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05/09/2015

For the week 5/4-5/8

[Posted 11:00 PM ET, Friday]

Edition 839

Wall Street and Washington

The real story on the week was the action in the bond pits, in both the U.S. and Europe. I discuss the latter in more detail below, but for this segment, not all of the moves could easily be explained away, though one reason was a growing sense that maybe, in the case of Europe in particular, any talk of deflation needs to be put to bed and when bonds are yielding zero, as they have been across the pond, that’s the last place you want to be if inflation begins to rear its ugly head (sorry...I should have issued a cliché alert...my bad).

Euro bonds also suffered due to the ongoing mess related to Greece, but as for our own bond market, very early Thursday morning the yield on the 10-year Treasury spiked to 2.31%, a far cry from the recent 1.86% to 1.99% trading range that we had been in for a month until recently. But by the close on Friday the yield was 2.15%.

Some of the fears here were over Friday’s jobs report. If the number had come in very strong, after March’s dismal figure, that would have put prospects for a June rate hike by the Federal Reserve back on the table.

In addition, stocks weren’t helped when Fed Chair Janet Yellen, in a Q&A with the IMF’s Christine Lagarde, said both stocks and bonds seemed richly valued.

“I would highlight that equity-market valuations at this point generally are quite high. Now, they’re not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there,” she said.

Yellen added bond yields “could see a sharp jump” when the Fed finally raises its benchmark interest rate.

So Friday morning the April employment report was released and the economy added 223,000 jobs, slightly above expectations, but not superhot like February’s, revised up to 266,000.

The unemployment rate fell to 5.4%, the lowest since May 2008.

Just as importantly, March’s initial figure of 126,000 was revised down sharply to just 85,000. Put it all together, including a tame wage component, with average hourly earnings for last month up just 0.1% (2.2% year over year), and the 223,000 was viewed as a ‘goldilocks’ number... not too hot, and not too cold.

Ergo, the Fed is not moving in June...at least that is the overwhelming sentiment today. Personally, I’d say let’s just wait a few more weeks, though it needs to be noted that the highly prescient Atlanta Fed, whose GDPNow calculator nailed the figure on growth for the first quarter, is currently projecting just 0.8% for Q2 (after 0.2% in Q1). Unless that starts moving up rapidly, yes, no way the Fed is moving in June.

[One other item on the jobs report. U6, the measure for underemployment, fell to 10.8%, the lowest figure since Aug. 2008. This is good.]

There were a few other economic data points. March factory orders were in line with expectations, up 2.1%, while the ISM service sector reading was 57.8, the highest since November.

But then there was the figure on the trade deficit for March, $51.4 billion, the biggest number since 2008 and up 41% from February. In keeping with the awful GDP figure for the first quarter, exports rose less than 1%, while imports increased 7.7% (cars and mobile phones, largely).

The significance here, aside from leading economists to lower their second-quarter outlooks, is this comes as President Obama is pressing for the Trans-Pacific Partnership trade deal with Japan and 10 other Asian economies (ex-China). It’s easy for opponents to point to the trade deficit and argue the TPP will only lead to more of the same. More jobs going overseas, amid further talk of our trading partners manipulating their currencies to our detriment.

Europe and Asia

British Prime Minister David Cameron won a second term in a stunning victory for the center-right Conservative party in the U.K.’s national elections on Thursday. It was thought that the Conservatives (Tories) would be in a dead-heat with the opposition Labour Party and that Labour, according to many experts, would have the best chance at forming a ruling coalition. A poll of polls just before the election had it at Tories 33%, Labour 33.5%.

But then the Conservatives ended up with an overall majority of the 650 seats in parliament, 331, its largest tally of seats in more than 20 years (and a pickup of 24 from the last election, in 2010), while Labour earned just 232 (a decline of 26).

The vote, however, creates even more uncertainty for Britain (after a brief honeymoon for the stock market), because the leftwing Scottish nationalists, who took 56 of Scotland’s 59 seats (after picking up just six in 2010), became the third-largest party in Westminster just eight months after losing an independence referendum, 55-45.

Cameron said on Friday the Conservatives would govern as “a party of one nation,” promising Scotland the “strongest devolved government anywhere in the world” with wide powers over taxation.

But then you have the issue of membership in the European Union, Cameron having promised an in-out vote on remaining in the EU in 2017 should he win another term. In the coming months, critically in terms of this effort, Cameron needs to win back further control over some key issues from Brussels to show his people that staying in the EU is the direction the country should take.

Meanwhile, David Milliband, the Labour leader, announced he was stepping down after his party’s horrible showing, while Nick Clegg, who served as deputy prime minister in Cameron’s coalition, stepped down as Lib Dem leader as his party saw its number of seats plunge from 57 to 8.

And you have Nigel Farage, the charismatic leader of UKIP, the anti-EU UK Independence Party. He failed to win his own seat, despite UKIP taking the third most votes, nationally.* It won just one seat overall in Britain’s voting system.  Farage quit. So much for his novelty act, it would seem.

*Final popular vote results...Tories 37%, Labour 31%, UKIP 13%, Lib Dem 8%, SNP 5%, Greens 4%.

The market surged in the U.K. (and across Europe) in response to the seeming stability in government, but this will be short-term in nature. The negotiations in Brussels will now take center-stage, and they won’t be easy. Few on the continent want to give Cameron all that he wants.

And on the home front, Cameron could face a renewed call for another referendum by the Scots, though none is expected at least for a while.

Turning to Greece, a government spokesman at week’s end said his country will stick to its “red-line” promises to its electorate and not make concessions in its negotiations with creditors. Gabriel Sakellaridis said at a press conference, labor and pension issues are non-negotiable. 

Talks with the IMF and European Union will continue over the weekend. But it’s been the same old story. The creditors say Greece must enact further cuts to trim the government sector, as well as more rapidly privatize state assets in return for further bailout aid, but Prime Minister Alexis Tsipras and his left wing Syriza party are standing firm.

Many in Europe, especially the Germans (and Fins) have lost patience.

Jean-Claude Juncker, the president of the European Commission, said it would not be wise to openly discuss a Greek exit from the euro: “If I were to say that ‘Grexit’ was an option, what do you think would happen then in the financial markets?”

French Finance Minister Michael Sapin, however, said talks with Greece were headed in the right direction: “The risk of things running off the rails for Greece also entails that risk for Europe,” calling for compromise at Monday’s critical meeting of eurogroup finance ministers.

Greece owes the IMF 763bn euros on Tuesday. Greece’s finance minister, Yanis Varoufakis, insisted on Thursday the country will meet the deadline.

I’ve said this over and over again, that time is running out, but it really is. Athens will get another bailout deal, including the final payment on the existing one, or it defaults, with default most likely (though it’s not a certainty) leading to an exit from the euro with unknown consequences.

So you have this week’s IMF payment, plus further obligations this month and in June, as well as the June 30 deadline, which represents the end of the bailout program already in existence.

As Peter Spiegel of the Financial Times put it:

“Will Athens bow to pressure and accept tough new economic reforms to release the remaining 7.2bn euro in the program and refill its dwindling coffers? Or will Greece’s increasingly divided creditors succumb to fears over ‘Grexit’ and give Athens a pass?”

One thing seems certain. There will be no deal with finance ministers next week in Brussels.

Oh, and did I tell you about the fact that Greece could conceivably get through June, assuming it receives its final 7.2bn euro bailout check, but then it owes 6.7bn euro to the ECB in July and August? Yes, that’s why a third bailout is needed.

On to the economic data in euroland for the week....

The final eurozone composite PMI for April was 53.9 vs. 54.0 in March. The services reading was 54.1 vs. 54.2. And the manufacturing PMI for last month was 52.0 vs. 52.2 in March.

A few individual country items of note. Spain’s composite of 59.1 represented a 101-mo. high, while Italy’s manufacturing reading of 53.8 was a 12-mo. high.

Germany’s manufacturing PMI was 52.1, but France came in at 48.0 vs. 48.8 in March, not good.

Greece’s manufacturing PMI was a putrid 46.5, a 22-mo. low.

Eurozone retail trade was down 0.8% in March over February.

The European Commission, citing the positive impact of a sharp drop in the oil price (until the recent rebound), raised its outlook for eurozone GDP to 1.5% for 2015, up from February’s estimate of 1.3%, while leaving 2016 unchanged at up 1.9% for the euro area.

The EC’s economists raised Germany from 1.5% to 1.9% for this year, while calling for Ireland to exhibit the strongest growth in the EA-19 in 2015, up 3.6%. Spain is projected to grow a very solid 2.8% this year, but Greece’s GDP estimate was sharply downgraded from an earlier forecast of 2.5% to up just 0.5%.

Chris Williamson, Chief Economist at Markit:

“The eurozone manufacturing sector continued to grow in April, but the dip in the rate of expansion will serve to check recent optimism that the ECB’s quantitative easing program has bought a guaranteed ticket to recovery for the region.

“Warning lights are flashing particularly brightly over France and Greece, both of which saw accelerating rates of decline at the start of the second quarter. Weaker rates of growth in Germany and Ireland are also cause for concern. [Ed. re mfg. data.]

“However, the ECB asset purchase program is still very much in its infancy, and given the concerns over Greece it’s not surprising that the road to recovery will be bumpy.”

On to the bond market. 

WIR 4/18/15:

“I recently did a ‘Wall Street History’ piece that for traders/investors should be clipped and saved...the tale of interest rates in the eurozone prior to and then in the immediate aftermath of the formal launch of QE.

“For example, the 10-year German bund had a yield of 1.57% on 3/31/14. On the Friday before QE, March 6, the yield was 0.39%. This week the German bund hit a record low of 0.07% before closing, Friday, at 0.08%.

“Contrast this action with Greece. On 3/31/14, the Greek 10-year had a yield of 6.25%. 3/6/15 it was 9.09%. This week it closed at 12.52%, after hitting 13.20% intraday, the highest since Dec. 2012. [During the height of the 2012 crisis, the Greek 10-year peaked at 44.21%.]

“So the above shows you how money has flowed into Germany, and other bonds in euroland, while fleeing Greece over uncertainty created by the new Greek government’s inability to convince its creditors, like the IMF and European Central Bank, that it had a viable reform plan warranting further bailout aid.

“But I’ve also written when pointing out the likes of Italy and Spain, eventually investors in their paper will get burned big time. Last week I wrote: ‘At some point euro bond buyers will get slaughtered.’

“I also noted last time that the Italian and Spanish 10-year bonds closed with yields of 1.26% and 1.22%, respectively, 4/10. 

“Where did they close this Friday? Try 1.47% for Italy and 1.44% for Spain.

“In fact, prior to QE being launched, 3/6/15, the yield on the Italian 10-year was 1.31% and Spain’s 1.29%.

“So what good has QE been for these two? The European Central Bank launched an aggressive program of bond-buying across the eurozone and yet yields are rising in Italy and Spain.

“Why pick on them? Because this is where, along with Portugal, any contagion from Greece will spread immediately.

“[Portugal’s 10-year was 1.74% on 3/6/15...this week it closed at 1.99%.]

“You won’t find this stuff anywhere else, at least not in this detail.

“It’s also why those who say ‘Greece doesn’t matter’ are full of it. In the long run, should Greece default and/or exit the euro area, it may not matter much, but in the short run it’s bound to convulse the markets and no one knows how serious it could get.”

WIR 4/25/15

“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%.”

So then this past week all hell broke loose....

The yield on the German 10-year went from 0.37% the Friday before to 0.79% intraday on Thursday before finishing the week at 0.54%.

The French 10-year’s yield was over 1.00%, up from the 5/1 close of 0.64%, before settling back down to 0.83%.

Spain’s 10-year went from 1.39% to 1.92% before ending Friday at 1.66%.

Italy’s 10-year, 1.43% on 5/1, hit 1.97% on Thursday before ending the week at 1.77%.

Just a sample of coming attractions in terms of volatility, while market participants complained of liquidity issues.

The thing is, as I noted above, there really wasn’t a fundamental need to panic. Imagine when there is one.

No doubt some hedge funds got slaughtered this week, though it often takes a while to identify the bodies.

Finally a few words on Asia. HSBC’s final reading on manufacturing in China for April came in at just 48.9 vs. 49.6 in March (reminder for newbies...50 is the dividing line between growth and contraction). HSBC’s services reading for last month was 51.3 vs. 51.8.

The official government manufacturing PMI, though, was 50.1, same as in March, causing Church Lady to utter, “How conveeenient”...at which point she was arrested and sentenced to 20 years hard labor.

China’s Shanghai Composite stock index had a wild week, falling 4.1% on Tuesday and 5.3% for the week, even after a 2.3% gain on Friday. It was the worst week since July 2010. The Shanghai Comp, 4205, is now down 7.1% from a recent multi-year high of 4527 on April 27.

In Japan, a reading on the service sector for April, 51.3, handily exceeded March’s figure of 48.4, so this is good.

And just a few other key manufacturing PMIs in the region for April. Taiwan was at 49.2 vs. 51.0 in March, while South Korea recorded 48.8, the weakest since last October.

Street Bytes

--Stocks finished mixed, with the Dow Jones riding Friday’s 267-point gain to a 0.9% overall gain on the week to 18191, while the S&P 500 added 0.4% and Nasdaq lost two points, 0.04%.

With 447 of the S&P 500 having reported earnings, FactSet said eps is flat, overall, when initially earnings were projected to decline 4.6%. But revenues are down about 4% vs. year ago levels.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.57% 10-yr. 2.15% 30-yr. 2.90%

--Back to Bill Gross, his Janus Global Unconstrained Bond Fund lost 2.7% over a five-day stretch through mid-week and it wasn’t readily apparent what the cause was. [This is a huge decline for a bond fund, sports fans....like the kind you might see in a long-term bond fund if rates spiked.] And according to the Wall Street Journal, after a good start since he took over the fund, he is now at the bottom of his peer group.

Gross’ largest holding as of March 31 was a wager against German bonds, so that would have worked. Ergo, the mystery grows.

Separately, Gross’ old PIMCO Total Return Fund lost its title as the world’s largest bond fund after another month of withdrawals in April. Vanguard Total Bond Market Index Fund, with $117.3bn in assets, now exceeds Total Return Fund’s $110.4bn as of 4/30.

Since Bill Gross left PIMCO in September, the fund has had outflows of $110bn, though the outflows began months earlier owing to poor performance and management turmoil (including the departure in January 2014 of co-chief investment officer Mohamed El-Erian).

--The city of Los Angeles filed a lawsuit against Wells Fargo Bank, alleging the largest California-based bank encouraged employees to engage “in unfair, unlawful and fraudulent conduct” through a pervasive culture of high-pressure sales. As reported by the Los Angeles Times’ E. Scott Reckard:

“Employees misused customers’ confidential information and often failed to close unauthorized accounts even when customers complained, the suit alleges.

“Some employees went so far as to raid client accounts for money to open additional accounts, the suit alleges.

“ ‘The result is that Wells Fargo has generated a virtual fee-generating machine, through which its customers are harmed, its employees take the blame, and Wells Fargo reaps the profit,’ the lawsuit alleges.”

Personally, I go to my Wells Fargo branch about three times a week and I love when my favorite teller calls me ‘honey.’

--John Chambers, the longtime CEO of Cisco Systems Inc., announced he is stepping down this summer, to be replaced by veteran Cisco executive Chuck Robbins.

I’ve always liked Chambers, who has been running the show at Cisco for the last 20 years, through boom times and not-so-boom times. Through it all he was always forthright in discussing the company’s fortunes and direction.

I mean just think of his 20-year run, and how the company, whose revenues totaled $47 billion in its fiscal year ended last July, powered the growth of the Internet and telecommunications systems worldwide. When he took over in 1995, Internet usage was just 14 percent.

According to data compiled by Bloomberg, $1 invested in Cisco in January 1995, would now be worth about $17 (and much higher than this if one had sold at the top of the bubble in 2000). By comparison, $1 invested in the S&P 500 would have returned about $6.50 over the same period.

Cisco’s headcount has risen from 4,000 to 74,000 during Chambers’ tenure.

Chambers will assume the role of executive chairman when Robbins becomes CEO on July 26.

--New McDonald’s CEO Steve Easterbrook laid out his restructuring plans to revive flagging sales:

“In the last five years, the world has moved faster outside the business than inside. I will not shy away from the urgent need to reset this business.”

Easterbrook said the plan is to become a “modern, progressive burger company,” acknowledging McDonald’s “recent performance has been poor.”

McDonald’s plans on highlighting its use of fresher and more natural ingredients, among other things, while reducing annual costs by $300 million by 2017.

The CEO talked of reorganizing its global business starting July 1 under four segments such as “international lead markets” and “high-growth markets,” but the plan was viewed as being light on real details.

For April, the company announced global sales were down 0.6%, and off 2.3% in the U.S., but up 1.0% in Europe...better than expected on all three metrics so the shares rose on Friday.

--Tesla Motors Inc. reported a loss of $154 million in the first quarter, compared with a loss of $49.8 million a year earlier, as the company spent heavily on a new SUV and giant battery plant near Reno. First-quarter revenue rose 51% to nearly $940 million.

Tesla said it was sticking with its plans to produce 12,500 vehicles in the second quarter, and is on track to deliver 55,000 Model S and Model X vehicles this year.

Tesla, by the way, has made more than $500 million from selling environmental credits, including $66 million worth during the first quarter. Other automakers purchase the credits to meet California’s environmental regulations. [Jerry Hirsch / Los Angeles Times]

But Tesla shares rose because the results were not really that bad, if you manipulate the earnings, which virtually all of Corporate America does. It’s bulls---, pure and simple.

CEO Elon Musk did announce Tesla had seen a surge in orders for the stationary batteries it announced a week ago (see last WIR).

“We’re basically sold out to the middle of next year in the first week – it’s crazy,” Musk said.

But bottom line, I wouldn’t touch this stock with a ten-foot pole, even if I do admire Musk and his ambitions. It is hugely overvalued.

--According to a study by NN Investment Partners (formerly ING Investment Management), the 15 largest emerging markets have seen net capital outflows over the latest three quarters of $600 billion, higher than the outflows seen during the crisis-ridden three quarters to the end of March 2009. The strengthening dollar has been the primary culprit (the unwinding of the U.S. dollar carry trade...borrowing in dollars at low interest rates to invest in high-yielding EM local currency products), as well as financial system problems in China and uncertainty throughout the EM universe, such as in some of the weak manufacturing PMI numbers I cited above.

--Google announced more search requests are now being made on mobile devices than on personal computers in the U.S.

--Facebook’s chief operating officer, Sheryl Sandberg, lost her husband, David Goldberg, a Silicon Valley entrepreneur, to an accident at a resort in Mexico. Goldberg died when he had a mishap on a treadmill, hitting his head and bleeding to death.

Sandberg said days after that her husband’s passing was “the darkest and saddest” moment of her life, but vowed to keep his memory alive.

“I met Dave nearly 20 years ago when I first moved to L.A. He became my best friend. He showed me the internet for the first time, planned fun outings, took me to temple for the Jewish holidays, introduced me to much cooler music than I had ever heard.

“We had 11 truly joyful years of the deepest love, happiest marriage, and truest partnership that I could imagine. He gave me the experience of being deeply understood, truly supported and completely and utterly loved – and I will carry that with me always. Most importantly, he gave me the two most amazing children in the world.

“Dave was my rock. When I got upset, he stayed calm. When I was worried, he said it would be ok. When I wasn’t sure what to do, he figured it out. He was completely dedicated to his children in every way – and their strength these past few days is the best sign I could have that Dave is still here with us in spirit.”

According to the AP, treadmills were responsible for over 24,000 injuries in the U.S. last year and 30 deaths from 2003 to 2012.

--CBS Corp. reported earnings that beat the Street’s expectations, though were down from a year ago as revenue fell 2% to $3.5 billion, owing to advertising sales, down 5% during the first quarter. Radio stations saw a 7% shortfall; part of an industry trend as advertisers spread their dollars between traditional media and Internet and mobile outlets.

CBS did mark its seventh consecutive year of being number one in number of viewers.

--Walt Disney shares hit a new high on Tuesday following release of its first quarter results, with net profit rising 10 percent to $2.1 billion, while revenue increased 7 percent to $12.4 billion, both topping estimates handily. Movies such as the newly released “Avengers: Age of Ultron” and the upcoming “Star Wars” sequel are expected to lead the way in the current quarter and the second half of the year, including in terms of merchandise sales.

--Russian oil and gas production remained at a post-Soviet record level of 10.71 million barrels per day in April, underpinned by the recent recovery in prices, according to Energy Ministry data.

--Siemens AG, Europe’s largest engineering company, is cutting another 4,500 jobs after fiscal second-quarter profit fell more than expected. Profit from so-called industrial operations fell 4.9% owing to declining oil prices.

CEO Joe Kaeser, who made the decision to spend $7.6 billion acquiring oil and gas equipment specialist Dresser-Rand Inc., is under pressure to cut costs with the slump in the energy sector. The oil price has fallen 30 percent since the Dresser-Rand deal was agreed to in September. Dresser-Rand is cutting 8 percent of its workforce.

--Brazil’s manufacturing PMI in April was just 46.0, a 43-mo. low.

--Alibaba Group Holding Ltd. reported a 45 percent increase in fourth-quarter revenue as China’s biggest e-commerce company capitalized on the Lunar New Year holiday shopping season. 

Sales rose to $2.8 billion in the three months ended March, better than analysts’ estimates.

Shares rose 8% in response and are back to being comfortably ahead of the $68 IPO price last September at $86.85.

The company also named Daniel Zhang as its new CEO. [Jack Ma is chairman.]

--Sprint continues to lose mobile phone customers as the third-largest U.S. wireless network is being hit hard by competition from T-Mobile U.S. Sprint is also burning through cash at such a rate that its debt, $29.6 billion, exceeds its market capitalization of $20bn, as of Tuesday.

Sprint, which is now 80% owned by Japanese conglomerate SoftBank, suffered a net loss of 201,000 phone customers in the quarter, compared with a gain of 991,000 at T-Mobile, while Verizon and AT&T, the largest carriers, lost 138,000 and 270,000 respectively. [Financial Times]

--Emerson Electric Co., a leader in diversified manufacturing, said in its earnings release: “Global customers in oil and gas and industrial markets, particularly energy-related, reduced spending faster and deeper than we expected as a result of the significant decline in oil prices and strength of the U.S. dollar.”

--Kellogg Co. said revenue in its latest quarter fell 5%, hurt in part by the stronger U.S. dollar on foreign sales, though demand for breakfast cereals at home remains putrid.

--Lumber Liquidators Holdings Inc. is pulling all of its Chinese-made laminate flooring, the most significant move by the company since a “60 Minutes” report in early March alleged the Chinese flooring contained excessive levels of formaldehyde, a known carcinogen, that exceeded California emissions standards.

Lumber Liquidators also announced it was hiring former FBI director and federal judge Louis Freeh to help in reviewing its sourcing and compliance procedures.

Since the “60 Minutes” segment, sales of laminates have been tumbling.

--This is pathetic...Californians just don’t get it. The State Water Resources Control Board approved an emergency conservation plan this week that would cut urban water use by 25%, which Gov. Jerry Brown had mandated April 1 in an executive order, after having urged a voluntary 20% reduction in water use 15 months ago.

For the month of March, however, Californians cut their water consumption by 3.6%, which was actually an improvement from February’s 2.8%. Not exactly 20%-25%.

--On a brighter California topic, tourism there was up 3% last year to a new record, 251 million visitors. According to the state’s tourism agency, visitors spent $117.5 billion and supported more than 1 million jobs. 

Note to those thinking of visiting this fine state...go to both the Nixon and Reagan libraries. If you can only do one...go to Nixon’s. [Just in terms of educational value.]

--JetBlue Airways announced it will introduce a daily flight between New York and Cuba, marking the first major U.S. carrier to do so. Good luck finding toilet paper.

Speaking of toilet paper....sort of...you know what really, really ticks me off? I jog at this wooded park where there are lots of dog walkers. So the dog is supposed to do his thing off the path and the owner is supposed to bag it, but more often than not the owners bag it and then leave the bag on the side. Who is supposed to pick it up?

‘Man’ thus remains No. 298 on the All-Species List. ‘Dog’ is No. 1. [allspecieslist.com]

--The top hedge fund manager, Kenneth Griffin, took home $1.3 billion last year. James H. Simons was next at $1.2 billion, and Ray Dalio of Bridgewater Associates gave his wife $1.1 billion in cash and prizes. [If Mr. Dalio is divorced, I apologize for this statement and offer to serve in his mailroom as penalty for a mere $250,000.]

But, as the New York Times’ Alexandra Stevenson reported, “Only half of the top 10 earners recorded returns that exceeded that of the S&P 500.”

I am not a big proponent of the whole income inequality mantra, but this last bit is beyond absurd and obviously obscene.

You can go back to day one of this column, over 16 years ago, and I have never begrudged the likes of Bill Gates and, back when he was more relevant, Michael Dell, for their wealth. They represent the best of America (even if the former built largely flawed software).

But when it comes to managing money, $1 billion?! Give me a break.

--Former Fed Chief Ben Bernanke is bringing in at least $200,000 per speech, according to Bloomberg, and his two new advisory roles at PIMCO and Citadel (one of the world’s largest hedge funds run by the aforementioned Mr. Griffin), are probably worth more than $1 million each a year. And then there is his book deal, which will no doubt be $5 million+, seeing as Alan Greenspan received a reported $8.5 million.

Editorial / Wall Street Journal

“He’s no longer at the Fed, and there doesn’t appear to be any conflict of interest. It’s not like his wife is a cabinet secretary planning to run for President. And while his new income doesn’t need to be disclosed, we’re guessing the Bernankes still look like the Little Sisters of the Poor compared to the Clintons.

“Mr. Bernanke doesn’t claim to be a journalist, and the Brookings Institution [Ed. where he hangs his hat] doesn’t seem to require that he note his commercial paychecks on his Brookings blog. But any readers tempted to view him as the new financial guru of the blogosphere should take into account his new financial relationships when evaluating his policy and market pronouncements.

“Just because he’s a former Fed chairman doesn’t mean he can’t or won’t talk his book.”

--A Van Gogh painting at Sotheby’s spring auction sold for more than $66 million, tens of millions more than expected. The same painting was sold in 2003 for $12 million. Not a bad return. Like 450%. My friend Jimbo got a behind the scenes look at this auction before it took place...very cool. Thankfully he didn’t pop a shaken beer can next to the Van Gogh.

[Remember Steve Wynn accidentally poking his elbow through a Picasso he was about to sell to Steven Cohen?]

Foreign Affairs

Iran: The Senate voted 98-to-1 for legislation that would establish a 30-day review for a proposed nuclear deal with Iran, with the House likely to approve it next week.

The measure gives Congress a voice as the June 30 deadline for the negotiations nears.

Sen. Bob Corker (R-Tenn.), chairman of the Foreign Relations Committee, said during the debate, “Without this bill, there is no review.”

Some of the conservatives in the Senate, such as Sens. Tom Cotton (Ark.) and Marco Rubio (Fla.) wanted a stronger bill.

In remarks before the vote, New Jersey Democratic Senator Robert Menendez said:

“We cannot risk having no oversight role. And without the passage of this legislation, we will have missed an opportunity to send a clear message to Tehran. So as we near the finish line and hopefully agree to govern as we should, I believe we will ultimately pass legislation without destroying what Senator Corker and I carefully crafted and was passed unanimously out of the Committee.”

But, as the Washington Post’s Jennifer Rubin reported:

“(Menendez) then went on to decry many of the provisions that may wind up in a final deal – affording Iran immediate sanctions relief (‘a signing bonus’), allowing Iran to keep working on advanced research, reliance on the faulty concept of snapback sanctions, the failure to secure anytime/any place inspections, Iran’s refusal to come clean on past military dimensions of the program and excluding terrorism from sanctions consideration. He then told his colleagues what we anticipated, that he is now willing to work across the aisle on more and more limits on the president:

“ ‘And I would say to my colleagues who feel passionately about some of these amendments that they have offered, this isn’t the only bill on which we can consider those things. I stand ready to work with colleagues immediately on pursuing other concerns such as missile technology, such as terrorism, such as their human rights violations, such as their anti-Semitism, such as the Americans who are being held hostage. And to look at either sanctions or enhanced sanctions if they already exist on some of these elements that we should be considering. That is separate and apart from a nuclear program.’

“If Congress succeeds in stopping an awful deal or creating conditions to kill it after the fact, we will look back on this vote as a turning point.”

As for Iranian Supreme Leader Ayatollah Ali Khamenei, he said in a speech that he didn’t approve of any negotiations “under the ghost of a threat,” citing two U.S. officials that he said had threatened a military attack against Iran recently, though he didn’t elaborate and no one knows what he was referring to.

Iraq / Syria / ISIS: The U.S. is training a whopping 90 Syrian opposition fighters with hopes of expanding the program “once it proves itself,” according to Defense Secretary Ashton Carter. Carter called the trainees “highly vetted individuals” when asked about the possibility of these fighters turning on their teachers, as has been the case on occasion in Afghanistan.

Earlier, Sec. Carter said creating a humanitarian safe zone in Syria would entail a “major combat mission” requiring U.S. troops to fight Islamist jihadis and the Assad regime. 

This is infuriating. I called for the safe zone in August of 2012.

“We would need to fight to create such a space and then fight to keep such a space and that’s why it’s a difficult thing to contemplate,” Carter told a Senate subcommittee.

Gen. Martin Dempsey told the same committee that the U.S. has contingency plans for a safe zone, working in consultation with Turkey.

Meanwhile, as the New York Times reported, “there is mounting evidence (the Assad) government is flouting international law to drop jerry-built chlorine bombs on insurgent-held areas.”

So much for the international chemical weapons convention Syria joined less than a year ago.

Separately, Amnesty International and an activist-run monitoring group report barrel bombings have killed at least 3,124 civilians in divided Aleppo from Jan. 2014 to March 2015. The Assad regime has reportedly stepped up its bombardment of Syria’s second city in recent weeks in response to a rebel offensive.

Aleppo lies in ruins and Amnesty said life for civilians there is “increasingly unbearable,” with many forced to eke out an existence underground.

Editorial / Washington Post...regarding the crumbling Assad regime.

“The shift of momentum could create an opportunity for the United States and its allies to leverage the change of rulers in Syria that President Obama first endorsed nearly four years ago. But it could also lead to disaster, if the crumbling regime is replaced by the jihadist forces of the Islamic State or al-Qaeda, as already occurred in eastern Syria. In short, the battlefield developments add new urgency to the need for a coherent U.S. strategy.

“The Obama administration has not even pretended to have a Syria policy since the collapse of its efforts to broker peace talks more than a year ago. Though it is sponsoring military training for a few thousand Syrians [Ed. different situation than the earlier cited 90...but further proof of the inadequacy of it all], the Pentagon won’t commit to defending them if they are attacked by the Assad forces. Mr. Obama continues to turn aside proposals for a safe zone in northern Syria where moderate political forces could organize; he ignores the Assad regime’s renewed usage of chemical weapons such as chlorine gas....

“That’s why a U.S.-backed safe zone, along with an expanded military training program, is needed: not to intervene in the civil war but to make an acceptable solution to it possible. A continued refusal by Mr. Obama to act will only increase the chance that as the Assad regime loses ground, that held by terrorists will expand.”

Finally, the head of the Syrian Observatory for Human Rights said U.S.-led air strikes targeting ISIS instead killed at least 52 civilians in a village in northern Syria. Abdel Rahman said “not a single IS fighter” was killed in the strikes, but that raids on a nearby town had killed at least seven jihadists. [Daily Star]

And ISIS claimed to be behind the attack on a Prophet Muhammad cartoon contest in Garland, Texas that resulted in “two soldiers of the caliphate” being shot to death when a heroic guard took them out after they had fired shots at security on the premises of the civic center where the exhibition was being held.

It’s the first time ISIS claimed responsibility for an attack in the U.S., and the group warned it had far more trained terrorists ready to make moves in at least 15 states.

Saudi Arabia / Yemen: The Wall Street Journal reported there are “widespread public calls” in Saudi Arabia to match Iran’s nuclear quest, with Turkey and Egypt no doubt following suit, according to senior Western and Arab officials.

As Yaroslav Trofimov reports:

“Besides their fears of a nuclear Iran dominating the Middle East one day, they are fretting that the agreement would dramatically tilt the regional balance of power in Tehran’s favor already in the immediate future, especially once the removal of international sanctions revitalizes the Iranian economy and gives it access to more than $100 billion in frozen overseas assets. They also increasingly distrust the U.S., the traditional guarantor of Gulf security.

“ ‘Our allies aren’t listening to us, and this is what is making us extremely nervous,’ said Prince Faisal bin Saud bin Abdulmohsen, a scholar at the King Faisal Center for Research and Islamic Studies in the Saudi capital.

“ ‘If I am basing my judgment on the track record and our experience with Iran, I will say they will do anything in their power to get a nuclear weapon. A delay of 10 years is not going to satiate anything,’ Prince Faisal said.”

In Yemen, Al Qaeda in the Arabian Peninsula announced one of its founding members, Nasser al-Ansi, was killed in a drone strike in April. Al-Ansi’s true importance has always been up for debate...a mere spokesman or key strategist?

In January, it was al-Ansi who claimed AQAP’s responsibility for the Paris attacks on Charlie Hebdo.

In Yemen’s war, fighting killed 120 on Wednesday alone, most of the victims being civilians, as the Houthis took a major part of the port city of Aden. Coalition jets have bombarded the Houthis (the proxy for Iran) in and around Aden.

In Yemen’s far north, coalition airstrikes killed 43 civilians, following the death of five Saudi civilians on Tuesday in mortar and rocket fire, the first such deaths in the kingdom since the campaign began on March 26.

Human Rights Watch claims the Saudi-led coalition is carrying out airstrikes using cluster bombs, which were banned in a treaty signed by 116 countries for the high civilian casualty tolls they can inflict. But the U.S., Saudi Arabia and its coalition partners have not signed the treaty, though U.S. policy forbids exporting them to countries that use them in civilian areas.

According to the United Nations, it is also estimated 80 percent of Yemen’s population is going hungry and at week’s end, the Saudis were proposing a five-day ceasefire to allow humanitarian aid to get in.

Israel: It wasn’t supposed to be this difficult, but at literally the last hour, Prime Minister Benjamin Netanyahu struck a deal with Bayit Yehudi (Jewish Home) to complete the formation of his coalition government.

Bayit Yehudi’s leader, Naftali Bennett, received the education ministry post, as well the posts of justice minister, agriculture and deputy defense minister, according to a party statement.

But Netanyahu only has 61 seats in Israel’s 120-seat Knesset, leaving him zero margin for error. The defection of just two seats would bring down the government.

The 61 (Likud accounting for 30) represent a totally far-right government, which no doubt will clash continuously with the U.S. and Europe over its policies.

Netanyahu also lost his foreign minister and longtime ally, Avigdor Lieberman, who resigned his post over Netanyahu’s failure to advance settlement expansion and for not fighting Hamas in Gaza. The move deprived Netanyahu of six seats.

As for Palestinian statehood, Jewish Home is against the establishment of a Palestinian state.

Afghanistan: Since the U.S. combat mission here officially ended in December, Afghan security forces are suffering record casualties in their battles against the Taliban, with the number of killed and wounded so far this year up 70 percent over the same period last year. [4,950 Afghan army and police personnel in the first 15 weeks of 2015 against 2,900 in 2014.]

Russia: Moscow’s big Victory over Europe celebration is Saturday, the 70th anniversary of the end of World War II (actually May 8). But of the 68 invitations the Kremlin sent out to heads of state for the three days of celebration, less than 30 have confirmed and even fewer will attend the huge military parade.

The most prominent guest for Saturday’s event through Red Square will be Chinese President Xi Jinping, as the two nations strengthen military ties. Chinese troops will be among the foreign soldiers taking part in the parade.

Xi wrote in an article in state-owned Rossiskaya Gazeta on Thursday:

“The Chinese people and the Russian people are great peoples. In years of woe and hardship our inviolable military friendship was strengthened by blood. Today, the peoples of China and Russia will hand-in-hand, shoulder-to-shoulder facilitate development and contribute to the securing of a stable peace in the world and the progress of all humanity.”

Moscow announced the first ever joint exercises between Russian and Chinese naval units will take place in the Mediterranean Sea from May 11.

German Chancellor Angela Merkel is attending Sunday’s events and will lay a wreath at the Tomb of the Unknown Soldier and hold talks with Putin.

Meanwhile, NATO countries are staging massive air, land and sea exercises across Russia’s northern borders in response to Putin’s various threats, including of the nuclear variety. As the Los Angeles Times’ Carol J. Williams reports, more than 21,000 troops are involved in exercises in Estonia, Lithuania and Norway. Additionally, the U.S. is training Ukrainian forces and there is a 3,000-strong rapid-reaction force for Eastern Europe.

“Dmitri Trenin, director of the Carnegie Moscow Center, said he fears Putin has so effectively cast himself as all that stands in the way of Russia being vanquished by NATO that any perceived setback at the hands of the U.S.-led alliance could provoke him to play the nuclear card.

“ ‘He can’t afford to lose Donbas,’ Trenin said of Putin’s ill-disguised backing of pro-Russia separatists in eastern Ukraine’s Don River basin. ‘At some point Mr. Putin might go for a nuclear strike, demonstrating that he is prepared to do what needs to be done.’” [Carol Williams]

Editorial / The Economist

“Russia’s virtual war games have real consequences. Alexei Levinson, a sociologist, writes that ‘under this light moral anesthetic, the country is getting used to actions which only a short while ago seemed unthinkable and impossible.’ Opinion polls show that 90% of Russians are prepared to discuss the possibility of nuclear war. While 57% of older Russians say that such a war cannot have any winners, 40% of younger people are convinced that Russia would defeat America and NATO. As Mr. Levinson puts it, ‘A real war starts to look like a TV show or a computer game in which you have ten lives in reserve.’”

On a different matter, President Putin signed legislation that will increase tenfold the maximum fine that can be levied on Russian news organizations accused of inciting extremism, raising fears of increased pressure on the remaining independent media outlets.

A key is the lack of clarity over the legal definition of extremism, which means it is open to abuse.

Separately, Russia’s Central Bank announced the net outflow of capital from Russia reached $32.6 billion during the first quarter of 2015, with the bank forecasting the total may reach $131 billion by the end of the year. The Central Bank also revised the figure for 2014 up to $154.1 billion.

On the Ukraine front, officials in Kiev claim, “Militants have ratcheted up their activities over the past 24 hours, breaking the cease-fire 95 times,” a military spokesman said on Monday.

China: In a meeting with the head of Taiwan’s ruling Nationalist Party in Beijing, Chinese President Xi reaffirmed his nation’s support for closer cross-strait economic links.

The meeting with Eric Chu, chairman of the Nationalist Party, or Kuomintang (KMT), was the highest-level talks in six years between leaders of the two parties.

But such talks hurt the KMT back home and it has been losing support over voters’ misgivings that their government’s courting of better ties will hurt Taiwan’s economy.

On a different issue, an editorial in The Economist commented on China’s reclamation project in the South China Sea.

“Security is not the only concern... the environment is also under threat. Like the Mediterranean, the sea is shallow and largely enclosed. An ecological catastrophe is taking place, as reclamation destroys reefs, agricultural and industrial run-off poisons the water and overfishing depletes fish stocks. The littoral states ought to be working together to manage the sea, but the dispute over sovereignty fosters the fear that any collaboration will be taken as a concession.

“If they are to save the sea, the regional states must urgently put aside their differences. Indeed, if they could only cooperate over the environment, they might just find the territorial disputes easier to settle, too.”

France: I didn’t have a chance to comment on last Friday’s annual May Day rally for the National Front party in Paris in last week’s review as few details were available at the time. But it was a year ago I attended this event and wrote of the conflicts between party leader Marine Le Pen and her father, Jean-Marie, whom Marine has been attempting to kick out of the party because he is an old fool who is hurting the brand.

Well, this year he showed up, uninvited, as Marine prepared to address supporters at the Place de L’Opera. He took to the stage, waved for several minutes, and then exited without a glance at his daughter. What an a-hole. [There were also three topless ‘Femen’ activists who found their way onto the balcony for a spell.]

The next day, Saturday, Marine said of her father’s appearance, “It was malicious and contemptuous towards me,” as the party prepares sanctions against the FN founder for his comments on Nazi gas chambers in April.

Monday, Marine suspended Jean-Marie’s party membership and took away his honorary chairmanship title. Jean-Marie called his daughter’s decision a “felony.”

Ah, but waiting in the wings to take up Jean-Marie’s mantel is his 25-year-old niece, Marion Marechal-Le Pen, who is close to her grandfather (and rather comely). More family fights to come.

Germany: Alison Smale / New York Times:

“About 18 months ago, Chancellor Angela Merkel was the wronged American ally whose cellphone number was among data sucked up by American intelligence as it kept watch on Europeans.

“ ‘Spying among friends – that is simply not done,’ she said after the discovery in autumn 2013, to a sympathetic domestic audience.

“Within the past two weeks, the tide has turned. Ms. Merkel is back in the spotlight over spying. This time it is Germany’s foreign intelligence service, known here as the B.N.D., that is being accused of monitoring European companies and perhaps individuals. Further, the reports said the spying was done at the behest of the National Security Agency, the United States intelligence organization.

“Critics have seized on the spying allegations, sensing a whiff of hypocrisy emanating from Berlin, given the German outrage over the American program.”

Ya think?

Back to France, their parliament passed a new law that gives intelligence services sweeping new powers, including the legal authority to collect massive amounts of metadata from the Internet, which critics say is a mass intrusion of privacy.

But the law passed 438 to 86 and had the support of the governing Socialists and the opposition center-right.

And I might as well follow-up on the French parliament vote by noting a U.S. Circuit court of Appeals, based in New York, said the NSA does not have legal authority to secretly collect and store data on all U.S. telephone calls. With its unanimous decision, the 2nd Circuit called the highly classified surveillance program “an unprecedented contraction of the privacy expectations of all Americans.”

Sen. Ron Wyden (D-Ore.), an outspoken critic of the NSA’s programs, said, “This dragnet surveillance program violates the law and tramples on Americans’ privacy rights without making our country any safer.”

But the three-judge panel’s decision is not binding and the court agreed to let Congress decide whether to end or replace the program in the coming weeks.

So it was metadata week around the world.

Nigeria: The government has made a number of claims the past few weeks that it is making real progress in the war against Boko Haram, including the release of nearly 500 hostages from the group’s stronghold.

Amnesty International said the terrorists have seized about 2,000 women and girls since the start of last year, while a spokesman for Amnesty warned that while the rescues were “cause for celebration...This is just the tip of the iceberg. There are thousands more women and girls, and men and boys, who have been abducted by Boko Haram.”

None of the girls rescued thus far appear to be from the group of nearly 300 Chibok schoolgirls kidnapped by Boko Harma a year ago that led to worldwide protests calling for their release.

Libya: Italian coast guard vessels rescued 3,690 migrants from Libya in just one day, Saturday...one of the highest numbers ever recorded in a single day, with a total of 6,000 plucked from the boats over the weekend.

Calmer seas in the summer are expected to push total arrivals in Italy for 2015 to 200,000, an increase of 30,000 on last year. [Irish Independent]

Random Musings

--Mike Huckabee, Carly Fiorina and Ben Carson formally joined the Republican presidential race this week.

--According to the latest New York Times/CBS News poll, the number of Americans who think Hillary Clinton has strong qualities of leadership has risen by eight percentage points, to 65% from 57%. Just 48% of Americans say Clinton is honest and trustworthy. 52% of Democrats said they knew nothing or very little about the Clinton Foundation. [Take away their right to vote.]

As the Times poll adds, Hillary is helped by the enduring popularity of Bill Clinton: 76% of Democrats have a favorable view of him, vs. just 4% who view him unfavorably.

On the Republican side, 73% of Republican voters said they preferred candidates with experience outside Washington, a help for Jeb Bush.

In a Wall Street Journal/NBC News poll, the share of people with a negative view of Hillary Clinton jumped to 42% from 36% in last month’s survey, and only a quarter of registered voters said they viewed her as honest and straightforward, down from 38% last summer.

But 76% of Democrats view her favorably in this one.

On the Republican side, Jeb Bush drew the most support among GOP primary voters, with 23% naming him their top choice. Marco Rubio is next at 18%, Scott Walker 14%, and Rand Paul and Ted Cruz both garnered 11%.

But when Republicans were asked whether they could see themselves supporting each of the top GOP contenders, 74% said yes to Rubio – more than Bush, with 70%. This is up from the 56% who said they could see themselves supporting Rubio back in March. Interesting.

In potential matchups, Clinton tops Bush and Rubio by 49% to 43%, Walker by 50-40, but Rand Paul comes closest, trailing Clinton just 47-44.

--A Quinnipiac University poll of likely Republican caucusgoers in Iowa has Scott Walker holding onto his early lead at 21%, with Marco Rubio and Rand Paul at 13%, Ted Cruz at 12% and Mike Huckabee at 11%. Jeb Bush picks up just 5%. Chris Christie and Rick Perry receive only 3% apiece. Perry needs to see the handwriting on the wall.

--Kyle Smith / New York Post

“The Clintons have been playing the political press for idiots.

“Revealing what they’ve been up to took a little bit of work. It wasn’t obvious. While Bill Clinton was giving a speech about fighting AIDS in Africa, or about educating girls in Asia, reporters simply regurgitated the press release. They didn’t ask: Who’s that shady guy standing next to Bill?  What are his interests? How much money has he given to, or raised for, Bill, Hillary and their foundation? And what favorable treatment did the shady guy subsequently receive from Hillary?

“When you’re a political reporter, complexity is boring. Curiosity takes work. Asking questions and looking up information can lead to dead ends....

“Thank goodness, then, for Peter Schweizer and his blockbuster expose ‘Clinton Cash: The Untold Story of How and Why Foreign Governments and Businesses Helped Make Bill and Hillary Rich.’ (Very rich: The pair have made at least $136.5 million since 2001).

“The details of the Clinton operation vary, but the overall M.O. is fairly consistent, he writes.

“One: Dodgy rich businessman, often a foreigner in the middle of a mega-deal in some corrupt country, possibly one run by a dictator, writes a check that buys him the status of friend of Bill Clinton (FOB). The check is payable to the Clinton Foundation or to Bill himself, as an honorarium for a meaningless idealistic speech that is essentially a homily at a whorehouse.

“Two: When the cameras are turned off, Bill receives ultra-luxurious travel on someone else’s dime and attends a lavish party in his honor held by some dictator or shady businessman connected to the new FOB. Talks go on behind closed doors.

“Three: Millions of dollars of donations start flowing into the Clinton Foundation from the FOB and associates.

“Fourth: Potential roadblocks to the deal in the Senate or the State Department melt away. The business deal goes through. The new Clinton friend gets very, very rich.

“Fifth: Hillary forgets to disclose these donations.

“Six: The press doesn’t notice what just happened.”

--The Star-Ledger’s Tom Moran on Chris Christie:

“He is a bully who yells at little people who can’t fight back during town halls. He uses his power without restraint, as when he defied the Supreme Court over affordable housing. He lies as a matter of routine for political gain, as when he recently accused Democrats of shorting the pension fund in this year’s budget.

“And he brushes past ethical restraints, gorging on luxurious gifts from his so-called ‘friends’ like the King of Jordan, and Jerry Jones, the owner of the Dallas Cowboys.

“It’s no shock that his staffers, eager to please him, embraced his frat-boy style, and then went overboard.

“Friday’s events [Ed. May 1] probably won’t change many minds. There was no bombshell. And (U.S. Attorney Paul) Fishman said that nothing prosecutors presented should be seen as implicating Christie, or clearing him.

“But this isn’t over, not by a long shot.

“Fishman was asked about that, too, at his news conference. Here’s what he said: ‘It’s like the end of Downtown Abbey.   You’ve got to wait for a whole ‘nother season.’

“When this scandal broke, Christie was flying toward the sun, triumphant at home and the hottest property in the national Republican Party. Bridgegate will be remembered as the scandal that took him down.

“And the bad news for him is that it’s not over yet, no matter how much he tries to wish it away.”

Editorial / New York Post

“(Former Port Authority official David) Wildstein implicated Bridget Anne Kelly, whom Christie fired as his deputy chief of staff the instant he was made aware of the basic evidence of her involvement, and Bill Baroni, former deputy executive director of the Port Authority.

“Both were linked to the scandal from the start, though each denies the charges.

“The one new detail does make the whole thing look even worse: The plotters had put off the plan to close the lanes, snarling Fort Lee Traffic, for months; they deliberately timed the chaos for the first day of school.

“That has all sorts of implications about the folks Christie chose to trust.

“It also makes us wonder why they thought they could – and should – do this and get away with it, when Christie built his whole political name by fighting the abuse of power for petty political purposes.

“It’s not only risky to act counter to your boss’s ‘brand,’ it’s stupid.”

--Editorial / Wall Street Journal

“A federal prosecutor handed up indictments Friday (May 1) in New Jersey’s bridge-closure scandal after a 16-month probe. Gov. Chris Christie wasn’t implicated, but the investigation has damaged his political standing. Many pundits say the bridge closure by aides to punish a political opponent should disqualify Mr. Christie from running for President, though there’s no evidence he knew what his aides were doing.

“Voters can make up their own mind, but this also raises the ripe question of disparate political treatment. Specifically, is anyone at Justice or the FBI investigating the Clinton Foundation and Hillary Clinton for accepting foreign donations while she was Secretary of State? The risk of quid-pro-quo corruption involving U.S. foreign policy would seem to be at least as important as commuter inconvenience at the George Washington Bridge....

“The Clinton Foundation agreed with the Obama White House not to accept donations from foreign governments while Mrs. Clinton was secretary. But we now know there were exceptions, and that donors during that period included Qatar, Oman and Kuwait. They also included a $500,000 donation from the Algerian government – which the foundation failed to have reviewed by State – while Algeria was lobbying State to ease its criticism of its human-rights record....

“At least 60 companies that lobbied the State Department during her tenure donated a total of more than $26 million to the Clinton Foundation, according to the Journal’s analysis of public and foundation disclosures.

“The foundation and the Clintons insist there isn’t a ‘shred’ of evidence that these actions were illegal, but the facts certainly would seem to warrant an investigation. All the more so given that Mrs. Clinton has admitted erasing emails from her tenure at State that she kept on her personal server.

“The FBI spent years investigating New Jersey Sen. Bob Menendez on accusations that he did government favors for a friend in return for Super PAC donations and plane trips. The Senator has been indicted on charges that this was a quid pro quo, yet Mr. Menendez failed to get the government to change a Medicare reimbursement rule. The Canadian mining donors got what they wanted....

“The Justice Department and FBI are suffering from declining public esteem because their prosecutions seem to be heavily influenced by politics. Giving the Clintons a pass on their foreign donors while investigating Mr. Christie for months shows a political double standard in operation.”

--A new Wall Street Journal/NBC 4 New York/Marist poll reveals 49% of New York City voters believe the city is moving in the wrong direction, vs. 45% who believe things are moving in the right direction; the first time since November 2013, that the bloc of voters think the city is on the right track dipped below 50%.

57% believe the overall quality of life in the city has either gotten worse or remained the same during the past year or so, which they characterized as a bad thing. Fewer than one in five voters say quality of life has improved.

Mayor Bill de Blasio’s overall approval rating rose to 44%, however, compared with 39% in March 2014.

But then you have the divisions along racial lines: 66% of black voters and 58% of Latino voters say de Blasio deserves to be re-elected, while 28% of white voters say he does.

--And de Blasio has a new mess on his hands, another of his own making, as he submitted a $78.3 billion budget that offers millions to fight homelessness and aid for struggling schools, but zero for new police officers that NYPD Commissioner Bill Bratton and many members of the City Council want. Both are seeking 1,000 new officers.

De Blasio said they aren’t necessary because arrests are way down, such as in the stop-and-frisk policy. Crime, though, is up.

--New York state’s most powerful Republican official, Senate Majority Leader Dean Skelos, was indicted on charges including extortion and soliciting bribes in relation to the rewarding of a $12 million contract to a company that hired his son, Adam. Evidence was obtained through extensive court-authorized wiretaps on cellphones by father and son.

Four months earlier, former Assembly Speaker Sheldon Silver, D-Manhattan, was nailed for accepting nearly $4 million in payoffs, though he maintains his innocence and is retaining his seat while he fights the charges.

U.S. Attorney Preet Bharara said the charges are further proof of just how widespread corruption is in New York state.

Both the Skelos and Silver cases involve real estate interests and the acceptance of funds from developers.

--Former House Speaker Jim Wright (D-Tex.) died. He was 92. Wright was a powerful figure brought down by an ethics investigation that forced his resignation in 1989.

--Andreas Lubitz, the co-pilot of the Germanwings plane that crashed in the French Alps in March, was practicing a rapid descent on a previous flight, according to a report by French investigators. Lubitz repeatedly set the same plane for an unauthorized rapid descent earlier that same day, specifically on the outbound leg of the flight – from Duesseldorf to Barcelona.

Lubitz reset the altitude dial to 100-feet, the lowest possible reading, and then once up to 49,000, the maximum altitude, with the changes occurring over a five-minute period when the captain left the cockpit.

The reason why the passengers and captain wouldn’t have noticed anything was wrong is because all Lubitz was doing was twisting a dial on a computer in front of him and it wouldn’t have directly impacted the actual altitude.

And it’s why the pilot, the same pilot for the ill-fated leg later, wouldn’t have noticed anything strange about Lubitz’s behavior.

--According to the above-referenced Wall Street Journal/NBC News poll, a whopping 96% of adults surveyed said it was likely there would be additional racial disturbances this summer, in light of the problems in Baltimore. But there are differences in how blacks and whites viewed the situation there.

60% of blacks said they reflected “long-standing frustrations about police mistreatment of African Americans.” Some 27% of black respondents said the disturbances were caused by people who used protests over an African American man dying in police custody “as an excuse to engage in looting and violence.”

But among whites, the balance of opinion flipped: 58% said people were seizing an excuse to loot, while 32% said the events reflected long-standing frustrations with police.

--The Justice Department will investigate whether the Baltimore Police Department has engaged in a pattern of misbehavior.   The announcement was made a day after Mayor Stephanie Rawlings-Blake requested the inquiry.

But the criminal case against six officers involved in the arrest of Freddie Gray is apparently falling apart, with a key issue being the knife. The state’s attorney said it wasn’t illegal, which meant the arrest was illegal, but the police department’s own investigation disputes this.

--Contrary to what supporters of the Affordable Care Act thought would be the case, emergency-room visits continue to climb.

The American College of Emergency Physicians released a survey on Monday and it found that ERs are seeing sicker patients: “About 90% of the doctors polled said the severity of illness has stayed the same or gotten worse. That might be explained in part by an aging population, newly insured people with multiple maladies, and people delaying care because they have high-deductible insurance plans.”

“Nicholas Vasquez, a medical director for an emergency department in Mesa, Ariz., said volume rose 5% in a year, representing about 10 more patients a day. The stress from bigger caseloads prompted some nurses to resign, he said. ‘Physicians are working more shifts – that pushes them a lot,’ Dr. Vasquez said. ‘If they work too much, they get burnt out. For patients, it means longer waits.’” [Stephanie Armour / Wall Street Journal]

--Ann Lukits / Wall Street Journal

“Maple syrup may help fight disease-causing bacteria, including antibiotic-resistant strains that often grow in health-care settings, says a study published online in Applied and Environmental Microbiology.

“Concentrated extracts of maple syrup combined with antibiotics significantly reduced the growth of four common bacterial strains and bacterial communities called biofilms, the study found.

“Bacterial biofilms accumulate on medical surfaces and devices, such as catheters and artificial joints, and are responsible for many antibiotic-resistant hospital infections, research has shown....

“Maple syrup contains plant-based compounds called phenols that have exhibited antioxidant and anti-cancer properties in previous studies, according to researchers. Maple syrup may reduce the dose of antibiotics needed to kill biofilms, they said.”

Kind of gives me a hankering for IHOP.

--Even your editor marveled...how the heck did Kate Middleton look so awesome less than 10 hours after giving birth?!

--Sign of the Apocalypse: A West Orange, N.J., woman is suing United Airlines for $5 million because she says the airline failed to properly inform passengers that live television and Internet service aren’t available on all flights.

Cary M. David filed the $5m class action suit alleging United didn’t notify passengers that WiFi and DirecTV are inoperable when the flight is outside the continental U.S. or flying above a body of water.

David paid $7.99 to order DirecTV on a four-hour flight from San Juan, Puerto Rico to Newark, but says the satellite television service only operated for the final 10 minutes of the flight.

United said the information about when the services aren’t available are shown on a seat-back monitor before customers confirm their purchases. [NJ.com]

--Finally, we note the death of New York City police officer Brian Moore, 25, who died a few days after being shot in the face last Saturday as he approached an armed man on a Queens street. Moore and his partner were patrolling in an unmarked car when they observed a man adjusting his waistband and suspected he was armed. When they pulled up behind to question him, the man turned and fired at the car, striking Moore. Soon after, a 35-year-old career criminal was arrested.

---

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

God bless America.
---

Oil closed at $59.39...up 8 weeks in a row
Gold $1188

Returns for the week 5/4-5/8

Dow Jones +0.9% [18191]
S&P 500 +0.4% [2116]
S&P MidCap +0.3%
Russell 2000 +0.6%
Nasdaq -0.04% [5003]

Returns for the period 1/1/15-6/8/15

Dow Jones +2.1%
S&P 500 +2.8%
S&P MidCap +4.6%
Russell 2000 +2.5%
Nasdaq +5.6%

Bulls 52.5
Bears 13.9 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Happy Mother’s Day!

Brian Trumbore



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Week in Review

05/09/2015

For the week 5/4-5/8

[Posted 11:00 PM ET, Friday]

Edition 839

Wall Street and Washington

The real story on the week was the action in the bond pits, in both the U.S. and Europe. I discuss the latter in more detail below, but for this segment, not all of the moves could easily be explained away, though one reason was a growing sense that maybe, in the case of Europe in particular, any talk of deflation needs to be put to bed and when bonds are yielding zero, as they have been across the pond, that’s the last place you want to be if inflation begins to rear its ugly head (sorry...I should have issued a cliché alert...my bad).

Euro bonds also suffered due to the ongoing mess related to Greece, but as for our own bond market, very early Thursday morning the yield on the 10-year Treasury spiked to 2.31%, a far cry from the recent 1.86% to 1.99% trading range that we had been in for a month until recently. But by the close on Friday the yield was 2.15%.

Some of the fears here were over Friday’s jobs report. If the number had come in very strong, after March’s dismal figure, that would have put prospects for a June rate hike by the Federal Reserve back on the table.

In addition, stocks weren’t helped when Fed Chair Janet Yellen, in a Q&A with the IMF’s Christine Lagarde, said both stocks and bonds seemed richly valued.

“I would highlight that equity-market valuations at this point generally are quite high. Now, they’re not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there,” she said.

Yellen added bond yields “could see a sharp jump” when the Fed finally raises its benchmark interest rate.

So Friday morning the April employment report was released and the economy added 223,000 jobs, slightly above expectations, but not superhot like February’s, revised up to 266,000.

The unemployment rate fell to 5.4%, the lowest since May 2008.

Just as importantly, March’s initial figure of 126,000 was revised down sharply to just 85,000. Put it all together, including a tame wage component, with average hourly earnings for last month up just 0.1% (2.2% year over year), and the 223,000 was viewed as a ‘goldilocks’ number... not too hot, and not too cold.

Ergo, the Fed is not moving in June...at least that is the overwhelming sentiment today. Personally, I’d say let’s just wait a few more weeks, though it needs to be noted that the highly prescient Atlanta Fed, whose GDPNow calculator nailed the figure on growth for the first quarter, is currently projecting just 0.8% for Q2 (after 0.2% in Q1). Unless that starts moving up rapidly, yes, no way the Fed is moving in June.

[One other item on the jobs report. U6, the measure for underemployment, fell to 10.8%, the lowest figure since Aug. 2008. This is good.]

There were a few other economic data points. March factory orders were in line with expectations, up 2.1%, while the ISM service sector reading was 57.8, the highest since November.

But then there was the figure on the trade deficit for March, $51.4 billion, the biggest number since 2008 and up 41% from February. In keeping with the awful GDP figure for the first quarter, exports rose less than 1%, while imports increased 7.7% (cars and mobile phones, largely).

The significance here, aside from leading economists to lower their second-quarter outlooks, is this comes as President Obama is pressing for the Trans-Pacific Partnership trade deal with Japan and 10 other Asian economies (ex-China). It’s easy for opponents to point to the trade deficit and argue the TPP will only lead to more of the same. More jobs going overseas, amid further talk of our trading partners manipulating their currencies to our detriment.

Europe and Asia

British Prime Minister David Cameron won a second term in a stunning victory for the center-right Conservative party in the U.K.’s national elections on Thursday. It was thought that the Conservatives (Tories) would be in a dead-heat with the opposition Labour Party and that Labour, according to many experts, would have the best chance at forming a ruling coalition. A poll of polls just before the election had it at Tories 33%, Labour 33.5%.

But then the Conservatives ended up with an overall majority of the 650 seats in parliament, 331, its largest tally of seats in more than 20 years (and a pickup of 24 from the last election, in 2010), while Labour earned just 232 (a decline of 26).

The vote, however, creates even more uncertainty for Britain (after a brief honeymoon for the stock market), because the leftwing Scottish nationalists, who took 56 of Scotland’s 59 seats (after picking up just six in 2010), became the third-largest party in Westminster just eight months after losing an independence referendum, 55-45.

Cameron said on Friday the Conservatives would govern as “a party of one nation,” promising Scotland the “strongest devolved government anywhere in the world” with wide powers over taxation.

But then you have the issue of membership in the European Union, Cameron having promised an in-out vote on remaining in the EU in 2017 should he win another term. In the coming months, critically in terms of this effort, Cameron needs to win back further control over some key issues from Brussels to show his people that staying in the EU is the direction the country should take.

Meanwhile, David Milliband, the Labour leader, announced he was stepping down after his party’s horrible showing, while Nick Clegg, who served as deputy prime minister in Cameron’s coalition, stepped down as Lib Dem leader as his party saw its number of seats plunge from 57 to 8.

And you have Nigel Farage, the charismatic leader of UKIP, the anti-EU UK Independence Party. He failed to win his own seat, despite UKIP taking the third most votes, nationally.* It won just one seat overall in Britain’s voting system.  Farage quit. So much for his novelty act, it would seem.

*Final popular vote results...Tories 37%, Labour 31%, UKIP 13%, Lib Dem 8%, SNP 5%, Greens 4%.

The market surged in the U.K. (and across Europe) in response to the seeming stability in government, but this will be short-term in nature. The negotiations in Brussels will now take center-stage, and they won’t be easy. Few on the continent want to give Cameron all that he wants.

And on the home front, Cameron could face a renewed call for another referendum by the Scots, though none is expected at least for a while.

Turning to Greece, a government spokesman at week’s end said his country will stick to its “red-line” promises to its electorate and not make concessions in its negotiations with creditors. Gabriel Sakellaridis said at a press conference, labor and pension issues are non-negotiable. 

Talks with the IMF and European Union will continue over the weekend. But it’s been the same old story. The creditors say Greece must enact further cuts to trim the government sector, as well as more rapidly privatize state assets in return for further bailout aid, but Prime Minister Alexis Tsipras and his left wing Syriza party are standing firm.

Many in Europe, especially the Germans (and Fins) have lost patience.

Jean-Claude Juncker, the president of the European Commission, said it would not be wise to openly discuss a Greek exit from the euro: “If I were to say that ‘Grexit’ was an option, what do you think would happen then in the financial markets?”

French Finance Minister Michael Sapin, however, said talks with Greece were headed in the right direction: “The risk of things running off the rails for Greece also entails that risk for Europe,” calling for compromise at Monday’s critical meeting of eurogroup finance ministers.

Greece owes the IMF 763bn euros on Tuesday. Greece’s finance minister, Yanis Varoufakis, insisted on Thursday the country will meet the deadline.

I’ve said this over and over again, that time is running out, but it really is. Athens will get another bailout deal, including the final payment on the existing one, or it defaults, with default most likely (though it’s not a certainty) leading to an exit from the euro with unknown consequences.

So you have this week’s IMF payment, plus further obligations this month and in June, as well as the June 30 deadline, which represents the end of the bailout program already in existence.

As Peter Spiegel of the Financial Times put it:

“Will Athens bow to pressure and accept tough new economic reforms to release the remaining 7.2bn euro in the program and refill its dwindling coffers? Or will Greece’s increasingly divided creditors succumb to fears over ‘Grexit’ and give Athens a pass?”

One thing seems certain. There will be no deal with finance ministers next week in Brussels.

Oh, and did I tell you about the fact that Greece could conceivably get through June, assuming it receives its final 7.2bn euro bailout check, but then it owes 6.7bn euro to the ECB in July and August? Yes, that’s why a third bailout is needed.

On to the economic data in euroland for the week....

The final eurozone composite PMI for April was 53.9 vs. 54.0 in March. The services reading was 54.1 vs. 54.2. And the manufacturing PMI for last month was 52.0 vs. 52.2 in March.

A few individual country items of note. Spain’s composite of 59.1 represented a 101-mo. high, while Italy’s manufacturing reading of 53.8 was a 12-mo. high.

Germany’s manufacturing PMI was 52.1, but France came in at 48.0 vs. 48.8 in March, not good.

Greece’s manufacturing PMI was a putrid 46.5, a 22-mo. low.

Eurozone retail trade was down 0.8% in March over February.

The European Commission, citing the positive impact of a sharp drop in the oil price (until the recent rebound), raised its outlook for eurozone GDP to 1.5% for 2015, up from February’s estimate of 1.3%, while leaving 2016 unchanged at up 1.9% for the euro area.

The EC’s economists raised Germany from 1.5% to 1.9% for this year, while calling for Ireland to exhibit the strongest growth in the EA-19 in 2015, up 3.6%. Spain is projected to grow a very solid 2.8% this year, but Greece’s GDP estimate was sharply downgraded from an earlier forecast of 2.5% to up just 0.5%.

Chris Williamson, Chief Economist at Markit:

“The eurozone manufacturing sector continued to grow in April, but the dip in the rate of expansion will serve to check recent optimism that the ECB’s quantitative easing program has bought a guaranteed ticket to recovery for the region.

“Warning lights are flashing particularly brightly over France and Greece, both of which saw accelerating rates of decline at the start of the second quarter. Weaker rates of growth in Germany and Ireland are also cause for concern. [Ed. re mfg. data.]

“However, the ECB asset purchase program is still very much in its infancy, and given the concerns over Greece it’s not surprising that the road to recovery will be bumpy.”

On to the bond market. 

WIR 4/18/15:

“I recently did a ‘Wall Street History’ piece that for traders/investors should be clipped and saved...the tale of interest rates in the eurozone prior to and then in the immediate aftermath of the formal launch of QE.

“For example, the 10-year German bund had a yield of 1.57% on 3/31/14. On the Friday before QE, March 6, the yield was 0.39%. This week the German bund hit a record low of 0.07% before closing, Friday, at 0.08%.

“Contrast this action with Greece. On 3/31/14, the Greek 10-year had a yield of 6.25%. 3/6/15 it was 9.09%. This week it closed at 12.52%, after hitting 13.20% intraday, the highest since Dec. 2012. [During the height of the 2012 crisis, the Greek 10-year peaked at 44.21%.]

“So the above shows you how money has flowed into Germany, and other bonds in euroland, while fleeing Greece over uncertainty created by the new Greek government’s inability to convince its creditors, like the IMF and European Central Bank, that it had a viable reform plan warranting further bailout aid.

“But I’ve also written when pointing out the likes of Italy and Spain, eventually investors in their paper will get burned big time. Last week I wrote: ‘At some point euro bond buyers will get slaughtered.’

“I also noted last time that the Italian and Spanish 10-year bonds closed with yields of 1.26% and 1.22%, respectively, 4/10. 

“Where did they close this Friday? Try 1.47% for Italy and 1.44% for Spain.

“In fact, prior to QE being launched, 3/6/15, the yield on the Italian 10-year was 1.31% and Spain’s 1.29%.

“So what good has QE been for these two? The European Central Bank launched an aggressive program of bond-buying across the eurozone and yet yields are rising in Italy and Spain.

“Why pick on them? Because this is where, along with Portugal, any contagion from Greece will spread immediately.

“[Portugal’s 10-year was 1.74% on 3/6/15...this week it closed at 1.99%.]

“You won’t find this stuff anywhere else, at least not in this detail.

“It’s also why those who say ‘Greece doesn’t matter’ are full of it. In the long run, should Greece default and/or exit the euro area, it may not matter much, but in the short run it’s bound to convulse the markets and no one knows how serious it could get.”

WIR 4/25/15

“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%.”

So then this past week all hell broke loose....

The yield on the German 10-year went from 0.37% the Friday before to 0.79% intraday on Thursday before finishing the week at 0.54%.

The French 10-year’s yield was over 1.00%, up from the 5/1 close of 0.64%, before settling back down to 0.83%.

Spain’s 10-year went from 1.39% to 1.92% before ending Friday at 1.66%.

Italy’s 10-year, 1.43% on 5/1, hit 1.97% on Thursday before ending the week at 1.77%.

Just a sample of coming attractions in terms of volatility, while market participants complained of liquidity issues.

The thing is, as I noted above, there really wasn’t a fundamental need to panic. Imagine when there is one.

No doubt some hedge funds got slaughtered this week, though it often takes a while to identify the bodies.

Finally a few words on Asia. HSBC’s final reading on manufacturing in China for April came in at just 48.9 vs. 49.6 in March (reminder for newbies...50 is the dividing line between growth and contraction). HSBC’s services reading for last month was 51.3 vs. 51.8.

The official government manufacturing PMI, though, was 50.1, same as in March, causing Church Lady to utter, “How conveeenient”...at which point she was arrested and sentenced to 20 years hard labor.

China’s Shanghai Composite stock index had a wild week, falling 4.1% on Tuesday and 5.3% for the week, even after a 2.3% gain on Friday. It was the worst week since July 2010. The Shanghai Comp, 4205, is now down 7.1% from a recent multi-year high of 4527 on April 27.

In Japan, a reading on the service sector for April, 51.3, handily exceeded March’s figure of 48.4, so this is good.

And just a few other key manufacturing PMIs in the region for April. Taiwan was at 49.2 vs. 51.0 in March, while South Korea recorded 48.8, the weakest since last October.

Street Bytes

--Stocks finished mixed, with the Dow Jones riding Friday’s 267-point gain to a 0.9% overall gain on the week to 18191, while the S&P 500 added 0.4% and Nasdaq lost two points, 0.04%.

With 447 of the S&P 500 having reported earnings, FactSet said eps is flat, overall, when initially earnings were projected to decline 4.6%. But revenues are down about 4% vs. year ago levels.

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.57% 10-yr. 2.15% 30-yr. 2.90%

--Back to Bill Gross, his Janus Global Unconstrained Bond Fund lost 2.7% over a five-day stretch through mid-week and it wasn’t readily apparent what the cause was. [This is a huge decline for a bond fund, sports fans....like the kind you might see in a long-term bond fund if rates spiked.] And according to the Wall Street Journal, after a good start since he took over the fund, he is now at the bottom of his peer group.

Gross’ largest holding as of March 31 was a wager against German bonds, so that would have worked. Ergo, the mystery grows.

Separately, Gross’ old PIMCO Total Return Fund lost its title as the world’s largest bond fund after another month of withdrawals in April. Vanguard Total Bond Market Index Fund, with $117.3bn in assets, now exceeds Total Return Fund’s $110.4bn as of 4/30.

Since Bill Gross left PIMCO in September, the fund has had outflows of $110bn, though the outflows began months earlier owing to poor performance and management turmoil (including the departure in January 2014 of co-chief investment officer Mohamed El-Erian).

--The city of Los Angeles filed a lawsuit against Wells Fargo Bank, alleging the largest California-based bank encouraged employees to engage “in unfair, unlawful and fraudulent conduct” through a pervasive culture of high-pressure sales. As reported by the Los Angeles Times’ E. Scott Reckard:

“Employees misused customers’ confidential information and often failed to close unauthorized accounts even when customers complained, the suit alleges.

“Some employees went so far as to raid client accounts for money to open additional accounts, the suit alleges.

“ ‘The result is that Wells Fargo has generated a virtual fee-generating machine, through which its customers are harmed, its employees take the blame, and Wells Fargo reaps the profit,’ the lawsuit alleges.”

Personally, I go to my Wells Fargo branch about three times a week and I love when my favorite teller calls me ‘honey.’

--John Chambers, the longtime CEO of Cisco Systems Inc., announced he is stepping down this summer, to be replaced by veteran Cisco executive Chuck Robbins.

I’ve always liked Chambers, who has been running the show at Cisco for the last 20 years, through boom times and not-so-boom times. Through it all he was always forthright in discussing the company’s fortunes and direction.

I mean just think of his 20-year run, and how the company, whose revenues totaled $47 billion in its fiscal year ended last July, powered the growth of the Internet and telecommunications systems worldwide. When he took over in 1995, Internet usage was just 14 percent.

According to data compiled by Bloomberg, $1 invested in Cisco in January 1995, would now be worth about $17 (and much higher than this if one had sold at the top of the bubble in 2000). By comparison, $1 invested in the S&P 500 would have returned about $6.50 over the same period.

Cisco’s headcount has risen from 4,000 to 74,000 during Chambers’ tenure.

Chambers will assume the role of executive chairman when Robbins becomes CEO on July 26.

--New McDonald’s CEO Steve Easterbrook laid out his restructuring plans to revive flagging sales:

“In the last five years, the world has moved faster outside the business than inside. I will not shy away from the urgent need to reset this business.”

Easterbrook said the plan is to become a “modern, progressive burger company,” acknowledging McDonald’s “recent performance has been poor.”

McDonald’s plans on highlighting its use of fresher and more natural ingredients, among other things, while reducing annual costs by $300 million by 2017.

The CEO talked of reorganizing its global business starting July 1 under four segments such as “international lead markets” and “high-growth markets,” but the plan was viewed as being light on real details.

For April, the company announced global sales were down 0.6%, and off 2.3% in the U.S., but up 1.0% in Europe...better than expected on all three metrics so the shares rose on Friday.

--Tesla Motors Inc. reported a loss of $154 million in the first quarter, compared with a loss of $49.8 million a year earlier, as the company spent heavily on a new SUV and giant battery plant near Reno. First-quarter revenue rose 51% to nearly $940 million.

Tesla said it was sticking with its plans to produce 12,500 vehicles in the second quarter, and is on track to deliver 55,000 Model S and Model X vehicles this year.

Tesla, by the way, has made more than $500 million from selling environmental credits, including $66 million worth during the first quarter. Other automakers purchase the credits to meet California’s environmental regulations. [Jerry Hirsch / Los Angeles Times]

But Tesla shares rose because the results were not really that bad, if you manipulate the earnings, which virtually all of Corporate America does. It’s bulls---, pure and simple.

CEO Elon Musk did announce Tesla had seen a surge in orders for the stationary batteries it announced a week ago (see last WIR).

“We’re basically sold out to the middle of next year in the first week – it’s crazy,” Musk said.

But bottom line, I wouldn’t touch this stock with a ten-foot pole, even if I do admire Musk and his ambitions. It is hugely overvalued.

--According to a study by NN Investment Partners (formerly ING Investment Management), the 15 largest emerging markets have seen net capital outflows over the latest three quarters of $600 billion, higher than the outflows seen during the crisis-ridden three quarters to the end of March 2009. The strengthening dollar has been the primary culprit (the unwinding of the U.S. dollar carry trade...borrowing in dollars at low interest rates to invest in high-yielding EM local currency products), as well as financial system problems in China and uncertainty throughout the EM universe, such as in some of the weak manufacturing PMI numbers I cited above.

--Google announced more search requests are now being made on mobile devices than on personal computers in the U.S.

--Facebook’s chief operating officer, Sheryl Sandberg, lost her husband, David Goldberg, a Silicon Valley entrepreneur, to an accident at a resort in Mexico. Goldberg died when he had a mishap on a treadmill, hitting his head and bleeding to death.

Sandberg said days after that her husband’s passing was “the darkest and saddest” moment of her life, but vowed to keep his memory alive.

“I met Dave nearly 20 years ago when I first moved to L.A. He became my best friend. He showed me the internet for the first time, planned fun outings, took me to temple for the Jewish holidays, introduced me to much cooler music than I had ever heard.

“We had 11 truly joyful years of the deepest love, happiest marriage, and truest partnership that I could imagine. He gave me the experience of being deeply understood, truly supported and completely and utterly loved – and I will carry that with me always. Most importantly, he gave me the two most amazing children in the world.

“Dave was my rock. When I got upset, he stayed calm. When I was worried, he said it would be ok. When I wasn’t sure what to do, he figured it out. He was completely dedicated to his children in every way – and their strength these past few days is the best sign I could have that Dave is still here with us in spirit.”

According to the AP, treadmills were responsible for over 24,000 injuries in the U.S. last year and 30 deaths from 2003 to 2012.

--CBS Corp. reported earnings that beat the Street’s expectations, though were down from a year ago as revenue fell 2% to $3.5 billion, owing to advertising sales, down 5% during the first quarter. Radio stations saw a 7% shortfall; part of an industry trend as advertisers spread their dollars between traditional media and Internet and mobile outlets.

CBS did mark its seventh consecutive year of being number one in number of viewers.

--Walt Disney shares hit a new high on Tuesday following release of its first quarter results, with net profit rising 10 percent to $2.1 billion, while revenue increased 7 percent to $12.4 billion, both topping estimates handily. Movies such as the newly released “Avengers: Age of Ultron” and the upcoming “Star Wars” sequel are expected to lead the way in the current quarter and the second half of the year, including in terms of merchandise sales.

--Russian oil and gas production remained at a post-Soviet record level of 10.71 million barrels per day in April, underpinned by the recent recovery in prices, according to Energy Ministry data.

--Siemens AG, Europe’s largest engineering company, is cutting another 4,500 jobs after fiscal second-quarter profit fell more than expected. Profit from so-called industrial operations fell 4.9% owing to declining oil prices.

CEO Joe Kaeser, who made the decision to spend $7.6 billion acquiring oil and gas equipment specialist Dresser-Rand Inc., is under pressure to cut costs with the slump in the energy sector. The oil price has fallen 30 percent since the Dresser-Rand deal was agreed to in September. Dresser-Rand is cutting 8 percent of its workforce.

--Brazil’s manufacturing PMI in April was just 46.0, a 43-mo. low.

--Alibaba Group Holding Ltd. reported a 45 percent increase in fourth-quarter revenue as China’s biggest e-commerce company capitalized on the Lunar New Year holiday shopping season. 

Sales rose to $2.8 billion in the three months ended March, better than analysts’ estimates.

Shares rose 8% in response and are back to being comfortably ahead of the $68 IPO price last September at $86.85.

The company also named Daniel Zhang as its new CEO. [Jack Ma is chairman.]

--Sprint continues to lose mobile phone customers as the third-largest U.S. wireless network is being hit hard by competition from T-Mobile U.S. Sprint is also burning through cash at such a rate that its debt, $29.6 billion, exceeds its market capitalization of $20bn, as of Tuesday.

Sprint, which is now 80% owned by Japanese conglomerate SoftBank, suffered a net loss of 201,000 phone customers in the quarter, compared with a gain of 991,000 at T-Mobile, while Verizon and AT&T, the largest carriers, lost 138,000 and 270,000 respectively. [Financial Times]

--Emerson Electric Co., a leader in diversified manufacturing, said in its earnings release: “Global customers in oil and gas and industrial markets, particularly energy-related, reduced spending faster and deeper than we expected as a result of the significant decline in oil prices and strength of the U.S. dollar.”

--Kellogg Co. said revenue in its latest quarter fell 5%, hurt in part by the stronger U.S. dollar on foreign sales, though demand for breakfast cereals at home remains putrid.

--Lumber Liquidators Holdings Inc. is pulling all of its Chinese-made laminate flooring, the most significant move by the company since a “60 Minutes” report in early March alleged the Chinese flooring contained excessive levels of formaldehyde, a known carcinogen, that exceeded California emissions standards.

Lumber Liquidators also announced it was hiring former FBI director and federal judge Louis Freeh to help in reviewing its sourcing and compliance procedures.

Since the “60 Minutes” segment, sales of laminates have been tumbling.

--This is pathetic...Californians just don’t get it. The State Water Resources Control Board approved an emergency conservation plan this week that would cut urban water use by 25%, which Gov. Jerry Brown had mandated April 1 in an executive order, after having urged a voluntary 20% reduction in water use 15 months ago.

For the month of March, however, Californians cut their water consumption by 3.6%, which was actually an improvement from February’s 2.8%. Not exactly 20%-25%.

--On a brighter California topic, tourism there was up 3% last year to a new record, 251 million visitors. According to the state’s tourism agency, visitors spent $117.5 billion and supported more than 1 million jobs. 

Note to those thinking of visiting this fine state...go to both the Nixon and Reagan libraries. If you can only do one...go to Nixon’s. [Just in terms of educational value.]

--JetBlue Airways announced it will introduce a daily flight between New York and Cuba, marking the first major U.S. carrier to do so. Good luck finding toilet paper.

Speaking of toilet paper....sort of...you know what really, really ticks me off? I jog at this wooded park where there are lots of dog walkers. So the dog is supposed to do his thing off the path and the owner is supposed to bag it, but more often than not the owners bag it and then leave the bag on the side. Who is supposed to pick it up?

‘Man’ thus remains No. 298 on the All-Species List. ‘Dog’ is No. 1. [allspecieslist.com]

--The top hedge fund manager, Kenneth Griffin, took home $1.3 billion last year. James H. Simons was next at $1.2 billion, and Ray Dalio of Bridgewater Associates gave his wife $1.1 billion in cash and prizes. [If Mr. Dalio is divorced, I apologize for this statement and offer to serve in his mailroom as penalty for a mere $250,000.]

But, as the New York Times’ Alexandra Stevenson reported, “Only half of the top 10 earners recorded returns that exceeded that of the S&P 500.”

I am not a big proponent of the whole income inequality mantra, but this last bit is beyond absurd and obviously obscene.

You can go back to day one of this column, over 16 years ago, and I have never begrudged the likes of Bill Gates and, back when he was more relevant, Michael Dell, for their wealth. They represent the best of America (even if the former built largely flawed software).

But when it comes to managing money, $1 billion?! Give me a break.

--Former Fed Chief Ben Bernanke is bringing in at least $200,000 per speech, according to Bloomberg, and his two new advisory roles at PIMCO and Citadel (one of the world’s largest hedge funds run by the aforementioned Mr. Griffin), are probably worth more than $1 million each a year. And then there is his book deal, which will no doubt be $5 million+, seeing as Alan Greenspan received a reported $8.5 million.

Editorial / Wall Street Journal

“He’s no longer at the Fed, and there doesn’t appear to be any conflict of interest. It’s not like his wife is a cabinet secretary planning to run for President. And while his new income doesn’t need to be disclosed, we’re guessing the Bernankes still look like the Little Sisters of the Poor compared to the Clintons.

“Mr. Bernanke doesn’t claim to be a journalist, and the Brookings Institution [Ed. where he hangs his hat] doesn’t seem to require that he note his commercial paychecks on his Brookings blog. But any readers tempted to view him as the new financial guru of the blogosphere should take into account his new financial relationships when evaluating his policy and market pronouncements.

“Just because he’s a former Fed chairman doesn’t mean he can’t or won’t talk his book.”

--A Van Gogh painting at Sotheby’s spring auction sold for more than $66 million, tens of millions more than expected. The same painting was sold in 2003 for $12 million. Not a bad return. Like 450%. My friend Jimbo got a behind the scenes look at this auction before it took place...very cool. Thankfully he didn’t pop a shaken beer can next to the Van Gogh.

[Remember Steve Wynn accidentally poking his elbow through a Picasso he was about to sell to Steven Cohen?]

Foreign Affairs

Iran: The Senate voted 98-to-1 for legislation that would establish a 30-day review for a proposed nuclear deal with Iran, with the House likely to approve it next week.

The measure gives Congress a voice as the June 30 deadline for the negotiations nears.

Sen. Bob Corker (R-Tenn.), chairman of the Foreign Relations Committee, said during the debate, “Without this bill, there is no review.”

Some of the conservatives in the Senate, such as Sens. Tom Cotton (Ark.) and Marco Rubio (Fla.) wanted a stronger bill.

In remarks before the vote, New Jersey Democratic Senator Robert Menendez said:

“We cannot risk having no oversight role. And without the passage of this legislation, we will have missed an opportunity to send a clear message to Tehran. So as we near the finish line and hopefully agree to govern as we should, I believe we will ultimately pass legislation without destroying what Senator Corker and I carefully crafted and was passed unanimously out of the Committee.”

But, as the Washington Post’s Jennifer Rubin reported:

“(Menendez) then went on to decry many of the provisions that may wind up in a final deal – affording Iran immediate sanctions relief (‘a signing bonus’), allowing Iran to keep working on advanced research, reliance on the faulty concept of snapback sanctions, the failure to secure anytime/any place inspections, Iran’s refusal to come clean on past military dimensions of the program and excluding terrorism from sanctions consideration. He then told his colleagues what we anticipated, that he is now willing to work across the aisle on more and more limits on the president:

“ ‘And I would say to my colleagues who feel passionately about some of these amendments that they have offered, this isn’t the only bill on which we can consider those things. I stand ready to work with colleagues immediately on pursuing other concerns such as missile technology, such as terrorism, such as their human rights violations, such as their anti-Semitism, such as the Americans who are being held hostage. And to look at either sanctions or enhanced sanctions if they already exist on some of these elements that we should be considering. That is separate and apart from a nuclear program.’

“If Congress succeeds in stopping an awful deal or creating conditions to kill it after the fact, we will look back on this vote as a turning point.”

As for Iranian Supreme Leader Ayatollah Ali Khamenei, he said in a speech that he didn’t approve of any negotiations “under the ghost of a threat,” citing two U.S. officials that he said had threatened a military attack against Iran recently, though he didn’t elaborate and no one knows what he was referring to.

Iraq / Syria / ISIS: The U.S. is training a whopping 90 Syrian opposition fighters with hopes of expanding the program “once it proves itself,” according to Defense Secretary Ashton Carter. Carter called the trainees “highly vetted individuals” when asked about the possibility of these fighters turning on their teachers, as has been the case on occasion in Afghanistan.

Earlier, Sec. Carter said creating a humanitarian safe zone in Syria would entail a “major combat mission” requiring U.S. troops to fight Islamist jihadis and the Assad regime. 

This is infuriating. I called for the safe zone in August of 2012.

“We would need to fight to create such a space and then fight to keep such a space and that’s why it’s a difficult thing to contemplate,” Carter told a Senate subcommittee.

Gen. Martin Dempsey told the same committee that the U.S. has contingency plans for a safe zone, working in consultation with Turkey.

Meanwhile, as the New York Times reported, “there is mounting evidence (the Assad) government is flouting international law to drop jerry-built chlorine bombs on insurgent-held areas.”

So much for the international chemical weapons convention Syria joined less than a year ago.

Separately, Amnesty International and an activist-run monitoring group report barrel bombings have killed at least 3,124 civilians in divided Aleppo from Jan. 2014 to March 2015. The Assad regime has reportedly stepped up its bombardment of Syria’s second city in recent weeks in response to a rebel offensive.

Aleppo lies in ruins and Amnesty said life for civilians there is “increasingly unbearable,” with many forced to eke out an existence underground.

Editorial / Washington Post...regarding the crumbling Assad regime.

“The shift of momentum could create an opportunity for the United States and its allies to leverage the change of rulers in Syria that President Obama first endorsed nearly four years ago. But it could also lead to disaster, if the crumbling regime is replaced by the jihadist forces of the Islamic State or al-Qaeda, as already occurred in eastern Syria. In short, the battlefield developments add new urgency to the need for a coherent U.S. strategy.

“The Obama administration has not even pretended to have a Syria policy since the collapse of its efforts to broker peace talks more than a year ago. Though it is sponsoring military training for a few thousand Syrians [Ed. different situation than the earlier cited 90...but further proof of the inadequacy of it all], the Pentagon won’t commit to defending them if they are attacked by the Assad forces. Mr. Obama continues to turn aside proposals for a safe zone in northern Syria where moderate political forces could organize; he ignores the Assad regime’s renewed usage of chemical weapons such as chlorine gas....

“That’s why a U.S.-backed safe zone, along with an expanded military training program, is needed: not to intervene in the civil war but to make an acceptable solution to it possible. A continued refusal by Mr. Obama to act will only increase the chance that as the Assad regime loses ground, that held by terrorists will expand.”

Finally, the head of the Syrian Observatory for Human Rights said U.S.-led air strikes targeting ISIS instead killed at least 52 civilians in a village in northern Syria. Abdel Rahman said “not a single IS fighter” was killed in the strikes, but that raids on a nearby town had killed at least seven jihadists. [Daily Star]

And ISIS claimed to be behind the attack on a Prophet Muhammad cartoon contest in Garland, Texas that resulted in “two soldiers of the caliphate” being shot to death when a heroic guard took them out after they had fired shots at security on the premises of the civic center where the exhibition was being held.

It’s the first time ISIS claimed responsibility for an attack in the U.S., and the group warned it had far more trained terrorists ready to make moves in at least 15 states.

Saudi Arabia / Yemen: The Wall Street Journal reported there are “widespread public calls” in Saudi Arabia to match Iran’s nuclear quest, with Turkey and Egypt no doubt following suit, according to senior Western and Arab officials.

As Yaroslav Trofimov reports:

“Besides their fears of a nuclear Iran dominating the Middle East one day, they are fretting that the agreement would dramatically tilt the regional balance of power in Tehran’s favor already in the immediate future, especially once the removal of international sanctions revitalizes the Iranian economy and gives it access to more than $100 billion in frozen overseas assets. They also increasingly distrust the U.S., the traditional guarantor of Gulf security.

“ ‘Our allies aren’t listening to us, and this is what is making us extremely nervous,’ said Prince Faisal bin Saud bin Abdulmohsen, a scholar at the King Faisal Center for Research and Islamic Studies in the Saudi capital.

“ ‘If I am basing my judgment on the track record and our experience with Iran, I will say they will do anything in their power to get a nuclear weapon. A delay of 10 years is not going to satiate anything,’ Prince Faisal said.”

In Yemen, Al Qaeda in the Arabian Peninsula announced one of its founding members, Nasser al-Ansi, was killed in a drone strike in April. Al-Ansi’s true importance has always been up for debate...a mere spokesman or key strategist?

In January, it was al-Ansi who claimed AQAP’s responsibility for the Paris attacks on Charlie Hebdo.

In Yemen’s war, fighting killed 120 on Wednesday alone, most of the victims being civilians, as the Houthis took a major part of the port city of Aden. Coalition jets have bombarded the Houthis (the proxy for Iran) in and around Aden.

In Yemen’s far north, coalition airstrikes killed 43 civilians, following the death of five Saudi civilians on Tuesday in mortar and rocket fire, the first such deaths in the kingdom since the campaign began on March 26.

Human Rights Watch claims the Saudi-led coalition is carrying out airstrikes using cluster bombs, which were banned in a treaty signed by 116 countries for the high civilian casualty tolls they can inflict. But the U.S., Saudi Arabia and its coalition partners have not signed the treaty, though U.S. policy forbids exporting them to countries that use them in civilian areas.

According to the United Nations, it is also estimated 80 percent of Yemen’s population is going hungry and at week’s end, the Saudis were proposing a five-day ceasefire to allow humanitarian aid to get in.

Israel: It wasn’t supposed to be this difficult, but at literally the last hour, Prime Minister Benjamin Netanyahu struck a deal with Bayit Yehudi (Jewish Home) to complete the formation of his coalition government.

Bayit Yehudi’s leader, Naftali Bennett, received the education ministry post, as well the posts of justice minister, agriculture and deputy defense minister, according to a party statement.

But Netanyahu only has 61 seats in Israel’s 120-seat Knesset, leaving him zero margin for error. The defection of just two seats would bring down the government.

The 61 (Likud accounting for 30) represent a totally far-right government, which no doubt will clash continuously with the U.S. and Europe over its policies.

Netanyahu also lost his foreign minister and longtime ally, Avigdor Lieberman, who resigned his post over Netanyahu’s failure to advance settlement expansion and for not fighting Hamas in Gaza. The move deprived Netanyahu of six seats.

As for Palestinian statehood, Jewish Home is against the establishment of a Palestinian state.

Afghanistan: Since the U.S. combat mission here officially ended in December, Afghan security forces are suffering record casualties in their battles against the Taliban, with the number of killed and wounded so far this year up 70 percent over the same period last year. [4,950 Afghan army and police personnel in the first 15 weeks of 2015 against 2,900 in 2014.]

Russia: Moscow’s big Victory over Europe celebration is Saturday, the 70th anniversary of the end of World War II (actually May 8). But of the 68 invitations the Kremlin sent out to heads of state for the three days of celebration, less than 30 have confirmed and even fewer will attend the huge military parade.

The most prominent guest for Saturday’s event through Red Square will be Chinese President Xi Jinping, as the two nations strengthen military ties. Chinese troops will be among the foreign soldiers taking part in the parade.

Xi wrote in an article in state-owned Rossiskaya Gazeta on Thursday:

“The Chinese people and the Russian people are great peoples. In years of woe and hardship our inviolable military friendship was strengthened by blood. Today, the peoples of China and Russia will hand-in-hand, shoulder-to-shoulder facilitate development and contribute to the securing of a stable peace in the world and the progress of all humanity.”

Moscow announced the first ever joint exercises between Russian and Chinese naval units will take place in the Mediterranean Sea from May 11.

German Chancellor Angela Merkel is attending Sunday’s events and will lay a wreath at the Tomb of the Unknown Soldier and hold talks with Putin.

Meanwhile, NATO countries are staging massive air, land and sea exercises across Russia’s northern borders in response to Putin’s various threats, including of the nuclear variety. As the Los Angeles Times’ Carol J. Williams reports, more than 21,000 troops are involved in exercises in Estonia, Lithuania and Norway. Additionally, the U.S. is training Ukrainian forces and there is a 3,000-strong rapid-reaction force for Eastern Europe.

“Dmitri Trenin, director of the Carnegie Moscow Center, said he fears Putin has so effectively cast himself as all that stands in the way of Russia being vanquished by NATO that any perceived setback at the hands of the U.S.-led alliance could provoke him to play the nuclear card.

“ ‘He can’t afford to lose Donbas,’ Trenin said of Putin’s ill-disguised backing of pro-Russia separatists in eastern Ukraine’s Don River basin. ‘At some point Mr. Putin might go for a nuclear strike, demonstrating that he is prepared to do what needs to be done.’” [Carol Williams]

Editorial / The Economist

“Russia’s virtual war games have real consequences. Alexei Levinson, a sociologist, writes that ‘under this light moral anesthetic, the country is getting used to actions which only a short while ago seemed unthinkable and impossible.’ Opinion polls show that 90% of Russians are prepared to discuss the possibility of nuclear war. While 57% of older Russians say that such a war cannot have any winners, 40% of younger people are convinced that Russia would defeat America and NATO. As Mr. Levinson puts it, ‘A real war starts to look like a TV show or a computer game in which you have ten lives in reserve.’”

On a different matter, President Putin signed legislation that will increase tenfold the maximum fine that can be levied on Russian news organizations accused of inciting extremism, raising fears of increased pressure on the remaining independent media outlets.

A key is the lack of clarity over the legal definition of extremism, which means it is open to abuse.

Separately, Russia’s Central Bank announced the net outflow of capital from Russia reached $32.6 billion during the first quarter of 2015, with the bank forecasting the total may reach $131 billion by the end of the year. The Central Bank also revised the figure for 2014 up to $154.1 billion.

On the Ukraine front, officials in Kiev claim, “Militants have ratcheted up their activities over the past 24 hours, breaking the cease-fire 95 times,” a military spokesman said on Monday.

China: In a meeting with the head of Taiwan’s ruling Nationalist Party in Beijing, Chinese President Xi reaffirmed his nation’s support for closer cross-strait economic links.

The meeting with Eric Chu, chairman of the Nationalist Party, or Kuomintang (KMT), was the highest-level talks in six years between leaders of the two parties.

But such talks hurt the KMT back home and it has been losing support over voters’ misgivings that their government’s courting of better ties will hurt Taiwan’s economy.

On a different issue, an editorial in The Economist commented on China’s reclamation project in the South China Sea.

“Security is not the only concern... the environment is also under threat. Like the Mediterranean, the sea is shallow and largely enclosed. An ecological catastrophe is taking place, as reclamation destroys reefs, agricultural and industrial run-off poisons the water and overfishing depletes fish stocks. The littoral states ought to be working together to manage the sea, but the dispute over sovereignty fosters the fear that any collaboration will be taken as a concession.

“If they are to save the sea, the regional states must urgently put aside their differences. Indeed, if they could only cooperate over the environment, they might just find the territorial disputes easier to settle, too.”

France: I didn’t have a chance to comment on last Friday’s annual May Day rally for the National Front party in Paris in last week’s review as few details were available at the time. But it was a year ago I attended this event and wrote of the conflicts between party leader Marine Le Pen and her father, Jean-Marie, whom Marine has been attempting to kick out of the party because he is an old fool who is hurting the brand.

Well, this year he showed up, uninvited, as Marine prepared to address supporters at the Place de L’Opera. He took to the stage, waved for several minutes, and then exited without a glance at his daughter. What an a-hole. [There were also three topless ‘Femen’ activists who found their way onto the balcony for a spell.]

The next day, Saturday, Marine said of her father’s appearance, “It was malicious and contemptuous towards me,” as the party prepares sanctions against the FN founder for his comments on Nazi gas chambers in April.

Monday, Marine suspended Jean-Marie’s party membership and took away his honorary chairmanship title. Jean-Marie called his daughter’s decision a “felony.”

Ah, but waiting in the wings to take up Jean-Marie’s mantel is his 25-year-old niece, Marion Marechal-Le Pen, who is close to her grandfather (and rather comely). More family fights to come.

Germany: Alison Smale / New York Times:

“About 18 months ago, Chancellor Angela Merkel was the wronged American ally whose cellphone number was among data sucked up by American intelligence as it kept watch on Europeans.

“ ‘Spying among friends – that is simply not done,’ she said after the discovery in autumn 2013, to a sympathetic domestic audience.

“Within the past two weeks, the tide has turned. Ms. Merkel is back in the spotlight over spying. This time it is Germany’s foreign intelligence service, known here as the B.N.D., that is being accused of monitoring European companies and perhaps individuals. Further, the reports said the spying was done at the behest of the National Security Agency, the United States intelligence organization.

“Critics have seized on the spying allegations, sensing a whiff of hypocrisy emanating from Berlin, given the German outrage over the American program.”

Ya think?

Back to France, their parliament passed a new law that gives intelligence services sweeping new powers, including the legal authority to collect massive amounts of metadata from the Internet, which critics say is a mass intrusion of privacy.

But the law passed 438 to 86 and had the support of the governing Socialists and the opposition center-right.

And I might as well follow-up on the French parliament vote by noting a U.S. Circuit court of Appeals, based in New York, said the NSA does not have legal authority to secretly collect and store data on all U.S. telephone calls. With its unanimous decision, the 2nd Circuit called the highly classified surveillance program “an unprecedented contraction of the privacy expectations of all Americans.”

Sen. Ron Wyden (D-Ore.), an outspoken critic of the NSA’s programs, said, “This dragnet surveillance program violates the law and tramples on Americans’ privacy rights without making our country any safer.”

But the three-judge panel’s decision is not binding and the court agreed to let Congress decide whether to end or replace the program in the coming weeks.

So it was metadata week around the world.

Nigeria: The government has made a number of claims the past few weeks that it is making real progress in the war against Boko Haram, including the release of nearly 500 hostages from the group’s stronghold.

Amnesty International said the terrorists have seized about 2,000 women and girls since the start of last year, while a spokesman for Amnesty warned that while the rescues were “cause for celebration...This is just the tip of the iceberg. There are thousands more women and girls, and men and boys, who have been abducted by Boko Haram.”

None of the girls rescued thus far appear to be from the group of nearly 300 Chibok schoolgirls kidnapped by Boko Harma a year ago that led to worldwide protests calling for their release.

Libya: Italian coast guard vessels rescued 3,690 migrants from Libya in just one day, Saturday...one of the highest numbers ever recorded in a single day, with a total of 6,000 plucked from the boats over the weekend.

Calmer seas in the summer are expected to push total arrivals in Italy for 2015 to 200,000, an increase of 30,000 on last year. [Irish Independent]

Random Musings

--Mike Huckabee, Carly Fiorina and Ben Carson formally joined the Republican presidential race this week.

--According to the latest New York Times/CBS News poll, the number of Americans who think Hillary Clinton has strong qualities of leadership has risen by eight percentage points, to 65% from 57%. Just 48% of Americans say Clinton is honest and trustworthy. 52% of Democrats said they knew nothing or very little about the Clinton Foundation. [Take away their right to vote.]

As the Times poll adds, Hillary is helped by the enduring popularity of Bill Clinton: 76% of Democrats have a favorable view of him, vs. just 4% who view him unfavorably.

On the Republican side, 73% of Republican voters said they preferred candidates with experience outside Washington, a help for Jeb Bush.

In a Wall Street Journal/NBC News poll, the share of people with a negative view of Hillary Clinton jumped to 42% from 36% in last month’s survey, and only a quarter of registered voters said they viewed her as honest and straightforward, down from 38% last summer.

But 76% of Democrats view her favorably in this one.

On the Republican side, Jeb Bush drew the most support among GOP primary voters, with 23% naming him their top choice. Marco Rubio is next at 18%, Scott Walker 14%, and Rand Paul and Ted Cruz both garnered 11%.

But when Republicans were asked whether they could see themselves supporting each of the top GOP contenders, 74% said yes to Rubio – more than Bush, with 70%. This is up from the 56% who said they could see themselves supporting Rubio back in March. Interesting.

In potential matchups, Clinton tops Bush and Rubio by 49% to 43%, Walker by 50-40, but Rand Paul comes closest, trailing Clinton just 47-44.

--A Quinnipiac University poll of likely Republican caucusgoers in Iowa has Scott Walker holding onto his early lead at 21%, with Marco Rubio and Rand Paul at 13%, Ted Cruz at 12% and Mike Huckabee at 11%. Jeb Bush picks up just 5%. Chris Christie and Rick Perry receive only 3% apiece. Perry needs to see the handwriting on the wall.

--Kyle Smith / New York Post

“The Clintons have been playing the political press for idiots.

“Revealing what they’ve been up to took a little bit of work. It wasn’t obvious. While Bill Clinton was giving a speech about fighting AIDS in Africa, or about educating girls in Asia, reporters simply regurgitated the press release. They didn’t ask: Who’s that shady guy standing next to Bill?  What are his interests? How much money has he given to, or raised for, Bill, Hillary and their foundation? And what favorable treatment did the shady guy subsequently receive from Hillary?

“When you’re a political reporter, complexity is boring. Curiosity takes work. Asking questions and looking up information can lead to dead ends....

“Thank goodness, then, for Peter Schweizer and his blockbuster expose ‘Clinton Cash: The Untold Story of How and Why Foreign Governments and Businesses Helped Make Bill and Hillary Rich.’ (Very rich: The pair have made at least $136.5 million since 2001).

“The details of the Clinton operation vary, but the overall M.O. is fairly consistent, he writes.

“One: Dodgy rich businessman, often a foreigner in the middle of a mega-deal in some corrupt country, possibly one run by a dictator, writes a check that buys him the status of friend of Bill Clinton (FOB). The check is payable to the Clinton Foundation or to Bill himself, as an honorarium for a meaningless idealistic speech that is essentially a homily at a whorehouse.

“Two: When the cameras are turned off, Bill receives ultra-luxurious travel on someone else’s dime and attends a lavish party in his honor held by some dictator or shady businessman connected to the new FOB. Talks go on behind closed doors.

“Three: Millions of dollars of donations start flowing into the Clinton Foundation from the FOB and associates.

“Fourth: Potential roadblocks to the deal in the Senate or the State Department melt away. The business deal goes through. The new Clinton friend gets very, very rich.

“Fifth: Hillary forgets to disclose these donations.

“Six: The press doesn’t notice what just happened.”

--The Star-Ledger’s Tom Moran on Chris Christie:

“He is a bully who yells at little people who can’t fight back during town halls. He uses his power without restraint, as when he defied the Supreme Court over affordable housing. He lies as a matter of routine for political gain, as when he recently accused Democrats of shorting the pension fund in this year’s budget.

“And he brushes past ethical restraints, gorging on luxurious gifts from his so-called ‘friends’ like the King of Jordan, and Jerry Jones, the owner of the Dallas Cowboys.

“It’s no shock that his staffers, eager to please him, embraced his frat-boy style, and then went overboard.

“Friday’s events [Ed. May 1] probably won’t change many minds. There was no bombshell. And (U.S. Attorney Paul) Fishman said that nothing prosecutors presented should be seen as implicating Christie, or clearing him.

“But this isn’t over, not by a long shot.

“Fishman was asked about that, too, at his news conference. Here’s what he said: ‘It’s like the end of Downtown Abbey.   You’ve got to wait for a whole ‘nother season.’

“When this scandal broke, Christie was flying toward the sun, triumphant at home and the hottest property in the national Republican Party. Bridgegate will be remembered as the scandal that took him down.

“And the bad news for him is that it’s not over yet, no matter how much he tries to wish it away.”

Editorial / New York Post

“(Former Port Authority official David) Wildstein implicated Bridget Anne Kelly, whom Christie fired as his deputy chief of staff the instant he was made aware of the basic evidence of her involvement, and Bill Baroni, former deputy executive director of the Port Authority.

“Both were linked to the scandal from the start, though each denies the charges.

“The one new detail does make the whole thing look even worse: The plotters had put off the plan to close the lanes, snarling Fort Lee Traffic, for months; they deliberately timed the chaos for the first day of school.

“That has all sorts of implications about the folks Christie chose to trust.

“It also makes us wonder why they thought they could – and should – do this and get away with it, when Christie built his whole political name by fighting the abuse of power for petty political purposes.

“It’s not only risky to act counter to your boss’s ‘brand,’ it’s stupid.”

--Editorial / Wall Street Journal

“A federal prosecutor handed up indictments Friday (May 1) in New Jersey’s bridge-closure scandal after a 16-month probe. Gov. Chris Christie wasn’t implicated, but the investigation has damaged his political standing. Many pundits say the bridge closure by aides to punish a political opponent should disqualify Mr. Christie from running for President, though there’s no evidence he knew what his aides were doing.

“Voters can make up their own mind, but this also raises the ripe question of disparate political treatment. Specifically, is anyone at Justice or the FBI investigating the Clinton Foundation and Hillary Clinton for accepting foreign donations while she was Secretary of State? The risk of quid-pro-quo corruption involving U.S. foreign policy would seem to be at least as important as commuter inconvenience at the George Washington Bridge....

“The Clinton Foundation agreed with the Obama White House not to accept donations from foreign governments while Mrs. Clinton was secretary. But we now know there were exceptions, and that donors during that period included Qatar, Oman and Kuwait. They also included a $500,000 donation from the Algerian government – which the foundation failed to have reviewed by State – while Algeria was lobbying State to ease its criticism of its human-rights record....

“At least 60 companies that lobbied the State Department during her tenure donated a total of more than $26 million to the Clinton Foundation, according to the Journal’s analysis of public and foundation disclosures.

“The foundation and the Clintons insist there isn’t a ‘shred’ of evidence that these actions were illegal, but the facts certainly would seem to warrant an investigation. All the more so given that Mrs. Clinton has admitted erasing emails from her tenure at State that she kept on her personal server.

“The FBI spent years investigating New Jersey Sen. Bob Menendez on accusations that he did government favors for a friend in return for Super PAC donations and plane trips. The Senator has been indicted on charges that this was a quid pro quo, yet Mr. Menendez failed to get the government to change a Medicare reimbursement rule. The Canadian mining donors got what they wanted....

“The Justice Department and FBI are suffering from declining public esteem because their prosecutions seem to be heavily influenced by politics. Giving the Clintons a pass on their foreign donors while investigating Mr. Christie for months shows a political double standard in operation.”

--A new Wall Street Journal/NBC 4 New York/Marist poll reveals 49% of New York City voters believe the city is moving in the wrong direction, vs. 45% who believe things are moving in the right direction; the first time since November 2013, that the bloc of voters think the city is on the right track dipped below 50%.

57% believe the overall quality of life in the city has either gotten worse or remained the same during the past year or so, which they characterized as a bad thing. Fewer than one in five voters say quality of life has improved.

Mayor Bill de Blasio’s overall approval rating rose to 44%, however, compared with 39% in March 2014.

But then you have the divisions along racial lines: 66% of black voters and 58% of Latino voters say de Blasio deserves to be re-elected, while 28% of white voters say he does.

--And de Blasio has a new mess on his hands, another of his own making, as he submitted a $78.3 billion budget that offers millions to fight homelessness and aid for struggling schools, but zero for new police officers that NYPD Commissioner Bill Bratton and many members of the City Council want. Both are seeking 1,000 new officers.

De Blasio said they aren’t necessary because arrests are way down, such as in the stop-and-frisk policy. Crime, though, is up.

--New York state’s most powerful Republican official, Senate Majority Leader Dean Skelos, was indicted on charges including extortion and soliciting bribes in relation to the rewarding of a $12 million contract to a company that hired his son, Adam. Evidence was obtained through extensive court-authorized wiretaps on cellphones by father and son.

Four months earlier, former Assembly Speaker Sheldon Silver, D-Manhattan, was nailed for accepting nearly $4 million in payoffs, though he maintains his innocence and is retaining his seat while he fights the charges.

U.S. Attorney Preet Bharara said the charges are further proof of just how widespread corruption is in New York state.

Both the Skelos and Silver cases involve real estate interests and the acceptance of funds from developers.

--Former House Speaker Jim Wright (D-Tex.) died. He was 92. Wright was a powerful figure brought down by an ethics investigation that forced his resignation in 1989.

--Andreas Lubitz, the co-pilot of the Germanwings plane that crashed in the French Alps in March, was practicing a rapid descent on a previous flight, according to a report by French investigators. Lubitz repeatedly set the same plane for an unauthorized rapid descent earlier that same day, specifically on the outbound leg of the flight – from Duesseldorf to Barcelona.

Lubitz reset the altitude dial to 100-feet, the lowest possible reading, and then once up to 49,000, the maximum altitude, with the changes occurring over a five-minute period when the captain left the cockpit.

The reason why the passengers and captain wouldn’t have noticed anything was wrong is because all Lubitz was doing was twisting a dial on a computer in front of him and it wouldn’t have directly impacted the actual altitude.

And it’s why the pilot, the same pilot for the ill-fated leg later, wouldn’t have noticed anything strange about Lubitz’s behavior.

--According to the above-referenced Wall Street Journal/NBC News poll, a whopping 96% of adults surveyed said it was likely there would be additional racial disturbances this summer, in light of the problems in Baltimore. But there are differences in how blacks and whites viewed the situation there.

60% of blacks said they reflected “long-standing frustrations about police mistreatment of African Americans.” Some 27% of black respondents said the disturbances were caused by people who used protests over an African American man dying in police custody “as an excuse to engage in looting and violence.”

But among whites, the balance of opinion flipped: 58% said people were seizing an excuse to loot, while 32% said the events reflected long-standing frustrations with police.

--The Justice Department will investigate whether the Baltimore Police Department has engaged in a pattern of misbehavior.   The announcement was made a day after Mayor Stephanie Rawlings-Blake requested the inquiry.

But the criminal case against six officers involved in the arrest of Freddie Gray is apparently falling apart, with a key issue being the knife. The state’s attorney said it wasn’t illegal, which meant the arrest was illegal, but the police department’s own investigation disputes this.

--Contrary to what supporters of the Affordable Care Act thought would be the case, emergency-room visits continue to climb.

The American College of Emergency Physicians released a survey on Monday and it found that ERs are seeing sicker patients: “About 90% of the doctors polled said the severity of illness has stayed the same or gotten worse. That might be explained in part by an aging population, newly insured people with multiple maladies, and people delaying care because they have high-deductible insurance plans.”

“Nicholas Vasquez, a medical director for an emergency department in Mesa, Ariz., said volume rose 5% in a year, representing about 10 more patients a day. The stress from bigger caseloads prompted some nurses to resign, he said. ‘Physicians are working more shifts – that pushes them a lot,’ Dr. Vasquez said. ‘If they work too much, they get burnt out. For patients, it means longer waits.’” [Stephanie Armour / Wall Street Journal]

--Ann Lukits / Wall Street Journal

“Maple syrup may help fight disease-causing bacteria, including antibiotic-resistant strains that often grow in health-care settings, says a study published online in Applied and Environmental Microbiology.

“Concentrated extracts of maple syrup combined with antibiotics significantly reduced the growth of four common bacterial strains and bacterial communities called biofilms, the study found.

“Bacterial biofilms accumulate on medical surfaces and devices, such as catheters and artificial joints, and are responsible for many antibiotic-resistant hospital infections, research has shown....

“Maple syrup contains plant-based compounds called phenols that have exhibited antioxidant and anti-cancer properties in previous studies, according to researchers. Maple syrup may reduce the dose of antibiotics needed to kill biofilms, they said.”

Kind of gives me a hankering for IHOP.

--Even your editor marveled...how the heck did Kate Middleton look so awesome less than 10 hours after giving birth?!

--Sign of the Apocalypse: A West Orange, N.J., woman is suing United Airlines for $5 million because she says the airline failed to properly inform passengers that live television and Internet service aren’t available on all flights.

Cary M. David filed the $5m class action suit alleging United didn’t notify passengers that WiFi and DirecTV are inoperable when the flight is outside the continental U.S. or flying above a body of water.

David paid $7.99 to order DirecTV on a four-hour flight from San Juan, Puerto Rico to Newark, but says the satellite television service only operated for the final 10 minutes of the flight.

United said the information about when the services aren’t available are shown on a seat-back monitor before customers confirm their purchases. [NJ.com]

--Finally, we note the death of New York City police officer Brian Moore, 25, who died a few days after being shot in the face last Saturday as he approached an armed man on a Queens street. Moore and his partner were patrolling in an unmarked car when they observed a man adjusting his waistband and suspected he was armed. When they pulled up behind to question him, the man turned and fired at the car, striking Moore. Soon after, a 35-year-old career criminal was arrested.

---

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

God bless America.
---

Oil closed at $59.39...up 8 weeks in a row
Gold $1188

Returns for the week 5/4-5/8

Dow Jones +0.9% [18191]
S&P 500 +0.4% [2116]
S&P MidCap +0.3%
Russell 2000 +0.6%
Nasdaq -0.04% [5003]

Returns for the period 1/1/15-6/8/15

Dow Jones +2.1%
S&P 500 +2.8%
S&P MidCap +4.6%
Russell 2000 +2.5%
Nasdaq +5.6%

Bulls 52.5
Bears 13.9 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Happy Mother’s Day!

Brian Trumbore