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08/22/2015

For the week 8/17-8/21

[Posted 10:30 PM CT, Friday...from Des Moines, Iowa]

Edition 854

Washington and Wall Street

The following is not the kind of trend I like to see.

Week ending…Dow percentage gains or losses:

7/17/15… +1.8%
7/24/15… -2.9%
7/31/15… +0.7%
8/7/15….. -1.8%
8/14/15… +0.6%
8/21/15… -5.8%

This past week was the worst in years, though as I go to post I’m having a tough time quantifying it exactly. What we do know is that Friday’s Dow loss of 530 points, 3.1%, was the worst since Aug. 2011, and the S&P 500’s 3.2% drubbing its worst since Nov. 2011. Nasdaq lost 3.5% today.

For the week….

Dow -5.8%
S&P -5.8%
Nasdaq -6.8%

The Dow lost over 1,000 points on the week, its largest point drop since Oct. 2008. The 530-point loss Friday was the worst since Nov. 2008.

And the damage was all over the globe. For example, the Stoxx Europe 600 (like our S&P 500) lost 6.5%, its worst week since 2011, and is now down 13% from its April high. Correction territory. 

Speaking of corrections…we finally have one in the Dow Jones.

Following are the declines from the recent record (closing) highs and Friday’s close.

Dow Jones -10.1%
S&P 500 -7.5%
Nasdaq -9.8%

This week it was pretty simple what the story was… China’s slowing economy, plunging oil prices, and concern over the Federal Reserve’s imminent rate hike.

In terms of China and oil, one feeds into the other. Slowing demand in China leads to lower oil prices (and profits for energy companies) while at the same time there is an oil glut. It’s not more complicated than that. True, falling oil prices (which closed at $40.45 this week, WTI) are good for the rest of the economy, from consumers to manufacturers (whose raw material input costs are plunging…see copper, for example), but it’s disturbing the huge hit the energy sector is taking with tens of thousands of jobs melting away. [Well over 150,000 total at this point.]

And U.S. multinationals, which generate 48% of their revenues overseas (Factset) are getting killed amid the stronger dollar and profits that are translated back into greenbacks.

But Sunday could be a big day if the Chinese government acts to lower interest rates before global markets open Monday, while now we also have this situation on the Korean Peninsula worth watching (more below).

So what does all this mean for the Federal Reserve and prospects for a rate increase come September? The Fed released the minutes from its July Open Market Committee meeting and the governors remain noncommittal regarding next month. Some are concerned about China’s impact on the U.S., and the rest of the globe, while others are concerned with low inflation (and others maybe both). Would a rate hike exacerbate matters?

No doubt Chair Janet Yellen is on the hot seat. The minutes read: “Most [officials] judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.”

But the Fed has also said it wouldn’t move until it was assured inflation would eventually hit its 2 percent target.

“Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term,” according to the minutes.

For those not wanting to move until they are convinced the inflation target will be hit shortly thereafter, the Chinese yuan devaluation doesn’t help as all imports from China become cheaper.

What we do continue to glean from the minutes is that any rise in the federal funds rate will be gradual “to help ensure that the economy would be able to absorb higher interest rates and that inflation was moving toward the committee’s objective,” concluded the Fed.

As for this week’s economic data that the Fed keeps telling us it is focused on, July housing starts rose 0.2% to a seasonally adjusted annualized rate of 1.21 million, the highest pace since October 2007. Single-family home starts rose 12.8% to their highest level since Dec. 2007.

Then we had the release of the July existing home sales data, an annualized pace of 5.59m, up 10.3% year over year, with the median price at $234,000, up 5.6%.

So housing is in solid shape, though you don’t want prices rising at this level in terms of affordability.

On the inflation front, highlighted by the Fed, July consumer prices rose 0.1%, ditto ex-food and energy, while year over year, the CPI is up just 0.2%, but 1.8% on core.

In terms of economic growth, second-quarter GDP is slated to be revised on Aug. 27 (the first of two revisions), and economists feel it could rise from 2.3% as first reported to 3.0%, primarily on the heels of the strong July retail sales data.

Looking ahead to the third quarter, though, the Atlanta Fed’s normally prescient GDPNow indicator is currently forecasting just 0.7%, though they can bump this up substantially as more data rolls in.

Europe and Asia

Greece faced a 3.2bn euro debt payment to the European Central Bank on Thursday, but this really wasn’t a concern, the heavy lifting having been done earlier by Greece, eurozone finance ministers and the ‘creditors’: the ECB, European Commission, and the IMF. Greek Prime Minister Alexis Tsipras got his parliament to approve a third bailout of 86bn euro over three years the prior week and then all that was left was for the German parliament, and a few other national parliaments, to give their stamp of approval and once this was accomplished, the first tranche of bailout funds, 13bn, was handed over to Greece to allow it to repay the ECB and begin to recapitalize its banking system (the money actually going to the European Stability Mechanism for same).

German Chancellor Angela Merkel did face her most significant rebellion in that 63 members of her coalition voted ‘no,’ the highest for any of the three Greek bailout votes, but the coalition holds 80% of the seats overall and the final tally was 453-113. The Netherlands actually came close to voting against, which would have set back the process at least for a few weeks, due to the Dutch prime minister’s breaking an election promise not to give Athens more aid.

The total first tranche for Greece is to be 26bn euro, then comes an October review to gauge compliance. But, significantly, the IMF is not part of the bailout, yet, as Managing Director Christine Lagarde doesn’t want to commit until the IMF reviews the situation in the fall. Lagarde also continues to want to see significant debt relief, which the Germans are adamantly opposed to.

Greece had to agree to more sweeping budget cuts and pension reforms and it is far from being out of the woods as the economy, despite a surprisingly strong first half, is still expected to contract overall about 2% this year and another 1.3% in 2016.

So this catches us up to Thursday, the ECB having been paid back and hopes for bank recapitalization on the immediate horizon, when Prime Minister Tsipras took to the airwaves Thursday night to announce he was resigning and that he is setting Sept. 20 for a new election.

This is exactly as forecast; however that doesn’t make it any easier. There are a lot of moving parts.

Tsipras’ point is that now that a new bailout has been secured, the Greek people should vote on who they want to lead the nation going forward. Tsipras, as I’ve been writing, continues to maintain strong approval ratings, even though he first won back in January on an anti-austerity platform, yet now is asking the Greeks to support the way he is leading the country out of the crisis.

And in asking the people to accept more austerity, Tsipras has been rebuked by a sizable number of his Syriza party who opposed any further cuts. Some of this rebel faction announced on Friday they would form their own party, Popular Unity.

So we have a caretaker government until Sept. 20, which will be headed up by the president of the nation’s supreme court, a woman, who thus become Greece’s first female prime minister.

But before there’s a new election, the other established parties in parliament have a chance to form a government. The second-biggest is New Democracy, a center-right party, while third-largest is Pasok, who are socialists. Neither of these is expected to be able to come up with a coalition, but they’ll get a crack at it. Same with Golden Dawn, the fascists.

Ergo, it’s going to be a bit chaotic the next month in Greece, but then what else is new? The biggest problem they really have, today, is the flood of migrants reaching their shores from the Middle East.

But back to Germany, while the vote tally was overwhelmingly in favor of giving Athens more cash, much of which comes out of the pockets of the German taxpayers, Finance Minister Wolfgang Schauble, who was surprisingly supportive, said Greece deserved more aid because it agreed to further painful cuts and he was reasonably optimistic they would implement their end of the bargain. You can be sure, though, that the Germans will hold Greece’s feet to the fire.

One economic note for the eurozone as a whole. Markit released its flash estimate for manufacturing and the PMI was unchanged in August, 52.4 vs. 52.4 in July. Remember, the flash report also looks at just Germany and France, individually, and Germany’s PMI was 53.2, better than expected and up from July’s 51.8. But France came in at a putrid 48.6…down from last month’s 49.6. [50 being the dividing line between growth and contraction.]

Lastly, while Greece deals with a huge migration problem, on its border, Macedonian authorities clashed with thousands of migrants who had come in through Greece (from the Middle East) and were looking to transit through Macedonia. The police there would have none of it and regional officials declared a crisis of their own, unable to handle such large numbers.

Germany is the final destination for many of those fleeing the likes of Syria, Eritrea, and Libya (for starters) and as many as 800,000 are expected to seek asylum there this year (many heading to Germany are also from Kosovo and Albania). This would be four times the number from last year. Already there have been violent clashes between migrants and German locals and this will now pick up big time.

On to Asia, as alluded to above, a reading on China manufacturing for August, the Caixin (formerly HSBC) flash report, came in at 47.1 vs. 47.8 for July, the lowest figure since March 2009 and just another indication of further contraction in the economy, despite what the official GDP figure put out by the government says.

And the Shanghai Composite stock index fell 11.5% on the week, including 6% on Tuesday alone, as the government’s efforts at propping up the market fail.

But there was a small ray of hope. New-home prices rose in July in 31 of 70 cities monitored by the National Bureau of Statistics, up from 27 in June. Overall prices have ticked up three straight months (month on month).

In Japan, Prime Minister Shinzo Abe’s ‘Abenomics’ suffered a blow as second-quarter GDP came in down 1.6% on an annualized basis, following a 4.5% increase in the first quarter. Exports have been slumping and consumers cutting back. It is the first decline in GDP since Q2 2014 when the sales tax hike hit consumption.

The biggest problem for Abe is wage gains have failed to keep up with prices.

Street Bytes

--As you can see below, the gains for 2015 in the broad indices have been wiped out. The Dow is now down 7.65%. 

Some key stocks have been taking it on the chin. Just this past Aug. 3, Disney shares hit a new high of $122. Friday they closed at $100, partly on the heels of a major downgrade.

Shares in Apple hit their all-time high on April 28, $134.50. Today they are $106.35. No real negative news (though I’ve argued people have their heads in the sand when it comes to Apple and China and the prospects there).

And an example of reality setting in is Shake Shack, which while successful was highly overvalued, with the shares hitting $75 on Aug. 11 following an earnings report. They closed Friday at $47.50. That’s carnage.

--U.S. Treasury Yields

6-mo. 0.19% 2-yr. 0.61% 10-yr. 2.04% 30-yr. 2.72%

Treasuries rallied big on your basic flight to safety.

--Wal-Mart Stores Inc. reported quarterly earnings far below the Street’s expectations, $1.08 vs $1.13, and it lowered guidance for the year.

But it did report a 1.5% increase in U.S. same-store sales, above the company’s own forecast rate, and Wal-Mart has now had four straight quarters of sales growth in the U.S., with a renewed focus on fresher produce and better customer service.

Overall revenue edged up to $120.2 billion from $120.1 billion a year earlier.

--Target is turning things around under the leadership of CEO Brian Cornell, with the retailer reporting earnings well ahead of the Street’s expectations ($1.22 vs. $1.11). Sales rose 2.8% from the same quarter a year earlier, with same-store sales growing 2.4%. The company raised its guidance.

--In the home improvement retail sector, Home Depot continued to kick butt, coming in with better-than-expected earnings and sales, the latter up 4.3%, as it raised guidance, calling for sales growth of 5.2% to 6% for the year, far better than its earlier 4.2% to 4.8% forecast. In the latest quarter, same-store sales rose 4.2%.

--HD rival Lowe’s Cos. reported weaker-than-expected profit growth in the second quarter, though same-store sales were up a solid 4.6%.

--Deere & Co. reported net sales for its last quarter fell 20%, as it guided lower for the balance of the year, with equipment sales now expected to fall 21%. The stock was taken to the woodshed to the tune of $7 to $83.

--Hewlett-Packard continued to issue one lousy report after another. CEO Meg Whitman has done a solid job with the balance sheet but there is no growth. H-P guided lower, with overall net revenue down 8% in the last quarter. The PC business was off 13%, printer sales down 9%.

--Salesforce.com’s shares hung in there on Friday, a day after the cloud software company handily beat the Street on both its top and bottom line, and raised guidance. Revenue increased 24% year over year. As Ronald Reagan would have said, ‘Not bad, not bad at all.’

--Tyson Foods Inc. said it would permanently close an Iowa beef processing plant, which will result in the loss of 400 jobs in Denison. Years of drought forced farmers to reduce their herds and thus left meatpackers with fewer animals to process.

In the last two years, conglomerate Cargill Inc. has closed two large beef facilities in Milwaukee and Plainview, Texas.

--U.S. Steel Corp. announced it was shutting down a blast furnace and other steel operations in Alabama that will result in the elimination of 1,100 jobs at the Fairfield plant.

The company is being hit by falling demand from China, global oversupply, and collapsing oil prices that have hurt demand for tubing for that industry.

There is also little doubt China is violating international trade rules by dumping its products onto our market. Domestic steelmakers have filed three requests for protective tariffs this year. It’s not the volume that is the issue but the low prices the actions of the likes of China are engendering.

--I didn’t have a chance last time to note the Obama administration’s approval of a plan to send U.S. crude to Mexico, the first such exports that many have been calling for, but this is small potatoes and is really a swap. We send them a small amount of the kind of crude they want, while Mexico ships us a like amount of oil in the grade we can easily process.

But at least it’s a start toward hopefully repealing a law dating back to the energy crises of the 1970s. Such a move, the oil industry argues, would create more U.S. jobs just as producers retrench amid tumbling crude prices.

--Meanwhile, the impact of a collapsing oil price on Canada has been huge, with the head of Toronto-Dominion Bank (TD) warning of the effects on the Canadian economy, let alone the banking industry that has been lending heavily to the sector. Of concern is the impact on consumer spending in the oil-producing provinces of Alberta, Saskatchewan and Manitoba.

--As I discuss further below, crashing oil prices have done a number on the Russian economy. Industrial production contracted by 4.7% in July, according to the government, which is on the heels of the release of second-quarter GDP, down 4.6%.

--As I’ve noted in the past, the Subway food chain has been struggling with competition from the likes of Chipotle, but the company at least acted quickly in ditching pitchman Jared Fogle in July when the first allegations of his having sex with underage girls were made public.

On Wednesday, Fogle struck a deal with federal prosecutors that will send him to prison for at least five years, while Fogle is also to pay restitution of $1.4 million to his victims. The less said about this case the better. I was just surprised to learn he reportedly has a net worth of $15 million.

--The New York Times had an extensive story on Amazon’s supposedly awful work environment, according to more than 100 current and former Amazon employees who were interviewed for the piece. The article mentions workers crying at their desks, and an evaluation process that encourages employees to criticize co-workers. It also tells of an employee supposedly receiving a low performance rating after returning from cancer treatment.

CEO Jeff Bezos fired back: “The article goes further than reporting isolated anecdotes. It claims that our intentional approach is to create a soulless, dystopian workplace where no fun is had and no laughter heard. Again, I don’t recognize this Amazon and I very much hope you don’t, either.”

--Shares in Twitter closed below their IPO price on Friday, $25.87, the 2013 IPO being at $26, with the stock’s all-time high being $72.

--The IRS admitted on Monday that more than twice as many taxpayer accounts were hit by identity thieves than the agency first reported. Hackers gained access to 330,000 accounts, while attempting to break into another 280,000, whereas in March the agency reported the figures at 114,000 and 111,000, respectively.

--Regal Entertainment Group, the nation’s largest movie theater chain, is starting to warn moviegoers its bags and backpacks may be searched. I doubt anyone will be bothered by this. Just makes sense. However, it’s also putting a lot of pressure on employees, many of whom are teens. So expect some stories.

--The U.S. Food and Drug Administration approved the “little pink pill” designed to boost women’s libido, thus becoming the first drug of its kind allowed on the market along with medications for improving men’s sexual, err, err...

This drug, flibanserin, is taken daily before bedtime and affects brain chemicals, while Viagra is taken before sex and err, err….

--Moving right along, McDonald’s is considering offering Egg McMuffins 24 hours a day, which is a great idea.

--Here in Iowa, it’s funny how the pork, ham and bacon just tastes’ better. Fresh out of the slaughter house and processing plant, boys and girls, the way your editor likes it. In fact I passed a plant the other day and I felt like standing outside the door. “Please sir, could you sneak me some fresh pork tenders and bacon?”

The Iowa Pork Association is the star attraction of the State Fair, which I went to on Wednesday and am spending Saturday at. They will sell 14,000 full pork tenderloin sandwiches, and 65,000 pork on a stick. Wednesday it was a scrumptious pork loin wrapped in bacon on a stick pour moi.

Foreign Affairs

Iran: Go ahead…plug “Parchin” into my search engine. You’ll see 46 mentions, the first in this column going back to 2011 (and I even mentioned it in a “Hot Spots” column in 2006). I have said since day one, this was all you needed to know about Iran, that they were covering up their nuclear arms work there. Ergo, you could never trust them on any kind of deal. Frankly, I was 100% right and the issues raised in the current debate prove me to be so. I have also been saying the president and this administration have been lying to us on the topic and treating us like chumps. 

Editorial / Wall Street Journal

“Three more Senators have declared against President Obama’s Iran nuclear deal in recent days, and don’t be surprised if more follow after Wednesday’s bombshell from the Associated Press. The news service reports that Iran will be allowed to use its own inspectors at the secret Parchin nuclear site under its secret side agreement with the International Atomic Energy Agency (IAEA).

“This is a new one in the history of arms control. Parchin is the military complex long suspected as the home of Iran’s nuclear-weapons and ballistic-missile development. The IAEA has sought access to Parchin for more than a decade, and U.S. officials have said the deal requires Iran to come clean about Parchin by agreeing on an inspections protocol with the IAEA by the end of this year.

“But that spin started to unravel three weeks ago with the discovery that the Parchin inspections were part of a secret side agreement between the IAEA and Iran – not between Iran and the six negotiating countries. Secretary of State John Kerry has said he hasn’t read the side deal, though his negotiating deputy Wendy Sherman told MSNBC that she ‘saw the pieces of paper’ but couldn’t keep them. IAEA Director General Yukiya Amano has told members of the U.S. Congress that he’s bound by secrecy and can’t show them the side deals….

“In other words, the country that lied for years about its nuclear weapons program will now be trusted to come clean about those lies….

“Meanwhile, bipartisan opposition continues to build in Congress. New Jersey Democrat Robert Menendez on Tuesday became the second Senate Democrat to oppose the deal, following announcements from Republicans Jeff Flake (Arizona) and Foreign Relations Chairman Bob Corker….

“ ‘For me, the Administration’s willingness to forgo a critical element of Iran’s weaponization – past and present – is inexplicable,’ said Mr. Menendez in explaining his opposition. ‘Our willingness to accept this process on Parchin is only exacerbated by the inability to obtain anytime, anywhere inspections, which the Administration always held out as one of those essential elements we would insist on and could rely on in any deal.’

“Public opposition is also growing. And it will increase as Americans learn that the deal’s inspections include taking Iran’s word about its previous weaponization work at its most crucial nuclear-weapons site.”

Michael Bloomberg / Bloomberg

“If you oppose the Iranian nuclear agreement, you are increasing the chances of war. And if you are a democrat who opposes the agreement, you are also risking your political career. That’s the message the White House and some liberal leaders are sending – and they ought to stop now, because they are only hurting their credibility.

“I have deep reservations about the Iranian nuclear agreement, but I – like many Americans – am still weighing the evidence for and against it. This is one of the most important debates of our time, one with huge implications for our future and security and the stability of the world. Yet instead of attempting to persuade Americans on the merits, supporters of the deal are resorting to intimidation and demonization, while also grossly overstating their case.

“President Barack Obama has said it is not a difficult decision to endorse the agreement. I couldn’t disagree more. This is an extraordinarily difficult decision, and the president’s case would be more compelling if he stopped minimizing the agreement’s weaknesses and exaggerating its benefits. If he believes the deal ‘permanently prohibits Iran from obtaining a nuclear weapon,’ as he said in his speech at American University on Aug. 5, then he should take another look at the agreement, whose restrictions end suddenly after 15 years, with some of the constraints on uranium enrichment melting away after just 10.

“Overstating the case for the agreement belies the gravity of the issue and does more to breed distrust than win support. Smearing critics is even less effective….

“Throughout this process, the president and his secretary of state gave Americans assurances that the United States would not be cornered into a bad deal. Yet in his speech at American University, the president said Congress must decide ‘whether to support this historic diplomatic breakthrough’ or to block it ‘over the objections of the vast majority of the world.’

“Congress should not act based on the opinion of the rest of the world, nor the opinion of the American public, which opposes the agreement by a 2-to-1 margin, according to a recent poll. Congress should make its own hard and careful assessment of the agreement – something it cannot possibly do without seeing the yet-to-be-revealed side deals. How can you vote on a pact that you haven’t been able to read in full?”

Sen. Bob Corker (R-Tenn.) / Washington Post

“Many say now is the time for the United States to push back against Iran. The best way to do that is for Congress to reject an agreement that strengthens Iran with hundreds of billions of dollars over the next decade, removes the conventional weapons and ballistic missile technology embargoes on Iran and allows for a U.S.-approved, industrial-scale enrichment program for which it has zero practical need.

“We have more leverage than we will ever have, but under this deal that leverage will flip in approximately nine months, when most major sanctions are relieved. Iran will further deepen its regional strength.

“Unfortunately, the agreement ties our hands in countering Iran’s efforts. If we try to push back, Iran will threaten to speed up its nuclear development since it already will have a windfall of money, a rapidly growing economy and alliances built with our partners, who will feast on the mercantile benefits of doing business with Iran.

“The idea that a future president will somehow have the same options available as today, when Ian is poor and isolated, is fanciful.”

And what are those daffy Iranians saying these days? A top adviser to Supreme Leader Ayatollah Khamenei, Ali Akbar Velayati, said, “Syria is the golden ring of resistance against the Zionists” and that the “resistance axis” of Iran, Iraq, Syria, Lebanon, and the Palestinian territories is “not only to fight against the dominance of foreigners in their countries but also to roll back U.S. hegemony.” [Jerusalem Post]

In Tehran, there has, however, been rising opposition to the deal from the hardliners, so Khamenei issued a statement this week:

“The Americans want to infiltrate this region and pursue their objectives. We won’t allow that. They seek to disintegrate Iraq and Syria. This won’t happen with God’s will.” [Wall Street Journal]

Iraq/ISIS/Syria: The regime of Syrian President Bashar al-Assad has been slaughtering his fellow citizens in rebel-controlled areas outside Damascus, with at least 96 being killed in one series of air raids, over 200 injured, according to the Syrian Observatory for Human Rights. Almost all the victims were civilians. U.N. Humanitarian chief Stephen O’Brien said he was “horrified” by the attacks taking place in Syria.

Amnesty International accused Assad of committing war crimes, saying its heavy aerial bombardment of eastern Ghouta was compounding the misery created by the blockade. Rebels are also being accused of firing rockets indiscriminately at Damascus.

Close to 12 million have been uprooted by Syria’s war, with more than four million becoming refugees and 7.6 million more being displaced. Well over 250,000 have been killed. [For new readers, I can show you how I said it was over…over…back in 2012 due to President Obama’s incompetence and failure to implement a simple no-fly zone with Turkey’s cooperation…who at the time was crying for our help.]

Meanwhile, the al-Qaeda affiliated Al-Nusra Front released seven members of the U.S.-trained rebel group that it had kidnapped weeks earlier. They apparently still hold six more, including the commander. The rest of “Division 30” has melted away. 

In Iraq, the bombings continue, with at least 24 killed last weekend in Baghdad, just days after an attack near Sadr City killed more than 70 in a massive truck bomb blast claimed by ISIS.

But Friday, the Pentagon announced an airstrike outside Mosul killed the No. 2 man behind ISIS leader Baghdadi. No. 3…come on down!

Lastly, ISIS beheaded the archaeologist in charge of antiquities at Palmyra, the ancient Syrian city taken by ISIS a few months ago. We pray God is keeping score up above, and that scores are settled sooner than later.

Turkey: In just one of many attacks on the Turkish military and government targets in recent weeks, 8 Turkish soldiers were killed in an attack blamed on Kurdish PKK militants in the south. Since mid-July, 55 Turkish soldiers have been killed, while the PKK has supposedly lost about 80 of its own.

President Erdogan’s government is reeling under growing unrest and he has called for a new election Nov. 1st, after June’s led to a hung parliament.

Yemen: Heavy fighting continues across the country, with the Saudi-led, pro-government coalition making further advances against the Iranian-backed Houthis. But the death toll of 4,300 and rising, ½ civilians, according to the U.N., is only part of the story. The U.N. estimates 80% of the 21 million people in Yemen are in desperate need of aid. That’s staggering. Big success for America in the war on terror, eh?

China / Japan: The latest death toll from the horrific blasts at a Tianjin chemical plant has reached 116, with at least another 60 missing, most of them firefighters. Just today, Friday, there were new fires and explosions as the dispersed chemicals, and fuel from wrecked cars, react to water and sky-high temperatures (heat potentially being the cause of the explosions in the first place…perhaps as simple as a leak from one container, with the chemical reacting to temps inside the warehouses in excess of 95 degrees).

Sodium cyanide, for example, was spread as far as 1km from the blast site, city officials admitted, with fears the stuff would react with rain to release highly poisonous hydrogen cyanide gas. Cyanide levels at one test point in the site were 356 times permitted levels. This is a city of 15 million people! Imagine the uncertainty over just about everything…water and air quality, the food you’re buying.

As for the firefighters, normally in disasters like this, Chinese media likes to highlight the heroism of rescue workers for propaganda value, but this time it’s complicated by the fact the firefighters were clearly not prepared and may have triggered the second devastating blast by pouring water on the chemicals. There are questions as to the orders of superiors.

The political fallout is just starting and has the potential to build and build, with the official mouthpiece of the Communist Party, the People’s Daily, saying there will be no cover-up over the causes of the explosions, but it urged patience with a “highly complicated” investigation.

But you can imagine homeowners whose places have been destroyed. They want the government to buy back their apartments.

The government offered them about $300 a month for three months, but many aren’t taking it for fear they’ll be ineligible for further payments.

Finally, there is the insurance cost.  Fitch credit rating agency said on Tuesday that claims will certainly strain regional insurers. Credit Suisse estimates the total losses at $1bn-$1.5bn, but I’m guessing it’s far higher. For starters, thousands and thousands of cars, waiting to be shipped overseas (or having just arrived) were destroyed.

On a different matter, China criticized Japanese Prime Minister Shinzo Abe’s statement on the Second World War as “evasive,” after he refrained from making his own apology even as he reaffirmed past ones in his official comments on the 70th anniversary of the end of the war.

As I noted last time, Abe, while expressing “utmost grief,” added future generations should not have to keep apologizing for the mistakes of the past.

Abe also said Japan should “never forget that there were women behind the battlefields whose honor and dignity were severely injured.” But he made no direct reference to “comfort women”…a term used for the girls and women forced into prostitution at Japanese military brothels.

But Emperor Akihito, 81, marked the anniversary with an expression of “deep remorse,” in what some see as a subtle rebuke of Abe.

“Reflecting on our past and bearing in mind the feelings of deep remorse over the last war, I earnestly hope that the ravages of war will never be repeated.” [South China Morning Post]

Meanwhile, support for Abe bounced in the first poll conducted after his speech, with approval for his government rising to 43% from 38% according to the Kyodo news agency. He should win his Liberal Democratic Party internal election in September.

It was announced Abe will meet Chinese President Xi on Sept. 3 in Beijing, the day of a military parade to mark the end of World War II. Abe won’t attend the event, but will meet with Xi after, according to reports not yet confirmed (last I saw) by the Japanese Foreign Ministry office.

Finally, on a totally different topic, the White House delivered a sharp warning to Beijing about the presence of Chinese agents operating secretly in the United States for the purposes of pressuring expatriates – some wanted in China on corruption charges – to return to China immediately, as reported first by the New York Times.

The Chinese government has named the effort Operation Fox Hunt.

You can’t do this, sports fans. It’s one thing to have half the Chinese males in the U.S. as spies; it’s another to have agents trying to take citizens out of the U.S. There’s a fellow on the same floor as mine in my building that I’m convinced is a spy (incredibly unfriendly, highly sophisticated…though his wife, or whatever, is charming). Maybe he’s actually an agent, though they act fast and it’s not as if they’d necessarily settle into a community like mine. So I’m back to my first thought…he’s just a spy. 

It’s also not as if the Chinese government has attempted to hide Operation Fox Hunt. They’ve been very open about it back home.

North and South Korea: Tensions ratcheted up quickly this week as the North fired on a South Korean military unit on the western border, with the South then retaliating with a few artillery rounds of its own. It doesn’t appear there were casualties and this kind of thing happens once or twice a year at this sea border area.

But what was different was Kim Jong-un’s rhetoric, as the official North Korean news agency announced the military had been put in a “wartime state,” with Kim ordering his troops to prepare for war.

Earlier, South Korean President Park Geun-hye, in a speech marking the anniversary of the end of WWII and a then-unified Korea’s liberation from Japanese rule, said:

“North Korea must wake up from its delusional belief that it can maintain its regime through provocations and threats. They lead only to isolation and destruction.”

For its part, Pyongyang is demanding the removal of South Korean loudspeakers along the border.

Editorial / Washington Post

“(There are serious new worries) about uranium mining and milling in North Korea as described in a new report from Jeffrey Lewis of the James Martin Center for Nonproliferation Studies at the Middlebury Institute of International Studies at Monterey. Analyzing satellite photographs and other information… Mr. Lewis found evidence of ‘significant refurbishment’ at a uranium concentration plant at Pyongsan that turns ore into yellowcake….

“This new hint comes on top of an earlier report from the same institute that suggested North Korea is moving toward a bigger, better nuclear arsenal that could put it on par with Pakistan and Israel. In that report, Joel S. Witt and Sun Young Ahn found, based on research from David Albright of the Institute for Science and International Security, that North Korea’s nuclear and missile programs ‘have gathered significant momentum’ and ‘these programs now appear poised to rapidly expand over the next five years.’ They suggested North Korea could take an existing stockpile of 10 to 16 nuclear weapons and expand it, with a middle scenario of 50 weapons in five years and a worst-case of 100 warheads….

“Uncertainties always hang over such assessments as the new one by Mr. Lewis. But we remain concerned that the Obama administration, after a tentative deal collapsed in 2012, has elevated inattention to policy on North Korea nuclear matters. It will be a nasty surprise for everyone if Pyongyang turns out to have a nuclear arsenal in a few years that is larger than had been expected.”

Thailand: Authorities believe at week’s end that those responsible for a horrific bombing in Bangkok on Monday that claimed 20 lives and injured more than 100 was carried out by “a network,” but was not the work of an international terrorist group.

What really hurts Thailand is the impact this attack will have on tourism, with most countries warning their citizens on travel there. Tourism is about 10% of the economy.

Russia / Ukraine: Yet again, U.S. defense officials chose to issue warnings about Russia and Vladimir Putin, with Defense Secretary Ash Carter and others calling Russia an “existential threat,” Carter noting this is so simply by virtue of its large nuclear force and Putin’s erratic behavior. Both sides, NATO and Russia, have been conducting extensive war games as a warning to each other, but one mistake and all hell could break loose.

What most concerns the U.S. is NATO is not in a position to respond, yet, should Putin pull a Crimea-type takeover in the Baltics. For example, we failed to pick up Russia’s infiltration of eastern Ukraine until it was too late. Using spy satellites to pick up troop movements on the border is one thing. Understanding there are hundreds of irregulars in Estonia preparing for mischief is another.

Editorial / Wall Street Journal

“A Russian court on Wednesday sentenced Estonian intelligence official Eston Kohver to 15 years in prison, in another challenge to NATO that has gone unanswered. Russian agents abducted Mr. Kohver from Estonian territory in September, in the immediate aftermath of a NATO summit and a visit by President Obama to Tallinn. 

“Mr. Kohver was kidnapped while investigating smuggling, and his conviction on phony espionage charges is a deliberate act of intimidation. Estonia’s secret service has a good record tracing Russian agents and cracking down on organized crime originating across the border. The Kremlin wants to let the Baltic states know they can be punished at any moment and with little recourse.

“That message will be reinforced by NATO’s toothless response to the abduction. The Alliance couldn’t muster a serious diplomatic response, such as the withdrawal of ambassadors from Moscow or even a unified statement…

“Mr. Putin is a canny and cynical strategist who looks for weakness and then exploits it. NATO’s nonresponse to the Kohver kidnapping will encourage more such Russian provocations.”

On a different topic, I have long argued Putin will be taken out internally. I’ve been very wrong.

But it was interesting how one of the most influential members of Putin’s inner circle, Vladimir Yakunin, head of state-owned Russian Railways, is leaving in what is the highest-level personnel move in the Kremlin in over three years.

With the economy in a shambles, more changes could be coming. Yakunin was on a level with Igor Sechin, CEO of oil giant Rosneft. I’ve argued Sechin will head the group removing Putin.

It’s unclear where Yakunin will end up, but for now it appears he is being demoted. As Kathrin Hille reported for the Financial Times:

“In recent weeks, several independent observers and opposition members have speculated that the top echelons of power could be about to be shaken up, citing erratic behavior and infighting among senior officials.

“Andrei Piontkovsky, one of Mr. Putin’s fiercest critics, claimed last week that the president’s associates had even started searching for a replacement for the president.”

As for Ukraine, fighting has escalated anew. The death toll, by most estimates, is nearly 9,000, and the east is a scene of massive devastation amidst the constant shelling.

Yet the Obama administration refuses to supply Kiev with lethal weapons. Even the sending of radar systems, which was supposed to have occurred a month ago, has yet to be signed off on by the White House, according to the Wall Street Journal and its Pentagon sources.

The Economist the other day also talked of Ukrainians who have been arrested and put on show trials in Russia, a la the Estonian kidnapping above, using trumped up charges to hand out huge prison sentences. One Ukrainian, a film director, Oleg Sentsov, opposed Russia’s annexation of his native Crimea by helping deliver food to Ukrainian soldiers trapped on their bases after the Russian invasion.

“After his arrest, Mr. Sentsov says, he was tortured by Russia’s Federal Security Service (FSB). (The prosecution claims his injuries came from sadomasochistic sex.) Mr. Sentsov faces a potential life sentence. Dmitry Dinze, his lawyer, estimates his chance of acquittal at ‘none.’”

What bastards.

France: The National Front party expelled founder Jean-Marie Le Pen on Thursday in a party Congress. The certifiable nut job, now 87, was suspended in May by his daughter, Marine, but he chose to fight and won a court ruling, but now he’s formally history, though no doubt he’ll try to form a breakaway party.

A lot can change between now and the 2017 presidential election in France, but the current trends in both the country and the eurozone, especially on a key National Front issue like immigration, are in its favor. Marine could yet make a run-off (though I see zero chance she then wins the election).

Cuba: Yes, I think the establishment of diplomatic relations with Cuba is a joke, a very bad one, under the terms the White House negotiated. So I can’t help but note the comments of New Jersey Democratic Senator Robert Menendez:

“The United States’ flag should only fly in Cuba when the island is free, when dissent is embraced, and when democracy is restored.”

Menendez said the U.S. moves toward Cuba have done nothing to bring freedom there (which is my point, totally), noting that just the other day, 90 protesters were arrested.

“This is the embodiment of a wrongheaded policy that rewards the Castro regime’s brutality at the expense of the Cuban people’s right to freedom of expression and independence,” he said.

“This is a one-sided deal that is a sin for the Cuban regime and a loss for the Cuban people.” [Jonathan D. Salant / Star-Ledger]

Both President Obama and Sec. of State Kerry look like clowns on this matter.

Random Musings

--What’s been amazing is how quickly it has been accepted that Donald Trump is the front-runner. Not just because of the polls, but he has turned the Republican race totally upside down in a way no one in the history of our nation has…pure and simple. He has truly sucked the oxygen out of the room. [Heck, tonight, while doing this column, I was watching his Mobile, Ala., rally, and my take away is that he’s only going to get much better at this kind of thing.]

You also hear in Iowa how he has a real ground game, with at least ten paid staffers, more than any other candidate. He is apparently capturing a lot of Ron Paul’s 2012 supporters. Ben Carson is another with a good ground game here and you should see the huge billboard he has next to the airport.

The latest polls…

A national Fox News poll of registered voters has Trump at 25% (he was 26% in this one prior to the debate). Trump’s support among women went from 24% to 21%.

Next is Ben Carson at 12%. Ted Cruz is third at 10%. Jeb Bush fell six points to 9%.

In a CNN/ORC national survey, Trump has 24% of registered Republicans, Bush 13%, Carson 9% and Rubio and Walker 8%.

Trump has a 58% favorability rating in this one.

--Back to the Fox News survey, Hillary Clinton had 49%, dropping below 50% for the first time, with Bernie Sanders at 30%.  Two weeks ago, the margin was 51-22.

In terms of what happens if Trump runs as a third-party candidate, in the Fox poll, Bush’s 2-point edge over Clinton becomes an 11-point deficit.

In the CNN/ORC poll, Clinton would defeat Trump 51-45.

--In a key Quinnipiac University swing-state poll, Hillary Clinton has a 54 or 55 percent unfavorable rating in all three…Florida, Ohio and Pennsylvania.

And while she is the top choice among Democratic primary voters in all three, you’ll see where there is room for Joe Biden.

Florida: Clinton 48%, Sanders 15%, Biden 11%.

Ohio: Clinton 47%, Sanders 17%, Biden 14%.

Pennsylvania: Clinton 45%, Sanders 19%, Biden 17%.

But here is where it gets interesting if you are a Biden supporter. Clinton beats Trump by five in Ohio (43-38) and Pennsylvania (45-40), but trails him in Florida (43-41).

Biden, though, beats Trump by 3 in Florida, 8 in Pennsylvania and 10 in Ohio.

As for the Republicans in all three…

Florida: Trump 21%, Bush 17%, Rubio and Carson 11%.

Ohio: Kasich 27% (native son), Trump 21%, Rubio and Cruz 7%.

Pennsylvania: Trump 24%, Carson 13%, Rubio 10%.

--As to Hillary’s email controversy, at least 300 have now been flagged for potentially classified content.

One of the stupidest comments of all time was made by Clinton early in the week when the issue came up on the campaign trail.

“By the way, you may have seen that I recently launched a Snapchat account. I love it, I love it. Those messages disappear all by themselves.”

Chris Christie perhaps summed up the feelings of the rest of us when he responded, “Her arrogance is breathtaking.”

Michael B. Mukasey / Wall Street Journal

“(The) law relating to public records generally makes it a felony for anyone having custody of a ‘record or other thing’ that is ‘deposited with…a public officer’ to ‘remove’ or ‘destroy’ it, with a maximum penalty of three years.  Emails are records, and the secretary of state is a public officer and by statute their custodian.

“The Espionage Act defines as a felony, punishable by up to 10 years, the grossly negligent loss or destruction of ‘information relating to the national defense.’ Note that at least one of the emails from the small random sample taken by the inspector general for the intelligence community contained signals intelligence and was classified top secret….

“The server is now in the hands of the Federal Bureau of Investigation, whose forensic skills in recovering data in situations like this are unexcelled.

“The highest step in this ascending scale of criminal penalties – 20 years maximum – is reached by anyone who destroys ‘any record, document or tangible object with intent to impede, obstruct or influence the proper administration of any matter within the jurisdiction of any department or agency of the United States…or in relation to or contemplation of any such matter.’….

“All of this is not to suggest that Mrs. Clinton is in real danger of going to jail any time soon. All of these laws require at least knowing conduct, and the obstruction statute requires specific intent to impede at least a contemplated proceeding….

“Mrs. Clinton herself, in a now famous email, cautioned State Department employees not to conduct official business on personal email accounts. The current secretary of state, John Kerry, testified that he assumes that his emails have been the object of surveillance by hostile foreign powers. It is inconceivable that the nation’s senior foreign-relations official was unaware of the risk that communications about this country’s relationships with foreign governments would be of particular interest to those governments, and to others….

“Once you assume a public office, your communications about anything having to do with your job are not your personal business or property. They are the publics and the public’s property, and are to be treated as no different from communications of like sensitivity.

“That something so obvious could have eluded Mrs. Clinton raises questions about her suitability both for the office she held and for the office she seeks.”

[Mukasey served as U.S. attorney general (2007-09) and as a U.S. district judge for the Southern District of New York (1988-2006).]

Michael Goodwin / New York Post

“Back in 1992, as a bimbo eruption threatened Bill Clinton’s first presidential campaign, he and Hillary rolled the dice with a ’60 Minutes’ interview. Looking tense and wearing a trademark headband, she supported him even as she insisted with a Southern twang, ‘I’m not sittin’ here like some little woman, standing by my man like Tammy Wynette.’

“Yet that’s exactly what she was doing – and it saved the day. Hubby went on to finish second in the New Hampshire primary, and in his ‘victory’ speech, declared himself ‘The Comeback Kid.’

“Nearly a quarter-century later, it’s Hillary’s turn on the razor’s edge. The Clintons aren’t kids anymore, but if they’ve got a comeback strategy for her, they better use it fast. Her doomsday clock is ticking….

“Clinton’s sense of entitlement, reflected in the decision to use a private server and delete emails of her choosing, along with her frosty relationships with the intelligence community, are coming back to haunt her. Again, she’s got little power to stop the death by a thousand cuts….

“(Then there’s her character). It’s hard to figure out how she gets people to vote for her who’ve already decided they don’t trust her.”

--From the New York Times: “While it has been long known that American telecommunications companies worked closely with the (National Security Agency), newly disclosed N.S.A. documents show that the relationship with AT&T has been considered unique and especially productive. One document described it as ‘highly collaborative,’ while another lauded the company’s ‘extreme willingness to help.’….

“The N.S. A.’s top-secret budget in 2013 for the AT&T partnership was more than twice that of the next-largest such program, according to the documents. The company installed surveillance equipment in at least 17 of its Internet hubs on American soil, far more than its similarly sized competitor, Verizon….

“One document reminds N.S.A. officials to be polite when visiting AT&T facilities, noting, ‘This is a partnership, not a contractual relationship.’”

Well, this particular story goes on and on and on…and I personally don’t care, but for the record I do think it’s important to know who is cooperating with the government more than others, for good or ill.

--We note the passing of Julian Bond, 75, a former chairman of the NAACP and a charismatic figure of the 1960s civil rights movement, as well as a leader of the anti-Vietnam War campaign.

Bond was a leader of the Student Nonviolent Coordinating Committee, while a student at Morehouse College in Atlanta. He also served for 20 years in the Georgia legislature.

I remember him vividly from the 1968 Democratic Convention, where he first burst on the scene.

Personally, I didn’t agree with this distinguished man on anything, but I liked him. That may not make any sense, but if you’re young and don’t remember Julian Bond in his prime, trust me. He was no Al Sharpton…no charlatan. Julian Bond was the real deal for his cause. 

--The National Oceanic and Atmospheric Administration said Thursday that the average temperature on the planet in July, 61.86 degrees, was the hottest since records began in 1880. The American Geophysical Union said the same day that a study shows man-made global warming has made California’s drought 15% to 20% worse.

--So I wish I was at the Iowa State Fair last weekend rather than this one.   I would have loved to have seen the whole Trump arrival and watching him play Pied Piper, while others, from Hillary to Jeb and Bernie picked up the scraps.

Instead I hope to catch Chris Christie and Bobby Jindal today, Saturday, but in my time at the fair on Wednesday I learned a lot from sitting at the bars on the Grand Concourse. While I have nothing new to offer than what is clearly the phenomenon of The Donald, it’s always good to get direct confirmation on the ground, so to speak. People just like that he’s different, not a politician, and unafraid to speak his mind…rather than some poll-tested drivel.

The people here really are great. It’s my third time to Iowa (2007, 2011 being the others), and it would be a nice place to retire. It’s a very pretty state (I love the drive around Madison County, about 40 minutes west of Des Moines) and people are just easy to talk to. 

More next time, including the local farm community, which I was checking out on Thursday.

---

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

I went to the Iowa Veterans National Cemetery on Thursday in Van Meter and have to note an inscription from Oliver Wendell Holmes.

“One flag, one land, one heart, one hand, one nation evermore.”

---

Gold closed at $1159
Oil $40.45…eighth straight down week.

Returns for the week 8/17-8/21

Dow Jones -5.8% [16459]
S&P 500 -5.8% [1970]
S&P MidCap -5.2%
Russell 2000 -4.6%
Nasdaq   -6.8% [4706]

Returns for the period 1/1/15-8/21/15

Dow Jones -7.65%
S&P 500 -4.3%
S&P MidCap -2.0%
Russell 2000 -4.0%
Nasdaq -0.6%

Bulls 37.7
Bears 18.4 [Source: Investors Intelligence]

Have a great week. Click on the gofundme link above if you haven’t already done so, or send a check to PO Box 990, New Providence, NJ 07974.

Brian Trumbore
 



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Week in Review

08/22/2015

For the week 8/17-8/21

[Posted 10:30 PM CT, Friday...from Des Moines, Iowa]

Edition 854

Washington and Wall Street

The following is not the kind of trend I like to see.

Week ending…Dow percentage gains or losses:

7/17/15… +1.8%
7/24/15… -2.9%
7/31/15… +0.7%
8/7/15….. -1.8%
8/14/15… +0.6%
8/21/15… -5.8%

This past week was the worst in years, though as I go to post I’m having a tough time quantifying it exactly. What we do know is that Friday’s Dow loss of 530 points, 3.1%, was the worst since Aug. 2011, and the S&P 500’s 3.2% drubbing its worst since Nov. 2011. Nasdaq lost 3.5% today.

For the week….

Dow -5.8%
S&P -5.8%
Nasdaq -6.8%

The Dow lost over 1,000 points on the week, its largest point drop since Oct. 2008. The 530-point loss Friday was the worst since Nov. 2008.

And the damage was all over the globe. For example, the Stoxx Europe 600 (like our S&P 500) lost 6.5%, its worst week since 2011, and is now down 13% from its April high. Correction territory. 

Speaking of corrections…we finally have one in the Dow Jones.

Following are the declines from the recent record (closing) highs and Friday’s close.

Dow Jones -10.1%
S&P 500 -7.5%
Nasdaq -9.8%

This week it was pretty simple what the story was… China’s slowing economy, plunging oil prices, and concern over the Federal Reserve’s imminent rate hike.

In terms of China and oil, one feeds into the other. Slowing demand in China leads to lower oil prices (and profits for energy companies) while at the same time there is an oil glut. It’s not more complicated than that. True, falling oil prices (which closed at $40.45 this week, WTI) are good for the rest of the economy, from consumers to manufacturers (whose raw material input costs are plunging…see copper, for example), but it’s disturbing the huge hit the energy sector is taking with tens of thousands of jobs melting away. [Well over 150,000 total at this point.]

And U.S. multinationals, which generate 48% of their revenues overseas (Factset) are getting killed amid the stronger dollar and profits that are translated back into greenbacks.

But Sunday could be a big day if the Chinese government acts to lower interest rates before global markets open Monday, while now we also have this situation on the Korean Peninsula worth watching (more below).

So what does all this mean for the Federal Reserve and prospects for a rate increase come September? The Fed released the minutes from its July Open Market Committee meeting and the governors remain noncommittal regarding next month. Some are concerned about China’s impact on the U.S., and the rest of the globe, while others are concerned with low inflation (and others maybe both). Would a rate hike exacerbate matters?

No doubt Chair Janet Yellen is on the hot seat. The minutes read: “Most [officials] judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.”

But the Fed has also said it wouldn’t move until it was assured inflation would eventually hit its 2 percent target.

“Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term,” according to the minutes.

For those not wanting to move until they are convinced the inflation target will be hit shortly thereafter, the Chinese yuan devaluation doesn’t help as all imports from China become cheaper.

What we do continue to glean from the minutes is that any rise in the federal funds rate will be gradual “to help ensure that the economy would be able to absorb higher interest rates and that inflation was moving toward the committee’s objective,” concluded the Fed.

As for this week’s economic data that the Fed keeps telling us it is focused on, July housing starts rose 0.2% to a seasonally adjusted annualized rate of 1.21 million, the highest pace since October 2007. Single-family home starts rose 12.8% to their highest level since Dec. 2007.

Then we had the release of the July existing home sales data, an annualized pace of 5.59m, up 10.3% year over year, with the median price at $234,000, up 5.6%.

So housing is in solid shape, though you don’t want prices rising at this level in terms of affordability.

On the inflation front, highlighted by the Fed, July consumer prices rose 0.1%, ditto ex-food and energy, while year over year, the CPI is up just 0.2%, but 1.8% on core.

In terms of economic growth, second-quarter GDP is slated to be revised on Aug. 27 (the first of two revisions), and economists feel it could rise from 2.3% as first reported to 3.0%, primarily on the heels of the strong July retail sales data.

Looking ahead to the third quarter, though, the Atlanta Fed’s normally prescient GDPNow indicator is currently forecasting just 0.7%, though they can bump this up substantially as more data rolls in.

Europe and Asia

Greece faced a 3.2bn euro debt payment to the European Central Bank on Thursday, but this really wasn’t a concern, the heavy lifting having been done earlier by Greece, eurozone finance ministers and the ‘creditors’: the ECB, European Commission, and the IMF. Greek Prime Minister Alexis Tsipras got his parliament to approve a third bailout of 86bn euro over three years the prior week and then all that was left was for the German parliament, and a few other national parliaments, to give their stamp of approval and once this was accomplished, the first tranche of bailout funds, 13bn, was handed over to Greece to allow it to repay the ECB and begin to recapitalize its banking system (the money actually going to the European Stability Mechanism for same).

German Chancellor Angela Merkel did face her most significant rebellion in that 63 members of her coalition voted ‘no,’ the highest for any of the three Greek bailout votes, but the coalition holds 80% of the seats overall and the final tally was 453-113. The Netherlands actually came close to voting against, which would have set back the process at least for a few weeks, due to the Dutch prime minister’s breaking an election promise not to give Athens more aid.

The total first tranche for Greece is to be 26bn euro, then comes an October review to gauge compliance. But, significantly, the IMF is not part of the bailout, yet, as Managing Director Christine Lagarde doesn’t want to commit until the IMF reviews the situation in the fall. Lagarde also continues to want to see significant debt relief, which the Germans are adamantly opposed to.

Greece had to agree to more sweeping budget cuts and pension reforms and it is far from being out of the woods as the economy, despite a surprisingly strong first half, is still expected to contract overall about 2% this year and another 1.3% in 2016.

So this catches us up to Thursday, the ECB having been paid back and hopes for bank recapitalization on the immediate horizon, when Prime Minister Tsipras took to the airwaves Thursday night to announce he was resigning and that he is setting Sept. 20 for a new election.

This is exactly as forecast; however that doesn’t make it any easier. There are a lot of moving parts.

Tsipras’ point is that now that a new bailout has been secured, the Greek people should vote on who they want to lead the nation going forward. Tsipras, as I’ve been writing, continues to maintain strong approval ratings, even though he first won back in January on an anti-austerity platform, yet now is asking the Greeks to support the way he is leading the country out of the crisis.

And in asking the people to accept more austerity, Tsipras has been rebuked by a sizable number of his Syriza party who opposed any further cuts. Some of this rebel faction announced on Friday they would form their own party, Popular Unity.

So we have a caretaker government until Sept. 20, which will be headed up by the president of the nation’s supreme court, a woman, who thus become Greece’s first female prime minister.

But before there’s a new election, the other established parties in parliament have a chance to form a government. The second-biggest is New Democracy, a center-right party, while third-largest is Pasok, who are socialists. Neither of these is expected to be able to come up with a coalition, but they’ll get a crack at it. Same with Golden Dawn, the fascists.

Ergo, it’s going to be a bit chaotic the next month in Greece, but then what else is new? The biggest problem they really have, today, is the flood of migrants reaching their shores from the Middle East.

But back to Germany, while the vote tally was overwhelmingly in favor of giving Athens more cash, much of which comes out of the pockets of the German taxpayers, Finance Minister Wolfgang Schauble, who was surprisingly supportive, said Greece deserved more aid because it agreed to further painful cuts and he was reasonably optimistic they would implement their end of the bargain. You can be sure, though, that the Germans will hold Greece’s feet to the fire.

One economic note for the eurozone as a whole. Markit released its flash estimate for manufacturing and the PMI was unchanged in August, 52.4 vs. 52.4 in July. Remember, the flash report also looks at just Germany and France, individually, and Germany’s PMI was 53.2, better than expected and up from July’s 51.8. But France came in at a putrid 48.6…down from last month’s 49.6. [50 being the dividing line between growth and contraction.]

Lastly, while Greece deals with a huge migration problem, on its border, Macedonian authorities clashed with thousands of migrants who had come in through Greece (from the Middle East) and were looking to transit through Macedonia. The police there would have none of it and regional officials declared a crisis of their own, unable to handle such large numbers.

Germany is the final destination for many of those fleeing the likes of Syria, Eritrea, and Libya (for starters) and as many as 800,000 are expected to seek asylum there this year (many heading to Germany are also from Kosovo and Albania). This would be four times the number from last year. Already there have been violent clashes between migrants and German locals and this will now pick up big time.

On to Asia, as alluded to above, a reading on China manufacturing for August, the Caixin (formerly HSBC) flash report, came in at 47.1 vs. 47.8 for July, the lowest figure since March 2009 and just another indication of further contraction in the economy, despite what the official GDP figure put out by the government says.

And the Shanghai Composite stock index fell 11.5% on the week, including 6% on Tuesday alone, as the government’s efforts at propping up the market fail.

But there was a small ray of hope. New-home prices rose in July in 31 of 70 cities monitored by the National Bureau of Statistics, up from 27 in June. Overall prices have ticked up three straight months (month on month).

In Japan, Prime Minister Shinzo Abe’s ‘Abenomics’ suffered a blow as second-quarter GDP came in down 1.6% on an annualized basis, following a 4.5% increase in the first quarter. Exports have been slumping and consumers cutting back. It is the first decline in GDP since Q2 2014 when the sales tax hike hit consumption.

The biggest problem for Abe is wage gains have failed to keep up with prices.

Street Bytes

--As you can see below, the gains for 2015 in the broad indices have been wiped out. The Dow is now down 7.65%. 

Some key stocks have been taking it on the chin. Just this past Aug. 3, Disney shares hit a new high of $122. Friday they closed at $100, partly on the heels of a major downgrade.

Shares in Apple hit their all-time high on April 28, $134.50. Today they are $106.35. No real negative news (though I’ve argued people have their heads in the sand when it comes to Apple and China and the prospects there).

And an example of reality setting in is Shake Shack, which while successful was highly overvalued, with the shares hitting $75 on Aug. 11 following an earnings report. They closed Friday at $47.50. That’s carnage.

--U.S. Treasury Yields

6-mo. 0.19% 2-yr. 0.61% 10-yr. 2.04% 30-yr. 2.72%

Treasuries rallied big on your basic flight to safety.

--Wal-Mart Stores Inc. reported quarterly earnings far below the Street’s expectations, $1.08 vs $1.13, and it lowered guidance for the year.

But it did report a 1.5% increase in U.S. same-store sales, above the company’s own forecast rate, and Wal-Mart has now had four straight quarters of sales growth in the U.S., with a renewed focus on fresher produce and better customer service.

Overall revenue edged up to $120.2 billion from $120.1 billion a year earlier.

--Target is turning things around under the leadership of CEO Brian Cornell, with the retailer reporting earnings well ahead of the Street’s expectations ($1.22 vs. $1.11). Sales rose 2.8% from the same quarter a year earlier, with same-store sales growing 2.4%. The company raised its guidance.

--In the home improvement retail sector, Home Depot continued to kick butt, coming in with better-than-expected earnings and sales, the latter up 4.3%, as it raised guidance, calling for sales growth of 5.2% to 6% for the year, far better than its earlier 4.2% to 4.8% forecast. In the latest quarter, same-store sales rose 4.2%.

--HD rival Lowe’s Cos. reported weaker-than-expected profit growth in the second quarter, though same-store sales were up a solid 4.6%.

--Deere & Co. reported net sales for its last quarter fell 20%, as it guided lower for the balance of the year, with equipment sales now expected to fall 21%. The stock was taken to the woodshed to the tune of $7 to $83.

--Hewlett-Packard continued to issue one lousy report after another. CEO Meg Whitman has done a solid job with the balance sheet but there is no growth. H-P guided lower, with overall net revenue down 8% in the last quarter. The PC business was off 13%, printer sales down 9%.

--Salesforce.com’s shares hung in there on Friday, a day after the cloud software company handily beat the Street on both its top and bottom line, and raised guidance. Revenue increased 24% year over year. As Ronald Reagan would have said, ‘Not bad, not bad at all.’

--Tyson Foods Inc. said it would permanently close an Iowa beef processing plant, which will result in the loss of 400 jobs in Denison. Years of drought forced farmers to reduce their herds and thus left meatpackers with fewer animals to process.

In the last two years, conglomerate Cargill Inc. has closed two large beef facilities in Milwaukee and Plainview, Texas.

--U.S. Steel Corp. announced it was shutting down a blast furnace and other steel operations in Alabama that will result in the elimination of 1,100 jobs at the Fairfield plant.

The company is being hit by falling demand from China, global oversupply, and collapsing oil prices that have hurt demand for tubing for that industry.

There is also little doubt China is violating international trade rules by dumping its products onto our market. Domestic steelmakers have filed three requests for protective tariffs this year. It’s not the volume that is the issue but the low prices the actions of the likes of China are engendering.

--I didn’t have a chance last time to note the Obama administration’s approval of a plan to send U.S. crude to Mexico, the first such exports that many have been calling for, but this is small potatoes and is really a swap. We send them a small amount of the kind of crude they want, while Mexico ships us a like amount of oil in the grade we can easily process.

But at least it’s a start toward hopefully repealing a law dating back to the energy crises of the 1970s. Such a move, the oil industry argues, would create more U.S. jobs just as producers retrench amid tumbling crude prices.

--Meanwhile, the impact of a collapsing oil price on Canada has been huge, with the head of Toronto-Dominion Bank (TD) warning of the effects on the Canadian economy, let alone the banking industry that has been lending heavily to the sector. Of concern is the impact on consumer spending in the oil-producing provinces of Alberta, Saskatchewan and Manitoba.

--As I discuss further below, crashing oil prices have done a number on the Russian economy. Industrial production contracted by 4.7% in July, according to the government, which is on the heels of the release of second-quarter GDP, down 4.6%.

--As I’ve noted in the past, the Subway food chain has been struggling with competition from the likes of Chipotle, but the company at least acted quickly in ditching pitchman Jared Fogle in July when the first allegations of his having sex with underage girls were made public.

On Wednesday, Fogle struck a deal with federal prosecutors that will send him to prison for at least five years, while Fogle is also to pay restitution of $1.4 million to his victims. The less said about this case the better. I was just surprised to learn he reportedly has a net worth of $15 million.

--The New York Times had an extensive story on Amazon’s supposedly awful work environment, according to more than 100 current and former Amazon employees who were interviewed for the piece. The article mentions workers crying at their desks, and an evaluation process that encourages employees to criticize co-workers. It also tells of an employee supposedly receiving a low performance rating after returning from cancer treatment.

CEO Jeff Bezos fired back: “The article goes further than reporting isolated anecdotes. It claims that our intentional approach is to create a soulless, dystopian workplace where no fun is had and no laughter heard. Again, I don’t recognize this Amazon and I very much hope you don’t, either.”

--Shares in Twitter closed below their IPO price on Friday, $25.87, the 2013 IPO being at $26, with the stock’s all-time high being $72.

--The IRS admitted on Monday that more than twice as many taxpayer accounts were hit by identity thieves than the agency first reported. Hackers gained access to 330,000 accounts, while attempting to break into another 280,000, whereas in March the agency reported the figures at 114,000 and 111,000, respectively.

--Regal Entertainment Group, the nation’s largest movie theater chain, is starting to warn moviegoers its bags and backpacks may be searched. I doubt anyone will be bothered by this. Just makes sense. However, it’s also putting a lot of pressure on employees, many of whom are teens. So expect some stories.

--The U.S. Food and Drug Administration approved the “little pink pill” designed to boost women’s libido, thus becoming the first drug of its kind allowed on the market along with medications for improving men’s sexual, err, err...

This drug, flibanserin, is taken daily before bedtime and affects brain chemicals, while Viagra is taken before sex and err, err….

--Moving right along, McDonald’s is considering offering Egg McMuffins 24 hours a day, which is a great idea.

--Here in Iowa, it’s funny how the pork, ham and bacon just tastes’ better. Fresh out of the slaughter house and processing plant, boys and girls, the way your editor likes it. In fact I passed a plant the other day and I felt like standing outside the door. “Please sir, could you sneak me some fresh pork tenders and bacon?”

The Iowa Pork Association is the star attraction of the State Fair, which I went to on Wednesday and am spending Saturday at. They will sell 14,000 full pork tenderloin sandwiches, and 65,000 pork on a stick. Wednesday it was a scrumptious pork loin wrapped in bacon on a stick pour moi.

Foreign Affairs

Iran: Go ahead…plug “Parchin” into my search engine. You’ll see 46 mentions, the first in this column going back to 2011 (and I even mentioned it in a “Hot Spots” column in 2006). I have said since day one, this was all you needed to know about Iran, that they were covering up their nuclear arms work there. Ergo, you could never trust them on any kind of deal. Frankly, I was 100% right and the issues raised in the current debate prove me to be so. I have also been saying the president and this administration have been lying to us on the topic and treating us like chumps. 

Editorial / Wall Street Journal

“Three more Senators have declared against President Obama’s Iran nuclear deal in recent days, and don’t be surprised if more follow after Wednesday’s bombshell from the Associated Press. The news service reports that Iran will be allowed to use its own inspectors at the secret Parchin nuclear site under its secret side agreement with the International Atomic Energy Agency (IAEA).

“This is a new one in the history of arms control. Parchin is the military complex long suspected as the home of Iran’s nuclear-weapons and ballistic-missile development. The IAEA has sought access to Parchin for more than a decade, and U.S. officials have said the deal requires Iran to come clean about Parchin by agreeing on an inspections protocol with the IAEA by the end of this year.

“But that spin started to unravel three weeks ago with the discovery that the Parchin inspections were part of a secret side agreement between the IAEA and Iran – not between Iran and the six negotiating countries. Secretary of State John Kerry has said he hasn’t read the side deal, though his negotiating deputy Wendy Sherman told MSNBC that she ‘saw the pieces of paper’ but couldn’t keep them. IAEA Director General Yukiya Amano has told members of the U.S. Congress that he’s bound by secrecy and can’t show them the side deals….

“In other words, the country that lied for years about its nuclear weapons program will now be trusted to come clean about those lies….

“Meanwhile, bipartisan opposition continues to build in Congress. New Jersey Democrat Robert Menendez on Tuesday became the second Senate Democrat to oppose the deal, following announcements from Republicans Jeff Flake (Arizona) and Foreign Relations Chairman Bob Corker….

“ ‘For me, the Administration’s willingness to forgo a critical element of Iran’s weaponization – past and present – is inexplicable,’ said Mr. Menendez in explaining his opposition. ‘Our willingness to accept this process on Parchin is only exacerbated by the inability to obtain anytime, anywhere inspections, which the Administration always held out as one of those essential elements we would insist on and could rely on in any deal.’

“Public opposition is also growing. And it will increase as Americans learn that the deal’s inspections include taking Iran’s word about its previous weaponization work at its most crucial nuclear-weapons site.”

Michael Bloomberg / Bloomberg

“If you oppose the Iranian nuclear agreement, you are increasing the chances of war. And if you are a democrat who opposes the agreement, you are also risking your political career. That’s the message the White House and some liberal leaders are sending – and they ought to stop now, because they are only hurting their credibility.

“I have deep reservations about the Iranian nuclear agreement, but I – like many Americans – am still weighing the evidence for and against it. This is one of the most important debates of our time, one with huge implications for our future and security and the stability of the world. Yet instead of attempting to persuade Americans on the merits, supporters of the deal are resorting to intimidation and demonization, while also grossly overstating their case.

“President Barack Obama has said it is not a difficult decision to endorse the agreement. I couldn’t disagree more. This is an extraordinarily difficult decision, and the president’s case would be more compelling if he stopped minimizing the agreement’s weaknesses and exaggerating its benefits. If he believes the deal ‘permanently prohibits Iran from obtaining a nuclear weapon,’ as he said in his speech at American University on Aug. 5, then he should take another look at the agreement, whose restrictions end suddenly after 15 years, with some of the constraints on uranium enrichment melting away after just 10.

“Overstating the case for the agreement belies the gravity of the issue and does more to breed distrust than win support. Smearing critics is even less effective….

“Throughout this process, the president and his secretary of state gave Americans assurances that the United States would not be cornered into a bad deal. Yet in his speech at American University, the president said Congress must decide ‘whether to support this historic diplomatic breakthrough’ or to block it ‘over the objections of the vast majority of the world.’

“Congress should not act based on the opinion of the rest of the world, nor the opinion of the American public, which opposes the agreement by a 2-to-1 margin, according to a recent poll. Congress should make its own hard and careful assessment of the agreement – something it cannot possibly do without seeing the yet-to-be-revealed side deals. How can you vote on a pact that you haven’t been able to read in full?”

Sen. Bob Corker (R-Tenn.) / Washington Post

“Many say now is the time for the United States to push back against Iran. The best way to do that is for Congress to reject an agreement that strengthens Iran with hundreds of billions of dollars over the next decade, removes the conventional weapons and ballistic missile technology embargoes on Iran and allows for a U.S.-approved, industrial-scale enrichment program for which it has zero practical need.

“We have more leverage than we will ever have, but under this deal that leverage will flip in approximately nine months, when most major sanctions are relieved. Iran will further deepen its regional strength.

“Unfortunately, the agreement ties our hands in countering Iran’s efforts. If we try to push back, Iran will threaten to speed up its nuclear development since it already will have a windfall of money, a rapidly growing economy and alliances built with our partners, who will feast on the mercantile benefits of doing business with Iran.

“The idea that a future president will somehow have the same options available as today, when Ian is poor and isolated, is fanciful.”

And what are those daffy Iranians saying these days? A top adviser to Supreme Leader Ayatollah Khamenei, Ali Akbar Velayati, said, “Syria is the golden ring of resistance against the Zionists” and that the “resistance axis” of Iran, Iraq, Syria, Lebanon, and the Palestinian territories is “not only to fight against the dominance of foreigners in their countries but also to roll back U.S. hegemony.” [Jerusalem Post]

In Tehran, there has, however, been rising opposition to the deal from the hardliners, so Khamenei issued a statement this week:

“The Americans want to infiltrate this region and pursue their objectives. We won’t allow that. They seek to disintegrate Iraq and Syria. This won’t happen with God’s will.” [Wall Street Journal]

Iraq/ISIS/Syria: The regime of Syrian President Bashar al-Assad has been slaughtering his fellow citizens in rebel-controlled areas outside Damascus, with at least 96 being killed in one series of air raids, over 200 injured, according to the Syrian Observatory for Human Rights. Almost all the victims were civilians. U.N. Humanitarian chief Stephen O’Brien said he was “horrified” by the attacks taking place in Syria.

Amnesty International accused Assad of committing war crimes, saying its heavy aerial bombardment of eastern Ghouta was compounding the misery created by the blockade. Rebels are also being accused of firing rockets indiscriminately at Damascus.

Close to 12 million have been uprooted by Syria’s war, with more than four million becoming refugees and 7.6 million more being displaced. Well over 250,000 have been killed. [For new readers, I can show you how I said it was over…over…back in 2012 due to President Obama’s incompetence and failure to implement a simple no-fly zone with Turkey’s cooperation…who at the time was crying for our help.]

Meanwhile, the al-Qaeda affiliated Al-Nusra Front released seven members of the U.S.-trained rebel group that it had kidnapped weeks earlier. They apparently still hold six more, including the commander. The rest of “Division 30” has melted away. 

In Iraq, the bombings continue, with at least 24 killed last weekend in Baghdad, just days after an attack near Sadr City killed more than 70 in a massive truck bomb blast claimed by ISIS.

But Friday, the Pentagon announced an airstrike outside Mosul killed the No. 2 man behind ISIS leader Baghdadi. No. 3…come on down!

Lastly, ISIS beheaded the archaeologist in charge of antiquities at Palmyra, the ancient Syrian city taken by ISIS a few months ago. We pray God is keeping score up above, and that scores are settled sooner than later.

Turkey: In just one of many attacks on the Turkish military and government targets in recent weeks, 8 Turkish soldiers were killed in an attack blamed on Kurdish PKK militants in the south. Since mid-July, 55 Turkish soldiers have been killed, while the PKK has supposedly lost about 80 of its own.

President Erdogan’s government is reeling under growing unrest and he has called for a new election Nov. 1st, after June’s led to a hung parliament.

Yemen: Heavy fighting continues across the country, with the Saudi-led, pro-government coalition making further advances against the Iranian-backed Houthis. But the death toll of 4,300 and rising, ½ civilians, according to the U.N., is only part of the story. The U.N. estimates 80% of the 21 million people in Yemen are in desperate need of aid. That’s staggering. Big success for America in the war on terror, eh?

China / Japan: The latest death toll from the horrific blasts at a Tianjin chemical plant has reached 116, with at least another 60 missing, most of them firefighters. Just today, Friday, there were new fires and explosions as the dispersed chemicals, and fuel from wrecked cars, react to water and sky-high temperatures (heat potentially being the cause of the explosions in the first place…perhaps as simple as a leak from one container, with the chemical reacting to temps inside the warehouses in excess of 95 degrees).

Sodium cyanide, for example, was spread as far as 1km from the blast site, city officials admitted, with fears the stuff would react with rain to release highly poisonous hydrogen cyanide gas. Cyanide levels at one test point in the site were 356 times permitted levels. This is a city of 15 million people! Imagine the uncertainty over just about everything…water and air quality, the food you’re buying.

As for the firefighters, normally in disasters like this, Chinese media likes to highlight the heroism of rescue workers for propaganda value, but this time it’s complicated by the fact the firefighters were clearly not prepared and may have triggered the second devastating blast by pouring water on the chemicals. There are questions as to the orders of superiors.

The political fallout is just starting and has the potential to build and build, with the official mouthpiece of the Communist Party, the People’s Daily, saying there will be no cover-up over the causes of the explosions, but it urged patience with a “highly complicated” investigation.

But you can imagine homeowners whose places have been destroyed. They want the government to buy back their apartments.

The government offered them about $300 a month for three months, but many aren’t taking it for fear they’ll be ineligible for further payments.

Finally, there is the insurance cost.  Fitch credit rating agency said on Tuesday that claims will certainly strain regional insurers. Credit Suisse estimates the total losses at $1bn-$1.5bn, but I’m guessing it’s far higher. For starters, thousands and thousands of cars, waiting to be shipped overseas (or having just arrived) were destroyed.

On a different matter, China criticized Japanese Prime Minister Shinzo Abe’s statement on the Second World War as “evasive,” after he refrained from making his own apology even as he reaffirmed past ones in his official comments on the 70th anniversary of the end of the war.

As I noted last time, Abe, while expressing “utmost grief,” added future generations should not have to keep apologizing for the mistakes of the past.

Abe also said Japan should “never forget that there were women behind the battlefields whose honor and dignity were severely injured.” But he made no direct reference to “comfort women”…a term used for the girls and women forced into prostitution at Japanese military brothels.

But Emperor Akihito, 81, marked the anniversary with an expression of “deep remorse,” in what some see as a subtle rebuke of Abe.

“Reflecting on our past and bearing in mind the feelings of deep remorse over the last war, I earnestly hope that the ravages of war will never be repeated.” [South China Morning Post]

Meanwhile, support for Abe bounced in the first poll conducted after his speech, with approval for his government rising to 43% from 38% according to the Kyodo news agency. He should win his Liberal Democratic Party internal election in September.

It was announced Abe will meet Chinese President Xi on Sept. 3 in Beijing, the day of a military parade to mark the end of World War II. Abe won’t attend the event, but will meet with Xi after, according to reports not yet confirmed (last I saw) by the Japanese Foreign Ministry office.

Finally, on a totally different topic, the White House delivered a sharp warning to Beijing about the presence of Chinese agents operating secretly in the United States for the purposes of pressuring expatriates – some wanted in China on corruption charges – to return to China immediately, as reported first by the New York Times.

The Chinese government has named the effort Operation Fox Hunt.

You can’t do this, sports fans. It’s one thing to have half the Chinese males in the U.S. as spies; it’s another to have agents trying to take citizens out of the U.S. There’s a fellow on the same floor as mine in my building that I’m convinced is a spy (incredibly unfriendly, highly sophisticated…though his wife, or whatever, is charming). Maybe he’s actually an agent, though they act fast and it’s not as if they’d necessarily settle into a community like mine. So I’m back to my first thought…he’s just a spy. 

It’s also not as if the Chinese government has attempted to hide Operation Fox Hunt. They’ve been very open about it back home.

North and South Korea: Tensions ratcheted up quickly this week as the North fired on a South Korean military unit on the western border, with the South then retaliating with a few artillery rounds of its own. It doesn’t appear there were casualties and this kind of thing happens once or twice a year at this sea border area.

But what was different was Kim Jong-un’s rhetoric, as the official North Korean news agency announced the military had been put in a “wartime state,” with Kim ordering his troops to prepare for war.

Earlier, South Korean President Park Geun-hye, in a speech marking the anniversary of the end of WWII and a then-unified Korea’s liberation from Japanese rule, said:

“North Korea must wake up from its delusional belief that it can maintain its regime through provocations and threats. They lead only to isolation and destruction.”

For its part, Pyongyang is demanding the removal of South Korean loudspeakers along the border.

Editorial / Washington Post

“(There are serious new worries) about uranium mining and milling in North Korea as described in a new report from Jeffrey Lewis of the James Martin Center for Nonproliferation Studies at the Middlebury Institute of International Studies at Monterey. Analyzing satellite photographs and other information… Mr. Lewis found evidence of ‘significant refurbishment’ at a uranium concentration plant at Pyongsan that turns ore into yellowcake….

“This new hint comes on top of an earlier report from the same institute that suggested North Korea is moving toward a bigger, better nuclear arsenal that could put it on par with Pakistan and Israel. In that report, Joel S. Witt and Sun Young Ahn found, based on research from David Albright of the Institute for Science and International Security, that North Korea’s nuclear and missile programs ‘have gathered significant momentum’ and ‘these programs now appear poised to rapidly expand over the next five years.’ They suggested North Korea could take an existing stockpile of 10 to 16 nuclear weapons and expand it, with a middle scenario of 50 weapons in five years and a worst-case of 100 warheads….

“Uncertainties always hang over such assessments as the new one by Mr. Lewis. But we remain concerned that the Obama administration, after a tentative deal collapsed in 2012, has elevated inattention to policy on North Korea nuclear matters. It will be a nasty surprise for everyone if Pyongyang turns out to have a nuclear arsenal in a few years that is larger than had been expected.”

Thailand: Authorities believe at week’s end that those responsible for a horrific bombing in Bangkok on Monday that claimed 20 lives and injured more than 100 was carried out by “a network,” but was not the work of an international terrorist group.

What really hurts Thailand is the impact this attack will have on tourism, with most countries warning their citizens on travel there. Tourism is about 10% of the economy.

Russia / Ukraine: Yet again, U.S. defense officials chose to issue warnings about Russia and Vladimir Putin, with Defense Secretary Ash Carter and others calling Russia an “existential threat,” Carter noting this is so simply by virtue of its large nuclear force and Putin’s erratic behavior. Both sides, NATO and Russia, have been conducting extensive war games as a warning to each other, but one mistake and all hell could break loose.

What most concerns the U.S. is NATO is not in a position to respond, yet, should Putin pull a Crimea-type takeover in the Baltics. For example, we failed to pick up Russia’s infiltration of eastern Ukraine until it was too late. Using spy satellites to pick up troop movements on the border is one thing. Understanding there are hundreds of irregulars in Estonia preparing for mischief is another.

Editorial / Wall Street Journal

“A Russian court on Wednesday sentenced Estonian intelligence official Eston Kohver to 15 years in prison, in another challenge to NATO that has gone unanswered. Russian agents abducted Mr. Kohver from Estonian territory in September, in the immediate aftermath of a NATO summit and a visit by President Obama to Tallinn. 

“Mr. Kohver was kidnapped while investigating smuggling, and his conviction on phony espionage charges is a deliberate act of intimidation. Estonia’s secret service has a good record tracing Russian agents and cracking down on organized crime originating across the border. The Kremlin wants to let the Baltic states know they can be punished at any moment and with little recourse.

“That message will be reinforced by NATO’s toothless response to the abduction. The Alliance couldn’t muster a serious diplomatic response, such as the withdrawal of ambassadors from Moscow or even a unified statement…

“Mr. Putin is a canny and cynical strategist who looks for weakness and then exploits it. NATO’s nonresponse to the Kohver kidnapping will encourage more such Russian provocations.”

On a different topic, I have long argued Putin will be taken out internally. I’ve been very wrong.

But it was interesting how one of the most influential members of Putin’s inner circle, Vladimir Yakunin, head of state-owned Russian Railways, is leaving in what is the highest-level personnel move in the Kremlin in over three years.

With the economy in a shambles, more changes could be coming. Yakunin was on a level with Igor Sechin, CEO of oil giant Rosneft. I’ve argued Sechin will head the group removing Putin.

It’s unclear where Yakunin will end up, but for now it appears he is being demoted. As Kathrin Hille reported for the Financial Times:

“In recent weeks, several independent observers and opposition members have speculated that the top echelons of power could be about to be shaken up, citing erratic behavior and infighting among senior officials.

“Andrei Piontkovsky, one of Mr. Putin’s fiercest critics, claimed last week that the president’s associates had even started searching for a replacement for the president.”

As for Ukraine, fighting has escalated anew. The death toll, by most estimates, is nearly 9,000, and the east is a scene of massive devastation amidst the constant shelling.

Yet the Obama administration refuses to supply Kiev with lethal weapons. Even the sending of radar systems, which was supposed to have occurred a month ago, has yet to be signed off on by the White House, according to the Wall Street Journal and its Pentagon sources.

The Economist the other day also talked of Ukrainians who have been arrested and put on show trials in Russia, a la the Estonian kidnapping above, using trumped up charges to hand out huge prison sentences. One Ukrainian, a film director, Oleg Sentsov, opposed Russia’s annexation of his native Crimea by helping deliver food to Ukrainian soldiers trapped on their bases after the Russian invasion.

“After his arrest, Mr. Sentsov says, he was tortured by Russia’s Federal Security Service (FSB). (The prosecution claims his injuries came from sadomasochistic sex.) Mr. Sentsov faces a potential life sentence. Dmitry Dinze, his lawyer, estimates his chance of acquittal at ‘none.’”

What bastards.

France: The National Front party expelled founder Jean-Marie Le Pen on Thursday in a party Congress. The certifiable nut job, now 87, was suspended in May by his daughter, Marine, but he chose to fight and won a court ruling, but now he’s formally history, though no doubt he’ll try to form a breakaway party.

A lot can change between now and the 2017 presidential election in France, but the current trends in both the country and the eurozone, especially on a key National Front issue like immigration, are in its favor. Marine could yet make a run-off (though I see zero chance she then wins the election).

Cuba: Yes, I think the establishment of diplomatic relations with Cuba is a joke, a very bad one, under the terms the White House negotiated. So I can’t help but note the comments of New Jersey Democratic Senator Robert Menendez:

“The United States’ flag should only fly in Cuba when the island is free, when dissent is embraced, and when democracy is restored.”

Menendez said the U.S. moves toward Cuba have done nothing to bring freedom there (which is my point, totally), noting that just the other day, 90 protesters were arrested.

“This is the embodiment of a wrongheaded policy that rewards the Castro regime’s brutality at the expense of the Cuban people’s right to freedom of expression and independence,” he said.

“This is a one-sided deal that is a sin for the Cuban regime and a loss for the Cuban people.” [Jonathan D. Salant / Star-Ledger]

Both President Obama and Sec. of State Kerry look like clowns on this matter.

Random Musings

--What’s been amazing is how quickly it has been accepted that Donald Trump is the front-runner. Not just because of the polls, but he has turned the Republican race totally upside down in a way no one in the history of our nation has…pure and simple. He has truly sucked the oxygen out of the room. [Heck, tonight, while doing this column, I was watching his Mobile, Ala., rally, and my take away is that he’s only going to get much better at this kind of thing.]

You also hear in Iowa how he has a real ground game, with at least ten paid staffers, more than any other candidate. He is apparently capturing a lot of Ron Paul’s 2012 supporters. Ben Carson is another with a good ground game here and you should see the huge billboard he has next to the airport.

The latest polls…

A national Fox News poll of registered voters has Trump at 25% (he was 26% in this one prior to the debate). Trump’s support among women went from 24% to 21%.

Next is Ben Carson at 12%. Ted Cruz is third at 10%. Jeb Bush fell six points to 9%.

In a CNN/ORC national survey, Trump has 24% of registered Republicans, Bush 13%, Carson 9% and Rubio and Walker 8%.

Trump has a 58% favorability rating in this one.

--Back to the Fox News survey, Hillary Clinton had 49%, dropping below 50% for the first time, with Bernie Sanders at 30%.  Two weeks ago, the margin was 51-22.

In terms of what happens if Trump runs as a third-party candidate, in the Fox poll, Bush’s 2-point edge over Clinton becomes an 11-point deficit.

In the CNN/ORC poll, Clinton would defeat Trump 51-45.

--In a key Quinnipiac University swing-state poll, Hillary Clinton has a 54 or 55 percent unfavorable rating in all three…Florida, Ohio and Pennsylvania.

And while she is the top choice among Democratic primary voters in all three, you’ll see where there is room for Joe Biden.

Florida: Clinton 48%, Sanders 15%, Biden 11%.

Ohio: Clinton 47%, Sanders 17%, Biden 14%.

Pennsylvania: Clinton 45%, Sanders 19%, Biden 17%.

But here is where it gets interesting if you are a Biden supporter. Clinton beats Trump by five in Ohio (43-38) and Pennsylvania (45-40), but trails him in Florida (43-41).

Biden, though, beats Trump by 3 in Florida, 8 in Pennsylvania and 10 in Ohio.

As for the Republicans in all three…

Florida: Trump 21%, Bush 17%, Rubio and Carson 11%.

Ohio: Kasich 27% (native son), Trump 21%, Rubio and Cruz 7%.

Pennsylvania: Trump 24%, Carson 13%, Rubio 10%.

--As to Hillary’s email controversy, at least 300 have now been flagged for potentially classified content.

One of the stupidest comments of all time was made by Clinton early in the week when the issue came up on the campaign trail.

“By the way, you may have seen that I recently launched a Snapchat account. I love it, I love it. Those messages disappear all by themselves.”

Chris Christie perhaps summed up the feelings of the rest of us when he responded, “Her arrogance is breathtaking.”

Michael B. Mukasey / Wall Street Journal

“(The) law relating to public records generally makes it a felony for anyone having custody of a ‘record or other thing’ that is ‘deposited with…a public officer’ to ‘remove’ or ‘destroy’ it, with a maximum penalty of three years.  Emails are records, and the secretary of state is a public officer and by statute their custodian.

“The Espionage Act defines as a felony, punishable by up to 10 years, the grossly negligent loss or destruction of ‘information relating to the national defense.’ Note that at least one of the emails from the small random sample taken by the inspector general for the intelligence community contained signals intelligence and was classified top secret….

“The server is now in the hands of the Federal Bureau of Investigation, whose forensic skills in recovering data in situations like this are unexcelled.

“The highest step in this ascending scale of criminal penalties – 20 years maximum – is reached by anyone who destroys ‘any record, document or tangible object with intent to impede, obstruct or influence the proper administration of any matter within the jurisdiction of any department or agency of the United States…or in relation to or contemplation of any such matter.’….

“All of this is not to suggest that Mrs. Clinton is in real danger of going to jail any time soon. All of these laws require at least knowing conduct, and the obstruction statute requires specific intent to impede at least a contemplated proceeding….

“Mrs. Clinton herself, in a now famous email, cautioned State Department employees not to conduct official business on personal email accounts. The current secretary of state, John Kerry, testified that he assumes that his emails have been the object of surveillance by hostile foreign powers. It is inconceivable that the nation’s senior foreign-relations official was unaware of the risk that communications about this country’s relationships with foreign governments would be of particular interest to those governments, and to others….

“Once you assume a public office, your communications about anything having to do with your job are not your personal business or property. They are the publics and the public’s property, and are to be treated as no different from communications of like sensitivity.

“That something so obvious could have eluded Mrs. Clinton raises questions about her suitability both for the office she held and for the office she seeks.”

[Mukasey served as U.S. attorney general (2007-09) and as a U.S. district judge for the Southern District of New York (1988-2006).]

Michael Goodwin / New York Post

“Back in 1992, as a bimbo eruption threatened Bill Clinton’s first presidential campaign, he and Hillary rolled the dice with a ’60 Minutes’ interview. Looking tense and wearing a trademark headband, she supported him even as she insisted with a Southern twang, ‘I’m not sittin’ here like some little woman, standing by my man like Tammy Wynette.’

“Yet that’s exactly what she was doing – and it saved the day. Hubby went on to finish second in the New Hampshire primary, and in his ‘victory’ speech, declared himself ‘The Comeback Kid.’

“Nearly a quarter-century later, it’s Hillary’s turn on the razor’s edge. The Clintons aren’t kids anymore, but if they’ve got a comeback strategy for her, they better use it fast. Her doomsday clock is ticking….

“Clinton’s sense of entitlement, reflected in the decision to use a private server and delete emails of her choosing, along with her frosty relationships with the intelligence community, are coming back to haunt her. Again, she’s got little power to stop the death by a thousand cuts….

“(Then there’s her character). It’s hard to figure out how she gets people to vote for her who’ve already decided they don’t trust her.”

--From the New York Times: “While it has been long known that American telecommunications companies worked closely with the (National Security Agency), newly disclosed N.S.A. documents show that the relationship with AT&T has been considered unique and especially productive. One document described it as ‘highly collaborative,’ while another lauded the company’s ‘extreme willingness to help.’….

“The N.S. A.’s top-secret budget in 2013 for the AT&T partnership was more than twice that of the next-largest such program, according to the documents. The company installed surveillance equipment in at least 17 of its Internet hubs on American soil, far more than its similarly sized competitor, Verizon….

“One document reminds N.S.A. officials to be polite when visiting AT&T facilities, noting, ‘This is a partnership, not a contractual relationship.’”

Well, this particular story goes on and on and on…and I personally don’t care, but for the record I do think it’s important to know who is cooperating with the government more than others, for good or ill.

--We note the passing of Julian Bond, 75, a former chairman of the NAACP and a charismatic figure of the 1960s civil rights movement, as well as a leader of the anti-Vietnam War campaign.

Bond was a leader of the Student Nonviolent Coordinating Committee, while a student at Morehouse College in Atlanta. He also served for 20 years in the Georgia legislature.

I remember him vividly from the 1968 Democratic Convention, where he first burst on the scene.

Personally, I didn’t agree with this distinguished man on anything, but I liked him. That may not make any sense, but if you’re young and don’t remember Julian Bond in his prime, trust me. He was no Al Sharpton…no charlatan. Julian Bond was the real deal for his cause. 

--The National Oceanic and Atmospheric Administration said Thursday that the average temperature on the planet in July, 61.86 degrees, was the hottest since records began in 1880. The American Geophysical Union said the same day that a study shows man-made global warming has made California’s drought 15% to 20% worse.

--So I wish I was at the Iowa State Fair last weekend rather than this one.   I would have loved to have seen the whole Trump arrival and watching him play Pied Piper, while others, from Hillary to Jeb and Bernie picked up the scraps.

Instead I hope to catch Chris Christie and Bobby Jindal today, Saturday, but in my time at the fair on Wednesday I learned a lot from sitting at the bars on the Grand Concourse. While I have nothing new to offer than what is clearly the phenomenon of The Donald, it’s always good to get direct confirmation on the ground, so to speak. People just like that he’s different, not a politician, and unafraid to speak his mind…rather than some poll-tested drivel.

The people here really are great. It’s my third time to Iowa (2007, 2011 being the others), and it would be a nice place to retire. It’s a very pretty state (I love the drive around Madison County, about 40 minutes west of Des Moines) and people are just easy to talk to. 

More next time, including the local farm community, which I was checking out on Thursday.

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

I went to the Iowa Veterans National Cemetery on Thursday in Van Meter and have to note an inscription from Oliver Wendell Holmes.

“One flag, one land, one heart, one hand, one nation evermore.”

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Gold closed at $1159
Oil $40.45…eighth straight down week.

Returns for the week 8/17-8/21

Dow Jones -5.8% [16459]
S&P 500 -5.8% [1970]
S&P MidCap -5.2%
Russell 2000 -4.6%
Nasdaq   -6.8% [4706]

Returns for the period 1/1/15-8/21/15

Dow Jones -7.65%
S&P 500 -4.3%
S&P MidCap -2.0%
Russell 2000 -4.0%
Nasdaq -0.6%

Bulls 37.7
Bears 18.4 [Source: Investors Intelligence]

Have a great week. Click on the gofundme link above if you haven’t already done so, or send a check to PO Box 990, New Providence, NJ 07974.

Brian Trumbore