, released by the thawing of frozen ground. According to a recent Nature article, “air near the bottom of the crater contained unusually high concentrations of methane – up to 9.6 percent – in tests conducted at the site on 16 July, says Andrei Plekhanov, an archaeologist at the Scientific Center of Arctic Studies in Salekhard, Russia. Plekhanov, who led an expedition to the crater, says that air normally contains just 0.000179 percent methane.”

It seems the summers of 2012 and 2013 in Yamal were unusually hot, warmer by an average of 5 degrees Celsius.

“As temperatures rose, the researchers suggest, permafrost thawed and collapsed, releasing methane that had been trapped in the icy ground,” the report states.

Some have said the melting of Siberia’s permafrost is “a climate time bomb waiting to explode if released into the atmosphere,” as the AP put it in a 2010 story.

--A Queen Mary University of London report published in the Annals of Oncology finds that taking an aspirin every day can reduce the chance of dying from bowel and stomach cancers, but, as is well-known, aspirin can cause internal bleeding so medical advice should be sought prior to adopting such a regimen. 

Scientists examined 200 studies investigating benefits and harms of taking aspirin. Aspirin, according to the report, reduced the cases and deaths from the two forms, as well as oesophageal cancer, by some 30-40%.

There is weaker evidence regarding other forms of cancer and the benefits of aspirin. [Smitha Mundasad / BBC News]

--Congratulations to the European Space Agency, whose Rosetta spacecraft, after a 10-year journey of four billion miles, has rendezvoused with a comet.

Rosetta and its comet, called C-G for short, will head together toward the sun. In November, a small lander will leave the spacecraft and affix itself to the comet’s surface.

The comet and the spacecraft are more than 330 million miles from the sun, traveling at 35,000 miles per hour. Rosetta is just 60 miles from the comet’s surface. The comet is 2 ½ miles wide. [Kenneth Chang / New York Times]

--In a speech this week, Pope Francis urged young people not to waste time on their smartphones and the Internet; “young people waste too many hours on futile things,” he said.

“Our life is made up of time, and time is a gift from God, so it is important that it be used in good and fruitful actions.”

I’ve noticed another sea change this summer. Gardeners obsessed with their smartphones. Sitting on their riding mowers, on the phone, idling away. There isn’t anything the least bit important on them. It just cracks me up.

---

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

God bless America.
---

Gold closed at $1311
Oil $97.65

Returns for the week 8/4-8/8

Dow Jones +0.4% [16553]
S&P 500 +0.3% [1931]
S&P MidCap +0.9%
Russell 2000 +1.5%
Nasdaq +0.4% [4370]

Returns for the period 1/1/14-8/8/14

Dow Jones -0.1%
S&P 500 +4.5%
S&P MidCap +2.7%
Russell 2000 -2.8%
Nasdaq +4.7%

Bulls 50.5
Bears 17.1 [Source: Investors Intelligence]

Dr. Bortrum has a new column posted.

Have a good week. And remember...be careful out there.

Brian Trumbore



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Week in Review

08/09/2014

For the week 8/4-8/8

[Posted 12:00 AM ET]

Edition 800

Washington and Wall Street

From an NBC News/Wall Street Journal survey:

64% of Americans are dissatisfied with the economy, 35% satisfied.

76% of adults lack confidence that their children’s generation will have a better life than they do – an all-time high.

71% think the country is on the wrong track, up 8 points just since June.

60% think the U.S. is in a state of decline.

President Obama has a 40% approval rating, a new low in the survey, while his disapproval rating of 54% matches a previous high.

36% approve of Obama’s handling of foreign policy, compared with the 60% who disapprove – his worst-ever marks....and before this week’s awful news.

In world affairs, 19% believe the U.S. should be more active, 47% think we should be less active. That’s about leadership, or lack thereof.

Sen. Bob Corker (R-Tenn.) / Washington Post...written prior to the administration moves in Iraq.

“Those around the world who are looking to the United States for support against intimidation, oppression or outright massacres have learned a tough lesson in the past few years: This U.S. president, despite his bold pronouncements and moral posturing, cannot be counted on.

“In Syria, President Obama declared that the brutal dictator Bashar al-Assad ‘must go.’ The U.S. ambassador in that country and other administration officials openly encouraged opposition groups campaigning against the Assad regime. Yet when it came time to organize and provide lethal assistance to moderate opposition groups to help defend them against Assad’s attacks, the president turned away....

“In the absence of a U.S.-led effort to empower moderates, other regional powers began to fund extremists. Now, responding to the slaughter on the ground and congressional initiative, the administration has endorsed more overt assistance, but with no useful details and no sense of urgency. It appears it could be way too little and way too late....

“Today, after three years of bold rhetoric divorced from reality, 170,000 Syrians are dead, and we are not innocent bystanders. The president encouraged the opposition to swallow deadly risks, then left them mostly hanging. Extremist groups from Syria have surged into Iraq, seizing key territory and resources, and are threatening to completely undo the progress of years of U.S. sacrifice....

“The president’s empty promises and unreliability are at their most acute in Eastern Europe. Our tepid response to Russian aggression in Ukraine for nearly five months emboldened Putin, directly and undermining U.S. interests and making Europe, and thus the United States, less secure....

“I support the president’s desire to avoid ‘stupid’ wars and to ‘steadily advance the interests of the American people and our partnership with folks around the world,’ but, time and again, this president proves that he is uncomfortable being commander in chief and implements policies unsteadily and at odds with his stated goals, further undermining our credibility with these very partners. More often than not, the president doesn’t hit singles and doubles; he just balks.

“This is an unfortunate learning moment for those counting on support from the United States in the Middle East, in Europe and everywhere else. But under this president, it’s just where we are. It is hard to watch.”

Back in January, the New Yorker’s David Remnick interviewed President Obama. It took me a awhile to get around to reading the lengthy piece, but on 3/27/14 in my “Hot Spots” column I quoted Obama saying what is now becoming an albatross around his neck.

Speaking of ISIS, which in January was better known as an al-Qaeda faction, the president said of them as they flew their flag over Fallujah:

“The analogy we use around here sometimes, and I think is accurate, is if a jayvee team puts on Lakers uniforms that doesn’t make them Kobe Bryant. I think there is a distinction between the capacity and reach of a bin Laden and a network that is actively planning major terrorist plots against the homeland versus jihadists who are engaged in various local power struggles and disputes, often sectarian.”

Well, after ISIS terrorized millions in Syria and now Iraq, displacing at least 200,000, killing thousands, and directly threatening 40,000 on a mountain, with families already burying the dead in shallow graves due to starvation and lack of water, Obama went before the American people on Thursday night and said some of the following:

“I ran for this office in part to end our war in Iraq and welcome our troops home. I will not allow the United States to be dragged into fighting another war in Iraq, so even as we support Iraqis as they take the fight to these terrorists, American combat troops will not be returning to fight in Iraq.”

And this:

“Earlier this week, one Iraqi cried that there is no one coming to help. Well, today America is coming to help.”

I immediately thought of Syria. I wrote two years ago, this month, that we had blown it there. ‘It was over.’ Obama was sending up straw men, that his opponents wanted an invasion of Syria, while I, and a few others, was calling for the establishment of a no-fly zone, that then ally and NATO member Turkey was pleading for. The White House countered Americans would be put at risk.

I have written at least 25 times since then that Syria is Obama’s legacy.  167,000 of the estimated 170,000 dead have come since the summer of 2012.

So it’s sickening to hear the president say on Thursday, “Today America is coming to help.”

I have written countless times that it’s always been about Syria. From that civil war, all other chaos has flowed.

But today we have yet another line in the sand, Irbil. Will we truly commit to help the Kurds? By the time needed military aid arrives, will it be too late? 

Can we even save the Yazidis? The Pentagon couldn’t find nine of the first pallets we dropped in our airlift.

What a depressing time. A terrorist threat that is growing exponentially, Christians being exterminated throughout the Middle East, trade wars, worsening cyberespionage, looming fullscale cyberwarfare, an electrical grid that is massively exposed, an ill-informed, grossly apathetic people that is “tired of war,” but was never asked to sacrifice, and a president who is now threatening the likes of James Buchanan as worst this nation has ever had.

President Obama with his new actions in Iraq is simply flailing away. It’s embarrassing. It’s dangerous. 

---

Turning to the U.S. economy, after the crush of data the prior week, there was a limited amount this past one, with June factory orders up a better than expected 1.1%, while the July ISM reading on services was 58.7, the strongest since December 2005.

Aside from the impact of geopolitical events, it’s still about the Federal Reserve and when it will be forced to hike the funds rate off the zero level. According to the latest survey of economists for the Wall Street Journal, GDP is pegged at just shy of 3% in the third and fourth quarters, which would put growth over the full year at 2%.

Europe and Asia

The European Central Bank held the line on interest rates for a second consecutive month and President Mario Draghi insisted the eurozone’s recovery remained on track, while admitting threats to growth were “heightened” by crises in Ukraine and the Middle East. The trade war between Russia and the West could be a killer.

Draghi was hardly reassuring, especially given some of the recent data, and he had to acknowledge that eurozone momentum had weakened in the second quarter amid the rise in political tensions.

“There is no doubt that if you look at the world today, you’ll see that geopolitical risks have increased all over the world: we have the Russian-Ukrainian crisis, Iraq, Gaza, Syria, and Libya,” said Draghi. “And some of them, like the situation in Ukraine and Russia, will have a greater impact on the euro area than they certainly have on other parts of the world.”

Draghi also blamed euro governments for failing to boost reforms, especially in Italy, which fell back into recession in the second quarter, we learned this week; Draghi saying Italy, the eurozone’s third-largest economy, was suffering from excessive business regulations. And he called out France’s Francois Hollande, who wants more ECB action, while Draghi says this will do little to help France unless Hollande’s government tackle’s structural economic flaws.

Regarding the euro currency, which has finally fallen a bit against the dollar since the start of June, a needed occurrence for eurozone companies dependent on exports, Draghi said:

“Markets have perceived that....monetary policies in the euro [area] and the United States are, and are going to stay, on a diverging path. The fundamentals for a weaker exchange rate are much better than they were two or three months ago.”

Euro area bond yields hit historic lows, with the 10-year German bund hitting a low of 1.02%, before closing the week at 1.05%. Germany’s two-year note traded with a negative yield, meaning investors holding to maturity will receive less than they paid to buy it.

France’s 10-year hit a new low, 1.46%. The Netherlands is at 1.24%. Finland, which has all kinds of economic problems (see “Russia” discussion) nonetheless saw the yield on its 10-year at 1.17%. Insane.

But there was a little sanity in some market action. The difference (spread) between German bunds and the 10-year bonds of the periphery nations widened. Spain’s 10-year finished the week at 2.55%, just a slight improvement on the week, while Italy’s ended up unchanged at 2.81%, meaning the spread widened with Germany, as it should. Of course rates for Italian and Spanish paper are still far too low vs. reality, but for now they continue to be seen as “safe havens” given the investment alternatives.

To beat a dead horse, if Europe grows, including in Italy, they’ll be able to service their debt. If the economies don’t grow, and Italy sure hasn’t, then the day of reckoning in the credit markets will yet come...all over again.

Eurozone GDP figures are due out next week and there is no cause for optimism.

Some specifics....

In Italy, GDP in the second quarter fell 0.2% after a 0.1% decline in the first, thus attaining the classical definition of recession, two consecutive quarters of negative growth. 39-year-old Prime Minister Matteo Renzi’s reform program is falling flat and the people are growing restless. Last week I noted how unemployment is actually rising in Italy, especially among the young.

Italian bank, Monte dei Paschi di Siena, the world’s oldest surviving bank, reported a larger-than-expected loss, $240 million for the second quarter, three times what analysts’ forecast and the bank’s ninth consecutive quarterly loss.

But on Friday, senators in Italy did vote in favor of sweeping reforms that could lead to dramatic reductions in the size and power of the upper house of parliament, which Renzi has been highlighting as part of his plan to lift the economy out of its doldrums. [I’m not an expert on Italian parliamentary politics but it seems the passage of a reform bill may still require a referendum and the issue isn’t over.]

The Bank of Italy lowered its growth forecast for this year to 0.2 percent, less than a third of its previous prediction.

Portugal’s Banco Espirito Santo collapsed, with Portugal’s central bank creating a new company to house BES depositors, employees, and senior creditors...the good bank...while the second company, the bad bank, will hold all the crapola (such as BES’ investment in agriculture, the health sector and Angola), with equity and junior bondholders suffering mightily, though to what extent won’t be known until the assets in the bad bank are disposed of. BES had been Portugal’s largest listed lender, but the shares were delisted. 

Portugal’s central bank governor said “The plan carries no risk to public finances or taxpayers. There was an urgent need to adopt a solution to guarantee the protection of deposits and assure the stability of the banking system.”

[Draghi said the collapse of BES would not require taxpayer funds nor inflict damage on the overall financial system in the eurozone.]

The Portuguese government is funding the good bank (Novo Banco) with 4.9bn euro from its bailout fund. Eventually the good bank gets sold off and the loan is repaid...at least that’s the plan.

But as I’ve said many times before, it’s about a total lack of transparency, not just with BES, but with many of Europe’s banks...and not just in the periphery. They simply aren’t as strong as U.S. banks, period, and there will be many more BES-type situations to come if the eurozone economy continues to stagnate rather than grow at a solid clip.

Germany reported a huge plunge in factory orders for the month of June, down 3.2% from May, as Russian sanctions were beginning to bite. Exports fell 4.1% in June over May, down 10.4% to the euro area. Some are saying the German economy contracted in the second quarter.

A Markit (sic) barometer of retail sales in the eurozone in July hit a 14-month low at 47.6. France was at 45.6; Italy at 43.4.

A final reading on the services PMI for the eurozone in July was 54.2.

The U.K., though, saw its July services PMI soar to 59.1 from 57.5 in June. Industrial production was up 0.3% in June from May. And new home prices rose to a record in July, according to Acadata; up 9.9% year over year.

Finally, on the issue of anti-Semitism in Europe, Britain’s Foreign Secretary Phillip Hammond said the other day in an interview with the Sunday Telegraph that he has already “seen an upturn in anti-Semitic rhetoric” as a result of Israel’s offensive in Gaza.

Hammond said the British public is “deeply disturbed” by the suffering of the people of Gaza.

“The British public has a strong sense that the situation of the civilian population in Gaza is intolerable and must be addressed – and we agree with them.

“What has struck me most looking at my own constituency in-box as well as the thousands of emails that I’m receiving from the general public here is that it isn’t just the Muslim community that’s reacting to this. It’s a broad swathe of British public opinion that feels deeply disturbed by what it is seeing on its television screens coming out of Gaza,” Hammond told the Telegraph.

A UK Jewish advisory body said last week that anti-Semitic incidents in Britain had risen to a near-record level, as reported by the Jerusalem Post.

A story in The Economist noted the following:

“Israel remains much surer of its friendship with America. But even here, tempers have frayed....

“Polls show that Americans overwhelmingly sympathize with Israelis more than with Palestinians... But they also show a widening generational split. Younger Americans are far likelier than older ones to say Israel is more responsible than Hamas for the fighting in Gaza. [Ed. thanks to the vile Internet.] A recent Gallup poll found a majority of those under 30 thought Israel’s actions in Gaza unjustified. Baby-boomers whose views were shaped by Israel’s wars against Soviet-aligned Arab states in 1967 and 1973 may still see Israel as a plucky little David standing up to Goliath. But for many younger Americans, who have mainly seen a powerful Israel occupying the West Bank and battering Hamas, the picture is different.”

This week I received a report from an old friend, Bob C., who I’ve known about 40 years. Naval Academy grad, Marine, fighter pilot...now a commercial airline pilot for a major carrier...who just came back from Ireland, a first for his family as they explored their family roots. I had given Bob my advice on his trip route and was awaiting his thoughts. He included the following:

“Huge amounts of anti-Semitism, both in person in Ireland and on all sorts of different European T.V. stations, bubbled up to the surface with the Israel-Gaza gig going on... Un(believable)! We’ve got to get our heads on straight and realize Hamas and others have been using mosques, schools, children, etc. to shield themselves from getting their butts whipped for as far back as when I first joined the Marine Corps. The press coverage and blatant anti-Semitism was disgusting!”

I’ve written of this looming threat, now obviously growing in a big way, for years. 

Next week, I’m letting loose. 

Turning to Asia, in China, the July services PMI was 54.2 vs. 55.0 in June and a 6-month low. HSBC’s own July services reading was down to 50.0 from 53.1 in June, a record low since HSBC began tracking this in 2005.

Falling home prices and declining new construction continue to hit the economy.

But China did report an unexpected surge in exports for July, up 14.5% from a year earlier, double expectations, while imports dropped 1.6%, resulting in a record trade surplus of $47.3 billion for the month.

Exports to the European Union rose 17% from July 2013, and shipments to the U.S. jumped 12.3%, the best performance here since November. Exports to the rest of Asia increased 11.9%.

Put it all together, including an earlier reading on manufacturing in China that showed marked improvement, and you have a mixed picture.

Separately, the Chinese government excluded Apple iPads and MacBook laptops from the list of products that can be bought with public money because of security concerns amid escalating tensions between Washington and Beijing over claims of hacking and cyberspying. Earlier, Microsoft’s Windows 8 operating system was excluded from government purchases.

In Japan, there are growing signs the rebound from April’s sales tax hike is anemic, far worse than the government of Shinzo Abe expected, and needs.

Street Bytes

--The Dow Jones and S&P 500 broke two-week losing streaks solely on the heels of Friday’s strong rally, precipitated solely by rumors of de-escalation in Ukraine, with the Dow finishing up 0.4% to 16553, while the S&P gained 0.3%. Nasdaq advanced 0.4% on the week.

--Richard Morgan / New York Post, on one of my favorite topics, financial engineering.

“S&P 500 companies have allocated twice the cash to buybacks than to dividends in the first quarter, statistics show. There were $82 billion in dividends paid in the three months ended March 31.

“Indeed, of the $3.70 gain in S&P 500 operating EPS between the third quarter of 2011 and the first quarter of 2013, less than half, or just $1.50, was attributable to organic growth, according to a study by J.P. Morgan.  The remaining $2.20 – or 60 percent of the EPS gain – was the result of buybacks.”

Apple...IBM...those are some of your poster childs.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.44% 10-yr. 2.42% 30-yr. 3.23%

The 10-year broke out of its 2.44% - 2.66% trading range as the yield fell to 2.36% by Friday morning in a flight to safety, but then rose to 2.42% by day’s end with the seemingly better news from Ukraine and the rally in equities.

--Fed Chair Janet Yellen said the other day that valuations for high-yield, junk bonds “appear stretched” and the past week saw record withdrawals from mutual funds and exchange traded funds that buy such securities; $7.1 billion worth for the week ended Aug. 6, according to Lipper data. That is the fourth straight week of redemptions from junk bonds. Average yields on the paper have jumped from a record low of 4.82% in June to 5.78% on Thursday. [Vivianne Rodrigues / Financial Times]

--The World Health Organization declared the worst Ebola outbreak on record is an “extraordinary event” and a public health risk to other countries.

“The possible consequences of further international spread are particularly serious in view of the virulence of the virus. A coordinated international response is deemed essential to stop and reverse the international spread of Ebola.” 932 had died as of Aug. 6.

I’ve been writing that it’s the threat to the regional economy that is a huge concern and as this current epidemic represents the first time Ebola has appeared in West Africa, the likes of Liberia, Sierra Leone and Guinea were totally unprepared and their health systems are overwhelmed.

Health-care workers also aren’t taking appropriate precautions. At least six who came in contact with Liberian-American consultant, Patrick Sawyer, who got sick during his air travel between Monrovia, Liberia, and Lagos, Nigeria, have been confirmed as infected and isolated. At least one has died, as did Sawyer.

Clearly, the two Americans now being treated in Atlanta made basic mistakes to catch it themselves. These workers are under unbelievable stress, with few breaks, and in many working with inferior equipment, and mistakes are being made, many probably because they’re just plain tired. Like a tired pilot or driver.

Also, a lack of border controls has allowed infected people who didn’t seek medical attention, for various reasons, including suspicion and fear, to travel freely between countries.

Finally, as for the “secret serums” being employed and tested, it is far too early to say any of them are the cure, even if the two Americans, for example, who are being treated with ZMapp, recover. It’s possible they would have recovered on their own. Not everyone dies that comes down with Ebola, remember. You need full clinical trials to prove the efficacy.

--Bank of America and the Justice Department are closing in on a deal in which the bank will pay $16 billion to $17 billion to resolve mortgage-related misconduct in the run-up to the financial crisis. This would set a record for fines and damages in a civil settlement between the U.S. government and a company, eclipsing a $13 billion deal struck between the Justice Department and J.P. Morgan Chase & Co. in a similar mortgage-related case.

BofA’s legal tab could now be as high as $23 billion after an earlier $6 billion settlement with the Federal Housing Finance Agency over other mortgage issues.

Editorial / Wall Street Journal

“If you thought the last financial crisis was expensive, wait until taxpayers see how much it costs to rescue banks when they have to do it all on their own. The U.S. Department of Justice aims to extract as much as $17 billion from Bank of America for the crime of taking problems off Washington’s hands in 2008.

“Regulators were high-fiving when the bank bought Countrywide Financial and then Merrill Lynch during the crisis. But now Washington seems intent on making bank shareholders pay again for the problems that caused these firms to need a rescue in the first place. Come the next crisis, CEOs will know to run in the other direction when the government offers a deal on a failing firm. And when private capital flees, guess whose money will be used to prop up the banking system.

“In some earlier post-crisis settlements, the feds at least pretended that the cases were about making mortgage investors or borrowers whole. But the pending Bank of America settlement appears to consist largely of a penalty for alleged mortgage sins committed by the two failing companies the feds wanted the bank to buy, and in one case pressured it to buy.

“The new game at Justice seems to be to come up with a big dollar figure to be paid by bank shareholders – big enough to persuade progressives that the department is being tough on Wall Street – and then fill in the blanks on the alleged legal violations. So we can’t say for sure what the final deal will claim the bank did. But BofA must be taking the fall for Countrywide and Merrill Lynch because the bank itself originated only 4% of the bad mortgage paper for which it is now responsible....

“Bank of America finished repaying its $45 billion in TARP loans in 2009. But we wonder if its shareholders will ever stop paying Washington for the deals Washington wanted – and even demanded – during the crisis.”

--Malaysia Airlines, which has been teetering financially after two catastrophic disasters in four months, MH370 and MH17, is being taken private by Malaysia’s sovereign wealth fund in a rescue plan where the airline will be restructured and its shares delisted.

Minority shareholders will receive a small premium to the recent closing price, though 29% over the average-weighted price of the past three months. [But we’re still talking pennies.]

The sovereign wealth fund, Khazanah, already owned 69% of the airline and it said, “Nothing less” than a complete overhaul is required to save a national emblem of the country’s success going back to the 1980s.

Malaysia Airlines’ board still must approve the proposal. The airline, post MH17, was burning through $1.6 million a day.

--Ed Hammond / Financial Times

“Tuesday, August 5, 2014 is likely to go down as one of the darker days in the history of Wall Street’s mergers and acquisitions market.

“In the space of a few fraught hours, bid proposals worth more than $100 billion collapsed, sparking concern about the sustainability of a transaction boom that has gathered pace since the start of the year.”

First, you had 21st Century Fox’s $71bn attempt to buy Time Warner, called off by Rupert Murdoch, who blamed the death of the deal on Time Warner’s refusal “to explore an offer which was highly compelling.”

Murdoch had announced three weeks earlier he was going after Time Warner. In response to his pulling back Time Warner shares fell 14% immediately. Fox’s shares rose 7%.

Then, two hours later, Sprint, and its Japanese investor, walked away from an informal bid to acquire rival carrier T-Mobile USA.

But here, the issue seems to have been regulators more than anything else, seeing as a deal would have merged the third- and fourth-largest mobile phone operators.

--With the collapse of the Time Warner / Fox, and Sprint / T-Mobile deals, Wall Street banks such as Citigroup, Goldman Sachs and J.P. Morgan Chase have lost out on an estimated $400 million in investment banking fees.

--Time Warner CEO Jeff Bewkes argued Time Warner’s own growth plan will create more value than any proposal Rupert Murdoch had to offer. Time Warner’s earnings exceeded analyst expectations, up 10%, though revenues, up 3%, missed. 

21st Century Fox saw its net income fall 1.1% for the quarter, but revenue soared 17% from a year ago on the strength of global box office successes, including “X-Men: Days of Future Past” and “Rio 2.”

--Netflix’ subscriber revenue was greater than Time Warner’s HBO unit for the first time ever last quarter, a major coup for Netflix CEO Reed Hastings. Just two years ago, HBO had nearly double Netflix’ subscriber revenue.

--CBS reported earnings that exceeded Wall Street’s expectations, thanks to financial engineering (stock buybacks, which the company announced it was doubling), even as CBS suffered on the advertising side from the loss of the NCAA college basketball semifinals. Revenue fell 5.4% in the quarter from a year ago.

--Walt Disney Co. said fiscal third-quarter earnings rose 22% on double-digit revenue increases, beating expectations. The Studio division continues to benefit from the animated blockbuster “Frozen.”

--Re/code reports Apple’s iPhone 6 will be launched Sept. 9. The screen size will be stretched from 4.7 to 5.5 inches and have a faster processor.

--Canada and the European Union have agreed to the final text for a free trade agreement that will cut tariffs between the two by 98% and could boost trade by 20%, or about $20 billion. This also might provide a blueprint for a final deal between the EU and U.S.

--The latest survey by the Kaiser Family Foundation, a nonpartisan think tank, found that 53% of the public had an unfavorable view of the Affordable Care Act, more than the previous peak of 51% in October 2011.

But 60% said they would rather see the law changed than repealed entirely, while the portion who like the law has stayed somewhat steady at 37%.

--Meanwhile, last week I wrote of how opponents and proponents for ObamaCare will pick apart the 2015 premium increase data to buttress their respective cases and opponents can point to Florida, where “Premiums for individual major medical plans that are compliant with the ACA regulatory requirement will go up an average of 13.2% in 2015, according to data provided to the Florida Office of Insurance Regulation (Office) by insurance providers....

“The rising premiums come on the heels of a 37% average increase in the combined individual and small group plan rates in 2014, per a study released in April by Morgan Stanley. That confirms predictions the Office made last year of premium increases of 30-40% for the individual market plans and 5-20% for the small group market plans for plan year 2014.” [Wall Street Journal]

--Last week I also wrote of the exploding situation with the Social Security disability-insurance program and how the total in benefits was $140 billion last year, up from $78.2 billion in 2004.”

But when I wrote of this, I admit to not thinking of the whole PTSD predicament. That is until I read a Los Angeles Times piece by Alan Zarembo from Sunday that notes:

“Depending on severity, veterans with PTSD can receive up to $3,000 a month tax-free, making the disorder the biggest contributor to the growth of a disability system in which payments have more than doubled to $49 billion since 2002.” [Ed. the military side.]

“ ‘It’s an open secret that a large chunk of patients are flat-out malingering,’ said Christopher Frueh, a University of Hawaii psychologist who spent 15 years treating PTSD in the VA system....

“The number of veterans on the disability rolls for the disorder has climbed from 133,745 to more than 656,000 over the last 13 years. [Ed. of course that is the time of Iraq and Afghanistan, but that is a massive number...the 520,000 difference. It is totally unrealistic, as well.]....

“Many veterans – including those receiving disability pay – make substantial progress with treatment, (the VA said).

“Among the most encouraging results came in a study published last year in JAMA Psychiatry. It looked at 1,888 veterans who began a treatment known as prolonged exposure therapy. Nearly 800 went on to fall below the threshold for PTSD on a standard assessment scale. Their traumas included combat, sexual violence and painful childhood experiences.

“In the VA disability system, however, the disorder is usually permanent.

“Of the 572,612 veterans on the disability rolls for PTSD at the end of 2012, 1,868 – a third of 1% - saw a reduction in their ratings the next year, according to statistics provided by the VA.

“Even some veterans whose diagnosis falls under deep suspicion have managed to keep their disability ratings.”

The difference in those two percentages is unreal.

Last week, in talking of the disability program in general, I said, “Many of us are flat-out crooks.” I stand by that. 

--Newsstand sales of U.S. consumer magazines dropped 12% in the first half of the year vs. 2013, while paid subscriptions declined 1.8%, according to figures from the Alliance for Audited Media.

Total average circulation – paid and newsstand – fell 1.9% in the first half.

--Retail-bacon prices have risen to the highest levels since at least 1980, largely because of pig flu, but the worst of the virus is over and supplies of hogs are growing again. Prices will come down. Lower feed prices are helping as well.

--McDonald’s reported dreadful same-store sales for July, with global comps down 2.5%; including down 3.2% in the U.S. and 7.3% in Asia. Regarding the latter, earlier the company said the latest food scare in China was hurting results across Asia, after one of its main meat suppliers was found by the Chinese government to be distributing expired meat and doctoring production dates.  McDonald’s has 2,000 locations in China and 3,100 in Japan.

[Burger King also dropped the same supplier in China. BK has 200 restaurants there.]

--CVS Caremark Corp. said its second-quarter earnings rose 11%, with the pharmacy operator boosting its earnings guidance for the year, as revenue rose 11% as well, above expectations.

The pharmacy services business posted 16% sales growth.

You know what I am buying at my local CVS increasingly? Snacks. They always have a superior sale on one of my favorites, like Chex Mix.

--Investors pulled $830 million out of Bill Gross’ PIMCO Total Return Fund in July, a 15th straight month of redemptions, though the pace dropped sharply from a month earlier when it was $4.5 billion. Assets are still $223.1 billion at the end of July, after hitting a record $292.9 billion in April 2013. It remains the world’s biggest bond fund by assets.

--Donald Trump is rather torqued off that two bankrupt Atlantic City casinos still bear his name, five years after he gave up anything to do with them. 

Trump filed suit demanding his name be stripped, particularly because the properties have fallen into disrepair, tarnishing his image.

Trump said on Tuesday, “I’ve been away from Atlantic City for many years. People think we operate (the company), and we don’t. It’s not us. It’s not me.”

--The number of passengers at New York and New Jersey airports grew 2% to 55.7 million, during the first six months of this year, compared with 2013. JFK International soared 7.4%. Interestingly, Atlantic City International Airport, having gained a new airline service, grew 8.8% to more than 600,000 passengers.

In contrast, LaGuardia and Newark Liberty were flat. [The fifth that is part of the calculations, Stewart International (Orange County, N.Y.), saw traffic rise 6.9% to 150,000.]

--Wine fraudster Rudy Kurniawan, 37, was sentenced to 10 years in jail and ordered to pay $20 million, plus $28 million in restitution to victims, for his role in selling millions of dollars’ worth of fake wine. Among those swept up in the fraud was billionaire William Koch.

Kurniawan is the first person ever to go to jail for selling fake wine in the U.S. He was found guilty of mixing fine wines with newer vintages in his kitchen and then passing them off as far more expensive wines in a scheme that ran from 2004 to 2012.

It is not known, nor will it probably ever be known, just how many fake bottles he sold. In 2006 alone, it was believed he sold up to 12,000 bottles at auction.

“But authorities were said to have found thousands of labels for fine Burgundy and Bordeaux wine along with full, unlabeled bottles in Kurniawan’s home,” as reported by BBC News.

--Google and Barnes & Noble are teaming up to go after Amazon by offering fast, cheap delivery of books. Buyers in Manhattan, West Los Angeles and the San Francisco Bay Area will be able to get same-day deliveries from local Barnes & Noble stores through Google’s fledgling delivery service. At the same time, Amazon announced it was expanding its same-day delivery service to 10 cities from four. [New York Times]

--Talk about a nightmare. Qantas passengers spent a night on the floor of Los Angeles Airport (LAX) after their flight to Sydney was delayed 23 hours. At first it was announced there was an issue with the on-board cooling system, but the initial delay was compounded when it was learned the cabin crew had exceeded maximum work hours and needed to be replaced. And then Sydney Airport’s curfew (no landings between 11 pm and 6 am) caused further distress.

--With the anniversary of World War I being commemorated this week across those European nations most involved, I was reading a piece in the Moscow Times by Alexey Eremenko (WWI not being a big topic in Russia, especially vs. the cult-like status accorded World War II, or the war against Napoleon), and he notes:

“(The) country weathered the pressure of war well: Russia’s GDP only began to sink two years after the start of combat in 1916, at which point it lost a modest 10 percent...

“By comparison, the GDP shrunk 48 percent during the Civil War [Ed. 1917-1921 in total...some say thru 1922], between 1918 and 1919,” according to a study out of Warwick University in Britain and Moscow’s New Economic School.

Just thought that was staggering. 48 percent.

And that’s your international economic history tidbit for the week.

--But wait...there’s more!

The Great Retreat for Russia that was in 1915 (they then rallied back in 1916 behind their brilliant General Aleksey Brusilov to break the back of the Austro-Hungarian army, though at a cost of 1.6 million Russian soldiers), was caused by “Ammo Hunger.” The demand was for 1.5 million artillery shells per month, and Russia could produce only 650,000 over the whole of 1914.

But, within a year, Russia was cranking out nearly 800,000 shells per month, according to a study put out by Forbes Russia last year.

Russia had also been importing TNT for shells before the war from Germany, ironically, but then it began stockpiling huge amounts made domestically.

What’s the lesson in terms of today? Never underestimate the potential of the Russian war machine.

Foreign Affairs

Russia / Ukraine: Fears grew Russia was preparing “direct intervention” in Ukraine, as Poland’s prime minister, Donald Tusk, said Wednesday, after Polish Foreign Minister Sikorski had expressed like concerns on Tuesday, as the tit-for-tat between the West and Russia over Moscow’s support for separatists in eastern Ukraine ratcheted up a few levels.

As Russia sharply increased the number of troops and heavy weapons positioned on Ukraine’s eastern border, 20,000 deployed in battle-ready formation, according to NATO, Russian Prime Minister Dmitry Medvedev announced during a government session: “Russia is imposing a full ban on deliveries of beef, pork, fruit and vegetables, poultry, fish, cheese, milk and dairy products from the European Union, the United States, Australia, Canada and Norway.”

As the Moscow Times reported: “The move – which is likely to slash consumer choice in supermarkets, hike Russia’s already high inflation rate and force interest rates up – follows Putin’s signing of a decree on Wednesday ordering the government to bar food imports from countries that have imposed sanctions, ‘with the purpose of ensuring Russia’s safety.’”

Medvedev said the food import ban will last one year, though one assumes it would be rescinded should some kind of political agreement be reached.

The imports affected by the sanctions amount to more than half of the total value of food exported to Russia from the above listed countries and nearly a quarter of Russia’s food imports last year, according to Reuters, citing data from the International Trade Center.

Russia’s agriculture minister said the government would look to other sources, including South America, Central Asia, China, Israel and Belarus.

But the costs, say fish imports from South American rather than existing ones from Norway, will be high. Fruit and vegetables come winter will be a big problem.

Bloomberg’s Kati Pohjanpalo reported on the plight of Finland, as one example of the impact Russia’s sanctions will have on those it is targeting in retaliation.

14% of Finland’s trade comes from Russia, including for dairy and cheese. Valio Oy, a cooperative dairy producer, accounts for about 40% of Finnish food exports, but on Thursday, the CEO said the company “halted all production lines making goods for sale in Russia. They will remain halted until we can sell in Russia again.”

Finland’s economy was struggling mightily before this hit, with unemployment rising and GDP contracting the most recent two consecutive quarters (recession).

Finland also imports 80% of its energy products from Russia.

For its part, Germany cancelled a contract supplying Russia with a $150 million combat simulation center, highlighting its toughening stance towards the Kremlin. A poll for broadcaster ARD released Friday showed the German people are backing their government, with 82% of Germans saying Russia can’t be trusted, with 70% saying tougher sanctions are the right thing to do. Back in March, only 38% supported economic sanctions against Moscow.

And Japan unveiled details of financial sanctions against 40 individuals and two groups involved in the annexation of Crimea and the destabilization of eastern Ukraine, as Tokyo joined the West in pressing Moscow to use its influence with the separatists.

Another sanctions-related tidbit...as many as 27,000 Russian tourists were stranded abroad with the collapse of a Russian tour firm, Labirint, which suspended operations, blaming the “negative political and economic situation” and a deterioration in the exchange rate, while Dobrolet, a Russian budget airline, grounded its planes. It had been flying from Moscow to Crimea, but was placed on an EU sanctions list last week.

Meanwhile...on the ground, another Ukrainian fighter jet was shot down on Thursday as it flew low over rebel-held territory. The plane crashed about 40 km from the site of Malaysia Airlines flight MH17.

On Thursday, the Ukrainian army announced it was scrapping a ceasefire around the MH17 crash site after international investigators said they were suspending operations because of ongoing fighting.

But Ukraine’s defense minister said his forces were making significant progress against the rebels, even as civilians in the rebel-held cities of Donetsk and Luhansk prepared for a siege. The U.N. warned of an increasing humanitarian crisis in the region, with wrecked infrastructure and limited access to power and water. At least 1,500 have been killed since April.

Ukrainian Prime Minister Yatsenyuk’s office has been the victim of one massive cyberattack after another, as reported by the Financial Times. Many of Ukraine’s embassies have also been infected with a “virulent cyber espionage weapon linked to Russia.” “Sensitive diplomatic information has been made available to the perpetrators of the attack as a result.”

The culprit is the “Snake” malware, also known as Ouroboros, the tail-swallowing serpent of Greek mythology. The campaign against the prime minister’s office actually started in 2012 and has been ongoing, as revealed by Symantec and the FT’s intelligence sources.

Editorial / Wall Street Journal

“NATO’s promise of collective security rests on the notion that aggression against one member of the Atlantic alliance triggers a response from all. Yet Russia’s swift, stealthy operation to annex Crimea and destabilize eastern Ukraine has cast doubt on the alliance’s capacity to fulfill that promise. What can NATO realistically do if Vladimir Putin sets his sights on the Baltic states?

“The latest warning comes in a new report by the Defense Committee of the U.K. House of Commons. The report surveys NATO’s widening conventional capability gap with Russia, highlights the Kremlin’s aggressive nuclear posture and points to the doctrinal limitations that could hamstring a response to the next round of aggression.

“Its stark conclusion: ‘NATO is currently not well-prepared for a Russian threat against a NATO Member State.’ Case in point: The British Army now fields a grand total of 156 main battle tanks, amounting to a single regiment. Russia has more than 2,800 active main battle tanks, according to a 2013 study by the International Institute for Strategic Studies. The committee notes that the Kremlin has unveiled an ambitious plan to expand and modernize Russia’s conventional forces, with the aim to increase the proportion of conventional assets classed as ‘modern’ to 70% by 2020, up from 10% in 2012.

“Then there is Russia’s bold nuclear-force posture. ‘Russia sees its strategic nuclear forces as a key deterrent to potential Western intervention or belated response to Russian aggression,’ the committee notes. ‘Russia dedicates a third of its Defense budget to them.’ Moscow has at least twice since 2009 simulated nuclear strikes, including one targeting Warsaw. By contrast, the Obama Administration earlier this year announced plans for sharp, and unilateral, cuts to the U.S. strategic force well ahead of the 2018 deadline set by the New Start treaty.

“The committee’s most important findings relate to outdated doctrines that could prevent the alliance from keeping pace with Moscow’s sophisticated, evolving strategy. A linchpin of Russian strategy is what the committee calls ‘ambiguous warfare.’ As one Russian defense theorist puts it, ambiguous warfare involves using irregular forces, cyberattacks and information warfare to ‘neutralize adversary actions without resorting to weapons (through indirect actions), by exercising information superiority.’

“The trouble ambiguous warfare poses to NATO is that the alliance’s collective-defense obligations, and the strategic doctrines pinned to them, call for responding to ‘armed’ assaults.”

On another issue, David E. Sanger and William J. Broad of the New York Times reported on the end of a reciprocal arrangement between U.S. and Russian nuclear scientists whereby the two sides visited each other’s atomic sites to work on projects ranging from energy to planetary defense (“defense from asteroids,” for example).

Earlier this year, the Energy Department canceled the meetings and lab visits. This program had been a success in building relations between the two.

Lastly, Edward Snowden was granted another three-year residency permit this week as Putin continues to tweak the U.S. At the same time, Putin tightened the screws on free expression on the Internet further. As the Wall Street Journal opined, “We missed the protests from Mr. Snowden and his collaborator Glenn Greenwald.”

Iraq: ISIS launched a new front in Iraq, hitting Kurdish defenses in the north, seizing control of the country’s largest Christian town and sending tens of thousands fleeing in panic.

The Kurds, previously seen to have a strong fighting force, retreated amid the onslaught, pleading for assistance, including heavy weapons to combat that which ISIS has captured in overrunning Iraqi arms depots earlier. The United States hasn’t supplied the Kurds with updated military hardware since 2003, Washington afraid of upsetting the floundering central government in Baghdad, even though the Kurds, next to the Israelis, are our best friends in the region.

By Thursday, Kurdish forces had pulled out of three towns, putting ISIS within 40 miles of the Kurdish regional capital of Irbil.

The Christian town of Sinjar was taken by ISIS a few days earlier, with an estimated 40,000 members of the minority Yazidi sect fleeing to Mount Sinjar, where they were facing imminent death; ISIS having given the Christians a choice: convert to Islam, remain Christian but pay special taxes, or be killed.

One Kurdish soldier in Qaraqosh was asked by a local why the troops were withdrawing from the town, and the soldier replied: “If we kill 100 [militants], 200 more will come, they are like ants and we don’t have enough ammunition.” [Loveday Morris / Washington Post]

Former U.S. ambassador to Iraq, Christopher Hill, said: “What we are dealing with is something that goes beyond just the question of Baghdad’s governance. We’re dealing with forces there, specifically ISIS, that threaten a larger war in the Middle East.”

The Wall Street Journal’s Carol E. Lee and Felicia Schwartz noted:

“The last time Mr. Obama authorized military strikes was in Libya in March 2011. Even then, with the U.S. leading a coalition of nations, he showed himself to be a reluctant warrior.

“Just as Mr. Obama touted the withdrawal of American forces from Iraq during his re-election campaign, White House officials initially pointed to the intervention in Libya as a model for the kinds of coalitions that could sustain a military intervention. A recent surge in violence there has quieted that view.

“Mr. Obama and Vice President Joe Biden, whose son served in Iraq, pointed to the withdrawal of U.S. forces as part of their legacy. ‘We were able to turn lemons into lemonade here,’ Mr. Biden said in a 2011 interview during his flight from Baghdad to Erbil on a trip to mark the end of the war with the Wall Street Journal.”

Editorial / Wall Street Journal

“Perhaps history will mark this as the week that President Obama recognized that evil unimpeded will devour everything before it.  We say perhaps because with this President you never know.

“President Obama said Thursday night he authorized limited air strikes against the Islamic State in Iraq and al-Sham (ISIS) to stop the Sunni jihadists from carrying out a genocide in northern Iraq. What he didn’t do, but should, is make a larger U.S. military commitment against ISIS both to avert a humanitarian catastrophe and protect American security interests.

“After routing Iraq’s army from Mosul and most of northern Iraq in June, ISIS has grown as a military force. It captured significant war materiel, including armored U.S. Humvees, and has attracted hardened jihadist fighters from Syria and elsewhere. In addition to the sums it looted from Mosul’s banks, the group has the potential to gain access to revenue from oil fields in northern Iraq.

“ISIS is also threatening the obliteration of the Christian population in northern Iraq. An assault by ISIS’s forces in northern Nineveh province has emptied towns of their Christian populations. Some 40,000 Yazidis, a minority who have lived in Iraq for a millennia, are now isolated with little food or water on Mount Sinjar. ISIS controls all roads out and has proven it will have no compunction to slaughter those who try to flee.

“When ISIS captured Mosul, it often painted an ‘N’ on the houses of Christians, denoting they are of Nazareth, the birthplace of Jesus. The Christians’ confiscated properties have been given to Muslims. Ancient Christian churches have been razed. The self-proclaimed ‘Islamic State’ is a barbaric, pre-modern movement whose goal is to expand its dominion with mass killings. Unresisted, it will not stop....

“If Kurdistan falls under its control, ISIS would move to consolidate its power in Syria and destabilize Jordan. The Islamic State’s base of power and financing assured, it would export skilled jihadists to destabilize political and economic life throughout the Middle East. It is a fantasy to believe the killers on view this week in Nineveh province will stay out of Europe or the U.S....

“It’s clear now that his decision to withdraw all U.S. troops in 2011 was a strategic and increasingly a moral disaster. The President – which is to say the United States – bears responsibility now for the humanitarian catastrophe occurring in Iraq, just as it did for the mass flight of Vietnam’s boat people, some two million, after the Communist triumph in the 1970s.

“As always, there are risks to a renewed U.S. presence. Surely, though, that risk is many times greater today because the U.S. failed to field a residual force three years ago that would have prevented the march of jihadists in Iraq. Absent greater U.S. military intervention now, the march will continue.”

Zalmay Khalilzad / Washington Post...a few days ago

“Should it capture and control the Mosul dam – Iraq’s largest – the Islamic State would hold hostage the precious water supply of millions of Iraqis. If it decided to destroy the dam, it could put people as far south as Baghdad at risk of deadly flooding. Just the threat of doing so would give the extremists much leverage....

“The United States needs to reconsider its thinking on the timing of security assistance. There are different views on how Washington should sequence additional assistance to the Iraqis, including direct U.S. attacks on Islamic State targets. One view is that the United States should condition such support on the selection of a new prime minister and the formation of a broadly accepted unity government in Baghdad. There was merit to this logic before the Islamic State’s recent gains, but now the threat is escalating so fast that waiting could have catastrophic consequences. Irbil, Baghdad and Mosul are operating on a different timeline than Washington.

“Given the great expansion of the threat, U.S. support should be expedited....

“The situation in Iraq is extraordinarily urgent. The Islamic State has become a lethal and capable military force with control over oil fields and infrastructure critical to all of Iraq. It recruits from around the world, and it poses a threat to vital U.S. interests in Iraq, the Middle East and, potentially, the U.S. homeland. To contain, reverse and defeat it requires adjusting our plans based on developments on the ground. Now is the time to do so.”

As to the ongoing formation of a new Iraqi government and the fate of Prime Minister Nouri al-Maliki, Iran no longer believes he can hold his country together and is looking for an alternative to combat ISIS, but there are few viable options.

Tehran is more concerned with a stable Iraq than with standing by Maliki at this point. Iran is said to be lukewarm on the perceived frontrunner, Ahmad Chalabi.

Israel / Gaza: With about four hours to go in a 72-hour cease-fire agreement on Friday, two rockets were launched from the Gaza Strip into Israel. Then as the cease-fire formally expired, Hamas, or Islamic Jihad, launched more than 18 rockets from Gaza at Israel, with at least 14 hitting open areas, two intercepted above the city of Ashkelon. By afternoon, at least 52 had been fired.

Israel retaliated, with Prime Minister Benjamin Netanyahu accusing Hamas of ignoring an offer for the cease-fire to be extended. Netanyahu said the military was under orders to respond “forcefully.”

An extended cease-fire was being negotiated in Cairo, where Hamas’ political representatives were holding out for a lifting of Israel’s economic embargo on Gaza as a condition for continuing the cease-fire (along with the release of West Bank Palestinians who were rearrested over the past two months and the construction of a seaport in Gaza). Israel is seeking the disarmament of the Strip, which Hamas will never agree to.

Hamas’ military wing has threatened to shut down air traffic at Ben Gurion International Airport.

Hard-line Israeli Economics Minister Naftali Bennett said, “Israel must recall its delegation to Cairo immediately. This is a moment of trial for Israeli deterrence in coming years. The response must be stiff.”

The negotiations in Cairo were without senior U.S. representation...just between Israel and Hamas, with Egypt moderating. Secretary of State Kerry had shot himself in the foot by opting for negotiations through Qatar and Turkey a few weeks earlier, which miffed Israelis of all political stripes as Kerry seemed to be favoring Hamas by working through two of its supporters.

The truce had been the longest pause in fighting that has killed 1,900 Palestinians and 67 Israelis since the war started on July 8.

Finally, last weekend, Israel announced the Israeli soldier believed abducted by Hamas in Gaza, Lt. Hadar Goldin, had been killed in action as he and his unit were preparing to destroy one of the tunnels when they came under attack. It was not clear if he was killed by friendly fire aimed at the Hamas unit that had grabbed him.

[A recent Pew poll of Americans revealed that when it comes to the question: “Who is to blame for the current violence in the Middle East (specifically over Gaza)?”...60% of Republicans blame Hamas, 13% Israel; while 29% of Democrats blame Hamas, 26% Israel. The NBC/Wall Street Journal survey had 34% of all Americans favoring the Israeli side, vs. just 4% favoring the Palestinians. 53% treat both sides the same.]

Lebanon: In a major surprise, former Lebanese Prime Minister Saad Hariri unexpectedly returned to Lebanon on Friday after being in self-imposed exile for 3 ½ years, this as tensions were heightened in a big way with an ISIS attack across the Syrian border; the first wide-scale incursion by Syrian militants into Lebanon.

Hariri left in January 2011 after his government was brought down by Hizbullah and its allies. Prior to his return, Hariri said Lebanon was receiving a $1 billion Saudi grant to help the country’s security apparatuses crush terrorism. Hariri gave details about the grant from the Saudi port city of Jiddah. Saudi Arabia was the main sponsor of Saad’s father, Rafik. Saad said his immediate mission was to oversee use of the grant.

As to the fight in the border town of Arsal, part of the Bekaa Valley, the general area is home to a third of the 1.1 million registered Syrian refugees in Lebanon and the refugees are angry the Lebanese military is blocking those in Arsal from moving further inland and away from ISIS (while many natives in Arsal are Syrian sympathizers).

The Lebanese Army lost 14 soldiers in the early fighting around the city, with a reported 50 militants killed. Under a cease-fire agreement with the Lebanese Army, the militants began to withdraw.

Libya: According to the Libyan Health Ministry, 179 were killed in clashes between rival militias last week in Tripoli over the capital’s airport as well as in Benghazi.

Editorial / Washington Post

“Three years after U.S. and NATO forces helped liberate Libya from the dictatorship of Moammar Gaddafi, the country is beginning to look a lot like another nation where an abrupt U.S. disengagement following a civil war led to chaos: Afghanistan in the 1990s. In Libya, heavily armed militias are battling for control of Tripoli and Benghazi as well as the international airport. The United States, France and other Western governments involved in the 2011 military intervention have evacuated their diplomats and abandoned their embassies. A U.N. mission that was supposed to help broker political accords also left.

“Last month in Benghazi, the Ansar al-Sharia militia, which has ties to al-Qaeda and was involved in the Sept. 11, 2012, assault that killed the U.S. ambassador there, stormed a military base and then declared the city the seat of an ‘Islamic emirate.’ That’s what the Taliban called Afghanistan. According to The Post’s Karen DeYoung, some U.S. counterterrorism officials believe Libya’s Islamists could seek to align themselves with the Islamic State, the al-Qaeda offshoot that controls western Iraq and eastern Syria. Whether or not that happens, it’s not hard to foresee eastern Libya becoming a launching pad for terrorist attacks against nearby Europe or even the U.S. homeland.

“U.S. and Western responsibility for this mess is heavy. Having tipped the outcome of the war against the Gaddafi regime, NATO quickly exited Libya, which was left with no army or political institutions but was awash in weapons. Repeated Libyan requests for assistance in restoring security were brushed off; a small-scale NATO training program based outside the country was little more than symbolic....

“The Obama administration has done its best to ignore Libya’s collapse, even as Republicans in Congress obsess over conspiracy theories about the 2012 Benghazi attack. Administration officials continue to peddle the empty line that ‘Libya’s challenges can really only be solved by the Libyans themselves,’ as Secretary of State John Kerry put it this week....

“Pacification of Libya would probably require another Western intervention and a peacekeeping force, coupled with a far more robust international mediation mission. The chances that such an intervention will be mounted, of course, are miniscule; the Obama administration would almost certainly not endorse it.

“Of course, the notion that the United States should intervene against the budding al-Qaeda menace in Afghanistan during the 1990s also was dismissed as fanciful. After the attacks of Sept. 11, 2001, recriminations were plentiful. Yet the lessons of Afghanistan seem to have been lost in U.S. policy toward the contemporary Middle East.”

Afghanistan: Secretary of State Kerry was forced to go back to Kabul on Thursday to referee the ongoing election dispute between presidential candidates Ashraf Ghani and Abdullah Abdullah. 

After allegations by Abdullah of massive fraud in the June 14 runoff brought the country to the brink of civil war, Kerry intervened last month to get the two sides to agree to a full audit of votes cast under the supervision of the U.N.

Plus the two sides agreed to a power-sharing agreement, whereby the loser had representation in the new government.

But the audit has made minimal progress as Ghani and Abdullah’s representatives squabble over the issue of what to do with fraudulent votes.

So instead of the election being a confidence-building measure, it has been the opposite.

The audit isn’t even 20% complete.

Separately, a U.S. two-star general, Maj. Gen. Harold J. Greene, was killed when an individual wearing an Afghan military uniform opened fire on a group of soldiers at a training camp. He was the most senior U.S. officer to have died in the war in Afghanistan, and the most senior to die in a war zone since Vietnam. The gunman was killed in the attack. A German brigadier general was also injured.

Such “green-on-blue” insider attacks have been on the decline since 2012, when at least 61 coalition forces were killed by Afghans wearing uniforms.

The next day, two attacks by Afghan police officers claimed the lives of 11 of their fellow officers

One positive item. Before Congress left for its holiday, the Senate passed legislation that grants an additional 1,000 visas to Afghan interpreters who have worked for the U.S. military, with the House having passed similar legislation. This was long overdue.

China: From Keith Zhai / South China Morning Post

“President Xi Jinping told top officials he was disregarding ‘life, death and reputation’ to fight corruption in a terse speech signaling a possible dispute and doubts among party elites over the campaign....

“Xi was believed to have made the remark in a closed-door Politburo meeting on June 26, details of which were publicly revealed only when a city newspaper...on Monday reported that local officials received instructions from the president....

“Xi said ‘the two armies of corruption and anti-corruption are in confrontation, and are in a stalemate,’ adding that the leadership vowed to see the anti-graft campaign to the very end.”

The paper’s article was soon deleted from its website, apparently after receiving a gag order from propaganda authorities.

One reason put forward for Xi’s sweeping anti-graft campaign is that corruption has been undermining the People’s Liberation Army and its fighting capabilities.

On the foreign policy front, it was reported on Monday that Japan and China are trying to arrange two-way talks between their leaders at an APEC summit in Beijing in November, which would be a big positive and mark a shift in stance by Beijing.

But then on Tuesday, Japan, in its second defense review published by the government of Shinzo Abe, took aim at what it called “profoundly dangerous acts” by China to exert control of waters between the two countries (East China Sea) that could lead to “unintended consequences” in the region, with fears of a potential military clash growing.

So the next day, Wednesday, Chinese coastguard ships sailed into waters off the Japanese-controlled Diaoyus (Senkaku islands in Japan).

The issuance of the white paper will hardly make it easier to bring the two leaders together.

Beijing did invite Washington to cooperate in financing and building infrastructure in Africa, which was a rare positive development these days. It seems China and the U.S. have been working on a proposed $12 billion dam project in the Democratic Republic of Congo, what would be the world’s largest hydropower complex.

But in terms of future cooperation between the two, China’s lack of transparency is a major impediment.

Elsewhere, at least 75 people were killed in an industrial explosion in Kunshan, a car parts factory owned by a Taiwanese-backed company. Dust ignited spark plugs in a workshop, causing the explosion.

37 civilians and 59 “terrorists” were killed in a terror attack in Xinjiang, home to China’s mainly Muslim Uighur minority. Police arrested 215. The attack was apparently perpetrated by a knife-wielding gang.

And the government announced plans to ban the use of coal in Beijing by the end of 2020. But even with the ban, coal use is expected to soar in China.

Turkey: Prime Minister Erdogan is the favorite to win Sunday’s presidential election, with Erdogan trying to tie himself to Mustafa Kemal Ataturk in the pantheon of transformative Turkish leaders, though critics say he is undermining Ataturk’s legacy; Ataturk having forged a system of government based on a strict separation of church and state. [Mosque and state, in actuality.]

Nigeria: Boko Haram killed at least another 50 after storming a town in the northeastern part of the country. This week a risk consultancy firm, Maplecroft, said 3,477 were killed in terrorist attacks in Nigeria from July 2013 to June 2014, with at least another 200 dead in July. The difference today is Boko Haram is now taking actual land rather than just launching hit-and-run attacks. In this respect it is beginning to act like ISIS.

Random Musings

--The New York Times’ Nicole Perlroth and David Gelles broke the story that “A Russian crime ring has amassed the largest known collection of stolen Internet credentials, including 1.2 billion username and password combinations and more than 500 million email addresses, security researchers say.

“The records, discovered by Hold Security, a firm in Milwaukee, include confidential material gathered from 420,000 websites, ranging from household names to small Internet sites. Hold Security has a history of uncovering significant hacks, including the theft last year of tens of millions of records from Adobe Systems.”

Hold Security didn’t disclose the names of the sites impacted, in part because some of the companies that were compromised remain vulnerable.

The discovery (which the Times verified through various independent checks), dwarfs any other identity theft episode.

Alex Holden, the founder of Hold Security, said he saw no connection between the hackers and the Russian government.

The most worrisome aspect of this mammoth theft, as noted by Lillian Ablon, a security researcher at the RAND Corporation, is “The ability to attack is certainly outpacing the ability to defend.” Companies ultimately just “patch and pay.”

--On top of this massive breach, the U.S. government revealed that the firm it uses to perform background checks for the likes of the Department of Homeland Security, U.S. Investigations Services LLC, was the victim itself of a “state-sponsored attack” of its network that may have led to the theft of information of employees of DHS, so the FBI informed all 240,000 to be on the lookout for problems with their financial accounts.

The relationship between USIS and the government has been temporarily suspended. [Dion Nissenbaum / Wall Street Journal...the Washington Post first reported this.]

--In the above-mentioned NBC/Wall Street Journal poll, Congress’ approval rating is 14%, but when you break it down by party, 54% view Republicans negatively and just 19% positively, while Democrats were viewed favorably by 31%, with 46% having a negative bent.

That’s not good for Republicans in individual races, one would think, though the same survey looked at the 12 states with the most competitive Senate elections and 58% of voters in the 12 disapprove of Obama’s performance.

Karl Rove / Wall Street Journal...slightly different take on the Senate.

“Unlike 2010, when the big story was the epic gains of Republicans in the House, this year’s midterms will mostly be about the Senate. And this summer has been unkind to Democrats hoping to keep the upper chamber.

“Two weeks ago the New York Times reported that Montana Democrat John Walsh plagiarized much of his 2007 Army War College master’s thesis. Montana’s two largest papers have called for him to end his campaign; one suggested he resign the Senate seat he was appointed to in February to complete the term of Max Baucus, who became ambassador to China.

“Even before the plagiarism story broke, Republican Congressman Steve Daines had a double-digit lead. Now Democrats are unlikely to win even if Majority Leader Harry Reid forces Mr. Walsh to resign* by the Monday deadline for replacing him on the ballot.

“In Logan, W. Va., on Saturday, a coal miner asked Democratic hopeful Natalie Tennant why she supported President Obama. She didn’t have a good answer. Her campaign chairman awkwardly explained that ‘because on most of his policies and stuff she supports’ the president. The campaign later said he misspoke, but the damage was done.

“In states where Mr. Obama is unpopular, candidates are tempted to distance themselves. This makes them look shifty and disloyal and could alienate the president’s supporters. But not separating themselves can be lethal....

“(So will) Republicans coast to a Senate victory? On July 15, the Washington Post Election Lab gave Republicans an 86% likelihood of taking the Senate. This week Nate Silver of FiveThirtyEight rated the GOP’s chances ‘in the neighborhood of 60-40,’ the same percentage as the New York Times and CBS concluded from their July 27 YouGov survey.”

But it’s still too early, and as Rove points out, there are too few nonpartisan surveys and “Pollsters are still working to understand the impact of the increasing number of cellphone-only households.”

The GOP also continues to be outspent in the states where Democrats are most vulnerable.

*Sen. John Walsh did drop his election campaign Thursday amid the plagiarism allegations. Now the Montana Democratic Party must hold a nominating convention to come up with a replacement by Aug. 20. Former Gov. Brian Schweitzer, once deemed a shoe-in, has insisted he is not interested and told the AP on Thursday he will not run.

Rep. Daines should now pick up a key seat for the GOP.

Finally, a Pew Research Center survey reveals Republican voters don’t have the intensity they did in 2010, which as Rove notes speaks to Obama’s “strategy of division: Believing he can’t persuade independents, he hopes to whip his left-wing base into a frenzy emphasizing especially cultural issues like abortion and contraception.”

--Kansas Republican Sen. Pat Roberts beat back a Tea Party challenge in Tuesday’s Republican primary. Roberts has been representing the state, first as a Congressman, then as a senator, since 1981.

Tennessee Republican Senator Lamar Alexander also beat back a Tea Party challenger in a Thursday primary. 

--In local politics, Sen. Cory Booker has a surprisingly small lead over his unknown Republican opponent, Jeff Bell. Booker leads only 47 to 37 percent, according to a Quinnipiac University survey. Among New Jersey voters, Booker has just a 47 percent approval rating. I’m kind of surprised by both figures.

Personally, I’ve known of Bell a long time. He lost to Bill Bradley in a 1978 U.S. Senate race.

Separately, in a hypothetical 2016 matchup, Quinnipiac found Hillary Clinton would defeat Gov. Chris Christie 50 to 42 percent in my home state. Christie is viewed favorably by 47 percent of N.J. voters, 47 percent disapproving. [47 being this week’s magic number.]

Clinton would defeat Jeb Bush in New Jersey 54-34; and Rand Paul 55-35.

As for President Obama’s popularity in New Jersey, 44 percent view him positively, 52 percent negatively.

--In New York, Gov. Andrew Cuomo’s approval fell to 53% in a Wall Street Journal/NBC 4 New York/Marist poll, the lowest since he took office in 2011, though he still maintains a 31-point lead over his Republican challenger in November’s gubernatorial election.

[There was a time when Cuomo’s approval rating was in the 70s.]

The federal investigation into the disbanding of his Moreland Commission, that was to be looking into public corruption, hasn’t taken hold with the public it would seem. But the Wall Street Journal reported on Friday that the Feds are “looking closely at whether anyone in the administration encouraged the commission to avoid referring cases to Albany District Attorney David Soares, according to people familiar with the matter.”

--The issue with Toledo’s water, where a two-day ban was necessitated by an algae bloom in Lake Erie does not bode well for that city’s future. If you were a business thinking of locating operations there, you’d be foolish not to put this episode into your equation.

The suspected cause of the toxin that resulted from the algae was undoubtedly nitrogen and phosphorus, which normally comes from runoff of over-fertilized fields and lawns, or runoff from livestock pens.

Residents and businesses should not rest easy believing this to be a one-time event.

--Bizarre piece in Navy Times on a just completed investigation into Capt. Greg Gombert of the cruiser Cowpens, one of the U.S. fleet’s foremost surface combatants.

Gombert came down with flu-like symptoms back in January that confined him to his cabin for a week, but as he was recovering, he contracted temporary facial paralysis, a non-life threatening disorder that feels like a minor stroke.

So Gombert holed up in his cabin further and turned over most of the responsibilities of the ship to the next most senior officer, Lt. Cmdr. Destiny Savage, the ship’s chief engineer who became “acting CO,” officials now say, and essentially ran the ship, including during operations, such as taking fuel from an oiler as little as 150 feet away in heavy seas, that she was in no way qualified for.

The report concluded that for as long as two months, Gombert left his cabin for just a few minutes a day and “Navy officials say they were in the dark about Gombert’s illness and seclusion,” let alone Savage’s temporarily filling the CO’s duties, which turned the Cowpens’ last months of a Western Pacific cruise into a “veritable Twilight Zone.”

Gombert was fired in June, two months after the ship returned from its seven-month deployment, the third Cowpens CO to be canned since 2010.

Oh, and while there was said to be nothing physical between Gombert and Savage, the two “had formed a questionable relationship between a senior and junior officer. They hung out in his in-port cabin in civvies. She made his bed and cooked his meals in his private galley. They stayed in hotel rooms together and, in at least one instance, were seen on liberty holding hands.”

But, again, “there is no evidence in the report that the relationship was otherwise physical,” sports fans! [David Larter / Navy Times]

--We note the passing of former Reagan press secretary, James Brady, 73. It was March 30, 1981, that Brady suffered a devastating head wound as part of the assassination attempt on the president outside the Washington Hilton Hotel.

Ever after, Brady, and wife Sarah, crusaded for gun control and a federal law requiring a background check on handgun buyers bears Brady’s name.

[Friday, the medical examiner ruled Brady’s death a ‘homicide.’ To be continued.]

--So you know that giant Siberian crater that was recently discovered? How was it created?

From Terrence McCoy / Sydney Morning Herald:

“Researchers have long contended that the epicenter of global warming is also furthest from the reach of humanity. It’s in the barren landscapes of the frozen north, where red-cheeked children wear fur, the sun barely rises in the winter and temperatures can plunge to 50 degrees below zero. Such a place is the Yamal Peninsula in Siberia, translated as ‘the ends of the earth,’ a desolate spit of land where a group called the Nenets live.”

So this one particular crater, 60 meters in diameter, may have been caused by methane gas, released by the thawing of frozen ground. According to a recent Nature article, “air near the bottom of the crater contained unusually high concentrations of methane – up to 9.6 percent – in tests conducted at the site on 16 July, says Andrei Plekhanov, an archaeologist at the Scientific Center of Arctic Studies in Salekhard, Russia. Plekhanov, who led an expedition to the crater, says that air normally contains just 0.000179 percent methane.”

It seems the summers of 2012 and 2013 in Yamal were unusually hot, warmer by an average of 5 degrees Celsius.

“As temperatures rose, the researchers suggest, permafrost thawed and collapsed, releasing methane that had been trapped in the icy ground,” the report states.

Some have said the melting of Siberia’s permafrost is “a climate time bomb waiting to explode if released into the atmosphere,” as the AP put it in a 2010 story.

--A Queen Mary University of London report published in the Annals of Oncology finds that taking an aspirin every day can reduce the chance of dying from bowel and stomach cancers, but, as is well-known, aspirin can cause internal bleeding so medical advice should be sought prior to adopting such a regimen. 

Scientists examined 200 studies investigating benefits and harms of taking aspirin. Aspirin, according to the report, reduced the cases and deaths from the two forms, as well as oesophageal cancer, by some 30-40%.

There is weaker evidence regarding other forms of cancer and the benefits of aspirin. [Smitha Mundasad / BBC News]

--Congratulations to the European Space Agency, whose Rosetta spacecraft, after a 10-year journey of four billion miles, has rendezvoused with a comet.

Rosetta and its comet, called C-G for short, will head together toward the sun. In November, a small lander will leave the spacecraft and affix itself to the comet’s surface.

The comet and the spacecraft are more than 330 million miles from the sun, traveling at 35,000 miles per hour. Rosetta is just 60 miles from the comet’s surface. The comet is 2 ½ miles wide. [Kenneth Chang / New York Times]

--In a speech this week, Pope Francis urged young people not to waste time on their smartphones and the Internet; “young people waste too many hours on futile things,” he said.

“Our life is made up of time, and time is a gift from God, so it is important that it be used in good and fruitful actions.”

I’ve noticed another sea change this summer. Gardeners obsessed with their smartphones. Sitting on their riding mowers, on the phone, idling away. There isn’t anything the least bit important on them. It just cracks me up.

---

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

God bless America.
---

Gold closed at $1311
Oil $97.65

Returns for the week 8/4-8/8

Dow Jones +0.4% [16553]
S&P 500 +0.3% [1931]
S&P MidCap +0.9%
Russell 2000 +1.5%
Nasdaq +0.4% [4370]

Returns for the period 1/1/14-8/8/14

Dow Jones -0.1%
S&P 500 +4.5%
S&P MidCap +2.7%
Russell 2000 -2.8%
Nasdaq +4.7%

Bulls 50.5
Bears 17.1 [Source: Investors Intelligence]

Dr. Bortrum has a new column posted.

Have a good week. And remember...be careful out there.

Brian Trumbore