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05/23/2015

For the week 5/18-5/22

[Posted 11:00 PM ET, Friday]

Edition 841

Washington and Wall Street

The minutes from the Federal Reserve Open Market Committee’s April meeting left it pretty clear the Fed is not about to start raising short-term interest rates in June, especially after the economy’s poor performance in the first quarter.

Many officials “thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility,” the minutes said.

But while the economic data since the April 28-29 meeting has been mixed, Friday’s report on consumer prices for April may give the Fed just a little pause. While the CPI rose 0.1% and is down 0.2% for the past 12 months, the core rate, ex-food and energy, rose a higher than expected 0.3% and is now up 1.8% year-over-year...or just below the Fed’s 2.0% target. The Fed had previously announced they don’t need to see 2.0% exactly before pulling the trigger, so if the May CPI is also robust on core, perhaps the Fed could raise rates in July, but more likely September.

Fed Chair Janet Yellen did give a speech on Friday, wherein she said a rate hike is expected this year as long as the economy improves, as she sees moderate growth for 2015 and beyond, with economic headwinds waning.

While the labor market is nearing full strength, “we are not there yet,” said Chair Yellen.

“If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate.”

And, even after the first rate increase, Yellen said, “I anticipate that the pace of normalization is likely to be gradual.”

She also repeated the Fed’s two criteria for raising rates: “I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2% over the medium term.”

The next Fed meeting is June 16-17.

In other economic news, April housing starts hit their highest level in more than seven years, 1.135 million, far better than expected and up 20% from March’s pace.

But existing home sales in April were less than forecast, however the median sales price rose a solid 8.9% year over year, which isn’t good when looking at affordability.

Regarding second-quarter GDP, estimates are still all over the board, with the Atlanta Fed’s GDPNow indicator still calling for just 0.7% annualized growth, while most others are in the 2.0% to 3.0% range.

Earlier this week, the San Francisco Fed published a paper in which it argued there are issues with seasonal adjustments in the official growth statistics and that the first-quarter’s putrid number, 0.2%, is actually much higher. But for now this is just an academic exercise. [And Q1 is likely to be revised downward further next week.]

On the trade front, the Senate voted by a 62-38 margin to break a filibuster on legislation to empower President Obama to complete a major, 12-nation Pacific trade accord. 60 votes were needed. [And then late Friday night, right before I went to post, the Senate approved the overall bill on the Trans-Pacific Partnership, TPP, but it faces a big battle in the House.]

Finally, while the awful events that occurred in Iraq and Syria this week aren’t the kind that necessarily impact the financial markets, at least not yet, as I’ve been writing the past few months, defense spending will begin to rise substantially, beyond the small increases Congress and the White House have approved. The United States will be forced to step up, whether the administration wants to or not. As NBC’s Richard Engel, who knows the region as well as anyone on our airwaves, said the other day, for example, Iraq is “imploding.” Syria, as described below, long already had. At some point the increased spending is going to work its way into the psyche of the bond pits as future deficit projections are ratcheted upwards. And this is without any further mischief from Russia, let alone how the U.S. is going to be increasingly forced to spend more to defend the Pacific.

Europe and Asia

It’s still all about Greece, with this coming week being a telling one in terms of how Greece is able to handle the payment of pensions and wages. And then a slew of payments due the IMF, beginning June 5, and totaling 1.5bn euro in that month alone.

Greece desperately needs the 7.2bn euro in bailout aid it is still due (after which another bailout agreement would be worked out...it is assumed), but Friday, European leaders told Greece there will be no deal to release the aid without approval from the IMF itself.

German Chancellor Angela Merkel broke the news to her Greek counterpart, Alexis Tsipras, at a private meeting in Riga, as the IMF decides what to do with its share of the 7.2bn bailout tranche, a full 3.6bn.

It had been hoped a deal would be completed by the end of May, but the IMF is holding firm on Greek reforms previously agreed to, many of which the IMF believes have already been reversed under Tsipras.

Greek officials say they cannot possibly meet the IMF’s requirements, particularly on pension reforms, because they are politically impossible. But pensions have risen since Syriza took power and the IMF says this is unsustainable.

One senior eurozone official told the Financial Times: “They [Greece] have been listening to too many people who think that there may be some partial agreement. There will be no such thing. And there will be no agreement without the IMF. And the IMF is super tough.”

Merkel has been questioning the pace of the talks and wondering why the Greeks keep breaking off discussions with bailout monitors. German Finance Minister Wolfgang Schauble said he couldn’t rule out a Greek default

Tsipras says he needs to shore up political support back home as Syriza’s hardliners have been fomenting opposition to any deal with the EU and IMF for weeks. The rebels’ said in a text published on Monday on a leftwing website:

“We have to choose between signing what is obviously an austerity agreement and making a break with lenders... Syriza can’t become a party of austerity and this government cannot implement a memorandum [bailout agreement]....

“Our only choice is a rupture with the creditors – suspending loan repayments, [imposing] measures to restrict free movement of capital, putting banks under state control, taxing capital and the wealthy to finance measures to support ordinary people...and even a break with the euro,” it said.

Last weekend, Tsipras said: “Those who think that our red lines will fade as time goes on would do well to forget it. I want to assure the Greek people that there’s no way the government will back down on the issue of pension and wage cuts. A deal must be reached but it must be mutually beneficial.”

Philip Stephens / Financial Times

“Forget debt ratios, fiscal balances, liquidity crunches and the rest. The EU and International Monetary Fund technicians negotiating with Athens are going through the motions. The Greek crisis was always as much about politics as economics. Now it is all about politics.

“There are two theories of the Syriza government led by Alexis Tsipras. One presents a cast of bungling amateurs who have spent the past several months digging Greece into an ever deeper economic hole – all the while squandering the trust and goodwill of its eurozone partners. The other says the antics of Yanis Varoufakis, finance minister, are an elaborate political charade calculated to set Greece free from the shackles of merciless creditors.

“The first hypothesis is the most popular. The preening and pirouetting, the interviews in glossy magazines, the undergraduate Marxism and love of the limelight – all point to a colossal failure on Mr. Varoufakis’ part to grasp the depth of Greece’s plight or the sensitivities of its European partners. Along the way, tens of billions of dollars have been drained from Greek banks as citizens stash their savings elsewhere.

“The conspiracy theory, though, also has its adherents. They start with the assumption that no one could be quite as witless as Syriza has often seemed. Mr. Tsipras’ government knew from the outset that it could not reconcile its domestic promises with Greece’s international obligations. The problem was that Greeks had voted at once for an end to austerity and to stay in the euro. A crisis had to be manufactured to show the government’s hand had been forced. By the Germans, of course.

“I lean towards the former theory, but it hardly matters. Even at this late hour it would be unwise to say that a deal with creditors is absolutely impossible. High-stakes politics occasionally demands that pigs are seen to fly. What strikes me, though, is how far the conversation in other capitals has moved on. The risk of contagion in the rest of the eurozone has long been discussed. The talk now is about the chaos that would descend on Greece after default and euro exit. Would it be manageable or would the EU be left with a failed state?”

Meanwhile, the European Central Bank wants a weaker euro to help revive the eurozone economy but after falling over 25% in the past year, the euro had rebounded to a high of $1.14 at the end of last week, though this week it fell back to $1.10.

What the ECB didn’t count on was volatility in the bond pits, which ECB executive board member, Benoit Coeure, said was a major concern.

“It is the rapidity of the reversal that worries me more,” as he announced the ECB would accelerate slightly its bond purchases over May and June, more to allow it to scale back its activity in the slower summer period when liquidity is expected to be thin.

The euro bond market did then stabilize this week, though yields remain far higher on a percentage basis than when QE commenced March 9.

For his part, ECB President Mario Draghi told an audience in Portugal on Friday: “Monetary policy is working its way through the economy. Growth is picking up. And inflation expectations have recovered from their trough....

“This is by no means the end of our challenges, and a cyclical recovery alone does not solve all of Europe’s problems,” he said.

“It does not eliminate the debt overhang that affects parts of the Union. It does not eliminate the high level of structural unemployment that haunts too many countries. And it does not eliminate the need for perfecting the institutional set-up of our monetary union.”

Bottom line, more reforms are needed.

On the data front, the final figure on euro area inflation for April came in at an annualized 0.0%, an improvement from March’s -0.1%. Germany was 0.3%, France 0.1%, but Spain’s inflation rate is -0.7%, Italy’s -0.1% and Greece’s -1.8%, according to Eurostat, the official statistics arm of the European Commission.

Separately, a flash composite PMI for the euro area for the month of May from Markit came in at 53.4 vs. 53.9 in April. The manufacturing PMI for the eurozone was 52.3 vs. 52.0 last month.

The flash PMIs just focus on Germany and France, individually, and Germany’s composite reading was 52.9, a 5-mo. low, while the manufacturing PMI was only 51.4 vs. 52.1.

France’s composite figure was 51.0 vs. 50.6, while the PMI on manufacturing was 49.3 vs. 48.0, still contraction but a 12-mo. high.

And we had the latest car sales in the EU for April, as reported by the European Automobile Manufacturers Association. Sales rose 6.9% last month for the EU28, the 20th consecutive month of gains and the best April volume since 2009.

Italy’s were up 24.2%, year over year; Germany’s rose 6.3%; Spain’s 3.2% and France’s 2.3%. Car sales in the U.K. advanced 5.1%. 

For the first four months, EU car sales are up a solid 8.2%.

Chris Williamson, Chief Economist at Markit:

“The eurozone’s recovery lost some of its vigor in May, with growth slowing slightly for a second successive month. At the moment the extent of the slowing is not a major concern, but will no doubt be causing some nail-biting at the ECB as policymakers await signs that quantitative easing is the panacea the region needs to achieve a robust and sustainable recovery.”

Just a few other tidbits...the IMF increased its growth outlook for Italy to 0.7% this year and 1.2% in 2016. GDP advanced 0.3% in Q1 over Q4, the best in four years.

In the U.K., core inflation was up just 0.8% in April, the lowest since 2001, while overall, the CPI was down 0.1% year over year, the first time Britain has technically had deflation in more than 50 years. So, the Bank of England is under no pressure to raise rates, even though growth has been solid. Home-prices rose in Britain for the month of March at a 9.6% annualized pace.

Finally, on the issue of Europe’s migrant crisis, the European Union approved the use of military force to take on smugglers in the Mediterranean and to destroy their vessels before they take on human cargo, but this would require authorization from the U.N. Security Council and that is far from certain with Russia expressing misgivings. You’d have European warships operating in Libyan territorial waters, with Libya in the midst of a civil war and a terrorist haven, including for ISIS.

Speaking of ISIS, what Europe fears is Islamic State terrorists infiltrating the migrant vessels and sneaking into Europe. 50,000 have already made the journey from North Africa to Europe this year. How many of them were ISIS or al-Qaeda?

As to the European Commission’s quota proposal, France did an abrupt turn and now opposes quotas, making it at least 10 out of 28 EU nations that do so. French President Hollande said: “The right to asylum does not correspond to a quota,” citing the fact “we already have rules governing border checks and immigration controls.”

Turning to Asia, China reported home prices fell an 8th consecutive month in April for the 70-city index, down 6.1% year over year, the same as March, as huge levels of inventory continue to pose the biggest risk to the overall economy...housing and debt. The Beijing market did, however, rise a second straight month, so perhaps a sign of a bottoming. Real estate represents 20% of GDP in China.

Separately, HSBC’s flash reading on manufacturing for May came in at 49.1 vs. 48.9 in April (50 being the dividing line between growth and contraction).

In Japan, the manufacturing PMI for May was 50.9 vs. 49.9 last month, but, more importantly, first-quarter GDP was better than expected, up 0.6% over Q4, or an annualized pace of 2.4% vs. a forecast of 1.5%.

But the good news for Prime Minister Shinzo Abe and his economic plan could be due to a jump in inventories, as the recent manufacturing data hasn’t been that strong. The April 2014 sales tax hike has disrupted demand patterns and we need another quarter to see where Japan’s economy really stands. One thing that’s been a positive is the weak yen (and strong dollar), which remains a huge plus for exporters, but at the same time, real wages have fallen 23 straight months through March.

Back to China, last week I noted the massive computer breach at Penn State’s engineering school, which the FBI said was state-sponsored by you know who.

This week, the U.S. Justice Department announced that two Chinese professors have been charged with stealing trade secrets from U.S. companies; the two being part of a case in which six individuals were charged with industrial espionage and stealing valuable technology from Avago Technologies and Skyworks Solutions to the benefit of universities and companies controlled by the People’s Republic of China.

Assistant Attorney General John P. Carlin said: “Economic espionage imposes great costs on American businesses, weakens the global marketplace and ultimately harms U.S. interests worldwide. The National Security Division will continue to relentlessly identify, pursue and prosecute offenders wherever the evidence leads.”

Two of those charged met at the University of Southern California, where they were studying for doctorates in electrical engineering.

They were alleged to have stolen “recipes, source code, specifications, presentations, design layouts and other documents marked as confidential and proprietary from the victim companies,” which they shared with each other and people working at Tianjin University.

[Another article I read said three of the six were professors who trained together at USC.]

The United States and the American people cannot continue to put up with this crap, and while I am biting my tongue on a lot of things regarding China, I’m also about ready to explode. [More below.]

Street Bytes

--It was an incredibly dull week on Wall Street, even if the three major indices either set or crossed record highs at one point. The Dow Jones lost 0.2% to 18232, but on Tuesday hit a new closing high of 18312. The S&P 500 picked up 0.2% to 2126, hitting its record high of 2130 on Thursday. And Nasdaq, which rose 0.8%, was trading over its record high of 5092 late Friday before finishing the week at 5089.

--U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.61% 10-yr. 2.21% 30-yr. 2.98%

Treasuries rose a bit on Friday on the heels of the higher core CPI figure.

--Wal-Mart reported first-quarter earnings that fell short of expectations as revenues missed slightly, while same-store sales rose a putrid 1.1% for the quarter ending 4/30. The company said consumers are paying down debt rather than spending. Wal-Mart is also getting hit by the strong dollar, the company getting a quarter of its revenue from overseas.

--Home Depot once again blew away estimates on earnings and sales for its first quarter, with same-store sales rising 7.1 percent. The company also beat on earnings by six cents ($1.21 vs. $1.15). The shares rose in response.

Home Depot chairman and CEO Craig Menear said, “We had a stronger than expected start to the year as we experienced a more normal spring across much of the country and continued recovery of the U.S. housing market.”

--But Home Depot’s chief competitor, Lowe’s, reported earnings that fell short of Street expectations, as did revenues, though same-store sales did rise a solid 5.2%. CEO Robert Niblock said the company did not anticipate the winter to be as long as it was and some of its spring promotions were offered later than usual. 

--Takata, the maker of air bags that have been linked to at least five deaths in the U.S., is being forced to double the number of cars under recall, while submitting its parts to government testing. U.S. Transportation Secretary Anthony Foxx said, “This is the most complex consumer safety recall in U.S. history.”

It is also the largest recall in U.S. history and includes cars from 11 automakers.

Takata has been penalized $1 million to date but additional fines are to come. NHTSA is trying to pressure Honda, Nissan and the others to speed up the repair process but it isn’t easy to obtain parts.

--Six global banks have been fined a collective $5.6 billion to settle allegations that they rigged the foreign exchange markets – bringing the total paid in connection with the manipulation to about $10bn.

Three banks were also fined a total of $400m for manipulating the interbank lending rates.

So the banks have shelled out more than $10bn over the forex scandal, which is $1bn more than that paid by a larger group of institutions to settle the Libor rigging claims, as reported by the Financial Times.

The banks involved in the forex allegations announced on Wednesday are Barclays, Citigroup, JPMorgan Chase, Royal Bank of Scotland, Bank of America and UBS.

“In a statement, the Department of Justice said that between December 2007 and January 2013, euro-dollar traders at Citi, JPMorgan, Barclays and RBS – who described themselves as members of ‘The Cartel’ – ‘used an exclusive electronic chat room and coded language to manipulate benchmark exchange rates.’” [Financial Times]

Barclays is paying the largest fine, $2.3bn, and will have to fire eight employees.

--As reported by the Wall Street Journal’s Dan Gallagher: “Apple has apparently unplugged its plans to build a TV set....

“The company reportedly did so after concluding the new features it was toying with – including a video-calling function – wouldn’t move the innovation needle enough....

“For Apple, the challenge has always been about more than building an enticing new television with cool features. The company’s business model depends on its products commanding enough share to sell millions of units at premium prices. Margins are key to Apple’s model, and Wall Street currently expects the gross margin to remain around the 40% mark through fiscal 2017. IHS estimates most TV manufacturers earn gross margins in the mid-to-upper single-digit range. It isn’t clear that even a new set from Apple could command a significant premium over the industry.”

This makes total sense, even as investor Carl Icahn was touting Apple TV as a huge new market for the company in a letter to CEO Tim Cook, that also encouraged Apple to buy back more shares.

--Lenovo Group, the world’s largest supplier of personal computers, announced it would get into the software services business, including cloud computing through a venture with Alibaba Group.

For the quarter, revenue grew 20 percent to a record $46.296 billion, on the back of strong personal computer, smartphone and enterprise server sales.

PC sales rose 5 percent year on year and accounted for 72 percent of total revenues.

Research firm IDC said Lenovo now controls 19.6 percent of global PC market share, up from 17.6 percent a year earlier.

Sales at its smartphone business jumped 71 percent, yoy, and account for 20 percent of company revenue. [South China Morning Post]

--Hewlett-Packard reported revenue fell 7 percent for the quarter, slightly lower than consensus forecast, with sales down in every segment. But the company’s shares rose because earnings were slightly better than expected.

HP is splitting its global business into two Fortune 50-sized companies – HP Inc., focused on PCs and printers, and Hewlett-Packard Enterprise, centered around corporate hardware, software and services.

HP also noted that the strong dollar continues to hurt its results as it loses business to Japanese manufacturers, in particular, that are benefiting from a weak yen.

--Salesforce.com Inc., a software provider of tools managing sales efforts, and cloud computing pioneer, said revenue rose 23% in the fiscal quarter ending April 30, better than expected. Just as importantly, its deferred revenue, a closely watched metric, rose 31% year over year.

CEO Marc Benioff said he wanted his company to reach $10 billion in annual sales faster than any business-software company in history (it’s tracking $7bn for 2015). Salesforce also actually posted a profit of a penny, which is surprising for companies of this ilk at this stage in their development.

As for rumors Salesforce is a takeover target, executives have declined to comment, but it was reported talks were held with Microsoft and the two sides couldn’t agree on a price.

--The Los Angeles City Council voted 14-1 to increase its minimum wage to $15 an hour by 2020. According to some estimates, 40 percent of the city’s work force earns less than this amount. [Jennifer Medina / New York Times]

--Bloomberg had an interesting piece concerning IBM and the states of Iowa and Missouri. When the company came to the two in 2009, it sought workers, and tax credits.

But now the CEO has been cutting the workforce and about 700 employees have been laid off in Dubuque, Iowa, and hundreds more in Columbia, Mo., but IBM got its tax breaks. The two cities spent a combined $84 million on the credits and other incentives to lure Big Blue.

I don’t blame CEO Ginni Rometty, who took over in 2012, for what was a failed strategy, but at the same time you can’t jerk these two cities around as they have been.

It’s a problem playing out all over. Bloomberg notes Amazon.com is shuttering two warehouses in rural Kansas and Nebraska, as it shifts operations closer to big cities.

--The Mexican government slashed its growth forecast for the year by a full percentage point, from 3.2-4.2 percent, to 2.2-3.2 percent. First-quarter GDP was 2.5 percent on an annualized basis.

--An underground oil pipeline operated by Plains All American Pipeline ruptured in Santa Barbara, releasing as much as 105,000 gallons of crude (though there are figures as low as 21,000). The U.S. Coast Guard said the cleanup could take months, though the speed of the initial operation was impressive, with some 300 workers and 18 boats involved.

While the spill was relatively small as these things go, it could still have a dramatic environmental impact on a particularly sensitive area. The region hosts migrating whales and other marine mammals, as well as those great pelicans, No. 54 on the All-Species List. [‘Man’ is No. 323.]

--Lumber Liquidators Holdings Inc. CEO Robert Lynch unexpectedly resigned, adding to the turmoil that started with a “60 Minutes” piece in March that said the company sold Chinese-produced laminate flooring with toxic levels of formaldehyde, a known carcinogen. Sales have been sliding ever since, despite the company’s assurances its products are safe. Then on May 7, it stopped offering Chinese-made product.

--Saudi Arabia’s oil exports to the U.S. have fallen to an average below 1m barrels a day over the past year owing to the shale boom and growing imports from Canada. The kingdom is compensating by pivoting to Asia, especially with increased sales to China.

Canadian exports to the U.S. are now averaging more than 3m b/d, an increase of 1m since 2011.

The Saudis nonetheless remain the second-biggest oil exporter to the U.S. after our friends up north.

--Shares in John Deere & Co. rose 4 percent after the company reported better than expected earnings even though equipment sales fell 20 percent to $7.4 billion in the quarter. But the company guided higher for fiscal 2015 as stronger demand for construction equipment offset declining sales for green tractors and combines. Deere’s results echo those of Caterpillar Inc., which also reported better numbers for the North American construction market.

But Deere’s bread and butter is still agriculture equipment, it being the world’s largest in this regard, and sales in same are forecast to decline 25 percent in 2015.

--Shares in Best Buy rallied on better than expected earnings and revenues, though overall sales fell 1%. The consumer electronics retailer said it is seeing “a strengthening in our domestic business,” particularly large-screen TVs, smartphones and appliances.

--Campbell Soup Co. reported earnings that beat expectations, but overall sales fell 3.6 percent from year ago levels. The company said sales in its U.S. simple meals business, which includes soups, fell 6 percent in its fiscal third quarter. The company expects full-year sales to be essentially flat as customers continue to shift to foods perceived as healthier, such as gluten-free products. Shares in Campbell, however, still rose on the news.

I still love Campbell’s Chunky New England Clam Chowder, even if it does contain a year’s supply of sodium.

--New York’s comptroller reported that the pension fund for state and local government workers has risen to a record $183.5 billion following an investment return of 7.2% last year. Not bad.

The Common Retirement Fund, the third largest public pension fund in the country, has surged 57% from $110 billion in 2009. 

--Shake Shack Inc. filed for the trademark “Chicken Shack,” saying it was intended for “chicken sandwiches.” Not everyone likes burgers, so some say.

--Etsy, the online market place that recently had its IPO, reported a loss of $36.6 million in its debut quarterly report, vs. a loss of $463,000 in the year-ago period. Gee, that kind of sucks, doesn’t it? 

The company has been hit by counterfeit accusations and the shares were hammered.

--Chinese e-commerce giant Alibaba was also hit by counterfeit charges as several of the world’s best-known luxury brands filed a lawsuit against the company.

The suit alleges that Alibaba and its associated companies “knowingly encourage, assist, and profit from the sale of counterfeits on their online platforms,” as reported by the Wall Street Journal.

Alibaba said the complaint had no basis and that it has a “strong track record” of helping brands fight counterfeits.

Your editor can only laugh.

--Home prices and sales in the key Southern California market climbed in April for the second straight month after a period of stagnation, as reported by real estate firm CoreLogic. Prices were up 6.2% from April 2014, to a median of $429,000 across the six-county Los Angeles metropolitan area. Sales volume picked up 8.5%.

--Dick’s Sporting Goods Inc. said its first-quarter profit fell 10%, as the company’s Golf Galaxy stores saw same-store sales decline a whopping 11% in the first quarter.

Comp-store sales at namesake shops grew just 1%, and the company said it would grow 1% to 3% for the full year.

--222 million passengers are expected to hit the airports throughout the U.S. this summer, up 4.5 percent from last year, according to the trade group Airlines for America. A record 32 million are expected to travel on international flights.

--Four cancer charities – Cancer Fund of America, Children’s Cancer Fund of America, The Breast Cancer Society and Cancer Support Services – along with several of those organizations’ executives, face federal charges that they stole more than $187 million from consumers.

The Federal Trade Commission, along with law enforcement officials throughout the U.S., said the bulk of the donations were used for vacations, concerts and other luxury perks. [Charisse Jones / USA TODAY]

--David Letterman’s finale drew an audience of nearly 14 million, his fourth-most-viewed show since he joined CBS in 1993, but one million less than Leno’s sign-off.

--If you were a tourist in Paris today, the Eiffel Tower was closed to the public after staff staged a walk-out to protest against a surge in pickpocketing gangs in the area. From personal experience I can say this is indeed a huge problem in the city...mostly Roma; nasty, disgusting, dangerous people. [So much for my Roma readership.]

Foreign Affairs         

Iraq/Syria/ISIS: What an awful week for this entire theater of operations. ISIS dramatically expanded its control over eastern Syria, while taking Ramadi and other territory in Iraq’s Anbar province.

ISIS also seized the Syrian regime’s last remaining border crossing with Iraq one day after taking control of the central city of Palmyra, a world heritage site with spectacular Roman ruins.

ISIS controls the Iraqi side of the border crossing as well, and it controls a second crossing with Iraq, while Kurdish forces oversee a third.

The Syrian Observatory for Human Rights, the Britain-based monitoring group, said IS now controls half of all Syrian territory, though much of this is in the sparsely populated eastern half of the country. Importantly, ISIS can link up its positions in east-central Syria more directly with Iraq’s western Anbar.

In the fight for Palmyra, the Observatory says at least 240 regime forces were killed as well as 150 members of ISIS. ISIS is now going door-to-door in the city, looking for Assad loyalists.

Another couple hundred thousand civilians have been displaced.

French President Hollande said the world must respond to the seizure of Palmyra.

“We have to act because there is a threat against these monuments which are part of humankind’s inheritance and at the same time we must act against ISIS.”

Meanwhile, ISIS militants overran Iraqi government defenses in Ramadi, and later took the small town of Husaiba, further east and even closer to Baghdad.

Ramadi fell to the insurgents last Sunday in a devastating setback for Iraqi security forces, who in the words of U.S. Joint Chiefs Chairman Gen. Martin Dempsey, weren’t “driven out of Ramadi, they drove out of Ramadi,” despite outnumbering ISIS by 10-to-one.   [It is estimated at least 500 died in the fighting here, including civilians, a government spokesman told Reuters.]

Iraqi Prime Minister Haider al-Abadi said the Iraqi people needed to “stand unified” and called for voluntary recruitment to the army. He also vowed to prosecute those troops who fled the city.

President Obama described the loss of Ramadi as a tactical setback in an interview with The Atlantic’s Jeffrey Goldberg.

“I don’t think we’re losing. There’s no doubt there was a tactical setback, although Ramadi had been vulnerable for a very long time.”

Obama launched his initiative to degrade ISIS last August but the campaign has obviously had little overall impact on its abilities to seize territory.

As for the Iraqi military’s poor performance, Obama blamed it on a lack of training and reinforcement of its security forces.

“They have been there essentially for a year without sufficient reinforcements,” he said. “But it is indicative that the training of Iraqi security forces, the fortifications, the command-and-control systems are not happening fast enough in Anbar, in the Sunni parts of the country.”

As for Prime Minister Abadi, on Thursday he called for Moscow to pledge more weapons and to boost its involvement in the fight against ISIS.

On a visit to Moscow, Abadi warned Russian President Putin and Prime Minister Medvedev that terrorism is spreading. The Russians said they were ready to deliver weapons to Iraq. [Daily Star]

Charles Krauthammer / Washington Post

“Ramadi falls. The Iraqi army flees. The great 60-nation anti-Islamic State coalition so grandly proclaimed by the Obama administration is nowhere to be seen. Instead, it’s the defense minister of Iran who flies into Baghdad, an unsubtle demonstration of who’s in charge – while the U.S. air campaign proves futile and America’s alleged strategy for combating the Islamic State is in freefall.

“It gets worse. The Gulf states’ top leaders, betrayed and bitter, ostentatiously boycott President Obama’s failed Camp David summit. ‘We were America’s best friend in the Arab world for 50 years,’ laments Saudi Arabia’s former intelligence chief.

“Note: ‘were,’ not ‘are.’

“We are scraping bottom. Following six years of President Obama’s steady and determined withdrawal from the Middle East, America’s standing in the region has collapsed. And yet the question incessantly asked of the various presidential candidates is not about that. It’s a retrospective hypothetical: Would you have invaded Iraq in 2003 if you had known then what we know now?

“First, the question is not just a hypothetical but an inherently impossible hypothetical. It contradicts itself. Had we known there were no weapons of mass destruction, the very question would not have arisen. The premise of the war – the basis for going to the U.N., to the Congress and, indeed, to the nation – was Iraq’s possession of WMD in violation of the central condition for the cease-fire that ended the 1991 Gulf War. No WMD, no hypothetical to answer in the first place.

“Second, the ‘if you knew then’ question implicitly locates the origin and cause of the current disasters in 2003. As if the fall of Ramadi was predetermined then, as if the author of the current regional collapse is George W. Bush.

“This is nonsense. The fact is that by the end of Bush’s tenure the war had been won. You can argue that the price of that victory was too high. Fine. We can debate that until the end of time. But what is not debatable is that it was a victory. Bush bequeathed to Obama a success. By whose measure? By Obama’s. As he told the troops at Fort Bragg on Dec. 14, 2011, ‘We are leaving behind a sovereign, stable and self-reliant Iraq, with a representative government that was elected by its people.’ This was, said the president, a ‘moment of success.’

“Which Obama proceeded to fully squander. With the 2012 election approaching, he chose to liquidate our military presence in Iraq....

“The current collapse was not predetermined in 2003 but in 2011. Isn’t that what should be asked of Hillary Clinton? We know you think the invasion of 2003 was a mistake. But what about the abandonment of 2011? Was that not a mistake?”

Editorial / Wall Street Journal

“Well, that’s a relief. Islamic State this week took full control of the ancient Syrian city of Palmyra and a nearby military base. This follows its seizure on Sunday of Ramadi, the capital of Iraq’s Anbar province. But at least President Obama is cool about it all, calling the fall of Ramadi merely a ‘tactical setback.’ Every war has its ups and downs.

“ ‘I don’t think we’re losing,’ Mr. Obama said in an interview with The Atlantic that took place on Tuesday but was released Thursday....

“Meanwhile, back on Planet Middle East, an opposition monitoring group estimates that after taking Palmyra Islamic State now controls about half of Syria, including most of its oil fields....

“The would-be caliphate is consolidating its base in Syria even as it expands its reach in Iraq. In September Mr. Obama vowed to ‘degrade’ and ‘destroy’ ISIS, but the jihadists are doing most of the destroying.

“It’s also worth mulling over Mr. Obama’s claim that he always ‘anticipated’ this would be ‘a multiyear campaign.’ This is the same President who criticized George W. Bush for conducting endless war in Iraq and Afghanistan and vowing to end it in both places. The Iraqi city of Mosul fell last June, Mr. Obama laid out his anti-ISIS strategy in September, and eight months later he promises years of more American commitment to Iraq.

“At least Mr. Bush, for all his mistakes after the fall of Saddam Hussein, ordered a change of strategy that left Iraq stable by the time Mr. Obama took office. On present trend Mr. Obama’s Cool Hand Luke generalship will leave his successor an Iraq in turmoil and a mini-caliphate entrenched across hundreds of miles. If this isn’t ‘losing,’ how does the President define victory?”

David Ignatius / Washington Post

“The capture of Ramadi last weekend by Islamic State fighters is a significant setback for U.S. strategy in Iraq and shows that, nearly a year after the extremists overran Mosul, the United States still doesn’t have a viable plan for protecting the country’s Sunni areas.

“The collapse of the Iraqi army in Ramadi, the capital of Anbar province, was in some ways a replay of the Mosul debacle in June 2014. The Shiite-dominated Iraqi military, thought trained and retrained by the United States, appeared to lack the leadership or will to fight off a relatively small but ferocious onslaught of Sunni insurgents.

“The Ramadi defeat exposed the sectarian tensions that underlie this war. Among the urgent questions: Are Shiite regular army troops ready to fight and die to protect Sunnis, or will their lines collapse in Sunni areas, as happened in Mosul and now Ramadi? If the tougher Iranian-backed Shiite militias are sent instead to do the job, will the Sunni population see them as a Shiite occupation army – setting the stage for a generation of sectarian revenge killing?....

“The Islamic State’s breakthrough in Ramadi brought wild celebration in other Sunni areas under its control. The group released a video Monday that appeared to show jubilant Iraqi men and boys in the Nineveh area spontaneously dancing and waving its black-and-white banners. The exuberant faces in the video...show how success begets success in the Iraqi conflict....

“What’s worse, the Ramadi defeat showed that the cornerstone of U.S. strategy for Iraq – a Sunni tribal force that can work with the Iraqi military to clear and hold areas seized by the Islamic State – isn’t in place yet. The Iraqi parliament still hasn’t passed a long-promised law to create such a force, and arms shipments to Sunni fighters have been delayed or ignored by the Baghdad government.

“ ‘If it stays like this, it’s going to lead to a civil war,’ warned Sheik Abdul Razak, a leader of the Dulaimi tribe from Anbar province who was visiting Washington on Tuesday. He said Sunni tribes would refuse to fight alongside Iranian-directed Shiite militias that are being sent to Anbar. And he predicted it would take ‘at least a year’ to organize a force that could liberate Ramadi with support of the local Sunni population.

“The United States shouldn’t abandon its strategy: This is still Iraq’s war, not America’s. But President Obama must reassure Prime Minister Haider al-Abadi that the United States has his back – and at the same time give him a reality check. If Abadi and his Shiite allies don’t do more to empower Sunnis, his country will splinter. Ramadi is a precursor – of either a turnaround by Abadi’s forces or an Iraqi defeat.”

By the way. There is no “coalition” of nations allied against ISIS.   As Amir Taheri writes in an op-ed for the New York Post:

“Over the past nine months, of the 50-plus members of the coalition, only four have joined the United States in conducting airstrikes. Now, however, even those four have airbrushed themselves out of the picture.”

Finally, last weekend U.S. special forces carried out a raid inside Syria that killed a senior Islamic State operative, Abu Sayyaf, but the success was soon overwhelmed by other developments in the region. We also learned on Friday that ISIS carried out a suicide bombing on a Shia mosque in Saudi Arabia that killed at least 10 people, which would be the first to be claimed by the Saudi branch of IS. The group had previously threatened to attack Shia Muslims in the kingdom and the attack took place in the Eastern Province.

Iran: Just five more weeks before the June 30 deadline for reaching a comprehensive agreement between the P5+1 and Iran on their nuclear program and this week, Iran’s Supreme Leader Ayatollah Khamenei said his government “won’t allow foreigners to carry out any inspection on military sites.”

Khamenei reiterated Iran would not allow foreign governments or agencies to interview its scientists, which has always been a requirement set out by the United States.

In a speech before a student group, Khamenei said: “I will not permit aliens to come and interview with scientists who have gotten the domestic nuclear knowledge to this level. They should realize that Iran’s response to any evil move will be very harsh.” [Michael Wilner / Jerusalem Post]

There is no way an agreement can be reached, let alone approved by Congress, without intrusive inspections, including of the military base at Parchin that I’ve written of for years.

Sen. Lindsey Graham (R-S.C.) / Wall Street Journal

“The Iran Nuclear Agreement Review Act is now on its way to the White House for a reluctant signature by President Obama. He was forced to accept, by overwhelming votes in both chambers, Congress’ constitutional role in reviewing any nuclear deal with Iran and the lifting of any congressionally imposed sanctions. Now the hardest work begins.

“The president must either negotiate an agreement that will permanently prevent an untrustworthy Iranian regime from acquiring nuclear weapons – or walk away. If he instead commits to a plan that will lead to a nuclear Iran, Congress must stop it....

“To allow this pariah nation to acquire nuclear weapons and the ability to deploy them against us and our allies – and to share them with radical Islamic organizations – would constitute an incalculable threat to our national security and an existential threat to Israel. It would set off a nuclear-arms race that would virtually guarantee a regional war with global implications.

“Alarmingly, our negotiators and the Iranians have offered wildly differing interpretations of the negotiated framework. On every principle, Iran insists it will never accept our terms.”

Sen. Graham then proposes “eight principles to ensure we get the right answers and achieve a sound, enforceable deal.”

No. 3 is: “Anytime, anywhere inspections of all Iranian military and nonmilitary facilities. Iran shouldn’t have veto power over when inspectors visit its facilities, including the ability of independent parties to monitor and report on Iran’s compliance.”

But the Ayatollah, again, has said ‘no way.’

Meanwhile, a senior Israeli official slammed Washington for allowing Iran’s purchase of second-hand civilian aircraft, saying the acquisition violated U.S. sanctions and went ahead despite a tip-off from Israel, as reported by Reuters. Tehran bought 15 used commercial planes in the last three months, though an Iranian official who told a news agency of the purchase didn’t say who sold them or how they had been acquired.

Russia: NATO’s top military commander, U.S. Air Force Gen. Philip Breedlove, said on Thursday that Russia had deployed equipment in eastern Ukraine that can be used for nuclear weapons.

While there is no “direct evidence” Moscow has actually deployed nuclear arms, “that does not mean that they may not have happened.”

“Lots of the systems that the Russians use to deliver nuclear weapons are dual-use systems – they can be either conventional or nuclear – and some of those systems are deployed,” Breedlove said. [BBC News]

Editorial / Washington Post

“It has been a week since Secretary of State John F. Kerry emerged from eight hours of meetings with Russian President Vladimir Putin and his foreign minister to say that the two sides had agreed to make a new effort to cooperate in resolving conflicts in Ukraine and Syria and completing a nuclear accord with Iran. The trip represented yet another bet by the Obama administration that it can cut deals with Mr. Putin without betraying U.S. interests or allies or capitulating to the Russian ruler and his imperialist agenda.

“So far, the results are not encouraging. The starting point for any practical progress would be the actual implementation of a cease-fire in eastern Ukraine. Though the accord was signed three months ago, Russia’s forces in the region continue to violate it ‘on a daily basis,’ as Assistant Secretary of State Victoria Nuland put it this week. That hasn’t changed: On Wednesday, the Ukrainian military reported that ‘Russian-backed forces have continued to press their attacks on key points of the front...using heavy artillery and tanks,’ according to the Web site the Interpreter.*

“Nor has there been any alteration in Moscow’s support for the Syrian regime of Bashar al-Assad. Despite the abundant evidence that Mr. Assad’s forces have resumed using chemical weapons against civilians, in the form of ‘barrel bombs’ filled with chlorine, Russia refuses to acknowledge Damascus’ responsibility. After meeting with Mr. Kerry, Foreign Minister Sergei Lavrov said, ‘There should be no attempts to use the issue of alleged use of chemical weapons to exercise any political pressure’ on the Assad regime.

“Rather than confirm Mr. Kerry’s wishful assertion that cooperation is possible, Mr. Putin’s followers are crowing about what they describe as an American climb-down. Having failed to change Russian policy with sanctions and isolation, they say, President Obama has accepted that he must court the Kremlin and concede its core demands. Russian officials and media pointedly noted that Mr. Kerry did not challenge the Russian annexation of Crimea – the signal achievement of Mr. Putin’s aggression – in the talks....

“Mr. Obama may believe that reengagement with Russia will facilitate his top foreign policy priority, the Iranian nuclear deal, while forestalling another escalation by Mr. Putin in Ukraine. But the Russian leader is more likely to be deterred by evidence that new aggression will be met by strong resistance on the ground – including through weapons supplied to Ukrainian forces – and by a firming of economic sanctions. Judging from Moscow’s rhetoric, Mr. Kerry’s outreach may have convinced Mr. Putin only that the Obama administration will eventually swallow his terms.”

*Ukraine said three of its soldiers had been killed and another 12 injured on Thursday in fighting in the east of the country.

Separately, the European Union agreed to a $2 billion loan to Ukraine – described as a landmark deal for a non-EU member. The agreement was signed at the EU summit in Riga, Latvia on Friday.

Back to Russia, the International Monetary Fund now projects the economy will contract by 3.4 percent this year, better than previously thought, with some growth in 2016.

But, Russia is dealing with a recent issue of rather disturbing proportions. A number of failures in its space program. 

Saturday, a Russian rocket carrying a Mexican satellite malfunctioned and crashed in Siberia shortly after its launch.

The rocket, a Proton-M, was launched from the Baikonur facility in Kazakhstan. As is typical of Russia in these instances, they didn’t comment on concerns about the tons of toxic fuel the rocket was carrying.

The same day, Roscosmos, the Russian Federal Space Agency, reported the Progress spaceship docked at the International Space Station, failed to ignite its engine and correct the orbit of the ISS.

In April, an unmanned Russian supply ship carrying 3 tons of goods for the ISS failed to dock after an incident after the launch. Left in low orbit, it eventually fell to Earth over the Pacific on May 8.

Meanwhile, three of the space station’s six-person crew who were scheduled to return to Earth in May, now have to stay until late July until the launch of their replacement crew due to a suspension of Russia’s program until it can figure out what is going on.

China: Chinese Foreign Minister Wang Yi categorically rejected criticism from Sec. of State John Kerry over China’s plans to reclaim land in the South China Sea.

“I would like to reaffirm that China’s determination to safeguard its sovereignty and territorial integrity is as hard as a rock,” Wang said. 

China claims about 90 percent of the 3.5 million square kilometer body of water.

This week the U.S. released video taken from U.S. spy planes showing just how fast the reclamation work is proceeding around at least seven reefs in the Spratly archipelago. China warned the U.S. this week not to fly over its territory, yet commercial aircraft do all the time.

On at least one of the artificial islands, an airstrip has already been built capable of supporting any aircraft in China’s military.

David E. Sanger and William J. Broad / New York Times

“After decades of maintaining a minimal nuclear force, China has re-engineered many of its long-range ballistic missiles to carry multiple warheads, a step that federal officials and policy analysts say appears designed to give pause to the United States as it prepares to deploy more robust missile defenses in the Pacific.

“What makes China’s decision particularly notable is that the technology of miniaturizing warheads and putting three or more atop a single missile has been in Chinese hands for decades. But a succession of Chinese leaders deliberately let it sit unused; they were not interested in getting into the kind of arms race that characterized the Cold War nuclear competition between the United States and the Soviet Union.

“Now, however, President Xi Jinping appears to have altered course, at the same moment that he is building military airfields on disputed islands in the South China Sea, declaring exclusive Chinese ‘air defense identification zones,’ sending Chinese submarines through the Persian Gulf for the first time and creating a powerful new arsenal of cyberweapons.

“Many of those steps have taken American officials by surprise and have become evidence of the challenge the Obama administration faces in dealing with China, in particular after American intelligence agencies had predicted that Mr. Xi would focus on economic development and follow the path of his predecessor, who advocated the country’s ‘peaceful rise.’”

When Sec. Kerry met Xi Jinping in Beijing’s Great Hall of the People, Xi told him the “China-U.S. relationship remains stable on the whole,” according to Xinhua. Xi added the two countries should “manage, control and handle disputes in an appropriate way so that the general direction of the bilateral relationship will not be affected....The broad Pacific Ocean is vast enough to embrace both China and the United States,” Xi said.

North Korea: This week officials claimed North Korea has successfully developed the technology to “miniaturize” a nuclear device, which by implication means it can deploy same on a ballistic missile. Whether or not Pyongyang actually has this capability is not as important as the fact its nuclear program proceeds apace and is no doubt making progress all the time. The regime is going to have to be confronted, seemingly within the next two years, because there is little doubt that by that time, the North will be able to launch nuclear-armed missiles; if not at the United States, certainly Seoul or Tokyo.

What needs to happen now, though, is increased cooperation on the missile-defense front between the U.S., South Korea and Japan. There is no time to waste.

Sec. of State Kerry traveled to Seoul after his meetings in Beijing and from there he called for increased international pressure on Pyongyang, calling Kim Jong-un’s government “one of the most egregious examples of reckless disregard for human rights and human beings anywhere on the planet.” Kerry said Kim could face charges at the International Criminal Court.

U.N. Secretary-General Ban Ki-moon was scheduled to visit North Korea this week but his invitation was canceled at virtually the last minute. Ban said, “This decision by Pyongyang is deeply regrettable.”

Ireland: Conservative, still-largely Catholic Ireland went to the polls on Friday for a referendum that could make it the world’s first country to approve same-sex marriage in a popular vote. The vote count begins Saturday morning. Abortion is still prohibited in Ireland.

Random Musings

--Editorial / Wall Street Journal

“The New York Times reported Monday on email records showing that (longtime Clinton confidant Sidney) Blumenthal was on the payroll of the Clinton Foundation at the same time he was being paid by groups helping Mrs. Clinton’s presidential run, at the same time he was advising a U.S. business seeking Libyan contracts, at the same time he was secretly advising Secretary of State Clinton about Libya. Every top American diplomat apparently needs a good man Friday who no one else knows about....

“The Times reports that Mr. Blumenthal was paid to do ‘research, ‘message guidance,’ and the ‘planning of commemorative events.’ Was he also paid by the Clinton Foundation – which is funded in part by foreign governments – to write memos for the Secretary of State?”

We do know that Hillary was paid...a lot...by various tech companies for speeches. The Washington Post reported Hillary picked up $315,000 from an eBay summit promoting women in the workplace. $315,000 for 20 minutes.

In fact, “Out of the $11.7 million that Hillary Clinton has made delivering 51 speeches since January 2014, $3.2 million came from the technology industry, the analysis found. Several of the companies that paid Clinton to address their employees also have senior leaders who have been early and avid supports of her presidential bid....

“While it is common for former presidents to receive top dollar as paid speakers, Hillary Clinton is unique as a prospective candidate who received large personal payouts from corporations, trade groups and other major interests mere months before launching a White House bid....

“The blurred line between personal and political is apparent in the cases of companies that hired Clinton to speak and are connected to prominent backers of her campaign. Salesforce.com, for instance, paid Clinton $451,000 to deliver two talks last year, and its CEO, Marc Benioff, is a major donor to Ready for Hillary, a super PAC that laid the groundwork for her presidential bid.”

Combined with Bill Clinton, the two made more than $25 million since the start of 2014 through speeches alone, according to a federal financial disclosure statement. Hillary also made more than $5 million from her book “Hard Choices.”

But wait...there’s more! As reported by the Washington Post, “The Clinton Foundation reported Thursday it has received as much as $26.4 million in previously undisclosed payments from major corporations, universities, foreign sources and other groups....

“The money was paid as fees for speeches by Bill, Hillary and Chelsea Clinton. Foundation officials said the funds were tallied internally as ‘revenue’ rather than donations, which is why they had not been included in the public listings of its contributors published as part of (a 2008 ethics agreement to reveal its donors).”

As for Hillary’s 55,000 pages of emails from her time as secretary of state, the State Department said it didn’t intend to make them public until Jan. 15, 2016, or right before the Iowa caucuses.

But then a judge, acting on a Freedom of Information Request, said they had to be released sooner and on Friday, the State Department released 296 of them, a fraction of more than 30,000 work-related messages Clinton turned over from her private e-mail account she used while at State.

So one of the e-mails that was released was a message from Blumenthal, two days after the Sept. 11, 2012, Benghazi attack, wherein on Sept. 13, he told Clinton that the attackers from an al-Qaeda affiliate had planned the assault for a month and then used a nearby protest as cover – which is at odds with the initial narrative offered by the White House, which downplayed the attack for political reasons, the election being less than two months away.

The Republican chairman of the House Benghazi committee, Representative Trey Gowdy of South Carolina, said in a statement the e-mails reflect a “self-selected” record by Clinton and her lawyers. He said his panel will continue to push for a broader range of information, while calling for Clinton to turn over her server to the committee.

She has said she wiped her server clean after turning over more than 55,000 pages of e-mails to the State Department.

For now, seeing as the e-mails were just released Friday afternoon and I have to finish the rest of this column, I’ll comment further next week as warranted.

--Meanwhile, Richard Johnson of the New York Post reports:

“Chelsea Clinton is so unpleasant to colleagues, she’s causing high turnover at the Bill, Hillary and Chelsea Clinton Foundation, sources say.

“Several top staffers have left the foundation since Chelsea came onboard as vice chairman in 2011.

“ ‘A lot of people left because she was there. A lot of people left because she didn’t want them there,’ an insider told me. ‘She is very difficult.’....

“Chelsea has embraced all the trappings of a corporate CEO, with a personal staff almost as big as her fathers’. ‘He has six. She has five,’ said my source.

“None of this would surprise her former co-workers at McKinsey and NBC News. At both the management consulting firm and the network, co-workers allegedly were told they couldn’t approach Chelsea.

“A source at NBC, where Chelsea was paid $600,000 a year, said, ‘If someone wanted to talk to Chelsea about something, they had to go through a producer.’....

“Instead of being something Hillary can point to with pride, the foundation has become a bloated slush fund that some critics say deserves an official investigation. And Chelsea’s fingerprints are all over it.”

--George Stephanopoulos renewed his contract with ABC last year for seven years, $105 million. But with his credibility, and future, called into question since he admitted he had donated $75,000 to the Clinton Foundation since 2011, Stephanopoulos, in his apologies, has said the gifts “were a matter of public record, but I should have made additional disclosures on air when we covered the foundation.”

ABC execs were apparently blindsided by his largesse.

Emily Smith and Bruce Golding / New York Post

“George Stephanopoulos never really left Clinton-land – and it didn’t bother his bosses at ABC News.

“Back in 2009, when he was already anchoring ‘This Week’ and about to take over ‘Good Morning America,’ Stephanopoulos maintained daily phone contact with high-powered Democrats tied to ex-President Bill Clinton.

“According to a Politico report that’s resurfaced amid the scandal over his $75,000 in gifts to the Clinton Foundation, Stephanopoulos was one of four Clinton insiders who took part in ‘round-robin chatter’ during which Democratic strategy was ‘quite likely...being hatched.’”

An ABC spokeswoman, Heather Riley, who also worked in the Clinton White House, insisted the story “wasn’t true then, and it isn’t true now.”

Editorial / New York Post

“Why did it take $75,000 in donations he never disclosed for everyone to wake up to the fact George Stephanopoulos is hopelessly conflicted when it comes to Bill and Hillary Clinton?

“In other words, that he has no business reporting on her presidential campaign or those of her would-be opponents – let alone as the face of ABC News and its 2016 election coverage?

“Stephanopoulos’ onetime colleague, former ABC World News Tonight anchor Carole Simpson, got it exactly right when she said that ‘there is a coziness that George cannot escape.’

“She added, ‘He really isn’t a journalist’ – despite his $105 million ABC contract....

“Stephanopoulos himself has said even Ted Koppel ‘pulled him into his office’ and asked: ‘Are you sure you can be fair?’

“To answer that question, ABC initially insisted Stephanopoulos would serve only as an analyst and ‘will not report the news’ – only to later name him its chief Washington correspondent and host of its marquee Sunday political show, ‘This Week.’

“In other words, he at least started playing a journalist on TV.

“Yet he still doesn’t realize why his donations are a blatant conflict of interest and why not disclosing them is a big deal.

“Amazingly, Stephanopoulos continues to claim he was under no obligation to tell his viewers – not to mention his bosses – that he was giving money to the Clinton Foundation. Nope, he says: Doing that would’ve been ‘going the extra mile.’

“But his blatantly adversarial questioning of ‘Clinton Cash’ author Peter Schweizer shows once again that Stephanopoulos can’t even fake objectivity when it comes to Bill and Hillary.

“So he has a real ongoing credibility problem – and so does ABC, if it continues to present him as unbiased.”

--Maureen Dowd / New York Times [I need to toss some red meat the other way, just to be fair and balanced.]

“In 1993, I covered Jeb (Bush) on his thwarted first try to be Florida governor. He seemed mildly annoyed that his raffish older brother had jumped into the arena to run for governor in Texas. W. was co-opting Jeb’s campaign lines and making it, as Jeb worried, ‘a People magazine story,’ a Tweedledee and Tweedledum power grab.

“ ‘As the son of a famous person,’ Jeb told me on the trail then, ‘I carry the pluses and minuses of past wars.’

“But, now, as the brother of a famous person, he literally carries the minuses of past wars. In a dunderheaded move that has hobbled his nascent 2016 campaign, Jeb wanted to breeze past any discussion of W.’s Oedipal crash into the globe, hiding behind the flag of Bush loyalty and the family allergy to hypotheticals.

“Since Jeb purloined Florida for W., under family pressure, the Good Son bears some responsibility for the Prodigal Son plopping the country into a ‘doo doo ball,’ as one of Poppy Bush’s pals calls it.

“Jeb had barely finished insisting that he was his own man before he voluntarily shackled himself to W., putting several members of his brother’s war-torture-and-Katrina tarnished brain trust on his advisory list and telling a group of financiers in New York that W. was his top adviser on the Middle East!! :(

“The 62-year-old was schooled on W.’s deadly Middle East legacy by a 19-year-old University of Nevada student, Ivy Ziedrich, who explained to the would-be leader of the free world that ISIS – which is gobbling up more and more pieces of Iraq – was not the virulent spawn of President Obama’s policies, but of his brother’s.

“As with the Clintons, the fraught family dynamic of the Bushes spills over to affect life-or-death policy-making. While they proclaim they don’t want to be on the couch about their misguided dreams of empire, we get ensnared in their ‘Empire’-style psychodramas.

“And consider this: Jeb hasn’t even been asked any questions yet about W.’s dark contributions on waterboarding, the deficit and the near-total collapse of the American economy.”

--The Washington Post’s Jenna Johnson and Philip Rucker covered the Iowa Republican Party’s Lincoln Dinner on Saturday in Des Moines and I just have to note two particular accounts of the presidential contenders in attendance.

“George Pataki started off by telling this Iowa-friendly story: He was governor of New York on Sept. 11 and as New York City tried to recover and rebuild after the attacks, Pataki said that he traveled to Washington and asked lawmakers for financial support. He said many lawmakers turned him down, considering this a state problem and not a national one. An exception: Sen. Chuck Grassley of Iowa.

“Pataki described how the city has recovered and shared credit with Grassley: ‘I am proud of it. You should be proud of it.’

“Then Pataki got round after round of applause as he listed federal agencies with too many employees, including education staffers who handle Common Core issues and IRS employees who oversee the country’s much-too-complicated tax system. He said that he cut down the number of state workers when he was governor, nothing that was done ‘in the deepest blue state in the United States.’”

As halftime hits, Lindsey Graham tells joke after joke.

“ ‘It’s halftime,’ Lindsey Graham declared as he took the stage. And the senator from South Carolina did not disappoint, putting on a rollicking halftime show of a speech.

“He started with some playful ribbing of the infamously frugal Sen. Charles E. Grassley (R-Iowa): ‘The one thing I learned about this dinner is it was free for Chuck or he wouldn’t have been here!’

“Then he showered love on Iowa’s junior senator, freshman Joni Ernst, who rose to national fame last year with her ad about hog castration. ‘Joni Ernst rocks! When I saw that ad with the pigs, I made sure I’d never offend Joni.’

“Graham praised retired neurosurgeon Ben Carson, too. ‘Isn’t he too smart to be president?’ he asked.

“ ‘The more you drink, the better I sound, so keep drinking,’ Graham told the crowd. ‘If you need to go to the bathroom, go ahead. Won’t bother me a bit.’

“Then the senator got serious. Graham made clear he is positioning himself as the most hawkish candidate in the field.

“ ‘If I’m president of the United States and you’re thinking about joining al-Qaeda or ISIL, I’m not gonna call a judge,’ Graham said, a reference to Sen. Rand Paul’s earlier remark about how the NSA should call a judge to obtain a warrant before tapping into people’s phone records. ‘I’m gonna call a drone and we will kill you.’”

--The FBI has arrested at least 30 Americans on terrorism-related charges this year, “lone wolf” plots, thankfully none of which were successful, “but nearly all purportedly inspired by Islamic State propaganda or appeals,” as reported by the Los Angeles Times’ Brian Bennett.

“U.S. officials estimate the Sunni Muslim group has drawn 22,000 foreign fighters to Syria and Iraq... About 180 Americans have gone, or tried to go.”

--Al Sharpton’s eldest child sued New York City for $5 million after she fell in the street and sprained her ankle, according to court records.

Dominique Sharpton, 28, says she was “severely injured, bruised and wounded” when she stumbled over uneven pavement.

But as the New York Post reported, while she was pictured in a walking boot in the weeks following the October tumble, by December she was good to go for a New Year’s Eve trip to Miami Beach, and despite claiming “permanent physical pain” the same month, she was seen in social-media shots in high heels and climbing a ladder to decorate a Christmas tree.

Right out of her father’s playbook.

--From the Baltimore Sun, Thursday: “(Police) are investigating the city’s 100th homicide of 2015... compared with 71 at this time last year, the police department said. It’s the fastest the city has reached 100 homicides since 2007....

“At least 19 people were shot across the city Tuesday and Wednesday, three of them fatally.”

Scott Calvert / Wall Street Journal

“The number of arrests has fallen here since Freddie Gray’s death put the police department under intense scrutiny, while violent crime has increased in a neighborhood rocked by riots hours after Mr. Gray’s funeral, police officials said Wednesday....

“Gene Ryan, president of the Baltimore police union, said a jump in violent crime in West Baltimore, where Mr. Gray was arrested April 12 and where rioting broke out after his April 27 funeral, was the fault of ‘a criminal element’ taking advantage of heightened tensions.....

“In the three weeks after Mr. Gray’s death on April 19...officers made 1,453 arrests – a decrease of more than 40% from the same periods in 2013 and 2014, police data show.

“The period included the two days last month when police arrested more than 200 people amid widespread looting and rock-throwing at officers.”

Meanwhile, a grand jury in Baltimore indicted six police officers on homicide and assault charges in the death of Freddie Gray. After announcing them, state’s attorney for Baltimore City, Marilyn J. Mosby, refused to take questions. [I’m not a fan of hers.]

--It’s possible the huge biker brawl at a Waco, Texas, mall that killed nine may have been over a parking space outside the Twin Peaks sports bar. The scene was so awful that the restaurant’s corporate management immediately revoked its franchise the next day.

It was one of the most brazen displays of violence between motorcycle clubs in recent memory and it played out between five different groups, the Cossacks and Bandidos in the main event.

The Bandidos, we learned, could be the most dangerous in the world, with 2,500 members in 14 countries; a criminal organization engaged in distribution of heroin, cocaine and meth. The Bandidos have a motto: “We’re the people your parents warned you about.”

The Cossacks ticked off the Bandidos when they added the word “Texas” to the bottom of its colors, and when the Bandidos told them to remove it, the Cossacks refused.

Thankfully, the only folks killed and injured were gang members.

[I just saw where there was a shootout between police and a drug gang in Mexico on Friday that killed 39! I think I’ll drink domestic at home and watch the Stanley Cup playoffs, rather than do heroin and join a drug/biker gang.]

--Finally, its Memorial Day weekend. When I was at the Normandy American Cemetery in 1995, I walked into this little chapel and took a picture of the inscription that to me has always best summed up what Memorial Day is all about.

Think not only upon their passing

Remember the glory of their spirit

God bless America.
---

Gold closed at $1204
Oil $59.72...up a tenth straight week, but only by three cents

Returns for the week 5/18-5/22

Dow Jones -0.2% [18232....hit new closing high of 18312]
S&P 500 +0.2% [2126...hit new high of 2130.82]
S&P MidCap +0.7%
Russell 2000 +0.7%
Nasdaq +0.8% [5089...record is 5092]

Returns for the period 1/1/15-5/22/15

Dow Jones +2.3%
S&P 500 +3.3%
S&P MidCap +6.1%
Russell 2000 +3.9%
Nasdaq +7.5%

Bulls 50.6
Bears 15.8 [Source: Investors Intelligence]

Brian Trumbore

***Note: I’m launching a new yearlong fundraising campaign next Tuesday and by the end of the week, the link will be all over my site and columns, as well as the little social media that I do. I’ve run out of time tonight and will explain fully next WIR but it’s about expansion and a new link or two, as well as hiring some marketing support.

I greatly appreciate those who have contributed to the cause the past few months. What I’m going to be doing through GoFundMe, though, is more of a formal drive that I will keep up for at least a year. As I’ll explain later, it’s a no-brainer for me and, first and foremost, a free way to expand my audience. [It’s also an easier way for international readers to contribute.]

For today, though, a special shout out to my Uncle C. for his generous contribution the other day. I’ll never forget interviewing a kid when I was at PIMCO (folks will tell you I was the easiest interview in the world...I mostly asked the candidates what sports teams they were interested in...) and I learned Tim A. had taken a class at the Univ. of Delaware from Uncle C. and raved about the professor; Dr. Bortrum’s brother, by the way. Needless to say, Tim got the job. [And he was darn good.]

Anyway, next week you’ll hear more of my life story...or at that point you can switch to a reality television show instead.

Let’s Go Rangers!



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Week in Review

05/23/2015

For the week 5/18-5/22

[Posted 11:00 PM ET, Friday]

Edition 841

Washington and Wall Street

The minutes from the Federal Reserve Open Market Committee’s April meeting left it pretty clear the Fed is not about to start raising short-term interest rates in June, especially after the economy’s poor performance in the first quarter.

Many officials “thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility,” the minutes said.

But while the economic data since the April 28-29 meeting has been mixed, Friday’s report on consumer prices for April may give the Fed just a little pause. While the CPI rose 0.1% and is down 0.2% for the past 12 months, the core rate, ex-food and energy, rose a higher than expected 0.3% and is now up 1.8% year-over-year...or just below the Fed’s 2.0% target. The Fed had previously announced they don’t need to see 2.0% exactly before pulling the trigger, so if the May CPI is also robust on core, perhaps the Fed could raise rates in July, but more likely September.

Fed Chair Janet Yellen did give a speech on Friday, wherein she said a rate hike is expected this year as long as the economy improves, as she sees moderate growth for 2015 and beyond, with economic headwinds waning.

While the labor market is nearing full strength, “we are not there yet,” said Chair Yellen.

“If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate.”

And, even after the first rate increase, Yellen said, “I anticipate that the pace of normalization is likely to be gradual.”

She also repeated the Fed’s two criteria for raising rates: “I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2% over the medium term.”

The next Fed meeting is June 16-17.

In other economic news, April housing starts hit their highest level in more than seven years, 1.135 million, far better than expected and up 20% from March’s pace.

But existing home sales in April were less than forecast, however the median sales price rose a solid 8.9% year over year, which isn’t good when looking at affordability.

Regarding second-quarter GDP, estimates are still all over the board, with the Atlanta Fed’s GDPNow indicator still calling for just 0.7% annualized growth, while most others are in the 2.0% to 3.0% range.

Earlier this week, the San Francisco Fed published a paper in which it argued there are issues with seasonal adjustments in the official growth statistics and that the first-quarter’s putrid number, 0.2%, is actually much higher. But for now this is just an academic exercise. [And Q1 is likely to be revised downward further next week.]

On the trade front, the Senate voted by a 62-38 margin to break a filibuster on legislation to empower President Obama to complete a major, 12-nation Pacific trade accord. 60 votes were needed. [And then late Friday night, right before I went to post, the Senate approved the overall bill on the Trans-Pacific Partnership, TPP, but it faces a big battle in the House.]

Finally, while the awful events that occurred in Iraq and Syria this week aren’t the kind that necessarily impact the financial markets, at least not yet, as I’ve been writing the past few months, defense spending will begin to rise substantially, beyond the small increases Congress and the White House have approved. The United States will be forced to step up, whether the administration wants to or not. As NBC’s Richard Engel, who knows the region as well as anyone on our airwaves, said the other day, for example, Iraq is “imploding.” Syria, as described below, long already had. At some point the increased spending is going to work its way into the psyche of the bond pits as future deficit projections are ratcheted upwards. And this is without any further mischief from Russia, let alone how the U.S. is going to be increasingly forced to spend more to defend the Pacific.

Europe and Asia

It’s still all about Greece, with this coming week being a telling one in terms of how Greece is able to handle the payment of pensions and wages. And then a slew of payments due the IMF, beginning June 5, and totaling 1.5bn euro in that month alone.

Greece desperately needs the 7.2bn euro in bailout aid it is still due (after which another bailout agreement would be worked out...it is assumed), but Friday, European leaders told Greece there will be no deal to release the aid without approval from the IMF itself.

German Chancellor Angela Merkel broke the news to her Greek counterpart, Alexis Tsipras, at a private meeting in Riga, as the IMF decides what to do with its share of the 7.2bn bailout tranche, a full 3.6bn.

It had been hoped a deal would be completed by the end of May, but the IMF is holding firm on Greek reforms previously agreed to, many of which the IMF believes have already been reversed under Tsipras.

Greek officials say they cannot possibly meet the IMF’s requirements, particularly on pension reforms, because they are politically impossible. But pensions have risen since Syriza took power and the IMF says this is unsustainable.

One senior eurozone official told the Financial Times: “They [Greece] have been listening to too many people who think that there may be some partial agreement. There will be no such thing. And there will be no agreement without the IMF. And the IMF is super tough.”

Merkel has been questioning the pace of the talks and wondering why the Greeks keep breaking off discussions with bailout monitors. German Finance Minister Wolfgang Schauble said he couldn’t rule out a Greek default

Tsipras says he needs to shore up political support back home as Syriza’s hardliners have been fomenting opposition to any deal with the EU and IMF for weeks. The rebels’ said in a text published on Monday on a leftwing website:

“We have to choose between signing what is obviously an austerity agreement and making a break with lenders... Syriza can’t become a party of austerity and this government cannot implement a memorandum [bailout agreement]....

“Our only choice is a rupture with the creditors – suspending loan repayments, [imposing] measures to restrict free movement of capital, putting banks under state control, taxing capital and the wealthy to finance measures to support ordinary people...and even a break with the euro,” it said.

Last weekend, Tsipras said: “Those who think that our red lines will fade as time goes on would do well to forget it. I want to assure the Greek people that there’s no way the government will back down on the issue of pension and wage cuts. A deal must be reached but it must be mutually beneficial.”

Philip Stephens / Financial Times

“Forget debt ratios, fiscal balances, liquidity crunches and the rest. The EU and International Monetary Fund technicians negotiating with Athens are going through the motions. The Greek crisis was always as much about politics as economics. Now it is all about politics.

“There are two theories of the Syriza government led by Alexis Tsipras. One presents a cast of bungling amateurs who have spent the past several months digging Greece into an ever deeper economic hole – all the while squandering the trust and goodwill of its eurozone partners. The other says the antics of Yanis Varoufakis, finance minister, are an elaborate political charade calculated to set Greece free from the shackles of merciless creditors.

“The first hypothesis is the most popular. The preening and pirouetting, the interviews in glossy magazines, the undergraduate Marxism and love of the limelight – all point to a colossal failure on Mr. Varoufakis’ part to grasp the depth of Greece’s plight or the sensitivities of its European partners. Along the way, tens of billions of dollars have been drained from Greek banks as citizens stash their savings elsewhere.

“The conspiracy theory, though, also has its adherents. They start with the assumption that no one could be quite as witless as Syriza has often seemed. Mr. Tsipras’ government knew from the outset that it could not reconcile its domestic promises with Greece’s international obligations. The problem was that Greeks had voted at once for an end to austerity and to stay in the euro. A crisis had to be manufactured to show the government’s hand had been forced. By the Germans, of course.

“I lean towards the former theory, but it hardly matters. Even at this late hour it would be unwise to say that a deal with creditors is absolutely impossible. High-stakes politics occasionally demands that pigs are seen to fly. What strikes me, though, is how far the conversation in other capitals has moved on. The risk of contagion in the rest of the eurozone has long been discussed. The talk now is about the chaos that would descend on Greece after default and euro exit. Would it be manageable or would the EU be left with a failed state?”

Meanwhile, the European Central Bank wants a weaker euro to help revive the eurozone economy but after falling over 25% in the past year, the euro had rebounded to a high of $1.14 at the end of last week, though this week it fell back to $1.10.

What the ECB didn’t count on was volatility in the bond pits, which ECB executive board member, Benoit Coeure, said was a major concern.

“It is the rapidity of the reversal that worries me more,” as he announced the ECB would accelerate slightly its bond purchases over May and June, more to allow it to scale back its activity in the slower summer period when liquidity is expected to be thin.

The euro bond market did then stabilize this week, though yields remain far higher on a percentage basis than when QE commenced March 9.

For his part, ECB President Mario Draghi told an audience in Portugal on Friday: “Monetary policy is working its way through the economy. Growth is picking up. And inflation expectations have recovered from their trough....

“This is by no means the end of our challenges, and a cyclical recovery alone does not solve all of Europe’s problems,” he said.

“It does not eliminate the debt overhang that affects parts of the Union. It does not eliminate the high level of structural unemployment that haunts too many countries. And it does not eliminate the need for perfecting the institutional set-up of our monetary union.”

Bottom line, more reforms are needed.

On the data front, the final figure on euro area inflation for April came in at an annualized 0.0%, an improvement from March’s -0.1%. Germany was 0.3%, France 0.1%, but Spain’s inflation rate is -0.7%, Italy’s -0.1% and Greece’s -1.8%, according to Eurostat, the official statistics arm of the European Commission.

Separately, a flash composite PMI for the euro area for the month of May from Markit came in at 53.4 vs. 53.9 in April. The manufacturing PMI for the eurozone was 52.3 vs. 52.0 last month.

The flash PMIs just focus on Germany and France, individually, and Germany’s composite reading was 52.9, a 5-mo. low, while the manufacturing PMI was only 51.4 vs. 52.1.

France’s composite figure was 51.0 vs. 50.6, while the PMI on manufacturing was 49.3 vs. 48.0, still contraction but a 12-mo. high.

And we had the latest car sales in the EU for April, as reported by the European Automobile Manufacturers Association. Sales rose 6.9% last month for the EU28, the 20th consecutive month of gains and the best April volume since 2009.

Italy’s were up 24.2%, year over year; Germany’s rose 6.3%; Spain’s 3.2% and France’s 2.3%. Car sales in the U.K. advanced 5.1%. 

For the first four months, EU car sales are up a solid 8.2%.

Chris Williamson, Chief Economist at Markit:

“The eurozone’s recovery lost some of its vigor in May, with growth slowing slightly for a second successive month. At the moment the extent of the slowing is not a major concern, but will no doubt be causing some nail-biting at the ECB as policymakers await signs that quantitative easing is the panacea the region needs to achieve a robust and sustainable recovery.”

Just a few other tidbits...the IMF increased its growth outlook for Italy to 0.7% this year and 1.2% in 2016. GDP advanced 0.3% in Q1 over Q4, the best in four years.

In the U.K., core inflation was up just 0.8% in April, the lowest since 2001, while overall, the CPI was down 0.1% year over year, the first time Britain has technically had deflation in more than 50 years. So, the Bank of England is under no pressure to raise rates, even though growth has been solid. Home-prices rose in Britain for the month of March at a 9.6% annualized pace.

Finally, on the issue of Europe’s migrant crisis, the European Union approved the use of military force to take on smugglers in the Mediterranean and to destroy their vessels before they take on human cargo, but this would require authorization from the U.N. Security Council and that is far from certain with Russia expressing misgivings. You’d have European warships operating in Libyan territorial waters, with Libya in the midst of a civil war and a terrorist haven, including for ISIS.

Speaking of ISIS, what Europe fears is Islamic State terrorists infiltrating the migrant vessels and sneaking into Europe. 50,000 have already made the journey from North Africa to Europe this year. How many of them were ISIS or al-Qaeda?

As to the European Commission’s quota proposal, France did an abrupt turn and now opposes quotas, making it at least 10 out of 28 EU nations that do so. French President Hollande said: “The right to asylum does not correspond to a quota,” citing the fact “we already have rules governing border checks and immigration controls.”

Turning to Asia, China reported home prices fell an 8th consecutive month in April for the 70-city index, down 6.1% year over year, the same as March, as huge levels of inventory continue to pose the biggest risk to the overall economy...housing and debt. The Beijing market did, however, rise a second straight month, so perhaps a sign of a bottoming. Real estate represents 20% of GDP in China.

Separately, HSBC’s flash reading on manufacturing for May came in at 49.1 vs. 48.9 in April (50 being the dividing line between growth and contraction).

In Japan, the manufacturing PMI for May was 50.9 vs. 49.9 last month, but, more importantly, first-quarter GDP was better than expected, up 0.6% over Q4, or an annualized pace of 2.4% vs. a forecast of 1.5%.

But the good news for Prime Minister Shinzo Abe and his economic plan could be due to a jump in inventories, as the recent manufacturing data hasn’t been that strong. The April 2014 sales tax hike has disrupted demand patterns and we need another quarter to see where Japan’s economy really stands. One thing that’s been a positive is the weak yen (and strong dollar), which remains a huge plus for exporters, but at the same time, real wages have fallen 23 straight months through March.

Back to China, last week I noted the massive computer breach at Penn State’s engineering school, which the FBI said was state-sponsored by you know who.

This week, the U.S. Justice Department announced that two Chinese professors have been charged with stealing trade secrets from U.S. companies; the two being part of a case in which six individuals were charged with industrial espionage and stealing valuable technology from Avago Technologies and Skyworks Solutions to the benefit of universities and companies controlled by the People’s Republic of China.

Assistant Attorney General John P. Carlin said: “Economic espionage imposes great costs on American businesses, weakens the global marketplace and ultimately harms U.S. interests worldwide. The National Security Division will continue to relentlessly identify, pursue and prosecute offenders wherever the evidence leads.”

Two of those charged met at the University of Southern California, where they were studying for doctorates in electrical engineering.

They were alleged to have stolen “recipes, source code, specifications, presentations, design layouts and other documents marked as confidential and proprietary from the victim companies,” which they shared with each other and people working at Tianjin University.

[Another article I read said three of the six were professors who trained together at USC.]

The United States and the American people cannot continue to put up with this crap, and while I am biting my tongue on a lot of things regarding China, I’m also about ready to explode. [More below.]

Street Bytes

--It was an incredibly dull week on Wall Street, even if the three major indices either set or crossed record highs at one point. The Dow Jones lost 0.2% to 18232, but on Tuesday hit a new closing high of 18312. The S&P 500 picked up 0.2% to 2126, hitting its record high of 2130 on Thursday. And Nasdaq, which rose 0.8%, was trading over its record high of 5092 late Friday before finishing the week at 5089.

--U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.61% 10-yr. 2.21% 30-yr. 2.98%

Treasuries rose a bit on Friday on the heels of the higher core CPI figure.

--Wal-Mart reported first-quarter earnings that fell short of expectations as revenues missed slightly, while same-store sales rose a putrid 1.1% for the quarter ending 4/30. The company said consumers are paying down debt rather than spending. Wal-Mart is also getting hit by the strong dollar, the company getting a quarter of its revenue from overseas.

--Home Depot once again blew away estimates on earnings and sales for its first quarter, with same-store sales rising 7.1 percent. The company also beat on earnings by six cents ($1.21 vs. $1.15). The shares rose in response.

Home Depot chairman and CEO Craig Menear said, “We had a stronger than expected start to the year as we experienced a more normal spring across much of the country and continued recovery of the U.S. housing market.”

--But Home Depot’s chief competitor, Lowe’s, reported earnings that fell short of Street expectations, as did revenues, though same-store sales did rise a solid 5.2%. CEO Robert Niblock said the company did not anticipate the winter to be as long as it was and some of its spring promotions were offered later than usual. 

--Takata, the maker of air bags that have been linked to at least five deaths in the U.S., is being forced to double the number of cars under recall, while submitting its parts to government testing. U.S. Transportation Secretary Anthony Foxx said, “This is the most complex consumer safety recall in U.S. history.”

It is also the largest recall in U.S. history and includes cars from 11 automakers.

Takata has been penalized $1 million to date but additional fines are to come. NHTSA is trying to pressure Honda, Nissan and the others to speed up the repair process but it isn’t easy to obtain parts.

--Six global banks have been fined a collective $5.6 billion to settle allegations that they rigged the foreign exchange markets – bringing the total paid in connection with the manipulation to about $10bn.

Three banks were also fined a total of $400m for manipulating the interbank lending rates.

So the banks have shelled out more than $10bn over the forex scandal, which is $1bn more than that paid by a larger group of institutions to settle the Libor rigging claims, as reported by the Financial Times.

The banks involved in the forex allegations announced on Wednesday are Barclays, Citigroup, JPMorgan Chase, Royal Bank of Scotland, Bank of America and UBS.

“In a statement, the Department of Justice said that between December 2007 and January 2013, euro-dollar traders at Citi, JPMorgan, Barclays and RBS – who described themselves as members of ‘The Cartel’ – ‘used an exclusive electronic chat room and coded language to manipulate benchmark exchange rates.’” [Financial Times]

Barclays is paying the largest fine, $2.3bn, and will have to fire eight employees.

--As reported by the Wall Street Journal’s Dan Gallagher: “Apple has apparently unplugged its plans to build a TV set....

“The company reportedly did so after concluding the new features it was toying with – including a video-calling function – wouldn’t move the innovation needle enough....

“For Apple, the challenge has always been about more than building an enticing new television with cool features. The company’s business model depends on its products commanding enough share to sell millions of units at premium prices. Margins are key to Apple’s model, and Wall Street currently expects the gross margin to remain around the 40% mark through fiscal 2017. IHS estimates most TV manufacturers earn gross margins in the mid-to-upper single-digit range. It isn’t clear that even a new set from Apple could command a significant premium over the industry.”

This makes total sense, even as investor Carl Icahn was touting Apple TV as a huge new market for the company in a letter to CEO Tim Cook, that also encouraged Apple to buy back more shares.

--Lenovo Group, the world’s largest supplier of personal computers, announced it would get into the software services business, including cloud computing through a venture with Alibaba Group.

For the quarter, revenue grew 20 percent to a record $46.296 billion, on the back of strong personal computer, smartphone and enterprise server sales.

PC sales rose 5 percent year on year and accounted for 72 percent of total revenues.

Research firm IDC said Lenovo now controls 19.6 percent of global PC market share, up from 17.6 percent a year earlier.

Sales at its smartphone business jumped 71 percent, yoy, and account for 20 percent of company revenue. [South China Morning Post]

--Hewlett-Packard reported revenue fell 7 percent for the quarter, slightly lower than consensus forecast, with sales down in every segment. But the company’s shares rose because earnings were slightly better than expected.

HP is splitting its global business into two Fortune 50-sized companies – HP Inc., focused on PCs and printers, and Hewlett-Packard Enterprise, centered around corporate hardware, software and services.

HP also noted that the strong dollar continues to hurt its results as it loses business to Japanese manufacturers, in particular, that are benefiting from a weak yen.

--Salesforce.com Inc., a software provider of tools managing sales efforts, and cloud computing pioneer, said revenue rose 23% in the fiscal quarter ending April 30, better than expected. Just as importantly, its deferred revenue, a closely watched metric, rose 31% year over year.

CEO Marc Benioff said he wanted his company to reach $10 billion in annual sales faster than any business-software company in history (it’s tracking $7bn for 2015). Salesforce also actually posted a profit of a penny, which is surprising for companies of this ilk at this stage in their development.

As for rumors Salesforce is a takeover target, executives have declined to comment, but it was reported talks were held with Microsoft and the two sides couldn’t agree on a price.

--The Los Angeles City Council voted 14-1 to increase its minimum wage to $15 an hour by 2020. According to some estimates, 40 percent of the city’s work force earns less than this amount. [Jennifer Medina / New York Times]

--Bloomberg had an interesting piece concerning IBM and the states of Iowa and Missouri. When the company came to the two in 2009, it sought workers, and tax credits.

But now the CEO has been cutting the workforce and about 700 employees have been laid off in Dubuque, Iowa, and hundreds more in Columbia, Mo., but IBM got its tax breaks. The two cities spent a combined $84 million on the credits and other incentives to lure Big Blue.

I don’t blame CEO Ginni Rometty, who took over in 2012, for what was a failed strategy, but at the same time you can’t jerk these two cities around as they have been.

It’s a problem playing out all over. Bloomberg notes Amazon.com is shuttering two warehouses in rural Kansas and Nebraska, as it shifts operations closer to big cities.

--The Mexican government slashed its growth forecast for the year by a full percentage point, from 3.2-4.2 percent, to 2.2-3.2 percent. First-quarter GDP was 2.5 percent on an annualized basis.

--An underground oil pipeline operated by Plains All American Pipeline ruptured in Santa Barbara, releasing as much as 105,000 gallons of crude (though there are figures as low as 21,000). The U.S. Coast Guard said the cleanup could take months, though the speed of the initial operation was impressive, with some 300 workers and 18 boats involved.

While the spill was relatively small as these things go, it could still have a dramatic environmental impact on a particularly sensitive area. The region hosts migrating whales and other marine mammals, as well as those great pelicans, No. 54 on the All-Species List. [‘Man’ is No. 323.]

--Lumber Liquidators Holdings Inc. CEO Robert Lynch unexpectedly resigned, adding to the turmoil that started with a “60 Minutes” piece in March that said the company sold Chinese-produced laminate flooring with toxic levels of formaldehyde, a known carcinogen. Sales have been sliding ever since, despite the company’s assurances its products are safe. Then on May 7, it stopped offering Chinese-made product.

--Saudi Arabia’s oil exports to the U.S. have fallen to an average below 1m barrels a day over the past year owing to the shale boom and growing imports from Canada. The kingdom is compensating by pivoting to Asia, especially with increased sales to China.

Canadian exports to the U.S. are now averaging more than 3m b/d, an increase of 1m since 2011.

The Saudis nonetheless remain the second-biggest oil exporter to the U.S. after our friends up north.

--Shares in John Deere & Co. rose 4 percent after the company reported better than expected earnings even though equipment sales fell 20 percent to $7.4 billion in the quarter. But the company guided higher for fiscal 2015 as stronger demand for construction equipment offset declining sales for green tractors and combines. Deere’s results echo those of Caterpillar Inc., which also reported better numbers for the North American construction market.

But Deere’s bread and butter is still agriculture equipment, it being the world’s largest in this regard, and sales in same are forecast to decline 25 percent in 2015.

--Shares in Best Buy rallied on better than expected earnings and revenues, though overall sales fell 1%. The consumer electronics retailer said it is seeing “a strengthening in our domestic business,” particularly large-screen TVs, smartphones and appliances.

--Campbell Soup Co. reported earnings that beat expectations, but overall sales fell 3.6 percent from year ago levels. The company said sales in its U.S. simple meals business, which includes soups, fell 6 percent in its fiscal third quarter. The company expects full-year sales to be essentially flat as customers continue to shift to foods perceived as healthier, such as gluten-free products. Shares in Campbell, however, still rose on the news.

I still love Campbell’s Chunky New England Clam Chowder, even if it does contain a year’s supply of sodium.

--New York’s comptroller reported that the pension fund for state and local government workers has risen to a record $183.5 billion following an investment return of 7.2% last year. Not bad.

The Common Retirement Fund, the third largest public pension fund in the country, has surged 57% from $110 billion in 2009. 

--Shake Shack Inc. filed for the trademark “Chicken Shack,” saying it was intended for “chicken sandwiches.” Not everyone likes burgers, so some say.

--Etsy, the online market place that recently had its IPO, reported a loss of $36.6 million in its debut quarterly report, vs. a loss of $463,000 in the year-ago period. Gee, that kind of sucks, doesn’t it? 

The company has been hit by counterfeit accusations and the shares were hammered.

--Chinese e-commerce giant Alibaba was also hit by counterfeit charges as several of the world’s best-known luxury brands filed a lawsuit against the company.

The suit alleges that Alibaba and its associated companies “knowingly encourage, assist, and profit from the sale of counterfeits on their online platforms,” as reported by the Wall Street Journal.

Alibaba said the complaint had no basis and that it has a “strong track record” of helping brands fight counterfeits.

Your editor can only laugh.

--Home prices and sales in the key Southern California market climbed in April for the second straight month after a period of stagnation, as reported by real estate firm CoreLogic. Prices were up 6.2% from April 2014, to a median of $429,000 across the six-county Los Angeles metropolitan area. Sales volume picked up 8.5%.

--Dick’s Sporting Goods Inc. said its first-quarter profit fell 10%, as the company’s Golf Galaxy stores saw same-store sales decline a whopping 11% in the first quarter.

Comp-store sales at namesake shops grew just 1%, and the company said it would grow 1% to 3% for the full year.

--222 million passengers are expected to hit the airports throughout the U.S. this summer, up 4.5 percent from last year, according to the trade group Airlines for America. A record 32 million are expected to travel on international flights.

--Four cancer charities – Cancer Fund of America, Children’s Cancer Fund of America, The Breast Cancer Society and Cancer Support Services – along with several of those organizations’ executives, face federal charges that they stole more than $187 million from consumers.

The Federal Trade Commission, along with law enforcement officials throughout the U.S., said the bulk of the donations were used for vacations, concerts and other luxury perks. [Charisse Jones / USA TODAY]

--David Letterman’s finale drew an audience of nearly 14 million, his fourth-most-viewed show since he joined CBS in 1993, but one million less than Leno’s sign-off.

--If you were a tourist in Paris today, the Eiffel Tower was closed to the public after staff staged a walk-out to protest against a surge in pickpocketing gangs in the area. From personal experience I can say this is indeed a huge problem in the city...mostly Roma; nasty, disgusting, dangerous people. [So much for my Roma readership.]

Foreign Affairs         

Iraq/Syria/ISIS: What an awful week for this entire theater of operations. ISIS dramatically expanded its control over eastern Syria, while taking Ramadi and other territory in Iraq’s Anbar province.

ISIS also seized the Syrian regime’s last remaining border crossing with Iraq one day after taking control of the central city of Palmyra, a world heritage site with spectacular Roman ruins.

ISIS controls the Iraqi side of the border crossing as well, and it controls a second crossing with Iraq, while Kurdish forces oversee a third.

The Syrian Observatory for Human Rights, the Britain-based monitoring group, said IS now controls half of all Syrian territory, though much of this is in the sparsely populated eastern half of the country. Importantly, ISIS can link up its positions in east-central Syria more directly with Iraq’s western Anbar.

In the fight for Palmyra, the Observatory says at least 240 regime forces were killed as well as 150 members of ISIS. ISIS is now going door-to-door in the city, looking for Assad loyalists.

Another couple hundred thousand civilians have been displaced.

French President Hollande said the world must respond to the seizure of Palmyra.

“We have to act because there is a threat against these monuments which are part of humankind’s inheritance and at the same time we must act against ISIS.”

Meanwhile, ISIS militants overran Iraqi government defenses in Ramadi, and later took the small town of Husaiba, further east and even closer to Baghdad.

Ramadi fell to the insurgents last Sunday in a devastating setback for Iraqi security forces, who in the words of U.S. Joint Chiefs Chairman Gen. Martin Dempsey, weren’t “driven out of Ramadi, they drove out of Ramadi,” despite outnumbering ISIS by 10-to-one.   [It is estimated at least 500 died in the fighting here, including civilians, a government spokesman told Reuters.]

Iraqi Prime Minister Haider al-Abadi said the Iraqi people needed to “stand unified” and called for voluntary recruitment to the army. He also vowed to prosecute those troops who fled the city.

President Obama described the loss of Ramadi as a tactical setback in an interview with The Atlantic’s Jeffrey Goldberg.

“I don’t think we’re losing. There’s no doubt there was a tactical setback, although Ramadi had been vulnerable for a very long time.”

Obama launched his initiative to degrade ISIS last August but the campaign has obviously had little overall impact on its abilities to seize territory.

As for the Iraqi military’s poor performance, Obama blamed it on a lack of training and reinforcement of its security forces.

“They have been there essentially for a year without sufficient reinforcements,” he said. “But it is indicative that the training of Iraqi security forces, the fortifications, the command-and-control systems are not happening fast enough in Anbar, in the Sunni parts of the country.”

As for Prime Minister Abadi, on Thursday he called for Moscow to pledge more weapons and to boost its involvement in the fight against ISIS.

On a visit to Moscow, Abadi warned Russian President Putin and Prime Minister Medvedev that terrorism is spreading. The Russians said they were ready to deliver weapons to Iraq. [Daily Star]

Charles Krauthammer / Washington Post

“Ramadi falls. The Iraqi army flees. The great 60-nation anti-Islamic State coalition so grandly proclaimed by the Obama administration is nowhere to be seen. Instead, it’s the defense minister of Iran who flies into Baghdad, an unsubtle demonstration of who’s in charge – while the U.S. air campaign proves futile and America’s alleged strategy for combating the Islamic State is in freefall.

“It gets worse. The Gulf states’ top leaders, betrayed and bitter, ostentatiously boycott President Obama’s failed Camp David summit. ‘We were America’s best friend in the Arab world for 50 years,’ laments Saudi Arabia’s former intelligence chief.

“Note: ‘were,’ not ‘are.’

“We are scraping bottom. Following six years of President Obama’s steady and determined withdrawal from the Middle East, America’s standing in the region has collapsed. And yet the question incessantly asked of the various presidential candidates is not about that. It’s a retrospective hypothetical: Would you have invaded Iraq in 2003 if you had known then what we know now?

“First, the question is not just a hypothetical but an inherently impossible hypothetical. It contradicts itself. Had we known there were no weapons of mass destruction, the very question would not have arisen. The premise of the war – the basis for going to the U.N., to the Congress and, indeed, to the nation – was Iraq’s possession of WMD in violation of the central condition for the cease-fire that ended the 1991 Gulf War. No WMD, no hypothetical to answer in the first place.

“Second, the ‘if you knew then’ question implicitly locates the origin and cause of the current disasters in 2003. As if the fall of Ramadi was predetermined then, as if the author of the current regional collapse is George W. Bush.

“This is nonsense. The fact is that by the end of Bush’s tenure the war had been won. You can argue that the price of that victory was too high. Fine. We can debate that until the end of time. But what is not debatable is that it was a victory. Bush bequeathed to Obama a success. By whose measure? By Obama’s. As he told the troops at Fort Bragg on Dec. 14, 2011, ‘We are leaving behind a sovereign, stable and self-reliant Iraq, with a representative government that was elected by its people.’ This was, said the president, a ‘moment of success.’

“Which Obama proceeded to fully squander. With the 2012 election approaching, he chose to liquidate our military presence in Iraq....

“The current collapse was not predetermined in 2003 but in 2011. Isn’t that what should be asked of Hillary Clinton? We know you think the invasion of 2003 was a mistake. But what about the abandonment of 2011? Was that not a mistake?”

Editorial / Wall Street Journal

“Well, that’s a relief. Islamic State this week took full control of the ancient Syrian city of Palmyra and a nearby military base. This follows its seizure on Sunday of Ramadi, the capital of Iraq’s Anbar province. But at least President Obama is cool about it all, calling the fall of Ramadi merely a ‘tactical setback.’ Every war has its ups and downs.

“ ‘I don’t think we’re losing,’ Mr. Obama said in an interview with The Atlantic that took place on Tuesday but was released Thursday....

“Meanwhile, back on Planet Middle East, an opposition monitoring group estimates that after taking Palmyra Islamic State now controls about half of Syria, including most of its oil fields....

“The would-be caliphate is consolidating its base in Syria even as it expands its reach in Iraq. In September Mr. Obama vowed to ‘degrade’ and ‘destroy’ ISIS, but the jihadists are doing most of the destroying.

“It’s also worth mulling over Mr. Obama’s claim that he always ‘anticipated’ this would be ‘a multiyear campaign.’ This is the same President who criticized George W. Bush for conducting endless war in Iraq and Afghanistan and vowing to end it in both places. The Iraqi city of Mosul fell last June, Mr. Obama laid out his anti-ISIS strategy in September, and eight months later he promises years of more American commitment to Iraq.

“At least Mr. Bush, for all his mistakes after the fall of Saddam Hussein, ordered a change of strategy that left Iraq stable by the time Mr. Obama took office. On present trend Mr. Obama’s Cool Hand Luke generalship will leave his successor an Iraq in turmoil and a mini-caliphate entrenched across hundreds of miles. If this isn’t ‘losing,’ how does the President define victory?”

David Ignatius / Washington Post

“The capture of Ramadi last weekend by Islamic State fighters is a significant setback for U.S. strategy in Iraq and shows that, nearly a year after the extremists overran Mosul, the United States still doesn’t have a viable plan for protecting the country’s Sunni areas.

“The collapse of the Iraqi army in Ramadi, the capital of Anbar province, was in some ways a replay of the Mosul debacle in June 2014. The Shiite-dominated Iraqi military, thought trained and retrained by the United States, appeared to lack the leadership or will to fight off a relatively small but ferocious onslaught of Sunni insurgents.

“The Ramadi defeat exposed the sectarian tensions that underlie this war. Among the urgent questions: Are Shiite regular army troops ready to fight and die to protect Sunnis, or will their lines collapse in Sunni areas, as happened in Mosul and now Ramadi? If the tougher Iranian-backed Shiite militias are sent instead to do the job, will the Sunni population see them as a Shiite occupation army – setting the stage for a generation of sectarian revenge killing?....

“The Islamic State’s breakthrough in Ramadi brought wild celebration in other Sunni areas under its control. The group released a video Monday that appeared to show jubilant Iraqi men and boys in the Nineveh area spontaneously dancing and waving its black-and-white banners. The exuberant faces in the video...show how success begets success in the Iraqi conflict....

“What’s worse, the Ramadi defeat showed that the cornerstone of U.S. strategy for Iraq – a Sunni tribal force that can work with the Iraqi military to clear and hold areas seized by the Islamic State – isn’t in place yet. The Iraqi parliament still hasn’t passed a long-promised law to create such a force, and arms shipments to Sunni fighters have been delayed or ignored by the Baghdad government.

“ ‘If it stays like this, it’s going to lead to a civil war,’ warned Sheik Abdul Razak, a leader of the Dulaimi tribe from Anbar province who was visiting Washington on Tuesday. He said Sunni tribes would refuse to fight alongside Iranian-directed Shiite militias that are being sent to Anbar. And he predicted it would take ‘at least a year’ to organize a force that could liberate Ramadi with support of the local Sunni population.

“The United States shouldn’t abandon its strategy: This is still Iraq’s war, not America’s. But President Obama must reassure Prime Minister Haider al-Abadi that the United States has his back – and at the same time give him a reality check. If Abadi and his Shiite allies don’t do more to empower Sunnis, his country will splinter. Ramadi is a precursor – of either a turnaround by Abadi’s forces or an Iraqi defeat.”

By the way. There is no “coalition” of nations allied against ISIS.   As Amir Taheri writes in an op-ed for the New York Post:

“Over the past nine months, of the 50-plus members of the coalition, only four have joined the United States in conducting airstrikes. Now, however, even those four have airbrushed themselves out of the picture.”

Finally, last weekend U.S. special forces carried out a raid inside Syria that killed a senior Islamic State operative, Abu Sayyaf, but the success was soon overwhelmed by other developments in the region. We also learned on Friday that ISIS carried out a suicide bombing on a Shia mosque in Saudi Arabia that killed at least 10 people, which would be the first to be claimed by the Saudi branch of IS. The group had previously threatened to attack Shia Muslims in the kingdom and the attack took place in the Eastern Province.

Iran: Just five more weeks before the June 30 deadline for reaching a comprehensive agreement between the P5+1 and Iran on their nuclear program and this week, Iran’s Supreme Leader Ayatollah Khamenei said his government “won’t allow foreigners to carry out any inspection on military sites.”

Khamenei reiterated Iran would not allow foreign governments or agencies to interview its scientists, which has always been a requirement set out by the United States.

In a speech before a student group, Khamenei said: “I will not permit aliens to come and interview with scientists who have gotten the domestic nuclear knowledge to this level. They should realize that Iran’s response to any evil move will be very harsh.” [Michael Wilner / Jerusalem Post]

There is no way an agreement can be reached, let alone approved by Congress, without intrusive inspections, including of the military base at Parchin that I’ve written of for years.

Sen. Lindsey Graham (R-S.C.) / Wall Street Journal

“The Iran Nuclear Agreement Review Act is now on its way to the White House for a reluctant signature by President Obama. He was forced to accept, by overwhelming votes in both chambers, Congress’ constitutional role in reviewing any nuclear deal with Iran and the lifting of any congressionally imposed sanctions. Now the hardest work begins.

“The president must either negotiate an agreement that will permanently prevent an untrustworthy Iranian regime from acquiring nuclear weapons – or walk away. If he instead commits to a plan that will lead to a nuclear Iran, Congress must stop it....

“To allow this pariah nation to acquire nuclear weapons and the ability to deploy them against us and our allies – and to share them with radical Islamic organizations – would constitute an incalculable threat to our national security and an existential threat to Israel. It would set off a nuclear-arms race that would virtually guarantee a regional war with global implications.

“Alarmingly, our negotiators and the Iranians have offered wildly differing interpretations of the negotiated framework. On every principle, Iran insists it will never accept our terms.”

Sen. Graham then proposes “eight principles to ensure we get the right answers and achieve a sound, enforceable deal.”

No. 3 is: “Anytime, anywhere inspections of all Iranian military and nonmilitary facilities. Iran shouldn’t have veto power over when inspectors visit its facilities, including the ability of independent parties to monitor and report on Iran’s compliance.”

But the Ayatollah, again, has said ‘no way.’

Meanwhile, a senior Israeli official slammed Washington for allowing Iran’s purchase of second-hand civilian aircraft, saying the acquisition violated U.S. sanctions and went ahead despite a tip-off from Israel, as reported by Reuters. Tehran bought 15 used commercial planes in the last three months, though an Iranian official who told a news agency of the purchase didn’t say who sold them or how they had been acquired.

Russia: NATO’s top military commander, U.S. Air Force Gen. Philip Breedlove, said on Thursday that Russia had deployed equipment in eastern Ukraine that can be used for nuclear weapons.

While there is no “direct evidence” Moscow has actually deployed nuclear arms, “that does not mean that they may not have happened.”

“Lots of the systems that the Russians use to deliver nuclear weapons are dual-use systems – they can be either conventional or nuclear – and some of those systems are deployed,” Breedlove said. [BBC News]

Editorial / Washington Post

“It has been a week since Secretary of State John F. Kerry emerged from eight hours of meetings with Russian President Vladimir Putin and his foreign minister to say that the two sides had agreed to make a new effort to cooperate in resolving conflicts in Ukraine and Syria and completing a nuclear accord with Iran. The trip represented yet another bet by the Obama administration that it can cut deals with Mr. Putin without betraying U.S. interests or allies or capitulating to the Russian ruler and his imperialist agenda.

“So far, the results are not encouraging. The starting point for any practical progress would be the actual implementation of a cease-fire in eastern Ukraine. Though the accord was signed three months ago, Russia’s forces in the region continue to violate it ‘on a daily basis,’ as Assistant Secretary of State Victoria Nuland put it this week. That hasn’t changed: On Wednesday, the Ukrainian military reported that ‘Russian-backed forces have continued to press their attacks on key points of the front...using heavy artillery and tanks,’ according to the Web site the Interpreter.*

“Nor has there been any alteration in Moscow’s support for the Syrian regime of Bashar al-Assad. Despite the abundant evidence that Mr. Assad’s forces have resumed using chemical weapons against civilians, in the form of ‘barrel bombs’ filled with chlorine, Russia refuses to acknowledge Damascus’ responsibility. After meeting with Mr. Kerry, Foreign Minister Sergei Lavrov said, ‘There should be no attempts to use the issue of alleged use of chemical weapons to exercise any political pressure’ on the Assad regime.

“Rather than confirm Mr. Kerry’s wishful assertion that cooperation is possible, Mr. Putin’s followers are crowing about what they describe as an American climb-down. Having failed to change Russian policy with sanctions and isolation, they say, President Obama has accepted that he must court the Kremlin and concede its core demands. Russian officials and media pointedly noted that Mr. Kerry did not challenge the Russian annexation of Crimea – the signal achievement of Mr. Putin’s aggression – in the talks....

“Mr. Obama may believe that reengagement with Russia will facilitate his top foreign policy priority, the Iranian nuclear deal, while forestalling another escalation by Mr. Putin in Ukraine. But the Russian leader is more likely to be deterred by evidence that new aggression will be met by strong resistance on the ground – including through weapons supplied to Ukrainian forces – and by a firming of economic sanctions. Judging from Moscow’s rhetoric, Mr. Kerry’s outreach may have convinced Mr. Putin only that the Obama administration will eventually swallow his terms.”

*Ukraine said three of its soldiers had been killed and another 12 injured on Thursday in fighting in the east of the country.

Separately, the European Union agreed to a $2 billion loan to Ukraine – described as a landmark deal for a non-EU member. The agreement was signed at the EU summit in Riga, Latvia on Friday.

Back to Russia, the International Monetary Fund now projects the economy will contract by 3.4 percent this year, better than previously thought, with some growth in 2016.

But, Russia is dealing with a recent issue of rather disturbing proportions. A number of failures in its space program. 

Saturday, a Russian rocket carrying a Mexican satellite malfunctioned and crashed in Siberia shortly after its launch.

The rocket, a Proton-M, was launched from the Baikonur facility in Kazakhstan. As is typical of Russia in these instances, they didn’t comment on concerns about the tons of toxic fuel the rocket was carrying.

The same day, Roscosmos, the Russian Federal Space Agency, reported the Progress spaceship docked at the International Space Station, failed to ignite its engine and correct the orbit of the ISS.

In April, an unmanned Russian supply ship carrying 3 tons of goods for the ISS failed to dock after an incident after the launch. Left in low orbit, it eventually fell to Earth over the Pacific on May 8.

Meanwhile, three of the space station’s six-person crew who were scheduled to return to Earth in May, now have to stay until late July until the launch of their replacement crew due to a suspension of Russia’s program until it can figure out what is going on.

China: Chinese Foreign Minister Wang Yi categorically rejected criticism from Sec. of State John Kerry over China’s plans to reclaim land in the South China Sea.

“I would like to reaffirm that China’s determination to safeguard its sovereignty and territorial integrity is as hard as a rock,” Wang said. 

China claims about 90 percent of the 3.5 million square kilometer body of water.

This week the U.S. released video taken from U.S. spy planes showing just how fast the reclamation work is proceeding around at least seven reefs in the Spratly archipelago. China warned the U.S. this week not to fly over its territory, yet commercial aircraft do all the time.

On at least one of the artificial islands, an airstrip has already been built capable of supporting any aircraft in China’s military.

David E. Sanger and William J. Broad / New York Times

“After decades of maintaining a minimal nuclear force, China has re-engineered many of its long-range ballistic missiles to carry multiple warheads, a step that federal officials and policy analysts say appears designed to give pause to the United States as it prepares to deploy more robust missile defenses in the Pacific.

“What makes China’s decision particularly notable is that the technology of miniaturizing warheads and putting three or more atop a single missile has been in Chinese hands for decades. But a succession of Chinese leaders deliberately let it sit unused; they were not interested in getting into the kind of arms race that characterized the Cold War nuclear competition between the United States and the Soviet Union.

“Now, however, President Xi Jinping appears to have altered course, at the same moment that he is building military airfields on disputed islands in the South China Sea, declaring exclusive Chinese ‘air defense identification zones,’ sending Chinese submarines through the Persian Gulf for the first time and creating a powerful new arsenal of cyberweapons.

“Many of those steps have taken American officials by surprise and have become evidence of the challenge the Obama administration faces in dealing with China, in particular after American intelligence agencies had predicted that Mr. Xi would focus on economic development and follow the path of his predecessor, who advocated the country’s ‘peaceful rise.’”

When Sec. Kerry met Xi Jinping in Beijing’s Great Hall of the People, Xi told him the “China-U.S. relationship remains stable on the whole,” according to Xinhua. Xi added the two countries should “manage, control and handle disputes in an appropriate way so that the general direction of the bilateral relationship will not be affected....The broad Pacific Ocean is vast enough to embrace both China and the United States,” Xi said.

North Korea: This week officials claimed North Korea has successfully developed the technology to “miniaturize” a nuclear device, which by implication means it can deploy same on a ballistic missile. Whether or not Pyongyang actually has this capability is not as important as the fact its nuclear program proceeds apace and is no doubt making progress all the time. The regime is going to have to be confronted, seemingly within the next two years, because there is little doubt that by that time, the North will be able to launch nuclear-armed missiles; if not at the United States, certainly Seoul or Tokyo.

What needs to happen now, though, is increased cooperation on the missile-defense front between the U.S., South Korea and Japan. There is no time to waste.

Sec. of State Kerry traveled to Seoul after his meetings in Beijing and from there he called for increased international pressure on Pyongyang, calling Kim Jong-un’s government “one of the most egregious examples of reckless disregard for human rights and human beings anywhere on the planet.” Kerry said Kim could face charges at the International Criminal Court.

U.N. Secretary-General Ban Ki-moon was scheduled to visit North Korea this week but his invitation was canceled at virtually the last minute. Ban said, “This decision by Pyongyang is deeply regrettable.”

Ireland: Conservative, still-largely Catholic Ireland went to the polls on Friday for a referendum that could make it the world’s first country to approve same-sex marriage in a popular vote. The vote count begins Saturday morning. Abortion is still prohibited in Ireland.

Random Musings

--Editorial / Wall Street Journal

“The New York Times reported Monday on email records showing that (longtime Clinton confidant Sidney) Blumenthal was on the payroll of the Clinton Foundation at the same time he was being paid by groups helping Mrs. Clinton’s presidential run, at the same time he was advising a U.S. business seeking Libyan contracts, at the same time he was secretly advising Secretary of State Clinton about Libya. Every top American diplomat apparently needs a good man Friday who no one else knows about....

“The Times reports that Mr. Blumenthal was paid to do ‘research, ‘message guidance,’ and the ‘planning of commemorative events.’ Was he also paid by the Clinton Foundation – which is funded in part by foreign governments – to write memos for the Secretary of State?”

We do know that Hillary was paid...a lot...by various tech companies for speeches. The Washington Post reported Hillary picked up $315,000 from an eBay summit promoting women in the workplace. $315,000 for 20 minutes.

In fact, “Out of the $11.7 million that Hillary Clinton has made delivering 51 speeches since January 2014, $3.2 million came from the technology industry, the analysis found. Several of the companies that paid Clinton to address their employees also have senior leaders who have been early and avid supports of her presidential bid....

“While it is common for former presidents to receive top dollar as paid speakers, Hillary Clinton is unique as a prospective candidate who received large personal payouts from corporations, trade groups and other major interests mere months before launching a White House bid....

“The blurred line between personal and political is apparent in the cases of companies that hired Clinton to speak and are connected to prominent backers of her campaign. Salesforce.com, for instance, paid Clinton $451,000 to deliver two talks last year, and its CEO, Marc Benioff, is a major donor to Ready for Hillary, a super PAC that laid the groundwork for her presidential bid.”

Combined with Bill Clinton, the two made more than $25 million since the start of 2014 through speeches alone, according to a federal financial disclosure statement. Hillary also made more than $5 million from her book “Hard Choices.”

But wait...there’s more! As reported by the Washington Post, “The Clinton Foundation reported Thursday it has received as much as $26.4 million in previously undisclosed payments from major corporations, universities, foreign sources and other groups....

“The money was paid as fees for speeches by Bill, Hillary and Chelsea Clinton. Foundation officials said the funds were tallied internally as ‘revenue’ rather than donations, which is why they had not been included in the public listings of its contributors published as part of (a 2008 ethics agreement to reveal its donors).”

As for Hillary’s 55,000 pages of emails from her time as secretary of state, the State Department said it didn’t intend to make them public until Jan. 15, 2016, or right before the Iowa caucuses.

But then a judge, acting on a Freedom of Information Request, said they had to be released sooner and on Friday, the State Department released 296 of them, a fraction of more than 30,000 work-related messages Clinton turned over from her private e-mail account she used while at State.

So one of the e-mails that was released was a message from Blumenthal, two days after the Sept. 11, 2012, Benghazi attack, wherein on Sept. 13, he told Clinton that the attackers from an al-Qaeda affiliate had planned the assault for a month and then used a nearby protest as cover – which is at odds with the initial narrative offered by the White House, which downplayed the attack for political reasons, the election being less than two months away.

The Republican chairman of the House Benghazi committee, Representative Trey Gowdy of South Carolina, said in a statement the e-mails reflect a “self-selected” record by Clinton and her lawyers. He said his panel will continue to push for a broader range of information, while calling for Clinton to turn over her server to the committee.

She has said she wiped her server clean after turning over more than 55,000 pages of e-mails to the State Department.

For now, seeing as the e-mails were just released Friday afternoon and I have to finish the rest of this column, I’ll comment further next week as warranted.

--Meanwhile, Richard Johnson of the New York Post reports:

“Chelsea Clinton is so unpleasant to colleagues, she’s causing high turnover at the Bill, Hillary and Chelsea Clinton Foundation, sources say.

“Several top staffers have left the foundation since Chelsea came onboard as vice chairman in 2011.

“ ‘A lot of people left because she was there. A lot of people left because she didn’t want them there,’ an insider told me. ‘She is very difficult.’....

“Chelsea has embraced all the trappings of a corporate CEO, with a personal staff almost as big as her fathers’. ‘He has six. She has five,’ said my source.

“None of this would surprise her former co-workers at McKinsey and NBC News. At both the management consulting firm and the network, co-workers allegedly were told they couldn’t approach Chelsea.

“A source at NBC, where Chelsea was paid $600,000 a year, said, ‘If someone wanted to talk to Chelsea about something, they had to go through a producer.’....

“Instead of being something Hillary can point to with pride, the foundation has become a bloated slush fund that some critics say deserves an official investigation. And Chelsea’s fingerprints are all over it.”

--George Stephanopoulos renewed his contract with ABC last year for seven years, $105 million. But with his credibility, and future, called into question since he admitted he had donated $75,000 to the Clinton Foundation since 2011, Stephanopoulos, in his apologies, has said the gifts “were a matter of public record, but I should have made additional disclosures on air when we covered the foundation.”

ABC execs were apparently blindsided by his largesse.

Emily Smith and Bruce Golding / New York Post

“George Stephanopoulos never really left Clinton-land – and it didn’t bother his bosses at ABC News.

“Back in 2009, when he was already anchoring ‘This Week’ and about to take over ‘Good Morning America,’ Stephanopoulos maintained daily phone contact with high-powered Democrats tied to ex-President Bill Clinton.

“According to a Politico report that’s resurfaced amid the scandal over his $75,000 in gifts to the Clinton Foundation, Stephanopoulos was one of four Clinton insiders who took part in ‘round-robin chatter’ during which Democratic strategy was ‘quite likely...being hatched.’”

An ABC spokeswoman, Heather Riley, who also worked in the Clinton White House, insisted the story “wasn’t true then, and it isn’t true now.”

Editorial / New York Post

“Why did it take $75,000 in donations he never disclosed for everyone to wake up to the fact George Stephanopoulos is hopelessly conflicted when it comes to Bill and Hillary Clinton?

“In other words, that he has no business reporting on her presidential campaign or those of her would-be opponents – let alone as the face of ABC News and its 2016 election coverage?

“Stephanopoulos’ onetime colleague, former ABC World News Tonight anchor Carole Simpson, got it exactly right when she said that ‘there is a coziness that George cannot escape.’

“She added, ‘He really isn’t a journalist’ – despite his $105 million ABC contract....

“Stephanopoulos himself has said even Ted Koppel ‘pulled him into his office’ and asked: ‘Are you sure you can be fair?’

“To answer that question, ABC initially insisted Stephanopoulos would serve only as an analyst and ‘will not report the news’ – only to later name him its chief Washington correspondent and host of its marquee Sunday political show, ‘This Week.’

“In other words, he at least started playing a journalist on TV.

“Yet he still doesn’t realize why his donations are a blatant conflict of interest and why not disclosing them is a big deal.

“Amazingly, Stephanopoulos continues to claim he was under no obligation to tell his viewers – not to mention his bosses – that he was giving money to the Clinton Foundation. Nope, he says: Doing that would’ve been ‘going the extra mile.’

“But his blatantly adversarial questioning of ‘Clinton Cash’ author Peter Schweizer shows once again that Stephanopoulos can’t even fake objectivity when it comes to Bill and Hillary.

“So he has a real ongoing credibility problem – and so does ABC, if it continues to present him as unbiased.”

--Maureen Dowd / New York Times [I need to toss some red meat the other way, just to be fair and balanced.]

“In 1993, I covered Jeb (Bush) on his thwarted first try to be Florida governor. He seemed mildly annoyed that his raffish older brother had jumped into the arena to run for governor in Texas. W. was co-opting Jeb’s campaign lines and making it, as Jeb worried, ‘a People magazine story,’ a Tweedledee and Tweedledum power grab.

“ ‘As the son of a famous person,’ Jeb told me on the trail then, ‘I carry the pluses and minuses of past wars.’

“But, now, as the brother of a famous person, he literally carries the minuses of past wars. In a dunderheaded move that has hobbled his nascent 2016 campaign, Jeb wanted to breeze past any discussion of W.’s Oedipal crash into the globe, hiding behind the flag of Bush loyalty and the family allergy to hypotheticals.

“Since Jeb purloined Florida for W., under family pressure, the Good Son bears some responsibility for the Prodigal Son plopping the country into a ‘doo doo ball,’ as one of Poppy Bush’s pals calls it.

“Jeb had barely finished insisting that he was his own man before he voluntarily shackled himself to W., putting several members of his brother’s war-torture-and-Katrina tarnished brain trust on his advisory list and telling a group of financiers in New York that W. was his top adviser on the Middle East!! :(

“The 62-year-old was schooled on W.’s deadly Middle East legacy by a 19-year-old University of Nevada student, Ivy Ziedrich, who explained to the would-be leader of the free world that ISIS – which is gobbling up more and more pieces of Iraq – was not the virulent spawn of President Obama’s policies, but of his brother’s.

“As with the Clintons, the fraught family dynamic of the Bushes spills over to affect life-or-death policy-making. While they proclaim they don’t want to be on the couch about their misguided dreams of empire, we get ensnared in their ‘Empire’-style psychodramas.

“And consider this: Jeb hasn’t even been asked any questions yet about W.’s dark contributions on waterboarding, the deficit and the near-total collapse of the American economy.”

--The Washington Post’s Jenna Johnson and Philip Rucker covered the Iowa Republican Party’s Lincoln Dinner on Saturday in Des Moines and I just have to note two particular accounts of the presidential contenders in attendance.

“George Pataki started off by telling this Iowa-friendly story: He was governor of New York on Sept. 11 and as New York City tried to recover and rebuild after the attacks, Pataki said that he traveled to Washington and asked lawmakers for financial support. He said many lawmakers turned him down, considering this a state problem and not a national one. An exception: Sen. Chuck Grassley of Iowa.

“Pataki described how the city has recovered and shared credit with Grassley: ‘I am proud of it. You should be proud of it.’

“Then Pataki got round after round of applause as he listed federal agencies with too many employees, including education staffers who handle Common Core issues and IRS employees who oversee the country’s much-too-complicated tax system. He said that he cut down the number of state workers when he was governor, nothing that was done ‘in the deepest blue state in the United States.’”

As halftime hits, Lindsey Graham tells joke after joke.

“ ‘It’s halftime,’ Lindsey Graham declared as he took the stage. And the senator from South Carolina did not disappoint, putting on a rollicking halftime show of a speech.

“He started with some playful ribbing of the infamously frugal Sen. Charles E. Grassley (R-Iowa): ‘The one thing I learned about this dinner is it was free for Chuck or he wouldn’t have been here!’

“Then he showered love on Iowa’s junior senator, freshman Joni Ernst, who rose to national fame last year with her ad about hog castration. ‘Joni Ernst rocks! When I saw that ad with the pigs, I made sure I’d never offend Joni.’

“Graham praised retired neurosurgeon Ben Carson, too. ‘Isn’t he too smart to be president?’ he asked.

“ ‘The more you drink, the better I sound, so keep drinking,’ Graham told the crowd. ‘If you need to go to the bathroom, go ahead. Won’t bother me a bit.’

“Then the senator got serious. Graham made clear he is positioning himself as the most hawkish candidate in the field.

“ ‘If I’m president of the United States and you’re thinking about joining al-Qaeda or ISIL, I’m not gonna call a judge,’ Graham said, a reference to Sen. Rand Paul’s earlier remark about how the NSA should call a judge to obtain a warrant before tapping into people’s phone records. ‘I’m gonna call a drone and we will kill you.’”

--The FBI has arrested at least 30 Americans on terrorism-related charges this year, “lone wolf” plots, thankfully none of which were successful, “but nearly all purportedly inspired by Islamic State propaganda or appeals,” as reported by the Los Angeles Times’ Brian Bennett.

“U.S. officials estimate the Sunni Muslim group has drawn 22,000 foreign fighters to Syria and Iraq... About 180 Americans have gone, or tried to go.”

--Al Sharpton’s eldest child sued New York City for $5 million after she fell in the street and sprained her ankle, according to court records.

Dominique Sharpton, 28, says she was “severely injured, bruised and wounded” when she stumbled over uneven pavement.

But as the New York Post reported, while she was pictured in a walking boot in the weeks following the October tumble, by December she was good to go for a New Year’s Eve trip to Miami Beach, and despite claiming “permanent physical pain” the same month, she was seen in social-media shots in high heels and climbing a ladder to decorate a Christmas tree.

Right out of her father’s playbook.

--From the Baltimore Sun, Thursday: “(Police) are investigating the city’s 100th homicide of 2015... compared with 71 at this time last year, the police department said. It’s the fastest the city has reached 100 homicides since 2007....

“At least 19 people were shot across the city Tuesday and Wednesday, three of them fatally.”

Scott Calvert / Wall Street Journal

“The number of arrests has fallen here since Freddie Gray’s death put the police department under intense scrutiny, while violent crime has increased in a neighborhood rocked by riots hours after Mr. Gray’s funeral, police officials said Wednesday....

“Gene Ryan, president of the Baltimore police union, said a jump in violent crime in West Baltimore, where Mr. Gray was arrested April 12 and where rioting broke out after his April 27 funeral, was the fault of ‘a criminal element’ taking advantage of heightened tensions.....

“In the three weeks after Mr. Gray’s death on April 19...officers made 1,453 arrests – a decrease of more than 40% from the same periods in 2013 and 2014, police data show.

“The period included the two days last month when police arrested more than 200 people amid widespread looting and rock-throwing at officers.”

Meanwhile, a grand jury in Baltimore indicted six police officers on homicide and assault charges in the death of Freddie Gray. After announcing them, state’s attorney for Baltimore City, Marilyn J. Mosby, refused to take questions. [I’m not a fan of hers.]

--It’s possible the huge biker brawl at a Waco, Texas, mall that killed nine may have been over a parking space outside the Twin Peaks sports bar. The scene was so awful that the restaurant’s corporate management immediately revoked its franchise the next day.

It was one of the most brazen displays of violence between motorcycle clubs in recent memory and it played out between five different groups, the Cossacks and Bandidos in the main event.

The Bandidos, we learned, could be the most dangerous in the world, with 2,500 members in 14 countries; a criminal organization engaged in distribution of heroin, cocaine and meth. The Bandidos have a motto: “We’re the people your parents warned you about.”

The Cossacks ticked off the Bandidos when they added the word “Texas” to the bottom of its colors, and when the Bandidos told them to remove it, the Cossacks refused.

Thankfully, the only folks killed and injured were gang members.

[I just saw where there was a shootout between police and a drug gang in Mexico on Friday that killed 39! I think I’ll drink domestic at home and watch the Stanley Cup playoffs, rather than do heroin and join a drug/biker gang.]

--Finally, its Memorial Day weekend. When I was at the Normandy American Cemetery in 1995, I walked into this little chapel and took a picture of the inscription that to me has always best summed up what Memorial Day is all about.

Think not only upon their passing

Remember the glory of their spirit

God bless America.
---

Gold closed at $1204
Oil $59.72...up a tenth straight week, but only by three cents

Returns for the week 5/18-5/22

Dow Jones -0.2% [18232....hit new closing high of 18312]
S&P 500 +0.2% [2126...hit new high of 2130.82]
S&P MidCap +0.7%
Russell 2000 +0.7%
Nasdaq +0.8% [5089...record is 5092]

Returns for the period 1/1/15-5/22/15

Dow Jones +2.3%
S&P 500 +3.3%
S&P MidCap +6.1%
Russell 2000 +3.9%
Nasdaq +7.5%

Bulls 50.6
Bears 15.8 [Source: Investors Intelligence]

Brian Trumbore

***Note: I’m launching a new yearlong fundraising campaign next Tuesday and by the end of the week, the link will be all over my site and columns, as well as the little social media that I do. I’ve run out of time tonight and will explain fully next WIR but it’s about expansion and a new link or two, as well as hiring some marketing support.

I greatly appreciate those who have contributed to the cause the past few months. What I’m going to be doing through GoFundMe, though, is more of a formal drive that I will keep up for at least a year. As I’ll explain later, it’s a no-brainer for me and, first and foremost, a free way to expand my audience. [It’s also an easier way for international readers to contribute.]

For today, though, a special shout out to my Uncle C. for his generous contribution the other day. I’ll never forget interviewing a kid when I was at PIMCO (folks will tell you I was the easiest interview in the world...I mostly asked the candidates what sports teams they were interested in...) and I learned Tim A. had taken a class at the Univ. of Delaware from Uncle C. and raved about the professor; Dr. Bortrum’s brother, by the way. Needless to say, Tim got the job. [And he was darn good.]

Anyway, next week you’ll hear more of my life story...or at that point you can switch to a reality television show instead.

Let’s Go Rangers!