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

 

Week in Review

http://www.gofundme.com/s3h2w8

AddThis Feed Button

   

05/02/2015

For the week 4/27-5/1

[Posted 12:00 AM ET]

Edition 838

Washington and Wall Street

Once again a bad winter in parts of the U.S. did a number on economic activity, as the Commerce Department’s release of first-quarter GDP showed a whopping rise of 0.2%.

So here is a look at the last five quarters.

2014 (seasonally adjusted annualized rates)

Q1 -2.1
Q2 4.6
Q3 5.0
Q4 2.2

2015

Q1 0.2

What’s interesting is that as the Wall Street Journal’s Jon Hilsenrath and Jeffrey Sparshott pointed out, “Since 2010, first-quarter GDP growth has averaged 0.6% while all other quarters are 2.9%.  That stop-and-start pattern has forced Fed officials to regularly second-guess their own economic forecasts.”

The Fed happened to hold one of its Open Market Committee confabs this week and in its statement said in part: “Economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady.”

But the Fed sought to look beyond the “transitory factors” and notes that other items, such as household income and confidence, were rising and growth should resume at a solid pace beginning with the current quarter.

As for the highly anticipated first rate increase, the Fed made it clear it could hike rates at any moment, including at the next meeting in June, for instance, if the data quickly improved.

After March’s punk jobs report, for example, the Fed could move sooner than later if the figures for April and May rebounded back over 250,000. And if consumer spending picked up after a soft first quarter relative to the fourth the Fed may be moved to act.

You also have one of the Fed’s favorite inflation indicators, the Employment Cost Index, which we learned this week rose 0.7% in the first quarter and is now up 2.6% year over year, above the Fed’s 2% target and up from 2.2% in Q3/Q4.

Meanwhile, kudos to the Atlanta Fed’s GDPNow tracker, which aggregates “statistical model forecasts” of 13 components that make up growth. This model, refreshed five or six times a month, had GDP rising 0.1% on April 24. The consensus of economists surveyed by Bloomberg had 1%. 

Just a few other economic items of note. March personal income was unchanged when it was forecast to rise 0.3%, while consumption was basically in line, up 0.4%. March construction spending was down 0.6% when a gain of 0.4% was expected. The Chicago PMI for April was a better than expected 52.3, while the national ISM reading on manufacturing was just 51.5, the lowest since May 2013. 

On the housing front, the S&P/Case-Shiller 20-city index showed prices in February rose a strong 0.9% over January and were up 5.0% year over year, the best pace since last summer.

Finally, one thing this past week proved was my dictum, ‘wait 24 hours.’ Think Baltimore.

And then there was the tragedy in Nepal. There is really little for me to write about when it comes to disasters like this, a massive 7.8 magnitude earthquake that has now claimed over 6,000 lives with a final toll that could approach 15,000. An already impoverished nation is even more so today, especially considering its main source of revenue, tourism, is dead for at least a year with Mount Everest shut down for the second time in two seasons.

Europe and Asia

The week started with Greece reshuffling its bailout-negotiating team as Finance Minister Yanis Varoufakis was reined in after three months of failed talks with creditors on receiving further bailout aid.

Coordination of day-to-day efforts fell on Deputy Foreign Minister Euclid Tsakalotos, while Varoufakis will supervise political negotiations with euro-area member states and the International Monetary Fund.

The changes came as two opinion polls from last weekend showed the Greek people were continuing to lose faith in the new government, with more than half (78 percent) urging compromise with the euro area and IMF because the people want to remain in the euro.

Prime Minister Alexis Tsipras warned he would hold a referendum if international creditors insisted on a “vicious circle of austerity” to unlock further bailout money, saying: “We should not give in to panic moves. Whoever gets scared in this game loses.”

To which Jeroen Dijsselbloem, the Dutch finance minister who is head of the eurogroup that is leading the negotiations with Greece, said the Greeks don’t have time for a referendum, plus it would create great uncertainty. Greece also doesn’t have the money to hold it, while 62 percent of Greeks in one of the opinion polls are against a vote.

Tsipras ruled out defaulting on a 750m euro loan repayment to the IMF on May 12 even as his government struggled to meet pension payments at the end of the week. The main state social security fund, for example, IKA, “delayed pension payments by almost eight hours on Tuesday.” [Financial Times]

But at weeks’ end there was some optimism a preliminary deal could be reached on Sunday, May 3, with the aim of having eurogroup finance ministers sign off on it at a May 11 meeting, though few really believe this is possible. Which leaves that May 12 IMF payment.

The European Central Bank did say it could help Greece ward off any temporary cash crunches if there was “an agreement in sight” with creditors, such as in allowing Greece to issue more than the current $16.7 billion in treasury bills it is limited to.

But when you add up all the above, at least the bond market is more optimistic as the yield on the Greek 10-year fell from 13.20% to 10.23% by Friday, a little sign of confidence.

Speaking of bonds, the yield on the German 10-year Bund, which money manager Bill Gross had labeled the “short of a lifetime,” shot up to 0.38% before finishing the week at 0.37%, up from about 0.05%, intraday, just two weeks ago. Euro stock markets largely fell in April, including a 4 percent decline in Germany, as euphoria over quantitative easing (QE) melted away when investors started looking at the fundamentals. As noted below, the eurozone’s recovery is just not that great and serious issues, such as unemployment, remain.

Plus the euro currency began appreciating and that’s not good for exporters, while the first-quarter growth figure out of the U.S. spoke of weaker global demand for euro products.

It’s complicated when it comes to the euro bond market. Well, to some of us, not that complicated. I told you long before Bill Gross that the bond rally was beyond insane, though I continue to focus on Italy and Spain. And as spelled out below, the inflation data is improving, which is hardly good for bonds in the long run.

So a reminder of the yield on March 6, the Friday before QE was launched by the European Central Bank, and the closing yield on Friday, May 1.

Germany 0.39% (3/6)...0.37% (5/1)
France 0.69%...0.64%
Italy 1.31%...1.43%
Spain 1.29%...1.39%
Portugal 1.74%...2.04%

Yes, these are hardly dramatic moves when looking at the nearly two months, but the point is the rally off QE is already over, and that creates tremendous uncertainty.

As for the latest economic releases, a flash estimate for April inflation for the euro area had it at an annualized rate of 0.0%, better than -0.1% in March and -0.6% in January. So this is encouraging, but, again, not good for bonds if the trend continues.

On the unemployment front, the rate for the eurozone in March was 11.3%, unchanged from February and down only slightly from the March 2014 figure of 11.7%. [Reminder...the U.S. is at 5.5%.]

Greece is still at 25.7% (Jan.), while Spain is 23.0% (down from 25.1% year over year).

Italy’s rate has risen to 13.0% from 12.4%, yoy, while France’s is 10.6% from 10.1%, yoy.

And you still have youth unemployment rates of 50.1% in both Greece (Jan.) and Spain, while Italy’s is 43.1% and Portugal’s is 33.8%.

No wonder you saw such violent May Day protests in the likes of Milan today.

One other item on France...consumer spending fell 0.6% in March over February.

But the news in Spain, aside from the employment situation, is improving. The government is now forecasting GDP growth of 2.9% this year, with the first-quarter figure coming in this week at 0.9% over the fourth quarter. [GDP in 2014 rose 1.4% after five years of recession or no growth.] Retail sales rose 3.7% year over year in March.

But for all the good news, Prime Minister Mariano Rajoy’s party, facing national elections this year, would receive only 22%, half of what it polled in 2011, though it maintains a slight lead over three rivals.

Speaking of elections, all eyes are on Britain, which holds its big vote this Thursday, May 7, and in a race that has been too close to call from the beginning, neither the ruling Conservatives (Tories) or Labour is going to get an outright majority, though it’s felt Labour will have a better chance of forming a coalition.

Prime Minister David Cameron had promised to renegotiate Britain’s relationship with the European Union and hold an in/out referendum before the end of 2017, but this was contingent on him winning a second term.

And in these final weeks, Cameron, whose campaign has been built on the solid economic recovery in the U.K., received some bad news when first-quarter GDP rose a less than expected 0.3%, 1.2% annualized, according to the Office for National Statistics, which is the weakest figure in more than two years. [Q4 was up 0.6%.] Plus the April manufacturing PMI was a less than expected 51.9 (vs. 54.0 in March), though at least manufacturing has been in a growth mode, above 50, for over two years. Nonetheless, Cameron’s opponents can talk of a ‘slowing economy.’

Turning to Asia, Japanese Prime Minister Shinzo Abe was in the United States for a state visit, becoming the first prime minister since the end of World War II to address a joint session of Congress. Abe was greeted warmly by President Obama and while security issues were on the agenda, including Abe’s quest to build up Japan’s military capacity, the Trans-Pacific Partnership, TPP, a major trade agreement, was also on the table.

Congressman Paul Ryan (Rep.-Wis.) / Washington Post

“The TPP would tear down trade barriers that block U.S. exports to many Asian markets. This is a big opportunity for the United States. By 2030, Asia’s middle class will have grown to 3.2 billion people. That’s more than 10 times the projected size of North America’s middle class. If we want to create more jobs in the United States, we need to make more things in the United States and sell them overseas – to Asia, especially.

“But Japan may need the TPP even more than we do. In the past 20 years, its economic growth has been close to nil, for a number of reasons: an aging population, a shrinking workforce and a rigid, overregulated economy. When he ran for office, Abe promised to slay this stagnation with the ‘three arrows’ of his platform, now known as ‘Abenomics’: fiscal stimulus, monetary expansion and structural reform.

“Abe has kept his promises – mostly....but the structural reform Abe promised has been slow to arrive. And no surprise, the lack of reform has meant a lack of results....

“Luckily, a solution is within reach: the TPP. This high-standard agreement will require all member countries to dismantle many of the trade barriers that hobble their economies. Japan is a prime example. The country lays huge tariffs on American foodstuffs and erects all sorts of barriers to keep out American autos; some tariffs can exceed 700 percent. Japan lobbied hard to join the TPP talks but still hasn’t committed to eliminating these barriers....

“Completing the TPP would strengthen Japan’s economy and its national security. The U.S.-Japan alliance is the hub of the Asia-Pacific order. The United States has pledged to defend Japan in case of attack, and in exchange, Japan allows the United States to station roughly 50,000 troops on its islands. As a result, U.S. forces can maneuver throughout the region, protecting sea lanes and maintaining order.

“A rising China is trying to test the boundaries of that order by asserting control over disputed territory and pressuring its neighbors to grant special privileges to its products. In fact, China is negotiating trade agreements all over the world and trying to rig the rules in its favor....

“If the United States and Japan lock arms, we can resist China’s bullying and reassert leadership in the Asia-Pacific....

“The United States is waiting. The world is watching. And for both countries, the opportunity is huge. Shinzo Abe is a once-in-a-generation leader with a once-in-a-generation opportunity. He put it best when he said, ‘Without action, there can be no growth.’ I can think of no better reason to drop the trade barriers and complete the TPP.”

Thomas L. Friedman / New York Times

“With rising disorder in the Middle East and Africa – and with China and Russia trying to tug the world their way – there has never been a more important time for the coalition of free-market democracies and democratizing states that are the core of the World of Order to come together and establish the best rules for global integration for the 21st century, including appropriate trade, labor and environmental standards. These agreements would both strengthen and more closely integrate the market-based, rule-of-law-based democratic and democratizing nations that form the backbone of the World of Order.”

Japan did report some important data this week. The manufacturing PMI for April fell to 49.9, the worst since July 2014, while core inflation in April rose 0.2%, up from zero in February. Vehicle sales rose 5% in April year over year, and the unemployment rate fell to 3.4%.

Add it all up and Bank of Japan Gov. Kuroda said no further easing of monetary policy was needed, though the BoJ cut its forecast for Fiscal 2015 core inflation to 0.8% from an earlier estimate of 1.0%, while maintaining its target of 2% by sometime in 2016.

In China, the People’s Bank of China is planning a QE type program, purchasing local government debt as another way to stimulate the economy. Thus far it has cut the key lending rate twice and lowered bank reserve requirement ratios.

Profits earned by Chinese industrial firms were down 2.7% in the first quarter, year over year.

The other week the government announced the economy grew at the targeted 7% pace, though no one believes this number. The Wall Street Journal had a report on Monday whereby Citibank says the actual rate is 6%,   But Capital Economics pegs growth at 4.9%, and Lombard Street Research says Q1 was more like 3.8%.

Finally, the Washington Post’s Robert Samuelson had some interesting thoughts on China.

“No country can be a global power without an engineering and scientific base. It’s necessary to run modern factories, develop new products, analyze and deal with complex social problems – pollution, food safety, sickness and disease – and (if the country chooses) to build and project military might. China’s rise to power once again confirms this truism.

“It is a stunning reversal. During the Cultural Revolution (1966-76) – Mao Zedong’s grisly effort to purify the Communist Party by banishing millions of Chinese to the countryside – China repudiated modern science. It effectively shut many universities....The ban on graduate students lasted until 1977.

“Since then, China has been on a science and technology tear, as a new study by Harvard economists Richard Freeman and Wei Huang shows....

“From being a ‘bit player’ in research and development, China now spends more on R&D than any other country except the United States. In 2011, China’s R&D totaled $208 billion compared with $429 billion for the United States and $147 billion for Japan, says the National Science Foundation. However, the entire European Union (about $300 billion) topped China.

“The pool of scientists and engineers has exploded. From 1990 to 2012, the number of bachelor’s degrees awarded to science and engineering graduates rose from 148,886 to 1,258,643. (These figures exclude students who receive technical degrees and typically graduate in two or three years.) Large gains have also occurred for higher degrees. From 1990 to 2012, the number of scientific and engineering PhDs jumped from 1,626 to 27,652.

“China’s share of worldwide scientific papers has increased dramatically, from 6,285 in 1990 (1.2 percent of the global total) to 116,633 (13.7 percent) in 2012. The United States remains the leader, however. It accounted for 30.8 percent of worldwide papers in 2012, down slightly from 32.5 percent in 1990.

“ ‘China’s leap forward in science and engineering,’ write Freeman and Huang, ‘is one of the defining events in modern intellectual history.’....

“All this bodes well, say Freeman and Huang. Global knowledge will ‘advance more rapidly than if China had remained a scientific backwater.’ Everyone benefits. Scientific collaboration could spill over into broader ‘cooperative relations between the two countries.’ That is the upbeat view. It is plausible.

“But so is the pessimistic view that the two countries are already economic rivals and might become military adversaries. Cooperation with China might then seem shortsighted behavior that made us more vulnerable. The central question remains: Are American and Chinese interests compatible – or on a collision course?”

Street Bytes

--Stocks continued a recent up/down, up/down pattern as the Dow Jones lost 0.3% to 18024, while the S&P 500 fell 0.4% and Nasdaq lost 1.7%.

The Dow gained 0.4% in April, with the S&P rising 0.85% for the month.

On the earnings front, FactSet says the bottom line, eps, for the first 360 of the S&P 500 to report is down 0.4%, far better than the estimate of down 4.6% heading into earnings season.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.60% 10-yr. 2.11% 30-yr. 2.83%

The yield on the 10-year had been in a trading range of 1.86%-1.99% for 30 sessions, through Tuesday, before breaking out to the upside, primarily on the feeling that once again, the first quarter was an anomaly and better growth is ahead.

--I have to lead with the world’s most valuable company. Apple handily beat the Street’s expectations for its fiscal second quarter and announced it would return another $70 billion to shareholders. Apple’s revenue grew 27 percent to $58bn, thanks to stronger-than-anticipated iPhone sales, up 40 percent to 61.2m units. Net profit for the March quarter was $13.6bn.

CEO Tim Cook said, “We’re seeing a higher rate of people switching to iPhone than we’ve experienced in previous cycles, and we’re off to an exciting start to the June quarter with the launch of Apple Watch.”

Apple said between its dividends and share buyback program, $200bn would be returned to shareholders by the end of March 2017, up from $130bn a year ago, which includes an 11 percent dividend increase and a further $50bn in share repurchases. The company ended the quarter with $194 billion in cash and investments, far more than any other non-financial company in the S&P 500; more than Microsoft and Google combined

But iPad remains a sore point with sales of 12.6m, below expectations and the fifth straight quarter of year-over-year declines. Mac sales, however, rose a solid 10 percent to 4.56 million. But regarding the iPhone, the latest version with a bigger screen seems to have driven a new wave of upgrades.

Apple shares had traded at an all-time high above $133 on Monday, prior to the earnings release, but closed the week at $129, as some analysts worry about the short term, seeing as the next iPhone update isn’t likely until September.

As for Apple Watch, the company said it would not break down sales, but rather Watch revenues would be rolled into a broader category of accessories including the iPod. It plans to begin offering the product in other countries at the end of June as it catches up with initial supply issues, including a glitch from a Chinese supplier. [We’ve also learned it doesn’t interact well with those wearing tattoos.]

Speaking of China, Apple’s iPhone sales there have been soaring, outpacing those in the U.S. for the first time.

--Exxon Mobil and Royal Dutch Shell reported sharply lower earnings, with Exxon announcing a 46 percent decline to $4.9 billion for the first quarter; revenue falling to $67.6 billion, from $106.3 billion, a 36 percent decline, largely due to the plunging price of crude since last summer. Royal Dutch Shell had similar results.

But Exxon, despite cutting capital expenditures 10 percent, nonetheless reported production rose 2 percent, owing to new production in the Gulf of Mexico, Angola and Russia. [New York Times]

I should add that both companies had stronger results from their refining operations due to lower feedstock costs and improved demand.

Friday, Chevron weighed in and while it handily beat analyst expectations, profits were nonetheless down 43% vs. a year ago, while revenue fell 35%.

--Iowa joined Wisconsin and Minnesota in declaring an emergency response to a bird-flu outbreak, with the number of affected birds in the state now more than 16 million. Again, the virus poses a low risk to human health, but the financial damage to those farmers impacted is significant.

--Auto sales for April were in line with expectations, up a very solid 6% compared with a year ago. General Motors posted a 5.9% increase, with sales of the Chevrolet Equinox midsize SUV up 42%, while sales of the Chevy Cruze compact dropped 4%.

Ford Motor Co. posted its best April in nine years, up 5%, while the revamped Ford Edge midsize SUV registered its best April ever, up 78% from a year ago.

So you see the pattern? Owing to lower oil prices, buyers have been flocking to crossover SUVs that handle like cars, though the gains came at the expense of many small and midsize models.

Among the other automakers, Fiat Chrysler’s U.S. sales rose about 6%, while Toyota Motor Corp. reported a 1.8% increase, Nissan’s were up 5.7%, and Hyundai’s rose 2.9%. But Volkswagen, which lacks strong SUVs, saw sales fall 3%.

--Earlier Ford reported first-quarter profit fell 10.6% in the U.S. from the year before as its F-150 deliveries were off 40% over a year earlier due to factory conversions here. Overall, profits fell 7%, while revenue declined 6%.

--Just two weeks after initiating a probe of Google, the European Union is widening its front against U.S. tech companies, as France and Germany pressure Brussels to take a tougher stand on the likes of Google and Amazon.

As reported by the Financial Times’ Duncan Robinson and Alex Barker:

“In a draft plan for a ‘digital single market’ encompassing everything from online shopping to telecoms regulation, the commission said it would probe how online platforms list search results and how they use customer data. The latest draft of the plan, seen by the FT, will be approved by the commission next week.

“The plan could also bring in stricter rules for video-on-demand services such as Netflix and messaging apps like WhatsApp and Skype that have become big rivals to traditional European media and telecom companies.

“Companies such as Airbnb and Uber are also likely to be roped into any investigation into platforms, which will aim to determine whether they are abusing their market power in the so-called ‘sharing economy.’”

The Obama administration counters the EU’s assault on big American tech groups is protectionism.

--Shares in LinkedIn were obliterated to the tune of 20 percent after the business networking site warned sales in its current quarter would be $45m below Wall Street’s forecasts at $670-$675m, in part because of currency fluctuations.

But the company also reported earnings for the year of $1.90, far below the Street’s expectations of about $3.00.

Revenues for the March quarter were up 35 percent to $638m, with earnings of 57 cents, both basically in line, but it was the first time since LinkedIn became a public company in 2011 that its results didn’t exceed forecasts.

The company did say that the site’s cumulative membership grew 23 percent to 364m, with mobile making up more than half of all traffic to the site, but didn’t offer the kind of detail the Street was really looking for.

--Earlier in the week, Twitter shares fell about 25 percent as it missed revenue expectations and lowered its guidance after warning user growth was off to a “slow start” in the current quarter and that changes to its advertising formats had reduced click-through rates.

Miriam Gottffried / Wall Street Journal

“Twitter still seems to be flying against the wind.

“The micromessaging company reported a wider-than-expected first-quarter net loss as revenue of $436 million came in 4% short of expectations. Meanwhile, Twitter’s user growth slowed to 18% year over year from 21% in the fourth quarter. The company said this metric was off to a slow start in the current period.

“Even worse, the company expects second-quarter revenue of $470 million to $485 million. Analysts had been looking for $538 million....

“But the issue facing Twitter is bigger: Its growth story, already a concern in previous quarters, is rapidly losing traction. Compounding concerns over Twitter’s ability to monetize its service are questions about user engagement.”

Mark Mahaney, an analyst with RBC Capital Markets, said, “Management will again have to address credibility concerns,” as calls for CEO Dick Costolo’s ouster are being renewed.

Others wonder how much of Twitter’s stumbles are due to its own missteps and how much is due to the likes of Instagram and Facebrook eating into their advertising, as another analyst, Richard Greenfield, of BTIG Research, observed. [New York Times]

Watching Costolo in an interview on CNBC, to say I was unimpressed would be an understatement.

Finally, it didn’t help that Twitter’s negative earnings results were leaked, after Nasdaq accidentally published the company’s results early, allowing an independent data gathering company, Selerity, to find the results and tweet them out with the hashtag ‘BREAKING’.

--Then there was local reviews site, Yelp, whose shares dropped over 20 percent after it missed revenue and earnings forecasts for the first quarter, with the company also cutting its guidance.

So you add up these results and it all calls into question whether social media stocks can grow enough to warrant their grossly excessive valuations.

I was at a tech conference in New York on Thursday and some venture capitalists on one particular panel couldn’t help but call into question valuations in some parts of the sector. Many analysts, heretofore ever bullish, are rapidly losing confidence.

--The 2015 Global Risk Management Survey, released this week by risk management and insurance firm Aon, queried more than 1,400 respondents at public and private companies around the world, with cyber risk emerging as a major concern for the first time, along with damage to brand and reputation.

According to PricewaterhouseCoopers, the number of detected cyberattacks rose 48 percent in 2014, compared to the year before. A similar rise is expected in 2015. [James Griffiths / South China Morning Post]

--There is a 1972 rule that requires investment banks and trading firms to maintain enough cash and liquid assets to cover customer assets should the firm go under; a pretty simple concept not always followed in the history of the Street.

So this week the Wall Street Journal’s Jenny Strasburg reported that the SEC is looking into whether Bank of America Corp. broke the rules safeguarding client assets by putting these funds at risk to generate more profits, though this activity took place at the Merrill Lynch unit and the strategy was stopped in mid-2012. [BofA acquired Merrill in 2009.]

It’s complicated, but to me simply seemed like another way to manipulate the P&L.

--The Wall Street Journal had a front page story on Friday about how just a few drugs account for more than a quarter of spending on prescriptions for America’s elderly, according to new data released from Medicare’s prescription-drug program.

“(Out) of nearly 3,500 drugs prescribed (in 2013), roughly 400 with a cost of $3,000 or more per beneficiary added up to $26.5 billion...(The drugs) accounted for 26% of total spending but just 1% of claims.

Brand name drugs for conditions like acid reflux and asthma represented the top three largest drug expenditures (Nexium, Advair, and Crestor for cholesterol).

--Story in the L.A. Times by John M. Glionna goes into the sorry state of Lake Mead, which is at a historic low level. On Tuesday, the reservoir outside Las Vegas that is so critical for California, Arizona and Nevada, fell to nearly 140 feet below capacity, which is disastrous, especially when you consider the summer heat is around the corner.

A spokeswoman for the U.S. Bureau of Reclamation in Las Vegas told the Times that Lake Mead hasn’t been this low “since we were filling it in the 1930s.” Water restrictions for Nevada and Arizona are around the corner, with the Colorado River serving Phoenix and Las Vegas, as well as key California cities.

--Speaking of water shortages, California Gov. Jerry Brown announced new legislation that would increase the maximum penalty for wasting water to $10,000 per day, up from $500.

--Tesla CEO Elon Musk unveiled batteries that can power homes and businesses as the company  attempts to expand beyond the car business. Some have long said when you buy Tesla you are really investing in a battery company, especially given its low sales volume on the auto side.

Musk announced the batteries would store solar energy and serve as a back-up system for consumers during blackouts. The device would allow consumers to go off the grid and bring power to remote areas not on the grid, which is a cool thought.

Musk said at an event on Thursday that the company’s move could help change the “entire energy infrastructure of the world.”

“Tesla Energy is a critical step in this mission to enable zero emission power generation,” the company said in a statement.

The rechargeable lithium-ion battery unit would be built using the same batteries Tesla produced for its electric vehicles.

Initially, Tesla would partner with SolarCity to install the home batteries, but more companies will be announced.

No doubt there is tremendous growth potential in what is being called the “stationary storage” market.

But at the same time, the basic home unit will cost $3,500 upfront (plus installation and other costs), so Tesla has to convince potential customers of the cost-saving benefits.

And there are rivals such as GE and South Korea’s top chemical company, LG Chem. And as the BBC notes, “There is also a danger that this particular lithium ion battery could be superseded within a few years by other technology, like hydrogen fuel cells, which Tesla is not equipped to make.”

--General Motors announced it would invest $5.4 billion to upgrade its U.S. factories over the next three years. This is good...the kind of capital spending the economy needs.

G.M. didn’t specify where the investments would be made except to name three Michigan plants (Pontiac, Lansing and Warren) that would receive a combined $783.5 million in improvements. The Lansing investment apparently saves 1,900 jobs there.

--Walmart plans to add 115 new stores in China over the next three years. CEO Doug McMillon said, “Our goal is not to be the biggest retailer in China, we want to be the most trusted retailer.” Dumb move. Walmart will get screwed. Same-store sales there have already been dropping.

--Burger King and Tim Hortons posted their strongest same-store sales performance in several years in the first quarter. Sales at Tim Hortons rose 5.3 percent during the quarter, thanks in part to a new steak and cheese panini (Mmmmmm). At BK (remember, both are owned by Restaurant Brands International), the same-store sales rose 4.6 percent. Why I contributed to this, and it compares with McDonald’s continuing sales declines.

--Following years of government investigations, for-profit Corinthian Colleges Inc. announced it was shutting down more than two dozen of its remaining schools, displacing more than 10,000 California students right before final exams. Unreal.

Corinthian was once one of the nation’s largest for-profit chains but now students must seek transfers or federal loan forgiveness.

Loans were the lifeblood and downfall for Corinthian. Easy access to student debt fueled profits until the federal government cut off the flow after investigators accused the school of falsifying job placement rates.    As the Los Angeles Times’ Chris Kirkham notes:

“Many students, attracted by the promise of higher-paying work, now find themselves with heavy debts for degrees of dubious worth. Many others won’t graduate at all.”

--Shares in Lumber Liquidators cratered anew as it was revealed the federal government has launched a criminal probe into its China-sourced laminate flooring, as first exposed on “60 Minutes” March 1; the report alleging the laminates contained higher levels of formaldehyde than claimed.

The stock is down about 60 percent this year.

--Anheuser-Busch took a lot of heat this week when a slogan on Bud Light bottles had to be pulled.

A recent label, part of its “Up for Whatever” campaign, read that the beer is perfect for “removing ‘no’ from your vocabulary for the night.”

Doh! A-B quickly faced a torrent of criticism on social media. [I think the people in the “Up for Whatever” commercials are jerks.]

--Former Federal Reserve Chairman Ben Bernanke has now announced he will be an adviser for both Citadel, a large hedge fund run by billionaire Kenneth Griffin, and PIMCO, where he will advise both on monetary policy, financial markets and the global economy. This man is incredibly overrated, as scores of my “Wall Street History” columns, let alone “Week in Reviews,” prove. He missed the single biggest issue of his time, the real estate bubble...pure and simple. He did the right thing once the crisis hit, I grant him that, but then after? C’mon.

--Brian Williams reportedly is not giving up easily when it comes to his “NBC Nightly News” job.

A source told the New York Post, “Brian is saying he’s not going down without a fight and [is] threatening to make it really ugly – worse than Ann Curry.”

Curry and Williams are represented by the same lawyer. The source said NBC wants Williams to resign after they found far more times that he lied – 11 in all, according to an internal investigation.

But then you have reports saying NBC News boss Andy Lack wants to save his friend.

Meanwhile, us NBC viewers (passed down through the generations), like Williams’ replacement, Lester Holt. Yes, all across the country, the chant can be heard, “Go Lester, Go Lester, Go Lester, Go!”

But “ABC World News Tonight,” hosted by David Muir, has won the last three weeks in the key 25-to-54 demographic.

--Hulu cut a deal with ‘Seinfeld’ for reruns, while at the same time promoting its new Netflix-like original series such as Stephen King’s “11/22/63,” starring James Franco. “Seinfeld” will cost Hulu about $1 million an episode, or $180 million. Hulu is still way behind Netflix’s 41.1 million streaming customers.

--According to WalletHub, Newark, N.J., is the worst city to start a business in the country. Jersey City ranked second-worst.

The best? Shreveport, Louisiana. Huh.

--I doubt I’m going to shell out $99.95 to view the Mayweather-Pacquiao fight. [I told my readers in another column this week I’m going to be at a Kentucky Derby party and just think I’ll be passed out by 9:00.] But one of the stories is the outrageous hotel prices in Las Vegas...record prices.

According to Hugo Martin of the Los Angeles Times, “Rooms for fight weekend have jumped as much as $750 over their average daily rates, according to data compiled by Vegas.com. The MGM Grand Hotel & Casino, the fight site, has been selling standard rooms at $1,600, compared with the typical $270 a night.

“That’s a pittance compared with the cost of fight tickets – more than $100,000 for a ringside seat, or a mere $4,600 for seats in the nosebleed section.”

You’re reading those figures right. [But late Friday they were all coming down.]

Personally, I pray Pacquiao pounds the crap out of Mayweather; Mr. Mayweather being a well-documented abuser of women. In fact, if you are rooting for Mayweather, one question. Why?

Foreign Affairs

Iran: While talks on Iran’s nuclear program continue as the June 30 deadline for a final plan rapidly approaches, the U.S. and Iran are locking horns in the Strait of Hormuz, as the U.S. navy announced it would be accompanying American-flagged ships there in response to Iran’s seizure this week of a Marshall Islands-flagged ship in this key gateway to the Persian Gulf.

Iran claims the seizure of the M/V Maersk Tigris was the result of an unresolved financial dispute, but the U.S. sees it as a provocative act.

One U.S. official told the Wall Street Journal: “Out of an abundance of caution, because of the unpredictability of our Iranian friends, we’re now positioned so that, should the Iranians decide that they’re going to be stupid, we’re ready to respond.”

Some 30% of the world’s seaborne oil shipments pass through the 21-mile-wide Strait.

On the nuke talks, Iranian Foreign Minister Javad Zarif, speaking at an event at New York University, warned the United States will isolate itself if Congress voted to nullify any nuclear deal.

“I believe the United States will risk isolating itself in the world if there is an agreement and it decides to break it,” said Zarif. “Whether you have a Democratic or Republican president, the United States is bound by international law, whether some senators like it or not,” he added. “And international law requires the United States live up to the terms of an agreement it enters into.”

“If the U.S. Senate wants to send a message to the rest of the world that all of these agreements that the United States has signed are invalid, then you will have chaos in your bilateral relations, although you are welcome to do it,” he added.

Zarif added that with regards to the ‘framework,’ there remain disagreements on the phrasing of “almost everything.” 

Zarif did say Iran was willing to accept a provision whereby its facilities could be inspected for suspect undeclared nuclear work, but, “If you’re looking for a smoking gun, you’re going to wait a long, long time before you get one.”

The foreign minister also expects the U.N. Security Council will vote to lift all sanctions “within a few days” of an agreement, and that the U.S. would be forced to do the same, “whether Senator Cotton likes it or not.” Cotton, responding on Twitter, called Zarif a coward and challenged him to a debate on the Constitution.

Sec. of State John Kerry said on Monday that the world is “closer than ever” to reaching a comprehensive deal with Iran.

Talks resumed Thursday in New York and will continue in Europe next week. [Carol Morello / Washington Post]

Editorial / Wall Street Journal

“The Islamic Republic of Iran has been in the hostage-taking business since its earliest days, so nobody should be surprised by Tuesday’s news that Iranian warships seized a cargo ship and her crew of 34 in the Strait of Hormuz. But it’s a useful reminder of the kind of regime with which the West is now seeking to strike a nuclear bargain....

“The Iranian action is effectively identical to the ship-seizing by Somali pirates in the Indian Ocean’s Gulf of Aden and Arabian Sea.

“It’s also a reminder that Iran has not moderated its rogue behavior during the presidency of Hasan Rouhani, whose own alleged moderation is one of the Obama Administration’s justifications for seeking a nuclear deal.

“On the contrary, Mr. Rouhani has presided over renewed domestic repression and redoubled regional aggression. A nuclear deal is supposed to ease Iran’s return to the community of civilized nations, but so far Western concessions seem to have emboldened it into thinking it can do as it pleases. The habit of seizing unarmed ships on the high seas – or innocent foreign reporters working in Iran – is barbarism....

“Iran’s disdain for basic maritime conventions is a good indicator of how it will treat any agreement it signs, which is why the Obama Administration is deluding itself that it can draw a line between Iran’s everyday behavior and its nuclear commitments. Pirates don’t keep their word, and it’s dangerous to bargain as if they will.”

Mortimer Zuckerman / Wall Street Journal

“How far Mr. Obama is prepared to chase the negotiation dream is illustrated by the recent candor of his energy secretary, Ernest Moniz, a nuclear physicist who has been party to the negotiations. In 2013 the president answered questions about Iran’s ability to produce nuclear weapons with these words: ‘Our assessment continues to be a year or more away, and in fact, actually our estimate is probably more conservative than the estimates of Israeli intelligence services.’

“Yet on Monday Mr. Moniz told reporters at Bloomberg a different story: ‘They are right now spinning. I mean enriching with 9,400 centrifuges out of their roughly 19,000,’ he said. ‘It’s very little time to go forward. That’s two to three months.’ How long has the administration held this view? ‘Oh, quite some time,’ Mr. Moniz replied. The Bloomberg report suggests ‘several years.’

“This stunningly casual remark was based on information apparently declassified on April 1. What is Mr. Obama up to? Why was he reassuring in 2013 when he knew it was misleading? Is the declassification intended to create a false sense of urgency?....

“No wonder Saudi Arabia and Egypt are insisting on developing equivalent nuclear capabilities. America’s traditional allies have concluded that the U.S. has traded temporary cooperation from Iran for acquiescence to its ultimate hegemony.

“The sanctions that brought Iran to the negotiating table took years to put in place. They have impaired Iran’s ability to conduct trade in the global market. The banking freeze in particular has had a crippling effect, since international businesses will not risk being blacklisted by the U.S. and European Union to make a few dollars in Iran. Many of those who have studied the problem believe that if the sanctions were to remain, they would squeeze Tehran and force greater concessions.

“President Obama seems to be willfully ignoring Iran’s belligerent behavior and its growing influence over Beirut, Damascus, Baghdad and Yemen’s capital, Sanaa. Free of sanctions, Iran may become even more assertive.

“There are no rainbows ahead, only menacing clouds.”

Yemen: Iranian Revolutionary Guard chief, Mohammad Ali Jafari, called Saudi Arabia a betrayer who is “following in the footsteps of Israel and the Zionists.

Referring to the Saudi campaign against Yemen, Jafari said:

“Today, Saudi Arabia is brazenly and obnoxiously bombarding and massacring a nation, which is seeking the denial of the hegemonic system.” [Jerusalem Post]

The Saudi-led coalition struck Yemen’s capital of Sanaa for the first time after Riyadh had said it was scaling back its campaign against the Iranian-backed Houthi rebels.

On Thursday, Saudi Arabia announced its forces killed dozens of Houthis from Yemen who launched the first major attack on the kingdom since the airstrikes began.

Also Thursday, Gulf foreign ministers rejected holding talks between rival political forces in Yemen on neutral ground. They insisted should any talks be held they take place in Saudi Arabia. Iran has proposed holding U.N. talks on ending the war at a neutral venue, excluding all countries from the Saudi-led coalition.

The World Health Organization says the death toll in Yemen has topped 1,200, many of them civilians, while aid groups say shortages of food and fuel have reached crisis proportions.

Saudi Arabia: Separately, Bloomberg reported the kingdom is burning through its foreign reserves at a record pace, owing in part to the largesse of the new king, let alone the war. According to Bloomberg, “The kingdom spent $36 billion of the central bank’s net foreign assets – about 5 percent of the total – in February and March, the biggest two-month drop on record, data released this week show.”

Among the reasons was an order from King Salman to give government employees and pensioners a two-month bonus after he ascended to the throne. Of course the plunge in the price of crude has hurt the situation, forcing the Saudis to use reserves to maintain spending on wages and investments.

Meanwhile, King Salman changed the line of succession, replacing Crown Prince Muqrin bin Abdulaziz with the powerful interior minister, Prince Mohammed bin Nayef, as next in line.

Salman also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved long-serving foreign minister, Prince Saud al-Faisal, who has shaped foreign policy for nearly four decades.

One other item...the kingdom arrested 93 people suspected of working with ISIS in an antiterror sweep. The militants were apparently targeting the U.S. Embassy and housing compounds. These arrests have taken place over the past several months but the Saudis just made them public to alert the people to the presence of ISIS in the country.

More than 2,000 Saudis are suspected of having joined Islamic State.

Iraq / Syria / ISIS: Michael Young / Daily Star

“President Bashar Assad’s regime is beginning to crumble despite assistance from Iran and its allies. However, such a prospect did not prevent the recent liquidation of Rustom Ghazaleh, once the head of Syria’s military intelligence network in Lebanon.

“The Syrian regime’s loss of Idlib and Busra al-Sham in recent weeks, followed by the defeat in the strategic town of Jisr al-Shughur last week, has exposed the gangrene at the heart of Assad rule. Something has been broken in the Alawite backbone of the state, with younger men in the community preferring to escape Syria rather than sacrifice themselves for a leader who cannot conceivably endure in the long term.

“What are the Iranians thinking? They have made Assad’s political survival a strategic priority, but the incompetence and brutality of his regime – to which Iran has amply contributed – have ensured the task is unachievable. Even with Iranian and Russian help Assad is losing ground rapidly. Partly that’s because the life is gone from his armed forces, which have been successful only in their campaign to slaughter tens of thousands of civilians.

“What the Iranian regime has failed to grasp is that violence and terrorization are rarely sufficient to keep a leader in office indefinitely. For the past four years Assad has deployed no other methods. He never offered those who fought on his behalf a vision of a desirable future that would make them pursue the fight. To stick with Assad offered no compensations, no light at the end of the tunnel. Only more depravity and abuse....

“Assad is not salvageable. The cohesiveness of the regime is disintegrating amid myriad rifts. Even Hizbullah, whose men are dying to ensure that Assad stays, has nothing but contempt for the Syrian army. The corpse’s stench is growing and no amount of Iranian stubbornness will reverse this....

“Bashar Assad’s regime is on life support. Someone needs to pull the plug, preferably Assad’s friends, while a negotiated transition in Syria is still vaguely possibly.”

Former Lebanese Prime Minister Saad Hariri warned Lebanon was threatened with a renewal of civil war unless rival Lebanese factions acted to elect a president and fight religious extremism. He added the removal of President Assad is the only way to restore stability in Syria. “I believe this will happen sooner rather than later,” he said. [Daily Star]

ISIS captured a dam in Iraq’s Anbar province and killed 127 Iraqi troops, including a top army commander, while Iraqi forces have begun a military operation to retake the dam near Fallujah.

ISIS also exploded three suicide car bombs at a border crossing with Jordan, killing four soldiers. IS said three foreigners from France, Belgium and Senegal carried out the attacks. 

Bottom line, despite the optimistic talk from U.S. officials about the tenor of the battle in Iraq, ISIS continues to display its resiliency.

Russia / Ukraine: According to NATO, Moscow has toned down its long-range air missions near European nations, after a year where NATO fighter intercepts of Russian aircraft spiked.

Gen. Philip Breedlove, NATO’s Supreme Allied Commander and head of U.S. European Command, said he did not know why Moscow has scaled back these types of patrols, but he noted Moscow’s military has “other kinds of focus...including (in) Ukraine” that may have placed extensive maintenance demands on its force structure.

Speaking of Ukraine, Breedlove said it appeared Russia-backed forces were “preparing, training and equipping” for a potential new offensive.

Breedlove also suggested the U.S. may need more forces in Europe.

“The forces in Europe over the last 20 years have been sized for a situation where we were looking at Russia as a partner,” he said. “What we see now is that Russia has demonstrated it is not a partner.” [Wall Street Journal]

The U.S. has just 67,000 troops permanently stationed in Europe, with an additional 3,000 currently deployed there on a temporary, rotational basis, according to the Pentagon. [My friend Jimbo is experiencing this latter bit first hand these days through his son-in-law.]

In Ukraine, pro-Russia rebels shut down the offices of the International Rescue Committee (IRC) in eastern Ukraine because the rebels accused it of spying.

Russian authorities also seized the assets of a candy factory owned by Ukrainian President Petro Poroshenko in the Russian city of Lipetsk. Poroshenko promised when he was elected last May to sell Roshen, which has annual sales of $1.2 billion. Now, who knows.

Meanwhile, this coming week in Moscow, Russia is commemorating the 70th anniversary of the end of World War II in Europe and it was announced North Korean leader Kim Jong Un will not attend after all.

The trip would have been Kim’s first overseas since he took power in 2011 and it’s not clear why he didn’t take the opportunity to place himself on the world stage.

30 foreign leaders will attend anniversary events but not all are attending a military parade on Red Square on May 9. German Chancellor Angela Merkel is visiting Moscow only on May 10.

One final item concerning Russia’s space program. An unmanned mission to supply the International Space Station was abandoned when the Progress M-27M cargo ship was unable to dock with the ISS, after it was launched on Tuesday from the Baikonur Cosmodrome in Kazakhstan. I never did see where the remains fell. This is yet the latest Russian space glitch. Recall I wrote the other day about a failed anti-missile rocket test, an upgrade to the S-300 system.

Japan: Retired U.S. Navy admiral Dennis Blair / Defense One

“The success of a longtime ally like Japan is important to the United States...but one of the bedrock principles of Abe’s policies and actions has been his support for the U.S.-Japan relationship. During a time when other friends openly question American steadfastness and treat their relationships with us like an a-la-carte menu – picking and choosing where, when and how they will support us – Japan has deepened its collaboration with the United States across the board. The prime minister has supported our policies even when they cost him in terms of domestic politics, such as moving American bases in Okinawa; or were not in line with Japan’s economic and strategic interests, including support for sanctions against Iran and Russia....

“(Some of Abe’s statements about Japan’s actions during tis military era) have shown an insensitivity that mars Japan’s hard-earned reputation for contrition and peaceful accomplishments.

“However, 70 years after our two countries fought a savage war against one another, we have forged a vitally important and remarkably resilient relationship that is stronger than it has ever been – in large measure due to the efforts of Shinzo Abe. We will each continue to have concerns about certain policies or actions, but the strategic partnership between our countries is vital.

“With a friendship like this, perhaps Washington should get Abe a permanent room in town.”

China: In a statement released by the leaders of the 10-member Association of Southeast Asian Nations (ASEAN), China’s island-building efforts are targeted.

“We share the serious concerns expressed by some leaders on the land reclamation being undertaken in the South China Sea, which has eroded trust and confidence and may undermine peace, security and stability.”

New photos released this week show flotillas of Chinese vessels “heaping huge amounts of sand on coral reefs also claimed by the Philippines.”

Philippine Foreign Secretary Albert del Rosario warned his regional peers that China was poised to take “de facto control” of the strategic seaway. [AFP]

In a study released in the journal Environmental Health Perspectives, an international team of researchers compiled information on births from nearly 84,000 Chinese mothers in Beijing and the study found that women who were eight months pregnant during the 2008 Olympics, which ran in August, were on average 23 grams heavier than infants born during the same period in 2007 and 2009.

Said the lead author out of the University of Rochester, “We think pollution has an effect on birth weight.”

During the Olympics, officials successfully cleaned up the air for the weeks of the Games.

Indonesia: International scorn was heaped on this country after eight men were executed on drug charges early Wednesday. Authorities spared a female prisoner from the Philippines who had been scheduled to die.

Robyn Dixon / Los Angeles Times

“The Indonesians brushed off the frantic last-ditch efforts by lawyers, diplomats and government officials to halt the executions by firing squad of seven foreigners and a local man.

“The European Union and governments of France and Australia urged President Joko Widodo on Tuesday to halt the proceedings...

“The prisoners, clad in special white suits, were tied to poles in the darkness in a jungle location....and were then shot.

“On Tuesday afternoon, family members met with the condemned prisoners and then made heart-wrenching pleas to Widodo to spare the lives of the nine.

“ ‘I saw today something that no other family should ever have to go through,’ Michael Chan of Australia, the brother of Andrew Chan, told journalists after saying farewell to his brother in prison. ‘Nine families inside a prison saying goodbye to their loved ones. Kids, mothers, brothers, cousins, sisters, you name it, they were all there. To walk out of there and say goodbye for the last time, it’s torture.’”

France: Bucking the trend of its EU counterparts that continue to slash defense spending, French President Francois Hollande said his nation’s spending would rise by nearly 4bn euro to tackle extremist threats “at home and overseas.” A deployment of 7,000 soldiers to protect sensitive sites across France will become permanent, he said.

The increase is not for 2015, but for the four years beginning 2016.

Random Musings

--Baltimore police announced on Thursday they had concluded their investigation into the death of Freddie Gray and turned the results over to the city’s chief prosecutor, Marilyn Mosby, who just took office in January and hasn’t faced a high-profile test like this one. 

But then on Friday, Mosby suddenly announced she is filing charges against all six police involved in Gray’s death. She said Gray died from injuries he suffered as the police drove him around the city unrestrained in a van, a breach of policy, and that on several occasions officers refused his pleas for medical assistance.

Mosby added that the knife Gray was carrying at the time of his arrest was not a switchblade – as had been alleged – but a legal knife that was not probable cause for an arrest.

The charges include second-degree murder for the police officer who drove the van, while a second officer was charged with involuntary manslaughter. Other offenses for the six include misconduct.

Representatives for the officers charged said they had never seen such a rush to judgment.

Needless to say, this is far from over. These are charges. Now you have a trial.

Addressing the protesters, Mosby said, “I heard your call for no justice, no peace, but your peace is sincerely needed as I work to bring justice for Freddie Gray.”

Back to the beginning of the week...Mayor Stephanie Rawlings-Blake imposed a 10 p.m. to 5 a.m. curfew on Tuesday, but not the night violence broke out, Monday.

The Washington Post later in the week reported a prisoner sharing the transport van with Mr. Gray said he heard Gray “banging against the walls” of the vehicle and believed that he “was intentionally trying to injure himself,” according to a police document obtained by the Post.

The prisoner, after being released, tried to walk back his story after supposedly facing death threats.

John Podhoretz / New York Post

“Of late, America has been offering a moral subsidy of sorts to rioting and looting.

“We have been treating the nihilistic and destructive behavior of rioters and looters as though it is a legitimate expression of anger at alleged police misconduct. And so we are getting more of it.

“If we were raising the cost of participating in this kind of illegal and destructive behavior – if we were taxing it, in other words – there would be less of it.

“But authority figures in and out of government are finding it difficult to sort out the difference between legitimate protest and illegitimate destruction and separate the two.

“That confusion is at the heart of the controversy that has swirled around Baltimore Mayor Stephanie Rawlings-Blake since Saturday night. She offered an earnest effort to do just that – but her own words betrayed her.

“ ‘I made it very clear that I work with the police and instructed them to do everything that they could to make sure that the protesters were able to exercise their right to free speech,’ she said.

“ ‘It’s a very delicate balancing act. Because while we tried to make sure that they were protected from the cars and other things that were going on, we also gave those who wished to destroy space to do that as well. And we worked very hard to keep that balance and to put ourselves in the best position to de-escalate.’

“It seems clear Rawlings-Blake meant to say she had told her city’s police department to make sure protesters were given an opportunity to express their anger at the unexplained death of Freddie Gray... that cops needed to balance a protester’s right to free speech with their responsibility to secure their safety and the safety of other Baltimoreans.

“But what she meant to say and what she actually said were two different things. The words she actually spoke suggested the ‘balancing act’ she had directed the cops to follow was between the rights of the protesters to protest and the rights of ‘those who wished to destroy.’....

“This was an honest mistake, a moment of disastrous inarticulacy on the part of a worried and likely overwhelmed politician under intense pressure. She sought to clarify them later.

“But it’s worth asking why she made the mistake in the first place. The answer, I think, is that Rawlings-Blake did not want initially to attack or criticize or express moral outrage at the vile conduct of the rioters and looters.

“Why not? Primarily, one would hope, because her key goal was ‘to de-escalate’ the situation, and she might have thought words of condemnation would do the opposite.

“But there’s also the fact that since the deaths of Michael Brown and Eric Garner at the hands of police, pundits and community leaders and politicians alike have often failed to draw a bright-line distinction between proper protest on the one hand and large-scale social disruption and outright criminality on the other.”

President Obama compounded the issue “by describing the violence and looting as ‘counterproductive.’ That choice of word itself suggests the criminals were somehow engaged in protest but lost their way or got out of hand.

“By saying what he said, Obama followed Rawlings-Blake in offering an unconscious moral subsidy for the criminal disorder we have been watching for days now.

“And so, rest assured, there will be more of it until our leaders understand that ‘no excuse’ actually means ‘no excuse.’”

There’s a lot I want to say after viewing the coverage from Baltimore this week, but I better bite my tongue. I do think many of us did find it almost humorous to learn that if you call someone a “thug” these days, you’re a racist.

I do have to note, however, that the one time I admit to tearing up a little was when a black woman who worked at Levy’s sporting goods store was interviewed and your heart went out to her. The place was ransacked, by thugs, and she was now without a job, trying to support three kids.

And your heart goes out to the elderly in those neighborhoods, now without places to shop for essentials.

But that’s what happens when you have a police force that was told to stand down. Property didn’t matter. They were just “young kids,” as Police Commissioner Anthony Batts said. What a fool.

--In another bombshell on Friday, though it had been telegraphed, former Port Authority executive David Wildstein pleaded guilty to his role in the closure of access lanes to the George Washington Bridge, September 9, 2013, in what became known as “Bridgegate.”

Wildstein, a staunch ally of New Jersey Gov. Chris Christie, admitted to conspiring with former Port Authority Deputy Director Bill Baroni and Gov. Christie’s former Deputy Chief of Staff Bridget Anne Kelly to “punish” Fort Lee mayor Mark Sokolich for not endorsing Christie in his re-election bid.

Wildstein pleaded guilty to conspiracy to commit fraud and conspiracy against civil rights. He was released on $100,000 bail owing to his cooperation in the investigation and is scheduled to be sentenced Aug. 6.

Wildstein went to high school with Christie, though the governor has said they weren’t really friends.

As for Baroni and Kelly, both claim they are innocent and blame Wildstein; Baroni calling him a habitual liar.

For his part, Christie was not implicated, with U.S. Attorney Paul J. Fishman saying he did not anticipate further charges based on current evidence available in the case. Wildstein’s attorney has said “evidence exists” Christie knew about the closures   

But does this derail Christie’s presidential ambitions? As I’ve written for a long time, I never understood how the guy could think he had a chance to be the Republican nominee in the first place when he has done little to improve the condition of the state, for which he’d get excoriated in the presidential debates...let alone over the Bridgegate issue.

Wildstein has told several people in Christie’s administration that he had discussed the lane closures with the governor as they were happening, which Christie has always denied.

--In a new AP-GfK poll, nearly four in 10 Democrats and more than six in 10 independents agree “honest” was not the best word to describe Hillary Clinton.

Overall, 46% of Americans express a favorable view of Clinton, slightly more than the 41% who express a negative opinion.

Among Democrats, only 34% said they were excited by her candidacy.

--Vermont Independent Sen. Bernie Sanders, a self-described socialist, announced he was running for president as a Democrat.

--Henry F. Cooper and Peter Vincent Pry / Wall Street Journal

“The Pentagon is moving the headquarters for the North American Aerospace Defense Command (Norad) back into Cheyenne Mountain near Colorado Springs, Colo., a decade after having largely vacated the site.

“Why the return? Because the enormous bunker in the hollowed-out mountain, built to survive a Cold War-era nuclear conflict, can also resist an electromagnetic-pulse attack, or EMP. America’s military planners recognize the growing threat from an EMP attack by bad actors around the world, in particular North Korea and Iran.

“An EMP strike, most likely from the detonation of a nuclear weapon in space, would destroy unprotected military and civilian electronics nationwide, blacking out the electric grid and other critical infrastructure for months or years. The staggering human cost of such a catastrophic attack is not difficult to imagine.”

The Pentagon said the U.S. can defend itself from a nuclear-missile threat from North Korea, or Iran, but as Cooper and Pry write:

“That is true as far as it goes – but only if an attack on the U.S. comes from the northern skies. Former senior Reagan administration officials warn that the U.S. is unprepared to cope with nuclear EMP strikes from North Korea and Iran if their missiles’ trajectory takes a southern route.

“We are among those former Reagan officials....

“The U.S. has no ballistic-missile early-warning radars or ground-based interceptors facing south and would be blind to a nuclear warhead orbited as a satellite from a southern trajectory. The missile defense plans were oriented during the Cold War for a northern strike from the Soviet Union, and they have not been adapted for the changing threats.”

Well, the Pentagon may survive, “But how are the American people to survive? In the event of a yearlong nationwide blackout, tens of millions of Americans would perish from starvation and societal chaos, according to members of the Congressional EMP Commission, which published its last unclassified report in 2008.

“Yet President Obama has not acted on the EMP Commission’s draft executive order to protect national infrastructure that is essential to provide for the common defense.”

But states are beginning to take matters into their own hands, such as Maine and Virginia, the authors point out.

--The Wall Street Journal reported the FBI “helped facilitate a 2012 ransom payment to al-Qaeda from the family of kidnapped aid worker Warren Weinstein, senior U.S. officials said, in an unsuccessful bid to secure the release of the American, who was killed in January in a U.S. drone strike.

“The FBI’s previously undisclosed role reveals a contradiction in the U.S.’s longstanding position against paying ransoms for hostages. While the White House sharply criticizes the practice in public and private, new details about the Weinstein case show how the FBI provides some families with guidance towards that end.”

The Obama administration is reviewing both U.S. drone procedures and U.S. hostage policy.

--The Supreme Court heard oral arguments in an historic gay-marriage case and will eventually rule on whether the Constitution protects the right of same-sex couples nationwide to marry. Once again, observers believe it will all come down to Justice Anthony M. Kennedy.

Kennedy has written each of the court’s major victories advancing gay rights, but the question after Tuesday’s hearing seemed to be whether forcing some states to allow same-sex unions was moving too much, too fast. Kennedy, addressing the issue for opponents of gay marriage who contend that the institution is defined as between a man and a woman, said:

“This definition has been with us for a millennia. It’s very difficult for the court to say, ‘Oh well, we know better.’”

As noted by the Washington Post: “The justices are considering two simple-sounding questions: whether the Constitution requires states to issue marriage licenses to same-sex couples and, if not, whether states must recognize same-sex marriages performed in other states where they are legal.

“But the arguments were filled with discussions of equal protection and fundamental liberties, how an understanding of the Constitution changes with society, and when majority rule must give way to minority rights.”

Chief Justice John G. Roberts Jr., apparently seeking middle ground, said at one point:

“I mean, if Sue loves Joe and Tom loves Joe, Sue can marry him and Tom can’t. And the difference is based upon their different sex. Why isn’t that a straightforward question of sexual discrimination?”

Today, more than 70 percent of Americans live in states where same-sex couples are allowed to marry (37 states and the District of Columbia). A recent Washington Post-ABC News poll showed a record 61 percent of Americans say they support same-sex marriage.

The ruling will come in June.

--Ah yes, corruption. The Los Angeles Times’ Jack Dolan reported: “Two nonprofit trusts, created by the Los Angeles Department of Water and Power and financed with more than $40 million from ratepayers, doled out millions to vendors without competitive bids, overpaid top managers and let them use trust-issued credit cards to buy gas for their personal vehicles and travel without filing expense reports, according to city audits released on Thursday.

“In five years, a handful of trust employees racked up more than $660,000 in purchases on their publicly financed credit cards for things such as high-end steak dinners and trips to Las Vegas, Hawaii and New Orleans, City Controller Ron Galperin said.

“One top administrator who was making about $220,000 per year used his trust-issued card to pump more than $30,000 worth of gasoline into his personal vehicle between 2010 and 2014, auditors found.”

--According to a new study from NASA’s Goddard Institute for Space Studies, the fact the U.S. has gone nearly 10 years without a major hurricane is “unprecedented in the historical record.”

The study concludes it’s just a matter of plain dumb luck. The last nine years haven’t necessarily been inactive, the storms have either stayed out at sea or hit the Caribbean and Mexico.

Hurricane Wilma was the last major storm to hit the U.S., hammering Florida in October 2005, killing 61. And while Sandy (2012) was a whopper of a storm, it didn’t hit as a Category 3 or greater.

--Caroline Porter / Wall Street Journal

“U.S. middle-school students’ performance on social studies didn’t improve much between 2010 and 2014, federal test scores released Wednesday show, underscoring concerns about an uninformed citizenry and workforce....

“Since the federal law known as No Child Left Behind required reading and math tests for every student, some educators have voiced concerns that other subjects such as social studies have received less class time and attention....

“ ‘Social studies needs its own champion,’ said Chasidy White, an eighth-grade world history teacher in Brookwood, Ala., and a member of the National Assessment Governing Board. ‘There’s no big initiative out there for social studies.’”

Ain’t that the truth.
---

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

God bless America.
---

Gold closed at $1174
Oil $59.15...seventh straight up week.

Returns for the week 4/27-5/1

Dow Jones -0.3% [18024]
S&P 500 -0.4% [2108]
S&P MidCap -1.3%
Russell 2000 -3.1%
Nasdaq -1.7% [5005]

Returns for the period 1/1/15-5/1/15

Dow Jones +1.1%
S&P 500 +2.4%
S&P Midcap +4.2%
Russell 2000 +1.9%
Nasdaq +5.7%

Bulls 57.4
Bears 13.9 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Dr. Bortrum posted a new column!

Brian Trumbore



AddThis Feed Button

-05/02/2015-      
Web Epoch NJ Web Design  |  (c) Copyright 2016 StocksandNews.com, LLC.

Week in Review

05/02/2015

For the week 4/27-5/1

[Posted 12:00 AM ET]

Edition 838

Washington and Wall Street

Once again a bad winter in parts of the U.S. did a number on economic activity, as the Commerce Department’s release of first-quarter GDP showed a whopping rise of 0.2%.

So here is a look at the last five quarters.

2014 (seasonally adjusted annualized rates)

Q1 -2.1
Q2 4.6
Q3 5.0
Q4 2.2

2015

Q1 0.2

What’s interesting is that as the Wall Street Journal’s Jon Hilsenrath and Jeffrey Sparshott pointed out, “Since 2010, first-quarter GDP growth has averaged 0.6% while all other quarters are 2.9%.  That stop-and-start pattern has forced Fed officials to regularly second-guess their own economic forecasts.”

The Fed happened to hold one of its Open Market Committee confabs this week and in its statement said in part: “Economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady.”

But the Fed sought to look beyond the “transitory factors” and notes that other items, such as household income and confidence, were rising and growth should resume at a solid pace beginning with the current quarter.

As for the highly anticipated first rate increase, the Fed made it clear it could hike rates at any moment, including at the next meeting in June, for instance, if the data quickly improved.

After March’s punk jobs report, for example, the Fed could move sooner than later if the figures for April and May rebounded back over 250,000. And if consumer spending picked up after a soft first quarter relative to the fourth the Fed may be moved to act.

You also have one of the Fed’s favorite inflation indicators, the Employment Cost Index, which we learned this week rose 0.7% in the first quarter and is now up 2.6% year over year, above the Fed’s 2% target and up from 2.2% in Q3/Q4.

Meanwhile, kudos to the Atlanta Fed’s GDPNow tracker, which aggregates “statistical model forecasts” of 13 components that make up growth. This model, refreshed five or six times a month, had GDP rising 0.1% on April 24. The consensus of economists surveyed by Bloomberg had 1%. 

Just a few other economic items of note. March personal income was unchanged when it was forecast to rise 0.3%, while consumption was basically in line, up 0.4%. March construction spending was down 0.6% when a gain of 0.4% was expected. The Chicago PMI for April was a better than expected 52.3, while the national ISM reading on manufacturing was just 51.5, the lowest since May 2013. 

On the housing front, the S&P/Case-Shiller 20-city index showed prices in February rose a strong 0.9% over January and were up 5.0% year over year, the best pace since last summer.

Finally, one thing this past week proved was my dictum, ‘wait 24 hours.’ Think Baltimore.

And then there was the tragedy in Nepal. There is really little for me to write about when it comes to disasters like this, a massive 7.8 magnitude earthquake that has now claimed over 6,000 lives with a final toll that could approach 15,000. An already impoverished nation is even more so today, especially considering its main source of revenue, tourism, is dead for at least a year with Mount Everest shut down for the second time in two seasons.

Europe and Asia

The week started with Greece reshuffling its bailout-negotiating team as Finance Minister Yanis Varoufakis was reined in after three months of failed talks with creditors on receiving further bailout aid.

Coordination of day-to-day efforts fell on Deputy Foreign Minister Euclid Tsakalotos, while Varoufakis will supervise political negotiations with euro-area member states and the International Monetary Fund.

The changes came as two opinion polls from last weekend showed the Greek people were continuing to lose faith in the new government, with more than half (78 percent) urging compromise with the euro area and IMF because the people want to remain in the euro.

Prime Minister Alexis Tsipras warned he would hold a referendum if international creditors insisted on a “vicious circle of austerity” to unlock further bailout money, saying: “We should not give in to panic moves. Whoever gets scared in this game loses.”

To which Jeroen Dijsselbloem, the Dutch finance minister who is head of the eurogroup that is leading the negotiations with Greece, said the Greeks don’t have time for a referendum, plus it would create great uncertainty. Greece also doesn’t have the money to hold it, while 62 percent of Greeks in one of the opinion polls are against a vote.

Tsipras ruled out defaulting on a 750m euro loan repayment to the IMF on May 12 even as his government struggled to meet pension payments at the end of the week. The main state social security fund, for example, IKA, “delayed pension payments by almost eight hours on Tuesday.” [Financial Times]

But at weeks’ end there was some optimism a preliminary deal could be reached on Sunday, May 3, with the aim of having eurogroup finance ministers sign off on it at a May 11 meeting, though few really believe this is possible. Which leaves that May 12 IMF payment.

The European Central Bank did say it could help Greece ward off any temporary cash crunches if there was “an agreement in sight” with creditors, such as in allowing Greece to issue more than the current $16.7 billion in treasury bills it is limited to.

But when you add up all the above, at least the bond market is more optimistic as the yield on the Greek 10-year fell from 13.20% to 10.23% by Friday, a little sign of confidence.

Speaking of bonds, the yield on the German 10-year Bund, which money manager Bill Gross had labeled the “short of a lifetime,” shot up to 0.38% before finishing the week at 0.37%, up from about 0.05%, intraday, just two weeks ago. Euro stock markets largely fell in April, including a 4 percent decline in Germany, as euphoria over quantitative easing (QE) melted away when investors started looking at the fundamentals. As noted below, the eurozone’s recovery is just not that great and serious issues, such as unemployment, remain.

Plus the euro currency began appreciating and that’s not good for exporters, while the first-quarter growth figure out of the U.S. spoke of weaker global demand for euro products.

It’s complicated when it comes to the euro bond market. Well, to some of us, not that complicated. I told you long before Bill Gross that the bond rally was beyond insane, though I continue to focus on Italy and Spain. And as spelled out below, the inflation data is improving, which is hardly good for bonds in the long run.

So a reminder of the yield on March 6, the Friday before QE was launched by the European Central Bank, and the closing yield on Friday, May 1.

Germany 0.39% (3/6)...0.37% (5/1)
France 0.69%...0.64%
Italy 1.31%...1.43%
Spain 1.29%...1.39%
Portugal 1.74%...2.04%

Yes, these are hardly dramatic moves when looking at the nearly two months, but the point is the rally off QE is already over, and that creates tremendous uncertainty.

As for the latest economic releases, a flash estimate for April inflation for the euro area had it at an annualized rate of 0.0%, better than -0.1% in March and -0.6% in January. So this is encouraging, but, again, not good for bonds if the trend continues.

On the unemployment front, the rate for the eurozone in March was 11.3%, unchanged from February and down only slightly from the March 2014 figure of 11.7%. [Reminder...the U.S. is at 5.5%.]

Greece is still at 25.7% (Jan.), while Spain is 23.0% (down from 25.1% year over year).

Italy’s rate has risen to 13.0% from 12.4%, yoy, while France’s is 10.6% from 10.1%, yoy.

And you still have youth unemployment rates of 50.1% in both Greece (Jan.) and Spain, while Italy’s is 43.1% and Portugal’s is 33.8%.

No wonder you saw such violent May Day protests in the likes of Milan today.

One other item on France...consumer spending fell 0.6% in March over February.

But the news in Spain, aside from the employment situation, is improving. The government is now forecasting GDP growth of 2.9% this year, with the first-quarter figure coming in this week at 0.9% over the fourth quarter. [GDP in 2014 rose 1.4% after five years of recession or no growth.] Retail sales rose 3.7% year over year in March.

But for all the good news, Prime Minister Mariano Rajoy’s party, facing national elections this year, would receive only 22%, half of what it polled in 2011, though it maintains a slight lead over three rivals.

Speaking of elections, all eyes are on Britain, which holds its big vote this Thursday, May 7, and in a race that has been too close to call from the beginning, neither the ruling Conservatives (Tories) or Labour is going to get an outright majority, though it’s felt Labour will have a better chance of forming a coalition.

Prime Minister David Cameron had promised to renegotiate Britain’s relationship with the European Union and hold an in/out referendum before the end of 2017, but this was contingent on him winning a second term.

And in these final weeks, Cameron, whose campaign has been built on the solid economic recovery in the U.K., received some bad news when first-quarter GDP rose a less than expected 0.3%, 1.2% annualized, according to the Office for National Statistics, which is the weakest figure in more than two years. [Q4 was up 0.6%.] Plus the April manufacturing PMI was a less than expected 51.9 (vs. 54.0 in March), though at least manufacturing has been in a growth mode, above 50, for over two years. Nonetheless, Cameron’s opponents can talk of a ‘slowing economy.’

Turning to Asia, Japanese Prime Minister Shinzo Abe was in the United States for a state visit, becoming the first prime minister since the end of World War II to address a joint session of Congress. Abe was greeted warmly by President Obama and while security issues were on the agenda, including Abe’s quest to build up Japan’s military capacity, the Trans-Pacific Partnership, TPP, a major trade agreement, was also on the table.

Congressman Paul Ryan (Rep.-Wis.) / Washington Post

“The TPP would tear down trade barriers that block U.S. exports to many Asian markets. This is a big opportunity for the United States. By 2030, Asia’s middle class will have grown to 3.2 billion people. That’s more than 10 times the projected size of North America’s middle class. If we want to create more jobs in the United States, we need to make more things in the United States and sell them overseas – to Asia, especially.

“But Japan may need the TPP even more than we do. In the past 20 years, its economic growth has been close to nil, for a number of reasons: an aging population, a shrinking workforce and a rigid, overregulated economy. When he ran for office, Abe promised to slay this stagnation with the ‘three arrows’ of his platform, now known as ‘Abenomics’: fiscal stimulus, monetary expansion and structural reform.

“Abe has kept his promises – mostly....but the structural reform Abe promised has been slow to arrive. And no surprise, the lack of reform has meant a lack of results....

“Luckily, a solution is within reach: the TPP. This high-standard agreement will require all member countries to dismantle many of the trade barriers that hobble their economies. Japan is a prime example. The country lays huge tariffs on American foodstuffs and erects all sorts of barriers to keep out American autos; some tariffs can exceed 700 percent. Japan lobbied hard to join the TPP talks but still hasn’t committed to eliminating these barriers....

“Completing the TPP would strengthen Japan’s economy and its national security. The U.S.-Japan alliance is the hub of the Asia-Pacific order. The United States has pledged to defend Japan in case of attack, and in exchange, Japan allows the United States to station roughly 50,000 troops on its islands. As a result, U.S. forces can maneuver throughout the region, protecting sea lanes and maintaining order.

“A rising China is trying to test the boundaries of that order by asserting control over disputed territory and pressuring its neighbors to grant special privileges to its products. In fact, China is negotiating trade agreements all over the world and trying to rig the rules in its favor....

“If the United States and Japan lock arms, we can resist China’s bullying and reassert leadership in the Asia-Pacific....

“The United States is waiting. The world is watching. And for both countries, the opportunity is huge. Shinzo Abe is a once-in-a-generation leader with a once-in-a-generation opportunity. He put it best when he said, ‘Without action, there can be no growth.’ I can think of no better reason to drop the trade barriers and complete the TPP.”

Thomas L. Friedman / New York Times

“With rising disorder in the Middle East and Africa – and with China and Russia trying to tug the world their way – there has never been a more important time for the coalition of free-market democracies and democratizing states that are the core of the World of Order to come together and establish the best rules for global integration for the 21st century, including appropriate trade, labor and environmental standards. These agreements would both strengthen and more closely integrate the market-based, rule-of-law-based democratic and democratizing nations that form the backbone of the World of Order.”

Japan did report some important data this week. The manufacturing PMI for April fell to 49.9, the worst since July 2014, while core inflation in April rose 0.2%, up from zero in February. Vehicle sales rose 5% in April year over year, and the unemployment rate fell to 3.4%.

Add it all up and Bank of Japan Gov. Kuroda said no further easing of monetary policy was needed, though the BoJ cut its forecast for Fiscal 2015 core inflation to 0.8% from an earlier estimate of 1.0%, while maintaining its target of 2% by sometime in 2016.

In China, the People’s Bank of China is planning a QE type program, purchasing local government debt as another way to stimulate the economy. Thus far it has cut the key lending rate twice and lowered bank reserve requirement ratios.

Profits earned by Chinese industrial firms were down 2.7% in the first quarter, year over year.

The other week the government announced the economy grew at the targeted 7% pace, though no one believes this number. The Wall Street Journal had a report on Monday whereby Citibank says the actual rate is 6%,   But Capital Economics pegs growth at 4.9%, and Lombard Street Research says Q1 was more like 3.8%.

Finally, the Washington Post’s Robert Samuelson had some interesting thoughts on China.

“No country can be a global power without an engineering and scientific base. It’s necessary to run modern factories, develop new products, analyze and deal with complex social problems – pollution, food safety, sickness and disease – and (if the country chooses) to build and project military might. China’s rise to power once again confirms this truism.

“It is a stunning reversal. During the Cultural Revolution (1966-76) – Mao Zedong’s grisly effort to purify the Communist Party by banishing millions of Chinese to the countryside – China repudiated modern science. It effectively shut many universities....The ban on graduate students lasted until 1977.

“Since then, China has been on a science and technology tear, as a new study by Harvard economists Richard Freeman and Wei Huang shows....

“From being a ‘bit player’ in research and development, China now spends more on R&D than any other country except the United States. In 2011, China’s R&D totaled $208 billion compared with $429 billion for the United States and $147 billion for Japan, says the National Science Foundation. However, the entire European Union (about $300 billion) topped China.

“The pool of scientists and engineers has exploded. From 1990 to 2012, the number of bachelor’s degrees awarded to science and engineering graduates rose from 148,886 to 1,258,643. (These figures exclude students who receive technical degrees and typically graduate in two or three years.) Large gains have also occurred for higher degrees. From 1990 to 2012, the number of scientific and engineering PhDs jumped from 1,626 to 27,652.

“China’s share of worldwide scientific papers has increased dramatically, from 6,285 in 1990 (1.2 percent of the global total) to 116,633 (13.7 percent) in 2012. The United States remains the leader, however. It accounted for 30.8 percent of worldwide papers in 2012, down slightly from 32.5 percent in 1990.

“ ‘China’s leap forward in science and engineering,’ write Freeman and Huang, ‘is one of the defining events in modern intellectual history.’....

“All this bodes well, say Freeman and Huang. Global knowledge will ‘advance more rapidly than if China had remained a scientific backwater.’ Everyone benefits. Scientific collaboration could spill over into broader ‘cooperative relations between the two countries.’ That is the upbeat view. It is plausible.

“But so is the pessimistic view that the two countries are already economic rivals and might become military adversaries. Cooperation with China might then seem shortsighted behavior that made us more vulnerable. The central question remains: Are American and Chinese interests compatible – or on a collision course?”

Street Bytes

--Stocks continued a recent up/down, up/down pattern as the Dow Jones lost 0.3% to 18024, while the S&P 500 fell 0.4% and Nasdaq lost 1.7%.

The Dow gained 0.4% in April, with the S&P rising 0.85% for the month.

On the earnings front, FactSet says the bottom line, eps, for the first 360 of the S&P 500 to report is down 0.4%, far better than the estimate of down 4.6% heading into earnings season.

--U.S. Treasury Yields

6-mo. 0.04% 2-yr. 0.60% 10-yr. 2.11% 30-yr. 2.83%

The yield on the 10-year had been in a trading range of 1.86%-1.99% for 30 sessions, through Tuesday, before breaking out to the upside, primarily on the feeling that once again, the first quarter was an anomaly and better growth is ahead.

--I have to lead with the world’s most valuable company. Apple handily beat the Street’s expectations for its fiscal second quarter and announced it would return another $70 billion to shareholders. Apple’s revenue grew 27 percent to $58bn, thanks to stronger-than-anticipated iPhone sales, up 40 percent to 61.2m units. Net profit for the March quarter was $13.6bn.

CEO Tim Cook said, “We’re seeing a higher rate of people switching to iPhone than we’ve experienced in previous cycles, and we’re off to an exciting start to the June quarter with the launch of Apple Watch.”

Apple said between its dividends and share buyback program, $200bn would be returned to shareholders by the end of March 2017, up from $130bn a year ago, which includes an 11 percent dividend increase and a further $50bn in share repurchases. The company ended the quarter with $194 billion in cash and investments, far more than any other non-financial company in the S&P 500; more than Microsoft and Google combined

But iPad remains a sore point with sales of 12.6m, below expectations and the fifth straight quarter of year-over-year declines. Mac sales, however, rose a solid 10 percent to 4.56 million. But regarding the iPhone, the latest version with a bigger screen seems to have driven a new wave of upgrades.

Apple shares had traded at an all-time high above $133 on Monday, prior to the earnings release, but closed the week at $129, as some analysts worry about the short term, seeing as the next iPhone update isn’t likely until September.

As for Apple Watch, the company said it would not break down sales, but rather Watch revenues would be rolled into a broader category of accessories including the iPod. It plans to begin offering the product in other countries at the end of June as it catches up with initial supply issues, including a glitch from a Chinese supplier. [We’ve also learned it doesn’t interact well with those wearing tattoos.]

Speaking of China, Apple’s iPhone sales there have been soaring, outpacing those in the U.S. for the first time.

--Exxon Mobil and Royal Dutch Shell reported sharply lower earnings, with Exxon announcing a 46 percent decline to $4.9 billion for the first quarter; revenue falling to $67.6 billion, from $106.3 billion, a 36 percent decline, largely due to the plunging price of crude since last summer. Royal Dutch Shell had similar results.

But Exxon, despite cutting capital expenditures 10 percent, nonetheless reported production rose 2 percent, owing to new production in the Gulf of Mexico, Angola and Russia. [New York Times]

I should add that both companies had stronger results from their refining operations due to lower feedstock costs and improved demand.

Friday, Chevron weighed in and while it handily beat analyst expectations, profits were nonetheless down 43% vs. a year ago, while revenue fell 35%.

--Iowa joined Wisconsin and Minnesota in declaring an emergency response to a bird-flu outbreak, with the number of affected birds in the state now more than 16 million. Again, the virus poses a low risk to human health, but the financial damage to those farmers impacted is significant.

--Auto sales for April were in line with expectations, up a very solid 6% compared with a year ago. General Motors posted a 5.9% increase, with sales of the Chevrolet Equinox midsize SUV up 42%, while sales of the Chevy Cruze compact dropped 4%.

Ford Motor Co. posted its best April in nine years, up 5%, while the revamped Ford Edge midsize SUV registered its best April ever, up 78% from a year ago.

So you see the pattern? Owing to lower oil prices, buyers have been flocking to crossover SUVs that handle like cars, though the gains came at the expense of many small and midsize models.

Among the other automakers, Fiat Chrysler’s U.S. sales rose about 6%, while Toyota Motor Corp. reported a 1.8% increase, Nissan’s were up 5.7%, and Hyundai’s rose 2.9%. But Volkswagen, which lacks strong SUVs, saw sales fall 3%.

--Earlier Ford reported first-quarter profit fell 10.6% in the U.S. from the year before as its F-150 deliveries were off 40% over a year earlier due to factory conversions here. Overall, profits fell 7%, while revenue declined 6%.

--Just two weeks after initiating a probe of Google, the European Union is widening its front against U.S. tech companies, as France and Germany pressure Brussels to take a tougher stand on the likes of Google and Amazon.

As reported by the Financial Times’ Duncan Robinson and Alex Barker:

“In a draft plan for a ‘digital single market’ encompassing everything from online shopping to telecoms regulation, the commission said it would probe how online platforms list search results and how they use customer data. The latest draft of the plan, seen by the FT, will be approved by the commission next week.

“The plan could also bring in stricter rules for video-on-demand services such as Netflix and messaging apps like WhatsApp and Skype that have become big rivals to traditional European media and telecom companies.

“Companies such as Airbnb and Uber are also likely to be roped into any investigation into platforms, which will aim to determine whether they are abusing their market power in the so-called ‘sharing economy.’”

The Obama administration counters the EU’s assault on big American tech groups is protectionism.

--Shares in LinkedIn were obliterated to the tune of 20 percent after the business networking site warned sales in its current quarter would be $45m below Wall Street’s forecasts at $670-$675m, in part because of currency fluctuations.

But the company also reported earnings for the year of $1.90, far below the Street’s expectations of about $3.00.

Revenues for the March quarter were up 35 percent to $638m, with earnings of 57 cents, both basically in line, but it was the first time since LinkedIn became a public company in 2011 that its results didn’t exceed forecasts.

The company did say that the site’s cumulative membership grew 23 percent to 364m, with mobile making up more than half of all traffic to the site, but didn’t offer the kind of detail the Street was really looking for.

--Earlier in the week, Twitter shares fell about 25 percent as it missed revenue expectations and lowered its guidance after warning user growth was off to a “slow start” in the current quarter and that changes to its advertising formats had reduced click-through rates.

Miriam Gottffried / Wall Street Journal

“Twitter still seems to be flying against the wind.

“The micromessaging company reported a wider-than-expected first-quarter net loss as revenue of $436 million came in 4% short of expectations. Meanwhile, Twitter’s user growth slowed to 18% year over year from 21% in the fourth quarter. The company said this metric was off to a slow start in the current period.

“Even worse, the company expects second-quarter revenue of $470 million to $485 million. Analysts had been looking for $538 million....

“But the issue facing Twitter is bigger: Its growth story, already a concern in previous quarters, is rapidly losing traction. Compounding concerns over Twitter’s ability to monetize its service are questions about user engagement.”

Mark Mahaney, an analyst with RBC Capital Markets, said, “Management will again have to address credibility concerns,” as calls for CEO Dick Costolo’s ouster are being renewed.

Others wonder how much of Twitter’s stumbles are due to its own missteps and how much is due to the likes of Instagram and Facebrook eating into their advertising, as another analyst, Richard Greenfield, of BTIG Research, observed. [New York Times]

Watching Costolo in an interview on CNBC, to say I was unimpressed would be an understatement.

Finally, it didn’t help that Twitter’s negative earnings results were leaked, after Nasdaq accidentally published the company’s results early, allowing an independent data gathering company, Selerity, to find the results and tweet them out with the hashtag ‘BREAKING’.

--Then there was local reviews site, Yelp, whose shares dropped over 20 percent after it missed revenue and earnings forecasts for the first quarter, with the company also cutting its guidance.

So you add up these results and it all calls into question whether social media stocks can grow enough to warrant their grossly excessive valuations.

I was at a tech conference in New York on Thursday and some venture capitalists on one particular panel couldn’t help but call into question valuations in some parts of the sector. Many analysts, heretofore ever bullish, are rapidly losing confidence.

--The 2015 Global Risk Management Survey, released this week by risk management and insurance firm Aon, queried more than 1,400 respondents at public and private companies around the world, with cyber risk emerging as a major concern for the first time, along with damage to brand and reputation.

According to PricewaterhouseCoopers, the number of detected cyberattacks rose 48 percent in 2014, compared to the year before. A similar rise is expected in 2015. [James Griffiths / South China Morning Post]

--There is a 1972 rule that requires investment banks and trading firms to maintain enough cash and liquid assets to cover customer assets should the firm go under; a pretty simple concept not always followed in the history of the Street.

So this week the Wall Street Journal’s Jenny Strasburg reported that the SEC is looking into whether Bank of America Corp. broke the rules safeguarding client assets by putting these funds at risk to generate more profits, though this activity took place at the Merrill Lynch unit and the strategy was stopped in mid-2012. [BofA acquired Merrill in 2009.]

It’s complicated, but to me simply seemed like another way to manipulate the P&L.

--The Wall Street Journal had a front page story on Friday about how just a few drugs account for more than a quarter of spending on prescriptions for America’s elderly, according to new data released from Medicare’s prescription-drug program.

“(Out) of nearly 3,500 drugs prescribed (in 2013), roughly 400 with a cost of $3,000 or more per beneficiary added up to $26.5 billion...(The drugs) accounted for 26% of total spending but just 1% of claims.

Brand name drugs for conditions like acid reflux and asthma represented the top three largest drug expenditures (Nexium, Advair, and Crestor for cholesterol).

--Story in the L.A. Times by John M. Glionna goes into the sorry state of Lake Mead, which is at a historic low level. On Tuesday, the reservoir outside Las Vegas that is so critical for California, Arizona and Nevada, fell to nearly 140 feet below capacity, which is disastrous, especially when you consider the summer heat is around the corner.

A spokeswoman for the U.S. Bureau of Reclamation in Las Vegas told the Times that Lake Mead hasn’t been this low “since we were filling it in the 1930s.” Water restrictions for Nevada and Arizona are around the corner, with the Colorado River serving Phoenix and Las Vegas, as well as key California cities.

--Speaking of water shortages, California Gov. Jerry Brown announced new legislation that would increase the maximum penalty for wasting water to $10,000 per day, up from $500.

--Tesla CEO Elon Musk unveiled batteries that can power homes and businesses as the company  attempts to expand beyond the car business. Some have long said when you buy Tesla you are really investing in a battery company, especially given its low sales volume on the auto side.

Musk announced the batteries would store solar energy and serve as a back-up system for consumers during blackouts. The device would allow consumers to go off the grid and bring power to remote areas not on the grid, which is a cool thought.

Musk said at an event on Thursday that the company’s move could help change the “entire energy infrastructure of the world.”

“Tesla Energy is a critical step in this mission to enable zero emission power generation,” the company said in a statement.

The rechargeable lithium-ion battery unit would be built using the same batteries Tesla produced for its electric vehicles.

Initially, Tesla would partner with SolarCity to install the home batteries, but more companies will be announced.

No doubt there is tremendous growth potential in what is being called the “stationary storage” market.

But at the same time, the basic home unit will cost $3,500 upfront (plus installation and other costs), so Tesla has to convince potential customers of the cost-saving benefits.

And there are rivals such as GE and South Korea’s top chemical company, LG Chem. And as the BBC notes, “There is also a danger that this particular lithium ion battery could be superseded within a few years by other technology, like hydrogen fuel cells, which Tesla is not equipped to make.”

--General Motors announced it would invest $5.4 billion to upgrade its U.S. factories over the next three years. This is good...the kind of capital spending the economy needs.

G.M. didn’t specify where the investments would be made except to name three Michigan plants (Pontiac, Lansing and Warren) that would receive a combined $783.5 million in improvements. The Lansing investment apparently saves 1,900 jobs there.

--Walmart plans to add 115 new stores in China over the next three years. CEO Doug McMillon said, “Our goal is not to be the biggest retailer in China, we want to be the most trusted retailer.” Dumb move. Walmart will get screwed. Same-store sales there have already been dropping.

--Burger King and Tim Hortons posted their strongest same-store sales performance in several years in the first quarter. Sales at Tim Hortons rose 5.3 percent during the quarter, thanks in part to a new steak and cheese panini (Mmmmmm). At BK (remember, both are owned by Restaurant Brands International), the same-store sales rose 4.6 percent. Why I contributed to this, and it compares with McDonald’s continuing sales declines.

--Following years of government investigations, for-profit Corinthian Colleges Inc. announced it was shutting down more than two dozen of its remaining schools, displacing more than 10,000 California students right before final exams. Unreal.

Corinthian was once one of the nation’s largest for-profit chains but now students must seek transfers or federal loan forgiveness.

Loans were the lifeblood and downfall for Corinthian. Easy access to student debt fueled profits until the federal government cut off the flow after investigators accused the school of falsifying job placement rates.    As the Los Angeles Times’ Chris Kirkham notes:

“Many students, attracted by the promise of higher-paying work, now find themselves with heavy debts for degrees of dubious worth. Many others won’t graduate at all.”

--Shares in Lumber Liquidators cratered anew as it was revealed the federal government has launched a criminal probe into its China-sourced laminate flooring, as first exposed on “60 Minutes” March 1; the report alleging the laminates contained higher levels of formaldehyde than claimed.

The stock is down about 60 percent this year.

--Anheuser-Busch took a lot of heat this week when a slogan on Bud Light bottles had to be pulled.

A recent label, part of its “Up for Whatever” campaign, read that the beer is perfect for “removing ‘no’ from your vocabulary for the night.”

Doh! A-B quickly faced a torrent of criticism on social media. [I think the people in the “Up for Whatever” commercials are jerks.]

--Former Federal Reserve Chairman Ben Bernanke has now announced he will be an adviser for both Citadel, a large hedge fund run by billionaire Kenneth Griffin, and PIMCO, where he will advise both on monetary policy, financial markets and the global economy. This man is incredibly overrated, as scores of my “Wall Street History” columns, let alone “Week in Reviews,” prove. He missed the single biggest issue of his time, the real estate bubble...pure and simple. He did the right thing once the crisis hit, I grant him that, but then after? C’mon.

--Brian Williams reportedly is not giving up easily when it comes to his “NBC Nightly News” job.

A source told the New York Post, “Brian is saying he’s not going down without a fight and [is] threatening to make it really ugly – worse than Ann Curry.”

Curry and Williams are represented by the same lawyer. The source said NBC wants Williams to resign after they found far more times that he lied – 11 in all, according to an internal investigation.

But then you have reports saying NBC News boss Andy Lack wants to save his friend.

Meanwhile, us NBC viewers (passed down through the generations), like Williams’ replacement, Lester Holt. Yes, all across the country, the chant can be heard, “Go Lester, Go Lester, Go Lester, Go!”

But “ABC World News Tonight,” hosted by David Muir, has won the last three weeks in the key 25-to-54 demographic.

--Hulu cut a deal with ‘Seinfeld’ for reruns, while at the same time promoting its new Netflix-like original series such as Stephen King’s “11/22/63,” starring James Franco. “Seinfeld” will cost Hulu about $1 million an episode, or $180 million. Hulu is still way behind Netflix’s 41.1 million streaming customers.

--According to WalletHub, Newark, N.J., is the worst city to start a business in the country. Jersey City ranked second-worst.

The best? Shreveport, Louisiana. Huh.

--I doubt I’m going to shell out $99.95 to view the Mayweather-Pacquiao fight. [I told my readers in another column this week I’m going to be at a Kentucky Derby party and just think I’ll be passed out by 9:00.] But one of the stories is the outrageous hotel prices in Las Vegas...record prices.

According to Hugo Martin of the Los Angeles Times, “Rooms for fight weekend have jumped as much as $750 over their average daily rates, according to data compiled by Vegas.com. The MGM Grand Hotel & Casino, the fight site, has been selling standard rooms at $1,600, compared with the typical $270 a night.

“That’s a pittance compared with the cost of fight tickets – more than $100,000 for a ringside seat, or a mere $4,600 for seats in the nosebleed section.”

You’re reading those figures right. [But late Friday they were all coming down.]

Personally, I pray Pacquiao pounds the crap out of Mayweather; Mr. Mayweather being a well-documented abuser of women. In fact, if you are rooting for Mayweather, one question. Why?

Foreign Affairs

Iran: While talks on Iran’s nuclear program continue as the June 30 deadline for a final plan rapidly approaches, the U.S. and Iran are locking horns in the Strait of Hormuz, as the U.S. navy announced it would be accompanying American-flagged ships there in response to Iran’s seizure this week of a Marshall Islands-flagged ship in this key gateway to the Persian Gulf.

Iran claims the seizure of the M/V Maersk Tigris was the result of an unresolved financial dispute, but the U.S. sees it as a provocative act.

One U.S. official told the Wall Street Journal: “Out of an abundance of caution, because of the unpredictability of our Iranian friends, we’re now positioned so that, should the Iranians decide that they’re going to be stupid, we’re ready to respond.”

Some 30% of the world’s seaborne oil shipments pass through the 21-mile-wide Strait.

On the nuke talks, Iranian Foreign Minister Javad Zarif, speaking at an event at New York University, warned the United States will isolate itself if Congress voted to nullify any nuclear deal.

“I believe the United States will risk isolating itself in the world if there is an agreement and it decides to break it,” said Zarif. “Whether you have a Democratic or Republican president, the United States is bound by international law, whether some senators like it or not,” he added. “And international law requires the United States live up to the terms of an agreement it enters into.”

“If the U.S. Senate wants to send a message to the rest of the world that all of these agreements that the United States has signed are invalid, then you will have chaos in your bilateral relations, although you are welcome to do it,” he added.

Zarif added that with regards to the ‘framework,’ there remain disagreements on the phrasing of “almost everything.” 

Zarif did say Iran was willing to accept a provision whereby its facilities could be inspected for suspect undeclared nuclear work, but, “If you’re looking for a smoking gun, you’re going to wait a long, long time before you get one.”

The foreign minister also expects the U.N. Security Council will vote to lift all sanctions “within a few days” of an agreement, and that the U.S. would be forced to do the same, “whether Senator Cotton likes it or not.” Cotton, responding on Twitter, called Zarif a coward and challenged him to a debate on the Constitution.

Sec. of State John Kerry said on Monday that the world is “closer than ever” to reaching a comprehensive deal with Iran.

Talks resumed Thursday in New York and will continue in Europe next week. [Carol Morello / Washington Post]

Editorial / Wall Street Journal

“The Islamic Republic of Iran has been in the hostage-taking business since its earliest days, so nobody should be surprised by Tuesday’s news that Iranian warships seized a cargo ship and her crew of 34 in the Strait of Hormuz. But it’s a useful reminder of the kind of regime with which the West is now seeking to strike a nuclear bargain....

“The Iranian action is effectively identical to the ship-seizing by Somali pirates in the Indian Ocean’s Gulf of Aden and Arabian Sea.

“It’s also a reminder that Iran has not moderated its rogue behavior during the presidency of Hasan Rouhani, whose own alleged moderation is one of the Obama Administration’s justifications for seeking a nuclear deal.

“On the contrary, Mr. Rouhani has presided over renewed domestic repression and redoubled regional aggression. A nuclear deal is supposed to ease Iran’s return to the community of civilized nations, but so far Western concessions seem to have emboldened it into thinking it can do as it pleases. The habit of seizing unarmed ships on the high seas – or innocent foreign reporters working in Iran – is barbarism....

“Iran’s disdain for basic maritime conventions is a good indicator of how it will treat any agreement it signs, which is why the Obama Administration is deluding itself that it can draw a line between Iran’s everyday behavior and its nuclear commitments. Pirates don’t keep their word, and it’s dangerous to bargain as if they will.”

Mortimer Zuckerman / Wall Street Journal

“How far Mr. Obama is prepared to chase the negotiation dream is illustrated by the recent candor of his energy secretary, Ernest Moniz, a nuclear physicist who has been party to the negotiations. In 2013 the president answered questions about Iran’s ability to produce nuclear weapons with these words: ‘Our assessment continues to be a year or more away, and in fact, actually our estimate is probably more conservative than the estimates of Israeli intelligence services.’

“Yet on Monday Mr. Moniz told reporters at Bloomberg a different story: ‘They are right now spinning. I mean enriching with 9,400 centrifuges out of their roughly 19,000,’ he said. ‘It’s very little time to go forward. That’s two to three months.’ How long has the administration held this view? ‘Oh, quite some time,’ Mr. Moniz replied. The Bloomberg report suggests ‘several years.’

“This stunningly casual remark was based on information apparently declassified on April 1. What is Mr. Obama up to? Why was he reassuring in 2013 when he knew it was misleading? Is the declassification intended to create a false sense of urgency?....

“No wonder Saudi Arabia and Egypt are insisting on developing equivalent nuclear capabilities. America’s traditional allies have concluded that the U.S. has traded temporary cooperation from Iran for acquiescence to its ultimate hegemony.

“The sanctions that brought Iran to the negotiating table took years to put in place. They have impaired Iran’s ability to conduct trade in the global market. The banking freeze in particular has had a crippling effect, since international businesses will not risk being blacklisted by the U.S. and European Union to make a few dollars in Iran. Many of those who have studied the problem believe that if the sanctions were to remain, they would squeeze Tehran and force greater concessions.

“President Obama seems to be willfully ignoring Iran’s belligerent behavior and its growing influence over Beirut, Damascus, Baghdad and Yemen’s capital, Sanaa. Free of sanctions, Iran may become even more assertive.

“There are no rainbows ahead, only menacing clouds.”

Yemen: Iranian Revolutionary Guard chief, Mohammad Ali Jafari, called Saudi Arabia a betrayer who is “following in the footsteps of Israel and the Zionists.

Referring to the Saudi campaign against Yemen, Jafari said:

“Today, Saudi Arabia is brazenly and obnoxiously bombarding and massacring a nation, which is seeking the denial of the hegemonic system.” [Jerusalem Post]

The Saudi-led coalition struck Yemen’s capital of Sanaa for the first time after Riyadh had said it was scaling back its campaign against the Iranian-backed Houthi rebels.

On Thursday, Saudi Arabia announced its forces killed dozens of Houthis from Yemen who launched the first major attack on the kingdom since the airstrikes began.

Also Thursday, Gulf foreign ministers rejected holding talks between rival political forces in Yemen on neutral ground. They insisted should any talks be held they take place in Saudi Arabia. Iran has proposed holding U.N. talks on ending the war at a neutral venue, excluding all countries from the Saudi-led coalition.

The World Health Organization says the death toll in Yemen has topped 1,200, many of them civilians, while aid groups say shortages of food and fuel have reached crisis proportions.

Saudi Arabia: Separately, Bloomberg reported the kingdom is burning through its foreign reserves at a record pace, owing in part to the largesse of the new king, let alone the war. According to Bloomberg, “The kingdom spent $36 billion of the central bank’s net foreign assets – about 5 percent of the total – in February and March, the biggest two-month drop on record, data released this week show.”

Among the reasons was an order from King Salman to give government employees and pensioners a two-month bonus after he ascended to the throne. Of course the plunge in the price of crude has hurt the situation, forcing the Saudis to use reserves to maintain spending on wages and investments.

Meanwhile, King Salman changed the line of succession, replacing Crown Prince Muqrin bin Abdulaziz with the powerful interior minister, Prince Mohammed bin Nayef, as next in line.

Salman also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved long-serving foreign minister, Prince Saud al-Faisal, who has shaped foreign policy for nearly four decades.

One other item...the kingdom arrested 93 people suspected of working with ISIS in an antiterror sweep. The militants were apparently targeting the U.S. Embassy and housing compounds. These arrests have taken place over the past several months but the Saudis just made them public to alert the people to the presence of ISIS in the country.

More than 2,000 Saudis are suspected of having joined Islamic State.

Iraq / Syria / ISIS: Michael Young / Daily Star

“President Bashar Assad’s regime is beginning to crumble despite assistance from Iran and its allies. However, such a prospect did not prevent the recent liquidation of Rustom Ghazaleh, once the head of Syria’s military intelligence network in Lebanon.

“The Syrian regime’s loss of Idlib and Busra al-Sham in recent weeks, followed by the defeat in the strategic town of Jisr al-Shughur last week, has exposed the gangrene at the heart of Assad rule. Something has been broken in the Alawite backbone of the state, with younger men in the community preferring to escape Syria rather than sacrifice themselves for a leader who cannot conceivably endure in the long term.

“What are the Iranians thinking? They have made Assad’s political survival a strategic priority, but the incompetence and brutality of his regime – to which Iran has amply contributed – have ensured the task is unachievable. Even with Iranian and Russian help Assad is losing ground rapidly. Partly that’s because the life is gone from his armed forces, which have been successful only in their campaign to slaughter tens of thousands of civilians.

“What the Iranian regime has failed to grasp is that violence and terrorization are rarely sufficient to keep a leader in office indefinitely. For the past four years Assad has deployed no other methods. He never offered those who fought on his behalf a vision of a desirable future that would make them pursue the fight. To stick with Assad offered no compensations, no light at the end of the tunnel. Only more depravity and abuse....

“Assad is not salvageable. The cohesiveness of the regime is disintegrating amid myriad rifts. Even Hizbullah, whose men are dying to ensure that Assad stays, has nothing but contempt for the Syrian army. The corpse’s stench is growing and no amount of Iranian stubbornness will reverse this....

“Bashar Assad’s regime is on life support. Someone needs to pull the plug, preferably Assad’s friends, while a negotiated transition in Syria is still vaguely possibly.”

Former Lebanese Prime Minister Saad Hariri warned Lebanon was threatened with a renewal of civil war unless rival Lebanese factions acted to elect a president and fight religious extremism. He added the removal of President Assad is the only way to restore stability in Syria. “I believe this will happen sooner rather than later,” he said. [Daily Star]

ISIS captured a dam in Iraq’s Anbar province and killed 127 Iraqi troops, including a top army commander, while Iraqi forces have begun a military operation to retake the dam near Fallujah.

ISIS also exploded three suicide car bombs at a border crossing with Jordan, killing four soldiers. IS said three foreigners from France, Belgium and Senegal carried out the attacks. 

Bottom line, despite the optimistic talk from U.S. officials about the tenor of the battle in Iraq, ISIS continues to display its resiliency.

Russia / Ukraine: According to NATO, Moscow has toned down its long-range air missions near European nations, after a year where NATO fighter intercepts of Russian aircraft spiked.

Gen. Philip Breedlove, NATO’s Supreme Allied Commander and head of U.S. European Command, said he did not know why Moscow has scaled back these types of patrols, but he noted Moscow’s military has “other kinds of focus...including (in) Ukraine” that may have placed extensive maintenance demands on its force structure.

Speaking of Ukraine, Breedlove said it appeared Russia-backed forces were “preparing, training and equipping” for a potential new offensive.

Breedlove also suggested the U.S. may need more forces in Europe.

“The forces in Europe over the last 20 years have been sized for a situation where we were looking at Russia as a partner,” he said. “What we see now is that Russia has demonstrated it is not a partner.” [Wall Street Journal]

The U.S. has just 67,000 troops permanently stationed in Europe, with an additional 3,000 currently deployed there on a temporary, rotational basis, according to the Pentagon. [My friend Jimbo is experiencing this latter bit first hand these days through his son-in-law.]

In Ukraine, pro-Russia rebels shut down the offices of the International Rescue Committee (IRC) in eastern Ukraine because the rebels accused it of spying.

Russian authorities also seized the assets of a candy factory owned by Ukrainian President Petro Poroshenko in the Russian city of Lipetsk. Poroshenko promised when he was elected last May to sell Roshen, which has annual sales of $1.2 billion. Now, who knows.

Meanwhile, this coming week in Moscow, Russia is commemorating the 70th anniversary of the end of World War II in Europe and it was announced North Korean leader Kim Jong Un will not attend after all.

The trip would have been Kim’s first overseas since he took power in 2011 and it’s not clear why he didn’t take the opportunity to place himself on the world stage.

30 foreign leaders will attend anniversary events but not all are attending a military parade on Red Square on May 9. German Chancellor Angela Merkel is visiting Moscow only on May 10.

One final item concerning Russia’s space program. An unmanned mission to supply the International Space Station was abandoned when the Progress M-27M cargo ship was unable to dock with the ISS, after it was launched on Tuesday from the Baikonur Cosmodrome in Kazakhstan. I never did see where the remains fell. This is yet the latest Russian space glitch. Recall I wrote the other day about a failed anti-missile rocket test, an upgrade to the S-300 system.

Japan: Retired U.S. Navy admiral Dennis Blair / Defense One

“The success of a longtime ally like Japan is important to the United States...but one of the bedrock principles of Abe’s policies and actions has been his support for the U.S.-Japan relationship. During a time when other friends openly question American steadfastness and treat their relationships with us like an a-la-carte menu – picking and choosing where, when and how they will support us – Japan has deepened its collaboration with the United States across the board. The prime minister has supported our policies even when they cost him in terms of domestic politics, such as moving American bases in Okinawa; or were not in line with Japan’s economic and strategic interests, including support for sanctions against Iran and Russia....

“(Some of Abe’s statements about Japan’s actions during tis military era) have shown an insensitivity that mars Japan’s hard-earned reputation for contrition and peaceful accomplishments.

“However, 70 years after our two countries fought a savage war against one another, we have forged a vitally important and remarkably resilient relationship that is stronger than it has ever been – in large measure due to the efforts of Shinzo Abe. We will each continue to have concerns about certain policies or actions, but the strategic partnership between our countries is vital.

“With a friendship like this, perhaps Washington should get Abe a permanent room in town.”

China: In a statement released by the leaders of the 10-member Association of Southeast Asian Nations (ASEAN), China’s island-building efforts are targeted.

“We share the serious concerns expressed by some leaders on the land reclamation being undertaken in the South China Sea, which has eroded trust and confidence and may undermine peace, security and stability.”

New photos released this week show flotillas of Chinese vessels “heaping huge amounts of sand on coral reefs also claimed by the Philippines.”

Philippine Foreign Secretary Albert del Rosario warned his regional peers that China was poised to take “de facto control” of the strategic seaway. [AFP]

In a study released in the journal Environmental Health Perspectives, an international team of researchers compiled information on births from nearly 84,000 Chinese mothers in Beijing and the study found that women who were eight months pregnant during the 2008 Olympics, which ran in August, were on average 23 grams heavier than infants born during the same period in 2007 and 2009.

Said the lead author out of the University of Rochester, “We think pollution has an effect on birth weight.”

During the Olympics, officials successfully cleaned up the air for the weeks of the Games.

Indonesia: International scorn was heaped on this country after eight men were executed on drug charges early Wednesday. Authorities spared a female prisoner from the Philippines who had been scheduled to die.

Robyn Dixon / Los Angeles Times

“The Indonesians brushed off the frantic last-ditch efforts by lawyers, diplomats and government officials to halt the executions by firing squad of seven foreigners and a local man.

“The European Union and governments of France and Australia urged President Joko Widodo on Tuesday to halt the proceedings...

“The prisoners, clad in special white suits, were tied to poles in the darkness in a jungle location....and were then shot.

“On Tuesday afternoon, family members met with the condemned prisoners and then made heart-wrenching pleas to Widodo to spare the lives of the nine.

“ ‘I saw today something that no other family should ever have to go through,’ Michael Chan of Australia, the brother of Andrew Chan, told journalists after saying farewell to his brother in prison. ‘Nine families inside a prison saying goodbye to their loved ones. Kids, mothers, brothers, cousins, sisters, you name it, they were all there. To walk out of there and say goodbye for the last time, it’s torture.’”

France: Bucking the trend of its EU counterparts that continue to slash defense spending, French President Francois Hollande said his nation’s spending would rise by nearly 4bn euro to tackle extremist threats “at home and overseas.” A deployment of 7,000 soldiers to protect sensitive sites across France will become permanent, he said.

The increase is not for 2015, but for the four years beginning 2016.

Random Musings

--Baltimore police announced on Thursday they had concluded their investigation into the death of Freddie Gray and turned the results over to the city’s chief prosecutor, Marilyn Mosby, who just took office in January and hasn’t faced a high-profile test like this one. 

But then on Friday, Mosby suddenly announced she is filing charges against all six police involved in Gray’s death. She said Gray died from injuries he suffered as the police drove him around the city unrestrained in a van, a breach of policy, and that on several occasions officers refused his pleas for medical assistance.

Mosby added that the knife Gray was carrying at the time of his arrest was not a switchblade – as had been alleged – but a legal knife that was not probable cause for an arrest.

The charges include second-degree murder for the police officer who drove the van, while a second officer was charged with involuntary manslaughter. Other offenses for the six include misconduct.

Representatives for the officers charged said they had never seen such a rush to judgment.

Needless to say, this is far from over. These are charges. Now you have a trial.

Addressing the protesters, Mosby said, “I heard your call for no justice, no peace, but your peace is sincerely needed as I work to bring justice for Freddie Gray.”

Back to the beginning of the week...Mayor Stephanie Rawlings-Blake imposed a 10 p.m. to 5 a.m. curfew on Tuesday, but not the night violence broke out, Monday.

The Washington Post later in the week reported a prisoner sharing the transport van with Mr. Gray said he heard Gray “banging against the walls” of the vehicle and believed that he “was intentionally trying to injure himself,” according to a police document obtained by the Post.

The prisoner, after being released, tried to walk back his story after supposedly facing death threats.

John Podhoretz / New York Post

“Of late, America has been offering a moral subsidy of sorts to rioting and looting.

“We have been treating the nihilistic and destructive behavior of rioters and looters as though it is a legitimate expression of anger at alleged police misconduct. And so we are getting more of it.

“If we were raising the cost of participating in this kind of illegal and destructive behavior – if we were taxing it, in other words – there would be less of it.

“But authority figures in and out of government are finding it difficult to sort out the difference between legitimate protest and illegitimate destruction and separate the two.

“That confusion is at the heart of the controversy that has swirled around Baltimore Mayor Stephanie Rawlings-Blake since Saturday night. She offered an earnest effort to do just that – but her own words betrayed her.

“ ‘I made it very clear that I work with the police and instructed them to do everything that they could to make sure that the protesters were able to exercise their right to free speech,’ she said.

“ ‘It’s a very delicate balancing act. Because while we tried to make sure that they were protected from the cars and other things that were going on, we also gave those who wished to destroy space to do that as well. And we worked very hard to keep that balance and to put ourselves in the best position to de-escalate.’

“It seems clear Rawlings-Blake meant to say she had told her city’s police department to make sure protesters were given an opportunity to express their anger at the unexplained death of Freddie Gray... that cops needed to balance a protester’s right to free speech with their responsibility to secure their safety and the safety of other Baltimoreans.

“But what she meant to say and what she actually said were two different things. The words she actually spoke suggested the ‘balancing act’ she had directed the cops to follow was between the rights of the protesters to protest and the rights of ‘those who wished to destroy.’....

“This was an honest mistake, a moment of disastrous inarticulacy on the part of a worried and likely overwhelmed politician under intense pressure. She sought to clarify them later.

“But it’s worth asking why she made the mistake in the first place. The answer, I think, is that Rawlings-Blake did not want initially to attack or criticize or express moral outrage at the vile conduct of the rioters and looters.

“Why not? Primarily, one would hope, because her key goal was ‘to de-escalate’ the situation, and she might have thought words of condemnation would do the opposite.

“But there’s also the fact that since the deaths of Michael Brown and Eric Garner at the hands of police, pundits and community leaders and politicians alike have often failed to draw a bright-line distinction between proper protest on the one hand and large-scale social disruption and outright criminality on the other.”

President Obama compounded the issue “by describing the violence and looting as ‘counterproductive.’ That choice of word itself suggests the criminals were somehow engaged in protest but lost their way or got out of hand.

“By saying what he said, Obama followed Rawlings-Blake in offering an unconscious moral subsidy for the criminal disorder we have been watching for days now.

“And so, rest assured, there will be more of it until our leaders understand that ‘no excuse’ actually means ‘no excuse.’”

There’s a lot I want to say after viewing the coverage from Baltimore this week, but I better bite my tongue. I do think many of us did find it almost humorous to learn that if you call someone a “thug” these days, you’re a racist.

I do have to note, however, that the one time I admit to tearing up a little was when a black woman who worked at Levy’s sporting goods store was interviewed and your heart went out to her. The place was ransacked, by thugs, and she was now without a job, trying to support three kids.

And your heart goes out to the elderly in those neighborhoods, now without places to shop for essentials.

But that’s what happens when you have a police force that was told to stand down. Property didn’t matter. They were just “young kids,” as Police Commissioner Anthony Batts said. What a fool.

--In another bombshell on Friday, though it had been telegraphed, former Port Authority executive David Wildstein pleaded guilty to his role in the closure of access lanes to the George Washington Bridge, September 9, 2013, in what became known as “Bridgegate.”

Wildstein, a staunch ally of New Jersey Gov. Chris Christie, admitted to conspiring with former Port Authority Deputy Director Bill Baroni and Gov. Christie’s former Deputy Chief of Staff Bridget Anne Kelly to “punish” Fort Lee mayor Mark Sokolich for not endorsing Christie in his re-election bid.

Wildstein pleaded guilty to conspiracy to commit fraud and conspiracy against civil rights. He was released on $100,000 bail owing to his cooperation in the investigation and is scheduled to be sentenced Aug. 6.

Wildstein went to high school with Christie, though the governor has said they weren’t really friends.

As for Baroni and Kelly, both claim they are innocent and blame Wildstein; Baroni calling him a habitual liar.

For his part, Christie was not implicated, with U.S. Attorney Paul J. Fishman saying he did not anticipate further charges based on current evidence available in the case. Wildstein’s attorney has said “evidence exists” Christie knew about the closures   

But does this derail Christie’s presidential ambitions? As I’ve written for a long time, I never understood how the guy could think he had a chance to be the Republican nominee in the first place when he has done little to improve the condition of the state, for which he’d get excoriated in the presidential debates...let alone over the Bridgegate issue.

Wildstein has told several people in Christie’s administration that he had discussed the lane closures with the governor as they were happening, which Christie has always denied.

--In a new AP-GfK poll, nearly four in 10 Democrats and more than six in 10 independents agree “honest” was not the best word to describe Hillary Clinton.

Overall, 46% of Americans express a favorable view of Clinton, slightly more than the 41% who express a negative opinion.

Among Democrats, only 34% said they were excited by her candidacy.

--Vermont Independent Sen. Bernie Sanders, a self-described socialist, announced he was running for president as a Democrat.

--Henry F. Cooper and Peter Vincent Pry / Wall Street Journal

“The Pentagon is moving the headquarters for the North American Aerospace Defense Command (Norad) back into Cheyenne Mountain near Colorado Springs, Colo., a decade after having largely vacated the site.

“Why the return? Because the enormous bunker in the hollowed-out mountain, built to survive a Cold War-era nuclear conflict, can also resist an electromagnetic-pulse attack, or EMP. America’s military planners recognize the growing threat from an EMP attack by bad actors around the world, in particular North Korea and Iran.

“An EMP strike, most likely from the detonation of a nuclear weapon in space, would destroy unprotected military and civilian electronics nationwide, blacking out the electric grid and other critical infrastructure for months or years. The staggering human cost of such a catastrophic attack is not difficult to imagine.”

The Pentagon said the U.S. can defend itself from a nuclear-missile threat from North Korea, or Iran, but as Cooper and Pry write:

“That is true as far as it goes – but only if an attack on the U.S. comes from the northern skies. Former senior Reagan administration officials warn that the U.S. is unprepared to cope with nuclear EMP strikes from North Korea and Iran if their missiles’ trajectory takes a southern route.

“We are among those former Reagan officials....

“The U.S. has no ballistic-missile early-warning radars or ground-based interceptors facing south and would be blind to a nuclear warhead orbited as a satellite from a southern trajectory. The missile defense plans were oriented during the Cold War for a northern strike from the Soviet Union, and they have not been adapted for the changing threats.”

Well, the Pentagon may survive, “But how are the American people to survive? In the event of a yearlong nationwide blackout, tens of millions of Americans would perish from starvation and societal chaos, according to members of the Congressional EMP Commission, which published its last unclassified report in 2008.

“Yet President Obama has not acted on the EMP Commission’s draft executive order to protect national infrastructure that is essential to provide for the common defense.”

But states are beginning to take matters into their own hands, such as Maine and Virginia, the authors point out.

--The Wall Street Journal reported the FBI “helped facilitate a 2012 ransom payment to al-Qaeda from the family of kidnapped aid worker Warren Weinstein, senior U.S. officials said, in an unsuccessful bid to secure the release of the American, who was killed in January in a U.S. drone strike.

“The FBI’s previously undisclosed role reveals a contradiction in the U.S.’s longstanding position against paying ransoms for hostages. While the White House sharply criticizes the practice in public and private, new details about the Weinstein case show how the FBI provides some families with guidance towards that end.”

The Obama administration is reviewing both U.S. drone procedures and U.S. hostage policy.

--The Supreme Court heard oral arguments in an historic gay-marriage case and will eventually rule on whether the Constitution protects the right of same-sex couples nationwide to marry. Once again, observers believe it will all come down to Justice Anthony M. Kennedy.

Kennedy has written each of the court’s major victories advancing gay rights, but the question after Tuesday’s hearing seemed to be whether forcing some states to allow same-sex unions was moving too much, too fast. Kennedy, addressing the issue for opponents of gay marriage who contend that the institution is defined as between a man and a woman, said:

“This definition has been with us for a millennia. It’s very difficult for the court to say, ‘Oh well, we know better.’”

As noted by the Washington Post: “The justices are considering two simple-sounding questions: whether the Constitution requires states to issue marriage licenses to same-sex couples and, if not, whether states must recognize same-sex marriages performed in other states where they are legal.

“But the arguments were filled with discussions of equal protection and fundamental liberties, how an understanding of the Constitution changes with society, and when majority rule must give way to minority rights.”

Chief Justice John G. Roberts Jr., apparently seeking middle ground, said at one point:

“I mean, if Sue loves Joe and Tom loves Joe, Sue can marry him and Tom can’t. And the difference is based upon their different sex. Why isn’t that a straightforward question of sexual discrimination?”

Today, more than 70 percent of Americans live in states where same-sex couples are allowed to marry (37 states and the District of Columbia). A recent Washington Post-ABC News poll showed a record 61 percent of Americans say they support same-sex marriage.

The ruling will come in June.

--Ah yes, corruption. The Los Angeles Times’ Jack Dolan reported: “Two nonprofit trusts, created by the Los Angeles Department of Water and Power and financed with more than $40 million from ratepayers, doled out millions to vendors without competitive bids, overpaid top managers and let them use trust-issued credit cards to buy gas for their personal vehicles and travel without filing expense reports, according to city audits released on Thursday.

“In five years, a handful of trust employees racked up more than $660,000 in purchases on their publicly financed credit cards for things such as high-end steak dinners and trips to Las Vegas, Hawaii and New Orleans, City Controller Ron Galperin said.

“One top administrator who was making about $220,000 per year used his trust-issued card to pump more than $30,000 worth of gasoline into his personal vehicle between 2010 and 2014, auditors found.”

--According to a new study from NASA’s Goddard Institute for Space Studies, the fact the U.S. has gone nearly 10 years without a major hurricane is “unprecedented in the historical record.”

The study concludes it’s just a matter of plain dumb luck. The last nine years haven’t necessarily been inactive, the storms have either stayed out at sea or hit the Caribbean and Mexico.

Hurricane Wilma was the last major storm to hit the U.S., hammering Florida in October 2005, killing 61. And while Sandy (2012) was a whopper of a storm, it didn’t hit as a Category 3 or greater.

--Caroline Porter / Wall Street Journal

“U.S. middle-school students’ performance on social studies didn’t improve much between 2010 and 2014, federal test scores released Wednesday show, underscoring concerns about an uninformed citizenry and workforce....

“Since the federal law known as No Child Left Behind required reading and math tests for every student, some educators have voiced concerns that other subjects such as social studies have received less class time and attention....

“ ‘Social studies needs its own champion,’ said Chasidy White, an eighth-grade world history teacher in Brookwood, Ala., and a member of the National Assessment Governing Board. ‘There’s no big initiative out there for social studies.’”

Ain’t that the truth.
---

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

God bless America.
---

Gold closed at $1174
Oil $59.15...seventh straight up week.

Returns for the week 4/27-5/1

Dow Jones -0.3% [18024]
S&P 500 -0.4% [2108]
S&P MidCap -1.3%
Russell 2000 -3.1%
Nasdaq -1.7% [5005]

Returns for the period 1/1/15-5/1/15

Dow Jones +1.1%
S&P 500 +2.4%
S&P Midcap +4.2%
Russell 2000 +1.9%
Nasdaq +5.7%

Bulls 57.4
Bears 13.9 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Dr. Bortrum posted a new column!

Brian Trumbore