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04/25/2015

For the week 4/20-4/24

[Posted 11:30 PM ET, Friday]

Warning: If you normally print this column, understand it is at or near record length.

Edition 837

Washington and Wall Street

Nasdaq was the story this week, with the tech-heavy bellwether hitting an all-time high on Thursday, finally besting the old closing mark of 5048 set way back on March 10, 2000, the very peak of the bubble. Nasdaq then fell a sickening 78% and many thought they’d never see the day when it finally fully recovered.

But 5,522 days later, it’s a different Nasdaq. Using trailing 12-month earnings multiples, Birinyi Associates notes the Nasdaq traded at 175 times profits in 2000, but today is more like 30 times, which is high, but not unrealistic, though Friday’s action in two stocks should represent a short-term warning signal...shares in Amazon rising 15% and Microsoft 10%.

I have gobs on this week’s slew of earnings reports further below with the likes of 3M, McDonald’s and GM not being good, but the best news was saved for after the bell on Thursday as four big ones – Amazon, Microsoft, Google and Starbucks – all exceeded expectations.

Ah yes, the Street’s expectations. Many corporations clearly gamed the system this reporting season, lowering expectations to a level where they then couldn’t help but beat them. Like Microsoft, for example. It’s a game that usually works. Thus far among the 200 S&P 500 companies that have reported, 77% have beaten their profit forecasts, but only 49% have topped on the revenue front. Factset now estimates Q1 earnings for the S&P will decline 2.8%, better than its last estimate of down 4.6%.

There were a few economic indicators of note. Existing home sales in March rose to their highest annualized pace since Sept. 2013, 5.19 million, though the median home price, $212,000, is up 7.8% from a year earlier, not good given stagnant incomes. [The $212,000 is still below the peak of $230,000.]

March new-home sales came in at a 481,000 pace, well below expectations, but still 19.4% higher than March 2014.

And March durable goods orders were up a solid 4%, but ex-transportation, a truer measure, were down 0.2% with new orders falling in most sectors.

On a different topic...Randall W. Forsyth / Barron’s...on easy money.

“When I think back on all the crap I learned in grad school, it’s a wonder I can think at all, to paraphrase Paul Simon. And that also goes for what was drummed into me as an undergraduate....

“Among those shibboleths was that low interest rates always stimulate the economy. Reduced borrowing costs make it easier for folks to buy houses and companies to invest and expand. Lower yields on savings cut the incentives for consumers to stash their cash in the banks like Scrooge and instead make them more inclined to go out and spend and have a good time....

“(But today), the boom that the textbooks predict is nowhere in evidence. That’s not a surprise to Jason Hsu, vice chairman and co-founder of Research Affiliates and also a card-carrying Ph.D. and adjunct professor at UCLA. As a frequent visitor to Japan over more than a decade, he’s had a chance to observe firsthand the effect of near-zero interest rates.

“In the complete opposite of what classical economics teaches, low returns actually have induced Japanese consumers to spend less, he says. As the aging population save more to get to a threshold of asses needed for retirement, firms seeing no spending are loath to spend, invest, or hire. ‘This is a bad spiral that never was predicted,’ Jason explains....

“This has always been assumed to reflect both the demographics and cultural traits of Japan. But that world view will have to be revised, as there’s evidence of the same thing happening in Europe, he adds, with Germans reacting to zero interest rates by saving more. This behavioral dimension helps explain the tepid payoff from the unprecedented ‘financial repression’ that has taken interest rates to zero and below.”

Europe and Asia

Last weekend, European Central Bank President Mario Draghi said of the Greek crisis, “We are certainly entering uncharted waters if the crisis were to (deteriorate badly), and it is very premature to make any speculation about it.”

At the eurozone finance ministers meeting on Friday in Riga, Latvia, Greece caught an earful as the ministers angrily accused their Greek counterpart, Yanis Varoufakis, of backtracking on commitments and failing to grasp the seriousness of the situation. Athens is headed towards default by mid-May, with Varoufakis warning this week that cash was so tight government coffers may run dry in weeks.

In fact, earlier, Prime Minister Alexis Tsipras ordered local governments to move their funds/reserves to the central bank in a move that was flat-out confiscation; Tsipras saying it was needed to help pay salaries, pensions and the IMF (770m euro due May 12). You can imagine the order was slammed by local officials and the opposition.

The smaller eurozone countries, such as Slovenia, are particularly upset because they went through the wrenching austerity the Greeks only half-heartedly apply, yet Slovenia, like the others, is on the hook for funds it may have loaned Greece. Slovenia’s finance minister said the eurozone should prepare a “Plan B” to deal with a potential default. Varoufakis accused his Slovenian counterpart of being “undignified” for raising the scenario, calling the remarks “profoundly anti-European.”

The finance ministers were to approve a new list of Greek reforms but the chair of the eurogroup, the Netherlands’ Jeroen Dijsselbloem, said “significantly more progress” was needed and warned “time is running out.”

Tsipras doesn’t seem to understand that it’s the finance ministers who sign off on any aid disbursement, yet he continues to go over their heads, to the likes of Angela Merkel, thinking this will work, but Merkel said she won’t override the existing euro-area procedures.

Another official from a eurozone country told the Financial Times, “This game of chicken is turning into Angry Birds.”

Some say Greece could miss some payments without exiting the eurozone, but a Grexit is not priced into the market in terms of contagion. The government’s approval rating has fallen from 72% in February to 45% today.

Greece is also in trouble for another reason. Finland’s populist anti-EU party, the True Finns, finished second in national elections and are likely to be part of a centre-right government led by the leader of the Centre party, Juha Sipila. 

The significance here is that this will cement Finland’s status as the most hardline country when it comes to any further Greek bailout. In 2011, the True Finns refused to join a coalition in opposition to Greece’s second bailout, though recently it has been less strident in its demands as it sought a higher percentage of the vote.

Yields on Greek bonds hit levels not seen since the height of the eurozone crisis in mid-2012. Earlier in the week, three-year Greek bonds traded with a yield of 29.6%, before falling Friday to about 26%. 

Turning to the overall eurozone economy, a flash reading on the April composite index, as reported by Markit, came in at 53.5 vs. 54.0 in March, which was disappointing, with the manufacturing component at 51.9 vs. 52.2 last month, and the services reading at 53.7 vs. 54.2.

The flash reading looks at just Germany and France, specifically, and Germany’s comp was 54.2 vs. 55.4 in March, while France recorded a 50.2 vs. 51.5.

Chris Williamson, Chief Economist at Markit:

“The weaker rate of expansion is a big disappointment, given widespread expectations that the ECB’s quantitative easing will have boosted the fledgling recovery seen at the start of the year.

“However, it’s too early to draw firm conclusions about whether growth is faltering again and the effectiveness of policy. Although the PMI has pulled back from March’s recent high, the index remains above the average seen in the first quarter and is indicative of the eurozone economy growing at a reasonably robust quarterly rate of 0.4% at the start of the second quarter.”

Gillian Tett / Financial Times

“Another week, yet another wave of Greek drama. But as investors speculate about a possible Greek default, they should take note of a striking split that has opened up between America and Europe.

“On the eastern side of the Atlantic, policy makers are now at pains to suggest that a Greek default, or even a eurozone exit, would not be disastrous; at last week’s International Monetary Fund meetings German officials argued that the chance of a Greek exit had already been priced into the markets, and that shocks could be contained.

“But on the western side of the Atlantic, the mood is not sanguine. Earlier this week, Jason Furman, chairman of the U.S. Council of Economic Advisers, publicly warned that a ‘Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right.’ In private, U.S. officials are expressing even more concern....

“When (Lehman Brothers) collapsed seven years ago, U.S. officials learnt a painful lesson about how small shocks can spiral out of control. Their European counterparts experienced that crisis too. But Wall Street traders and Washington bureaucrats saw contagion spread in a particularly immediate way, scarring their psyche....

“Think back to 2008. Six months before Lehman Brothers collapsed, there was a full-blown crisis at Bear Stearns that left regulators and bankers braced for another financial shock and scrambling to prepare. On the eve of the Lehman bankruptcy, for example, regulators were obsessively focused on controlling the risks posed by credit derivatives.

“But in the event, regulators missed a trick: what sparked market turmoil when Lehman failed was not the credit derivatives contracts, but a legal issue that had previously been ignored, namely that the U.K. bankruptcy code ringfenced investor assets differently from New York’s.

“A second Lehman lesson is that when one issuer fails, this knocks faith in others, too. That is not just because investors start to worry about flaws at other entities, but due to wider policy uncertainty: when Lehman failed, the entire paradigm for finance suddenly seemed unpredictable. Hence the panic surrounding money market funds. And that highlights a third point: political turmoil matters. What really sent global markets into a tailspin in 2008 was that a couple of days after Lehman’s failure, the U.S. Congress initially rejected the bank rescue package that Hank Paulson, then U.S. Treasury secretary, had devised, creating policy uncertainty....

“(And in the case of Greece, it) is certainly not the only country saddled with excessive debt....

“Or to put it another way, although eurozone officials insist they can handle the first-order risks of a Greek exit, it is the second-order problems that (quite rightly) worry Americans. Not least because there is a fourth lesson from Lehman Brothers: when a crisis hits, the value of afflicted entities tends to shrivel. The hole in Lehman’s balance sheet became much bigger than anyone imagined. And that is a scary thought to contemplate in relation to any Greek exit scenario – not just for Greece but the entire eurozone.”

Holman W. Jenkins, Jr. / Wall Street Journal

“ECB President Mario Draghi can print unlimited euros to keep governments afloat in the short term, but he can’t solve the long-term problem of slow growth and ever-larger piles of debt and ever-diminishing public confidence. If Greece leaves the euro and defaults on its debt, at least it answers the question: What happens to the debt? Greece might be seen not as a recalcitrant outlier but as the beginning of the end of the game of extend and pretend for all of Europe. What if markets see Greece as the model of how the euro ends? Not an attractive model: simply an unavoidable one.

“After all, the big problem for Europe isn’t Greece or awkward debt negotiations. It’s a lack of growth and the uncertainty that every consumer, business and taxpayer must feel about how the Continent’s debt problems will be resolved given the lack of growth and the lack of revenue to make good on the debt. Alex Brazier, a senior Bank of England official, testified before a parliamentary committee that a Greek meltdown was not a direct risk to Britain’s economy, but its departure could ‘potentially be a trigger for a market reappraisal,’ by which he presumably meant a reappraisal of whether Europe can ever find the political will to address its growth problems.

“A certain kind of pro-business Europhile once hoped the euro would be a lever to overhaul the Continent’s welfare states. ‘Structural and competitive weaknesses will now be mercilessly exposed,’ predicted a prominent German industrialist.

“Alas, the euro turned into a conspiracy against reform, not an aid to reform. To ease the entry of Germany, Italy and France – and eventually Greece – Europe waived its own strict fiscal standards. To meet the imperative of bringing a skeptical public along, Europe’s banks were encouraged to treat Greek or Spanish or Italian debt as the equal of ultrasafe German debt for regulatory purposes. This artifice directly enabled the debt-fueled consumption binge of the 2000s that served as a substitute for reform.

“As we wrote 12 years ago, ‘Countries that have earned their place in the self-help hall of fame – Britain in the late 1970s, New Zealand in the 1980s, America under Ronald Reagan – did so because voters demanded a bold change of course. The euro was never a shortcut to such a consensus.’

“On the contrary, in sad fulfillment of prophecy, ‘reform’ in the European context has come to mean surrender to the Germans and the opposite of what voters thought they were promised.

“But the euro exists; it must now prove it can foster national economic makeovers or it can’t survive. Greece’s departure (increasingly likely) would solve nothing for Europe. Greece would be leaving because it failed to grasp the nettle of reform, which the rest of Europe mostly refuses to grasp. A real solution would offer Greece what it wants, debt relief, in return for what Greece needs – authentic, reasonable pro-market overhaul. Which is what Europe needs too.”

Eurobits...

--Chancellor Merkel said Germany wouldn’t divert from its recipe of tighter budgets and economic overhauls in efforts to pull the euro area out of its malaise. Without mentioning Greece, Merkel lauded euro members including Spain and Portugal for carrying out such measures in return for European bailout financing. She called Ireland “the growth engine of Europe.”

“That shows what reforms in combination with solid finances can do,” she said in a speech on Wednesday in Berlin. “This government will continue to call for this course of action, even though we’re confronted with sometimes considerable pressure internationally.”

--PIMCO’s chief investment officer for global credit, Mark Kiesel, said there is a bubble in the swelling pool of negative-yielding government debt from Europe to Japan.

“The bubble is really in some of these yields, these negative yields,” Kiesel told Bloomberg on Friday. “I don’t think they’re sustainable.”

Since September last year, the pool of European bonds with negative yields, essentially charging investors to own them, has almost tripled to $3 trillion from about $1 trillion, according to Bank of America data.

This pool is almost twice as big as the outstanding investment-grade corporate debt in Europe.

Kiesel adds, “Monetary policy around the world, their mission is to reflate. Inflation risk is underpriced.”

Earlier, Bill Gross of Janus Capital Group (formerly longtime manager at PIMCO) said the German 10-year Bunds was “the short of a lifetime.”

The bund hit a low yield of 0.049% on April 17, though the closing low is 0.077%. Friday it closed at 0.15%.

--Retail sales in the U.K. fell 0.5% in March from February when an increase was expected. In these final weeks of the May 7 general election campaign, every economic indicator could be critical, especially for Prime Minister David Cameron’s bid for another term. The polls show it being too close to call.

--Just a few figures on the Russian economy...retail sales contracted by 8.7 percent in March compared to a year earlier, while real wages fell 9.3 percent year on year. Investment slumped by 5.3 percent last month, according to Rosstat state statistics service.

Finally, the European Union has another severe problem on its hands...boat people. In 2014, 3,500 lost their lives crossing the Mediterranean in fleeing conflicts in northern Africa and the Middle East. About 10,200 have arrived in Italy by sea this year from January to March, while another estimated 1,600 have already lost their lives, including an estimated 800+ (perhaps as many as 900) in an unbelievable tragedy this past weekend.

In this last one, a Portuguese cargo ship, on its way to Libya, had been dispatched to rescue a boat full of migrants, floundering 100 miles south of Lampedusa, Italy, but then the well-intentioned rescue turned tragic as on seeing the light from the ship, just before midnight on Saturday, the migrants all surged to one side of the 66-ft. fishing vessel and it capsized. The captain, one of the few survivors, was arrested.

Pope Francis, in a departure from his prepared text, told tens of thousands of people in St. Peter’s Square on Sunday: “They are men and women like us, our brothers seeking a better life, starving, persecuted, wounded, exploited, victims of war....

“I make a heartfelt appeal to the international community to react decisively and quickly to see to it that such tragedies are not repeated.”

So EU leaders met at week’s end and agreed to commit new resources to save lives in the Mediterranean at an emergency summit in Brussels. They also discussed laying the ground for military action against the traffickers.

German Chancellor Angela Merkel said: “First and foremost now, we have to save lives and take the right measures to do so.”

But as with everything else involving the European Union, officials said diplomatic preparation for military action would probably take a couple of months.

Some 10,000 migrants have been plucked from seas between Italy and Libya just over the last week. Dutch Prime Minister Mark Rutte insisted Europe should not take the brunt of blame. “Last time I checked Libya was in Africa, not Europe.”

Martin Schulz, president of the European parliament, said the EU had not moved in decades on its migrant policies.

One migrant group estimates this year’s death toll could rise to about 30,000.

Prime Minister Matteo Renzi of Italy / New York Times

“The Mediterranean Sea, cradle of our civilization, is becoming a deathbed for thousands of nameless, desperate men, women and children. These people had lives full of pain, despair and hope, which led them to become victims of human trafficking. The voices of mothers who lost their children at sea will haunt our consciences. We must stop this carnage....

“Italy is not the desired final destination for most migrants, but we contribute a very large portion of the European search-and-rescue and patrolling efforts as well as resources to provide food, medical care and initial shelter. Italy has engaged its full capacity. This cannot be the job of a single country, no matter how well-equipped and determined we are....

“In a very complex region, Libya presents a crucial challenge. At least 90 percent of the migrants reaching Italian ground pass through that country. Libya is prey not only to endemic instability but also to international terrorism. The Islamic State operates there, adding to the chaos of civil war.

“Not all passengers on traffickers’ boats are innocent families. Our effort to counter terrorism in North Africa must evolve to outpace this menace, which creates fertile ground for human trafficking and interacts dangerously with it.”

Yes, not all of the passengers are innocents. For good reason, Europe is concerned, witness this week’s raids in Italy and the near disaster in Paris, where an imminent terror attack on at least one church later the same day was foiled because the terrorist accidentally shot himself in the leg and called an ambulance. When police traced the blood back to his car, they found a large arsenal of loaded guns and detailed plans. The 24-year-old French-Algerian man had also murdered a woman that morning.

Editorial / Wall Street Journal

“The thousands of desperate souls on these boats are the latest collateral damage as Europe and America abdicate responsibility for stability in the Middle East and North Africa. They flee violence at the hands of Islamic State, Nigeria’s Boko Haram, Syria’s Bashar Assad or other regional thugs. Along the way they fall into the grasp of gangs of human traffickers who thrive in the region’s growing lawlessness and destitution...

“Europe’s politicians worry about whether their policies create a pull for migrants. Italy last year ran a wide-ranging search-and-rescue program called Mare nostrum to try to rescue migrants at sea. The 9 million euro-per-month cost and concerns that it was encouraging even more migration led Rome to end it, to be replaced with a much smaller effort focused on maritime border enforcement.

“But Europe needs to worry at least as much about the push factor as it does about the pull. The European members of NATO urged and led the campaign to oust the Gaddafi regime from Tripoli. But, like the U.S., the Europeans largely abdicated any role in standing the new Libyan government on its feet. France, to its credit, has intervened directly against al-Qaeda in Mali and aided African allies in the fight against Boko Haram. But Paris alone can do only so much.

“Europe should at least do what it can to help the desperate people at sea, as the U.S. did for the Vietnamese refugees who fled Communist rule after the fall of Saigon in 1975....

“But until the West makes a strategic decision to reverse the disorder and chaos now engulfing its African and Middle Eastern neighbors, the refugees will keep getting into their boats, and the scale of the tragedy will mount.”

Turning to Asia, China’s Shanghai Composite stock index is at its highest levels since 2008 (while Tokyo’s Nikkei finished the week over 20,000 for the first time since 2000). But there are record levels of margin debt among Chinese investors, some 2 ½ times higher compared to just six months ago in Shanghai and Shenzhen, according to a Barclays report. This isn’t good.

And while market regulators have taken steps to remove the froth, unsuccessfully thus far, the People’s Bank of China is cutting bank reserve ratios to stimulate growth, so it’s kind of a confusing message.

The government’s statistics bureau did report some better news on the housing front, with new-home prices declining in ‘just’ 49 of 70 cities in March, compared with 66 in February, though the average price fell an 11th consecutive month and is down 6.1% year over year, the steepest decline on record.

Also this week, HSBC released its flash PMI for manufacturing in April, 49.2 vs. 49.6 in March, a 12-month low.

Street Bytes

--The Dow Jones rose 1.4% on the week to 18080, so 208 points shy of its all-time high, while the S&P 500 rose 1.7% to close at 2117.69, just beating its previous mark of 2117.39. And as noted earlier, Nasdaq rose 3.2% to finish at a record 5092.

Microsoft not only surged 10% on Friday, but gained 15% on the week, its best performance since 2007, giving it the third-largest market cap behind Apple and Google in the process.

Speaking of Apple, since March 2000, its shares are up 2,785%. [S&P Capital IQ / USA TODAY]

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.50% 10-yr. 1.91% 30-yr. 2.61%

Treasuries have been locked in a tight range for about four weeks. The Fed has an Open Market Committee meeting Tuesday-Wednesday and the markets will be looking for further clues as to when the first rate hike will occur.

--Navinder Singh Sarao, 36, a UK trader, was accused this week of contributing to the 2010 “flash crash” in the equity markets. He was granted bail in a London court and has begun fighting extradition to the United States.

Sarao’s arrest, in the words of Republican Sen. Richard Shelby (Ala.), chairman of the Senate banking committee, “raises many questions that the banking committee intends to ask.” Such as, where the heck were the regulators? More specifically the arrest raises questions about the role of the Commodity Futures Trading Commission, the lead U.S. derivatives regulator, the self-regulated Chicago Mercantile Exchange and the Securities Exchange Commission, which oversees cash equities.

The CME had concluded the flash crash had not been caused by the futures market, but it added: “If new information has come to light, we look forward to reviewing it with the [CFTC].”

“U.S. authorities claim Sarao made $40 million in profits from 2010 to 2014. The Department of Justice has charged him with one count of wire fraud, 10 of commodities fraud, and one of spoofing, a form of market manipulation that involves placing an order and swiftly withdrawing it before a trade can take place.” [Financial Times]

Sarao is alleged to have manipulated the prices of S&P 500 futures contracts just minutes before the May 6, 2010 event.

Previously, the CFTC and SEC traced the flash crash back to a computer-generated trade by a mutual fund which chose to sell a large number of E-mini S&P 500 futures contracts; the culprit later identified as Waddell & Reed Financial.

But now the DOJ says Sarao used an automated trading program to execute his scheme, which the department described as ‘dynamic layering.’

“That strategy involved placing multiple, simultaneous large volume sell orders at different price points to create the appearance of substantial supply.

“He then modified the orders frequently to keep them close to the market price, and cancelled them without executing them. Then, when the prices fell, he would sell futures contracts and buy them back at the lower price.” [Douwe Miedema and Sarah N. Lynch / Sydney Morning Herald]

As billionaire entrepreneur Mark Cuban said in an interview with USA TODAY, “If this one random guy could impact billions of market value in seconds or milliseconds, what’s going on? If a guy in his underwear can manipulate markets, anybody can. The optics look really, really bad.”

And consider that Sarao’s alleged activities went from 2009 through this year. How did this happen? Some are comparing it to the Bernie Madoff case, where regulators didn’t catch on to his Ponzi scheme despite receiving warnings years before he was arrested.

--I’m doing the following two items in sequence. Tuesday, it was reported six U.S. senators – including Elizabeth Warren of Massachusetts – sent a letter to Atty. Gen. Eric Holder and the Federal Communications Commission Chairman Tom Wheeler, urging them to deny the merger of Time Warner Cable and Comcast Corp., the nation’s two largest cable providers.

The six senators wrote in part, “We believe that Comcast-TWC’s unmatched power in the telecommunications industry would lead to higher prices, fewer choices, and poorer quality services for Americans.”

The senators’ letter continued: “The concerns...center on the undeniable reality that the combined Comcast-TWC would be the overwhelmingly dominant cable and broadband Internet provider in the nation and control much of the programming that Americans watch.”

Friday, Comcast announced it had withdrawn from the takeover of TWC, ending a 14-month quest.

Comcast CEO Brian Roberts said in a written statement: “Today, we move on. Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn’t agree, we could walk away,” he said.

Comcast was not on the hook for a break-up fee if regulators blocked the transaction.

Comcast executives learned this week the government was gearing up to challenge the merger and it is a bitter defeat. But the government didn’t want to give one company so much power as an Internet gatekeeper.

As for Time Warner Cable, John Malone’s Charter Communications is interested in buying it, Charter being much smaller, but having made a previous run at TWC. So the drama will continue in a different fashion.

For Wall Street’s bankers, lawyers and traders, the collapse of the Comcast takeover of TWC means a potential loss of $380 million in fees had the deal closed, according to consulting group Freeman & Co. and the Wall Street Journal. It seems Goldman Sachs stands to lose the most.

But, now there should be a new series of deals, a new round of consolidation.

--Shares in Google rose despite the fact it missed slightly on earnings and revenues, with the company saying it had a near-$1bn hit from currency fluctuations. The average advertising price dropped 7 percent across its own sites and its network of partners.

Google said the shift in users’ behavior from desktop to mobile devices has been “dramatic.”

Overall revenues rose 12 percent to $17.3 billion in the first three months of the year, though sales would have been up 17 percent without the effect of the strong dollar, according to the company. Net income rose 4 percent to $3.6bn.

Investors seem to have been heartened Google’s total costs rose only 13 percent, while Facebook’s overall costs leapt 83 percent.

--Speaking of Facebook....the company reported sales climbed 42 percent from a year earlier to $3.54 billion for the first quarter, though net income fell to $512 million. Versus what the Street expected, earnings were slightly higher and sales slightly lower.

Facebook, which also owns Instagram and What’s App mobile applications, spent more than $500m on capital expenditures with that 83 percent rise in costs and expenses.

The company said its number of monthly active users climbed 13 percent from a year earlier to 1.44bn. Mobile users hit 1.25bn at the end of March, up about a quarter year over year.

--Amazon reported a loss in line with expectations for the first quarter, (0.12), but sales rose 15%, exceeding analysts’ forecasts. The company also disclosed that its fast-growing technology subsidiary, Amazon Web Services, which happens to be one of its most profitable businesses, saw sales of $1.6bn, up 50 percent from the prior year; significant because this segment has an operating income margin of 17 percent. Operating income from AWS was $265 million, more than analysts had expected.

Last year Amazon spent $4.2bn on property and equipment for AWS. The CFO said: “We are deploying a large amount of capital for AWS because growth is so strong.” Amazon is seeking to win market share versus Microsoft and Google.

--As for Microsoft, it reported better than expected sales and earnings, though net income fell about 12 percent to $4.99 billion. Revenue rose a solid 6 percent to $21.73 billion. CEO Satya Nadella is trying to guide the company through a shift away from software installed on corporate and personal computers toward subscriptions to services delivered over the Net.

Microsoft feels it has a better chance of persuading larger businesses already using its software to adopt its cloud services. Amazon, on the other hand, is having success attracting start-ups.

Google didn’t break down their cloud numbers, though at an event for cloud software developers this week, Google executive chairman, Eric Schmidt, said:

“The entire world will be defined by smartphones, Android or Apple, a very fast network, and cloud computing,” comparing the move to the cloud to the 20-year period in which Microsoft and Intel dominated computing, or the web revolution that created Google. “The space is very large, very vast, and no one is covering all of it.” [David Streitfeld and Nick Wingfield / New York Times]

Back to Microsoft, it is introducing its next-generation operating software, Windows 10, this summer.

--Morgan Stanley reported its most profitable quarter since the financial crisis, including its first double-digit return on equity since the third quarter of 2007. 

Net income soared 59 percent to $2.4 billion on revenues that rose 10 percent; beating analysts’ expectations on both. Equity trading revenues were up 31 percent and fixed income trading increased 16 percent.

--Deutsche Bank agreed to pay a record $2.5 billion fine to authorities in the U.S. and U.K. to settle allegations that it manipulated the Libor benchmark rate, a key interbank rate that underpins $350 trillion of debt worldwide. This is the largest total fine to date in the investigation into the Libor scandal. Seven financial institutions have been fined thus far.

--Bank of New York Mellon Corp. handily beat earnings and revenue expectations for the quarter, with net income rising to $766 million from $661 million a year earlier. BNY Mellon has been dealing with pressure from hedge funds Marcato Capital Management and Trian Fund Management, who have targeted the bank after it lagged behind competitors on profitability. Marcato has been calling for the ouster of CEO Gerald Hassell, while Trian appears to be backing him.

Revenue increased 6%, helped by foreign exchange activity climbing 67%, reflecting higher volume and increased market volatility, according to the bank.

The activists have been targeting expenses and BNY noted the number of full-time employees dropped 900 from the year before.

--Baker Hughes Inc., the oil-field service company, said it reduced head count 17% of its total workforce during the first quarter. The company also reported a loss for the period.

Baker Hughes had previously estimated job cuts at 7,000, but it has now slashed 10,500 as it looks to cut costs some $700 million a year.

Meanwhile, the company is proceeding with its deal to merge with larger rival Halliburton, which announced Monday it has cut 9,000 jobs, or 10% of its workforce, in the past two quarters and plans to lay off more in the coming months.

And as I noted last week, the largest oil-field service company, Schlumberger, is laying off 20,000, or 15% of its workforce.

--United Airlines posted a first-quarter profit of $508 million, the highest first quarter net in United’s history.

But the airline expects unit revenue to be down in the second quarter, 3% domestically, and 7% internationally; with the dollar impacting revenue.

--IBM’s revenues slumped 12 percent in the first quarter, the 12th consecutive quarter of year over year declines in sales, with the exchange rate this time accounting for 8 percent of the fall and divestments of businesses the other 4 percent, so Big Blue says. Earnings beat the Street’s estimates.

But IBM’s cloud revenue surged 75% and the shares rose after positive analyst comments on the prospects for this segment of the business.

--On Tuesday, Google launched an algorithm to favor sites that are “mobile-friendly.” Mine, and about 80% (at least) of other sites are not so our traffic is plummeting in what is being called “Mobilegeddon.” Aghhh!!!! Oh the humanity!!!

It’s about using your smartphone and something like StocksandNews won’t be at the top of the rankings and, you know, for me, (stuff) happens. 

--Yahoo reported first quarter revenue was up from a year ago, but so were costs and thus net income came in less than expected, while revenue, up 8%, beat.

CEO Marissa Mayer has been under the gun and she has done a good job in areas such as mobile, with revenues up 61% year over year.

--Shares in eBay rose after the ecommerce company reported sales and earnings exceeding the Street’s expectations, despite the negative impact of the rising dollar. Sales rose 4 percent to $4.45 billion, while the company recorded a profit of $626 million.

Sales within the company’s payments unit, PayPal, climbed 14 percent to $2.1bn, while its marketplaces saw a 4 percent contraction in revenues, to give you a sense of how important PayPal continues to be.

PayPal is being split off in the third quarter of the year after the company reached an agreement with activist investor Carl Icahn. EBay is laying off 2,400 as well.

--Qualcomm shares tumbled after the company cut its full-year forecast, citing a decline in share for its semiconductor, or chips business at “a large customer,” as the CEO put it.

The company’s revenues were nonetheless up 8 percent vs. a year ago.

--Coca-Cola Co. posted its first quarterly sales gain in two years, while earnings for the quarter fell 3.8% to $1.56 billion as the latter was hit by 6 percentage points due to currency fluctuations that will reduce profit by 7 percent for the year, according to the company.

The thing is, global sales volumes rose just 1 percent, led by a 4 percent gain in Eurasia and Europe. They were unchanged in North America.

Actually, carbonated soft-drink sales volume fell 0.9 percent in the U.S. in 2014, the 10th straight annual decline.

Among Coke’s brands, global volumes grew 1 percent for Coca-Cola, 4 percent for Sprite, 5 percent for Coke Zero and 3 percent for Fanta (they still make that?)

Diet Coke sales, however, fell 6 percent! Zut alors!

--Rival PepsiCo reported a 3 percent increase in net income to $1.22 billion, though net revenue declined 3 percent to $12.2bn. Adjusted for currency swings, however, Pepsi said sales rose 4.4 percent. The company said the strength of the dollar wiped 8 percentage points off net revenue.

Friday, Pepsi said it will start selling Diet Pepsi without aspartame later this year, after a consumer backlash against the artificial sweetener crushed sales; down 5.2% last year, according to Beverage-Digest and Bloomberg. Diet Coke also uses aspartame, so Pepsi is trying to get ahead of it with this announcement. Some fear the lab-created sweetener may cause cancer, though the U.S. Food and Drug Administration has said there is no proof of a health risk from aspartame.

--General Motors fell far short of expectations, earning $0.86 per share vs. the Street’s estimate of $0.96, while missing on revenue. The automaker is posting a write-off of $337 million to end manufacturing in Russia, while suffering other losses in Europe, as well as South America, where troubles seem to be deepening (see Venezuela).

GM North America’s profit surged, though sales were up only 1 percent. Sales outside North America declined $2.22bn.

--Brazil’s energy giant Petrobras estimated its losses from corruption at $2.06 billion, while taking an impairment charge of about $15 billion amid the nation’s biggest political bribery case.

Investors, and the people of Brazil, have been waiting for long-delayed audited financial statements for 2014 and it narrowly met an end of April deadline that could have put it in technical default on some of its $17bn in debt.

The company’s president, Aldemir Bendine, who was handpicked by Brazil’s President Dilma Rousseff to rescue the company, said, “From this moment, Petrobras turns over a new page.”

Had the company defaulted, Brazil’s overall finances would have been at risk. Prosecutors allege scores of politicians colluded with former Petrobras executives and contractors to extract billions of dollars in bribes.

But this case is far from over, with over 750 projects under investigation.

--Giant UK retailer (supermarket chain) Tesco reported the worst results in its history, like a $9.5 billion loss for the year ending in February. Tesco is closing 43 of its superstores due to declining property values and an erosion of their competitiveness.

--Chipotle Mexican Grill Inc. reported net income climbed 48% and revenue rose 20% in the first quarter, but the latter was below expectations and the shares fell. What I like to see, same-store sales, grew 10.4%, which is spectacular but, again, below expectations.

The company is warning growth could wane in the second half. It’s just tough to keep up such super growth, after all. Chipotle also talks about their business being in ‘three-year waves.’ They now have 1,831 restaurants and plan on opening an additional 190 to 205 the rest of this year.

--McDonald’s reported another dreadful quarter of declining profits and sales. New CEO Steve Easterbrook promised details of a turnaround plan on May 4.

But for now, in the first quarter, U.S. same-store sales fell 2.6 percent, worse than expected, after dropping 1.7 percent in the fourth quarter. Net income fell 33 percent while overall revenue fell 11 percent.

Globally, same-store sales dropped 2.3 percent last quarter.

Meanwhile, McDonald’s continues to experiment with all-day breakfast in 94 stores in the San Diego area. 

The company is proceeding with plans to close 700 underperforming restaurants this year, primarily in the U.S., China and Japan, which is actually twice the number disclosed earlier; about 2% of its 36,000 outlets world-wide. At the same time it is opening 925 new ones, less than normal.

--Yum Brands Inc., which includes Pizza Hut and Kentucky Fried Chicken, continues to get slammed in China, where half its revenue is.

Yum posted profit and revenue declines for the first quarter with Yum’s sales in China down 9% from a year earlier, after similar performance in the second half of 2014. 

It’s really pretty simple. As the Wall Street Journal’s Laurie Burkitt and Ilan Brat put it:

“Novelty was a big draw for Chinese customers when Pizza Hut and KFC – along with other American brands such as McDonald’s Corp. and Wal-Mart Stores Inc. – swept into China in the late 1980s and ‘90s. Decades down the line, these brands face customer defections to newer rivals.”

The Journal notes that in 2012, 39% of consumers in China surveyed by a market-research firm called McDonald’s a desirable brand, while a third said that of Pizza Hut.

Today, that has dropped to below 25% for both. 

Yum officials said they are opening a high-end Italian eatery in Shanghai, Atto Primo. Frankly, I’d try and get away with calling it Xi Primo to get the president’s imprimatur on it.

--Speaking of chickens, the Agriculture Department announced an outbreak of avian flu had been confirmed at an Iowa egg producer, which resulted in the death of 5.3 million birds.

The farm in question has nearly 10 percent of the state’s egg-laying hens. Iowa is the nation’s largest egg producer...nearly 20 percent of the eggs consumed in the nation.

The epidemic has also wiped out nearly 5 percent of Minnesota’s turkey industry. But, the threat to humans from all this is low. The costs to some producers is very high, however, especially exporters. Many countries have begun blocking product from impacted states.

--Starbucks Corp. once again reported stronger sales and profits in its latest quarter. Net income rose 16% and revenue increased 18%. Same-store sales climbed 7% world-wide, which was the same figure in North America. The company’s CFO said, “The core business is really firing on all cylinders.”

There was no indication the company’s brief effort to encourage conversations about U.S. race relations hurt sales.

--The April 18 edition of The Economist (I sometimes don’t receive my magazine until 2 or 3 days after I’ve posted my column) notes that house prices in Ireland are up 16.2 percent in the past year, the highest among all the countries it surveys. Turkey was next at 16.0 percent. Greece’s were the worst, down 6.1 percent and off 38.5 percent since Q1 2008.

--A Japanese company, the Central Japan Railway Co., said its magnetic levitation train set a speed record this week, reaching 366 mph on a test track.

What is better known as JR Central is promoting its maglev technology for a line between Washington and Baltimore, which could reduce travel time between the cities to 15 minutes.

I want to go from my home town to Los Angeles in like 8 hours in this fashion. Who speaks for me?

But I totally forgot that Germany discontinued its maglev program after a fatal collision on a test course killed 23 people in 2006.

On the other hand, I’ll take United to L.A. and put up with the discomfort and dry chicken.

--Last week I noted there was a rumor a global outage of Bloomberg terminals may have been caused by an engineer spilling coffee on a key component. I never saw anything else on this.

But we learned this week that a “nearly disastrous plunge of the Serbian president’s plane Friday (April 17) was the fault of the co-pilot, who spilled coffee in the cockpit and accidentally activated an emergency switch, the Serbian Civil Aviation Directorate said in a report published Tuesday.” [Joanna Berendt / New York Times]

President Tomislav Nikock and nine others were on their way to a meeting with Pope Francis at the Vatican when the plane was sent into a plunge over the Adriatic Sea after one of its engines failed at an altitude of about 33,000 feet.

Due to the ensuing chaos, the plane returned home and the meeting with the pope was postponed.

--The week of 4/13 (latest data available) Fox News Channel had the biggest primetime audience in all of cable, the third time this year it has bagged the title. Fox bested USA and TBS, and had  over three times the viewers of both CNN and MSNBC.

But HBO’s “Game of Thrones” was the week’s most watched primetime cable show. Your editor is a “Game of Thrones” fan. So I was watching the Rangers-Penguins game on Wednesday night at a bar with a Wake Forest friend (fellow Rangers fan) and we were sitting in front of the taps. One offering was a “Game of Thrones” brew. Mark said, ‘Never heard of that (the beer),’ so I told him what a fan I was of the program and he looked at me with total disgust. The friendship will endure, however, and our Rangers won (and clinched the series tonight). [For those of you keeping score at home, Mark was drinking Black & Tans, while I was sticking with domestic, Coors Light.]

--According to the World Happiness Report 2015, the 10 happiest countries are Switzerland, Iceland, Denmark, Norway, Canada, Finland, Netherlands, Sweden, New Zealand, and Australia. Except for Syria and Afghanistan, the 10 unhappiest countries are all in Saharan or sub-Saharan Africa.

The U.S. is the 15th happiest of the 158 covered. Among others...Britain (21), Japan (46), Russia (64), China (84), and Iran (110).

--Finally, we note the passing of shopping mall tycoon A. Alfred Taubman, 91. Taubman was also a one-time chairman of auction house Sotheby’s and in 2001, was convicted in Federal District Court in New York of colluding with Sir Anthony Tennant, his counterpart at Christie’s, to fix commissions.  Taubman went to prison for 9 ½ months and was fined $7.5 million. Sotheby’s was forced to settle a civil suit by aggrieved clients for $256 million, with Mr. Taubman paying most of this amount.

But around where I live, Taubman is known for developing The Mall at Short Hills, one of the higher-profile malls in the country as he aggressively made his move to develop about 20 malls from coast to coast, after starting out owning a string of strip shopping centers.

Foreign Affairs

Iran: The following is out of the Tehran Times, quotes from the second-in-command of the Islamic Revolution Guards Corps (IRGC), re inspections.

“Not only will we not grant foreigners the permission to inspect our military sites, we will not even give them permission to think about such a project,” Brigadier General Hossein Salami told a live television program last Saturday.

“They will not even be permitted to inspect the most normal military site in their dreams.

“Visiting a military base by a foreign inspector would mean the occupation of our land because all our defense secrets are there. Even talking about the subject means national humiliation,” he said.

Meanwhile, Supreme Leader Ayatollah Ali Khamenei said on Sunday:

“The Islamic Republic of Iran has never been and will never be a threat against the region and the neighboring countries, but will act powerfully against any kind of aggression,” he told a gathering of Army commanders and officials.

Iran’s Armed Forces have always shown commitment to the Islamic law and have never used “forbidden tools and methods” be it in time of victory or danger, he stated.

“The fact that the Islamic Republic of Iran does not seek nuclear weapons is within this framework and based on religious bounds,” he asserted.

Khamenei said Iran was not intervening in other countries’ affairs.

He pointed to the U.S. and its “shameless” threats against Iran, saying one of Washington’s officials has again talked about military “options on the table.”

Khamenei then said all military bodies must increase their “military and defensive readiness” and “this must be regarded as an official decree.” [Tehran Times]

This comes as President Obama suggested Iran could receive significant immediate economic relief upon conclusion of a deal to curb its nuclear program.

Charles Krauthammer / Washington Post

“In December, President Obama said that he wished to see Iran ultimately become a ‘very successful regional power.’ His wish – a nightmare for the Western-oriented Arab states – is becoming a reality. Consider:

“Gulf of Aden: Iran sends a flotilla of warships and weapons-carrying freighters to reinforce the rebels in Yamen...asserting its new status as regional bully and arbiter. The Obama administration sends an aircraft carrier group, apparently to prevent this gross breach of the U.N. weapons embargo on Yemen. Instead, the administration announces that it has no intention of doing anything. Meanwhile, it exerts pressure on Saudi Arabia to halt its air war over Yemen and agree to negotiate a political settlement involving Iran.

[Ed. The Iranian flotilla apparently turned around at week’s end.]

“Russia: After a five-year suspension, Russia announces the sale of advanced surface-to-air missiles to Iran, which will render its nuclear facilities nearly invulnerable to attack. Obama’s reaction? Criticism, threats, sanctions? No. A pat on the back for Vladimir Putin: ‘I’m, frankly, surprised that [the embargo] held this long.’

“Iran: Last week, Obama preemptively caved on the long-standing U.S. condition that there be no immediate sanctions relief in any Iranian nuclear deal. He casually dismissed this red line, declaring that what is really important is whether sanctions can be reimposed if Iran cheats. And it doesn’t stop there. The Wall Street Journal reports that Obama is offering Tehran a $30 billion to $50 billion signing bonus (drawn from frozen Iranian assets) – around 10 percent of Iranian GDP.

“Syria: After insisting for years that President Bashar al-Assad of Syria ‘step aside,’ the U.S. has adopted a hands-off policy toward a regime described by our own secretary of state as an Iranian puppet.

“Iraq: Iran’s Quds Force Commander Qasem Soleimani, director of Shiite militias that killed hundreds of Americans during the Iraq War and were ultimately defeated by the 2007-08 U.S. surge, operates freely throughout Iraq flaunting his country’s dominance. In March, he was directing the same Iraqi militias, this time against the Islamic State – with the help of U.S. air cover.

“This is the new Middle East. Its strategic reality is clear to everyone: Iran rising, assisted, astonishingly, by the United States.

“Obama’s initial Middle East strategy was simply withdrawal...The subsequent vacuum having been filled, unfortunately and predictably, by various enemies, adversaries and irredeemables, Obama lighted upon a new idea: We don’t just withdraw, we hand the baton. To Iran.....

“Our friends in the region, who for decades have relied on us to protect them from Iran, look on astonished.”

Natan Sharansky / Washington Post

“On a number of occasions during the negotiations over Iran’s nuclear program, the Israeli government has appealed to the United States and its allies to demand a change in Tehran’s aggressive behavior. If Iran wishes to be treated as a normal state, Israel has said, then it should start acting like one. Unfortunately, these appeals have been summarily dismissed. The Obama administration apparently believes that only after a nuclear agreement is signed can the free world expect Iran to stop its attempts at regional domination, improve its human rights record and, in general, behave like the civilized state it hopes the world will recognize it to be.

“As a former Soviet dissident, I cannot help but compare this approach to that of the United States during its decades-long negotiations with the Soviet Union, which at the time was a global superpower and an existential threat to the free world. The differences are striking and revealing.

“For starters, consider that the Soviet regime felt obliged to make its first ideological concession simply to enter into negotiations with the United States about economic cooperation. At the end of the 1950s, Moscow abandoned its doctrine of fomenting a worldwide communist revolution and adopted in its place a credo of peaceful coexistence between communism and capitalism. The Soviet leadership paid a high price for this concession, both internally – in the form of millions of citizens, like me, who had been obliged to study Marxism and Leninism as the truth and now found their partial abandonment confusing – and internationally, in their relations with the Chinese and other dogmatic communists who viewed the change as a betrayal. Nevertheless, the Soviet government understood that it had no other way to get what it needed from the United States.

“Imagine what would have happened if instead, after completing a round of negotiations over disarmament, the Soviet Union had declared that its right to expand communism across the continent was not up for discussion. This would have spelled the end of the talks. Yet today, Iran feels no need to tone down its rhetoric calling for the death of America and wiping Israel off the map.

“Of course, changes in rhetoric did not change the Soviet Union’s policy, which included sending missiles to Cuba, tanks to Prague and armies to Afghanistan. But each time, such aggression caused a serious crisis in relations between Moscow and Washington, influencing the atmosphere and results of negotiations between them. So, for example, when the Soviets invaded Afghanistan shortly after the SALT II agreement had been signed, the United States quickly abandoned the deal and accompanying discussions.

“Today, by contrast, apparently no amount of belligerence on Iran’s part can convince the free world that Tehran has disqualified itself from the negotiations or the benefits being offered therein....

“Then there is the question of human rights. When American negotiations with the Soviets reached the issue of trade, and in particular the lifting of sanctions and the conferring of most-favored-nation status on the Soviet Union, the Senate, led by Democrat Henry Jackson, insisted on linking economic normalization to Moscow’s allowing freedom of emigration. By the next year, when the Helsinki agreement was signed, the White House had joined Congress in making the Soviets’ treatment of dissidents a central issue in nearly every negotiation.

“Iran’s dismal human rights record, by contrast, has gone entirely unmentioned in the recent negotiations. Sadly, America’s reticence is familiar: In 2009, in response to the democratic uprisings that mobilized so many Iranian citizens, President Obama declared that engaging the theocratic regime would take priority over changing it.”

Thomas L. Friedman / New York Times

“Finally, you have the regional challenge. Iran, with about 80 million people, is simply a more powerful and dynamic state today than most of the Sunni Arab states to its west, half of which have collapsed. Iran, even if it had good intentions, almost can’t help but project its power westward given the vacuum and frailty there. When Nixon opened to China, and helped unleash its economic prowess, China was largely surrounded by strong or economically powerful states to balance it. But an Iran enriched by billions in sanctions relief would be even more powerful vis-à-vis its weak Arab neighbors. Our Gulf Arab allies are deeply worried about this and are looking to the U.S. for both protection and more sophisticated arms. I get that. But unless we can find a way to truly ease tensions between Shiite Persians and Sunni Arabs, we will find ourselves unleashing Iran to the max while arming the Arabs to the teeth. Maintaining that balance will not be easy.

“These are not reasons to reject the deal. They are reasons to finish it right.”

Iraq / Syria / ISIS: Islamic State released another horrific video showing the execution of Ethiopian Christians in Libya, while according to Britain’s Guardian newspaper, leader Abu Bakr al-Baghdadi has been seriously wounded in an air strike in western Iraq, and that he is unable to resume day-to-day control of the organization. The paper says there was an urgent meeting of ISIS leaders, who initially thought he would die and made plans to name a new leader.

I’m surprised I’ve seen nothing in the U.S. press on this, which makes you wonder how truthful it is. No doubt air strikes have been targeting ISIS leadership, however, and it is believed the terrorists have lost significant chunks of Iraq and Syria, though of course it is spreading its tentacles to other countries.

In its first attack in Afghanistan, ISIS killed 33 and wounded 125 in a suicide bombing that was so vile, even the Taliban denounced it. Government workers were collecting their monthly salaries at a branch of Kabul Bank in Jalalabad when a suicide bomber on a motorcycle plowed into them. [The Taliban always claims it targets foreigners or the Afghan military in its attacks, and it rarely claims credit for killing groups of civilians.]

In other news...

Iraqi security forces recaptured areas lost earlier to ISIS in and around Ramadi, the capital of Anbar province. More than 114,000 have fled the fighting over the past two weeks in the Ramadi area, according to the United Nations. 54,000 of these have gone to Baghdad.

A top Iranian general was killed during a failed campaign by regime forces to seize territory in southern Syria, while an anti-regime civilian activist group based in Deraa accused Assad’s forces of summarily executing 26 men, mostly civilians, in the wake of the defeat.

The Britain-based Syrian Observatory for Human Rights announced that Syrian regime forces have carried out a staggering 10,000 airstrikes, including barrel bombs dropped by helicopter, over the last five months, killing more than 2,100. [Daily Star]

Finally, I hope you saw the report on “60 Minutes” Sunday, detailing one of Assad’s chemical weapons attacks. Two years after a U.S.-Russia agreement to disarm Assad’s chemical arsenal, the slaughters continue unabated, even as President Obama claims a disarmament success.

Yemen / Saudi Arabia: The Saudis announced they were ending their air campaign, “Decisive Storm,” but that they were launching a new phase aimed at rebuilding the country and preventing the rebels from operating, “Operation Restore Hope.” Thursday and Friday, however, there were renewed airstrikes.

The air campaign came with major collateral damage in civilian loss of life, while the infrastructure was destroyed in many cities, leading to a real humanitarian crisis. The World Health Organization said Yemen’s health services have collapsed, with 944 dead since the fighting escalated last month and nearly 3,500 wounded.

It’s also extremely difficult to get a sense of just what the Houthi rebels control. 15,000 troops in the desert and mountain border area with Saudi Arabia did pledge their support to exiled President Hadi, who is allied with the Saudis, but most of Yemen’s military is loyal to powerful ex-President Saleh, whose forces fight alongside the Shiite Muslim Houthi militia backed by Iran.

On Friday, Saleh urged the Houthi to stand down as he seeks a political settlement.

Israel: Prime Minister Netanyahu received a two-week extension for the purposes of forming a coalition following his election victory on March 7. He had 28 days to form one, but Israel’s president, Reuven Rivlin, granted the extension.

Netanyahu isn’t having any problem in coming up with a majority of the 120 seats in the parliament, it’s just about who gets what in terms of the cabinet and all the ministries. It’s expected the Likud-led government will control 67 seats and be the most right-wing administration in Israel’s history. There’s a rumor Netanyahu may be trying to broaden the coalition, but this doesn’t seem likely.

Egypt: In the first of many trials he faces, former President Mohammed Morsi was sentenced to 20 years in prison over the killing of protesters while he was still in power back in 2013. Separately, 22 Muslim Brotherhood were sentenced to death for their role in an attack on a police station in Cairo the same year.

Pakistan: President Obama issued a statement on Thursday confirming a U.S. drone strike back in January in the Pakistan-Afghanistan border region killed Warren Weinstein, an American held by al-Qaeda since 2011, and Italian national, Giovanni Lo Porto, who had been held since 2012.

Obama said: “As president and as commander-in-chief, I take full responsibility for all our counter-terrorism operations, including the one that inadvertently took the life of Warren and Giovanni.

“It is a cruel and bitter truth that in the fog of war generally and the fight against terrorism specifically, mistakes, and sometimes deadly mistakes, can occur.”

Obama stressed an initial review had shown the operation was “fully consistent” with guidelines and based on intelligence that included hundreds of hours of surveillance.

The same operation also killed Ahmed Farouq, an American citizen who was an al-Qaeda operative, as well as another American citizen who was a prominent member of the terror group, Adam Gadahn, though Gadahn may have been killed in a separate “counter-terrorism operation,” according to the administration.

“We believed this was an al-Qaeda compound, that no civilians were present, and that capturing these terrorists was not possible,” said the president. “We do believe that the operation did take out dangerous members of al-Qaeda. What we did not know, tragically, is that al-Qaeda was hiding the presence of Warren and Giovanni in this compound.”

U.S. officials said they won’t stop using drones to target and kill terrorists.

Editorial / Wall Street Journal

“The inadvertent killing of two Western hostages in a U.S. drone strike is being portrayed as a blow to the CIA’s program targeting terrorists around the world. That will only be true if opponents of the war on Islamist terror are allowed to limit the drone program because of a single, tragic mistake.

“The men responsible for the deaths of American Warren Weinstein and Italian Giovannia Lo Porto are the jihadists who kidnapped them in Pakistan....

“The deaths are terrible, and Mr. Obama said the U.S. will investigate if any signals were missed. But the attack also killed jihadists actively plotting against Americans at home and abroad. As the Obama administration has scaled back such anti-terror tools as capture and interrogation, the drone program is one of the few ways that the U.S. can still take the war to the terrorists on their home territory. It is a rare asymmetric U.S. advantage.

“The real story here is the ruthlessness of the jihadists in targeting Westerners everywhere. Weinstein was working to lift Pakistanis out of poverty, and he was grabbed in Lahore, a city far from the jihadist redoubts along the Afghan-Pakistan border. We hope the U.S. investigation includes whether Pakistani intelligence knew anything about the whereabouts of the two hostages. The way to prevent more such tragedies is to kill the jihadists before they kidnap Americans.”

Russia / Ukraine: The U.S. accused Russia of deploying more air-defense systems in eastern Ukraine, a total breach of the ceasefire deal. Russia is also training separatist forces in the area and building up its presence along the border, according to the State Department, which added Russia now has its largest presence there since October 2014.

The U.S. sent 300 paratroopers to western Ukraine to train with Ukrainian national guard units.

The U.N. says at least 6,116 people have been killed since fighting broke out last April – a month after Russia annexed the Crimean peninsula.

On Wednesday, European antitrust regulators charged Russian energy giant Gazprom with abusing its dominance of the natural gas market, with the European Commission targeting unfair pricing. Russia supplies about one-third of the EU’s natural gas.

Editorial / Wall Street Journal

“(The EU) Commission’s inquiry seems like small beer compared to the strategic threat Gazprom poses to the European Union. The complaint alleges that Gazprom applies territorial restrictions to supply contracts to allow it to price-discriminate, and that it conditions supply on exclusive access to pipelines to obstruct competitors. Gazprom says it adheres to all laws where it operates, and will fight the complaint.

“The real question is why this is the best Europe can muster against Russia’s domination of the Continent’s energy supply. A better solution, strategically and economically, would be to lower the barriers to entry into the European gas industry by making it easier for Gazprom’s competitors to exploit the Continent’s large but untapped domestic gas supplies.

“Germany imports nearly 40% of its natural gas from Russia, though it has enough domestic shale reserves to meet its needs for a century. But Berlin has banned most forms of fracking and nuclear power.”

Ditto Britain, which has huge shale gas reserves in parts of the country, but Parliament “imposed fracking restrictions so onerous as to amount to a ban.”

“Instead of subverting Gazprom’s alleged monopoly with more oil and gas production, Europe is pursuing an antitrust case that started in 2011, could drag on for years, and at best will result in legal sanctions the Kremlin will view as a slap on the wrist relative to the strategic benefits it enjoys from Gazprom’s market dominance. If you want to know why Vladimir Putin thinks he can bust the Western alliance, this lawsuit is Exhibit A.”

Separately...from AFP and the Moscow Times:

“A surface-to-air missile crashed shortly after being launched in northern Russia on Wednesday, Russian news agencies said, in a failed test that will be seen as an embarrassment for the country’s military forces.”

The incident involved an experimental military rocket, later identified as an Antey-2500 missile system; an upgraded version of Russia’s sophisticated S-300 air defense system that Russia is delivering to Iran.

Vladimir Putin, who set a goal of modernizing Russia’s military, won’t be pleased.

Back to Ukraine, the government is planning an operation involving tens of thousands of police to guard against any attack by separatists or Russian agents during World War II commemorations next month.

Finally, two Russian opposition parties agreed to run on a joint platform in 2016 parliamentary elections, in a first attempt at uniting fractious Kremlin adversaries following the killing of party leader Boris Nemtsov.

Nemtsov’s RPR-Parnas and Party of Progress, led by anti-graft blogger Alexei Navalny, will run together in local elections due in some regions this year.

“At this difficult time, we call on broad public and civic forces...to consolidate on a common platform of rejection of lies, corruption and aggression, suppression of economic and civil liberties and for building a democratic state in our country,” they said.

Other smaller parties may join as well.

China: Beijing’s top nuclear experts held a closed-door meeting with their U.S. nuclear counterparts and revealed their estimates of North Korea’s nuclear weapons production goes well beyond most previous U.S. figures, which can threaten regional security for the U.S. and its allies. 

Stanford’s Siegfried Hecker, who attended the closed-door meeting in February, told the Wall Street Journal, which broke this story, “The more they believe they have a fully functional nuclear arsenal and deterrent, the more difficult it’s going to be to walk them back from that.”

Editorial / Wall Street Journal

“Even China is now raising flags about nuclear proliferation. Beijing helped Pakistan get the bomb in the 1980s and has been North Korea’s patron from one Dear Leader to the next. But in February Chinese officials warned a group of Americans that Pyongyang has many more nuclear warheads than previously believed: up to 20 already, perhaps 40 by next year.

“The new Chinese assessment, reported Thursday by the Journal, is based on updated intelligence concerning North Korea’s ability to enrich uranium. The North Koreans had no such capability when they signed the 1994 Agreed Framework with the Clinton Administration, which required them to stop their nuclear-weapons efforts.

“But Pyongyang cheated on that deal, not least by developing a uranium-enrichment program first acknowledged to the Bush Administration in 2002. The North Koreans tested their first bomb in 2006 and were later discovered to be building a secret nuclear facility in the Syrian desert, which was destroyed by Israeli warplanes in 2007. The Bush Administration rewarded this behavior with a new nuclear deal – which Pyongyang again violated by testing bombs in 2009 and 2013....

“(The) deal the Obama Administration is now negotiating with Tehran looks to be incorporating the same mistakes. The Iran deal also has many more moving parts, making it considerably more difficult to enforce. Last time around it was relatively easy to tell when the North was breaking its promises....

“Iran and North Korea have extensive diplomatic and military ties, with Pyongyang helping supply the Iranians with ballistic-missile technology and, according to news reports, hosting Iranian scientists at its nuclear tests. Nobody should rule out the possibility that a portion of Pyongyang’s growing stockpile – to say nothing of the know-how that goes into building it – may someday come into Iranian hands.”

Separately, China’s central bank released a report on “green” finance and it reveals the country needs $320bn a year in investment over the next five years to meet targets on reducing pollution set by the ministry of the environment.

The report, as noted by the Financial Times’ Lucy Hornby, “estimated that China’s budget covered only 15 percent of the required investment, and called for carbon trading as well as financing tools such as loans, bonds and special funds for green projects.”

Speaking of pollution, a key reservoir in Shenzhen was hit by a sewage spill, with the water district saying an ink mixing and cartridge company was responsible. Farmland turned reddish brown and an environmental official told a local newspaper, “It’s safe to say that the vegetables are now inedible.”

An investigative report by the Shenzhen Evening News last year claimed that 173 out of the 310 rivers and streams running through the city were polluted. A municipal environment commission reported that water quality at 121 sampling stations, covering 85% of the city, was “extremely poor.” [Angela Meng / South China Morning Post]

On the disputed territory front, Vietnam asked the Philippines to form a pact to counter China, Philippine President Aquino revealed. Aquino told the South China Morning Post that China’s moves in the South China Sea were even more alarming than a year ago.

Aquino also told the SCMP that he supports Japanese Prime Minister Shinzo Abe’s move to amend his country’s post-second world war constitution to allow for Japanese troops to come to the aid of other nations during peacekeeping missions.

South Korea: Prime Minister Lee Wan-koo offered to resign over an escalating bribery scandal that is dealing a blow to President Park Geun-hye’s government, already rocked by the ferry disaster of a year ago that killed 304. On the anniversary date, families of the victims marched on Park’s office, demanding the government reopen an investigation into its failures in the rescue efforts.

Anzac Day: Saturday marks the 100th anniversary of the World War I landing in Turkey that began the historic, and bloody, battle known as the Gallipoli campaign. Thousands of Australians and New Zealand Army Corps troops, known as Anzacs, died in a flawed Allied campaign that nonetheless helped forge the modern identity of both Australia and New Zealand. [It also helped lead to the emergence of a heroic Turkish leader, Ataturk.]

But as a story in the Wall Street Journal on Friday points out, what should be a celebratory mood for Australia and New Zealand is tinged with tension, such as in the arrest of five Melbourne teenagers during antiterrorism raids on April 18, after authorities uncovered a plot to attack police during Anzac Day commemorations there.

The pilgrimage to Turkey is also more risky, with the porous border with Syria making it a gateway for foreign fighters.

If you want to launch a high-profile attack, Anzac Day is the time to do it, with innumerable targets.

Turkey is sending 3,700 police and paramilitary police to the Gallipoli peninsula for the Anzac Day centennial, where about 10,500 Australians and New Zealanders are expected.

[I have to add I’m proud of the fact I must be one of the few in the world who has visited the national war museums in all three countries, and I have a feeling for the deep symbolism this day holds for both Australia and New Zealand.]

South Africa: President Jacob Zuma has been dealing with an anti-immigrant crisis, with more than 300 people having been arrested in connection with a wave of violence against immigrants from other parts of Africa. At least six have been killed in the past two weeks. Armed groups have targeted shops run by African immigrants, accusing them of taking jobs from locals.

Zulu King Goodwill Zwelithini has been accused of fueling the attacks by saying foreigners should “go back to their countries.” May I suggest he change his name.

Random Musings

--It’s all about the Clintons as the media has a field day digging up stories tied to the Clinton Foundation and Hillary’s run for president.

Thursday, a New York Times story by Jo Becker and Mike McIntire detailed Vladimir Putin’s attempt to control much of the global uranium supply chain through the Russian atomic energy agency, Rosatom, which in early 2013 acquired a Canadian company with uranium-mining stakes stretching from Central Asia to the American West.

“But the untold story behind that story is one that involves not just the Russian president, but also a former American president and a woman who would like to be the next one.

“At the heart of the tale are several men, leaders of the Canadian mining industry, who have been major donors to the charitable endeavors of former President Bill Clinton and his family. Members of that group built, financed and eventually sold off to the Russians a company that would become known as Uranium One.”

The deal, aside from lucrative mines in Kazakhstan, also gave the Russians control of one-fifth of all uranium production capacity in the United States.

“Since uranium is considered a strategic asset, with implications for national security, the deal had to be approved by a committee composed of representatives from a number of United States government agencies. Among the agencies that eventually signed off was the State Department, then headed by Mr. Clinton’s wife, Hillary Rodham Clinton.”

From 2009 to 2013, “a flow of cash made its way to the Clinton Foundation. Uranium One’s chairman used his family foundation to make four donations totaling $2.35 million. Those contributions were not publicly disclosed by the Clintons, despite an agreement Mrs. Clinton had struck with the Obama White House to publicly identify all donors. Other people with ties to the company made donations as well.

“And shortly after the Russians announced their intention to acquire a majority stake in Uranium One, Mr. Clinton received $500,000 for a Moscow speech from a Russian investment bank with links to the Kremlin that was promoting Uranium One stock.”

It goes on and on. A spokesman for the Clinton campaign said no one “has ever produced a shred of evidence supporting the theory that Hillary Clinton ever took action as secretary of state to support the interests of donors to the Clinton Foundation.”

It turns out the Times ran a story in 2008 on how a Canadian mining financier Frank Giustra once donated $31.3 million to the Clinton Foundation after a trip by the former president to Kazakhstan.

It’s also important to note that when Rosatom took a 51% stake in Uranium One, Senator John Barrasso, Republican from Wyoming, where Uranium One’s largest American operation was, wrote to President Obama, saying the deal “would give the Russian government control over a sizable portion of America’s uranium production capacity.”

Meanwhile, Rosalind S. Heiderman of the Washington Post had a story in Thursday’s paper that starts out:

“Bill Clinton was paid at least $26 million in speaking fees by companies and organizations that are also major donors to the foundation he created after leaving the White House, according to a Washington Post analysis of public records and foundation data.

“The amount, about one-quarter of Clinton’s overall speaking income between 2001 and 2013, demonstrates how closely intertwined Bill and Hillary Clinton’s charitable work has become with their growing personal wealth....

“The Post analysis shows that, among the approximately 420 organizations that paid Bill Clinton to speak during those years, 67 were also foundation donors that each gave the charity at least $10,000....

“Four major financial firms – Goldman Sachs, Barclays Capital, Deutsche Bank and Citigroup – collectively have given between $2.75 million and $11.5 million to the charity.... Between 2001 and 2013, their combined speech payments to Bill Clinton came to more than $3 million....

“The Post’s analysis, based on foundation disclosures, State Department documents, financial fillings and other records, shows that the lines between Clinton’s paid speeches and his work for the foundation often blurred as he traveled the world promoting the charity and reaping millions in payments.

“Technology companies Microsoft and Cisco Systems, for instance, donated at least $1 million each to the foundation. The two companies paid Bill Clinton a total of $1.02 million in speaking fees for a series of lectures.”

As for the new book by author Peter Schweizer, “Clinton Cash: The Untold Story of How and Why Foreign Governments and Businesses Helped make Bill and Hillary Rich,” Schweizer claims he found a clear “pattern of financial transactions involving the Clintons that occurred contemporaneously with favorable U.S. policy decisions benefiting those providing the funds.”

Schweizer, a former consultant for President George W. Bush, is being attacked by Democrats for writing a political hack job, but my cursory glance at his book (thru excerpts) reveals he is citing many of the stories that the Times and Washington Post have uncovered in their current and past work on the Clinton Foundation. So those blasting Schweizer would appear to be on the wrong track.

Michael Goodwin / New York Post

“(Schweizer) cites a ‘pattern of financial transactions’ that benefitted both the Clintons and their funders. He says Bill earned a staggering $48 million in speeches during Hillary’s four years as secretary of state, including 11 of the top-range windfalls. Their net worth is now estimated at between $100 million and $200 million, not bad for a couple Hillary claimed was ‘dead broke’ in 2000.

“Whether their Midas-haul riches are a result of honest or dishonest graft, it’s certainly graft. While both could legitimately command significant appearance fees, there seems little doubt that the soaring price of his speeches during her tenure at State was not a mere coincidence.

That’s Goodwin Rule No. 1 with the Clintons: There’s no such thing as a coincidence.

“What Hillary did with that power is something Schweizer explores and, again according to reports from the book, he offers compelling examples of a quid pro quo....

“Radio legend John Gambling asked me Tuesday why they do it, meaning why the Clintons always court trouble when, financially at least, they’re set for life. My answer speaks to their nature, and ours.

“They do it because they get away with it.   And they get away with it because we let them.”

For her part, Hillary, when asked about the book, briefly said this week while campaigning in New Hampshire, “We’re back into the political season and, therefore, we will be subjected to all kinds of distractions and attacks and I’m ready for that.”

--From The Economist:

“The idea that a Republican could win without becoming more appealing to minority voters was disproved in 2012. Mitt Romney ran up a record score with non-Hispanic white voters, yet still lost. Both Mr. Romney and John McCain, the party’s nominee in 2008, would have been president if they had faced the same (largely lily-white) electorate as Ronald Reagan did in 1980, says Whit Ayres, a Republican pollster. And Hillary Clinton, the probable Democratic nominee, is unlikely to do as badly with white voters as Mr. Obama did.”

--A new CNN/ORC International poll finds that, nationwide, of Republicans and Republican-leaning independents, 17% back Jeb Bush for the GOP nomination, while 12% support Wisconsin Gov. Scott Walker. Sen. Rand Paul and Sen. Marco Rubio stand at 11% each, with Mike Huckabee at 9% and Ted Cruz at 7%. Ben Carson and Chris Christie received just 4% each after being strong in the fall.

Among Tea Party backers, Cruz and Walker tie for the top slot at 15%, with Rubio at 14%, Paul 12% and Bush 11%.

Rubio fares best against Clinton, trailing 55% to 41%. Bush trails Clinton 56% to 39%. It’s 19 or 20 points for the other Republican candidates in terms of their margin with Hillary.

Among Democrats and Democratic-leaning independents, 69% favor Clinton, 11% Joe Biden, 5% Vermont Senator Bernie Sanders, and the rest aren’t worth talking about. 

But wait...there’s more! A new Quinnipiac University National Poll has Marco Rubio receiving the support of 15% of Republican primary voters and runs best against Hillary Clinton, with Rubio trailing Clinton just 45 to 43 percent.

Jeb Bush is second in this survey at 13%, with Scott Walker at 11%. No other candidate tops 9%.

Clinton gets 60% in this one, followed by Vice President Biden at 10%.

Clinton beats Bush 46-39.

--New Jersey Gov. Chris Christie’s job approval rating is hitting historic lows. According to a Quinnipiac University Poll, 56% of New Jersey voters disapprove of Christie’s performance compared to only 38% who approve of it. The disapproval figure is a whopping 8 points higher than a similar poll taken in January.

Interestingly, by a 63-33 margin, New Jerseyans give Christie high marks for being a “strong leader,” but only 41% believe him to be “honest and trustworthy” (vs. 52% who don’t), and only 32% approve of the way he has handled the state’s budget.

--Noam N. Levey / Los Angeles Times:

“After five years and more than 50 votes in Congress, the Republican campaign to repeal the Affordable Care Act is essentially over.

“GOP congressional leaders, unable to roll back the law while President Obama remains in office and unwilling to again threaten a government shutdown to pressure him, are focused on other issues, including trade and tax reform.

“Less noted, senior Republican lawmakers have quietly incorporated many of the law’s key protections into their own proposals, including guaranteeing coverage and providing government assistance to help consumers purchase insurance.

“And although the law remains very unpopular with GOP voters, more than 20 million Americans now depend on it for health benefits, making even some of the most conservative Republicans loath to cut off coverage.

“Facing the prospect that the Supreme Court this year could strip away insurance subsidies provided through the law in most states, several GOP lawmakers have proposed extending the aid, perhaps even until a new president takes office.

“At the same time, the presumed Republican presidential front-runner, former Florida Gov. Jeb Bush, has shown little enthusiasm for a new healthcare fight. Last year, he even criticized the repeal effort....

“ ‘Only 18% of Americans want to go back to the system we had before because they do not want to go back to some of the problems we had,’ Whit Ayres, a veteran Republican pollster who works for presidential candidate Sen. Marco Rubio of Florida, said at a recent breakfast hosted by the Christian Science Monitor.

“ ‘Smart Republicans in this area get that,’ he added.....

“In the first quarter of this year, 11.9% of adults in the U.S. lacked insurance, down from 18% in the third quarter of 2013, before the current expansion began, according to Gallup....

“Republican lawmakers once cheered a legal challenge targeting insurance subsidies in about three dozen states as an opportunity to dismantle the law.

“Now, they are scrambling for a plan to preserve the subsidies if the Supreme Court backs the challenge.”

--So you know how I’ve written over the past year that New York City Mayor Bill de Blasio has presidential ambitions?

Fredric U. Dicker / New York Post

“Despite repeated claims to the contrary, Mayor de Blasio is positioning himself to be the leftist ‘progressive’ alternative to Wall Street-friendly Hillary Rodham Clinton as the Democratic candidate for president, a national party operative told The Post.

“De Blasio’s hope, the operative said, is a ‘draft de Blasio’ movement will develop among progressive activists over the next several months that will lead to the mayor being able to defeat Clinton in the primary elections next year in much the same way leftist Sen. George McGovern successfully challenged the initially front-running establishment Democratic candidate, Sen. Edmund Muskie, more than 40 years ago.”

New York’s small but influential Working Families Party wanted Massachusetts Senator Elizabeth Warren to run but in repeatedly saying she won’t, they are turning to the mayor.

It turns out when de Blasio traveled to Iowa recently for some “progressive” speeches, he took along his ad maker.

--The Senate finally reached compromise on a bill designed to fight human trafficking, which allowed it to consider the nomination of Loretta Lynch to be the next attorney general. Senate majority leader Mitch McConnell had not allowed a confirmation vote on Lynch to go forward until the Senate finished work on the trafficking bill, which passed 99 to 0.

So then the Senate confirmed Lynch, 56 to 43, with 10 Republicans voting for her. The issue for Republicans regarding Lynch, who they concede is highly qualified, was that she defended President Obama’s executive actions on immigration.

--Michele Leonhart, the top Drug Enforcement Administration official, is retiring in May; stepping down under pressure after her agency’s reputation was obliterated by a scandal over sex parties with prostitutes in Colombia. That’s bad enough. The fact the prostitutes were paid for by drug cartels made it beyond belief.

--Retired general and former CIA head, David Petraeus, was sentenced to two years of probation and fined $100,000 for inappropriately handing classified information to Paula Broadwell, his biographer and mistress.

Until his fall from grace, Petraeus, a four-star who played critical roles in Afghanistan and Iraq, was viewed as one of the greatest military minds of his generation.

He was the mastermind behind the 2007 “surge” of U.S. troops in Iraq.

--New York Democratic Gov. Andrew Cuomo took some heat for a whirlwind trip to Cuba, critics pointing out that if the goal was to begin to establish trade ties to boost the New York economy, he should head north to Canada, which is New York’s most important trading partner, a 16.6% market share of exports, though they’ve been falling due to the rising dollar.

By contrast, the entire Cuban economy, at $73 billion, “is only about twice as large as the volume of New York-Canadian trade,” as reported by Greg David of Crain’s New York Business.

--There is no way in hell that John Hinckley should be released. This is beyond idiotic and I’m amazed it keeps coming up.

--Research presented by USC earth sciences professor James Dolan at a meeting this week of the Seismological Society of America in Pasadena, suggests that the shaking from “the Big One,” the long-predicted major earthquake on the San Andreas fault, could trigger additional large temblors on nearby faults.

As reported by the Los Angeles Times’ Rong-Gong Lin II: “The concept of more than one Big One in a lifetime might feel outlandish to Californians today. But it wasn’t so long ago when this state had more powerful earthquakes more frequently. The San Andreas fault, for example, suffered two major ruptures in the 19th century: an earthquake of about magnitude 7.5 in 1812 and a much worse 7.9 earthquake in 1857.

“The San Andreas fault in Southern California has been quiet since. And Southern California hasn’t had a true ‘Big One’ – a quake greater than a 7.7 – since 1857.”

Which means, as Prof. Dolan notes: “At some point, we will need to start releasing all of this pent-up energy stored in the rocks in a series of large earthquakes.”

--The NOAA and the Japan Meteorological Agency, the world’s top monitoring agencies, both had March as the hottest month on record. NASA had it as the third-hottest. All three agencies agree that the past three months have been the hottest start to a year.

The National Weather Service predicts that the pattern of unusually warm waters in the Pacific Ocean, El Nino, will persist into the second half of the year and it could be a big one.

But a strong El Nino could mean heavy rains for California, and this is good.

So then there is this from Monte Morin of the Los Angeles Times:

“It’s called ‘the blob,’ and some blame it for the thousands of dead seabirds and emaciated sea lion pups that have washed ashore on California beaches since late last year.

“Ever since an unusually warm mass of seawater began spreading along the Pacific Coast of North America a year ago – wreaking havoc on the marine food chain – scientists have struggled to explain its presence.

“In recent months, however, some experts have argued that this 500-mile-wide, 300-foot-deep wedge of warm seawater may in fact signal an epic cyclical change in the Pacific Ocean – a change that could possibly bring soaking rains to Southern California this winter but also accelerate the rise in global temperatures.”

So there is a developing theme here.

“I think we may be shifting from a cool, dry phase to a warm, wet phase, which is usually the drought-buster,” said William Patzert, a climatologist at NASA’s Jet Propulsion Laboratory. 

--Joel Achenbach / Washington Post

“Yellowstone National Park is the home of one of the world’s largest volcanoes, one that is quiescent for the moment but is capable of erupting with catastrophic violence at a scale never before witnessed by human beings. In a big eruption, Yellowstone would eject 1,000 times as much material as the 1980 Mount St. Helens eruption. This would be a disaster felt on a global scale, which is why scientists are looking at this thing closely.”

Scientists at the University of Utah published a study in the journal Science that for the first time maps out the plumbing of Yellowstone’s volcanic system. 

A shallow magma chamber had already been documented, but a newly discovered reservoir is “4.5 times larger than the chamber above it. There’s enough magma there to fill the Grand Canyon.” Good gawd!

The last big eruption was 640,000 years ago, with Yellowstone Lake covering a portion of the impact zone, which was about 25 miles by 37 miles across.

Of course today, all eyes are on Calbuco down in Chile, which is doing a number on neighboring Argentina.

--The Wall Street Journal’s Sumathi Reddy had a story on different diets and the possibility that the MIND diet may reduce the risk of Alzheimer’s.

For example, the Mediterranean diet is good for the heart, and the DASH diet is good for controlling blood pressure.

But the MIND diet borrows significantly from the other two, and all are basically plant-based, except the MIND diet places heavy emphasis on eating “brain-healthy” food such as green leafy vegetables and berries.

Personally, I’m encouraged seeing as I changed my lunch diet from yogurt to cottage cheese and frozen blueberries, plus a dollop of nuts. [Had to work ‘dollop’ into the commentary.]

Fruits, recommended in heart-healthy diets, “haven’t been shown to slow cognitive decline or prevent dementia, but berries, and especially blueberries, have,” writes Sumathi Reddy.

The MIND diet includes a glass of wine, as well as snacking on said nuts. Plus fish at least once a week, so I qualify there with Salmon Sunday.

---

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

God bless America.
---

Gold closed at $1175
Oil $57.15...up sixth straight week from low of $44.84

Returns for the week 4/20-4/24

Dow Jones +1.4% [18080]
S&P 500 +1.7% [2117.69...new high]
S&P MidCap +1.2%
Russell 2000 +1.2%
Nasdaq +3.2% [5092...new high]

Returns for the period 1/1/15-4/24/15

Dow Jones +1.4%
S&P 500 +2.9%
S&P MidCap +5.6%
Russell 2000 +5.2%
Nasdaq +7.5%

Bulls 52.5
Bears 15.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support, especially those making donations to the cause.

Checks are still being accepted. Make them out to StocksandNews.com.

Brian Trumbore
PO Box 990
New Providence, NJ 07974

*Special congratulations to my nephew, Doug, who is graduating from the University of Pittsburgh this weekend. Both my parents went there as well. Long ago, I saw Pitt's Tony Dorsett rush for 303 yards against Notre Dame, but I digress....



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Week in Review

04/25/2015

For the week 4/20-4/24

[Posted 11:30 PM ET, Friday]

Warning: If you normally print this column, understand it is at or near record length.

Edition 837

Washington and Wall Street

Nasdaq was the story this week, with the tech-heavy bellwether hitting an all-time high on Thursday, finally besting the old closing mark of 5048 set way back on March 10, 2000, the very peak of the bubble. Nasdaq then fell a sickening 78% and many thought they’d never see the day when it finally fully recovered.

But 5,522 days later, it’s a different Nasdaq. Using trailing 12-month earnings multiples, Birinyi Associates notes the Nasdaq traded at 175 times profits in 2000, but today is more like 30 times, which is high, but not unrealistic, though Friday’s action in two stocks should represent a short-term warning signal...shares in Amazon rising 15% and Microsoft 10%.

I have gobs on this week’s slew of earnings reports further below with the likes of 3M, McDonald’s and GM not being good, but the best news was saved for after the bell on Thursday as four big ones – Amazon, Microsoft, Google and Starbucks – all exceeded expectations.

Ah yes, the Street’s expectations. Many corporations clearly gamed the system this reporting season, lowering expectations to a level where they then couldn’t help but beat them. Like Microsoft, for example. It’s a game that usually works. Thus far among the 200 S&P 500 companies that have reported, 77% have beaten their profit forecasts, but only 49% have topped on the revenue front. Factset now estimates Q1 earnings for the S&P will decline 2.8%, better than its last estimate of down 4.6%.

There were a few economic indicators of note. Existing home sales in March rose to their highest annualized pace since Sept. 2013, 5.19 million, though the median home price, $212,000, is up 7.8% from a year earlier, not good given stagnant incomes. [The $212,000 is still below the peak of $230,000.]

March new-home sales came in at a 481,000 pace, well below expectations, but still 19.4% higher than March 2014.

And March durable goods orders were up a solid 4%, but ex-transportation, a truer measure, were down 0.2% with new orders falling in most sectors.

On a different topic...Randall W. Forsyth / Barron’s...on easy money.

“When I think back on all the crap I learned in grad school, it’s a wonder I can think at all, to paraphrase Paul Simon. And that also goes for what was drummed into me as an undergraduate....

“Among those shibboleths was that low interest rates always stimulate the economy. Reduced borrowing costs make it easier for folks to buy houses and companies to invest and expand. Lower yields on savings cut the incentives for consumers to stash their cash in the banks like Scrooge and instead make them more inclined to go out and spend and have a good time....

“(But today), the boom that the textbooks predict is nowhere in evidence. That’s not a surprise to Jason Hsu, vice chairman and co-founder of Research Affiliates and also a card-carrying Ph.D. and adjunct professor at UCLA. As a frequent visitor to Japan over more than a decade, he’s had a chance to observe firsthand the effect of near-zero interest rates.

“In the complete opposite of what classical economics teaches, low returns actually have induced Japanese consumers to spend less, he says. As the aging population save more to get to a threshold of asses needed for retirement, firms seeing no spending are loath to spend, invest, or hire. ‘This is a bad spiral that never was predicted,’ Jason explains....

“This has always been assumed to reflect both the demographics and cultural traits of Japan. But that world view will have to be revised, as there’s evidence of the same thing happening in Europe, he adds, with Germans reacting to zero interest rates by saving more. This behavioral dimension helps explain the tepid payoff from the unprecedented ‘financial repression’ that has taken interest rates to zero and below.”

Europe and Asia

Last weekend, European Central Bank President Mario Draghi said of the Greek crisis, “We are certainly entering uncharted waters if the crisis were to (deteriorate badly), and it is very premature to make any speculation about it.”

At the eurozone finance ministers meeting on Friday in Riga, Latvia, Greece caught an earful as the ministers angrily accused their Greek counterpart, Yanis Varoufakis, of backtracking on commitments and failing to grasp the seriousness of the situation. Athens is headed towards default by mid-May, with Varoufakis warning this week that cash was so tight government coffers may run dry in weeks.

In fact, earlier, Prime Minister Alexis Tsipras ordered local governments to move their funds/reserves to the central bank in a move that was flat-out confiscation; Tsipras saying it was needed to help pay salaries, pensions and the IMF (770m euro due May 12). You can imagine the order was slammed by local officials and the opposition.

The smaller eurozone countries, such as Slovenia, are particularly upset because they went through the wrenching austerity the Greeks only half-heartedly apply, yet Slovenia, like the others, is on the hook for funds it may have loaned Greece. Slovenia’s finance minister said the eurozone should prepare a “Plan B” to deal with a potential default. Varoufakis accused his Slovenian counterpart of being “undignified” for raising the scenario, calling the remarks “profoundly anti-European.”

The finance ministers were to approve a new list of Greek reforms but the chair of the eurogroup, the Netherlands’ Jeroen Dijsselbloem, said “significantly more progress” was needed and warned “time is running out.”

Tsipras doesn’t seem to understand that it’s the finance ministers who sign off on any aid disbursement, yet he continues to go over their heads, to the likes of Angela Merkel, thinking this will work, but Merkel said she won’t override the existing euro-area procedures.

Another official from a eurozone country told the Financial Times, “This game of chicken is turning into Angry Birds.”

Some say Greece could miss some payments without exiting the eurozone, but a Grexit is not priced into the market in terms of contagion. The government’s approval rating has fallen from 72% in February to 45% today.

Greece is also in trouble for another reason. Finland’s populist anti-EU party, the True Finns, finished second in national elections and are likely to be part of a centre-right government led by the leader of the Centre party, Juha Sipila. 

The significance here is that this will cement Finland’s status as the most hardline country when it comes to any further Greek bailout. In 2011, the True Finns refused to join a coalition in opposition to Greece’s second bailout, though recently it has been less strident in its demands as it sought a higher percentage of the vote.

Yields on Greek bonds hit levels not seen since the height of the eurozone crisis in mid-2012. Earlier in the week, three-year Greek bonds traded with a yield of 29.6%, before falling Friday to about 26%. 

Turning to the overall eurozone economy, a flash reading on the April composite index, as reported by Markit, came in at 53.5 vs. 54.0 in March, which was disappointing, with the manufacturing component at 51.9 vs. 52.2 last month, and the services reading at 53.7 vs. 54.2.

The flash reading looks at just Germany and France, specifically, and Germany’s comp was 54.2 vs. 55.4 in March, while France recorded a 50.2 vs. 51.5.

Chris Williamson, Chief Economist at Markit:

“The weaker rate of expansion is a big disappointment, given widespread expectations that the ECB’s quantitative easing will have boosted the fledgling recovery seen at the start of the year.

“However, it’s too early to draw firm conclusions about whether growth is faltering again and the effectiveness of policy. Although the PMI has pulled back from March’s recent high, the index remains above the average seen in the first quarter and is indicative of the eurozone economy growing at a reasonably robust quarterly rate of 0.4% at the start of the second quarter.”

Gillian Tett / Financial Times

“Another week, yet another wave of Greek drama. But as investors speculate about a possible Greek default, they should take note of a striking split that has opened up between America and Europe.

“On the eastern side of the Atlantic, policy makers are now at pains to suggest that a Greek default, or even a eurozone exit, would not be disastrous; at last week’s International Monetary Fund meetings German officials argued that the chance of a Greek exit had already been priced into the markets, and that shocks could be contained.

“But on the western side of the Atlantic, the mood is not sanguine. Earlier this week, Jason Furman, chairman of the U.S. Council of Economic Advisers, publicly warned that a ‘Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right.’ In private, U.S. officials are expressing even more concern....

“When (Lehman Brothers) collapsed seven years ago, U.S. officials learnt a painful lesson about how small shocks can spiral out of control. Their European counterparts experienced that crisis too. But Wall Street traders and Washington bureaucrats saw contagion spread in a particularly immediate way, scarring their psyche....

“Think back to 2008. Six months before Lehman Brothers collapsed, there was a full-blown crisis at Bear Stearns that left regulators and bankers braced for another financial shock and scrambling to prepare. On the eve of the Lehman bankruptcy, for example, regulators were obsessively focused on controlling the risks posed by credit derivatives.

“But in the event, regulators missed a trick: what sparked market turmoil when Lehman failed was not the credit derivatives contracts, but a legal issue that had previously been ignored, namely that the U.K. bankruptcy code ringfenced investor assets differently from New York’s.

“A second Lehman lesson is that when one issuer fails, this knocks faith in others, too. That is not just because investors start to worry about flaws at other entities, but due to wider policy uncertainty: when Lehman failed, the entire paradigm for finance suddenly seemed unpredictable. Hence the panic surrounding money market funds. And that highlights a third point: political turmoil matters. What really sent global markets into a tailspin in 2008 was that a couple of days after Lehman’s failure, the U.S. Congress initially rejected the bank rescue package that Hank Paulson, then U.S. Treasury secretary, had devised, creating policy uncertainty....

“(And in the case of Greece, it) is certainly not the only country saddled with excessive debt....

“Or to put it another way, although eurozone officials insist they can handle the first-order risks of a Greek exit, it is the second-order problems that (quite rightly) worry Americans. Not least because there is a fourth lesson from Lehman Brothers: when a crisis hits, the value of afflicted entities tends to shrivel. The hole in Lehman’s balance sheet became much bigger than anyone imagined. And that is a scary thought to contemplate in relation to any Greek exit scenario – not just for Greece but the entire eurozone.”

Holman W. Jenkins, Jr. / Wall Street Journal

“ECB President Mario Draghi can print unlimited euros to keep governments afloat in the short term, but he can’t solve the long-term problem of slow growth and ever-larger piles of debt and ever-diminishing public confidence. If Greece leaves the euro and defaults on its debt, at least it answers the question: What happens to the debt? Greece might be seen not as a recalcitrant outlier but as the beginning of the end of the game of extend and pretend for all of Europe. What if markets see Greece as the model of how the euro ends? Not an attractive model: simply an unavoidable one.

“After all, the big problem for Europe isn’t Greece or awkward debt negotiations. It’s a lack of growth and the uncertainty that every consumer, business and taxpayer must feel about how the Continent’s debt problems will be resolved given the lack of growth and the lack of revenue to make good on the debt. Alex Brazier, a senior Bank of England official, testified before a parliamentary committee that a Greek meltdown was not a direct risk to Britain’s economy, but its departure could ‘potentially be a trigger for a market reappraisal,’ by which he presumably meant a reappraisal of whether Europe can ever find the political will to address its growth problems.

“A certain kind of pro-business Europhile once hoped the euro would be a lever to overhaul the Continent’s welfare states. ‘Structural and competitive weaknesses will now be mercilessly exposed,’ predicted a prominent German industrialist.

“Alas, the euro turned into a conspiracy against reform, not an aid to reform. To ease the entry of Germany, Italy and France – and eventually Greece – Europe waived its own strict fiscal standards. To meet the imperative of bringing a skeptical public along, Europe’s banks were encouraged to treat Greek or Spanish or Italian debt as the equal of ultrasafe German debt for regulatory purposes. This artifice directly enabled the debt-fueled consumption binge of the 2000s that served as a substitute for reform.

“As we wrote 12 years ago, ‘Countries that have earned their place in the self-help hall of fame – Britain in the late 1970s, New Zealand in the 1980s, America under Ronald Reagan – did so because voters demanded a bold change of course. The euro was never a shortcut to such a consensus.’

“On the contrary, in sad fulfillment of prophecy, ‘reform’ in the European context has come to mean surrender to the Germans and the opposite of what voters thought they were promised.

“But the euro exists; it must now prove it can foster national economic makeovers or it can’t survive. Greece’s departure (increasingly likely) would solve nothing for Europe. Greece would be leaving because it failed to grasp the nettle of reform, which the rest of Europe mostly refuses to grasp. A real solution would offer Greece what it wants, debt relief, in return for what Greece needs – authentic, reasonable pro-market overhaul. Which is what Europe needs too.”

Eurobits...

--Chancellor Merkel said Germany wouldn’t divert from its recipe of tighter budgets and economic overhauls in efforts to pull the euro area out of its malaise. Without mentioning Greece, Merkel lauded euro members including Spain and Portugal for carrying out such measures in return for European bailout financing. She called Ireland “the growth engine of Europe.”

“That shows what reforms in combination with solid finances can do,” she said in a speech on Wednesday in Berlin. “This government will continue to call for this course of action, even though we’re confronted with sometimes considerable pressure internationally.”

--PIMCO’s chief investment officer for global credit, Mark Kiesel, said there is a bubble in the swelling pool of negative-yielding government debt from Europe to Japan.

“The bubble is really in some of these yields, these negative yields,” Kiesel told Bloomberg on Friday. “I don’t think they’re sustainable.”

Since September last year, the pool of European bonds with negative yields, essentially charging investors to own them, has almost tripled to $3 trillion from about $1 trillion, according to Bank of America data.

This pool is almost twice as big as the outstanding investment-grade corporate debt in Europe.

Kiesel adds, “Monetary policy around the world, their mission is to reflate. Inflation risk is underpriced.”

Earlier, Bill Gross of Janus Capital Group (formerly longtime manager at PIMCO) said the German 10-year Bunds was “the short of a lifetime.”

The bund hit a low yield of 0.049% on April 17, though the closing low is 0.077%. Friday it closed at 0.15%.

--Retail sales in the U.K. fell 0.5% in March from February when an increase was expected. In these final weeks of the May 7 general election campaign, every economic indicator could be critical, especially for Prime Minister David Cameron’s bid for another term. The polls show it being too close to call.

--Just a few figures on the Russian economy...retail sales contracted by 8.7 percent in March compared to a year earlier, while real wages fell 9.3 percent year on year. Investment slumped by 5.3 percent last month, according to Rosstat state statistics service.

Finally, the European Union has another severe problem on its hands...boat people. In 2014, 3,500 lost their lives crossing the Mediterranean in fleeing conflicts in northern Africa and the Middle East. About 10,200 have arrived in Italy by sea this year from January to March, while another estimated 1,600 have already lost their lives, including an estimated 800+ (perhaps as many as 900) in an unbelievable tragedy this past weekend.

In this last one, a Portuguese cargo ship, on its way to Libya, had been dispatched to rescue a boat full of migrants, floundering 100 miles south of Lampedusa, Italy, but then the well-intentioned rescue turned tragic as on seeing the light from the ship, just before midnight on Saturday, the migrants all surged to one side of the 66-ft. fishing vessel and it capsized. The captain, one of the few survivors, was arrested.

Pope Francis, in a departure from his prepared text, told tens of thousands of people in St. Peter’s Square on Sunday: “They are men and women like us, our brothers seeking a better life, starving, persecuted, wounded, exploited, victims of war....

“I make a heartfelt appeal to the international community to react decisively and quickly to see to it that such tragedies are not repeated.”

So EU leaders met at week’s end and agreed to commit new resources to save lives in the Mediterranean at an emergency summit in Brussels. They also discussed laying the ground for military action against the traffickers.

German Chancellor Angela Merkel said: “First and foremost now, we have to save lives and take the right measures to do so.”

But as with everything else involving the European Union, officials said diplomatic preparation for military action would probably take a couple of months.

Some 10,000 migrants have been plucked from seas between Italy and Libya just over the last week. Dutch Prime Minister Mark Rutte insisted Europe should not take the brunt of blame. “Last time I checked Libya was in Africa, not Europe.”

Martin Schulz, president of the European parliament, said the EU had not moved in decades on its migrant policies.

One migrant group estimates this year’s death toll could rise to about 30,000.

Prime Minister Matteo Renzi of Italy / New York Times

“The Mediterranean Sea, cradle of our civilization, is becoming a deathbed for thousands of nameless, desperate men, women and children. These people had lives full of pain, despair and hope, which led them to become victims of human trafficking. The voices of mothers who lost their children at sea will haunt our consciences. We must stop this carnage....

“Italy is not the desired final destination for most migrants, but we contribute a very large portion of the European search-and-rescue and patrolling efforts as well as resources to provide food, medical care and initial shelter. Italy has engaged its full capacity. This cannot be the job of a single country, no matter how well-equipped and determined we are....

“In a very complex region, Libya presents a crucial challenge. At least 90 percent of the migrants reaching Italian ground pass through that country. Libya is prey not only to endemic instability but also to international terrorism. The Islamic State operates there, adding to the chaos of civil war.

“Not all passengers on traffickers’ boats are innocent families. Our effort to counter terrorism in North Africa must evolve to outpace this menace, which creates fertile ground for human trafficking and interacts dangerously with it.”

Yes, not all of the passengers are innocents. For good reason, Europe is concerned, witness this week’s raids in Italy and the near disaster in Paris, where an imminent terror attack on at least one church later the same day was foiled because the terrorist accidentally shot himself in the leg and called an ambulance. When police traced the blood back to his car, they found a large arsenal of loaded guns and detailed plans. The 24-year-old French-Algerian man had also murdered a woman that morning.

Editorial / Wall Street Journal

“The thousands of desperate souls on these boats are the latest collateral damage as Europe and America abdicate responsibility for stability in the Middle East and North Africa. They flee violence at the hands of Islamic State, Nigeria’s Boko Haram, Syria’s Bashar Assad or other regional thugs. Along the way they fall into the grasp of gangs of human traffickers who thrive in the region’s growing lawlessness and destitution...

“Europe’s politicians worry about whether their policies create a pull for migrants. Italy last year ran a wide-ranging search-and-rescue program called Mare nostrum to try to rescue migrants at sea. The 9 million euro-per-month cost and concerns that it was encouraging even more migration led Rome to end it, to be replaced with a much smaller effort focused on maritime border enforcement.

“But Europe needs to worry at least as much about the push factor as it does about the pull. The European members of NATO urged and led the campaign to oust the Gaddafi regime from Tripoli. But, like the U.S., the Europeans largely abdicated any role in standing the new Libyan government on its feet. France, to its credit, has intervened directly against al-Qaeda in Mali and aided African allies in the fight against Boko Haram. But Paris alone can do only so much.

“Europe should at least do what it can to help the desperate people at sea, as the U.S. did for the Vietnamese refugees who fled Communist rule after the fall of Saigon in 1975....

“But until the West makes a strategic decision to reverse the disorder and chaos now engulfing its African and Middle Eastern neighbors, the refugees will keep getting into their boats, and the scale of the tragedy will mount.”

Turning to Asia, China’s Shanghai Composite stock index is at its highest levels since 2008 (while Tokyo’s Nikkei finished the week over 20,000 for the first time since 2000). But there are record levels of margin debt among Chinese investors, some 2 ½ times higher compared to just six months ago in Shanghai and Shenzhen, according to a Barclays report. This isn’t good.

And while market regulators have taken steps to remove the froth, unsuccessfully thus far, the People’s Bank of China is cutting bank reserve ratios to stimulate growth, so it’s kind of a confusing message.

The government’s statistics bureau did report some better news on the housing front, with new-home prices declining in ‘just’ 49 of 70 cities in March, compared with 66 in February, though the average price fell an 11th consecutive month and is down 6.1% year over year, the steepest decline on record.

Also this week, HSBC released its flash PMI for manufacturing in April, 49.2 vs. 49.6 in March, a 12-month low.

Street Bytes

--The Dow Jones rose 1.4% on the week to 18080, so 208 points shy of its all-time high, while the S&P 500 rose 1.7% to close at 2117.69, just beating its previous mark of 2117.39. And as noted earlier, Nasdaq rose 3.2% to finish at a record 5092.

Microsoft not only surged 10% on Friday, but gained 15% on the week, its best performance since 2007, giving it the third-largest market cap behind Apple and Google in the process.

Speaking of Apple, since March 2000, its shares are up 2,785%. [S&P Capital IQ / USA TODAY]

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.50% 10-yr. 1.91% 30-yr. 2.61%

Treasuries have been locked in a tight range for about four weeks. The Fed has an Open Market Committee meeting Tuesday-Wednesday and the markets will be looking for further clues as to when the first rate hike will occur.

--Navinder Singh Sarao, 36, a UK trader, was accused this week of contributing to the 2010 “flash crash” in the equity markets. He was granted bail in a London court and has begun fighting extradition to the United States.

Sarao’s arrest, in the words of Republican Sen. Richard Shelby (Ala.), chairman of the Senate banking committee, “raises many questions that the banking committee intends to ask.” Such as, where the heck were the regulators? More specifically the arrest raises questions about the role of the Commodity Futures Trading Commission, the lead U.S. derivatives regulator, the self-regulated Chicago Mercantile Exchange and the Securities Exchange Commission, which oversees cash equities.

The CME had concluded the flash crash had not been caused by the futures market, but it added: “If new information has come to light, we look forward to reviewing it with the [CFTC].”

“U.S. authorities claim Sarao made $40 million in profits from 2010 to 2014. The Department of Justice has charged him with one count of wire fraud, 10 of commodities fraud, and one of spoofing, a form of market manipulation that involves placing an order and swiftly withdrawing it before a trade can take place.” [Financial Times]

Sarao is alleged to have manipulated the prices of S&P 500 futures contracts just minutes before the May 6, 2010 event.

Previously, the CFTC and SEC traced the flash crash back to a computer-generated trade by a mutual fund which chose to sell a large number of E-mini S&P 500 futures contracts; the culprit later identified as Waddell & Reed Financial.

But now the DOJ says Sarao used an automated trading program to execute his scheme, which the department described as ‘dynamic layering.’

“That strategy involved placing multiple, simultaneous large volume sell orders at different price points to create the appearance of substantial supply.

“He then modified the orders frequently to keep them close to the market price, and cancelled them without executing them. Then, when the prices fell, he would sell futures contracts and buy them back at the lower price.” [Douwe Miedema and Sarah N. Lynch / Sydney Morning Herald]

As billionaire entrepreneur Mark Cuban said in an interview with USA TODAY, “If this one random guy could impact billions of market value in seconds or milliseconds, what’s going on? If a guy in his underwear can manipulate markets, anybody can. The optics look really, really bad.”

And consider that Sarao’s alleged activities went from 2009 through this year. How did this happen? Some are comparing it to the Bernie Madoff case, where regulators didn’t catch on to his Ponzi scheme despite receiving warnings years before he was arrested.

--I’m doing the following two items in sequence. Tuesday, it was reported six U.S. senators – including Elizabeth Warren of Massachusetts – sent a letter to Atty. Gen. Eric Holder and the Federal Communications Commission Chairman Tom Wheeler, urging them to deny the merger of Time Warner Cable and Comcast Corp., the nation’s two largest cable providers.

The six senators wrote in part, “We believe that Comcast-TWC’s unmatched power in the telecommunications industry would lead to higher prices, fewer choices, and poorer quality services for Americans.”

The senators’ letter continued: “The concerns...center on the undeniable reality that the combined Comcast-TWC would be the overwhelmingly dominant cable and broadband Internet provider in the nation and control much of the programming that Americans watch.”

Friday, Comcast announced it had withdrawn from the takeover of TWC, ending a 14-month quest.

Comcast CEO Brian Roberts said in a written statement: “Today, we move on. Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn’t agree, we could walk away,” he said.

Comcast was not on the hook for a break-up fee if regulators blocked the transaction.

Comcast executives learned this week the government was gearing up to challenge the merger and it is a bitter defeat. But the government didn’t want to give one company so much power as an Internet gatekeeper.

As for Time Warner Cable, John Malone’s Charter Communications is interested in buying it, Charter being much smaller, but having made a previous run at TWC. So the drama will continue in a different fashion.

For Wall Street’s bankers, lawyers and traders, the collapse of the Comcast takeover of TWC means a potential loss of $380 million in fees had the deal closed, according to consulting group Freeman & Co. and the Wall Street Journal. It seems Goldman Sachs stands to lose the most.

But, now there should be a new series of deals, a new round of consolidation.

--Shares in Google rose despite the fact it missed slightly on earnings and revenues, with the company saying it had a near-$1bn hit from currency fluctuations. The average advertising price dropped 7 percent across its own sites and its network of partners.

Google said the shift in users’ behavior from desktop to mobile devices has been “dramatic.”

Overall revenues rose 12 percent to $17.3 billion in the first three months of the year, though sales would have been up 17 percent without the effect of the strong dollar, according to the company. Net income rose 4 percent to $3.6bn.

Investors seem to have been heartened Google’s total costs rose only 13 percent, while Facebook’s overall costs leapt 83 percent.

--Speaking of Facebook....the company reported sales climbed 42 percent from a year earlier to $3.54 billion for the first quarter, though net income fell to $512 million. Versus what the Street expected, earnings were slightly higher and sales slightly lower.

Facebook, which also owns Instagram and What’s App mobile applications, spent more than $500m on capital expenditures with that 83 percent rise in costs and expenses.

The company said its number of monthly active users climbed 13 percent from a year earlier to 1.44bn. Mobile users hit 1.25bn at the end of March, up about a quarter year over year.

--Amazon reported a loss in line with expectations for the first quarter, (0.12), but sales rose 15%, exceeding analysts’ forecasts. The company also disclosed that its fast-growing technology subsidiary, Amazon Web Services, which happens to be one of its most profitable businesses, saw sales of $1.6bn, up 50 percent from the prior year; significant because this segment has an operating income margin of 17 percent. Operating income from AWS was $265 million, more than analysts had expected.

Last year Amazon spent $4.2bn on property and equipment for AWS. The CFO said: “We are deploying a large amount of capital for AWS because growth is so strong.” Amazon is seeking to win market share versus Microsoft and Google.

--As for Microsoft, it reported better than expected sales and earnings, though net income fell about 12 percent to $4.99 billion. Revenue rose a solid 6 percent to $21.73 billion. CEO Satya Nadella is trying to guide the company through a shift away from software installed on corporate and personal computers toward subscriptions to services delivered over the Net.

Microsoft feels it has a better chance of persuading larger businesses already using its software to adopt its cloud services. Amazon, on the other hand, is having success attracting start-ups.

Google didn’t break down their cloud numbers, though at an event for cloud software developers this week, Google executive chairman, Eric Schmidt, said:

“The entire world will be defined by smartphones, Android or Apple, a very fast network, and cloud computing,” comparing the move to the cloud to the 20-year period in which Microsoft and Intel dominated computing, or the web revolution that created Google. “The space is very large, very vast, and no one is covering all of it.” [David Streitfeld and Nick Wingfield / New York Times]

Back to Microsoft, it is introducing its next-generation operating software, Windows 10, this summer.

--Morgan Stanley reported its most profitable quarter since the financial crisis, including its first double-digit return on equity since the third quarter of 2007. 

Net income soared 59 percent to $2.4 billion on revenues that rose 10 percent; beating analysts’ expectations on both. Equity trading revenues were up 31 percent and fixed income trading increased 16 percent.

--Deutsche Bank agreed to pay a record $2.5 billion fine to authorities in the U.S. and U.K. to settle allegations that it manipulated the Libor benchmark rate, a key interbank rate that underpins $350 trillion of debt worldwide. This is the largest total fine to date in the investigation into the Libor scandal. Seven financial institutions have been fined thus far.

--Bank of New York Mellon Corp. handily beat earnings and revenue expectations for the quarter, with net income rising to $766 million from $661 million a year earlier. BNY Mellon has been dealing with pressure from hedge funds Marcato Capital Management and Trian Fund Management, who have targeted the bank after it lagged behind competitors on profitability. Marcato has been calling for the ouster of CEO Gerald Hassell, while Trian appears to be backing him.

Revenue increased 6%, helped by foreign exchange activity climbing 67%, reflecting higher volume and increased market volatility, according to the bank.

The activists have been targeting expenses and BNY noted the number of full-time employees dropped 900 from the year before.

--Baker Hughes Inc., the oil-field service company, said it reduced head count 17% of its total workforce during the first quarter. The company also reported a loss for the period.

Baker Hughes had previously estimated job cuts at 7,000, but it has now slashed 10,500 as it looks to cut costs some $700 million a year.

Meanwhile, the company is proceeding with its deal to merge with larger rival Halliburton, which announced Monday it has cut 9,000 jobs, or 10% of its workforce, in the past two quarters and plans to lay off more in the coming months.

And as I noted last week, the largest oil-field service company, Schlumberger, is laying off 20,000, or 15% of its workforce.

--United Airlines posted a first-quarter profit of $508 million, the highest first quarter net in United’s history.

But the airline expects unit revenue to be down in the second quarter, 3% domestically, and 7% internationally; with the dollar impacting revenue.

--IBM’s revenues slumped 12 percent in the first quarter, the 12th consecutive quarter of year over year declines in sales, with the exchange rate this time accounting for 8 percent of the fall and divestments of businesses the other 4 percent, so Big Blue says. Earnings beat the Street’s estimates.

But IBM’s cloud revenue surged 75% and the shares rose after positive analyst comments on the prospects for this segment of the business.

--On Tuesday, Google launched an algorithm to favor sites that are “mobile-friendly.” Mine, and about 80% (at least) of other sites are not so our traffic is plummeting in what is being called “Mobilegeddon.” Aghhh!!!! Oh the humanity!!!

It’s about using your smartphone and something like StocksandNews won’t be at the top of the rankings and, you know, for me, (stuff) happens. 

--Yahoo reported first quarter revenue was up from a year ago, but so were costs and thus net income came in less than expected, while revenue, up 8%, beat.

CEO Marissa Mayer has been under the gun and she has done a good job in areas such as mobile, with revenues up 61% year over year.

--Shares in eBay rose after the ecommerce company reported sales and earnings exceeding the Street’s expectations, despite the negative impact of the rising dollar. Sales rose 4 percent to $4.45 billion, while the company recorded a profit of $626 million.

Sales within the company’s payments unit, PayPal, climbed 14 percent to $2.1bn, while its marketplaces saw a 4 percent contraction in revenues, to give you a sense of how important PayPal continues to be.

PayPal is being split off in the third quarter of the year after the company reached an agreement with activist investor Carl Icahn. EBay is laying off 2,400 as well.

--Qualcomm shares tumbled after the company cut its full-year forecast, citing a decline in share for its semiconductor, or chips business at “a large customer,” as the CEO put it.

The company’s revenues were nonetheless up 8 percent vs. a year ago.

--Coca-Cola Co. posted its first quarterly sales gain in two years, while earnings for the quarter fell 3.8% to $1.56 billion as the latter was hit by 6 percentage points due to currency fluctuations that will reduce profit by 7 percent for the year, according to the company.

The thing is, global sales volumes rose just 1 percent, led by a 4 percent gain in Eurasia and Europe. They were unchanged in North America.

Actually, carbonated soft-drink sales volume fell 0.9 percent in the U.S. in 2014, the 10th straight annual decline.

Among Coke’s brands, global volumes grew 1 percent for Coca-Cola, 4 percent for Sprite, 5 percent for Coke Zero and 3 percent for Fanta (they still make that?)

Diet Coke sales, however, fell 6 percent! Zut alors!

--Rival PepsiCo reported a 3 percent increase in net income to $1.22 billion, though net revenue declined 3 percent to $12.2bn. Adjusted for currency swings, however, Pepsi said sales rose 4.4 percent. The company said the strength of the dollar wiped 8 percentage points off net revenue.

Friday, Pepsi said it will start selling Diet Pepsi without aspartame later this year, after a consumer backlash against the artificial sweetener crushed sales; down 5.2% last year, according to Beverage-Digest and Bloomberg. Diet Coke also uses aspartame, so Pepsi is trying to get ahead of it with this announcement. Some fear the lab-created sweetener may cause cancer, though the U.S. Food and Drug Administration has said there is no proof of a health risk from aspartame.

--General Motors fell far short of expectations, earning $0.86 per share vs. the Street’s estimate of $0.96, while missing on revenue. The automaker is posting a write-off of $337 million to end manufacturing in Russia, while suffering other losses in Europe, as well as South America, where troubles seem to be deepening (see Venezuela).

GM North America’s profit surged, though sales were up only 1 percent. Sales outside North America declined $2.22bn.

--Brazil’s energy giant Petrobras estimated its losses from corruption at $2.06 billion, while taking an impairment charge of about $15 billion amid the nation’s biggest political bribery case.

Investors, and the people of Brazil, have been waiting for long-delayed audited financial statements for 2014 and it narrowly met an end of April deadline that could have put it in technical default on some of its $17bn in debt.

The company’s president, Aldemir Bendine, who was handpicked by Brazil’s President Dilma Rousseff to rescue the company, said, “From this moment, Petrobras turns over a new page.”

Had the company defaulted, Brazil’s overall finances would have been at risk. Prosecutors allege scores of politicians colluded with former Petrobras executives and contractors to extract billions of dollars in bribes.

But this case is far from over, with over 750 projects under investigation.

--Giant UK retailer (supermarket chain) Tesco reported the worst results in its history, like a $9.5 billion loss for the year ending in February. Tesco is closing 43 of its superstores due to declining property values and an erosion of their competitiveness.

--Chipotle Mexican Grill Inc. reported net income climbed 48% and revenue rose 20% in the first quarter, but the latter was below expectations and the shares fell. What I like to see, same-store sales, grew 10.4%, which is spectacular but, again, below expectations.

The company is warning growth could wane in the second half. It’s just tough to keep up such super growth, after all. Chipotle also talks about their business being in ‘three-year waves.’ They now have 1,831 restaurants and plan on opening an additional 190 to 205 the rest of this year.

--McDonald’s reported another dreadful quarter of declining profits and sales. New CEO Steve Easterbrook promised details of a turnaround plan on May 4.

But for now, in the first quarter, U.S. same-store sales fell 2.6 percent, worse than expected, after dropping 1.7 percent in the fourth quarter. Net income fell 33 percent while overall revenue fell 11 percent.

Globally, same-store sales dropped 2.3 percent last quarter.

Meanwhile, McDonald’s continues to experiment with all-day breakfast in 94 stores in the San Diego area. 

The company is proceeding with plans to close 700 underperforming restaurants this year, primarily in the U.S., China and Japan, which is actually twice the number disclosed earlier; about 2% of its 36,000 outlets world-wide. At the same time it is opening 925 new ones, less than normal.

--Yum Brands Inc., which includes Pizza Hut and Kentucky Fried Chicken, continues to get slammed in China, where half its revenue is.

Yum posted profit and revenue declines for the first quarter with Yum’s sales in China down 9% from a year earlier, after similar performance in the second half of 2014. 

It’s really pretty simple. As the Wall Street Journal’s Laurie Burkitt and Ilan Brat put it:

“Novelty was a big draw for Chinese customers when Pizza Hut and KFC – along with other American brands such as McDonald’s Corp. and Wal-Mart Stores Inc. – swept into China in the late 1980s and ‘90s. Decades down the line, these brands face customer defections to newer rivals.”

The Journal notes that in 2012, 39% of consumers in China surveyed by a market-research firm called McDonald’s a desirable brand, while a third said that of Pizza Hut.

Today, that has dropped to below 25% for both. 

Yum officials said they are opening a high-end Italian eatery in Shanghai, Atto Primo. Frankly, I’d try and get away with calling it Xi Primo to get the president’s imprimatur on it.

--Speaking of chickens, the Agriculture Department announced an outbreak of avian flu had been confirmed at an Iowa egg producer, which resulted in the death of 5.3 million birds.

The farm in question has nearly 10 percent of the state’s egg-laying hens. Iowa is the nation’s largest egg producer...nearly 20 percent of the eggs consumed in the nation.

The epidemic has also wiped out nearly 5 percent of Minnesota’s turkey industry. But, the threat to humans from all this is low. The costs to some producers is very high, however, especially exporters. Many countries have begun blocking product from impacted states.

--Starbucks Corp. once again reported stronger sales and profits in its latest quarter. Net income rose 16% and revenue increased 18%. Same-store sales climbed 7% world-wide, which was the same figure in North America. The company’s CFO said, “The core business is really firing on all cylinders.”

There was no indication the company’s brief effort to encourage conversations about U.S. race relations hurt sales.

--The April 18 edition of The Economist (I sometimes don’t receive my magazine until 2 or 3 days after I’ve posted my column) notes that house prices in Ireland are up 16.2 percent in the past year, the highest among all the countries it surveys. Turkey was next at 16.0 percent. Greece’s were the worst, down 6.1 percent and off 38.5 percent since Q1 2008.

--A Japanese company, the Central Japan Railway Co., said its magnetic levitation train set a speed record this week, reaching 366 mph on a test track.

What is better known as JR Central is promoting its maglev technology for a line between Washington and Baltimore, which could reduce travel time between the cities to 15 minutes.

I want to go from my home town to Los Angeles in like 8 hours in this fashion. Who speaks for me?

But I totally forgot that Germany discontinued its maglev program after a fatal collision on a test course killed 23 people in 2006.

On the other hand, I’ll take United to L.A. and put up with the discomfort and dry chicken.

--Last week I noted there was a rumor a global outage of Bloomberg terminals may have been caused by an engineer spilling coffee on a key component. I never saw anything else on this.

But we learned this week that a “nearly disastrous plunge of the Serbian president’s plane Friday (April 17) was the fault of the co-pilot, who spilled coffee in the cockpit and accidentally activated an emergency switch, the Serbian Civil Aviation Directorate said in a report published Tuesday.” [Joanna Berendt / New York Times]

President Tomislav Nikock and nine others were on their way to a meeting with Pope Francis at the Vatican when the plane was sent into a plunge over the Adriatic Sea after one of its engines failed at an altitude of about 33,000 feet.

Due to the ensuing chaos, the plane returned home and the meeting with the pope was postponed.

--The week of 4/13 (latest data available) Fox News Channel had the biggest primetime audience in all of cable, the third time this year it has bagged the title. Fox bested USA and TBS, and had  over three times the viewers of both CNN and MSNBC.

But HBO’s “Game of Thrones” was the week’s most watched primetime cable show. Your editor is a “Game of Thrones” fan. So I was watching the Rangers-Penguins game on Wednesday night at a bar with a Wake Forest friend (fellow Rangers fan) and we were sitting in front of the taps. One offering was a “Game of Thrones” brew. Mark said, ‘Never heard of that (the beer),’ so I told him what a fan I was of the program and he looked at me with total disgust. The friendship will endure, however, and our Rangers won (and clinched the series tonight). [For those of you keeping score at home, Mark was drinking Black & Tans, while I was sticking with domestic, Coors Light.]

--According to the World Happiness Report 2015, the 10 happiest countries are Switzerland, Iceland, Denmark, Norway, Canada, Finland, Netherlands, Sweden, New Zealand, and Australia. Except for Syria and Afghanistan, the 10 unhappiest countries are all in Saharan or sub-Saharan Africa.

The U.S. is the 15th happiest of the 158 covered. Among others...Britain (21), Japan (46), Russia (64), China (84), and Iran (110).

--Finally, we note the passing of shopping mall tycoon A. Alfred Taubman, 91. Taubman was also a one-time chairman of auction house Sotheby’s and in 2001, was convicted in Federal District Court in New York of colluding with Sir Anthony Tennant, his counterpart at Christie’s, to fix commissions.  Taubman went to prison for 9 ½ months and was fined $7.5 million. Sotheby’s was forced to settle a civil suit by aggrieved clients for $256 million, with Mr. Taubman paying most of this amount.

But around where I live, Taubman is known for developing The Mall at Short Hills, one of the higher-profile malls in the country as he aggressively made his move to develop about 20 malls from coast to coast, after starting out owning a string of strip shopping centers.

Foreign Affairs

Iran: The following is out of the Tehran Times, quotes from the second-in-command of the Islamic Revolution Guards Corps (IRGC), re inspections.

“Not only will we not grant foreigners the permission to inspect our military sites, we will not even give them permission to think about such a project,” Brigadier General Hossein Salami told a live television program last Saturday.

“They will not even be permitted to inspect the most normal military site in their dreams.

“Visiting a military base by a foreign inspector would mean the occupation of our land because all our defense secrets are there. Even talking about the subject means national humiliation,” he said.

Meanwhile, Supreme Leader Ayatollah Ali Khamenei said on Sunday:

“The Islamic Republic of Iran has never been and will never be a threat against the region and the neighboring countries, but will act powerfully against any kind of aggression,” he told a gathering of Army commanders and officials.

Iran’s Armed Forces have always shown commitment to the Islamic law and have never used “forbidden tools and methods” be it in time of victory or danger, he stated.

“The fact that the Islamic Republic of Iran does not seek nuclear weapons is within this framework and based on religious bounds,” he asserted.

Khamenei said Iran was not intervening in other countries’ affairs.

He pointed to the U.S. and its “shameless” threats against Iran, saying one of Washington’s officials has again talked about military “options on the table.”

Khamenei then said all military bodies must increase their “military and defensive readiness” and “this must be regarded as an official decree.” [Tehran Times]

This comes as President Obama suggested Iran could receive significant immediate economic relief upon conclusion of a deal to curb its nuclear program.

Charles Krauthammer / Washington Post

“In December, President Obama said that he wished to see Iran ultimately become a ‘very successful regional power.’ His wish – a nightmare for the Western-oriented Arab states – is becoming a reality. Consider:

“Gulf of Aden: Iran sends a flotilla of warships and weapons-carrying freighters to reinforce the rebels in Yamen...asserting its new status as regional bully and arbiter. The Obama administration sends an aircraft carrier group, apparently to prevent this gross breach of the U.N. weapons embargo on Yemen. Instead, the administration announces that it has no intention of doing anything. Meanwhile, it exerts pressure on Saudi Arabia to halt its air war over Yemen and agree to negotiate a political settlement involving Iran.

[Ed. The Iranian flotilla apparently turned around at week’s end.]

“Russia: After a five-year suspension, Russia announces the sale of advanced surface-to-air missiles to Iran, which will render its nuclear facilities nearly invulnerable to attack. Obama’s reaction? Criticism, threats, sanctions? No. A pat on the back for Vladimir Putin: ‘I’m, frankly, surprised that [the embargo] held this long.’

“Iran: Last week, Obama preemptively caved on the long-standing U.S. condition that there be no immediate sanctions relief in any Iranian nuclear deal. He casually dismissed this red line, declaring that what is really important is whether sanctions can be reimposed if Iran cheats. And it doesn’t stop there. The Wall Street Journal reports that Obama is offering Tehran a $30 billion to $50 billion signing bonus (drawn from frozen Iranian assets) – around 10 percent of Iranian GDP.

“Syria: After insisting for years that President Bashar al-Assad of Syria ‘step aside,’ the U.S. has adopted a hands-off policy toward a regime described by our own secretary of state as an Iranian puppet.

“Iraq: Iran’s Quds Force Commander Qasem Soleimani, director of Shiite militias that killed hundreds of Americans during the Iraq War and were ultimately defeated by the 2007-08 U.S. surge, operates freely throughout Iraq flaunting his country’s dominance. In March, he was directing the same Iraqi militias, this time against the Islamic State – with the help of U.S. air cover.

“This is the new Middle East. Its strategic reality is clear to everyone: Iran rising, assisted, astonishingly, by the United States.

“Obama’s initial Middle East strategy was simply withdrawal...The subsequent vacuum having been filled, unfortunately and predictably, by various enemies, adversaries and irredeemables, Obama lighted upon a new idea: We don’t just withdraw, we hand the baton. To Iran.....

“Our friends in the region, who for decades have relied on us to protect them from Iran, look on astonished.”

Natan Sharansky / Washington Post

“On a number of occasions during the negotiations over Iran’s nuclear program, the Israeli government has appealed to the United States and its allies to demand a change in Tehran’s aggressive behavior. If Iran wishes to be treated as a normal state, Israel has said, then it should start acting like one. Unfortunately, these appeals have been summarily dismissed. The Obama administration apparently believes that only after a nuclear agreement is signed can the free world expect Iran to stop its attempts at regional domination, improve its human rights record and, in general, behave like the civilized state it hopes the world will recognize it to be.

“As a former Soviet dissident, I cannot help but compare this approach to that of the United States during its decades-long negotiations with the Soviet Union, which at the time was a global superpower and an existential threat to the free world. The differences are striking and revealing.

“For starters, consider that the Soviet regime felt obliged to make its first ideological concession simply to enter into negotiations with the United States about economic cooperation. At the end of the 1950s, Moscow abandoned its doctrine of fomenting a worldwide communist revolution and adopted in its place a credo of peaceful coexistence between communism and capitalism. The Soviet leadership paid a high price for this concession, both internally – in the form of millions of citizens, like me, who had been obliged to study Marxism and Leninism as the truth and now found their partial abandonment confusing – and internationally, in their relations with the Chinese and other dogmatic communists who viewed the change as a betrayal. Nevertheless, the Soviet government understood that it had no other way to get what it needed from the United States.

“Imagine what would have happened if instead, after completing a round of negotiations over disarmament, the Soviet Union had declared that its right to expand communism across the continent was not up for discussion. This would have spelled the end of the talks. Yet today, Iran feels no need to tone down its rhetoric calling for the death of America and wiping Israel off the map.

“Of course, changes in rhetoric did not change the Soviet Union’s policy, which included sending missiles to Cuba, tanks to Prague and armies to Afghanistan. But each time, such aggression caused a serious crisis in relations between Moscow and Washington, influencing the atmosphere and results of negotiations between them. So, for example, when the Soviets invaded Afghanistan shortly after the SALT II agreement had been signed, the United States quickly abandoned the deal and accompanying discussions.

“Today, by contrast, apparently no amount of belligerence on Iran’s part can convince the free world that Tehran has disqualified itself from the negotiations or the benefits being offered therein....

“Then there is the question of human rights. When American negotiations with the Soviets reached the issue of trade, and in particular the lifting of sanctions and the conferring of most-favored-nation status on the Soviet Union, the Senate, led by Democrat Henry Jackson, insisted on linking economic normalization to Moscow’s allowing freedom of emigration. By the next year, when the Helsinki agreement was signed, the White House had joined Congress in making the Soviets’ treatment of dissidents a central issue in nearly every negotiation.

“Iran’s dismal human rights record, by contrast, has gone entirely unmentioned in the recent negotiations. Sadly, America’s reticence is familiar: In 2009, in response to the democratic uprisings that mobilized so many Iranian citizens, President Obama declared that engaging the theocratic regime would take priority over changing it.”

Thomas L. Friedman / New York Times

“Finally, you have the regional challenge. Iran, with about 80 million people, is simply a more powerful and dynamic state today than most of the Sunni Arab states to its west, half of which have collapsed. Iran, even if it had good intentions, almost can’t help but project its power westward given the vacuum and frailty there. When Nixon opened to China, and helped unleash its economic prowess, China was largely surrounded by strong or economically powerful states to balance it. But an Iran enriched by billions in sanctions relief would be even more powerful vis-à-vis its weak Arab neighbors. Our Gulf Arab allies are deeply worried about this and are looking to the U.S. for both protection and more sophisticated arms. I get that. But unless we can find a way to truly ease tensions between Shiite Persians and Sunni Arabs, we will find ourselves unleashing Iran to the max while arming the Arabs to the teeth. Maintaining that balance will not be easy.

“These are not reasons to reject the deal. They are reasons to finish it right.”

Iraq / Syria / ISIS: Islamic State released another horrific video showing the execution of Ethiopian Christians in Libya, while according to Britain’s Guardian newspaper, leader Abu Bakr al-Baghdadi has been seriously wounded in an air strike in western Iraq, and that he is unable to resume day-to-day control of the organization. The paper says there was an urgent meeting of ISIS leaders, who initially thought he would die and made plans to name a new leader.

I’m surprised I’ve seen nothing in the U.S. press on this, which makes you wonder how truthful it is. No doubt air strikes have been targeting ISIS leadership, however, and it is believed the terrorists have lost significant chunks of Iraq and Syria, though of course it is spreading its tentacles to other countries.

In its first attack in Afghanistan, ISIS killed 33 and wounded 125 in a suicide bombing that was so vile, even the Taliban denounced it. Government workers were collecting their monthly salaries at a branch of Kabul Bank in Jalalabad when a suicide bomber on a motorcycle plowed into them. [The Taliban always claims it targets foreigners or the Afghan military in its attacks, and it rarely claims credit for killing groups of civilians.]

In other news...

Iraqi security forces recaptured areas lost earlier to ISIS in and around Ramadi, the capital of Anbar province. More than 114,000 have fled the fighting over the past two weeks in the Ramadi area, according to the United Nations. 54,000 of these have gone to Baghdad.

A top Iranian general was killed during a failed campaign by regime forces to seize territory in southern Syria, while an anti-regime civilian activist group based in Deraa accused Assad’s forces of summarily executing 26 men, mostly civilians, in the wake of the defeat.

The Britain-based Syrian Observatory for Human Rights announced that Syrian regime forces have carried out a staggering 10,000 airstrikes, including barrel bombs dropped by helicopter, over the last five months, killing more than 2,100. [Daily Star]

Finally, I hope you saw the report on “60 Minutes” Sunday, detailing one of Assad’s chemical weapons attacks. Two years after a U.S.-Russia agreement to disarm Assad’s chemical arsenal, the slaughters continue unabated, even as President Obama claims a disarmament success.

Yemen / Saudi Arabia: The Saudis announced they were ending their air campaign, “Decisive Storm,” but that they were launching a new phase aimed at rebuilding the country and preventing the rebels from operating, “Operation Restore Hope.” Thursday and Friday, however, there were renewed airstrikes.

The air campaign came with major collateral damage in civilian loss of life, while the infrastructure was destroyed in many cities, leading to a real humanitarian crisis. The World Health Organization said Yemen’s health services have collapsed, with 944 dead since the fighting escalated last month and nearly 3,500 wounded.

It’s also extremely difficult to get a sense of just what the Houthi rebels control. 15,000 troops in the desert and mountain border area with Saudi Arabia did pledge their support to exiled President Hadi, who is allied with the Saudis, but most of Yemen’s military is loyal to powerful ex-President Saleh, whose forces fight alongside the Shiite Muslim Houthi militia backed by Iran.

On Friday, Saleh urged the Houthi to stand down as he seeks a political settlement.

Israel: Prime Minister Netanyahu received a two-week extension for the purposes of forming a coalition following his election victory on March 7. He had 28 days to form one, but Israel’s president, Reuven Rivlin, granted the extension.

Netanyahu isn’t having any problem in coming up with a majority of the 120 seats in the parliament, it’s just about who gets what in terms of the cabinet and all the ministries. It’s expected the Likud-led government will control 67 seats and be the most right-wing administration in Israel’s history. There’s a rumor Netanyahu may be trying to broaden the coalition, but this doesn’t seem likely.

Egypt: In the first of many trials he faces, former President Mohammed Morsi was sentenced to 20 years in prison over the killing of protesters while he was still in power back in 2013. Separately, 22 Muslim Brotherhood were sentenced to death for their role in an attack on a police station in Cairo the same year.

Pakistan: President Obama issued a statement on Thursday confirming a U.S. drone strike back in January in the Pakistan-Afghanistan border region killed Warren Weinstein, an American held by al-Qaeda since 2011, and Italian national, Giovanni Lo Porto, who had been held since 2012.

Obama said: “As president and as commander-in-chief, I take full responsibility for all our counter-terrorism operations, including the one that inadvertently took the life of Warren and Giovanni.

“It is a cruel and bitter truth that in the fog of war generally and the fight against terrorism specifically, mistakes, and sometimes deadly mistakes, can occur.”

Obama stressed an initial review had shown the operation was “fully consistent” with guidelines and based on intelligence that included hundreds of hours of surveillance.

The same operation also killed Ahmed Farouq, an American citizen who was an al-Qaeda operative, as well as another American citizen who was a prominent member of the terror group, Adam Gadahn, though Gadahn may have been killed in a separate “counter-terrorism operation,” according to the administration.

“We believed this was an al-Qaeda compound, that no civilians were present, and that capturing these terrorists was not possible,” said the president. “We do believe that the operation did take out dangerous members of al-Qaeda. What we did not know, tragically, is that al-Qaeda was hiding the presence of Warren and Giovanni in this compound.”

U.S. officials said they won’t stop using drones to target and kill terrorists.

Editorial / Wall Street Journal

“The inadvertent killing of two Western hostages in a U.S. drone strike is being portrayed as a blow to the CIA’s program targeting terrorists around the world. That will only be true if opponents of the war on Islamist terror are allowed to limit the drone program because of a single, tragic mistake.

“The men responsible for the deaths of American Warren Weinstein and Italian Giovannia Lo Porto are the jihadists who kidnapped them in Pakistan....

“The deaths are terrible, and Mr. Obama said the U.S. will investigate if any signals were missed. But the attack also killed jihadists actively plotting against Americans at home and abroad. As the Obama administration has scaled back such anti-terror tools as capture and interrogation, the drone program is one of the few ways that the U.S. can still take the war to the terrorists on their home territory. It is a rare asymmetric U.S. advantage.

“The real story here is the ruthlessness of the jihadists in targeting Westerners everywhere. Weinstein was working to lift Pakistanis out of poverty, and he was grabbed in Lahore, a city far from the jihadist redoubts along the Afghan-Pakistan border. We hope the U.S. investigation includes whether Pakistani intelligence knew anything about the whereabouts of the two hostages. The way to prevent more such tragedies is to kill the jihadists before they kidnap Americans.”

Russia / Ukraine: The U.S. accused Russia of deploying more air-defense systems in eastern Ukraine, a total breach of the ceasefire deal. Russia is also training separatist forces in the area and building up its presence along the border, according to the State Department, which added Russia now has its largest presence there since October 2014.

The U.S. sent 300 paratroopers to western Ukraine to train with Ukrainian national guard units.

The U.N. says at least 6,116 people have been killed since fighting broke out last April – a month after Russia annexed the Crimean peninsula.

On Wednesday, European antitrust regulators charged Russian energy giant Gazprom with abusing its dominance of the natural gas market, with the European Commission targeting unfair pricing. Russia supplies about one-third of the EU’s natural gas.

Editorial / Wall Street Journal

“(The EU) Commission’s inquiry seems like small beer compared to the strategic threat Gazprom poses to the European Union. The complaint alleges that Gazprom applies territorial restrictions to supply contracts to allow it to price-discriminate, and that it conditions supply on exclusive access to pipelines to obstruct competitors. Gazprom says it adheres to all laws where it operates, and will fight the complaint.

“The real question is why this is the best Europe can muster against Russia’s domination of the Continent’s energy supply. A better solution, strategically and economically, would be to lower the barriers to entry into the European gas industry by making it easier for Gazprom’s competitors to exploit the Continent’s large but untapped domestic gas supplies.

“Germany imports nearly 40% of its natural gas from Russia, though it has enough domestic shale reserves to meet its needs for a century. But Berlin has banned most forms of fracking and nuclear power.”

Ditto Britain, which has huge shale gas reserves in parts of the country, but Parliament “imposed fracking restrictions so onerous as to amount to a ban.”

“Instead of subverting Gazprom’s alleged monopoly with more oil and gas production, Europe is pursuing an antitrust case that started in 2011, could drag on for years, and at best will result in legal sanctions the Kremlin will view as a slap on the wrist relative to the strategic benefits it enjoys from Gazprom’s market dominance. If you want to know why Vladimir Putin thinks he can bust the Western alliance, this lawsuit is Exhibit A.”

Separately...from AFP and the Moscow Times:

“A surface-to-air missile crashed shortly after being launched in northern Russia on Wednesday, Russian news agencies said, in a failed test that will be seen as an embarrassment for the country’s military forces.”

The incident involved an experimental military rocket, later identified as an Antey-2500 missile system; an upgraded version of Russia’s sophisticated S-300 air defense system that Russia is delivering to Iran.

Vladimir Putin, who set a goal of modernizing Russia’s military, won’t be pleased.

Back to Ukraine, the government is planning an operation involving tens of thousands of police to guard against any attack by separatists or Russian agents during World War II commemorations next month.

Finally, two Russian opposition parties agreed to run on a joint platform in 2016 parliamentary elections, in a first attempt at uniting fractious Kremlin adversaries following the killing of party leader Boris Nemtsov.

Nemtsov’s RPR-Parnas and Party of Progress, led by anti-graft blogger Alexei Navalny, will run together in local elections due in some regions this year.

“At this difficult time, we call on broad public and civic forces...to consolidate on a common platform of rejection of lies, corruption and aggression, suppression of economic and civil liberties and for building a democratic state in our country,” they said.

Other smaller parties may join as well.

China: Beijing’s top nuclear experts held a closed-door meeting with their U.S. nuclear counterparts and revealed their estimates of North Korea’s nuclear weapons production goes well beyond most previous U.S. figures, which can threaten regional security for the U.S. and its allies. 

Stanford’s Siegfried Hecker, who attended the closed-door meeting in February, told the Wall Street Journal, which broke this story, “The more they believe they have a fully functional nuclear arsenal and deterrent, the more difficult it’s going to be to walk them back from that.”

Editorial / Wall Street Journal

“Even China is now raising flags about nuclear proliferation. Beijing helped Pakistan get the bomb in the 1980s and has been North Korea’s patron from one Dear Leader to the next. But in February Chinese officials warned a group of Americans that Pyongyang has many more nuclear warheads than previously believed: up to 20 already, perhaps 40 by next year.

“The new Chinese assessment, reported Thursday by the Journal, is based on updated intelligence concerning North Korea’s ability to enrich uranium. The North Koreans had no such capability when they signed the 1994 Agreed Framework with the Clinton Administration, which required them to stop their nuclear-weapons efforts.

“But Pyongyang cheated on that deal, not least by developing a uranium-enrichment program first acknowledged to the Bush Administration in 2002. The North Koreans tested their first bomb in 2006 and were later discovered to be building a secret nuclear facility in the Syrian desert, which was destroyed by Israeli warplanes in 2007. The Bush Administration rewarded this behavior with a new nuclear deal – which Pyongyang again violated by testing bombs in 2009 and 2013....

“(The) deal the Obama Administration is now negotiating with Tehran looks to be incorporating the same mistakes. The Iran deal also has many more moving parts, making it considerably more difficult to enforce. Last time around it was relatively easy to tell when the North was breaking its promises....

“Iran and North Korea have extensive diplomatic and military ties, with Pyongyang helping supply the Iranians with ballistic-missile technology and, according to news reports, hosting Iranian scientists at its nuclear tests. Nobody should rule out the possibility that a portion of Pyongyang’s growing stockpile – to say nothing of the know-how that goes into building it – may someday come into Iranian hands.”

Separately, China’s central bank released a report on “green” finance and it reveals the country needs $320bn a year in investment over the next five years to meet targets on reducing pollution set by the ministry of the environment.

The report, as noted by the Financial Times’ Lucy Hornby, “estimated that China’s budget covered only 15 percent of the required investment, and called for carbon trading as well as financing tools such as loans, bonds and special funds for green projects.”

Speaking of pollution, a key reservoir in Shenzhen was hit by a sewage spill, with the water district saying an ink mixing and cartridge company was responsible. Farmland turned reddish brown and an environmental official told a local newspaper, “It’s safe to say that the vegetables are now inedible.”

An investigative report by the Shenzhen Evening News last year claimed that 173 out of the 310 rivers and streams running through the city were polluted. A municipal environment commission reported that water quality at 121 sampling stations, covering 85% of the city, was “extremely poor.” [Angela Meng / South China Morning Post]

On the disputed territory front, Vietnam asked the Philippines to form a pact to counter China, Philippine President Aquino revealed. Aquino told the South China Morning Post that China’s moves in the South China Sea were even more alarming than a year ago.

Aquino also told the SCMP that he supports Japanese Prime Minister Shinzo Abe’s move to amend his country’s post-second world war constitution to allow for Japanese troops to come to the aid of other nations during peacekeeping missions.

South Korea: Prime Minister Lee Wan-koo offered to resign over an escalating bribery scandal that is dealing a blow to President Park Geun-hye’s government, already rocked by the ferry disaster of a year ago that killed 304. On the anniversary date, families of the victims marched on Park’s office, demanding the government reopen an investigation into its failures in the rescue efforts.

Anzac Day: Saturday marks the 100th anniversary of the World War I landing in Turkey that began the historic, and bloody, battle known as the Gallipoli campaign. Thousands of Australians and New Zealand Army Corps troops, known as Anzacs, died in a flawed Allied campaign that nonetheless helped forge the modern identity of both Australia and New Zealand. [It also helped lead to the emergence of a heroic Turkish leader, Ataturk.]

But as a story in the Wall Street Journal on Friday points out, what should be a celebratory mood for Australia and New Zealand is tinged with tension, such as in the arrest of five Melbourne teenagers during antiterrorism raids on April 18, after authorities uncovered a plot to attack police during Anzac Day commemorations there.

The pilgrimage to Turkey is also more risky, with the porous border with Syria making it a gateway for foreign fighters.

If you want to launch a high-profile attack, Anzac Day is the time to do it, with innumerable targets.

Turkey is sending 3,700 police and paramilitary police to the Gallipoli peninsula for the Anzac Day centennial, where about 10,500 Australians and New Zealanders are expected.

[I have to add I’m proud of the fact I must be one of the few in the world who has visited the national war museums in all three countries, and I have a feeling for the deep symbolism this day holds for both Australia and New Zealand.]

South Africa: President Jacob Zuma has been dealing with an anti-immigrant crisis, with more than 300 people having been arrested in connection with a wave of violence against immigrants from other parts of Africa. At least six have been killed in the past two weeks. Armed groups have targeted shops run by African immigrants, accusing them of taking jobs from locals.

Zulu King Goodwill Zwelithini has been accused of fueling the attacks by saying foreigners should “go back to their countries.” May I suggest he change his name.

Random Musings

--It’s all about the Clintons as the media has a field day digging up stories tied to the Clinton Foundation and Hillary’s run for president.

Thursday, a New York Times story by Jo Becker and Mike McIntire detailed Vladimir Putin’s attempt to control much of the global uranium supply chain through the Russian atomic energy agency, Rosatom, which in early 2013 acquired a Canadian company with uranium-mining stakes stretching from Central Asia to the American West.

“But the untold story behind that story is one that involves not just the Russian president, but also a former American president and a woman who would like to be the next one.

“At the heart of the tale are several men, leaders of the Canadian mining industry, who have been major donors to the charitable endeavors of former President Bill Clinton and his family. Members of that group built, financed and eventually sold off to the Russians a company that would become known as Uranium One.”

The deal, aside from lucrative mines in Kazakhstan, also gave the Russians control of one-fifth of all uranium production capacity in the United States.

“Since uranium is considered a strategic asset, with implications for national security, the deal had to be approved by a committee composed of representatives from a number of United States government agencies. Among the agencies that eventually signed off was the State Department, then headed by Mr. Clinton’s wife, Hillary Rodham Clinton.”

From 2009 to 2013, “a flow of cash made its way to the Clinton Foundation. Uranium One’s chairman used his family foundation to make four donations totaling $2.35 million. Those contributions were not publicly disclosed by the Clintons, despite an agreement Mrs. Clinton had struck with the Obama White House to publicly identify all donors. Other people with ties to the company made donations as well.

“And shortly after the Russians announced their intention to acquire a majority stake in Uranium One, Mr. Clinton received $500,000 for a Moscow speech from a Russian investment bank with links to the Kremlin that was promoting Uranium One stock.”

It goes on and on. A spokesman for the Clinton campaign said no one “has ever produced a shred of evidence supporting the theory that Hillary Clinton ever took action as secretary of state to support the interests of donors to the Clinton Foundation.”

It turns out the Times ran a story in 2008 on how a Canadian mining financier Frank Giustra once donated $31.3 million to the Clinton Foundation after a trip by the former president to Kazakhstan.

It’s also important to note that when Rosatom took a 51% stake in Uranium One, Senator John Barrasso, Republican from Wyoming, where Uranium One’s largest American operation was, wrote to President Obama, saying the deal “would give the Russian government control over a sizable portion of America’s uranium production capacity.”

Meanwhile, Rosalind S. Heiderman of the Washington Post had a story in Thursday’s paper that starts out:

“Bill Clinton was paid at least $26 million in speaking fees by companies and organizations that are also major donors to the foundation he created after leaving the White House, according to a Washington Post analysis of public records and foundation data.

“The amount, about one-quarter of Clinton’s overall speaking income between 2001 and 2013, demonstrates how closely intertwined Bill and Hillary Clinton’s charitable work has become with their growing personal wealth....

“The Post analysis shows that, among the approximately 420 organizations that paid Bill Clinton to speak during those years, 67 were also foundation donors that each gave the charity at least $10,000....

“Four major financial firms – Goldman Sachs, Barclays Capital, Deutsche Bank and Citigroup – collectively have given between $2.75 million and $11.5 million to the charity.... Between 2001 and 2013, their combined speech payments to Bill Clinton came to more than $3 million....

“The Post’s analysis, based on foundation disclosures, State Department documents, financial fillings and other records, shows that the lines between Clinton’s paid speeches and his work for the foundation often blurred as he traveled the world promoting the charity and reaping millions in payments.

“Technology companies Microsoft and Cisco Systems, for instance, donated at least $1 million each to the foundation. The two companies paid Bill Clinton a total of $1.02 million in speaking fees for a series of lectures.”

As for the new book by author Peter Schweizer, “Clinton Cash: The Untold Story of How and Why Foreign Governments and Businesses Helped make Bill and Hillary Rich,” Schweizer claims he found a clear “pattern of financial transactions involving the Clintons that occurred contemporaneously with favorable U.S. policy decisions benefiting those providing the funds.”

Schweizer, a former consultant for President George W. Bush, is being attacked by Democrats for writing a political hack job, but my cursory glance at his book (thru excerpts) reveals he is citing many of the stories that the Times and Washington Post have uncovered in their current and past work on the Clinton Foundation. So those blasting Schweizer would appear to be on the wrong track.

Michael Goodwin / New York Post

“(Schweizer) cites a ‘pattern of financial transactions’ that benefitted both the Clintons and their funders. He says Bill earned a staggering $48 million in speeches during Hillary’s four years as secretary of state, including 11 of the top-range windfalls. Their net worth is now estimated at between $100 million and $200 million, not bad for a couple Hillary claimed was ‘dead broke’ in 2000.

“Whether their Midas-haul riches are a result of honest or dishonest graft, it’s certainly graft. While both could legitimately command significant appearance fees, there seems little doubt that the soaring price of his speeches during her tenure at State was not a mere coincidence.

That’s Goodwin Rule No. 1 with the Clintons: There’s no such thing as a coincidence.

“What Hillary did with that power is something Schweizer explores and, again according to reports from the book, he offers compelling examples of a quid pro quo....

“Radio legend John Gambling asked me Tuesday why they do it, meaning why the Clintons always court trouble when, financially at least, they’re set for life. My answer speaks to their nature, and ours.

“They do it because they get away with it.   And they get away with it because we let them.”

For her part, Hillary, when asked about the book, briefly said this week while campaigning in New Hampshire, “We’re back into the political season and, therefore, we will be subjected to all kinds of distractions and attacks and I’m ready for that.”

--From The Economist:

“The idea that a Republican could win without becoming more appealing to minority voters was disproved in 2012. Mitt Romney ran up a record score with non-Hispanic white voters, yet still lost. Both Mr. Romney and John McCain, the party’s nominee in 2008, would have been president if they had faced the same (largely lily-white) electorate as Ronald Reagan did in 1980, says Whit Ayres, a Republican pollster. And Hillary Clinton, the probable Democratic nominee, is unlikely to do as badly with white voters as Mr. Obama did.”

--A new CNN/ORC International poll finds that, nationwide, of Republicans and Republican-leaning independents, 17% back Jeb Bush for the GOP nomination, while 12% support Wisconsin Gov. Scott Walker. Sen. Rand Paul and Sen. Marco Rubio stand at 11% each, with Mike Huckabee at 9% and Ted Cruz at 7%. Ben Carson and Chris Christie received just 4% each after being strong in the fall.

Among Tea Party backers, Cruz and Walker tie for the top slot at 15%, with Rubio at 14%, Paul 12% and Bush 11%.

Rubio fares best against Clinton, trailing 55% to 41%. Bush trails Clinton 56% to 39%. It’s 19 or 20 points for the other Republican candidates in terms of their margin with Hillary.

Among Democrats and Democratic-leaning independents, 69% favor Clinton, 11% Joe Biden, 5% Vermont Senator Bernie Sanders, and the rest aren’t worth talking about. 

But wait...there’s more! A new Quinnipiac University National Poll has Marco Rubio receiving the support of 15% of Republican primary voters and runs best against Hillary Clinton, with Rubio trailing Clinton just 45 to 43 percent.

Jeb Bush is second in this survey at 13%, with Scott Walker at 11%. No other candidate tops 9%.

Clinton gets 60% in this one, followed by Vice President Biden at 10%.

Clinton beats Bush 46-39.

--New Jersey Gov. Chris Christie’s job approval rating is hitting historic lows. According to a Quinnipiac University Poll, 56% of New Jersey voters disapprove of Christie’s performance compared to only 38% who approve of it. The disapproval figure is a whopping 8 points higher than a similar poll taken in January.

Interestingly, by a 63-33 margin, New Jerseyans give Christie high marks for being a “strong leader,” but only 41% believe him to be “honest and trustworthy” (vs. 52% who don’t), and only 32% approve of the way he has handled the state’s budget.

--Noam N. Levey / Los Angeles Times:

“After five years and more than 50 votes in Congress, the Republican campaign to repeal the Affordable Care Act is essentially over.

“GOP congressional leaders, unable to roll back the law while President Obama remains in office and unwilling to again threaten a government shutdown to pressure him, are focused on other issues, including trade and tax reform.

“Less noted, senior Republican lawmakers have quietly incorporated many of the law’s key protections into their own proposals, including guaranteeing coverage and providing government assistance to help consumers purchase insurance.

“And although the law remains very unpopular with GOP voters, more than 20 million Americans now depend on it for health benefits, making even some of the most conservative Republicans loath to cut off coverage.

“Facing the prospect that the Supreme Court this year could strip away insurance subsidies provided through the law in most states, several GOP lawmakers have proposed extending the aid, perhaps even until a new president takes office.

“At the same time, the presumed Republican presidential front-runner, former Florida Gov. Jeb Bush, has shown little enthusiasm for a new healthcare fight. Last year, he even criticized the repeal effort....

“ ‘Only 18% of Americans want to go back to the system we had before because they do not want to go back to some of the problems we had,’ Whit Ayres, a veteran Republican pollster who works for presidential candidate Sen. Marco Rubio of Florida, said at a recent breakfast hosted by the Christian Science Monitor.

“ ‘Smart Republicans in this area get that,’ he added.....

“In the first quarter of this year, 11.9% of adults in the U.S. lacked insurance, down from 18% in the third quarter of 2013, before the current expansion began, according to Gallup....

“Republican lawmakers once cheered a legal challenge targeting insurance subsidies in about three dozen states as an opportunity to dismantle the law.

“Now, they are scrambling for a plan to preserve the subsidies if the Supreme Court backs the challenge.”

--So you know how I’ve written over the past year that New York City Mayor Bill de Blasio has presidential ambitions?

Fredric U. Dicker / New York Post

“Despite repeated claims to the contrary, Mayor de Blasio is positioning himself to be the leftist ‘progressive’ alternative to Wall Street-friendly Hillary Rodham Clinton as the Democratic candidate for president, a national party operative told The Post.

“De Blasio’s hope, the operative said, is a ‘draft de Blasio’ movement will develop among progressive activists over the next several months that will lead to the mayor being able to defeat Clinton in the primary elections next year in much the same way leftist Sen. George McGovern successfully challenged the initially front-running establishment Democratic candidate, Sen. Edmund Muskie, more than 40 years ago.”

New York’s small but influential Working Families Party wanted Massachusetts Senator Elizabeth Warren to run but in repeatedly saying she won’t, they are turning to the mayor.

It turns out when de Blasio traveled to Iowa recently for some “progressive” speeches, he took along his ad maker.

--The Senate finally reached compromise on a bill designed to fight human trafficking, which allowed it to consider the nomination of Loretta Lynch to be the next attorney general. Senate majority leader Mitch McConnell had not allowed a confirmation vote on Lynch to go forward until the Senate finished work on the trafficking bill, which passed 99 to 0.

So then the Senate confirmed Lynch, 56 to 43, with 10 Republicans voting for her. The issue for Republicans regarding Lynch, who they concede is highly qualified, was that she defended President Obama’s executive actions on immigration.

--Michele Leonhart, the top Drug Enforcement Administration official, is retiring in May; stepping down under pressure after her agency’s reputation was obliterated by a scandal over sex parties with prostitutes in Colombia. That’s bad enough. The fact the prostitutes were paid for by drug cartels made it beyond belief.

--Retired general and former CIA head, David Petraeus, was sentenced to two years of probation and fined $100,000 for inappropriately handing classified information to Paula Broadwell, his biographer and mistress.

Until his fall from grace, Petraeus, a four-star who played critical roles in Afghanistan and Iraq, was viewed as one of the greatest military minds of his generation.

He was the mastermind behind the 2007 “surge” of U.S. troops in Iraq.

--New York Democratic Gov. Andrew Cuomo took some heat for a whirlwind trip to Cuba, critics pointing out that if the goal was to begin to establish trade ties to boost the New York economy, he should head north to Canada, which is New York’s most important trading partner, a 16.6% market share of exports, though they’ve been falling due to the rising dollar.

By contrast, the entire Cuban economy, at $73 billion, “is only about twice as large as the volume of New York-Canadian trade,” as reported by Greg David of Crain’s New York Business.

--There is no way in hell that John Hinckley should be released. This is beyond idiotic and I’m amazed it keeps coming up.

--Research presented by USC earth sciences professor James Dolan at a meeting this week of the Seismological Society of America in Pasadena, suggests that the shaking from “the Big One,” the long-predicted major earthquake on the San Andreas fault, could trigger additional large temblors on nearby faults.

As reported by the Los Angeles Times’ Rong-Gong Lin II: “The concept of more than one Big One in a lifetime might feel outlandish to Californians today. But it wasn’t so long ago when this state had more powerful earthquakes more frequently. The San Andreas fault, for example, suffered two major ruptures in the 19th century: an earthquake of about magnitude 7.5 in 1812 and a much worse 7.9 earthquake in 1857.

“The San Andreas fault in Southern California has been quiet since. And Southern California hasn’t had a true ‘Big One’ – a quake greater than a 7.7 – since 1857.”

Which means, as Prof. Dolan notes: “At some point, we will need to start releasing all of this pent-up energy stored in the rocks in a series of large earthquakes.”

--The NOAA and the Japan Meteorological Agency, the world’s top monitoring agencies, both had March as the hottest month on record. NASA had it as the third-hottest. All three agencies agree that the past three months have been the hottest start to a year.

The National Weather Service predicts that the pattern of unusually warm waters in the Pacific Ocean, El Nino, will persist into the second half of the year and it could be a big one.

But a strong El Nino could mean heavy rains for California, and this is good.

So then there is this from Monte Morin of the Los Angeles Times:

“It’s called ‘the blob,’ and some blame it for the thousands of dead seabirds and emaciated sea lion pups that have washed ashore on California beaches since late last year.

“Ever since an unusually warm mass of seawater began spreading along the Pacific Coast of North America a year ago – wreaking havoc on the marine food chain – scientists have struggled to explain its presence.

“In recent months, however, some experts have argued that this 500-mile-wide, 300-foot-deep wedge of warm seawater may in fact signal an epic cyclical change in the Pacific Ocean – a change that could possibly bring soaking rains to Southern California this winter but also accelerate the rise in global temperatures.”

So there is a developing theme here.

“I think we may be shifting from a cool, dry phase to a warm, wet phase, which is usually the drought-buster,” said William Patzert, a climatologist at NASA’s Jet Propulsion Laboratory. 

--Joel Achenbach / Washington Post

“Yellowstone National Park is the home of one of the world’s largest volcanoes, one that is quiescent for the moment but is capable of erupting with catastrophic violence at a scale never before witnessed by human beings. In a big eruption, Yellowstone would eject 1,000 times as much material as the 1980 Mount St. Helens eruption. This would be a disaster felt on a global scale, which is why scientists are looking at this thing closely.”

Scientists at the University of Utah published a study in the journal Science that for the first time maps out the plumbing of Yellowstone’s volcanic system. 

A shallow magma chamber had already been documented, but a newly discovered reservoir is “4.5 times larger than the chamber above it. There’s enough magma there to fill the Grand Canyon.” Good gawd!

The last big eruption was 640,000 years ago, with Yellowstone Lake covering a portion of the impact zone, which was about 25 miles by 37 miles across.

Of course today, all eyes are on Calbuco down in Chile, which is doing a number on neighboring Argentina.

--The Wall Street Journal’s Sumathi Reddy had a story on different diets and the possibility that the MIND diet may reduce the risk of Alzheimer’s.

For example, the Mediterranean diet is good for the heart, and the DASH diet is good for controlling blood pressure.

But the MIND diet borrows significantly from the other two, and all are basically plant-based, except the MIND diet places heavy emphasis on eating “brain-healthy” food such as green leafy vegetables and berries.

Personally, I’m encouraged seeing as I changed my lunch diet from yogurt to cottage cheese and frozen blueberries, plus a dollop of nuts. [Had to work ‘dollop’ into the commentary.]

Fruits, recommended in heart-healthy diets, “haven’t been shown to slow cognitive decline or prevent dementia, but berries, and especially blueberries, have,” writes Sumathi Reddy.

The MIND diet includes a glass of wine, as well as snacking on said nuts. Plus fish at least once a week, so I qualify there with Salmon Sunday.

---

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

God bless America.
---

Gold closed at $1175
Oil $57.15...up sixth straight week from low of $44.84

Returns for the week 4/20-4/24

Dow Jones +1.4% [18080]
S&P 500 +1.7% [2117.69...new high]
S&P MidCap +1.2%
Russell 2000 +1.2%
Nasdaq +3.2% [5092...new high]

Returns for the period 1/1/15-4/24/15

Dow Jones +1.4%
S&P 500 +2.9%
S&P MidCap +5.6%
Russell 2000 +5.2%
Nasdaq +7.5%

Bulls 52.5
Bears 15.2 [Source: Investors Intelligence]

Have a great week. I appreciate your support, especially those making donations to the cause.

Checks are still being accepted. Make them out to StocksandNews.com.

Brian Trumbore
PO Box 990
New Providence, NJ 07974

*Special congratulations to my nephew, Doug, who is graduating from the University of Pittsburgh this weekend. Both my parents went there as well. Long ago, I saw Pitt's Tony Dorsett rush for 303 yards against Notre Dame, but I digress....